Breakout Scenarios

Here is the follow up on Breakouts

Scenario 1 : Eating Thru Resitance

when u notice that a good sized order on the backside gets hit frequently with good size

and it gets eaetn up without or just marginal new money coming in @ backside ..

then u consider to join the piranhas and put in a laybet @ 3,70 .. sometims it goes so fast that u will miss the train.. but hey.. it doesent mather the markets will be therfore evere and the next setup is just arround the corner ;)

so we see 50 print @3,70 wich we say is an average price.. /is always relative to the current market) we see that the backside doesent get a refill.. we stand with 350

we see 100 print a good size and the backside does nothing we stay with

250 @3,70 and we notice that the lay queue increased in size at this moment

we could put in a lay bet @3,70

again we see a nice sized print @3,70 150 get matched and we only stand with 100 left

ie. there is no new supply coming in @this level.. no supply against an increase in demand..

this level has to break ! ;)

and bam the remaining 100 have been trading and we break thru the resistance level..

Scenario 2 : Absorbtion (Compressed Bounce)

we can also see a bounce off that resistance level @ 3,70 we then have to judge the bounce, is it supply that overcomes demand? , does supply gets absorbed ? ie do we hold gains ?even if supply is coming in.. ?

on this battle something like this can happen

lets say we bounce off 2 ticks , but now focus on the money on the backside its not that big noir strong..

and we have no follow thru..

next we trade back up to resistance.. we even test resistance with a print @3,70 of 50

and please look at the good size on the layside.. compared to previous size on backside

now we bounce off again but this time only 1 tick lower

and again the backside size is small but layside even increased again.

and eventually we trade back to 3.70 with big prints and an increase of size on the backside..

time to think about a lay bet.. and a breakout to follow

so whats happened here is that the remaining supply at this level.dried out and got absorbed by the demand wich on the same time increased..

this u will notice on how far we bounce back and if we move back up we should bounce off

each time one tick or two lower then before..

aswell as demand should have signs of strenght ,while the selling pressure should be weak

and should get weaker the more we test the resistance level... this may go on for awhile..

but its a good scenario as u could get in a lil lower then @ resistance..

Scenario 3: Holding Gains

here is a scenario wich on first sight looks like supply is overcoming demand at resistance

but only on first sight! ;) as u also need to focus on whats happening to the layside when big prints hit the market..

as if u dont see it on first sight its doesent mean that there is no size (ice berg)

we see an increase @ resistance 3,70 of 1500 wich is big , we also notice

a print of 200 @3,65 but we still stand lay with 250 , so there is probably

more money on th layside then first excpected..

another big print of 500 and we lost some money on the laside but we still stand with 100

(u can often see that some money gets temporarely eatne but then we have a refill pretty fast a sec. later)

there u go we have a refill and stand 300 @3,65 .. so even thou we have big prints hitting the layside.. we are holding gains .. this is a n indication that there is size on the layside and a sign of strenght as the layside is able to absorb the bomabardement of the backers

another big number hits the market as we print 700 and we still stand with 300 @3,65 ..so this is the last confirmatinn we need.. and we would get ready to lay.. as soon as we see prints of good frequence and size on 3,70

no the attack starts and we see a big print of 500 @ 3,70 while the size at lay increases and the backside looses size .. this could be the start of a frantic and fast eating thur the 1000 @3,70 wich would unfold in a simillar way then scenario 1 we spoke about...

so whats happening here is that there is more size on the layside.. wich isnt revealed and the heavy selling pressure gets absorbed.. wich results in an inbalance in favour of demand.. so if there is size that can keep up with supply and whithstands its attacks.. till the supply dries out and demand increases at the same time.. there is only one way price will go.. and that is up !

Scenario 4: The Lure

another scenario would be . if u see lay orders get pulled to lure in backers .. ie to make the marketlook weak at resistance.. wich is a part of an article i work on in the future,, about spoofing and games played on the ladder .. there is alot to tell... ;)

so let say someone pulled the 250 from 3,65

and u see that someone jumps in on the backside with 100

and as soon as this happens it gets hit and u see another nice size on the layside

the 200 get pulled again.. and now a backer moves its order from resistance 3,70 to 3,65

and yet again as soon as this happens someone takes the 300 @3,70 and we stand again with a good size on the layside..

if u see that money gets pulled and as soon as a backer got lured in.. and that back money gets matched with size.. all the time ..

this is a signs that someone with good money and prob bigger pockets want to buy there

and therfore u should to ;)

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Breakout

Breakouts

Definition of a 'Breakout'

A price movement through an identified level of support or resistance, which is usually followed by heavy volume and increased volatility.
we look at a breakout either up or down from a range or key levels , like support restistance , value areas,rejections ,high activity levels...


Here iam going to explain what to look out for and how to play a breakout scenario :

First we are neutral as we just spoted our key levels and we watch the market actions around and between those levels,to judge the quality of demand and supply and where the past of least resistance most likely is..

this gives our first slightly biased view on the market . ie. lets say that we have whitnessed that the quality of demand is stronger and price has it much easier to move up , therefore we are slightly(bullish) ie. looking to lay first..

so then we watch where our nearest key level is and watch How price moves there and how it acts at our key level.


example:

lets say we have identified a key level @3,70 , now we watch how price moves to that level .in order to play a breakout several points have to be met and the market has to act in a certain way at our key level in order to take a trade wich anticipates a breakout to the top of the key level.

first we want to see that the path of least resistance is upwards , second we wanna see an increase in demand third the buying pressure has to be strong , and fourth the reactions/corrections should be weaker (no selling pressure)

how do we know if the path of least resistance is up ?

if price moves up in a rather smooth way having no problem eating thru the backsidefor example.. we move 3 ticks up and 1 tick down .4 ticks up 1 tick down etc.

how do we know if demand is increasing?

if we see an increase in size on the layside of the queue , and if the backside gets removedand instantly replaced with good volume on the layside (ex. we stood back @2,50 it gets matched now we stand Lay @2,50)

how do we spot that buying pressure is strong?

if we have good frequency of high or good sized prints on the layside wich eats its way thru the backorders u will notice that a strong buying pressure is like an avalanche of orders and money coming in.. with good size

how do we know that we have weak corrections?

if we see strong good volume sized prints on the upswings and/or with good frequeny , but we have small sized poor frequency prints (if any) to the downside ie. on downswings .. with less chance to make back ground.. (4ticks up, 1tick down)



example on a move torwards the resitance level of 3,70 , wich shows signs of strenght
and u shouldnt think about backing such a strong move up anyway ;)




we saw a print of 200 @3,60 and immdetialty stand lay with 150 now at that level (note it could be one order matching the size or witha size of 50 and frequent hits)


we increase in size on the layside


we move up again and print 600 @3,65 and again instantly go lay with 200



so we stand now @ resistance .. and size on the backside increases ..
we know whe are at an important level,, where something has to happen
we are slightly biased torwards a breakout due to the ongoing action that took place torwards that level.. and an increase in backside size doesent change that (prints mather)

so

these trades that took place + the fact that we stand lay on that traded areas has to be considered as signs of strenght and increase in demand and good buying pressure and therfore we anticipate a breakout of 3,70 . but only if price acts in favour of our anticipation @ that level..


Below is a Video of a real market example of a breakout , wich can come in manny ways
a follow up article on Breakout scenarios will be posted

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how to approach trading in general

how to approach trading in general


well u need to emphasize that each market and each new event is different then the one before!no market is the same as the one before or the next to come... there is no black and white!however the underlying market mechanics and principles dont change , they are always the same..the market reflects those principles just in a different way each time ... based on liquidtity,volatility, average

volume etc. it just comes in differnt shapes forms and size but the mechanics behind what u see are still the same..
and how to interpret the current market action.. is just a matter of experience.. and the basic logics i describe on this blog

u need to know that setups and trading opportunitys wont play out picture perfect all the time.. as there is no exact situation then the one before ,even if it looks like it is in first place .. there is always an uncertainty ,any thig can happen within the next few minutes or seconds or even a blink of an eye.
u never gonna know if someone throws a big size bet and scares the market etc..or something similar crazy thing happening ,but u have to act in such a situation the right way and this is a just a matter of reading the action correctly , with the basic laws in the back of your head , it will sink in and any new situation will be read correctly and therfeore the action u take or not , will be because of the current sitaution and not because of pre biased views or actions.. u will adobt t each new situation ...

the market is a ever changing beast u cant force into simple patterns.. wich do occure from time to time but thats just a part of that chaotic behaviour... notice its not random.. its chaotic if u know that there is a cause for each move u know what might be the next most likely action to take place.. but its not 100% sure... nothing is but we are not here to predict the future , but to put as the odds in our favour and participate.. what the market does next is not in our hands , but when to exit is in our hands and that should be as soon as there is a change in behaviour in progress , wich will develpoe again depending on the actual situation.. u will notice that sometingis cooking or doesent seems rihht .. for a open position etc.. as u have watched the market till this hapened..

aswell as u need to know that u have to find the perfect market situation in order to decide if its tradeable or not..ie.. u need to see if the markets talks to you.. or not..

u know ,there are bad and good market conditions and u simple have to decide if the current market is tradeable or not depending on alot of factors , wich includes your approach on trading wich have to be met in order to be successfully aswell as the market ,believe it or not , will often throw out almost crytsall clear signals in wich driection it will go or if a certain level will hold or break , and then u have to trade the obvious scenarios .. where the market litteraly begs you to take a certain trade .. this is where patience pays out .

only trade the obvious! if in doubt stay out.. the market can act pretty unpredictable from time to time ;).. and if u cant see anything or read the market comfortable.. then by all means stay out!

u will know when to trade or when not or when the market gets freaky.. etc..
and u will know when u can act uppon the action as u have interpreted .. then u can take a trade.. and even then the tide can change within a second.. so u have to stay flexible.. either scratch or change direction of a trade (wich would be more advanced)

so basically

u have to get the actual market situation right and the conditions to your trading style have to be matched u need to get the odds in your favour .. (the more the better)..
u have to trade the edges not in bewteen , only on key levels
u need to trade a size where you feel confident...

Stay Tuned for Breakouts , Bounces and more... ;)

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How To Read The Market

Here is a step by step example on how to read the markets and act accordingly
using all illustrated points (as for now) on my blog..

in this example u will see:

How to draw the key levels
how to use them correctly
how to read the actual situation
judge the quality of demand and supply
Buying vs. selling pressure
how and when to position yourself
when to exit

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Where to Spot Key Levels

Before u trade a market u need to draw a map ie. on wich levels u want to do buisness in

why?

because u need a reference point in order to start somwhere .u cant simply turn on the ladder and start trading right off where ever price trades atm..

this will hurt u.. as u better not trade in an area where price rotates heavily
u want to trade the edges and only after u see how prices move there and how it reacts there.. this is much easier than trieng to trade in between those levels..

u need reference points , from wich u start to analyse and judge the current situation and act acordingly

those levels arent randomly picked , you can look at the current price chart and draw in resistance and support levels , swing highs and lows





then u can use the tickchart on the ladder to determine the next levels
of support , resistance , range,swings etc..





u also need to keep price levels in your focus where there where heavy activity and low activity.. ie. acceptance and rejection





aswell as keep an eye on big prints and where they occure, this levels may also be important ,when price touches them again or trades torwards them..





however remember that the levels arent one particular price but sort of areas .its not to the tick accurate.. but can also be 3 ticks wide etc..

also note that a previous important level may have no meaning the next time we visit the level as sentiments and desicions etc .. from participants change aswell..

for example a trader may layed a big amount on the market and price comes back to that level but now it falls thru that level with ease..

means, yea there where heavy activity wich indicated buying.. but that was just temporarz of whatever reason...

could be that the trader had a back position on the whole time and was only taking profits.. etc..

just an example that u need to keep in your head that important levels may not be important the next time...

u need to watch how price approaches those levels and how it acts on this levels and act accordingly...

examples on trade setups will follow.. and how u use those levels to judge the market and take action or not ..

we differentiate from major to minor levels.. where the major ones will rather be respectet then the minor ones

from top(major) to bottom(minor) :
charts = support/resistance/swing highs and lows
Tickchart = support resistance swings
Tickchart/marketProfile* = ranges channels / market profile*
ResentPrints= last traded Size!

*will post something about market profile soon

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The Law of Effort VS Result

The Law of Effort VS Result

The Law of Effort vs. Results – divergencies and disharmonies between
volume and price often presage a change in the direction of the price
trend.


so by the transactions taken place and what effect it has on price and
the market u can judge the quality /quantity of supply or demand..
simply put if u see an increase on demand ie.. the people laying the shit
out of the market, huge amounts get traded on the backside but price
doesent move, the effort was huge.. but the result was zero to nill..

this states that supply is outrunning demand at this level and u should
either get out of a position or think about backing first. but deffenetly
dont want to lay here....

on the other side if u have little effort. behind a big move
then we can speak of a lack of either demand or supply..

examples on Effort vs Result.:



here we have a situation where the layside is clearly heavier



we see that 1700 have been trading @ 2,90 where previously have been
840 but we still see 40 on the backside.. ok this isnt much .. but
we didnt go Lay .. so there is more money resting (iceberg) then we see
wich indicates supply

now lets see whats happening to the backside



the backside even increases after that.. so instead of jumping
infront of the train here.. caution is advised .. as the backside only looks weak
but infact isnt..



another 1k get traded @2,88 but we didnt go Lay here .. where previously 600 where sitting.. this indicates true supply and a heavy resistance,,

so we had two situations where the effort (high volume) has been tarded but the result was poor.. in this case supply is stronger then demand!

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