Price vs Volume

When Price and Volume Disagree, Part Six

It’s been far too long since I’ve posted on this topic. I just looked and my last post in this category was all the way back in September! Man, things have been busy on The Ranch.

Anyway, I think you may be in for a treat today. Or not. We’ll see. But I’m going to walk through an example of one of my favorite setups – yes I said that, a setup – in the ES. Perhaps many of you have seen me post screen shots of this setup on Twitter. I’ve done that many times in the past, but now I’ll step through the elements in more detail. As always, I have a “clever” name for all my setups. And this one is no exception. It’s what I like to call the Flush-N-Flip®, or F-N-F for short. This is really an order flow pattern combined with a significant price level, and it occurs literally over and over and over and over and over again in the ES. It has proven to be a very reliable entry over time.

The F-N-F takes into account the elements of a good short time-frame trade:

  • A pre-identified price level selected from the greater market context… from the big(ish) picture
  • Hesitation or stalling of the price action at that important price level
  • Visible discrepancy between the order flow and the price action at or near that level
So let’s break it down visually. I’ve simplified some of the charts to make them less noisy and easier to follow.

The Bigger-Picture Price Level

Low-Volume Areas/Nodes (LVNs or LVAs) are my personal favorite for potential entries, and here we have a good one. Yesteryday the 1281 area was the bottom of the range, and we can see there was definite buying interest at that level. Yesterday we hit that level and moved all the way up to the next major LVN area – 1289 – so it’s a fair bet that the same buyers might be interested at that level should we find ourselves there again today. So I marked 1281 on my trade plan as an interesting potential long for today. Spoiler alert… that’s exactly what happened.

Here is my intermediate term study with the 1281 and 1289 LVNs. They were found automatically using the Acme Volume Profile Composite, by the way:

Intermediate Term Chart - LVNs - ES

The Price Action

Once the levels are defined, it’s time to hurry up and wait. It’s called stalking a trade for a reason. You have to wait for the price to come to you, then see if it’s worth taking a shot. And just before 7:30AM Pacific Time, the quarry entered the gun sights. And by the gun sights, I mean the Acme Volume Impression (AVI) together with the Acme Volume Balance (AVB).

As price moved down to 1282.50, we were starting to see some selling fatigue. Not classic exhaustion, just fatigue. This was visible in the AVI as a breakup in the deep reds on the sell side of the bars around the 1283 area, as well as the wicks underneath the AVB bars. AVB wicks mean that at one point during the bar, the imbalance was all the way at the bottom of the wick, but that pressure from the opposite side of the trade was beginning to assert itself on the order flow. Then there was the hesitation or stalling of the pace of the price action. Careful observers will note the 5 Range bars on the AVI were beginning to take longer and longer to complete. This is why I like fixed quantity bars so much… I like to see and feel the pace of the price.  Time and PnF bars just dont’ give you that. See Note 1 in the screenshot below.

Next, the in the final element of the setup, we made a new session low and an AVB divergence appeared and was marked with a green circle-arrow on by the AVB right on the Impression chart. This was a definite signal to pay attention! At this point, I was already… trust me. ;-} By the way, regular readers know how I treat divergences of any kind. To me, divergences are not gospel and they certainly don’t mean do something now. They mean pay attention. Examine the context. Something interesting might be about to happen. And in this case, it did.

Right there at 7:47AM, after the pace had slowed significantly, we got what I call a tiny tick at 1280.75… only 154 contracts! This is significant because it means there simply was no real selling interest at that price. Moreover, there was a nice tail underneath the negative balance on the AVB, and the next bar showed a positive delta, also with a lovely tail hanging below it. No question about it, buyers showed up at the 1282 area, and with nice volume too. That’s a pretty solid signal to get long with a logical target at the 1288-1289 area given the current ES average ranges. This is a trade I could feel good about with a stop below the 1280 area, had a nice risk-reward ratio and several scale-out possibilities along the way. See Note 2 below.

Acme Volume Impression - FnF - ES

So let’s review – and I had an important price chosen within recent market context, hesitation of the trend at my price and visible evidence of opposing forces. These are the essentials that make the F-N-F such a solid trade for me in rotational days such as this.

Hope this was informative for you. And as always, amigos… trade ’em well.

0 replies

Leave a Reply

Want to join the discussion?
Feel free to contribute!

Leave a Reply

Your email address will not be published. Required fields are marked *