ES Daily:  After a perfect bounce yesterday, I just wanted to share a quick chart of the daily.  Resistance here?  200 sma, top of channel.

Market Update

ES Weekly - Some ideas to look at.  One thing that I see time and time again, on all time frames with the ES, is the importance of the final wave from the previous bias.  In this case it was the final push down to the March 2009 lows, marked with the red arrow on the bottom left of the chart.

Taking the length of this move and projecting it down various times in this past 2 year rally, you see that common fibonacci percentages gave great support levels during the rally (marked by the blue arrows).

If history repeats itself, we are coming to a couple more levels that may offer some support.  The 1:1 ratio is at 1096.50 (which is only a few points away, as of this writing).  Also, the 20% drop from the 5/2/2011 highs comes in at 1098.75 (same area as the 1:1).  Will we find some support there? 

Remember, it's dangerous to try and catch a falling knife and only monkeys pick bottoms.  That being said, this is purely food for thought.

UPDATE: Pre-market we fell lower than that 1096-1099 area (to 1077).  However, during RTH, after the fed spoke, the low was right at 1097, before an 80 point, intra-day rally!

Market Update

ES Weekly:  Nice place to get some good unemployment numbers.  Will it hold?  Before we get too doom and gloom, the pullback we saw April to July of 2010 was larger than what we've seen so far... and we saw almost a 400 point rally afterwards.  

When it comes to the "larger trend" don't get too wrapped up with news and what is happening day to day.  When the "flash crash" happened in May it really shook up the system.  However, we only saw 50 points more of downside before the 400 point rally.  (We didn't have a monster crash that sent the markets to 2009 lows)

So far, the pullback we've seen since May looks like a nice A,B,C pattern (three wave pullback).  

Market Update

eSignal Study:  Monday's trading range sets the stage for the rest of the week. Thus, it's important to identify its range.  We use Fibonacci extensions of this range to identify postential support and resistance levels. There is special handling of holidays falling on a Monday, which is user configurable in the parameters. In the example image (emini future), the left chart is what this script outputs. The right chart is the same chart with added explanatory descriptions.  IMPORTANT: This script is intended to only run on Regular Trading Hours (RTH, 8:30-15:00 CST) charts whose interval is evenly divisible by 390 (the number of minutes in RTH). This guarantees each day has an equal number of bars.  The results will not be accurate otherwise.  IMPORTANT: This script requires the neoLibrary.efsLib.  You can download it here (free).

Study, Pro, Sup/Res Levels

Lesson

In order to offer some additional guidance to our Daily Pivot Points study (and PRO version), here is an article by Jim Harrison, eMini-Master.com.

Secrets of the Floor Trader's Pivot Points: The Self-Fulfilling Prophecy

"True Trading Mastery derives from understanding the relatively small role technical analytical factors play in the overall trading process and the inestimably important role that correct market attitudes and beliefs exert in facilitating a consistently profitable result."  Bob Koppel

Contrary to popular belief, most consistent traders do not spend their days attempting to predict price action by “picking tops” or “picking bottoms”. In reality, they spend their days executing a well-drafted, simple-to-follow trading plan.

You see, the market's true intent can be recognized in the nuance of price behavior. The first step in understanding that behavior lies in creating a structure within which to analyze the day's activity.

Let‘s explore the fabled Floor Traders Pivot Points. First, we define Support and Resistance as those price zones where the forces of supply and demand are most likely to meet. The bulls (representing demand) and the bears (representing supply) are most likely to do battle at these key junctures, with the victor determining the market's next directional move. Notice, we DO NOT define support or resistance as an area where price WILL change direction.

Floor Traders Pivot Points are defined as a form of static support and resistance. They are not dynamic like a moving average, which is more responsive to the tick-by-tick action. Therefore, they are “fixed” or “static” throughout the trading session. They have a gravitational pull and work because the large majority of participants believe they work. Because of this, the self-fulfilling prophecy applies.

Floor traders and other professionals who do the actual buying and selling of futures contracts in the trading pits of the exchanges generally employ very similar systems for valuing the price of such contracts in the absence of significant outside influences. These systems employ a method of calculating relative value based on the price activity of the prior day. A price equilibrium point is determined, as well as support and resistance levels, in relation to that equilibrium point. This method is called the Floor Trader Pivot System.

Pivot System price levels act as potential support and resistance zones throughout the day. They serve as focal points for floor professionals as they adjust their bids and offers, especially when trading activity is slow. The use of these values, along with tape reading skills and candlestick pattern recognition, can help in determining appropriate areas for trade entry, stop placement and exits.

The principal reference level under this system is the Daily Pivot, or the Pivot Point (PP). Generally, as you enter each trading day, you should regard this level as your balance point between bullish and bearish forces.

A demonstration of significant price activity above the Daily Pivot is considered to have bullish implications while significant activity below this level is bearish. Although actual trading activity is initiated by a variety of other market indications, look at price behavior relative to the Daily Pivot level as an aid in determining the market's general directional bias.

Pivot System Support and Resistance Levels

The day's trading activity can generally be thought of as revolving around and gravitating toward the Daily Pivot level. As price moves away from this zone and approaches either the first level of resistance (R1) or the first level of support (S1), market behavior becomes increasingly critical.

Any rejection of these newly attained levels increases the likelihood of a return to the PP. On the other hand, a breach of either of these levels is regarded as market acceptance and a perceived change in the valuation of the instrument being traded.

Additionally, should the market extend its move even further from the Daily Pivot, penetration through each successive level of support or resistance is generally regarded as having drawn in a greater degree of participation from off-floor interests.

An increase in off-floor interests represents a greater likelihood that longer-term positions are being established, resulting in greater potential for the market to trend even further. Each consecutively greater level of Pivot System support or resistance breached is generally regarded as having stirred the interest of successively longer-term participants.
 
Once the market has made a convincing break of a particular support or resistance level, that level is considered to have reversed its support / resistance role, and, subsequently, becomes a test point for further market activity.

For example, if the first level of support (S1) is penetrated to the downside, any return to that level is considered a test of that level's integrity. The rejection of any price advance back toward the level of S1 is considered a successful test of that breach and adds to that level's credibility as a renewed valuation point.

Furthermore, any additional move away from that level has the potential to force the market through the next level of support or resistance, drawing players of even a longer time frame into the market, and so on, continually expanding the market's range of activity.

The longer-time-frame traders will “wake up” or become active as we expand price to and / or beyond the inner levels of the Pivot System. As price breaks through the levels of R2 or S2, they will most likely resolve the price action in one of two ways.

First, we will see an acceptance of the new found value resulting in what we refer to as trend days, where price seems to move only in one direction with force. Alternatively, if the new-found value is not generally accepted by the longer-time-frame traders, price will attempt to find its way back to the Daily Pivot Point.

The traditional formula for calculating Floor Trader Pivot System Support and Resistance Levels is as follows:

This formula generally uses what is referred to as 24-hour-data, including a high and or a low that may have occurred outside Regular Trading Hours.  Alternatively, one could use just the High, Low and Close price information from the Regular Trading Hours (RTH) to calculate the Pivot Point.

Certain traders have also modified the formula in a number of different ways to include opening “gaps” and or midday recalculations in price, which is beyond the scope of this article.

Pivot levels of support and resistance can also be applied to the weekly and monthly time frames.

Daily and Weekly Floor Trader Pivot Level Confluence 

Those areas in which multiple levels exist in proximity can be considered to have a greater likelihood of providing stronger support or resistance. The same process can be applied to the monthly time frame to add even more potential for confluence.
 
An important point to remember about these Floor Trader Pivot Numbers is that they act as potential support and resistance zones throughout the trading day. The "context" in which they occur often determines their significance.

Your use of tape-reading skills, combined with an ability to properly interpret candlestick formations, can lead to a very simple, yet powerful trading set-up and play a critical role in the appropriate use of Floor Trader Levels as a profit tool.

In order to offer some additional guidance to our ATR Trailing Stop study, here is an excerpt from the weekly TechStats report by Leon Wilson.  (Our study draws the ATR as a line rather than dots, but the concept is the same.)  Enjoy!

“Where to sell?” That is the question. It is not in our nature to sell when trading as many of us perceive this as an admission of failure, especially where losses are involved. The true acknowledgement of failure is when we know that we should have sold, yet for what ever reason we hang on to our position.

Discipline and experience can overcome this problem when combined with a suitable trailing stop which will define our exit point with clarity. A common trailing stop strategy is to apply an ATR (Average True Range) trailing stop below price action.

Lesson

eSignal Study: A trailing stop provides a systematic way to know when to exit a trade. It is especially useful for trend traders and breakout traders who like to let profits run while maintaining a logical exit for when the market trend changes so they can exit their position in a controlled and timely manner. Using efficient stops is applicable to all markets from equities and options to forex and futures and e-mini and in any timeframe. This study is intended to assist traders looking for a systematic way to follow their trades with a trailing stop or to be alerted to changes in market trends. As its name suggests this indicator uses "Average True Range" to trail a stop behind prices. We use average true range in our trailing stop indicator instead of a fixed percentage because this allows the trailing stop to adjust to the volatility of the market in which it is being used. Using the correct settings, this script can also be used to determine bias.  Bullish, trading above the line, bearish below.   For additional guidance on using the ATR Trailing Stop, please visit this article.  The period and multiplier are customizable to suit the vehicle you are trading.  Plus, the colors and line thickness are also customizable! BONUS! Also available is the ATR Trailing Stop "Band".  This works the same way as the ATR Trailing Stop, but shows the ATR TS level above AND below the price.  This can be useful for setting targets as well as your stop. IMPORTANT: This script requires the neoLibrary.efsLib.  You can download it here (free).

Study, Bias, Pro, Sup/Res Levels

eSignal Study: The Darvas box method was designed by Nicolas Darvas and explained in his best selling book 'How I Made $2,000,000 In The Stock Market'. The Darvas method looks to identify strong trending markets that then consolidate before resuming their trend. What Darvas observed was that up trending stocks typically advance for a while, then stall and consolidate, then advance again. This stalling and consolidation process he called forming a box. Once a box is firmly established, Darvas says a break out above the upper line of the box is a buy signal. A drop below the bottom of the box is a sign that the stock’s trend has changed and a sell signal.  Like all our studies, this study is highly customizable, from the colors, line thickness, displaying prices, to audible alerts! We found the ATR Trailing Stop indicator compliments the Darvas box trading method. More details on this indicator, please click here. IMPORTANT: This script requires the neoLibrary.efsLib.  You can download it here (free).

Study, Pro, Sup/Res Levels

eSignal Study:  It is very useful to know tomorrow's pivot point (TPP) as it can act as support/resistance as well as bias.  This script dynamically outputs the TPP as the day progresses using the current day's high, low, and close (as opposed to yesterday's HLC). IMPORTANT: This script requires the neoLibrary.efsLib.  You can download it here (free).

Study, Bias, Pro, Sup/Res Levels

eSignal Study: Sometimes other symbols may act as a leader for the specific symbol you have on the chart.  Thus, you find yourself often looking at the price of that other symbol.  This script outputs the price of that symbol on the chart for you for easy reference.  The color is red for down or green for up. It allows two methods of watching the change of that symbol: the change from the previous close or the change from its open. An example of only caring about the change from the open would be $VOLD ("NYSE $UVOL Minus $DVOL").  Each day, this specific symbol starts near zero, so its change from the previous day may not be as important.  However, where it goes after the open can be very important! IMPORTANT: This script requires the neoLibrary.efsLib.  You can download it here (free).

Study, Free, Information and Alerts

eSignal Study: eSignal provides a very useful tool in calculating Fibonacci "extensions" (sometimes known as "projections").  This practice involves taking a measurement of past price movement and "projecting" that price distance from a new high or low.  Certain fibonacci precentages of that movement can often prove to be support or resistance.  This script supports x.272, x.382, x.50, x.618, x.786, x.0, 4.236, 5.1, 6.85, 11.09, 17.94, 29.03.  All levels listed with an "x" means it will output multiples of that level, such as 0.272, 1.272, 2.272, 3.272, etc. set via the "max number of levels" parameter. The problem with the built-in version of this tool is it is often difficult to be exact in the selection of the high or low of a bar.  If you are basing decisions, trades, and MONEY on a given level, you want it to be as exact as possible.  Also, if you want to change the level you are measuring, often it is time consuming to redraw these levels.  Finally, the built-in version of this tool only allows a fixed amount of levels to output.  This script attempts to solves all these problems! INSTRUCTIONS: When you use eSignal's "fib ext" tool, there are three clicks involved: The high of a movement, the low of a movement, and where to extend the projection from.   This tool acts very similarly.  On the bottom left of the chart are the controls.  Step 1:  Initially, no points are set, so it says "NO" next to the 3 points.  To start, click the "Set 1" button to tell it you want to set the first point.  The label changes to "SEL" (short for "select") letting you know that it is ready for you to set the first point.  Merely double-click the high of the bar you which to select.  A small dash will be drawn on the selected high and the message will change to "CHK" (short for "check").  If you accidently double-click the wrong bar, merely repeat this step and select the correct bar. Step 2: Next, similar to step 1, click "Set 2" and double-click the high of where you which to project from.  The script will automatically determine the lowest point of these two points and automatically set point 3!  A real time saver!   Step 3: After step 2, verify that the automatically calculated third point is the one you wish to use (look for the blue dash on the low of the bar).  If this isn't the point you which to use, you can over-ride this level using the method outlined in the above steps. In the example image (be sure to click "enlarge image" to see the full image) there are two charts.  For simplicity sake, only the 1.0 levels are shown.  The left chart is what the script outputs after you select the points.  The chart on the right gives a description of what it is outputting: the three points, the range from point 1 to point 3, then the projection of this length from point 2.  The level at "1.0" is 100% of this disance.  The level at "2.0" is 200% of the distance, etc.  As you can see, from the chart, major support was found at this area! If you which to change any of these levels, merely reset that point.  Quick and easy!  To clear the lines and reset the tool, just click the "Clear" button.  This script will work on all time frames.  As with all our scripts, this script is highly customizable! IMPORTANT: This script requires the neoLibrary.efsLib.  You can download it here (free).

Study, Free, Sup/Res Levels

eSignal Study: The Emini (like many markets) often will retrace to the previous day's close in any given day.  When the market opens, this price difference is considered the "gap".  Sometimes this "gap" is not filled.  In future trading sessions, if the market reaches an unfilled gap, there is a high chance that support or resistance will be found there.  Thus, it is extremely important as a day trader to be aware of these levels!  This script monitors the last 6 months of unfilled gaps on the S&P Emini (ES) and outputs the levels on the chart.  This script uses the 4:00pm EST close (rather than the 4:15 pm EST close) as this is the close of the actual S&P index and most other vehicles, such as the SPY, etc. Line colors, thickness, and style are all customizable! IMPORTANT: This script requires the neoLibrary.efsLib.  You can download it here (free).

Study, Pro, Sup/Res Levels

eSignal Study:  Based on the strategy by BruceM, described here and here.  The basic idea is, "When you have three, 5-minute bars in a row, with a matching low or high, that low or high will get traded back to on the same day."  This script helps identify when these situations occur.  When they are violated, the line is automatically removed, as it is no longer in play.  You may optionally disable this feature and all lines will remain. In the example image, three (or more) 5-minute bars with the same low occur.  A line is automatically drawn alerting you of this situation.  On the next chart (be sure to click to enlarge the image), subsequent bars trade back down to that level (and lower).  Thus, the line is automatically removed.  What this tells you is, when a "running triple" occurs (three lows), going LONG above this level is riskier until that level is re-touched or "filled". (The opposite would be true for thee highs.)  This is because, chances are, price should return to this level sometime within the same day. IMPORTANT: This script requires the neoLibrary.efsLib.  You can download it here (free).

Study, Free, Sup/Res Levels

eSignal Study:  Draws the Market Profile on the chart.  Instead of outputting TPO (Time Price Opportunities) as letters, they are merely lines in the form of a histogram (as shown in the example image).   IB (Initial Balance, first 60 minutes of trading) is indicated by small red ticks on the histogram.   Value Area is the first standard deviation (contains 70% of TPOs in a profile) and is colored blue. POC (Point of Control, the price the most TPOs occurred) is indicated by a completely red bar on the histogram as well as a red line drawing on the chart.  This line gives you a history of the POC as it develops. Range Extension is any lines above or below the IB on the histogram.  The histogram for the current day is considered "developing" (DVA, DVAL, DVAH, DPOC, etc), since they are all values that can (and will) change throughout the day. As always the colors and behavior of the script is highly customizable!  PRO TIP 1:  If you are using a RTH chart (Regular Trading hours) and a 5-minute interval, you may want to set the histogram to draw "RightToLeft" and set the offset to 78 (390 minutes in RTH divided by 5 minutes is 78 bars).  This will put the histogram at the right edge of each day's trading.  This will allow you to more easily see the previous day's value area from the current day's trading.  It will also allow the current day's histogram to grow without getting in the way of the developing bars (until late in the day, as expected).  You can see this in the example image.  Otherwise, setting the histogram to draw from "LeftToRight" with an offset of 0, will put it at the left edge of each day.  PRO TIP 2:  This script is designed to draw a TPO (Time Price Opportunity) every bar.  Therefore, if you are on a 3-min chart, it will add a TPO every 3 minutes.  The original idea behind Market Profile was to have a TPO every 30 minutes.  Therefore, it's recommended to run on a 30-min chart with a time template of regular trading hours (RTH) between 8:30-15:15 CST. IMPORTANT: This script requires the neoLibrary.efsLib.  You can download it here (free).

Study, Information and Alerts, Pro, Sup/Res Levels

The ES filled the gap left on 4/15 (as well as its own daily gap), so we can strike one unfilled gap off the list. 

Market Update

eSignal Study: This study offers all of the features as the free version and more!  Some of the PRO-only features include seeing "tomorrow's pivots" (calculated using the current day's HLC), weekly pivots, monthly pivots, fibonacci retracements between the pivot levels, and more! Pivot levels act as powerful levels of support and resistance. These levels are where market price will potentially rotate back to where market price came from or will continue and make a significant move away from the pivot level. There are multiple ways of calculating these pivot levels: Classic, Floor, Woodie, DeMark, and Camarilla. This study supports all five pivot level types!   The "Floor" pivot type is most common for forex markets, but works very well on commodities as well. "Woodie" is similar to "Floor", but more weight is given to the close. "DeMark" levels give a prediction for the high and low for the given period. The script has the option to display "tomorrow's pivots", which is calculated using the current day's HLC, as if the market closed that instant.  As the day progresses, these levels will change as the day's HLC changes, as you'd expect.  This script has the option of displaying "weekly pivots" (which use the HLC of the previous week) and "monthly pivots" (which use the HLC of the previous month). For additional guidance for using pivot points, please read this informative article.   The type of pivot levels, line style, line thickness, line colors, and the existance of labels are all customizable! IMPORTANT: This script requires the neoLibrary.efsLib.  You can download it here (free).

Study, Pro, Sup/Res Levels

I personally love trading pivot points.  They are a great leading indicator (you know exactly where they are at the previous day's close).  How I like to think of pivot levels is like a rubberband.  

If you hold a rubberband between two fingers, this resting state would be the PP.  As the market moves to S1 or R1, this rubberband gets pulled back.  The market wants to return to center, it wants to return to the PP, tension is formed, which is why these levels often act as sup/res in the direction back to the PP.

However, sometimes, when the market gets momentum and starts hitting S3, S4, S5, etc. the rubberband flat out breaks and there is no longer any pull back to center. 

Its important to be aware of when this rubberband breaks and to go with the trend!

Lesson

Information

ES Daily - If this afternoon's fall was a heads up to any kind of larger pullback coming our way, then it's best to be prepared.  Here are some near-term levels to watch (Blue arrows indicate how the fib levels "fit" within the price action.  The red arrows indicate the levels to watch for in the upcoming days.)

Short tomorrow at 1308.75-1310? 

ES Weekly - On a larger scale, here are some levels to watch.  Looking at the symmetry from the June/July 2010 pullback, we have 1216 area.  Using various other fib methods, this area seems to keep coming up.  Not to mention the previous high swings in April 2010 and November 2011. 

Market Update

ES 60-min - Beware the downward trend line we are hitting. 

neoEminiStrategy

ES Weekly - The ES found support at the 1252 area based on symmetry from the pullback seen in August 2010.  In the chart below, the two blue arrows are equal.  Higher from here or just temporary?

neoEminiStrategy

ES 60 min -  Last night, the ES hit resistance and had a sizeable pullback (about 10 points).  Using the normal fibonacci retracement method you would select the high and the low and look for a retracement.  Below is that chart.  Notice the movement didn't quite hit the 52.8% pullback.

Lesson

There are a lot of articles about the "Golden Mean" or the "Golden Ratio" found in nature and in the stock market.  This ratio is 1.618.  This reciprical is 0.618.  If this level is so important why is 50% used so often instead?  Below is an attempt to explain "50%" in the world of 61.8%.

Below is a typical range from 0 to 100, with the 61.8% level indicated. 

If you take 61.8% of the range from 61.8% to 0, you get 38.2% (which is another common fib level). 

Lesson

I've never seen the typical fibonacci retracements used this way, but I've found it to be very powerful.  The typical use of a fibonacci retracement is to take a measurement of an existing move's high and low and look for percentages of that move.  Instead, look at the move SO FAR and determine how it "fits" within a larger set of fib levels.  Then, use this to determine where the next support and resistance levels could be in the future.  Think of it as price climbing up or down a ladder.

OIL Daily - The following series of charts is of OIL on the daily.  This may not be the best example, since the recent move was parabolic, but regardless, it's interesting to see it still move technically.  Back on 2/18, if you thought OIL was going to go up, you could throw the following fib levels on the chart.  All I did is select the bottom of the move and make the bars "fit" neatly within the fib levels.  In this example, the 2/18 fit nicely within the 52.8% and 78.6% levels.  There is nothing special about 25.34 other than it was where the levels seem to fit so far in the move.

Lesson

Today was a truncated session due to President's Day, but that doesn't mean we didn't see some interesting movement.  Using the same levels as described in Part 2, below was today's chart.  After bouncing around in the levels in the 1337-1342 range, the bottom fell out.  As you can see, there was a big gap in support levels, so it's not surprising that once 1337 gave way, we had a lot of room to fall.  The blue arrows show areas of support and resistance.

UPDATE:  Soon after the market opened at 5pm CST, the market hit that 1327 area. 

Lesson

ES Weekly - We are currently popping out the top of the channel and hitting the 0.236 level on the fibs draw below.  Exhaustion?  Resistance? 

UPDATE: The market's "random" movement (read: scarcasm) decided it wanted to pullback 20 30 points (maybe more coming) from this mid-1340's area. Go TA!

Market Update

Continuing with the idea of looking at confluence between certain "units of movement", the chart below was made at the close of yesterday (close of 2/17 for 2/18 trading).  I set my script to use "tomorrow's" HLC, and PP based on the day that just concluded (for 2/18 day's trading).  This gave the following levels (red lines).  My thought was if we got down to the 1334-1335 area, it could mean a long up to the 1342-1343 area (indicated by the long blue arrow).  If we got extra bullish, perhaps up to 1345.  Otherwise, if we got below 1328, it could mean a pretty painful day (red arrow).

The chart below show the same levels as above, but with today's price action filled in.  As you can see, we came very close to that 1334-1335 area and made it up to the 1342-1343 area (see blue arrows).  If we had more day, it looks like it wanted 1344-1346.  Interesting. 

Here is another view looking specificly at the range from yesterday's High to Close (red arrows).  As you can see, the movement went from a low at -1 unit, then up to +1 unit, then back to center (and more).  Interesting. 

Lesson

I've been playing with the idea that the market moves using a particular "unit of movement", which changes each day.  Some days it seems looking at the range from the Previous High to the Previous Close, then drawing lines using that range often gives support and resistance levels.  Sometimes it's the Pivot Point and the Close, or perhaps the entire High to Low range.

So, to help in this analysis, I built a tool.  The chart below is yesterday's (2/17/2011) ES, 15 minute chart.  The light blue background is overnight trading.  You can see the range from the previous day's High to Close by looking at the red arrows.  Using this "unit of movement", I draw additional lines, which are all the blue levels.  Half-units are the thin lines.  All the small, blue arrows show areas of interest where there was support and resistance from these levels.

You can see the buttons on the bottom of the chart, where I can easily change which levels are drawn.  In this case you can see the "H" and the "C" are highlighted, showing that the levels are using the High and Close range.  (scroll down...) 

So, this is dandy and all, but we have computers to allow us to do more.  So, I took it one step further and had the script calculate all levels for all combinations of selections (H-L, H-C, H-PP, L-C, L-PP, etc), then had it look for overlaping levels.  This still produced a lot of levels, I had it trim down a couple more times and came up with the chart below (same day, same chart).  The red lines are the levels with the most overlapping levels using the method desribed above.  Interesting! (scroll down...)

Lesson