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In the first image ... at 2894 those two candles showed a very negative delta, but price didn't go lower, so the hypothesis would be that below 2894 there was strong liquidity, and then price went up. Am I right?
In the second image ... at 2708 that candle you highlighted showed a positive delta, however price didn't go up, maybe due to the existence of liquidity above that level, and then price went down. Am I right?
I don't know what the liquidity was below 2894. market didn't go below that price. but I do know someone was absorbing all the selling at 2894 and market started to move up. good buying opportunity with limited risk imho.
this kind of setup normally doesn't happen very often, and I've certain rules. besides the location, I prefer to go long on a swing low and go short on a swing high. I like to use it as a reversal trade.
This is the trade context: there was clearly a buyer at 3019. Especially after the 684 traded there, we know he needs to fill a large order, and is willing to hold the market there to get it (rather than step down his bid, which would get him a better price, but possibly not his entire fill). Other traders have seen the buyer and think he may hold the market here. However, there are also many sellers who clearly are willing to take advantage of the liquidity in order to fill their orders so they hit him hard for 684. Buyers bounce it off the 3019 several times, hoping to get any shorts to puke and any buyers who perceive the market as strong to get on board for a rally higher.
But what will the buyers do who have bought off the strength of the 3019 buyer? While the sellers have been tested somewhat with a bounce higher, the buyers have not. So, when the buyer forms this wall at 3019, the open question is, how many will he buy? If sellers take it lower, will the longs now puke? How serious are these buyers? To resolve this question, the market almost always tests lower. So, we get one more bounce, and then slam through the 3019. In this case, the market stayed down. But the trade itself says nothing about the broader context which would determine whether to scalp this out or whether to hold. At the time I had no broader context in mind so it was a quick scalp trade for a few points.
The buyers could have taken the market higher, only to wash out later, or they could have taken it higher and not revisited this area again. It's just like any trade -- history tells me it's likely to test lower, and so I decide to risk a few points to make a few points.
Something I have just noticed. It looked like a heavy selling attempt to break 2500 but it appears there was a buyer holding the level (reduced spread, with negative delta). The market did pop a little higher but there is absolutely no way I will be taking any long positions in this market. Ill wait for absorption higher up or a continuation type trade later on in the day. Currently price is holding between 2500 and 2550. I wait.
I am still trying to find a footprint setup that I like the look of. If anyone has any sierra configs they feel like sharing please do... it would be much appreciated.
How can you see absorption without knowing how many contracts are at certain levels. We are talking about order flow here and using Footprint Charts. If I'm off topic I apologize and will crawl back into my hole but I would highly, highly recommend that you take a look at Bookmap. Footprint charts give you only half of the information. Bookmap gives the complete picture of order flow with liquidity levels and then you can really see absorption happening. You could then see if liquidity cleared out at that level or if it came back.
You see absorption by considering where price is by comparison to horizontal delta at price. Liquidity has nothing to do with this. Very simply:
- if aggressors/market orders/liquidity takers consume all the available liquidity, they have won
- if passives/limit orders/liquidity providers are able to absorb all the aggressive market orders, they have won
The delta at price tells you what happened at that price. In the highlighted box, it was negative - 3.3k minus 4.5k. We are trading above that, therefore the passives absorbed the aggressors.
Bookmap is a decent approach for seeing where liquidity comes and goes but it doesn't tell you what happened in terms of the trading. Only the traded volume will show that. Bookmap is showing the history of advertised liquidity. A footprint is showing the history of what traded. Both have their uses.
I agree in principle -- but you don't need bookmap. You need a good price ladder. To be fair, in this market, the order book is less useful than in normal markets because the market jumps and moves so fast. That said, it is still my general focus when it comes time to actually read the market, because I can see complacency, energy, pace of the flow there much better than I can see it anywhere else.
