Monday, October 05, 2009

Passing the Plate: Integrating Time, Price, and Volume

The next in the series of "passing the plate" posts comes from SSK, who maintains a very useful and educational trading site. His analyses draw upon Market Profile theory and keen observation of time, price, and volume to catch shifts in demand and supply.

SSK's explanation, along with his graphics above, will take a little study, but the effort will pay off. If you click on each graphic, you'll be able to read SSK's data and commentary. Here is the explanation of his setup:

"In this trade, after recognizing a potential short near the high of 9/17/2009 in the 1068 area, I was looking for continuation to maximize my trade and was also looking for a transitional state to allow for potential profit-taking. The Profile from 9/16/2009 (top chart) identifies a low or negative volume area (1055-1058) that many times, as price reaches this area, acts as initial support or resistance. That was my reference point. When price reached this area, I went to my NYSE tick chart and looked at its structure. I saw a momentum low in price, and then a few minutes later a lower low in price (this is a transitional pattern), during which the NYSE tick was gaining strength right at the secondary low (middle chart). Additionally, the NYSE Composite volume that I track on my spreadsheet also showed the volume and directional trends weakening as we approached the reference point (bottom chart). All in all, a nice exit on the short trade from the highs in the 1068s for 10 points, and a nice entry on the long side from the 1058s, with an exit near the POC (point of control) near the 1063s for 5 points. The key was to first identify the reference point and then observe the transitional structure via the NYSE tick and NYSE Composite volume."

What is clear from SSK's analysis is that he is not just relying upon market indicators, but rather on configurations of indicators that reveal the developing strength and weakness of markets. In so doing, he is able to capture larger moves and plan out his trade as it emerges. Many thanks to SSK for the illustration; check out his site for more market insights.