Reversal Chart Lesson

Hey Guys,
There a many ways to look at the footprint charts to get an inside look at the market. If you have been following this blog, you'll know that I like to use several different periodicities and chart types.

The ones I use are not better than others, they are just the one's I learned and feel comfortable with. Today's lesson is on Reversal Charts. I use a 5 tick Reversal Chart, I know others using a 6 tick. I have found these types of charts very helpful, for a number of reasons. They are also confusing to most people when they first try to get a handle on them. They certainly were for me.

So, I thought a lesson would be in order. I first learned about Reversal Charts from Bill Duryea at IOAMT (www.ioamt.com). He and Jackie (his co-teacher) are masters of them. I recommend their services (training room and courses) highly.

Reversal Charts are based on Point and Figure Charts. Here's how they work. As a bar goes up, reaches a high, and then pullbacks x number of ticks (we'll use 5 ticks in these examples) - a new bar is formed. This is a reversal from the upward movement. The reversal bar may continue to go up or it may go down. It can have positive or negative delta and be an up or down bar. The quality of this reversal bar gives us feedback on the market's micro condition.

When we get a pullback from a high or a low on that reversal bar of 5 ticks - a new bar is formed.

Since we started this example with an up bar we'll denote this as a green marker. You can see how this looks on the included chart. The reversal bar I denote with a red marker (even though it can go up or down), because it is a reversal of the up bar.

The next bar following the reversal bar is marked with green. If the bar tries to go up, we compare the buying of this bar to the first up bar (in the example). Is the buying as strong? Is it able to make a new high? Does it go 1 tick higher on weak volume and fail - closing on the low. These are all things we look at and consider.

The upbars are mainly compared to other up bars rather than to the reversal bars. The reverse of all this holds true when the market is moving down.

These bars give us tons of information which I will point out in my charts. However, one truly important use of them is when we are in a trade. Have you ever gotten out of a trade too early? Silly question - we all have. When we are in a trade and a big bar is forming, there is not lots of good reasons to exit until we form a reversal bar.

And, not any reversal bar. Remember, a reversal bar may be bullish or bearish in nature. So, if the market is moving down and we get a big, long bar going many points - Reversal Charts help us to stay in the trade. If we get a reversal bar with negative delta the down move is likely to continue. If the reversal bar is mildly positive, its less clear. If the reversal bar is quite positive in nature, you might want to exit or take some off.

I hope this makes sense. Putting this in words is rather precarious. If this is unclear, read it again and take a closer look at my charts. Market Delta footprints are not the easiest things to master, but they are a tool that gives unparalleled Market Information.

Hope this helps,

MG

Trading 30 Minute Singles

Today's post shows a short trade on a retracement to a 30 minute period Single. This is a trade I do fairly often when I have a strong directional bias and the footprints confirm. Many people using Market Profile concepts trade retracements to the area where directional buying or selling begins (Single Prints) as it usually establishes the presence of big money entering the market.

This concept can easily be used on 30 minute profiles also. The top picture shows how I set this up in MD/IRT.

Hope it helps,

MG

Set up of a Range Chart

Hi Guys,
I had a question from one of my readers as to what a range chart was and how to set it up in MD. Really simply, a new bar begins to form when the prior bar moves x range. I use a 1.5 point range bar, so a bar is formed after 1.5 points of range is attained.

It is just another way of looking at the market that I find useful. I use the footprints on a 30 minute chart, a 1.5 Range chart and a 5 tick Reversal Chart.

Hope it helps,

MG

One Very Nice Example

Hi Guys,
I have to run off today to give a class but I wanted to show you a very nice trade using the footprints at a Key Reference Area. This one worked out beautifully. A key to remember here is that I was prepared and watching closely when the market approached my key area. If all signs were bullish here, I wouldn't have taken a short. But, the Footprint told me all I needed to know.

Its not always this easy, but they occur like this quite regularly .

Hope it helps,

MG

Key Reference Areas in Action

Today's lesson demonstrate the ideas I have learned from Dr Brett Steenbarger and Joe Mertes. From Brett, we have the Volume Adjusted R1 as Support and we have the 823-824 area as a KRA from the merged chart, that I learned to effectively use from Joe Mertes excellent newsletter.

I had to work today and could only observe but I saw this one coming from a mile away. Also note, that 852 held the market at the top. When the market couldn't get above this level, we expected a rotation down.

Loving the new Market Delta beta 9.2. If you are not using it, you may want to check it out. In future posts, I will share ways that the new functionality is really helping. Please feel free to share beneficial new ways you are using it.

Hope it helps,

MG

Setting up Relative Volume in Market Delta

I have already gotten one comment requesting directions on setting up Relative Volume in MD/IRT. I have attached a screen shot so you can easily do it yourself. Just add the indicator Session Statistics. And fill in like the picture shows. You can do Relative Range also if you like by: Hi-Lo Range, All Bars, Relative Strength x _____ (what ever time period) you like.

Billy Duryea of IOAMT uses 200days I believe. When the market volatility was going crazy for those couple of months, I started using x30 days. Now, x 200 days seems to work well (for me) as it captures approximately a trading year.


Hope this helps,

MG

825 Short Trade

The 825 was an area I was watching on Friday morning. We had the Thursday close and behind it the Value Area High. Then on Friday, we were presented with the third level of confluence when the 1.5x the IB was at 825. Added to this, the internals were not screamingly positive. The Cumulative TICK was barely positive and the VOLD (not pictured) was struggling to get across the zero line. All signs said "SELL" 825.

The entry could have been a limit sell at that level or the footprints could have been monitored for confirmation, as I showed in the chart.

Hope it helps.

MG

The Importance of Relative Volume and More

These two charts show some very interesting concepts. I am not sure who coined the term Move out of the Middle (or MOM), but it is an incredibly important concept which I will point out often in this blog. On Friday, we had 4 periods of rotation forming a balanced area getting ready to pop. The longer the period of balance the greater the pop (we hope).

The 825 level was incredibly important yesterday. It was a high volume area from Thursday as you will see on the above chart and the market couldn't get above it on 4 tries.

I have Relative Volume set on my 30 minute chart (200 days). You will see on the lower chart that we had a statistical volume spike to 147% of the norm for that period over 200 days.

That gave me the heads up that a breakout was imminent. Which direction? I didn't know at the time. But when price broke strongly above 825, I waited for a pullback on the 5 tick reversal and 1.5 range footprint charts.

BTW, Dr Brett (http://traderfeed.blogspot.com/) had a great post on Relative Volume and its importance in a Friday post. Check it out.

Also, take note of the fact that on a daily basis, the market has formed multiple days of balance. Which ever way it pops, look to your key reference areas above or below as targets and for bias.

Hope this helps,

MG

Great Trade at the Low of Day

The annotation on the chart says it all. I hope some of you took this trade.

MG

Great Delta Divergence at KRA

Thanks so much for your comments to this blog. This is my first blog and it is so exciting to see the number of readers grow and the feedback that you are enjoying my posts.

Quick post tonight. KRA stands for Key Reference Area. It is indeed an area, rather than a point. But I had a KRA at 810 for a long time now and it hit it to the tick and had a 6 point retracement. Lots of cool stuff in this chart.

Enjoy,

MG

Key levels of volume from Friday

Short post tonight. I didn't trade today in the shortened period and I will watching the inauguration tomorrow morning like much of the country. So, expect low volume and be careful. I wanted to post this chart, though, in case it helps.

MG

Today's Lesson

This chart is of course a Footprint Chart. The type of footprint is a Delta Colored Volume Histogram. Pictures indeed tell a thousand tales. If you don't have the footprints (obtainable from Market Delta and also available on Ninja Trader), you can see much of the same story on a candlestick chart. You can easily see balance areas form as bars overlap. But, as you can see from this blog, I find the footprints invaluable to tell a deeper story.

I have seen some old timers read candles and price/volume/range movement at incredible levels of mastery. But, I find mastering the footprints easier (although not easy).

One of the goals of this blog is to teach people how to use footprints effectively. A lot of people check them out and quit, thinking them ineffective. They are AMAZING once you begin to master them.

Hope it helps (and inspires),

MG

HOW TO WIN IN THIS MARKET

There were several great opportunities today. Here are two examples. The lower example shows a great opportunity you could have been waiting (and hoping for) set up the prior day. The 2nd opp offers an important lesson on comparing volume moving into resistance.

MG

Two Examples of Places to Short Today's Market

Well, it was a wild day and very easy to make trading mistakes. Care was necessary as the day progressed as the market went up and down and up and down again. Here are two charts showing good places to short the market. It shows the value of using high volume areas as resistance.

MG

ATrade We All Should Have Taken

Well, I worked my day job today and missed this baby. But, I got to see it setting up and told one of my chat buddies of the opportunity I was seeing. He took the trade (based on my feedback along with some other things he looks at). It worked out great. On days like this, when the bias is so strongly down, you should be looking for opportunities to get in and watching for a retracement to areas of resistance. 874, 875 (high volume node from the 11:00 period) and 877 (which was the VWAP and the volumePOC) were all possible areas we were looking at. The footprint screamed to take a short. If you don't use the footprints, look for signs of deceleration (volume, candle formations, overbought signals etc.)

Enjoy,

MG

An example of some of the things we'll look at in this blog

Saturday, January 10, 2009

I wanted to show you this Footprint chart. This is a pattern we see again and again. We are only really interested in taking these types of trades at key levels. 918/919 has been a potent level for several weeks now. Below it, we were biased to the short side as the market had already broken below this level on a prior day. So when the footprint confirmed our bias there was no reason not to jump in.

Hope it helps.

MG

Welcome to the MGTrader Blog

Friday, January 09, 2009

Not much content in this one. I will be posting my Market commentaries and screen shots here on a regular (or semi-regular) basis. I hope you will tune in, chime in and enjoy.

Bryan