Archiv für das Tag 'Brett Steenbarger'
Last week's indicator review concluded that the path of least resistance was toward the upside and a test of bull highs. That indeed materialized this past week, as the major indexes--as well as the advance-decline lines for most averages--moved to new highs.The bullish trend status is captured by the proprietary measure of Technical Strength (top chart), which assesses short-term trending for major stocks within each sector. All of the sectors are in uptrend modes, with week-over-week strength seen among Industrial, Consumer Discretionary, Financial, and Technology shares. Health Care remains the weakest of the sectors, as it's been for several weeks now.The Cumulative Demand/Supply Index (middle chart) has begun to move off its highs, reflecting the loss of upside momentum noted in the recent post. It is not unusual for the DSI to top ahead of price with a considerable lead time, leading me to anticipate that a pullback of the DSI toward the zero level could offer a short-term buying opportunity. As long as those pullbacks in DSI are occurring at successively higher price levels, we have to count the longer-term trend as up.Finally, we've seen an expansion of 20-day new highs this past week (bottom chart), but those also have pulled back during the latter portion of the week. We are not seeing the kind of elevation of 20-day lows that normally precedes a significant correction, which again supports the idea that pullbacks from here may become buying opportunities even if the market is beginning an extended topping process.In short, we have lost upside momentum and it would not at all be unusual to see the market take a breather here. The indicators, however, are not showing meaningful deterioration, so that I'm not anticipating a drop below late February lows. As always, I'll be updating indicators each morning before the market open via Twitter; you can follow the tweets here..
The top chart shows my proprietary measure of short-term stock market momentum. As a rule, momentum tops ahead of price. While momentum has stayed positive (above 1.0), we're seeing some waning of momentum as SPY (blue line) has marched to new price highs this past week. Given the recent market strength, with new 20-day highs significantly outpacing new lows, I'd look for pullbacks in momentum to under 1.0 as potential buying opportunities.An even clearer illustration of recent waning momentum can be seen in the proprietary measure of Demand and Supply (bottom chart), which tracks the number of stocks closing above and below the volatility envelopes surrounding their moving averages. Demand tends to top ahead of price; note how we're not only seeing low Demand recently, but Supply actually outpacing Demand as we've moved higher.Once again, I'd lean toward buying pullbacks in which Supply greatly exceeds Demand. As long as peaks in Supply are occurring at successively higher price lows, I would remain a bull on this market per the recent indicator review. An updated indicator review will follow shortly..
What are the most common mistakes that traders make?Kel Butcher has come out with a new book that offers perspectives on this issue from a variety of people who work with traders, including Van Tharp, Larry Williams, Jake Bernstein, and yours truly. The mistakes include everything from poor risk management to allowing emotions about the last trade to affect the next one. It's a very practical introduction to trading psychology: how trading impacts psychology, and how psychology can influence trading decisions. Among the specific topics covered are making entries into positions too complicated; paying big money for questionable trading systems; mixing time frames and strategies; failing to have a clear exit for positions; lacking a clear trading plan; overtrading; and jumping into the market before developing proper skills.Taking the advice of the 20 chapter contributors could save a new trader considerable money and grief. Kel does a nice job in each chapter of weaving together the material offered by the contributors.My own chapter? The mistake I chose was failing to align one's own trading strengths. Many traders so focus on what is *not* working in their trading that they never get around to identifying and building on their strengths.A trader recently explained to me that he was basically breaking even in his trading. His winning trades were larger than his losers by a good margin, but his percentage of winning trades was relatively low. My advice was to investigate his winning trades closely--the setups he was using, the times of day he was trading, the market conditions at the times of the trades--so that he could identify clearly what was working for him. By process of elimination, this also would help identify where a majority of his losses were occurring.The idea, however, is not to improve the losing setups or to get him to trade better in (for instance) slow market conditions. The idea is to simply stop trading the losing setups and conditions and focus his business on where he is profitable. By aligning with your strengths, you can can expand what you do well and not become mired in areas of relative weakness.The more you know about your trading--the good as well as the bad--the better you'll be able to guide your trading as a business..
Here's a worthwhile feature from the Trader Interviews site in which Tim Bourquin interviewed three trading psychologists--myself, Doug Hirschhorn, and Gary Dayton--on the topic of how to overcome difficulties in pulling the trigger on trades. Thanks to Tim for the opportunity to participate.As a rule, inhibition is a function of performance anxiety: concerns about the outcome of performance interferes with the act of performing. This is common in public speaking, test taking, and athletics. Focusing too much on how things will turn out makes it difficult to immerse yourself in the act of getting there.The key to overcoming performance pressure is to remain process focused. By keeping attention on the process of performing, you can let outcomes take care of themselves. Wanting to make money is an excellent motivation; *needing* to make money is an excellent saboteur of performance.Below are some posts that address the challenges of performance anxiety:* Performance Anxiety as the Most Common Emotional Problem Traders Face* Techniques for Overcoming Performance Anxiety* How Secondary Anxiety Impacts Trading.
Many thanks to Juan Villegas, who has posted the link for this past Wednesday's "How to Get to the Next Level of Trading Performance" webinar. Unfortunately, the first few minutes of the talk did not record, but the great majority of the session was captured.My thanks also to readers who suggested topics for the webinar and to Trade Angle Strategies for hosting the session..
I've encountered many traders who make money in high volatility markets and then stop making money in low volatility environments.Why does this happen?Perhaps patterns change in the markets: how setups act during one volatility regime could be different from how they act in a different market environment.Perhaps the traders are trading volatility expansion and not simply price movement. When the expansion doesn't occur, they lose opportunity.Perhaps the traders are poor at execution. They can lose ticks on entering and exiting when trading ranges are large and still make money. When they lose those ticks in a narrow range environment, however, they no longer have an edge.Perhaps slower markets display greater degrees of mean reversion than more active markets due to the dominance of market makers in slow markets. When traders play for trending or momentum, they find themselves quickly stopped out when mean reversion kicks in.Perhaps traders lack discipline and trade slow markets as actively as they trade busy ones, failing to adjust stops and targets to the lower volatility of slow markets and thus getting stopped out before targets are hit.In slow markets, I take profits opportunistically when my initial volatility-based targets are hit (see my Twitter posts for daily profit targets) and I trade less frequently given particularly narrow ranges midday. Personally, I find it better to size up one or two high probability trades early or late in the day than to seek setups throughout slow choppy action. The links below add perspective to this universal trading challenge..
After an early morning sell-off, we've consolidated just below overnight lows, near the 3/10 highs that had been resistance. As a rule, markets spend more time making tops than bottoms. That generally leads me to look for rising markets turning into bracketing ones, not into falling ones. The action thus far today, which shows only 123 more advancing issues than decliners and a mixed NYSE TICK, is more consistent with a range trade than one trending to the downside. Currencies vs. USD have been relatively strong, but we're seeing weakness in the oil market. All told, this is a mixed picture and perhaps the start of a topping process that will extend into next week..
We opened the session with early selling after the overnight session took us to bull market highs. I am watching closely to see if how the buying and selling sentiment develop in the near term, to see if we can stay above overnight support around 1144 in the June ES futures. A move back into the range from 3/10 to 3/11 would constitute a failed breakout and would be consistent with the notion of a topping market. Note how we've already seen momentum top out in the Demand/Supply numbers. We also saw fewer 20-day highs yesterday despite the late move to price highs..
The recent post distinguished among Grand Strategies (basic ways that traders see markets and capture positive expectancies in their ideas), Strategies (how traders are approaching markets during their typical time frames), and Tactics (how traders are implementing their Strategies). Once we are clear about these, we can gain a better understanding of our trading strengths and weaknesses.To use myself as an example, my Grand Strategy is to identify market structure on the day time frame as early as possible and exploit situations in which intraday sentiment is leaning the wrong way. My Strategy yesterday was to trade a range market in the morning, selling the market above the volume-weighted average price and buying the market below. During the day, my Strategy evolved to look for and exploit an upside breakout. My Tactics included selling the market in the morning when I saw buyers lifting offers and unable to push price to new highs and later buying the market when sellers could not push us below VWAP. Tactics also included taking profits at the first profit targets, given the market's low volatility and volume. The important point is not that traders share my Grand Strategy, Strategies, or Tactics. Rather, traders need to know their own and refine these over time.One of the most common problems among traders who are early in their development is that they have not crystallized a Grand Strategy. They can't really articulate their edge in the marketplace. They trade an Elliott Wave pattern one day, a short-term chart formation another day, etc. There is no overarching framework for making sense of market movement and formulating day to day Strategies.I'm not sure it's important whether your Grand Strategy is technical or fundamental; quantitative or discretionary. I am sure that it's important to have a Grand Strategy. If you don't know your edge and cannot formulate it succinctly, you won't have the inner confidence to weather trading setbacks. Your Grand Strategy speaks to who you are, how you perceive markets, and--in an important sense--how your mind works. Companies and traders are similar: they fail when they don't clearly formulate Grand Strategies or when they stray from these. Other times traders have clear Grand Strategies but struggle to translate these into concrete Strategies on their time frame. Very often, this is the result of a lack of preparation. I need at least an hour before the market opens to observe how we've traded overseas, how related asset classes are trading, which economic reports are due out, which news items have hit the tape, and how various indicators have been behaving. All of this information helps me arrive at a hypothesis regarding evolving day structure, which will then help me formulate a trade idea. If I don't prepare in this way, I'm likely to forget day structure and market trend status altogether and simply trade Tactically. I'll buy into strength simply because it looks like we'll break out, or I'll fade a move because volume seems weak. Those impulsive, reactive trades are often overwhelmed once the market follows its auction-based pattern on the longer time frame.Tactics implement Strategies; they do not substitute for them.Tactics that apply across a variety of market conditions become Trading Rules. These High Level Tactics include rules regarding position sizing, execution of trades, defining market targets and stops, etc. Even sound Strategies can be undone by poor use of Tactics. This typically leads to situations in which frustrated traders see that their ideas were correct, but that they didn't make enough money from them. Sound Tactics enable traders to take minimal losses when their Strategies are incorrect.The distinctions among Grand Strategies, Strategies, and Tactics are useful in guiding coaching and self-coaching. They are also useful in framing your entries in trading journals. The better you understand your trading business, the more able you'll be to look at it critically and build its strengths and correct its shortcomings..
The midday briefing noted the bunching of volume in a narrow price range and alerted to the possibility of a breakout trade. Indeed, extreme narrowing of trading ranges is one thing we look for in anticipating a breakout. This often shows up as very low Demand and Supply scores, indicating that few stocks are closing above or below the volatility envelopes surrounding their moving averages. (Demand and Supply are updated each morning before the open via Twitter).Above we can see how the breakout trade did indeed materialize late this afternoon. Note the expansion of volume on the break above the day's trading range (bottom arrow). That indicates that institutional participants are accepting new, higher levels of value for the market. We also see volatility expanding in the direction of trade, as the move is both a price and a volatility breakout. (This latter is an important concept).We also can identify valid breakout moves by the extent of participation in the move. When we see the great majority of individual stocks and stock sectors making fresh daily highs--and when we see a meaningful expansion of the intraday advance/decline line--that tells us that there is broad participation in the move.All of these factors--for range days as well as breakout ones--can be distilled into checklists that help you stay oriented to evolving day structures..
I recently posted ten criteria for identifying a range day. Another one is a narrow value area (blue arrows above), as the majority of volume trades within a small price range. That indicates relative consensus regarding value. When we see volume bunch into a narrow range this way, we also want to be alert for breakout trades, particularly if volume picks up overall. If we see volume--and volume at offer--pick up with price above VWAP, that could suggest an influx of buyers and a likely test of range highs..
Here's a quick review of what I look for in identifying a range day:1) A mix of stocks up and down from their opening prices (above; green and red prices);2) A narrow margin between the number of NYSE stocks advancing and declining;3) A relatively flat cumulative TICK line;4) Cumulative Delta (cumulative volume at offer minus volume at bid) near zero;5) Low relative volume;6) Volume drying up on moves away from VWAP;7) Price oscillating around VWAP;8) Absence of significant news items; absence of response to news items;9) Lack of trending among related asset classes (commodities, currencies);10) Few NYSE TICK readings > +800; few TICK readings < -800..
In the webinar, I discussed the transition from being a trading novice to becoming competent as a trader. One skill that is key to this development for day traders is early recognition of day structure. Go back to the morning briefing today and you'll see that I was starting the day with an anticipation of a range day that would be oscillating around the volume-weighted average price. We can see above that using VWAP as a point of orientation helped us lean toward selling the market above and buying below.A simple question to ask during the trading day is whether we'll be trading toward or away from VWAP. That really is an issue of whether we'll be breaking out and trending, or whether we'll accept value within an established trading range. Having a good sense for day structure helps you set your strategy...and then successful trading is a matter of executing that strategy with the right tactics..
8:21 AM CT - I've added the top chart to show how we've moved below VWAP and toward support as anticipated below. For now I'm treating this as a range market, with price expected to oscillate around VWAP. Failure to move above VWAP on early buying would target a breakout below the 1134/1135 area.
We've rolled over to the June contract in the ES (above), so that's why prices and volumes look different thus far today. Not all players have made that rollover, so some volume is transacted in the March contracts. That being said, we're trading in a range before the market open, oscillating around the VWAP of 1138. We're firmly inside yesterday's range, with the 1134/1135 area as near-term support and yesterday's high around 1143 as resistance. I'm short a small position with an initial target of the range low. My tactics have me taking profits quickly in slow markets unless I see an upswing in volume/volatility. More on this later..
Please see this post for an explanation of the risk asset index that I recently constructed (top chart); this post will provide background regarding the risk asset oscillator (bottom chart).We can see that risk themes (U.S. stocks, emerging market shares, oil, Treasury rates, and inverse USD) have been moving higher in recent sessions, but we're not at this point seeing a breakout above January highs. Our risk oscillator, which assesses recent risk appetite, has done a reasonable job as a short-term contrary indicator: it is showing levels of risk appetite approaching levels associated with short-term tops in U.S. stocks..
As we can see, stocks broke above their overnight range in early trading, with solidly positive NYSE TICK. That led us to take out yesterday's high, only to pull back into yesterday's range. Now the key is seeing whether we can sustain strength above that 1145 area that represented yesterday's high. Failure to do so will target a move back into the range defined by today's high and the overnight lows. Thus far, we're seeing buying come in even after modest weakness, as many players are anticipating the move to new bull highs. That is keeping us making higher highs and higher lows day over day, supporting the bull move. We continue to see bullish sentiment in the CBOE put/call ratio, though not quite at yesterday's level. That is a contrary indicator that has me cautious about the upside near term..
Here's a shorter-term view of the pre-opening action in the ES futures; note how we're oscillating around the 1140 area in a relatively narrow range. A breakout from this shorter-term range will set up trade ideas for the day. A weak upside break with poor sector and advance/decline participation or a failure to take out the 1142 area would lead me to fade the move for a trade back into the range noted in the prior post. Solid strength above 1142 would have me holding off on my idea to sell the market until I saw indications that buying interest was drying up. This kind of advance planning is important to the tactics of implementing a strategy on the day time frame..
Notice how we sold off in the overnight session on Tuesday, only to sharply reject those price levels and trade to new highs for this most recent bull move. We then rejected those highs late in the day, and now we've settled in a range overnight between those levels. That 1140-ish area that was resistance on Monday is now a fulcrum for the current preopening trade. Note that we made fewer 20-day highs on Tuesday despite the move to price highs; we also had weak Demand relative to Supply, with both at low levels. (I update those data each morning before the open via Twitter). The weak Demand and Supply numbers are typical of a range trade, which could be an early phase of topping for this move. That would be consistent with the bullish sentiment noted in the earlier post.
On a day time frame, if buying cannot take out yesterday's price highs, I would be a seller for a move back into the range defined by the Tuesday lows and Wednesday highs. On a swing time frame, I'd be buying price weakness (and especially Demand/Supply weakness) for an eventual test of the bull market highs. Note how strategy differs relative to one's trading time frame. More on this later..
Quick reminder of this evening's free webinar on the topic of How to Get to the Next Level of Trading Performance. Registration and webinar details can be found here; some of the topics I'll be covering can be found here. Thanks to readers for their topic suggestions.As I mentioned earlier, the session will be recorded and available for download. I'll post details once they're available to me.One important element of improving trading performance is having a framework for making sense of markets, as well as a framework for how you'll trade your particular time frame. That's the Grand Strategy and Strategy that I referred to in my recent post. Too many traders approach markets on an ad-hoc basis: they'll base decisions on indicators some of the time, charts other times, fundamental information yet other times, news stories, the latest market move, on and on. I'll be addressing this in an upcoming post..
The CBOE equity put/call ratio has been a pretty good contrary indicator of late. We saw elevated bearishness when the market bottomed early in February, and then we saw elevated bearishness before this most recent market thrust upward. Now, however, we're seeing levels of bullish sentiment that are at multi-month extremes. If the indicator continues its track record, we should see limited upside from here..
Many trading problems--and misunderstandings--result from a confusion between trading strategy and trading tactics. First let's talk about Grand Strategy. Grand Strategy frames our most important values; it expresses our broadest aims and thus guides the specific strategies that we follow.For instance, the Grand Strategy for a business might be to become the highest quality producer of green automobiles in the world. "Quality" and "green" represent key values for the company; "automobiles" represents an area of expertise. The company will find its success by sticking to its Grand Strategy; not by shifting its focus to the production of household goods or by trying to produce low quality SUVs at low prices.To realize its Grand Strategy, the business must engage in a variety of smaller Strategies: product development strategies, marketing strategies, sales strategies, etc. For example, the automobile company may focus its marketing and sales strategies on the Asian markets, perceiving unusual opportunity there for high quality, green vehicles. Strategies can change--Asia may become less of a focus if a trade war ensues--but usually not on a dime. Strategies guide concrete, day-to-day, week-to-week activities in the service of those Grand Strategies.The way the business implements its Strategies is through Tactics. Tactics might include a rebate policy to enhance sales or an advertising campaign designed specifically for Asian markets. Tactics are designed to achieve specific objectives toward a successful Strategy. When tactics don't work, they are quickly modified and even replaced. The successful company remains true to its Grand Strategies, but flexible in its Strategies and especially in its Tactics. If we think of the conduct of war or the game planning of a championship football team, we'll see the same dynamics of Grand Strategies, Strategies, and Tactics.The Grand Strategy of a trader represents his or her fundamental way of viewing markets and edge in the marketplace. Trend following is a Grand Strategy, as is mechanical systems trading, Elliott Wave trading, order flow trading, or trading day structures from auction theory. A trader's Grand Strategy captures how he or she views markets and defines opportunity. The trader's Strategies will define how he or she finds opportunity in the present set of market conditions. For example, my Strategies as a portfolio manager might be to buy dips in the stock and commodities markets because I view this as a cyclical bull market fueled by low interest rates and growth among emerging economies. On a day-to-day basis, I remain true to my Strategies, but over the course of the year, I'm likely to modify or even abandon them.When it comes to Tactics, I as a trader will be even more flexible. My Tactics may lead me to take profits in stocks right here, even though I think we'll be headed for new price highs in the weeks ahead. My Tactics may also lead me to hedge my gains with some options at these levels, given risks perceived in the days ahead. Alternatively, my Tactics could lead me to add to positions on a pullback in the stock and commodities markets.Clearly, Strategy will differ for a portfolio manager and a trader; for a day trader and for an investor. My reading of day structure may guide my Strategy as a day trader. It may guide my Tactics if I'm a longer-term position trader. Usually, Strategy is the idea or theme that you're trading; Tactics is how you execute and express that idea or theme.Many traders fail because they jump from Tactic to Tactic, without a clearly formed Strategy and without an overarching, guiding Grand Strategy. They are focused on setups, not ideas. More on this in my next post in the series..
I received an email from a trader who lost a good amount of money today trading the stock indexes. He was particularly frustrated because the money was lost during a day when there was little overall movement and opportunity. Indeed, the daily range in SPY today was only about .39% on volume that was one of the lowest for 2010.The trader's problem was that he identified the limited opportunity set only after he had lost his money. Instead of first identifying the day's likely level of opportunity and trading accordingly, he placed his capital at risk--only to discover the lack of opportunity.One of the most valuable tools for identifying opportunity is relative volume. Seeing how today's volume compares to recent volume at that same time of day provides a perspective on how much institutional participation is in the marketplace. Markets need that participation in order to move: volume is the source of market energy. Without the energy of market volume, stocks may move higher or lower, but those moves are likely to be muted in magnitude.Going back to 2009 in SPY, we find that daily volume correlates with daily trading range by a whopping .85. That means that over 70% of all variance in market movement (range) is accounted for by shifts in market volume.By tracking how early volume compares to average volume early in the day, we can begin to get a proactive read on likely levels of market movement. The key to successful trading is not just scouring for market setups. The key is first asking whether markets are moving enough to justify trading those setups..
My recent post took an initial look at the real-world challenges of planning and executing trades. That post was sparked by my ongoing observation that few highly successful traders actually trade in the manner that we read about in trading articles and books. They are good at following rules, but they have an uncanny sense for when to bend the rules.
While the idea of planning your trade and trading your plan sounds wonderful as an ideal of discipline, what I find among successful traders is an ability to alter plans in real time as market conditions dictate. These traders are neither highly emotional and reactive in decision making nor robotic in implementing a set of rules. They are more like the expert quarterback who follows a game plan, but doesn't hesitate to call an audible and exploit a weakness in the defense.The challenge for trade planning occurs when implicit knowledge coming from pattern recognition flies in the face of an explicit set of plans. The plan may be to hold a trade to an anticipated target, but then you sense a shift in the balance between buyers and sellers as volume comes in against your position. Is jumping out of the trade good judgment and trading, or is it a violation of discipline?My own experience is that I have lost good amounts of money when I've stuck with discipline over trusting my gut.Or might it be the case that accessing and following implicit knowledge *is* an elite form of discipline? If so, many good traders are very disciplined in how they break their discipline..
"No battle plan survives contact with the enemy," Field Marshall Helmuth Carl Bernard von Moltke once observed. What Clausewitz described as the "frictions" of war ensure that chance occurrences and the unexpected will interfere with the best laid plans. The task of the successful leader is to minimize these frictions with superior planning, but also to anticipate the unexpected and be ready to adjust plans accordingly.We hear a great deal about formulating trading plans and the importance of sticking to plans. In the corporate world, business planning is vitally important--and yet those plans evolve with shifting economic conditions. Similarly, military strategies are carefully formulated, but tactics evolve as new information becomes available.There is much more to successful trading than creating a plan and robotically following it. How do we adjust plans without abandoning them? How do we adapt to shifting market conditions without losing discipline?I see little written on the real-world process of developing and executing plans; more on this topic shortly..
Last week's indicator review found evidence of indicator deterioration, but also signs that the market was holding up well in the face of negative news. After rangebound trade early in the week, we broke decisively higher, sending all the major indicators into bullish ground.Technical Strength (top chart), my proprietary measure of short-term trending, turned bullish across the sectors this past week, with only Health Care in neutral mode. Particular week-over-week strength was seen among Energy and Materials shares, as commodities rebounded smartly. No sectors weakened over the week; this was a broad market rally.Note that my Cumulative Demand/Supply Index (second chart from top) continued to hit new highs on Friday. As I stressed last week, this indicator tends to top out ahead of price, so as long as we're seeing Demand/Supply strength, it's premature to expect a major reversal in stock prices. (I update trend status of the stocks in my basket and Demand/Supply every morning before the open via Twitter).We can also see that new 20-day highs among NYSE, NASDAQ, and ASE shares expanded this past week, swamping new lows. This is another indicator that tends to top ahead of price, suggesting that we could see further highs in the days and weeks ahead. New 65-day highs on Friday neared the level registered at the January peak, as we've retraced most of the subsequent decline.Finally, I've posted the bottom chart from Decision Point for a few weeks now, illustrating how small cap stocks have led the large caps during the recent rally--another sign of strength. Notice how the advance/decline line for the small caps has broken out of its range and is soaring to fresh bull highs.In sum, the indicators are in gear to the upside. That doesn't mean that we can't get some profit taking and consolidation in the days ahead. As long as we continue to see very few 20-day lows, a rising advance/decline line, and a firm Cumulative DSI, the path of least resistance will be to the upside for a test of bull highs across the major indexes..
In my last post, I illustrated my main Market Delta screen and the information I gather from that display. Above is my second main screen, from the e-Signal platform (click for detail). The top of the display is a chart of whatever I'm following at the time, easily toggled from time frame to time frame. Volume is displayed along the X-axis. My main use of the charts is to quickly view the main sectors and asset classes from the quote boards below to see if they are moving to new highs or lows, settling in ranges, etc. The bottom left quoteboard shows green color if the instrument is trading up from its opening price; red if it is trading below its open. On a range day, we'll see a mix of sectors trading above and below their opening prices; on trend days, such as Friday shown above, we'll see the sectors uniformly trading above or below their opens.The bottom right quoteboard is where I track the futures indexes and other asset classes (gold, oil, currencies) from their prior closes. I also track selected indicators, such as the advancing and declining issues on the day ($ADD) and NYSE TICK ($TICK). I will also punch up other indicators, sectors, and asset classes periodically during the day.The main purpose of this screen is to provide me with quick snapshots of intermarket themes during the day's trade and overall market strength/weakness. Combining this information with the data from my Market Delta screen helps me see both larger picture (themes affecting the day's trade; longer time frame perspectives) and smaller picture (short-term sentiment) views. It's coordinating the telescope and microscope views, I find, that provides an understanding of the trading day..
Before launching into this post, please check out my earlier post regarding reading Market Delta charts. See also this post on using information within the Market Delta bars. A great deal of information about the charts--including features not illustrated above--is available on the Market Delta site.The information I most frequently consult from the chart are (please click above chart to see more clearly):1) Sentiment Across the Day - The green and red histogram bars along the X-axis indicate whether more volume is coming in at the market offer (green) or at the market bid (red). From the columns below the histogram, I can read the total volume for each bar and the range of Delta values during that time period. (Delta is the net volume transacted at the market offer minus that transacted at the bid). In a glance, I can see if volume is elevated or not and whether the elevated volume is skewed toward buyers (lifting offers) or sellers (hitting bids).2) Sentiment Within the Period - Here we look within the bars at each time and price to see if more volume is being transacted at the market offer price (green color) or at the market bid (red color). As a rule, in a bull move, we should see the red areas of successive bars at higher prices, as sellers cannot move price lower. In a bear move, we'll see green areas of successive bars at lower prices, as buyers cannot move price higher. Range markets will tend to show a relatively even distribution of volume at offer and bid within and across bars. In general, if I'm a buyer, I want to buy the market during the red periods, when I see that sellers cannot move the market to new lows; vice versa if I want to sell. Elevated volume within bars often serves as an alert for a one-sided (directional) market that is becoming more two-sided (balanced).3) Volume-Weighted Average Price - This is the red line running through the center of the chart. It represents the emerging average price over the course of the day. In a range market, the VWAP line will be relatively flat; in a directional market, it will have a positive (bullish) or negative (bearish) slope. In a range market, we want to be buyers below VWAP and sellers above. In a trending market, we want to follow the direction of VWAP and execute trades closer to VWAP and exit further away.4) Distribution of Volume During the Day - This is the histogram at the right side of the chart along the Y axis. It shows volume at price throughout the day, so that we can visualize the day structure. In a range market, we'll see a volume bulge toward the center of the price distribution, with dwindling volume above and below. That shows that demand and supply have shut off below the value area (the area where 2/3 of volume has occurred). In a trending market, we'll accept volume at successively higher or lower price levels, extending the price range beyond the opening, morning parameters. Volume bulges on the histogram will often serve as price targets for moves back into the day's range.Of course, much of the challenge of trading is placing all of this information into a clear framework that allows for rapid, accurate decision-making. The real money in markets comes from seeing day structure early in the session and rapidly recognizing shifts in structure. Seeing how volume is distributed within and across periods greatly aids those challenges..
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