When executing a trade it must always follow a pre-defined trading plan. Trades must be clearly measurable in order to reasonably determine a trade’s result – it is not the profit or loss that determines a good trade but the objective implementation of a trading strategy. Through a trade journal and respective trade reviews that trading strategy is further formed and improved.
Before a trade is executed, a comprehensive market analysis needs to be done covering both the big picture and the smaller time frames. A combination of the two perspectives reveals clear levels to focus on when looking for a trade and potential ways to manage it. Tools utilised may be the market profile, larger time frame candle stick chart and volume profile to get a better view of the broader perspective as well as the smaller time candle stick chart and order flow charts to receive more detailed insights.
ES FUTURES SAMPLE TRADE
This trade example focuses on smaller time frame only respectively the M1 candle stick in combination with the order flow chart and has been executed in the ES futures market during the pre-opening of the US session; time in the charts is CEST.
The market illustrated a balanced chart picture in the M1 candle stick chart while forming a range (1) between price level 4275.50 and 4279.50. After moving sideways, the price broke the range bottom level indicating seller dominance. After a stronger push the market built a bottom level (2) at 4267 and went into a pullback. Reaching the price level around 4273 the market started moving sideways creating a second range (3) while indicating weakening long momentum and a potential end of the pullback.
Simultaneously, the order flow chart also illustrated seller presence through a first defence (4). Also an absorption got visible (5) indicating seller presence again which got strengthened by second absorption (6) in combination with a positive candle delta (7) in a negative candle.
Having several indications for a short trend continuation the market was entered short with a stop (8) above the range area. Subsequently, the price went short moving into a further range (9) which was, eventually, used to adjust the stop above that range.
Sellers remained strong and broke the range bottom as well as earlier bottom price level (2) at 4267 continuing to trade below that level. The stop (10) was managed with a reasonable distance following the market. Seller defence was visible again in the footprint chart (11) confirming their presence. On the other side, a first seller absorption (12) got visible followed by a second absorption (13) indicating also buyer presence.
Considering the time in that scenario, it was closely before the actual ES market opening at 15:30 CEST. Often the market starts trading undecisive before the opening since market participants are waiting for the opening impulse. In combination with the visibility of sellers and buyers respectively an unclear situation plus the risk of erratic market movement due to the upcoming opening, risk was taken out of the market by closing the position taking the current profits.
Finally, focusing on the smaller time frame only this sample trade illustrates the combination of the candle stick chart and order flow chart. The candle stick chart provides a good overview of the relevant price levels, the market sentiment, and indication about the potentially stronger party in general. Further, the order flow chart provides a view into the candles giving further signals to identify the dominating party. Not only does the chart picture and details in the order flow chart play a significant role, also the time with regards to market opening or significant news resulting in potentially volatile behaviour must be considered when entering or managing a trade. All key elements of a holistic market analysis and successful trade execution are taught in the UCT day trading course providing clear rules and individual support to become a consistently profitable day trader.