Monday, June 01, 2009

Pre-Opening Briefing: Tracking Volume at Price

One reason I like the Market Delta charts is that they provide me with a quick visualization of volume at price, so that I can see where the market is trading relative to value areas that are building.

As I write this before the Monday market open, notice how we have accumulated volume between 932 and 934 in the ES contract and now are building volume lower, around 930, as we've pulled back.

With the market set to gap higher at the open, I want to see during early morning trade if we accept value above or below these overnight reference areas. If we build volume above 934, it is a clear indication of fresh buying interest and the possible start of a bullish trend day. If we cannot hold the 930 area, I would consider the possbilities of a reversal back into last week's range. In a range market, we should see that 930-934 area encompass the day's volume-weighted average price, with the market oscillating around that.

By playing out these "what-if" scenarios prior to the open--and mentally rehearsing what we would do under each scenario--we can prepare ourselves psychologically for the day's trade. The key is to flexibly consider a range of scenarios, not become locked into any one.