11/15/2019 ES Daily Recap
In the overnight we had a gap up and made a new ATH's. As long as we held initial support at 102.5, we had potential to continue balancing at the highs or potentially making new highs. In order for ES to make new ATH, we would have needed to held initial support for the breakout to hold. In the case that we failed to hold above the initial suppport, it would have been a failed breakout and had potential to drop lower. If we were to flush below the initial support I would have waited for exhaustion before attempting long and would have went short on any decent pop.
Looking back at the footprint chart (long at 3106 and 3103.5), we could see the sellers being absorbed at vwap and above the initial support. Although there was heavy selling, we observed that price was struggling to tick down despite signs from internals, delta, and order flow hinting at a potential sell off and flush. This is where the idea gets a bit more tricky and it would have been a nuance that most people would have missed on the footprint (would have been impossible to see on regular candlestick chart). Although we had aggressive selling it was met with equally aggressive buyers who absorbed the sellers at these levels and halted any attempts to push the market down. I would describe this strategy as a counter trend reversal strategy that looks for sellers to become exhausted and buyers to provide liquidity and take control of the market. As price stalls, psychologically, the sellers lose their patience since they are not getting paid and end up giving up.
It is important to ask yourself questions like: wow much response are you getting from the other side? or How much is price moving relative to the amount of effort being put in?
If there is strong selling and delta drops (increasing net sellers), but there is no buyers responding to this then price will drop down. If there is heavy selling but no drop in price, it means that there is buyers interacting with the selling and providing liquidity. But if there is significant buying but there is a drop in price it means that there is a significant seller in the market.