DTs Day Type Journal

[DionysusToast]

All

I am currently looking to supplement my trading with the addition of some analysis to better help determine the day type on the ES.

Generally speaking the ES is usually in a range for the day, although quite often this range is 10 points. To me, a range day could put in 2-3 good 'trends' and so when I talk about range days, I am not really talking about a choppy day with a small range. I am talking about a typical day that looks like this:

As you can see, this day ended where it started but it provided opportunity. A trend day of course will be one like Friday that looked like this:

Very clear right ? Of course it's very clear when you have the whole chart. I am a lot more succesful on range days that trend days and so I am now looking to see if I can supplement my analysis in order to better identify trend/range days early on. This journal is to record my observations with a view to deciding if I should bring in something else.

The method roughly speaking is.
1) Add levels of interest to a chart before the open (2 above the open & 2 below)
2) Look for developing levels during the day where there may be a reaction
3) Focus on DOM/T&S as we approach those levels
4) Stay away from news announcements unless a trade has breathing room

In terms of what I use now.
1) A review of the markets before the open to see what the key areas are around the open. This will vary depending on where we are - e.g. no point looking at yesterdays high if we have gapped over it already.
2) Tick chart with swing sizes marked out (up 3 points, down 2.5 points, up 4 points, down 2 points etc).
3) Cumulative delta
4) DOM /Time & sales

In terms of what I will be looking at to determine trend/range day
1) What I already use now - no reason to think what I use now won't give me what I need
2) VWAP (I have a ninja VWAP and need to investigate how accurate it is)
3) Sector/Industry analysis - I have a new screen up showing line charts for XLP, XLY, XLE, XLI, XLV, XLF, XLB, XLK, XLU, SOX, KBE. I will simply observe how the various sectors react in different day types. Theory is that if they all move in unison, we will probably trend.
4) 6E - just threw it up there to be honest but don't expect to get much from it.

I will probably also add NYSE TICK which may be useful for spotting trend days only. I think DOM/T&S will identify turning points much better than TICK but I am open to TICK being of use for trend day identification.

Comments are welcome.

 

[DionysusToast]

I think I'd better define a 'normal' day as opposed to a 'trend day' as I see it. Market Profile theory has a number of day types. Yesterday was a 'normal variation' day according to Market Profile theory. This is a day where you get the first hours range broken to one side.

I have 2 day types, not the 6 or so that Market Profile has. I am interested in those days you can fade & those you can't. That's all this exercise is about. Now - on a day you CAN fade, it doesn't mean you will fade. Today I took a continuation trade...

Last night was a day you could fade. I took only 1 trade because I was dog tired. Sometimes you can look at the DOM and it just doesn't sink in - a bit like when you have to read a page of a book several times because it just doesn't seem to take.

The blue circle indicates where I went short. I got a couple of points before it went against me. It wasn't the best trade in the world but when the market goes 3.5 down,3 up, 3.5 down. 2.75 up , 3.5 down etc you know people will fade the next move up. At this point I thought we could be moving towards the overnight low (blue line 1262.25).

The next move down was only 3 points. In addition, the delta for the move was -4522, whereas prior deltas had been -12730, -14150,-8579 and for the 3.5 point moves down. So - something was changing in the supply & demand picture and I got out & went to bed.

As it turned out - it went up to 1283.75 - an area I had marked out before the market opened. This was a low volume node from a consolidated volume profile. It then moved down to another area I had marked - the overnight high.

In terms of what I am looking for in terms of fadeable vs non fadeable days - nothing really. I saw what I expected to see on a fadeable day. A very balanced open in terms of market buys vs market sells, some sectors up, some sectors down, delta not moving a spectacular amount, plenty of swings in price and reversals off ancitipated levels.

This is how I expect the ES to operate and so I'm not really looking for a way to confirm these types of days, I am looking for ways to confirm the exceptions.

 

[DionysusToast]

Yesterday - 1st Feb was a trend day.

I did manage to get long - but on a fairly shallow (1.75pts) pullback which was a little later than I've had liked and a little close to 1300. It's a grit your teeth situation to me, buying at the high of the day, close to a number where a lot of sellers were sitting last time round.

In terms of identifying a trend day....

Swings up were bigger than swings down. Also - the delta accompanied with the swings was much bigger to the upside.

Swing up + 19786
Swing down -9735
Swing up +19173
Swing down -12814
Swing up +16803
Swing down -4675
Swing up +28290
Swing down -14585

The day started off with all sectors gapping up. Utilities & Financials moved down at the start, consumer discretionary and industrials were flat and everything else was moving up.

VWAP was moving up - but I still see little value in this right now. You know where VWAP is going to be based on the action. Note though that this is a calculated VWAP from reset at the open. A VWAP feed might show something different.

TICK - again tick was failing to gain any traction to the downside but again, I see little value. If all sectors were moving up and ES is moving up - then TICK would have to be averaging above value.

The initial swing is interesting - only a few ticks below the open were achieved before the move up. This is pretty typical but it's not always easy to take advantage of it.

Again - many more trend days need to be looked at before drawing any conclusion...

Bored yet?

 

[amit1986]

Looking good and look forward to reading it. Must sleep now though.

 

[redart]

http://traderfeed.blogspot.com/2009/01/six-ways-to-identify-trend-day-in-stock.html

Some ideas from Brett Steenbarger, in case you hadn't yet read it.

 

[atters88]

Bored? Not at all, though your posts are pushing the limits of my knowledge. Still, that's how you learn. Thanks for sharing.

One question though: what do you mean by "delta". I'm familiar with "delta" in terms of the price of options but what does it mean here?

 

[redart]

DT will know more, but basically it tallies the volume that trades on the bid and on the ask - the difference between the two is the delta.
The general assumption is that trades at the ask are 'aggresive' buying and trades at the bid are 'aggresive' selling.

 

[arabianights]

This should be interesting... develop a technique and i'll try it out on fixed income (which is more likely to have trending days anyway)...

 

[DionysusToast]

Bored? Not at all, though your posts are pushing the limits of my knowledge. Still, that's how you learn. Thanks for sharing.

One question though: what do you mean by "delta". I'm familiar with "delta" in terms of the price of options but what does it mean here?

In Futures you have bids & offers (or asks) - these are orders you see on the DOM & are limit orders waiting to be hit. A lot of them can be bogus (depending on how thick the market is).

Bids = people wanting to buy at a specific price
Offers/Asks = people wanting to sell at a specific price.

If Bid = Offer a trade takes place. Most of the time, people wanting to sell (offers) are expecting a higher price than those wanting to buy (bids). So - to break this impasse we have market orders.

To simplify things slightly, a market buy order will buy at the lowest selling price (aka best offer/ask). A market sell order will sell at the highest buying price (aka best bid).

A limit order is considered passive and a market order is considered aggressive to some people (e.g. me).

Delta = market buy orders minus market sell orders. So a delta of -9000 would result from 8000 market buy orders and 17000 market sell orders. When price moves up, we can see 'more' aggressive buyers than sellers. When price moves down, we can see 'more' aggressive sellers than buyers. Delta measures how much more.

Of course, reality is not this simple - but better to not over-complicate matters at this point.

This should be interesting... develop a technique and i'll try it out on fixed income (which is more likely to have trending days anyway)...

Let's hope so. Although I don't really need to tell you this - it doubt it will be a red light/green light thing. I do hope to come out with something that will help paint the picture, though.

Of course - a total failure is not out of the question. Interestingly we broke the 1300 yesterday through my gritted tooth long. The overnight session so far has 1300 as a low. I don't really expect a trend day after that big move up but if the big boys want to assert 1300 as a low - who knows?

 

[DashRiprock]

Good idea for a blog DT

 

[DashRiprock]

This should be interesting... develop a technique and i'll try it out on fixed income (which is more likely to have trending days anyway)...

i dont know about delta i dont use it but market profile types and volume areas are good in bonds i think

 

[robster970]

Subscribed.

 

[DionysusToast]

Right - I don't want this to be a trading journal but I made copious notes today in my journal & so will cut & paste...

Yesterday - trend day - up all day
YH - 1306, YL 1281.25 (i/d 1289.75), YC 1302.75, R 24.75, C 2M
ON - 1305.50, 1299.75

CLVN - 1296.50, 1298
TL - 1312

Asia - well up, Europe - mixed.

No news - thank ****.

Opened mixed - most sectors gapped down, except Technology.

After gap down & into the open some are up, some down, so a mixed picture. Market moved up & down at 9:40 we were 107k traded with a delta of +1,900 contracts near low of day.

T1 - 9:43 - Based on this, took a long at 1299.75 with just a 4 tick stop & target, no scaling in or out. Got target at 9:45 without any move significant against me - just a tick or so.

At 9:50
Consumer Staples - gap down, moving up
Consumer Discretionary - flat
Energy, gap down - choppy but up
Industrials - flat
Healthcare - gap down, slightly up
Financials - gap down, moving down
Materials - small gap down - flat
Technology - flat
Utilities - larger gap - moving up
Semiconductors - gap down - moving up
Banks - gap down - flat.

9:51 - looks like a break to the upside possible - large buyers on tape, 1334 at 1302.25 & he wasn't alone... but still not getting a lot for their efforts. TICK moving up well up. At a pre-defined level - lots of limit orders.

9:54 - more sectors pointing well up. Banks & Semiconductors especially - look for a retrace to 1301.50 180k traded, +19k delta.

10:00 Not pulling back yet - at this point, if it was a trend day, I'd go long. I can't do that though as I'm not sure it's a trend day !


T2 - 10:06 - Long with a limit at 1301 - a bit late on the reversal back up but was waiting for size to come in & join it. Will take 75% off at 1302.75 - it's a small range today. Got that at 10:17, now remainder to break even & see if it breaks out. As of now - 299k traded, delta +18k - really not much in it - 6% more buying.

Ok - enough for me - I'll leave my target on that last contract up at some stratospheric level with a 'close at time' order to close out just before the close if I'm still in.

As of now - I will attach 2 pics - one is the market as of now and one of the various market charts. For what it's worth - I added a TICK too. All pics from 10:24 - 10:29 'cause that's how long it took...

Now - before anyone complains about this only being an hour in - obviously, this is about spotting a trend day EARLY - so stopping now is OK I think. Plus - if I have 2 trades my way at this point, I'm better off sleeping anyway.

A mixed day from the start - but let's hope my remaining long has legs.

 

[DionysusToast]

BTW - if you are wondering how I know exact delta numbers through the day it's 'cause I have the numbers fed to a spreadsheet that I glance at... I try to keep a 'history' of delta in my head based on glancing at this every few minutes...

OK - now I'm REALLY off to bed.

 

[DionysusToast]

Right - I thought I'd do a quick morning review of last nights charts as it shows why I think the delta might be useful

First - why I think the delta might be a load of rubbish... The delta only tracks market orders. It does nothing to track limit orders. There are some manipulative moves where the agrressor is definitely not using market orders. For example - stacking the offer and sucking up market sell orders on the bid. Obviously - if delta tracked market orders and limit orders - it would always be zero.

So - yesterday ended with the delta for the day at about 3k on a volume of 1.1 million for the day sesssion. Note there's a slight difference between my spreadsheet & the delta chart because of how the reset at start of session works...

Here's a chart with the delta reset to zero at the start of each session.

We can see that price stayed in a range and you could have played bounces off the open all day.I took 2 longs from there but would normally be nervous to do this 3 or 4 times off the same level. Delta by the end of the day was back where it started the day - ok it was -3k but out of 1.1 million contracts, that's as good as back to zero. I'd say that this activity today was more about day traders moving in and out than any longer term players stepping with serious buying/selling activity.

So - whilst I have reservations about delta, it does seem to balance out to a picture that makes sense.

Also - I didn't mention VWAP yesterday - as we can see it's flat all day, although for the first 30-40 minutes it did appear to slope upwards. For some reason, I seem to see straight through this little line when trading. It still looks like a moving average to me and I'm rather inclined to remove it.

There is one other factor that I may bring into this - that's the relative cumulative volume at any specific time. For instance, at 9:45 - what was total volume so far? How does this compare to prior days? I don't want to throw too many things into the pot but this might be of value.

 

[DionysusToast]

Attached is a spreadsheet showing Jan 17th->Feb 2nd.

There's a snapshot every 15 minutes of delta, volume and delta as a percentage of volume. The days are presented side by side. The reason this is done is so that I can try to come up with a hypothesis which I can then track during market hours.

There's no crystal clear 'red light/green light' ruleset to come from this but based on the spreadsheet, I will be considering the following:

- delta as a percentage of volume may be less relevant early on. Makes sense that with a lower volume, it's easier for a small skew to appear significant.
- significantly higher/lower volume may be relevant.
- the ability to consistently keep delta over 5% of volume in any direction may be relevant

 

[timsk]

First - why I think the delta might be a load of rubbish... The delta only tracks market orders. It does nothing to track limit orders. There are some manipulative moves where the aggressor is definitely not using market orders. For example - stacking the offer and sucking up market sell orders on the bid. Obviously - if delta tracked market orders and limit orders - it would always be zero.

Hi DT,
Excellent thread.

I have an opinion about delta which is just that - an opinion. I can't back it up with facts, statistics or anything else - so I could be completely wrong. My personal belief is that the 'smart money' trading 50, 100, 200 contracts or more is moving in and out of the market constantly. For the most part, they're big picture players. When they want in - they want in and they use market orders to execute their trades. Ditto for when they want out. A prop' trader at an IB who wants to buy 100 ES contracts isn't going to risk a partial fill or no fill at all by using a limit order just to save a tick or two. A tick or two means nothing to them! Market orders are much more telling than limit orders as they express the conviction of the trader about the direction of the market and are the preferred order type for the pros, while limit orders are used mostly by retail traders. For these reasons, I believe delta is a useful tool to track institutional sentiment and, IMO, certainly isn't 'a load of rubbish'!
Tim.

 

[wackypete2]

Good Post, Tim.

Peter

 

[wackypete2]

There is one other factor that I may bring into this - that's the relative cumulative volume at any specific time. For instance, at 9:45 - what was total volume so far? How does this compare to prior days? I don't want to throw too many things into the pot but this might be of value.

Long ago while prop trading equities quite a few of the guys used opening range volume to get some sort of directional feel for the day. Not really my style so I can't tell you exactly what they were doing, but it does confirm what you are saying that there's probably some relevance to it. Good thread

Peter

 

[robster970]

At 14:45 GMT I went short on ES. At about 15:01 (and I know this sounds like a hindsight thing) I nearly posted up here 'SHORT NOW' with a view to explaining later.

So this is why I started today thinking today would be a trending day:

a) Yesterday's high and low was a 5pt range - gagging for a range, price and volatility expansion especially after 2 days of consolidating. The trend/range thing is cyclic on ES IMO and a lot more predicatble than price cycles.

b) The break of the RTH low during Asian session, poke in the first hour of FTSE session and then drift down before the bounce back on the 'great news' told me the bias may be short today because that's where the weakness seems to be

c) No obvious support until about the 1280 area IMO so think momentum is likely to carry it down.

d) Everybody piled in at floor pivot twice today - one before the news, second time on the news as the longs probably covered.

e) I came out when it looked like there was some resistance caused by the trend followers on the 4H 20MA but the max of the move from tip to toe was 8pts - that's not a bad day IMO.

It was all these things that made me think trending day.