Monday, July 27, 2009

Integrating Information Across Time Frames in Generating Trading Ideas

In my earlier post, I noted how the information from the tweets helps me gauge market themes and sentiment prior to the open. I then showed in the morning briefing how a multi-day view of the market places the recent overnight trade into a broader context that can be integrated with the information from the tweets.

Above we see a different view from the Market Delta platform. This shows us the day's trade only (from the start of the overnight session to the present), so that we can see how the day's structure is evolving. Here are a few things I watch for:

1) Sentiment: We see from the bottom histogram that selling sentiment is dominating, as more volume is being transacted at the market bid than offer.

2) Levels: We see that we are predominantly trading below the day's volume-weighted average price (VWAP; red line) and that VWAP is trending lower.

3) Value: We see from the side histogram that we are building volume (and accepting value) around the 974-976 level, well below the overnight high, below VWAP, and inside of Friday's range.

I will be watching to see how we trade relative to the key 974-976 level; inability to move and stay above it would target first Friday's pivot level, then Friday's lows.

Integrating this shorter-term perspective with the context from the market data from tweets and longer-term charts provides a multifaceted view of market action that tells you not only how we're trading now, but where we're likely to go under a variety of scenarios.