"Why Did You Take That Long Trade?": August 25, 2022

Hey friends! I had a really great trading day, but this post isn't to brag about that, it's to explain what I was seeing today that gave me the conviction to place one of my largest intraday trades of the year. A few members in the Discord were asking about it, so I figured I'd write about it here for all of our Traderade day traders that might be interested:

Let's start by zooming out. There are certain conditions that I pay attention to in order to ensure the "wind is at my back" before placing a larger-than-normal day trade. Obviously, a Daily Chart is a good place to start:

If you watched the Midweek Update Video yesterday you'll remember that I was looking for a bounce off support. In fact, all of the indices were sitting on support yesterday, primed for a bounce. So SPY opening above this support level is +1 point for the bulls. The next factor to consider was SPY breaking above yesterday's highs...that's another point for the bulls (+2).

The next Support/Resistance that I was watching today was this newer Purple Line on the chart above. Even if you have a stagnate Pivot level figured out for yourself to trade around, you still need to be conscious of other natural pivots in the market, such as that line. Momentum would favor the buyers above and sellers below. Today's open gave us a quick flush below the line, running a bunch of stoplosses before rocketing back up (not uncommon). However, the Purple Line became a lot more significant to me as the day progressed because it held repeatedly after the morning pullback (another point for the bulls, +3).

Now, let's get more granular and talk about confluence.

I'm a huge fan of OrderFlow Labs. No, I promise I'm not paid to talk about their tools, I just legitimately find them helpful in my day trading. One of my favorite OFL setups comes from @fleri_v 's "Three Finger Leroy," which is essentially tracking atypically large Delta by Price prints across the three trading sessions (New York, London, Asia) in order to create a zone where continuation is likely to occur. In this case we can see from the chart above that today's Three Finger Leroy was a bullish setup (+4pts for the bulls), and the breakout level would be above 4171.75, meaning bullish continuation above that level is very likely. Guess what else was exactly 4171.75 today? The 30min Opening Range High.

Now we have some serious confluence to trade off. Based on how I usually trade (i.e. breakouts from the Opening Range) I knew I wanted to be long above that level no matter what, even if I took some paper cuts getting stopped out (which I did). Now, let's add some more confluence to the mix, shall we?

I am always very conscious of the current trading range that price is in. I've been tracking this range from 4080 to 4165 for an obnoxiously long time, and I new that I wanted to be long above 4165 as upside continuation is likely, even if temporary. That's another point for the bulls (+5 if you're keeping score). "Horse I understand all of that, but when is the long trade over?" To answer that question, we need to get even more granular and turn to Bookmap Pro:

Before the market opened this morning, I mentioned to our Discord members that there was a very large resting sell order at 4200. These orders don't mean much during the overnight session, but they become significant to me if they stay on the book after the bell rings...this one did (+6 for the bulls). We also saw evidence of what I like to call "Carrot Sticking," a specific pattern of market participant behavior that gets my attention. If you're interested, you can read more about that here: https://www.traderade.com/post/day-trading-tips-tricks-resting-limit-orders-leading-price So, what's our total now? After seeing the bullish Carrot Sticking I think we're at +7pt in favor of the bulls today. Let's continue...

Getting even more granular now, let's discuss "Tape Bombs." This is an affectionate term for when buyers or sellers absolutely SLAM price with large market orders. During today's session, we saw numerous seller Tape Bombs immediately get absorbed by the buyers. As I mentioned in the video last night, that's not a good look for Bears. Essentially, this tells us that sellers are not being rewarded for their efforts and attempts to push price down. They were definitely trying, but to no avail. Again, this is a point for the bulls. After seeing that many large Tape Bombs with no continuation from the sellers, you have to start thinking "This is a market that WANTS to go up today."

Last but not least, we can't forget about the 20 Daily Moving Average and the Volume Profile from globex. During the overnight session the buyers made a valiant effort to tag the 20DMA (blue line on my 5min Chart above). During this alcohol-induced rampage from the Pajama Traders, they left a noticeable High Volume Node in their wake up at 4180. Even though I was already long at the end of the day, I told our Discord members I would add to my longs above 4183, because at that point we are VERY likely to take out the 20DMA, the overnight highs, and continue the rally to the liquidity at 4200 that had been patiently waiting for quite some time. That's exactly what I did and that's exactly what happened. Other factors that gave the edge to the bulls today:

  • DXY cooled off a bit from its recent rampage

  • Bonds were bid (almost too bid) but still likely to be favorable for equities vs. a bond bloodbath

  • Breadth was favorable across the board

  • Put/Call Ratio was also favorable

  • HIRO Indicator wasn't printing extremes, which is a good thing

  • The width of the 30min Opening Range was wide, indicating that volatility is likely for the session...and volatility goes both ways

Again, I'm not sharing this to toot my own horn, I'm sharing my thought process and how I approach day trading in case you find it helpful. I view futures trading as a constant game of Tug O' War between buyers in sellers; my job is to figure out who's in control for the session and join that team. Hopefully by now it's clear that the buyers had dominant control today, despite the morning reversal. I'm not a genius, I'm just a trader. I value preparation & narrative over everything...hopefully this write-up helps you understand how I formulate my narrative for the session and trade it. Cheers, Horse