Fade To Black

This is a “Kitchen Sink” fading opportunity that presented itself on the Euro at 9:08 AM CST this morning. This was a great opportunity whereby I received indications from all principal decision support identifiers to “Go For It”.  Let’s break down the elements that helped with the decision to accept risk at this 1.2420 EuroFX price area:

Trading Context

Price was approaching a double top retest of the earlier swing high in the morning at 8:17 AM CST. Additionally, if you look closely at the right hand side of the Euro MD footprint chart (revealed later in this post), you’ll note a secondarily supply imbalance of 400+ contracts at the 1.2420 price area. This means that we were approaching a price level that was not only a swing high demarcation in the intraday time frame, but we could anticipate a goodly amount of longer term traders that found themselves “underwater” from their vanquished long positions earlier in the morning and were waiting to “get even” by exiting these longs via a short covering opportunity.

Dollar Size

Drilling down on the thumbnail picture of the Dollar chart you’ll not that there was unusual size on the bid and offer executed order flow. Closing contract sizes at given DX price levels where (58×6), (48×4), etc and the total volume for the 4 tic range bar chart was large enough to trigger my ”unusually high” volume indicator on DX. Given the high correlation between the EuroFX contract and the Dollar contract, it was gratifying to see the volume indicator for the Dollar going off just as we were approaching the previous swing high in the EuroFX. This phenomena alone is an indication of Money Flows reversing and the larger players about to pass off the football and simultaneously turn the Dollar and EuroFX at the same time.  Remember, the DX (Dollar) index contract on the ICE exchange is primarily weighted on the Euro constituent and this is what makes it so highly inversely correlated to the EuroFX futures movements. (Click to Enlarge)

Divergence with Corollaries

As fortune would have it, the secondary corollaries (Oil and British Pound) were divergent with the EuroFX as it was approaching the key Contextual price area of the morning swing high near 1.2420.  This was evidence that a leading Energy proxy (Oil – QM) and another key components of the DX Dollar contract (British Pound – 6B) were not able to make higher highs at the same time the EuroFX was making a higher high. If you don’t know what I mean, I drew the arrows for all to see and imbibe in the rapturous joy of “Confirmation”.

MD Footprint Deer Sign

The Market Delta Footprint opportunity near the 1.2420 confirmed the entry opportunity to short the EuroFX futures contract. Notice that the volume POC for the footprint at 9:08 am had over 80 contracts of OFFER delta (28×107), but the buyers couldn’t rally it more that one tick over 1.2422.  If there is a large Delta of contracts favoring the OFFER and price isn’t following up with a corresponding rally, then the MD Colors actually betray the true dominant aggressor in this situation. (Click to Enlarge)

The Delta Footprint histogram is colored “Green” because the MD Program assumes that larger delta of contracts closing on the OFFER portends aggressive buying.  However, in this instance, it becomes clear when we see price refuse to rally on supposed aggressive buying and it actually “comes off”, then we just bore witness to passive sellers with resting limit orders who offered out a lot more inventory at 1.2422 than the buyers could handle — capitulation and a small retest follows. This seems so obvious, why don’t I just use the footprint to execute trades?  Because this trigger can be a “sneak” and beat you down like a wet dog on a bad day — Context first, then look for the trigger.

Summary of Execution

To have a birds eye view of what both of my panels looked like at 9:08 AM CST, I’m including the larger screenshot that is the parent of the earlier pics in this post. Please understand that you’ll have to click on it twice to render it’s actual size and navigate accordingly with the menu bars to see the entire screen capture. You’ll see the MD footprint of Euro in the lower right, secondary corollaries of Oil (QM)  and British Pound (6B) in the upper right, the Dollar index (DX) off the ICE exchange in the upper left and a Market Delta Renko chart of the Euro (6E) in the lower left pane.  (Click Twice to Enlarge)

The context area, being a double top retest of the morning swing high was nice, but as the trading context evolved, the entire Kitchen Sink of my Euro Trading microcosm lined up and shouted out — “Hit the Bid and Offer Em’ Out, Hoss .. cuz it doesn’t get any better than this“.

If you had waited for the small double top retrace attempt at 9:11 AM, that would have been a more conservative approach to trade the same fundamentals that were present at 9:08 AM, albeit with the additional confirmation. A more aggressive trader would have used this opportunity to “ADD” to their core position and a more fear based approach would have been to exit the core position on the small retest push; however, noticing the VB momentum, divergent corollaries and DX staying above a double bottom were all still indicating a EuroFX short bias gave me enough conviction to stay with the trade.

Target Area

The 1.2400 area was the developing Point of Control (POC) from the 7:20 AM CST pit open and the Value Area High (VAH) area on profile from the 17:00 CST on Wednesday. Additionally, we had a pretty good supply imbalance area of 490+ sitting at the 1.2400 level.  The trade did progress farther below the 1.2400 area, but this was the best place to shed a good portion of your risk. You have a view of the 1.2400 area for reference if you expand the thumbnail chart in the Summary Exection paragraph.