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Reading Transitions in the Momentum Delta

Auction Dashboard™ has what we call the Momentum Delta display in the bars. Please see the User Guide for more information about the delta: it is tuned to show force in the auction. In the text display, you'll see only the strong side of the delta, price by price. It's possible to trade off of this display. Here's an example of the display:

We walked into the ES this afternoon, and we saw a pattern developing; so we watched for any opportunity to show up. Here is where we began:

What we see is the rotation point --- which happens to be at the POC here: we continue because this concept is valid no matter what the price: remember that volume-weighted prices can follow trading, and not just the other way around. The clues are in the transitions on the delta, in both directions, and backed up by price action also. The fact that the accumulated True Auction™ Balance delta is very even is another clue: there are satisfied traders here: the rotation is a potential initiation point; and so it was worth watching. Here is the next bit of progress:

What we see here is the drop from the rotation point by the sellers. We also can see there are plenty of sellers here. We reached a level we had identified; and price stayed here for a bit. We continued to watch for opportunity to understand the traders in the market right now.

Side Note: About the Hot Bid Levels

Our True Auction History display is showing update frequency imbalances. We read into that as a sign that bids might be pulling off.

Sellers continued to take the price down, and they began to reach R1 ... so we continued watching. We had only 34.5K take us down that long way from 2054. That is another sign that the bids are weak. We already missed a good opportunity; but we had not spent much time in the market (and were busy capturing these notes). But what we've seen is a drive away from that rotation price.

With only 34K taking us down, we'd expect some challenge to continued selling; and so we watched to see if there were still sellers here. A lot more volume traded in, yet the sellers stayed in with strong momentum still pushing down; and they did in fact penetrate the support:

At the support, we can see another transition in the delta begin. But the sellers were still in strong here. Our accumulating delta began to climb positive, while still price ticked down: we took that as a sign of strong sellers and weak bids. We can also see pressure in the offers on the Level-2 (the imbalance appears on the Level-2 sentiment display with the red highlight). It appeared like a continued short opportunity to us: slipping down and through the pivot. So while this is like selling low, what we're looking at for opportunity is sellers that want to drive the price below that pivot, and may take the day's low lower. We've seen plenty of volume come in, and still sellers are very strong.

... At least we felt that if the sellers bailed out on us, we would get enough ticks short to be able to let ourselves out if the momentum reversed. The next Transition Zone™ projects to the next pivot, and so we can conceive of halfway as a target:

The halfway point was good for six or seven points! Price did begin to stop, and we let ourselves out. In fact, then we did see a lot of rotation begin at this halfway mark.

We saw one bounce at Auction Dashboard's™ projection, but sellers stayed in.

So this is a bit of an tough trade, where we're looking for advantage to take price down through a pivot, and reach down to new lows on the day. But what we saw was that the delta had rotated us down to this point; and after punching through the pivot, sellers actually stayed in the market. So what we were looking for were other sellers that also saw an opportunity to take that price down lower and through the pivot ... and that did sell through.

So what the delta showed us was the rotation point. When that rotated, we looked for the type of trading at that point. We found plenty of sellers here; and so it was worth watching the auction. Any time you might identify the delta showing you a rotation point, you can watch to see if there is some type of initiation away there. The signs of weak bids add enough confluence to give us confidence in the trade.

After that rotated through, sellers took the momentum. They managed to get price all the way down to that pivot. At that point, normally we'd look at that as a place for price to stop and reconsider that rotation point that thrust us down here. And our opportunity for a trade appeared when we saw sellers staying in the market and punching through that pivot. It seemed like a possible natural extension of the drop from the rotation point if the sellers felt they had some advantage; and they did stay in the market. So that would have been a short trade; and in fact we've now seen a lot of rotation begin at this new level between the pivots:

And it appears that the sellers shook some things up and left price lower than what might have been expected: there is a violent expansion that begins, but it dwindles again..

It's also basically one long move from that rotation point. There is one stop under the hot bid levels: that was the first thrust away from the rotation; but sellers stayed in and drove in more momentum down. A better trade would have been found right there at that first pause. Where we still saw opportunity was where we saw a potential target in splitting those pivots.

What can seem hard is when the initiation is the POC, which can cluster a lot of volume and trading and make following harder. Yet clearly the better opportunity is in that initiation away from the rotation point itself. --- You need to have confidence to trade out of a high activity price. Obviously, we had plenty of delta behind us when that selling began; and little transition in the delta as sellers continued to add momentum through the rotation price. If we were in early enough to find more confluence looking short, we might have been able to get in sooner. Shorting the POC here would have left you no heat!