Monday, 24 May 2010

Was the Gap Trade On?

The Gap Trade today shows the importance of considering the context and finding a vision that fits.

Friday's ES RTH Profile shows a close of 1084.25 with the TPO POC at 1082.75 and the Volume POC at 1085.00. RTH was due to open around 1080.00.

The quandary is that there is a POC between the open and Friday's close. Which POC is the POC?

This is one of the types of things we will talk about during the Training in July. It has a huge impact on CP and making money at all from a trade.

So we have our context. Our vision can be a two handed one. In my case today, I saw a bullish undertone during the hour before the open. CCIs showed upward momentum so in the jostling leading up to the RTH open, I was expecting the Gap to try and close but was also expecting the POC to hold as there was the VAH quite close to it.

I handled the long trade in my usual way, scaling out of the trade at the TPO POC and exiting the balance at the VPOC less a tick. I then looked for a short trade, looking for a test of the VAL.

That test didn't happen although a short worked. We then had range extension to the upside which setup a nice DVAL buy later in the U.S. morning. This is all context stuff that matched setups on our range bar chart.

The key to trading this stuff profitably is to look at the picture and what traders are doing. Looking at what you see means rather than indicators crossing. This is true order flow. Order flow is not just volume delta. Getting to this point is the key to CP. If you look at great sportsmen, businessmen or anyone else who is good at something, it is this automatic reaction to their context that help make them successful. Being "in the zone" is this reading of what traders are doing.

Today's chart has some colour changes. Kiki thought it was prettier than my other charts ;-P.

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