A Professional Approach to Trading Futures

[steven46]

Earlier today we were asked how we integrate higher time frame
charts into our process. This is an important question

We use two time frames, daily and 4 hour charts as shown
We also use a term that (typically) retail traders do not use
called "Trend Origin". This is usually the 2nd candle in a trend
move and it is often re-tested by Institutional algos, that is to say
it acts as a magnet, but also activates automated buy or sell programs
to create reversals trapping the uninformed participants on the wrong
side of a strong move (Professionals call this being "Trapped Out" of a move)
Those trapped on the wrong side, usually wait for a short period of time
to confirm their mistake and then they chase, providing the fuel needed
to keep the move going.

Good luck

 

[steven46]

And at the Close of the US/Euro Overlap
we see the anticipated reversal as successful traders
take profits. This is anticipated because of the tendency
for the US president to say things that moves markets.
Traders know this and will take profits, increasingly moving
to cash during the off periods (as a form of protection)

We are into the "Dead Zone" now, until the last hour of the
NY Session. Because we have significant profit, we will not trade
the last hour MOC order candle, which occurs in the evening London
local time. No point really in taking that risk

Good luck

 

[mtckmeek]

So ive noticed that you have posted about there being positive and negative skew in price when looking at vwap and VP. How does that work exactly? I know that institutions use vwap as a way of buying or selling at better than average prices and the POC indicates where the most amount of tranactions have taken place. So i suppose if vwap were below the poc and so was price it can be assumed that institutions have sold at above average price, but how can we know if they need to buy or sell inventory at certain levels?

 

[steven46]

Good Questions and the focus (on inventory) is what institutions focus on
Location of inventory can be seen (if one knows where to look) at places called "ledges" where price
oscillates up and down in a range. This is one (1) area where institutions stage inventory. When you see
one of these ranges, simply follow along to the right until you see the market create a trend move, THEN
you know whether the inventory was long or short. On the institutional side, automated programs monitor
net long and short inventory and wait for specific conditions to occur signaling re-positioning. If you have
S&P 500 charts, look at yesterday's chart and see the Green Candle at 11:25 PST/7:25 PM London. This was
an "impulse move" very quick, indicating that automated orders were executed to buy and buy and buy
all of it to reposition because everybody was short (because of Trumps stupid comments/sorry but that's
the truth as I see it). Attaching the chart below for your reference.

Regarding the use of Anchored VWAP and VP, these tools allow you to estimate that imbalance (long or short)
and after that you can use the slope of the VWAP and the behavior of price at the POC, to figure the odds of
a move higher or lower. Because its a dynamic setup, it is always changing and therefore hard to describe. When I have
been asked in past to provide a rule, I always suggest that traders watch (do not trade on it) until you have experience
because you can be trapped on the wrong side.

The general rule set is
1)VWAP above POC, suggests long skew
2) VWAP below POC suggests short skew

Again please do not trade just on these rules, you have to have other data points in place.
If time permits and I am not conducting a class I will try to explain further.

Good luck

 

[steven46]

Time issues prevent me from explaining more than I just have
so I will simply post the trades

These two longs were counterintuitive meaning that after the economic report
suggesting that inflation remains "sticky" (that's the term everyone is using)
we should have seen the market move lower. Instead they trapped shorts and reversed
and the skew told the more accurate story (if you knew how to read it)

The first of these is what professionals call a "Blind" entry (meaning you enter at a touch of
a specific price or reference). For the second, I was concerned to protect profits, so I waited
a little bit to enter after I saw buy volume enter (using the CVD indicator below).

In terms of price action, we look to identify "legs", and this was a classic Leg 1 pullback leg 2
and Leg 2 is usually the bigger winner.

Good luck