Friday, September 18, 2009

Range Trading With Volume Flow Information

Notice how, once we dropped below VWAP, selling volume (volume at bid vs offer) dried up around the ES 1060.50 level. I bought the 1061.50 price for a move back to VWAP, once again anticipating that we were seeing a range day in the making. That told me we should hit VWAP at the very least; on a typical range day, we should oscillate above and below VWAP. So my exit was conservative at 1063.50, a bit above the volume-weighted average price. Note within the breakout bar how volume expanded in the direction of the trade, validating the idea. I would have stopped the trade on an expansion of volume at 1060.50. Regular readers will recognize the above as a transition pattern, one of my favorite setups.