If you click on this segment from a recent Market Delta chart of the ES contract, you'll see a cluster of volume hitting bids, unable to drive price lower. Once their selling dries up and buying comes in, those sellers have to cover their positions, contributing to the subsequent rise.
Many good short-term trading patterns come from fading the herd, when the herd is no longer able to move price in a prior direction. By seeing the day structure (range day) and the dynamics within the price/volume bars, we can gain a perspective from both telescope and microscope and frame a winning trade.
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3 comments:
Yes indeed, the key phrase, "framing the trade". It is so important to do that. It filters out so much noise. Key reference points "frame trades" nicely, if you are only trading 3 or so times a day. "Framing trades" also works well with shorter time frame trades, as you point out here, as this happens many times in a balanced or rotating market! Keep up the great work! Best, SSK
"Never sell a dull down market."
Lack of tranactions shows lack of
interest, thus lack of trade facilitation.
If the market shuts off activity at
lower prices, then it will need to
create activity at higher prices.As
the market drifts higher, first the
shorts at the low feel the first signs
of pain, forcing them to cover positions.
This increase in activity attracts
more participation into the up auction.
At least this is how I see a transitioning
pattern.
"Many good short-term trading patterns come from fading the herd, when the herd is no longer able to move price in a prior direction."
That second part is the key, isn't it! Almost all the blow up fades seem to involve the first part and getting "good" prices, but not the second.
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