Part 1: Market Structures & Profiles 1/x
Understanding market participant psychology & how markets could move.
The simplest aspect to start understanding futures trading past the bare basics of contracts etc is understanding how market participants move markets so you can understand market direction. I’m going to focus on the trading aspect here.
Markets move in waves of volatility, expanding & contracting. Meaning markets are cyclical, they move from periods of consolidation to periods of movement.
Compression (contraction): This is the range movement of a contract before the explosion into a trend (expansionary period). These periods are created by comfort in current price. There is no new information entering the market.
The compression doesn’t have a “rule of thumb” point range. Rather it creates a balance of the price (volume profiles).
Compression (contraction):
Market Compressions can be seen on a wider scale or an intraday basis.
It is important to understand which are you trading and when. The larger contracts have larger breaks.
Expansion:
This is the break of the contraction period where we can get a trend into a new area or a prior value area. This is the trade that you want to be a part of.
In ranges, the majority of the time traders are getting trapped, beat up and take losses.
What happens in this situation is that new information enters the market and new value begins to be created. Once traders break out from one direction or another the trapped traders are forced to cover.
Just like compression, expansions can be more intraday and minute or then can be larger expansions that are created by days of traders getting trapped.
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