Tape / DOM / Footprint Course: Opening Action Lesson VI
October 15, S&P500 (ES)
First of all thank you all for your patience as I’ve been in travels.
Each week I review key moments from recent price action in the indices. These instances will be analyzed using three methods: the tape / DOM; footprint; and candle chart. Synthesizing the three allows an understanding greater than the sum of its parts, leading to a complete understanding of the auction process. While there are many great resources out there, I am not aware of any that provide such a comprehensive study guide.
If you don’t have or use all of these tools, that’s OK. They represent the same concepts in different forms, and I close out each review with a candle chart.
Moreover, these studies review the most recent price action - with the week still fresh in your mind this provides another key layer of understanding: context! What data was issued, and how did that affect volatility? What was the market mood during the week? Where there any geopolitical events affecting sentiment?
Furthermore, I group analysis in a few broad categories, for example look above / below and fails (LAF, LBF - see here for the mechanics of the setup), mid-morning reversals and their sister late day fades, crowded trade fails, or opening action. These lessons ultimately create a library of different market concepts. This is a powerful tool to accelerate your understanding of the auction process.
There are no substitutes or shortcuts for hard work and discipline, but the material I share here is the closest head start you may find in your journey to successful trading.
Week of Oct 14 Context
Our review takes place following the break of multi-day balance to the upside. Monday’s profile formed a ‘p’ shape suggestive of absorption. In other words, buyers would be looking for a continuation of price discovery above Monday’s value area.
Image 1. ES daily TPOs
However that absorption was a major clue that the short side may be initially favored in the opening action on Tuesday. Key structural references would thus be the VPOC (yellow bar in the volume profile), the volume value area high, as well as the M period selling tail.
It was a further clue that this selling tail took place late in the day, indicative of a strong hand from the sellers. It might also suggest they effectively stepped aside for weak longs to chase into the highs, to thus sell into favorable prices. These are important messages contained within the market profile that should not be overlooked. Remember to tell a story to provide context to your trading.
Analysis of Opening Action Tape/DOM
I consider the opening action the opening range (OR) or first the 30 minutes of action. I understand that definitions have changed over time, but unless I specify otherwise, I maintain the classic market profile definition of the OR. Remember to observe and understand the concepts the price action (absorption, exhaustion, counter-initiation) before jumping into a trade.
Refer to prior lessons for further study.
Video 1. ES tape / DOM / footprint; 5m candles; 9h54 - 10h11EST 4x speed
Before you continue, always ‘look left’. Note the area of absorption on the footprint indicated by strong selling delta bars on each candle from the open, as well as dark areas of blue at progressively lower prices. The rise in delta to 9h45 was not accompanied by rising price however!
9h55:00. Note the initiative by buyers to break to new highs - within one minute the candle delta goes from strong blue to red and further buying stalls around the VWAP. This is a strong sign of exhaustion amid weak mechanical buying. Nonetheless it is prudent to wait for the 10h00 period change.
9h59:00. Sellers begin to counter-initiate.
So how does that shape our potential trade location?