You have the e-mini S&P500 in front of you and 2 scalping sell trades. But you may well have a question as to why there are 2 of them if you could not close the short and then re-send the sell orders 20-30 seconds later on the market.
Using this example, I will try to show you one of the tools I use to enter a position more accurately and efficiently.
Volume analysis – allows you to determine the moments when the market activity of buyers and sellers is not equal. Observing the crazy flow of trades in Time&Sales – it is possible to fix the point of critical pressure of one side over the other. In simple words – Imbalance.
The imbalance of the volume of the aggressors is the very force that makes the price move higher or lower relative to the current one.
There are many approaches and variants of trading strategies, but I use those that allow me to make trades with minimal risk. One of the tools I will show you – help to reduce risk and effectively follow the trade to the fixing point.
Yesterday before the opening of the main session I expected at least an attempt of updating the maximum, and whether it will be a false-break or the real update of the highs is of a secondary importance. But the variant of the correction beginning, taking into consideration the positioning of yesterday’s price relative to the March contract, I considered and watched for any signals, which would suggest the sellers to prevail over the buyers.
The following are 5 Time&Sales slides, specifically capturing those moments when the volume imbalance is clearly offset.
First two screenshots
” In the blink of an eye before the sale opens “
Note the Volume & Delta Agg columns. Values with a minus sign and red are volume activity for sellers and green for buyers respectively. Don’t be lazy and look at the table carefully, calculating how many ticks the sellers are clearly beating and how tight their flow is.
On this feed, you can see the escalation of sellers’ volume pressure. Also spend some time on the “Trades” column – it shows how many trades total in one tick.
You can sell 100 contracts in one trade, or you can sell 100 contracts in 50-70-100 trades with 1-2 contracts per trade.
If you have been trading in the market since 2008, using the volumetric analysis – you should have guessed why I emphasized variants of placing 100 contracts, but in case there are traders with less than 5 years experience among my readers, I will explain.
For you to be able to sell 100 contracts, someone has to buy them from you. This is the principle of the auction.
Now let’s imagine a few variations, when you sell 100 contracts:
- 100 contracts bought from you in one order
- Your order is split into 50 and 50 and then bought from you in 2 parts
- Your order is split into many smaller pieces, so that low-volume buyers can take apart your order.
The outcome is the same – you sold your 100 contracts.
But in the 1stand 2nd variants – there are buyers with the volume of 50 and 100 contacts in the stack, it means that there is a counterbalance and the price movement is already in doubt.
And in the 3rd variant – volumetric buyers do not see the benefit and do not participate in the current auction, respectively, your bid is taken apart in small parts.
Increase in the number of deals for the same volume in one tick – suggests that the counter side is getting weaker and is now represented by private and small traders.
All 2 trades were made between 09:51 and 09:55.
Profit – 1100$ for 4 minutes.
Author & trader: Mikhail Lemah