market microstructure (liquidity)

how markets move...

a thread 🧵 market/limit orders:

the market moves solely based on events not time.

market order (taker)
limit order (maker)

stop orders/triggers → triggered at market and most of the time forced with someone being forced out the market (stopped out).

note - pattern/breakout traders in general can also use trigger orders to buy/sell the breakout.

absorption (simplified)

a thread 🧵 what is absorption?

when market orders cannot bypass limit orders you get absorption.

how you spot this is NOT through watching resting limits in the orderbook, but tracking the level of market order aggression at various stages.

market structure (breaks & failures)

a thread 🧵 basics of structure:

at every origin of new structure is a swing point, either a swing high or low.

you can identify swing points easier through the use of 'williams fractal' indicator on tradingview.

fair value gaps (imbalances)

a thread 🧵 also known as:

- single prints
- gaps

the naming is meaningless, the core fundamental behind it is that there is a piece of price which price moved quickly through (one candle), relative to the time frame you look at.

10 images on market movements & mechanics.

1. auction market theory 2. market dynamics

footprint charts (a complete guide)

a thread 🧵 footprint vs regular charts:

footprint charts are a cleaner visual of the time & sales data.

it places buy/sell info on a per cluster basis, inside the candle.

doing this allows for easier identification of high volume/delta zones, absorption & trapped traders.

market sessions: a complete guide

a thread 🧵 Asia (00-06)

I tend to treat it as a mini "monday range" but for intra-day purposes.

It's initial break of range can be a good indication as for the rest of days direction, similar to monday range.

Break one side of the range and it protects the other side of it.

example ↓

naked point of control (nPOC)

a thread 🧵 what are npocs:

point of control - where the most volume has occurred within a given volume profile.

naked poc - means it is yet to be revisited and left untapped.

npocs are most commonly "left untapped" due to trending moves pushing away from an area of value.

monday range: a complete guide

a thread 🧵 what is monday range?

using the high/low of monday as a anchor to form a bias for the remainder of the week.

marking this out from tuesday morning is the most common practice and what I would recommend.

- sweeps
- clean breaks

both used to form bias from tuesday onwards.

vwap: a complete guide

a thread 🧵 what is vwap:

(volume weighted average price)

most commonly calculated through averaging the high, low & close.

helps determine who is in control, buyers or sellers.

price above vwap = buyers in control
price below vwap = sellers in control

vwap = fair value

example ↓

open interest (simplified):

a thread 🧵 open interest vs price:

price ↑ with positive OI: New longs pushing price up
price ↑ with negative OI: Shorts getting squeezed

price ↓ with positive OI: New shorts pushing price up
price ↓ with negative OI: Longs getting squeezed

when new positions, whether long or short, drive price, they add the dynamic that if pushed offside, price can squeeze in the opposite direction.

example - new shorts pushing price ↓

Auction Market Theory (simplified)

a thread 🧵 what is auction market theory:

a concept (not a strategy) which discusses how buyers and sellers interact within the market.

using a combination of:

- price
- volume
- time

we can determine which state of auction the market is in, either balance or imbalance.

delta: a clear understanding

a thread 🧵 what is delta:

in trading "delta" is the difference between the sells & buys.

there are 2 common ways to watch delta:

1) traditional bottom row indicator which tells you the delta on a per candle/time basis. (like the cover image)

2) footprint chart which shows a per price view & time view of delta. meaning you can view at which time the delta came in & which price.

Identifying delta per price I find to be more valuable.

positive delta - more market buyers
negative delta- more market sellers

example ↓

orderblocks (simplified)

a thread 🧵 what are orderblocks:

- the last up/sideways movement before an illiquid down move
- the last down/sideways movement before an illiquid up move.

illiquid typically can just mean a strong one time-framing move where there are no pullbacks.

example ↓

trapped traders: a clear understanding

a thread 🧵 what are trapped traders?

when new positions enter and are placed in an offside position, they will naturally want to close, squeezing the market in the opposite direction.

this natural outburst of breakout traders being caught offside can be a great reason to look for a reversal.

example ↓

forming a daily bias:

(stats included)

a thread 🧵 candle formations:

engulfing candles - I look for a candle to wick below the previous candle and close at least beyond the 50% mark the previous candle (bullish engulfing).

I find this to be as effective as waiting for the entire previous candle to be engulfed.

the following day will be biased towards the direction of the previous day engulfing candle.

shooting star - my favourite daily formation, these often result in better entries to much larger moves, failure to extend above/below previous day and end up mean reverting.

example ↓

liquidity: a complete guide

a thread 🧵 what is resting liquidity?

resting liquidity comes in 2 forms:

- buy stops
- sell stops

these resting liquidity zones when hit can cause:

- positions to exit (stops)
- breakout traders (new positions)
- liquidation runs

Price Action

- Market Structure
- Executing Structure change
- Bullish/Bearish Candles
- Entry confirmations

a thread 🧵 1. Market Structure

There is no definitive way to look at structure, it is something that is really dependent upon individual strategy/system.

I don't take so-called "HTF" trades. I approach the market daily, finding it most useful to track market structure by anchoring it to each individual day.

Doing this removes a lot of higher time frame noise, since i am 98% of the time in and out of a trade within the same day, I want to solely focus on that trend.

note - using range chart or non time-based charts can allow for a much cleaner view of that structure.

example ↓

Using Previous Day Values for Bias:

a thread 🧵 Previous day sweeps:

monitor above & below previous day for excess in:

- volume
- liquidations
- trapped traders in general

recognising a sweep above/below the previous day can help you get on the right side of a newly forming engulfing candle.

Candlestick Reversals

[patterns & confirmations]

a thread 🧵 Swing failures:

simple premise:
wick above or below a level with a close back in the opposing direction.

one of the more simple patterns although extremely effective if you know where to look for it.

It's extremely important not to trade these randomly but only at proven selective levels, especially at pivots/levels where others may stop out or pile in for a breakout trade.

some things I look for:

- internal liquidity [internal from major pivots - least expecting stops hit]
- distance between pivots - time to build up positions before stopping out
- sfp of specific sessions [of London high/low]

nonetheless, an sfp traps excess before allowing it to fuel a reversal.

note - invalidations for a swing failure pattern trade are commonly strictly above/below the sfp candle.

example ↓

In my daily routine checklist, the top priority is volume-based levels, one of them being high-volume nodes...

High Volume Nodes [HVN's]

a complete thread 🧵 1. what are high volume nodes

HVN's within a profile are not the highest points of volume [poc] but other points of high volume that still provide as useful s/r levels.

They are constructed through consolidation in which buyers and sellers reach a temporary equilibrium.

There is no set volume value required to determine a HVN; it is a subjective decision based on the volume profile, making HVNs relative to it.

This also shows how important it is to have correct volume profile pulls.