Thursday, January 07, 2010

Trades That Set Up In Slow, Range Markets

Here's a look at premarket trade in the ES contract, with the Market Delta screen showing how volume is building at each price traded (right histogram, blue arrow). That volume histogram shows us the day's developing value area: where the market is placing value in real time. In a breakout market, we see expanded participation away from this value area; in a range market, moves away from value fail to attract participation.

For this reason, the volume bulge areas in the histogram act as a kind of magnet for price when moves away from value can't be sustained. Some nice short-term trades can be framed based on this return to value notion, even in fairly narrow range markets.