Why? Well in studying various forms of technical analysis since 1994 I knew a bit about candles, EW, Drummond geometry, fibonacci’s … you name it. All seemed to have some value. When actually I finally listened to someone who understood auction market theory I realized that every thing I more or less knew about TA was encapsulated in a market profile chart.

Case in point was yesterday. I wasn’t really planning on trading but I keep my basic ES market profile chart up. I could see (and tweeted to Twitter (@traderpsyches)) that we were developing a trend day down in the AM. Each of the first four half hour periods had lower lows and lower highs … and then I saw it. I shove lower and a bounce…. right to the highest volume node (Tom calls them key reference areas or kra’s.? (He is @kratrader on twitter and stocktwits) of the day.

Now when more volume has accumulated at a price (over time), that means there are lots of traders in trades where that is their break even point. It tends to mean they will add to their trade there – or defend it – or if they were long from there, in this case, they will be back to break even and get out. Since I was going short, it basically meant we shouldn’t go too far through that price because of those traders who care about that price. If we do, well then they have been overwhelmed by another group. In short, (no pun), it meant this was a good place to be short.

I put a tight stop in at 941 (trade entered at 939). My Ninja trader platform helped a whole lot here because we did in fact trade at 941 but I was not taken out because my Ninja strategy is set to trigger the stop only if there are less than 50 trades on the offer (in the short scenario).

It took a fair amount of having to talk through the chop and slop but then around 1 p.m. (over an hour into the trade) …. whoosh…. and a basic 10 points I had.

I looked at the drop. Trailed my stop (which Ninja would do automatically I just didn’t have it set up in this strategy)? and then saw we really were at the next KRA or high volume node from two days earlier – again a place where other traders will be more willing to be involved because many of them already are involved at that price. So I covered… knowing it might go lower.

In the end, I think I covered about as well as could be expected. In other words, the whole thing was almost the perfect trade. (In contrast to Monday when I tweeted about rotating back into the range just prior to the violent move upward – and then wrote about it on Greenfaucet.com)

The long and the short of it is – market development as can easily be seen through a market profile chart and as taught by Tom Alexander hugely simplifies the process of understanding the market – for me. I suggest everyone take a look -

Alexander Trading

Ninja Trader

(btw they don’t know I am writing this and I won’t get anything for it…it just works and that trade went so well and was so public on twitter that it seemed right to explain).

btw2 – if you have trading strategies and tactics that you really understand and feel good about – PLEASE IGNORE all of this!! Please!)

http://tiny.cc/i1r2e

Within the words is the real question everyone actually cares about – is someone going to pay a different and better price than me in the future? Many traders forget that this is the only game they are playing. It isn’t about the ema’s or the fibs or any other interpretation… it is only about predicting the behavior of other smart humans in whatever timeframe you are in for. You need to have your probabilities yes but to that you must remember to ask – does my gut tell me this is right. The ultimate skill in trading is to be able to integrate both kinds of data – one is mind based, the other is feeling …. and this is the science and art of trading.

I hated to sound like a downer but hey, Roubini I am not (although so far…. )

MONEY MATTERS on ABC NEWS NOW

Having said that, 900 in the S&P futures held like a rock.

Talking about that on TV was probably a bit too much but to me trading is all about finding the levels that the crowd sees as the proverbial “support” or “resistance” . Then, watch what happens there. How much time do we trade around these levels? Where are people putting their short-term stops above and below? (In other words it is a range around the levels and depending on recent volatility, that range can be wide.)

In fact speaking of stops, part of the reason these levels work is in fact the stop placements entered around key levels. It becomes self-reinforcing (particularly when the time element is added in). High volume nodes on a Market Profile (forgive me CME but I have no way to put an R sign in with this wordpress) work the same way – the volume shows that many traders are involved at that price and very well may defend it – or bail if it goes through.

At Schonfeld I learned that support is meant to be broken so I am always kind of looking for signals that it will be – the trend of the TICK and “Breadth” … both of these cash market indicators can give you a clear heads-up.

I hated to sound like a downer but hey, Roubini I am not (although so far…. )

MONEY MATTERS on ABC NEWS NOW

Having said that, 900 in the S&P futures held like a rock.

Talking about that on TV was probably a bit too much but to me trading is all about finding the levels that the crowd sees as the proverbial “support” or “resistance” . Then, watch what happens there. How much time do we trade around these levels? Where are people putting their short-term stops above and below? (In other words it is a range around the levels and depending on recent volatility, that range can be wide.)

In fact speaking of stops, part of the reason these levels work is in fact the stop placements entered around key levels. It becomes self-reinforcing (particularly when the time element is added in). High volume nodes on a Market Profile (forgive me CME but I have no way to put an R sign in with this wordpress) work the same way – the volume shows that many traders are involved at that price and very well may defend it – or bail if it goes through.

At Schonfeld I learned that support is meant to be broken so I am always kind of looking for signals that it will be – the trend of the TICK and “Breadth” … both of these cash market indicators can give you a clear heads-up.