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« Emini Futures | Fear The Irrational Emotion | Main | Emini Futures | Trading Price Action - 5 Minute Emini Chart »
Monday
May072012

Emini Futures | Why Price Action Matters

(QQQ)(DIA)(SPY)(GLD)(SLV)

The S&P 500 Emini Futures rallied today and more than closed the gap created on Sunday night's Globex open. The Bank of Japan spent 39.7 Billion Yen on Stock ETF's today. They also acquired 2.3 Billion in REIT's. As you can see from the chart below the action was sufficient to create a 13 point profit on last night's Tweet but so far the Asian markets tonight look somewhat soft, in particular China. We have a Tweet in the wind tonight as well. As always, wear a hard stop.

SP 500 Emini Futures (ES) 05/07/12S&P 500 Emini Futures (ES) 05/07/12

 

S&P 500 Emini Futures

This may be the last video recap in this series. I believe I've made my point and beyond. Perhaps we should move on to something different. Through this series we have shown that on a fast day, a slow day, even a Fed day, you only need to understand one thing. 

ES Emini Recap Video 05/07/12

If you understand that one thing, and understand it well, it's the only thing you ever need to know.

 

Why Price Action Matters

matters because unless you have the ability to predict the future, it's the only clue you have as to what side of the market you want to be on. Forget the conspiracy theories and focus on what's happening right now, right in front of you and be prepared to change sides when the balance of power shifts.

The most useful aspect of price action is understanding what happens when the market moves beyond swing highs, swing lows, or trend lines on the chart. If price trades above a significant prior high and the next bar forms a low that is above the prior bar's low and a high that is above the prior bar's high, then this price action indicates that the market will likely move higher, even if it pulls back in the near term.

On the other hand, if the market breaks out to the upside, and the next bar is an inside bar and the following bar has a low that is below the inside bar, their is a good probability that you are witnessing a failed breakout and that a reversal back down has very good odds.

While this small example of price action is only the tip of the iceberg, my point is simply that what is happening on the chart right now, is relaying to you the purest information you will ever receive about what the market is doing right now. It is not unreasonable to believe that markets are driven by large institutional traders. Ask yourself this question -

 

"Are they trading off of price action, or are they creating it?"

 

The good news is you don't have to worry over the answer. My guess is that Goldman Sachs is not watching every tick on a 1 minute chart in order to scalp 2 ticks or run your 1 contract stop. However because they and many others do trade in tremendous size, over time can you learn to read, see, and even feel the direction of the order flow. In fact it becomes increasingly difficult for institutions to hide their intentions because of their size. Tracking a gnat can be tricky but elephants... not so much.

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Emini Podcast for Monday 05/07/12

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    Emini Futures | Why Price Action Matters - emini news blog - Emini Trading

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