3 Day Trading Tips For Breakout Strategies Introduction

In this blog post, we will discuss three day-trading tips for breakout strategies. Trading breakouts is not as easy as it sounds. Usually, it seems good on paper at first but when you start to go down the rabbit hole, you find out that there are many nuances that make it hard. And it makes sense, it must be hard because breakouts are relatively easy to spot, therefore your breakout trade can be just a great liquidity opportunity for someone on the other side. Having said that, there are three clues that can make your breakout strategy more robust. Let’s explore what those clues are.

3 Tips For Day Trading Breakout

Ripe For Breakout

A general rule of thumb is that the longer the range is being built, the more energy (movement) is gonna be released once broken. The problem with range breakouts is the timing. If you would be selling too early, you would get destroyed by many unsuccessful attempts. Of course from hindsight, it is always easy to pick one particular point when breakout worked and neglect all the previous ones, but if you were actually trading this setup, it is a different story. But this is just one part of the equation. Let’s call it: Time + Compression= higher potential for energy release and success of a breakout.

Here is an example: As we are nearing the proper maturity of the multiweek structure, the market keeps reacting with buying tails (see red arrows). This is not a structure we want to see for the breakout. We want to see positioning being built near the tails. We need to “bulk it out”. This is the second part of the “ripe for opportunity” equation. The Character Change.

As one of the Axia Elite traders has once stated:

So remember, Time + Compression + Character Change = increases the odds of your breakout working. Read more about this in “Trading The Multiweek Range Gold Breakout” blog post.

Calm Before The Storm

If we were to analyze many different breakouts, we would focus on highlighting two important aspects:

1. The best breakouts come when markets consolidate ahead of the break
2. When we see a lack of initiative at the low prices, it is a signal that break won’t have follow-through until it does

What do we mean by the second point? Point number two is about seeing the initiative with the break. We want to see the change at the location, that lacked initiative in prior instances that failed to break.

We want to see that those responsive actors who previously defended the position are gone. This usually creates the last accumulation leg that tends to be very tight. A common mistake we all make is that we are not willing to wait for this tight accumulation and we jump early into trades.

Remember that the calm before the storm signals a change from previous instances. Use it to your advantage. Seek full example in “Two Breakout Strategies For Futures Markets“.

Rotation Retests

Every time we enter a trade, we are agreeing that we will participate in a rotational market. Most of the time market does not go in a straight line from access to the exit. Although we would love to believe that, that is not a reality of trading. So we need to be realistic about what the market will really do. One thing we can bet on is that market will be rotational. The market will present us with rotational retests.

It is our job before we enter a trade to visualize what those rotation retests will look like. What we want to see and what we don’t want to see. Here is an excerpt from one of the trades trader Harry took:

If we zoom in on the chart below, we are looking at the 1second chart. In this chart, it is clear where the break itself was tricky. If you watched the video, you might have noticed that Harry got squeezed a bit at first. He got squeezed but stayed in the trade. Specifically, he has mentioned, that he has observed many Gold breakouts and found out that they often share similar characteristics. Like a difficult start. Let’s break the stages of trading the Gold down below.

There were three stages worth mentioning that can be sometimes very typical for a Gold breakout and each trader must be aware of how to handle those stages. You can read about those stages in “Trading Gold Breakout Using Market Profile And Price Ladder“.

Going back to our original idea about rotation retests. Ask yourself: what are reasonable rotations that the market will follow based on your deeper understanding of how the market trades when it gets into your specific situation and setup? How many retests of these rotations are within the norm of your understanding of the market?

If you want to learn how we perfect our breakout strategies don’t forget to check the free webinar we are running at: https://www.elitetraderworkshop.com.

If you liked this type of content, you might check these videos as well:

• What Markets Do You Select When Trading – Price Ladder Trading
• Key Observations To Stay In A Trade – Price Ladder Trading
• 3 Reasons To Get Into A Trade – Price Ladder Trading

If you like our content and would like to improve your game, definitely check one of our courses that teach you all the techniques presented by AXIA traders from a market profile, footprint, or order-flow. If you are someone who likes to trade the news, we have a great central bank course. And if you are really serious about your future trading career, consider taking AXIA’s 6-Week Intensive High-Performance Trading Course.

Thanks for reading and until next time, trade well.

JK

How To Trade The Open Introduction

In this blog post, we will discuss how to trade the open. Trading the market open can be tricky. A lot of conflicting positions firing against each other can create pretty erratic and frustrating market movement. The increase in volume activity brings more volatility but also a moment that is harder to read from the order-flow perspective. In that case, we need to understand when is the best time for us to trade the open and when is the best time to let the dust settle and trade after the market showed its hands. If you like to trade similar trading ideas such as market open, don’t forget to check Two Breakout Strategies For Futures Markets from our blog post archive.

This article is based on the video down below.

How To Trade The Open Using Two Strategies

Strategy Selection

When we will be selecting our open strategies, we need to be really picky. The reason is simple: The open can be erratic and hard to read therefore we need more clues that will work in our favor for the market to truly move. There are two contextual clues that can give us a hint to trade the open:

• positioning unwind
• news gap

Let’s have a look at four trading examples and categorize each example into one of these two categories.

Trading The Open – News Gap in Gold

This market open can be categorized as a news gap. The market reacts to General Soleimani’s assassination over the weekend. This specific event impacted Gold and Oil the most. Gold because the increased tension can bring widespread geopolitical conflict, therefore creating a risk-off reaction. Oil reaction is caused by the higher risk of the impact on the Oil supply.

When we are playing the news gap, we are basically looking for two forces to be in play:

• old positions are being liquidated
• new positions are being added to the market

Our key is to understand what news can produce market-moving events such as this one and then trade them early in the direction of the gap.

Trading The Open – Positioning Break in Pound

In this particular case, we are looking at the pound trade, where a lot of positioning has been built at the lows, creating multiple touches of the low. Every rejection of the lows creates hope for buyers to lift the market.

This trade belongs to the positioning market open trade, where at the open, the market simply unwinds the long positions that have been built over multiple sessions. What can’t rally, usually offers. This was a textbook example that we can only test the resistance so many times.

The reason why these trades work is because we are mainly liquidating short-term positions of those traders that got long and also short-term traders adding short pressure when the market is unable to rally.

Trading The Open – Positioning Break in Bund

Similar trade to the Pound trade. The market is strongly moving premarket in the favor of longs, leaving the buildup of short positions in danger. As well as the above example, the market open will be a catalyst for the market to unwind all those short-term short positions that were built previously.

Another look here at the Bund, when we have built a positioning in a sideways range. If you were short, by the time Bund opens, you are well above your exit point (see market profile chart on the left) and your open short position is well above the range high. This creates a quick liquidation pop into the premarket.

Your role is to use this liquidation in your favor and ride the market pop after the open.

The last example but again similar to Bund is the Eurostoxx trade. Market gaps are unable to close the gap and provide an ideal spot for short-term shorts to liquidate their positions. This creates the directional pop and an opportunity to trade the market open.

Key Trading Takeaway Trading Market Open

It is key to understand what circumstances can actually create an interesting market open. The high probability trade is either a news gap, or positioning unwind. Any gap above or below the previous week’s range can provide an opportunity for at least a short-term market scalp for those, who needed to cover their positions.

Thanks for reading.

If you want to learn how we trade the markets in much greater detail, don’t forget to check the free webinar we are running at: https://www.elitetraderworkshop.com.

If you liked this type of content, you might check these videos as well:

• Trading The Futures Open Gap Strategy | Axia Futures
• 3 Rules For Trading A Gap
• How Market Gaps Affects Your Trading

In case you are interested in finding out more about trader training to learn how to trade and explore other great trading strategies, check out our futures trading course that teaches you exactly that and more. Or if you want to really maximize your ladder execution, check out our price ladder trading course.

Thanks for reading again and until next time, trade well.

JK

Three Trading Principles For Volume Market Analysis Introduction

In this article, we will describe three trading principles for volume market analysis. Sometimes we perceive volume as binary but it is all about the relation of the volume to other variables. Essentially we will break down principles such as volume vs price, volatility, and positioning. Using these trading principles we will define possible expectations for future market moves. If you like this article about volume, you might also check out the article about the Cumulative Volume Delta indicator. Let’s get started.

This article is based on the video down below.

Three Trading Principles

Introduction

We will start with a simple yet powerful indicator – volume. Volume tells us how much transactional activity happens between buyers and sellers. Don’t forget. The sole purpose of the market is to match buyers and sellers through price discovery process. Market’s purpose is simply to facilitate trades. Our goal is to look at the volume that is being transacted and derive clues about possible future market expectations.

Volume vs Price

In the first principle, we will be looking at the relationship between volume and price. In the simplified form, we will be talking about markets where:

• price move (trend) is happening on the back of the lower volume
• price move (trend) is happening on the back of the higher volume

Let’s start with the first scenario. Down below we have a chart of Oil and we can clearly see that as the price rises, volume declines. What do we derive from this relationship? In simple terms, it means that the next significant pocket of liquidity can stop the move, and a reversal might be ahead. We can theoretically say that about any move regardless of volume, but what is an important distinguishing factor is that the speed with which we can correct previous structure created on declining volume will happen faster. This can define more clearly your objective once the reversal move has been established.

Another option is rising volume on the back of the trending move. As prices are trending, it attracts more and more participants. This is the move that should not be faded. We know that market is strongly aligned and it’s worth stepping away and don’t get run over. On the image below you can see that you can actually use the diverging price (rising price) and volume (declining volume) as a way to access the trend on the pullback (see pink arrows on the image).

Positioning

In regards to positioning a rule of thumb is simple: if we are trending but volume is decreasing, there is a lack of proper positioning being built. This positioning can be helpful when assessing higher timeframe market participants and can be crucial information for possible unwinding moves. The bigger the positioning, the stronger the unwind if the move starts to fail. Something to remember with future moves as well.

Volatility

So what is the clue about the volatility? Again it is about the relation between price range and volume. Sometimes, volatility can be high but volume average or even below average. Where is the clue? When you see the highly volatile day but average volume, it can set expectations for the next day: the next day might be likely a more balanced day, possibly an inside day. Something that can help you in selecting the right strategy for this type of day.

Trading Takeaway

Out of all the points, we would highlight as the key takeaway the price x volume relationship. You can follow these guiding principles:

• when there is a trend in a market on a higher volume, be careful fading it
• when there is a lower volume on a drifting but trending move, be cautious to go with the trend

Thanks for reading. Trade well.

FREE Webinar Sign Up: https://www.elitetraderworkshop.com/

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Trading The Shooting Star Candlestick With Market Profile Introduction

In this blog post, we will look at trading the shooting star candlestick with market profile. This was the trade taken by Isaac and he explains his thought process executing this type of trade. A lot of the times traders ask us what are the best tools to start with. Should you start with candlesticks or market profile? Price ladder or Footprint? All these techniques are just tools and their combination gives you insight into the psychology of the market, not the edge. What gives you the edge is the execution of all moving parts including your psychology. In this particular case, Isaac breaks down how understanding the shooting star insights from the market profile point of view, can give you an advantage in understanding if this is the right shooting star to sell. If you like the concept of combining market profile a standard technical analysis into executable strategy, don’t forget to check our previous blog post Scalping Reversal Strategy Of Trapped Market Participants

This article is based on the video down below.

If you are interested in videos like this, watch the full video on a free two-week trial at https://www.AxiaFutures.com/

Shooting Star Trading Context

Introduction

In our analysis, we will be using several tools. We will start the analysis with a daily view of the candlestick chart. On the candlestick chart, we have identified a shooting star pattern. This pattern in our context (market trending higher) can provide an insight that the market might at least temporarily move lower. But using just a candlestick is not enough. We want to understand two main angles of the trade:

1. How was the previous move created that preceded the formation of a shooting star?
2. How was the actual shooting start constructed from the market profile view?

Trading Clues Derived From Trading The Shooting Star

To answer the questions above, we will start with understanding how was the preceding move created prior to the shooting star.

The first clue is understanding how the move was created. By looking at the structure, we can see that the chart lacks a two-way auctioning process. A process that tells us, that both sides participated. In this case, we can see that sellers were willing to accept higher prices without much resistance. This creates a possible clue for us in the future in the form of a weak structure that will be more “easily” auctioned back. This move happened on the ECB day where more emotions were driving the market than the usual day.

Now let’s have a look at the daily context.

As we can see from the image above, a shooting star has been formed after the ECB day. We now want to look at the structure from the market profile point of view.

From the market profile picture we can see that:

• market gapped higher
• market moved higher but created an “edgy tail” at the highs that resulted in the shooting star formation – this means a form of responsive selling where buying participation was not ideal

Moving onto the next day, the market opened in value area and in range. After that, the market started to build this balanced to b shape intraday, which signals again responsive selling pressure and bearish imbalance at the lows. This results in a bearish skew and our signal to aim the “sell the Bund” idea.

Executing On The Shooting Star Idea

With all clues coming together, Isaac has chosen to execute this idea with the passive pullback access strategy. Why? His reasoning was, that all the people who were trapped and long, will look for the best location to exit their position, and it would be a good opportunity to seek absorption and a short trade at this location.

Key Trading Takeaway

Are you interested in insights that market profile can give you? Check out how professionals use their tools such as market profile that has been used in this analysis. The main lesson from this post is the combination of clues that led to this trade. Highlights such as poor structure prior to shooting star day, edgy tail, and responsive selling that created bearish imbalance were all small telling signs.

Thanks for reading.

If you liked this type of content, you might check these videos as well:

• How To Manage & Exit A Failed Breakout Trade
• Sign Of A Breakout About To Fail – Price Ladder Trading
• Market Profile Trading: Better Breakouts with Context and Volume Profiling

If you like our content and would like to improve your game, definitely check one of our courses that teach you all the techniques presented by AXIA traders from a market profile, footprint, or order-flow. If you are someone who likes to trade the news, we have a great central bank course. And if you are really serious about your future trading career, consider taking AXIA’s 6-Week Intensive High-Performance Trading Course.

Thanks for reading again and until next time, trade well.

JK

Brief Nuggets Of Trading Wisdom – Trade Considerations Introduction

Our attention is being bombarded by so much information in the world of trading. In this post, I will try to compress for you the key points that stood out for me in the selected AXIA Instagram posts. I will focus on things a trader should consider before taking a trade. These trade considerations might seem obvious at the first sight but usually become more nuanced when looking closer.

A breakdown below presents a trader with a set of clues to consider. One of the articles you can read on stalking the clues can be found in the “Stalking Trading Clues Leading To Inside Day Break“.

Want more free training? Sign up for this LIVE webinar  at https://www.EliteTraderWorkshop.com/

Trade Considerations Nuggets

Risk Reward Equation

Risk reward (RR) equation is about how much we risk vs how much we can get. On the outside, this equation seems elegant, almost too dogmatic. The problem is that it is too simplistic. Many times in my trading I have fallen in love with the idea of the “favorable” RR only to completely miss if this RR is realistic.

My takeaway: don’t be mislead by RR only, combine it with the probability/chance of getting that RR. Sometimes I use two variables. RR and Confidence. With confidence, I use a scale of 1-5 with 5 being the highest and 1 the lowest. If the RR is 4:1, I evaluate also a confidence variable. What is my confidence with the trade that it will really get that favorable RR. If it is lower than 3 (including 3), I know it is not an ideal trade.

What Is Better Trade To Take

This directly correlates with the RR equation above. In this case, one has a more favorable RR than the other. Given the clues Richard has explained, which one would you take?

My takeaway: I would rather take a smaller RR, but better (more vulnerable target structure), than a higher RR in which I would feel less confident. What would you do?

Building The Wisdom Through Failure

Through hell of a failure, we build wisdom. Many of the trading experiences are painful and unfortunately, we repeat them many times over. It might sound obvious but there is no escape. You will most likely suffer before will start making any money.

My takeaway: intellectually we all understand that, but only showing up every day, learning from the mistakes without the pressure of having a time by which we have to succeed can get us closer to consistent profitability. I have noticed that the best insights come after the hardest tests (big drawdowns). Don’t rush things after they happen. Let them settle. Some time ago I used to continuously fade the trend days because I hoped some fancy old levels would hold. I must have done it 100 times and got burned until once it was so painful, that I stopped.

The Should Trade

The Should trade is when the market should do something, and if it doesn’t do it, should you get out of the trade? Easier said than done, especially when we have invested a lot of energy into a trade, let alone failed attempts trying to get into the trade. The more we are getting attracted to the trade, the more irrational we might become and miss important clues and nuances that tell us, “the should” did not happen.

In the example described by Richard, we have approached the level of a possible breakout for the third time in the Bund. Observing the price ladder, there was a point from which the market “should” go. Lots of reloading and pulling, aggressiveness from sellers, and the inability of buyers to lift the offer caused the market to fail and follow not through. The “should” did not happen.

My takeaway: understand very clearly, what you want to see on the break and don’t compromise. I was once told by the Elite AXIA trader that it is understanding your expectations for the move from the moment you enter to your target (A to B move) that gives you the edge to hold or fold. We all train to identify the opportunity which trades to enter, only to completely miss the mastery of the A to B moves.

Thanks for reading, don’t forget to check our content on AXIA Instagram.

If you like our content and would like to improve your game, definitely check one of our courses that teach you all the techniques presented by AXIA traders from a market profile, footprint, or order-flow. If you are someone who likes to trade the news, we have a great central bank course. And if you are really serious about your future trading career, consider taking AXIA’s 6-Week Intensive High-Performance Trading Course.

Trade well.

JK

Key Takeaways From Candlestick Analysis Of Euro And Oil Introduction

In this article, we will discuss some of my key takeaways from the candlestick analysis of Euro, Oil, and other products recorded on Eric live-stream. I will focus mainly on big picture contextual clues, extensions, WWSHD, and relative comparison of the previous price action at the same location. I will highlight clues that I have missed, my thought process trading it live, and more.

This analysis is part of a private live streaming offering where we share Axia Futures insights with the Axia trading community. A smaller portion of the content is then shared publicly for free with the broader trading community via our YouTube channel, Instagram, and Blog. In total, the video down below is packed with technical analysis of 7 products so a lot to learn from.

Trading Opportunity In Euro

Most of the live-stream is focused on the Euro product. The technical analysis starts from here. Euro has been trading in a range for three days before breaking up higher. This break is what we will focus on. It has been in a continuous uptrend for the last two weeks so, from a daily perspective, buyers were in control. I like a couple of points Eric has highlighted. First, it is the comparison to the previous daily highs (which I have personally missed) and how it got rejected back in the past (see the blue box down below). The blue box highlights, that the rejection was much stronger to the downside in the past. But not this time. This time we have come and created a rather compressed daily range without much of a rejection. Yes, last time we were trending down and sellers were in control but the relative comparison gives you one clue that this time, sellers are not so eager to sell and energy is building up in the multiday range.

Before commenting on the break, I want to give you my thought process because I was trading this break. Notice, that before we broke the range higher, we actually took the low of yesterday (in the Asian session). We took the low and started to move higher. First back into the range. And then very consistently started to move higher without any decent pullback (a sign of potential short-covering squeeze). My thinking at that time was, we will take the daily range highs. But my logic was telling me that if we will take the highs aggressively but momentum fades away quickly after, this move is going to fade back into the range because of the exhaustion. I was wrong. You see my idea was the opposite of Eric. My thought process was that buyers will be exhausted, stops will be taken once we break the highs of the daily range and we will pull back. Nope. I managed to make very little money on the fade but only because I quickly recognized the energy with which we broke had a continuation characteristic, not a reversal. Now back to the clue Eric has pointed out.

The second clue that I like that was highlighted by Eric is the resilience candle prior to the break. From the price ladder you can recognize that every time we break to the new high, we start to hold. That last red candle prior to the aggressive break is the last resilience candle that could not fill the low volume area just left behind. There was also a larger size sitting on the offer that once taken, might trigger the even bigger move. Placing your stop below the resilience candle and going for a break was a place to be.

If you want to watch the price ladder break to the upside, it starts here.

Trading Opportunity In Oil

The theme of this observation is “keep the big picture” in mind and remember the WWSHD (When What Should Happen Doesn’t). What do I mean by the big picture? Down below you are looking at oil and its multi-week range. As you can see at the end of the range, the volatility compressed and we broke to the upside. The break was supported by Inventory numbers and produced an impulsive move higher leaving single prints behind. Given the energy compressed in the multi-week range, we should see Oil to continue trade at higher prices reaching the projected target. But that did not happen. Now you have a big picture in mind (energy should drive Oil higher), but Oil gets stuck in the tight range and cant rally anymore. Now WWSHD comes into the play. Oil should be at higher prices, but it’s not. Its lack of energy leads in the upcoming days to full retrace back to the original breakout point from the multiweek range. Two trading clues to consider in your trading arsenal could give you an opportunity to go short after Oil fails to break and continue higher.

If you want to listen to full analysis, it starts from here.

Technical Analysis Summary

Hopefully, the highlights have been helpful. To wrap up, keep in mind the big picture context, expectation vs reality projection targets aka WWSHD, and relative comparisons. If you would like to see other analysis from Eric from this particular stream, here is the breakdown of the timing:

• Euro, Multiday range breakout
• Pound, Double bottom neckline break + Channel break
• Dax, Pullback
• Stoxx, Pullback
• Bund, Downside channel
• ES, Upside channel
• Gold, Double bottom neckline break

If you liked this type of content, you might check these videos as well:

• Support & Resistance Explained – Candlestick Charts | Axia Futures
• 3 Trading Principles – Candlestick Charts | Axia Futures
• AXIA Junior Trader Looking For Break Of Trendline In Gold | Axia Futures

If you like our content and would like to improve your game, definitely check one of our courses that teach you all the techniques presented by AXIA traders from a market profile, footprint, or order-flow. If you are someone who likes to trade the news, we have a great central bank course. And if you are really serious about your future trading career, consider taking AXIA’s 6-Week Intensive High-Performance Trading Course.

Thanks for reading and until next time, trade well.

When Market Correlations Get Back In Sync Again Introduction

Let’s have a look at the topic of correlations, specifically, when market correlations get back in sync again. Correlation is a market dynamics when two or more markets move either together (positive correlation) or in the opposite direction (negative/inverse correlation). The obvious time when these forces are in play happens when market trades in its true risk-on/risk-off mode. In the risk-on environments equities rally, fixed income, and dollar offers, and vice versa for risk-off env. This has to do with money rotating between riskier assets and safer assets. If you have been paying attention to correlations more closely, you must have noticed that these dynamics do not always work but there are times when they get back in sync that might provide a favorable trading opportunity. And this is what we are going to focus on in this article. Other times we can rely on the correlated markets to manage our position like in the trade described here.

This article is based on the video down below.

Setting The Base For Dax And Bund Trade Idea

Starting with the big picture, we are looking at DAX (on the left) and BUND (on the right). DAX has led with weakness into the day before our execution. BUND started with weakness (test down and reverse part) but reversed and closed higher. Chances for the rally and continuation higher favor Bund thanks to the base and V reversal characteristic.

At the moment we can say, that both products are positively correlated. We will monitor the pair (DAX[equities] vs BUND[fixed income) and try to lean on the “catching up” if it occurs. Let’s move on to the lower timeframe.

Zooming In On Lower Timeframe

On the open DAX creates a large initial balance (a possible sign of a rangebound market after the cash open) and Bund creates a very tight initial balance (that can signal a potential directional breakout). So far we can witness a positive correlation with a partial retrace of DAX after the cash opens back into the middle of the balance and reversing higher. Bund in a meantime breaks strongly the tight initial balance and creates an impulsive move higher.

As DAX is creating a compressed range at the top of the chart, Bund starts to roll-over down. As the Bund starts to hold the ground after its fall, DAX starts to fall back into its initial balance leaving for us an interesting target of the unclosed gap. Let’s zoom in on the access point and possible execution.

Access Point In The DAX

As the DAX starts to roll from its upper range, Bund starts to reverse at the previous day high. With the vulnerability left in the DAX in the form of the unclosed gap, we can start targeting this gap as we break short and lean on the correlation while maintaining our position.

The key takeaway from this trade is not the idea to purely search for correlations to catch up (because many times they don’t), but rather monitor variables we can lean on. Variables that can give us extra confidence keeping the trade on. In this particular instance, it was a series of clues + the correlation catchup that made this trade possible.

If you liked this type of content, you might check these videos as well:

• Price Ladder Correlation Play Between Dax & Eurostoxx | Axia Futures
• How Correlation Can Influence Your Trading Strategy | Axia Futures
• Correlation Breakdown – Price Ladder Trading | Axia Futures

If you like our content and would like to improve your game, definitely check one of our courses that teach you all the techniques presented by AXIA traders from a market profile, footprint, or order-flow. If you are someone who likes to trade the news, we have a great central bank course. And if you are really serious about your future trading career, consider taking AXIA’s 6-Week Intensive High-Performance Trading Course.

Thanks for reading and until next time, trade well.

JK

Trading Key Market Auction Reversals Introduction

In this post, we will be looking at how to trade key market auction reversals. Specifically, we will be interested in the architecture of an important reversal from the market auctioning perspective. Volume, volatility, and interaction between buyers and sellers will be the building blocks of the V shape reversal strategy described below. This strategy has similar characteristics to the strategy we have described in our previous post: Reversal Trade Catching The Stops In Gold. Only in this specific case, we will be looking at a slightly bigger picture timeframe. Nevertheless, the principles behind the strategy follow a similar price discovery process. Let’s have a look at what we mean by that.

For more, see the video down below

Principles Of Key Auction Reversals Strategy

In order to explain this Key Auction Reversal strategy, we need to highlight the important words that define the title of the strategy. Key, Auction, and Reversal. Why “Key”? Because we are particularly interested in seeing higher timeframe participants step in creating that big change in positioning, resulting in an increase of volume and volatility. Then we want to see an “Auctioning” activity that at one point flips the original initiative and drives the move in the opposite direction with the same force, hence the “Reversal” in the title of the strategy. We want to see that shift in positioning. With all these attributes combined, this pattern can become a lucrative one. Since it does not happen often on a bigger picture timeframe (daily/weekly), we need to squeeze as much as we can when we spot this type of reversal.

How To Trade Key Auction Reversals Strategy

As we have mentioned, the strategy is usually initiated by a one-directional initiative move (in this case initiative selling) and reversed with a sharp reversal (initiative buying), both happening on increased volume and volatility. We can call the first phase of the move a V Reversal, and the second phase of the move as secondary positioning. What is nice about this strategy is that we usually have clearly defined risk after the V Reversal part has been completed, and a form of a retracement followed. Why? Because in a Key Auction Reversal we should not revisit the low, we should not even come closer. If we do, it is not a Key Auction Reversal anymore. So how can we access (enter) this strategy?

On the chart above there are three blue circles. The very first one (on left) is usually the best area to access. Yes, the V has not been formed yet, so you have to use other tools (like your price ladder or a footprint) to recognize that this part of the movie is happening. The second best entry and the safest one is after the V Reversal phase has been completed and a retracement happened. Using tools such as footprint and previous support and resistance, you can spot an area of the highest likelihood of this retracement reversal. The third possibility of how to access the strategy is the low of the first retracement after the V Reversal has been formed. In all cases, the stop should be placed below the secondary positioning low of that first retracement that happened after V Reversal phase.

Here is one more example from a US Fixed Income market, daily timeframe.

Key Takeaways From The Reversals Strategy

In both cases above, we want to see a symmetry of our V shape reversal, which is followed by the phase of secondary positioning (consolidation). Playing the consolidating part can be more robust. Why? Because we can with better precision pick a location, where we are wrong on a trade, and manage our risk with a higher degree of consistency than picking a point of a reversal where that initiative buying steps in. Also, this strategy can provide a nice asymmetrical RR (risk-reward). So next time you will be looking for an opportunity similar to this one, remember that it is the change in positioning, increased volume, and volatility going into the unchartered territory that can create an opportunity for a Key Market Reversal.

If you liked this type of content, you might check these videos as well:

• The Exhaustion Reversal – Trade Strategies | Axia Futures
• The Famous Block Reversal Trade | Axia Futures
• How To Trade The Delta Reversal Strategy Using Footprint | Axia Futures

If you like our content and would like to improve your game, definitely check one of our courses that teach you all the techniques presented by AXIA traders from a market profile, footprint, or order-flow. If you are someone who likes to trade the news, we have a great central bank course. And if you are really serious about your future trading career, consider taking AXIA’s 6-Week Intensive High-Performance Trading Course.

Thanks for reading and until next time, trade well.

JK

• What do you know about liquidation days?
• What do you know about trend days?
• How do they typically develop?

That is the base you need to break down the characteristics of these moves, which will then enable you to spot them as they are happening and give you a chance to act accordingly. 

Trend Day vs Liquidation Day

Firstly, let’s point out that the trend day is a very tricky thing to predict beforehand. Ultimately for a trend type day to happen you need to have larger time frame participants to come into the market. They will continue to buy or sell throughout all day and they are the ones that keep the move going. That’s really hard to predict – you practically can’t foresee that any bank, hedge fund, mutual fund, or any other large frame participant will start buying (or selling) exactly today. So it’s not about predicting the trend – it’s about identifying it as soon as possible once it starts. To do that you need to know in advance the specific characteristics which you’re going to look for. 

There are however situations when you can start to think that the trend is likely to happen – particularly as you get out of an area where the market, after some directional move, has been in consolidation and you’re continuing in the same direction.

The example of that you can see on a chart above which shows European equities on a move up at the end of May. We then get a day of consolidation, after which price breaks higher on the 27th of May and continues the move in trend type fashion. This is similar to what you can notice on a lower time frame chart, where you see a move up followed by consolidation followed by continuation. Having said that, it’s not very often when we get quite a clear market structure like that, therefore we want to pay attention to the hallmarks trend type day has once it starts. 

Liquidation move on the other hand is a little bit more straightforward because you are able to point out where you can expect it to happen. In advance, you’re starting to think about these possibilities and the reasons for liquidation? You won’t get liquidation if you haven’t had a phase of positioning. The phase of positioning is where the market moved to a new area people are trying to buy (or sell) to continue the move – without any significant effect. You, therefore, have positions that are trapped and with the turning will go running for the exit, triggering potential liquidation.

• Why day trading not simple? Part III
• Top 3 Reversal Candlestick Patterns
• Trading floor development

Key Characteristics Of Trend And Liquidation Day

The next thing is once the day starts is to ask yourself if you have any of the characteristics listed below:

Before it starts

1. Small Initial Balance 

As soon as you got that you should straight away think that you have a potential_for a trend or liquidation type day. The next stage of the move is gonna tell you which of the two is more likely. 

The first part of the move

2. Fast early move trough clear level ~ liquidation 

On a fast move out of Initial Balance, especially when the market breaks any clear level – meaning, a distinct point on hourly or 15 minutes chart where you could quite easily say market participants will be forced to act, because of stops placed there – that’s an indication of a liquidation type day. You should then be expecting the adequate order flow after that. 

3. Absorption phases (tight range) then new push ~ trend

In the beginning, you won’t necessarily see a huge early move, but it will still have a very clear push in one direction and then it will (rather than just drop/spike very fast and stall) have phases whereas it stalls and the market will just absorb any retracement back. This will create a tight range, like a small flag on a 1 minute or 5 minutes chart, and then you’ll get another push in the same direction. This will be quite quick, however, you won’t see it continue on and on, rather you can notice selling pressure moving steadily lower and lower (or buying pressure moving higher). Market participants progressively moving into the same direction – rather than just chasing the price is a strong indication of trend type move. Each time they sell once they can’t sell anymore at these prices – they will push price further and engage with the next buyers (or sellers) they’ll find. 

After recognizing the first part of the move and connecting it with liquidation or trend you take a look at:

Rotations

What happens on any movement back? Are we getting back trough the recent support/resistance? Having broken support do we stay below it? 

4. Rotation back trough previous short term highs/lows ~liquidation 

If you see the price going through short term levels it is another indication you’re faced with liquidation type move, and you’re going to see balancing out of the bottom(or top) of the day. 

5. Support becomes resistance short term ~ trend 

If support being broken is then used by the sellers to position short below it, you have an indication of trend type move. 

Low Volume Nodes

6. Low Volume Nodes getting filled in ~ liquidation

If the low volume patches that initially appeared on a ladder with the directional move are getting filled with market rotating back – you’re getting one more sign it’s a liquidation move, meaning there’s no more new selling coming down at those areas. 

7. Low Volume Nodes used as a support ~ trend

Approaching Low Volume patches market participants get active and move price away in the direction of the first part of the move. You can see an example of that in the EUR/USD contract continuation trade we talked about in the previous post. 

Examples of Liquidation And Trend Days

In order to get a full understanding of how to use that knowledge in practice, please have a look a the video, where Richard from Axia Trading Floor explains the approach at different stages of the day developing in the Eurostoxx market.

Learn To Trade Market Profile Day Types

To learn to trade market profile day types and develop your career as an elite trader then check out our range of Trader ​Training courses. Our flagship 8 Week Career Programme can be attended live on our London Trading Floor or virtually from home as an online trading course. These are the most comprehensive training programmes in the proprietary​ ​futures​ ​trading industry and are based​ ​upon years of successful in-house skill​s ​development​.

Introduction to Candlestick Charts:

In this blog, you will learn to trade the most common and significant Reversal Candlesticks Patterns that I see almost everyday and that you will come across in trading. Candlestick charts are a great tool to make trading decisions based on regularly occurring Candlestick Patterns and help forecast the direction of the market’s price.

Before going into the details of the Candlesticks charts, I would like to express that Candlestick charts cannot be taken on their own, it is one of the great trading tool that helps to read market movements but you always have to read Candlestick charts in context and combine it with other tools like the price ladder and with an order flow strategy to make the best trading decision. 

I often hear traders expressed their discontent because the market did not react as they would have expected and I always ask them the following questions: 

• Did you check your time frame? 
• Did you wait for the close of the pattern? 
• Have you checked the bigger picture?
• What phase of the overall trend was your specific candlestick pattern? Was it in a market trend or inside a range?

Basically, did you ask yourself the right questions before interpreting a candlestick pattern for what it is? Did you put the Candlestick pattern in context?

Why should I learn to trade Candlestick charts and why should I use them?

I will not go through all the history of Candlestick charts but straight to the main points.

• Majority of Traders use them:

Candlestick charts are one of the most used charts by Futures Day Traders so it makes sense for you to learn how to read them. By choosing the representation of the market that is the most commonly used, you will have the same view as the majority of market’s participants which is already a first benefit of this tool.

• A representation of the price action visually quick and easy to read

Traders use Candlestick charts because a Candlestick is formed with 4 criteria: Open, Close,high and low throughout a period of time a trader specifies. Without going into details at this stage that you will find below in the article, already you can see it becomes very easy to spot a high price, low price and be visually quickly aware when the market is going up (easy to spot a green candlestick body) or down (with a red candlestick body).

On the image below you can see the structure of an upside candlestick in green and a downside candlestick in red.

Now that you know how to read a candlestick, I will share with you the 3 most common Reversal Patterns that you will come across that will help you make a trading decision.

2 factors can influence the significance of a pattern, its shape (I will be developing below) and the timeframe.

What timeframe should I use? 

You will often hear people asking this question, and it is not possible to answer with a straight recommendation. The question is not if one is better than another one, it all depends on your strategy, are you a scalper or a swing trader? My view on that question is : more the time frame of the candlestick is big, more the significance of the candlestick is important, so if you are looking for a reversal pattern after a trend of couple of weeks, you will be better to choose a 2 Hours or 4 Hours candlestick chart.

There is another aspect of the Candlesticks that is not so often put forward, which I think is key, is the close of the candle. It sounds obvious to think that a candlestick should have a significance only when it is close, but in your trading career, you will face the FOMO (Fear Of Missing Out) and this feeling can apply to every day trader. You will find yourself trading on the back of a hypothetical Candlestick shape that may never have formed.

So make sure you wait for the close of the candlestick before you validate your pattern.

The Most Common and Significant Reversal Candlestick Patterns to Know

I think the most important is first, to be able to recognise Candlestick patterns and then, to know their significance on the future of the market’s price. To be as closed as the reality of a day trader experience and be immediately useful for you, I will summarize which Candlestick pattern you will most likely see and which ones will affect the most the market price action.

This is why I have regrouped the Candlestick patterns per theme, by doing so, I will not make any difference between a hammer and Dragonfly Doji, a shooting star and an inverted hammer, because when you are a day trader, the most important is to understand the significance of the candlestick as quickly as possible more than the exact shape of it.

1- REVERSAL CANDLESTICK PATTERNS : THE HAMMER/DRAGONFLY DOJI

They are well known Candlesticks shapes for day traders. They are also simple and easy Candlesticks shapes to spot live.

What is the shape? 

The Hammer/DragonFly Doji are candles with a long wick and usually a small body that closes at the top or around the top of the Candle. The only difference between a Hammer and Dragonfly Doji is the price of the close (Dragonfly doji closing price is exactly the same as the opening price). Deliberately, I have chosen different Hammers shapes on the picture and regroupe Hammer and Dragonfly doji because it doesn’t really matter if the close of the candle is not perfectly the same as the opening one. For me the interpretation is the same, when you are a day trader, the most important is to be able to quickly visualize the shape. Important precision, the longer the wick of the candle is, the greater the candle’s significance is.

WARNING : Make sure you wait for the close of the candle before any validation.

When should I use this shape of pattern? 

The hammer let you know when the market is ready to take a pause on its downside trend and usually calls the start of a retracement in the bearish trend. This is a very helpful candlestick when either you want to take profit from a short position or it is mostly used to pick a bottom in a bearish market. In my opinion, the best is to trade the Hammer only when the market has a bearish trend. Again, the context is important, you might see a hammer in the middle of a range or in a consolidation area but it will not have the same effects and same expectations as a Hammer on a bearish trend. 

Translation from a market participant’s perspective : 

You have to think about short Traders who didn’t take profit (because the trend is bearish) or short traders who sold the lows and are frustrated and are becoming nervous. All of them will want to buy back if the market does not come back down. This is why, when the wick of the candle is long, that means the bounce occurs quickly and lower prices never get retested, so most Traders with a short position did not have time to take profit (and see their profit reducing), and those who sold the lows are offside quickly. In consequence, you usually see the start of a retracement/taking profit movement.

Put into context, the candle before the hammer and the candle after the Hammer is as significant as the hammer by itself and you can relate to Price Action Strategy for more details.

2- REVERSAL CANDLESTICK PATTERNS : THE SHOOTING STAR/ GRAVESTONE DOJI

They are well known Candlestick shapes for day traders. They are also simple and easy shapes of candle to spot live that you will come across often and it will help you in your trading decisions. 

What is the shape?

Like the Hammer and the DragonFly Doji, I have regrouped the Shooting Star and the Gravestone Doji together because what you want to know is the meaning of those shapes, no matter if the close is not to the tick exactly the same as the open. 

The Shooting star is a candle with a long wick and usually a small body that closes at the bottom or around the bottom of the Candle. The only difference between a Shooting Star and Gravestone Doji is the price of the close (Gravestone Doji closing price is exactly the same as the opening price). I have deliberately chosen different Shooting Stars shapes on the picture because for me the interpretation is the same. Important precision, the longer the wick of the candle is, the greater the candle’s significance is.

WARNING : Make sure you wait for the close of the candle before any validation.

When should I use this shape of pattern? 

This Candlestick pattern is basically the opposite of the Hammer (that signals a pause in down trend), this time, the Shooting Star signals a pause in an up trend and could signal the start of a retracement. This is a very helpful candlestick when either you want to take profit from a long position or it is mostly used to pick a top of a market move. In my opinion, the best is to trade the Shooting star only when the market has a bullish trend. Again, the context is important, you might see a Shooting Star in the middle of a range or in a consolidation area but it will not have the same effects and same expectations as a Shooting Star on a bullish trend.

Translation from a market participant’s perspective : 

You have to think that long Traders that didn’t take profit (because the trend is bullish) or long traders that bought the highs are vulnerable and becoming nervous, all of them will want to sell if the market does not come back up. This is why, when the wick of the candle is long, that means the sell off occurs quickly and higher prices never get retested, so most Traders with a long position did not have time to take profit (and see their profit reducing), and those who bought the highs are offside quickly. In consequence, you usually see the start of a retracement/taking profit movement.

Put into context, the candle before the shooting star and the candle after the shooting star is as significant as the shooting star by itself and you can relate to Price Action Strategy for more details

3- REVERSAL CANDLESTICK PATTERNS : ENGULFING PATTERNS

Important aspect of this Candlestick Pattern, you can not take the Engulfing Pattern on its own, the Engulfing Pattern is only viable based on the previous candlestick.

Like the previous Candlestick shapes, Engulfing Patterns are well known for intraday traders. They are also simple and easy shapes of candle to spot live that you will come across often and it will help you in your trading decisions. 

What is the shape?

You will come across Bullish and Bearish Engulfing patterns, instinctively it very easy to understand that the Bullish Engulfing will have a body with a closing price higher than the opening price (usually a green body), and a Bearish Engulfing will have closing price lower than the opening price (usually a red body).

The body has to be large and it has to be bigger than the previous candlestick.

When should I use this shape of pattern?

You should mostly use this candle when you expect the market to reverse its current trend.

When you see those Candlestick patterns (either Bullish or Bearish), if you have already a position within the trend, it should signal an opportunity to take profit and if you are looking to trade a retracement or a start of reversal move, that should signal a possible entry price.

Translation from a market participant’s perspective :

When you have Bullish Engulfing, you have to read it as the buyers have definitely stepped in. Buyers have been able to stop the bearish trend. Also, most buyers are on-side and are not vulnerable at the close of candle, contrario to the shorts which have not taken profit yet and will most likely want to exit in the next candles to come, pushing the price higher.

The opposite interpretation is true for the Bearish Engulfing. Shorts have stepped in and stopped the bullish trend, more shorts are onside at the close of the candle than long are onside so the long traders will feel vulnerable and most likely want to exit in the next candles, pushing the price lower.

Conclusion

You now know how to recognize and trade the most common Reversal Candlestick patterns that you will come across over your day trading career. 

They are a significant help in your understanding of the markets and will have definitely a big role in your trading decision.

Do not forget, like I explained in this article, the context of the candle is essential (the big picture and the price action: Trend, range, consolidation, liquidation, flag, triangle, wedge…), tacking the candle only by itself does not make sense and can actually disrupt your reading of the markets.

In any time-frame you are using for your candlestick charts,  make sure you wait for the close of the candle before any validation of them.

Always keep your curiosity wide opened, have a look at your charts, see how markets have built those Reversal Candlestick Patterns and what was the market reaction after those candles, more you get used to recognize them, more you will have trust in them and more you will be able to rely and use them in your trading decisions.

Great Trading

EJ

Learn To Trade Candle Patterns & More

To learn to trade with real price action and develop your career as an elite trader then check out our range of Trader ​Training courses. Our flagship 8 Week Career Programme can be attended live on our London Trading Floor or virutally from home as an online trading couse. These are the most comprehensive training programmes in the proprietary​ ​futures​ ​trading industry and are based​ ​upon years of successful in-house skill​s ​development​.