Monday, October 07, 2019

Maximizing Your Trading Perception

A common mistake I see traders making is looking at many screens, with little deep thinking with respect to any of them.  Very often, what they're doing is scanning for "setups", not achieving an understanding of what is happening in the market.  In other words, they're frantically looking for trades rather than truly developing ideas.

If you click the above, you'll see a real-time screenshot of what I was following in the ES futures just an hour or so ago via Sierra Chart.  Each bar represents 5000 contracts traded.  The middle study captures the balance of volume that occurs at the offer price vs. at the bid.  The bottom study is simply a moving average of that bid/offer volume information.  At the left, we can see horizontal bars that display the volume traded at each market price, in a Market Profile-like fashion. Note how, in the overnight session, we've attempted to establish support around the 2937 point of control level (the price at which most volume has transacted) and are now probing the upside.  Seeing selling pressure drying up at that point of control suggested that we were not establishing a new value area and could probe the upside, creating a nice risk/reward trade.

But you had to have that information to frame the idea; you had to understand the relationships between volume and price in Market Delta and Market Profile frameworks; and you had to be awake and alert around the London open to actually see what was going on.  Our trading perception shapes what we will process, and our processing shapes our understandingHigh confidence trading comes from deep understanding.

Further Reading: