Context and Order Flow

There is a great misunderstanding about order flow and context. I see this from both emails and people I am mentoring. This misunderstanding can be corrected by looking at markets in a different way.

I have repeatedly espoused that CONTEXT RULES. I have also said that order flow needs to be read in context. For example, strong buying can be initiative action that will continue or it can be stops being hit at the end of an up move. To distinguish between the two, I need to see the context. Context is made up of Market Profile and indicators that tell me where I am in context. Indicators no longer trigger trades. Order flow triggers trades. Indicators tell me trend and its strength, where the mean is and how far I am from that mean.

An analogy to this is tennis. We have a tennis court with a net and lines. That is our context. As a player we watch where our opponent hits the ball in that context and how hard. We look at where he hits it from.

I draw your attention to the lows of the open on 5/22/2015. The previous day's Profile was split to reveal the VAL support that held on the open. Then look across to the order flow chart. The price bounced off the support on the open and then pulled back to provide the entry opportunity. From there it was just profit.

Splitting

The correct splitting of the Profile showed this resistance. It was not visible before the split. I know there are lots of support and resistance areas on a chart so which one will "work". That's an easy question to answer: "the one where the order flow reverses".

Support and resistance areas are decision points. Order flow makes the decision.

Follow-up to Friday's T-Bond Post. Great Trade!

Friday's post showed what was possible in the T-Bonds. As it turned out, price went lower after my post so the market opened inside the VA.  My bias, of course, was down so I was looking for a sell. Although it opened at the POC I didn't take a LONG because of my envisioning but I was ready to sell at the VAH. The pic tells the rest of the story. The level of profits on this trade were very dependent on what the trade management strategy was in my trading plan. Scaling out allowed for better profitability although the bulk of my profits were taken at the VAL with a trailing stop after that.

I plan on adding Part 1 of the eBook to this blog soon. Look for a separate TAB when you arrive at the blog.

No Substitute for Preparation

I've often said in this blog: "The harder I work the luckier I get". Its Mayday and Mrs EL's birthday holiday here in Europe so I thought I'd share a part of my daily prep on the T-Bonds. As I write the 30 Years Bonds are trading around  159 12/32nds, above yesterday's value. The picture speaks for itself and lays out my trading plan for today's trade of ZB. The horizontal lines are support and resistance areas.

The Profile give me the "where" and I look to my bar charts with the usual indicators (for context) that I use and of course, with the order flow volume bid and ask information for making a decision about the "when".