Prop Trading Skill Development for Intraday trading.
We always have to be asking ourselves what are we are seeing in the moment?
the below image shows the push up on the 1 minute chart and the footprint illustrates how the move took place.
We can see the absorption and backtick at 06 on the pullback which was the trigger to get long.
This is one of the Simplest methods I’ve seen. You identify a trend (Slope) and then identify whether there is consistent Support and resistance using that Slope.
Identify whether there is changes within the trend i.e strengthening or weakening within the trend and if so look for a slope in the other direction.
This is the important part to understand.
If we have an established uptrending Slope what makes me look for a down trending slope is a change of context in the uptrend. Either a blow of top or a lowered ceiling for example.
Validated Slope
Slopes should be validated before we start paying attention to them. We can see this by Price respecting the line on several occasions. Also when the line changes from Support to resistance this is strong confirmation.
Trade Entry
When we have a change for instance Price hitting resistance on the 240 min chart in the Euro. I Look both Intra Vehicle and Inter vehicle for confirmation and entry Ideas. Intra vehicle would be dropping to a lower timeframe and looking for an entry there. Inter timeframe would be looking at a correlated instrument for an entry idea.
An Intra instrument example is Crude. On the Daily and 240 we have Bullish Context and the 60 has pushed through resistance which we expected to become Support. It held perfectly on the 1 min chart and then initiated away from the area giving is the opportunity for a C1/C2 on the Dom as below.
This is using Multiple timeframes to gain an understanding of what the market is doing in that moment.
Daily up slope been in existence since January this year.
240
60
The ES is still in an uptrend in the 240 channel and has breached resistance on the 60 in the warning lines and found support at the latest median Line. We are testing horizontal resistance but have broken out on the lower 5 min chart
Directional trades are what we want to be taking. one way to get support from the longer term chart is to mix timeframes. Look for a Vol node touch or Channel overshoot on a longer term chart and then drop to the smaller timeframe chart to see if the expected reversal is trading as anticipated.
Below we have a reversal on the 15 min chart in the ES in the form of a channel overshoot. So our Longer term View is now Buillish. We look to the smaller timeframe chart to see if we can now get a short term bullish indicator to go long. this could be a Midas touch a push beyond a Vol node or a trend developing in the expected direction. This then allows us to scan a few instruments making note of trade Ideas and dropping to the Lower timeframe to manage.
First Idea – Live
We can see we have breached the Channel overshoot on the 15 min chart. We will now monitor the 3 min for bullish progress. We match the long term and short term view before entry.
I must have Brain damage because I cannot trade or even gather basic stats. I need to understand what trade types are available based on the market action. Then define those trades and take them based on Price action so there is no ambiguity whether they would have worked or not.
On the 30 Min Chart we define the market State. Then on the Trading Timeframe Chart we define the trend as either consolidation or directional. We then have trades based on those market conditions.
Universe I am asking for your help to finish this prove its validity and if profitable trade it consistently. I am lost without your guidance.
Look to define trend and market structure.
Slope Analysis is the best thing I know to define trend. Volume Profile and Swing Points define structure.
Slope Analysis has the added advantage of forming a holistic viewpoint of the market and enabling With trend trades.
Entries are at Volume Profile Steps or Channel Overshoots.
What is an overshoot of a channel?
Its a two legged move that extends relative to the central Median line around which price is oscillating. This may well be the longer term slope.
In a crude awakening I talk about one setup type. Well that setup doesn’t work in all market environments. This article will document this using a simple 5 minute chart. The raw stats will then be filtered to only taking trades in the right market environment, i.e with trend and the same stats reproduced. This will be accurate enough for our purpose however it assumes we take every trade. This will not consider the pace of the tape which is a critical component but is a start.
Market condition is one of three things – uptrend, downtrend or consolidation.
The trend definition and future strength is defined from Lance Beggs Works and Price action course.
Above is the mental checklist we go through for a trade. We define the structure placing our framework of Support and Resistance and then define the trend.
Right now from the 30 min chart we can see we are in a consolidation and downtrend on a smaller timeframe chart.
We will get to the point where we have a checklist to maintain situational awareness which asks – what is the market condition and what trades are available to us right now within this market condition (context). Like lance does use a buzzer every 5-10 minutes to update this. Doing this should provide he means to only take the highest probability trades with a positive risk reward. We are aiming for 70% winners with a 2-1 Reward to Risk ratio. At least 10 trades per day. This should allow us to top the leaderboard frequently.
30 Min Trends
Below is a 30 Min Chart showing breakouts into trend that happened over 7 trading Days. There were 16 instances which is over 2 major trends a day that could have been captured.
The Market condition went from Consolidation to trend in that Timeframe.
That also Means that prior to those breakouts we had a consolidation which meant we should not be taking trend trades but playing consolidation trades.
We assess the likely future trend direction with the following principles
First principle – We expect a directional trend to continue in its current state until the next S/R barrier, unless displaying evidence of weakness.
Second Principle – When an up or down trend shows weakness we expect a higher likelihood of a complex correction rather than a reversal until such time as the market shows both price acceptance and strength in the new direction.
Third Principle – A sideways trend within the framework is expected to continue in its current state, unless displaying evidence of strength towards the range boundary.
Fourth principle – When a sideways trend shows strength towards the range boundary, we expect a break of the boundary.
Fifth Principle – We expect our S/R framework to hold unless strength is displayed approaching the S/R boundary.
Initial market Analysis Process
Setups
There are five primary setups
TST, BOF, and BPB at S/R levels and two with trend setups, Pullback and complex pullback.
An Uptrend is a series of Higher Highs and Lows with the price extensions being longer than the pullbacks. Extensions will break above previous swing highs, pullbacks will not break below previous swing lows.
The uptrend is classed as over when price breaks the last swing low that lead to the High.
failure to break the the last swing low could simply be a complex pullback as demonstrated below.
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An Uptrend from the perspective of supply and Demand and trade Decisions
An area of support has formed as trades have decided that the swing low was good value and established new longs. Much of the pressure in a sustained uptrend is the shorts exiting out of their losing positions. In addition to those anxious to get onboard chasing the move as its underway.
Sideways trend – consolidation
A Sideways trend officially starts when 4 turning points develop within the range of a previous swing. Less than 4 (3) may simply be a two legged or complex pullback.
A sideways trend ends when when price breaks either the high or low defining the sideways trend.
Trend Example
We are constantly assessing the Supply/Demand Dynamics of the market. Point G would have brought many shorts in on the test of D. The speed of the move would have trapped those shorts on the push to H. We would therefore expect their Buy orders to provide support so a change in this level is a change in the supply/Demand Dynamics of the market.
However we want to see price accepting the change. The first break of G was on bearish volume. We then had three weak no demand bars. If there was significant demand price would have immediately rejected the low causing a swift reversal and trapping the shorts.
Further examples
Although this may look like a change of trend E did not lead to a higher high and therefore is simply a complex pullback. Price would need to break below C to signify a change in trend.
Above we have a consolidation and then a break below the low at C. however this is just a probe and price moves back into range. We have a second probe at E which officially suggests the start of a downtrend although a very weak one. This is negated at F when we take out the swing high at D.
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We should have three timeframes. The trading timeframe and one higher and another lower. Aligning trend in all three time frames is not what we are trying to do.
The Higher Time Frame provides structure for our market by defining a framework of support and resistance which acts as barriers to our trading time frame framework.
The trading time frame is used to analyse the market trend and determine the likely path of future price action as it moves within the higher timeframe market structure.
Lower timeframe is used to fine tune the trading timeframe analysis and to time trade entry and exit.
These could be 60 min and 30 min, 3 min and 5 min, and 1 min respectively.
We trade the trading timeframe but do so by placing thee price action within the context of higher timeframe structure.
A trend in our trading timeframe may simply be a swing within a consolidation on the higher timeframe chart. A breakout on our trading timeframe may simply push us deeper into resistance on our higher timeframe chart.
Market Structure
Our Market structure principle operates in accordance with two principles
1 Price moves within a structural framework of Support and Resistance.
2 A breakout of the structural framework support or resistance will lead to movement within the next framework.
These areas define barriers to the trading timeframe trend. We’ve defined our battlefield, price moves back and forth within the framework defined by these levels. these are decision areas for price. The best SR levels are those where price moved rapidly away trapping traders.
What Moves Price
Price Moves result from Supply/Demand Imbalance
Changes in Supply and demand occur as sentiment changes with market participants
Price therefore depends on the Bullish or bearish sentiment of the market participants
The Net sum of all the individual traders decisions forms the Net Order Flow
When net order flow is bullish price will rise and will continue to rise until we run out of buyers or until Sellers absorb the Buyers demand
When Net order flow is bearish price will fall and will continue to fall until we run out of sellers or until the buyers absorb the sellers supply.
Traders Making trading Decisions – Which leads to a Net Order Flow – which leads to the effect – Price Movement.
Markets are traders making trading decisions. We need to see when they are in pain and when they are feeling good. Learn to see all price movement from the perspective of other traders and how that price movement influences their trading decisions.
The Reality of Trading and How we profit and Why Lance’s strategy Works
Profit requires Buying lower and selling higher or selling higher and buying lower. More importantly profit requires this to happen AFTER you enter your position.
So buy at areas where you know others will buy after you and sell at areas where you know others will Sell after you. These are areas of trader decisions.
Identify areas where others will be making Buying decisions and you can profit. Identify areas where others will be making selling decisions and you can profit. We analyse areas of trader decisions.
Price Movement is a result of crowd sentiment which is based on flawed analysis and irrational decisions. Price movement is therefore based on Psychology and is emotional not mathematical and cannot be predicted by such.
The Real trading game
Aim to determine where large numbers of traders are going to be wrong in their decision making. The theory being that at the point where they know they are wrong will contain an increase in their order flow as their stops are executed. I aim to profit from this order flow by entering exactly at this point, or earlier.
To put it simply I try to find the Losers on the chart. I look for areas where traders are trapped and in Pain. its a mercenary game.
An effective trading strategy is based upon the forces of Supply and Demand acting in the market and assessment of how that will affect other traders decision making.
On Bar A price broke below Support at B. Breakout traders will likely enter on the move down. However it broke into an area of Support from the Vol node at C and effective analysis identifies that this also occurs in a longer term uptrend. The Lower Prices into Support are Likely to bring bullish Order flow opposing the breakout. We assess that should this breakout fail those breakout traders will be forced to exit creating a bullish Surge of order flow.
Our Entry triggers at A with a stop below and an initial target at E where we expect to encounter resistance with longs taking initial profit and therefore slow or halt the rate of climb. Next Target would be F.
When price is moving higher and stops it is because of one of three things
Traders were not interested in buying at higher prices. Demand had dried up and there was no longer any urgency to get long in the market.
The Higher prices attracted sellers. longs took profits on their positions and new shorts entered the market. This increase in Supply absorbed the remaining demand.
The result of these two causes is that Bullish pressure which caused the move is no longer able to overcome bearish pressure. price will fall creating a new swing high at resistance. The converse is true for a move lower forming support.
But what causes old resistance to be respected? Its a function of how we are wired as human beings and asses value. Those Longs who didn’t take profit at the high will wish they did and place stops to get out should price get back there. new Shorts will also see this as an area of previous resistance and place short Limits. Longs who got in on the Pullback will see the High as an area of previous resistance and will take profit here. this creates an influx of sell orders that may well overcome demand.
Stops
Where are Stops placed?
Prior to the breakdown at point A. Longs would have been confident having had three tests of the Low. Those smart longs would have placed a sell stop below price to exit should the low fail. Breakout traders will also go short on a break of the low. So should price push through this area there will be an influx of new Supply based on these causes alone. Now after such a move down, those longs who are still holding will be in pain and will resolve to get out should price move back and place Sell Limit orders. Smart Longs who got in at the bottom after the Short profit taking will see the break point as resistance and an area to take profits. Those who got short in this area and covered at the bottom will see this as a second opportunity to get in and therefore will also sell on a move back. Who would be Buying here? Well those shorts who didn’t take profit at the low and any would be breakout traders. The odds favour more supply than Demand.
Decisions to buy or sell are made through referencing current price action against previous areas which caused significant emotional response in particular those which led to regret around missed opportunity or those areas that trapped traders in losing positions.
