How I View market structure as a Daytrader
Dec 18, 2019 Trading Blog
I’ve been meaning to get a few posts up on my daytrading process, but just haven’t had the time to do it. Maybe it will help another daytrader, or at least let you guys know what I’m looking at each day. Not much going on today, just waiting on the XOP trade to play out. Tomorrow is the last trading day of the year for me, so it’s pretty dead.
The basis of any plan has to have a structure of context, a larger picture view. Even as a daytrader, that’s always the starting point. It’s what I call an Environmental Framework. It’s basically like any intelligence you would have in something like a war or battle. Know where the fortified areas are, where the rivers are, key passes, mountains, etc. There’s places during the day where you want to get involved and places where you want to avoid engaging the market. As a daytrader, I want to engage where there are areas of liquidity and avoid areas where there is no liquidity. Basically, price moves from fair value to fair value, liquidity to liquidity. The trading between fair value areas is what we all call a trend. I want to be able to glance at the chart and know where the next speedbump is, where to anticipate an entry or where to plot a profit target. The whole purpose of putting these things on the chart is so I don’t have to think or check notes, those positive expectancy areas are just right there in my view at all times, which keeps me from engaging in bad locations or entering where there’s very little reward. It just keeps me out of trouble.
So setting up the day here’s the way I structure my charts. I trade off of a 1 minute chart, but it’s really more of a zoomed out 1 minute view, not focusing so much on each individual candle, but rather the flow of the market and general areas. (I’ve attached a pic to this Twitter thread):
Previous Day Hi – Horizontal Red Line
Previous Day Low – Horizontal Green Line
Previous Day VWAP – Horizontal Purple Line
Previous Day Close – Dotted Yellow
Today’s Open – Dotted Blue
Today’s VWAP – MA Purple (curved)
Previous Week Hi and Low – Horizontal Light Blue
Previous Week VWAP – Horizontal Orange
Current Week VWAP – MA Orange (curved)
That’s it. Everything you need for larger context is right there in view at a second’s notice. The previous week’s lines provide a larger term view, the previous day’s lines provide the intermediate term view, and the current day’s lines provide the shortest term view. As a daytrader, I rarely need anything longer term than these and they are all right there on the chart.
These locations are merely a starting point, an overall market structure. Once the market structure is in place, the next step is to evaluate the price action at these points, as well as the action as price moves between them. I’ve got a second set of tools that I apply to the the 1 minute and 30 minute charts to measure price action within this structure and I’ll try to post those tomorrow. I know that seems like a lot of lines on the chart, but it’s easy to get used to them once you work with it, and once you get used to it you’ll wonder how you ever got along without the wider view of the market.