Wednesday, July 29, 2009

Nice View of a Range Day in the Stock Market

I wanted to post this Market Delta view of today's ES market, because it very nicely captures the central identifying features of a range market: a relatively flat volume-weighted average price (VWAP; red line); a narrow trading range and value area (histogram at right); mixed transactions at offer vs. bid (bottom histogram); and price oscillating around VWAP.

So much of pattern recognition simply boils down to seeing many variations on particular patterns. With enough exposure, you can learn to identify patterns relatively quickly in the market day, giving you the framework to either trade market moves or fade them.


Evan McDaniel said...

Nice insight... TradingRM trader here.. Today is one of those days.. lay low conserve and learn...

djb said...

Can you post a chart for trend day and breakout day for comparison? Thanks.

Steven said...

Any advice on how to manage risk when fading extremes from the VWAP on a range day. Ie, for mean reversion strategies, the more price moves against your position, the more attractive adding to your position becomes.

Works until you have a black swan move that you get destroyed in.

Thanks Brett

OKL said...

Imho, no one wants to get over-committed going into XOM's earnings 2mrw morning.

Energy, Utilities & Materials taking a beating this wk thus far; still the market remains resolute. Until the sellers take NQ TF down, i doubt any strong momentum will occur.

Matthew C. said...

Today was a beautiful range day, really easy to trade as it kept bouncing at the same places.

Steven, the answer I use to minimize risk is that I wait until the price is moving back toward VWAP with an impressive degree of alacrity and then buy/sell in. Or at the very least, I wat until the price hits previous "bounce points" on very low volume and stops moving, then I buy/sell in. That way you can set a very tight defined risk.