Market Rotations – Vertical and Horizontal

Market Rotations – Vertical and Horizontal

I have received several emails by traders who are confused by what I mean when I say that the ES is “rotational” or “expect a rotational trade”. This is a complex subject, but readers must understand the market as an auction.

Generally, most traders will read everything they can get their hands on when they are learning to trade. They think: The more I learn, the better I will be. This is something we pick up from years of education and work-related training. Unfortunately, this isn’t the case in trading. Trading is about picking a couple of things to focus on and then getting really good at using them. This is also the case with what I’m discussing here. In order to understand this, you must understand the auction process and how markets go about discovering what the “fair” prices are in any given day or month.

Remember this: The market moves from horizontal development to vertical development to horizontal development and so on. It is a price-discovery machine. The market will rotate within a range of prices until a variable changes (variables change all the time including interest rates, time to expiration, news, earnings, economic news, geopolitical news and threats that may cause investor fear or greed).

Here is an example of a recent chart that is broken down to demonstrate this on a 5 min ES Dec 09 Chart:

ft71_es_10-06-09_rotational

How do I know that the trade is going to be or is becoming rotational?

Let’s examine this day and assume that all we have is the very open of the day and we don’t know anything else (5 min ES Dec 09):

ft71_es_10-06-09_rotational2

 

Now, let’s see what happened with this rotational prediction (and I did this during market hours over twitter):

ft71_es_10-06-09_rotational3

Now check out what happened due to the 3-day rotation and drop in VPOC:

ft71_es_10-06-09_rotational4

While we are looking at these rotations and following the market’s progress, let’s see what happens next:

ft71_es_10-06-09_rotational5

Do you see how this analysis – which is done while the market is trading and is based on VPOC’s, the open, the range and a couple of other factors – let’s us see how the market is rotating and what to expect?

Now try to glean the same information from this chart:

ft71_es_10-06-09_rotational6

It is hard to describe or explain this topic without showing tons of examples. It is late and I need to hit the send button, so maybe this is just food for thought. Maybe, for some of you, this answers a lot of questions. Most likely though, judging by the email flowing to this account, it will generate many more. 🙂

Good night.

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13 Comments
  • E-Mini Player
    Posted at 23:47h, 06 October Reply

    Thanks for sharing. Btw, what charting platform is this?

  • Michael
    Posted at 06:58h, 07 October Reply

    Thanks for the post!

  • FuturesTrader71
    Posted at 07:10h, 07 October Reply

    @E-Mini: The software is X-Study. An add-on to X-Trader. Further info: https://futurestrader71.blogspot.com/2009/10/what-software-do-i-use.html

  • thehaul
    Posted at 16:51h, 07 October Reply

    Very informative post.

  • Jim
    Posted at 16:53h, 07 October Reply

    Thanks, I'm picking up at least one thing a day that I can use.
    Jim

  • Majik
    Posted at 11:11h, 08 October Reply

    FT71,
    Fantastic post! Re: VPOC, POC, MP.

    This is definitely one huge peak behind the curtain.

    When you know what you're looking for, where to look for it, and how to go about finding it, it's like a visit to the Vatican Archives 🙂 (so to speak)
    I’ve used Market Profiling and Volume Profiling prior to this read, but somehow your explanations and visuals helped me to view my analysis differently today.
    I believe it has changed the way I will continue to view my analysis.

    It is extremely informative the way you explained and showed VPOC, POC areas and the correlation between the ranges.
    This definitely adds validity to what I have been charting and plotting for many years (although the path I have been traveling has been a much different one – until today)!

    This is yet another useful piece of correct knowledge to add to my Market Labyrinth Analysis.

    I do have two questions I would like to ask… (Although I have more, I'll be courteous and limit my quota to two – for now – lol):

    1) Profiling Price: action and / or Volume is relatively definitive after the fact (giving reference) – is there a method that you use to determine what order flow may potentially be in any given range or time frame? (ie: Order Flow analysis, Order Book data, etc…)

    2) Time Horizon: – How do you, if you do, come to prediction in anticipation to your projected targets via Time Series. (The length of time it will potentially take to begin the movement, reach your potential profit targets and contemplate whether or not that the current range (fair value) is probable for the market to rest upon for any given amount of time (pending ECO data, etc…) or seek another range?

    I appreciate your thoughts, views and feedback 🙂

    Thank you for the time and insight that you put into today's post, It really made a difference for me!

    Peace-

  • Jennifer Albright
    Posted at 14:49h, 09 October Reply

    Hi FT71,

    Thanks for the post. I have read all of your entries, read the link you provided about MP, and also read on my own, and I am starting to really understand the market more. The concept of the market as an auction makes sense and the charts that you post with volume profiles are very helpful.

    I am looking into how I can get X-trader on my own, not to trade futures, but because I think it is very important to follow them.

    Just wanted to say thanks for posting.

  • FuturesTrader71
    Posted at 16:33h, 12 October Reply

    @Majik: Answers: 1) Everything is in hindsight because the foresight is based on hypothetical scenarios which are then based on probabilities. I will discuss my general entry method later. It takes a lot of time watching the markets to place my entry as close to my stop as I do.

    2) That is too complicated. Simplicity is where the profits are. I know where I want to do business. If I have time to get in, take some profits to hedge and then allow the trade to work its course, then fine. If economic data is in the way, I will not initiate within a few minutes of the release (I have gotten killed getting in 3 or 4 mins ahead of release and it comes out early). I don't think about how much time it will take or whatever. Too complicated. I define the area, the risk, size the position and let the stream take it wherever it is meant to go. I manage it using market prints and other criteria.

    Hope that helps.

    @Jennifer: I would not bother with getting X-Trader. You can use a variety of other charting packages to get the same info. I will post links to providers soon.

  • Danny Brand Jr.
    Posted at 10:54h, 15 October Reply

    Just found you. Excellent post. Thanks for sharing all the hard work that goes into it.

  • Losangelesmatt
    Posted at 00:51h, 26 October Reply

    Thanks for the posts. I've read and re-read your charts and post on rotation and feel like I've had an epiphany that I would like to get a feel for. I look forward to posts on entry and exit points.
    Even though I understand the concepts, I don't understand why the time of day for the market is reversed on the first chart. Am I missing something?
    By the way, I like more than just your market concepts. It re-affirms my belief that if even one person can trade well I should be able to do the same.

    Thank you for the expertise and giving us a shot at it.

  • Mike
    Posted at 01:33h, 12 November Reply

    I can’t seem to play the embedded video and can’t find it hosted anywhere else. Could someone please fix this?

    Thanks in advance.

    • Futures Trader71
      Posted at 11:59h, 21 November Reply

      There is no embedded video for this. I didn’t do video at this point back then.

  • Byron Peeters
    Posted at 04:19h, 17 February Reply

    I cant enlarge the images and unfortunately cannot absorb anything of what you’re saying. How can I fix this. I am missing out.

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