Inside Our Live Trading Room: ES Trade Breakdown with VWAP, POC & Delta

All right, so this candle—whatever it was—is now closed. I’m not sure; I still don’t know what that sudden surge of volatility was. We’re starting to see a shooter potentially developing here on the 30. We’ll keep an eye on that. We have a shooter here, we have rejection here, and it’s not setting up very beautifully at all. So I’m just going to see what happens here at the PC. If we lose that P and we start to lose the VWAP, we may not be able to frame this trade, as we may get too close down into here. But we’ll see what happens—if we get a nice bearish shove confirmed with delta that breaks down both VWAP and these… When you see these trend streams doing this, you want to be cautious because you’re in a rotation or potential rotation, or just a deep pullback. You’re in consolidation—that’s what’s happening right now.

This is a 50 and a 34 EMA, and this is a 5 and a 12. The 5 and 12 obviously hug price a little closer. And when you get this crossover, there’s potential for this to just be a pullback and go. But we don’t have any separation between the trends at the moment; they’re very tight, which tells you you’re in consolidation. Not that you can’t tell that from the candles—this is just extra confirmation that you kind of want to press the pause button for a little bit.

All right, so what you’re going to look for here is a big bearish candle—a violent candle—to bust through VWAP and these trend streams, close, pull back, and then you can take a short here and aim for down here. That would tell me that we do indeed have some trapped traders up here, right at the 5935ish level. We have failure off the 1-hour trend stream, we have failure right through… we did take out the fair value gap, but we did not close above it. We’re just operating in a really tight range at the moment. Right now we’re only—59 even at this pre-market swing low—5908 to 5944. We don’t have any separation here to really look at.

So let’s take a look at this 30. Now, if this 30 were to close like this, it might be a different story. Again, I want to see violence breaking this down if I’m going to go short. I don’t have that at the moment. I want to see violence closing through here—I don’t have that either. And even if I did get that violence closing through, I don’t have a great setup. Let’s go down to a 2 for a second.

All right, so here’s your bull flag on a 2. Again, we’re going counter-trend, though, so you’re going to want to see some heavy delta through here, and you’re going to want to see it close through this fair value gap. You don’t want to get caught in that fair value gap up there if we are indeed going to break out of this. We also have a series of conflicting data points here. We’re possibly developing a shooter candle on the 30, so we’re going to watch this—not VWAP, but the PC. You may not be able to grab an entry until up here, and this is probably where I’d prefer to take the entry.

This is going to have to clear in order to go long. This junk up here is going to have to clear. If we’re going to go short, VWAP is going to have to clear. So we’re in kind of no man’s land at the moment. I’m not in any rush to take a counter-trend trade to the upside, and I’m not really in any rush to take a value area retrace to the downside either. My preferred mode was this downside break here, which doesn’t look like we’re going to get anytime soon—if ever. That was my preferred trade. That would be the trade that I would strike at first if it were to develop early. This one, I’ve got a little more patience on since we’re going counter-trend.

And again, if the setup breaks and we rip right off the open to tag target one, I would have missed it—and that’s okay. The only thing I can conclude from that rundown is that buyers are fading, and sellers are unable to rotate this thing as of yet.

Okay, we’ve got four minutes left on that 30. We’ve got four minutes left on this 10. We’ve now pushed—sellers on this candle are only at -30 at the moment, so the aggression on the sell side—there’s nothing really to write home about yet. We’ve got a minute left here on this 30-minute candle. The aggressive sellers are starting to pick up a little bit, but still very weak—not to say that they can’t escalate and shove this market back down. We have not cleared these trend streams yet. You want to see that violent candle bust through here, close, and then that whip. The methodology here: let’s say we do get a nice shooter candle here on this close. Wherever this 30-minute candle closes, your sell stop goes below here, and you wait for that wick to drive back up here—set your sell stop.

What you’re going to develop then is the idea that the next 30-minute candle is going to pop up a little bit, fail again, and then come crashing down. If we get the setup—great. If we don’t, we don’t. We don’t have much aggression to the downside. We do have a 30-minute shooter. I’m going to go ahead and just put a sell stop just below—I’m going to put it down here for the time being as this surges up. I don’t like it because I don’t have the delta that I wanted to see, although that 30-minute shooter candle that closed below PC is tempting.

So let’s go through the checklist here: we have a 30-minute shooter, rejection off of here, fair value gap right here that failed. Price closed below PC. We’ve got that 30-minute shooter here right at the trend. I would have liked to see this close below here a little bit more—but didn’t get it. Still have that 30-minute shooter, still have that rejection and failure signature here. We closed below VWAP. We’re now wicking up. I’ve got my sell stop at 59.25 and 59.24. So if we take out the low of this 30-minute candle—if we take that out—the idea is that this wick being developed is the wick of the next 30-minute candle. It’s going to continue on down and retrace the rest of the value area. We’ll look to take profits down here if this thing develops.

If this thing soars and goes up on us, we don’t have any skin in that game, so we’ll hang out a little bit here to see if this develops. I don’t have the aggressive sellers—that’s my only drawback—but that 30-minute shooter with the rejection is kind of a little too tempting to just walk away from.

Order filled.

All right, I’m tagged in short on this one. I’ve got to risk about eight points on this one, so we’re going to let this thing cook for a little bit. What you want to see is acceleration through here in a decent amount of time. You want to see those sellers pick up—they’re very weak at the moment, but that doesn’t mean they can’t accelerate. If delta starts to drive to the high side, or if we start to close above VWAP here, I’ll look to ditch this thing. My target is at 5905 for the time being, and we’ll see if we get that rip straight down.

You want to see acceleration through here—5921—let’s see if we get it. Should be up about two points on this trade. Again, nothing to write home about yet, but playing off that 30-minute shooter is worth a shot, especially when we whipped through here with such heavy rejection. We’re going to again let this thing cook for a few minutes, and if I don’t get the acceleration through here—we’ve ticked it, we’ve double-bottomed that particular candle low—but I want to see that accelerate right through it. Possibly look to take profits at that 5918 level. Delta is just not really cooperating all that well.

Okay, I’m going to kill it. I don’t like it anymore. It didn’t do what I wanted it to do right out of the gate, so I’m out. Delta is now ramping to the upside a little—318, 300—we were down at -400 at one point. Looked like it was about to develop. It’s okay. I don’t like it. I’m out.

Okay, let’s check back on the day and see how our pre-market and early AM session analysis went. If you recall, we were looking right here—the value area high from the morning session—as our breakout point for the day. We had that 30-minute fair value gap we were watching. Downtrend, downtrend. Value shift had already taken place, and we were looking at this bearish level down here—the overnight low at 5905, which is also the PC from a week back.

Throughout the morning session—let this run a little bit—we had this plunge, came down, and we did take a shot when price came back up here a little later. There’s the opening bell right there, so now price is starting to move back up to our failure spot we called out right here, looking for that failure signature up here. We did end up getting one, right at the close—I believe—of this bar right here. So let that develop for a second—there it was. Bearish shooter candle. I’m going to pause it there for a second. Right here is where we had our sell stop.

So what we were looking for to materialize—we can check all the boxes. We had a breach and a failure of our bullish-above zone; it failed to materialize and push through, so we looked for the reverse. We had that 30-minute shooter candle here—bearish to the downside. The sell stop goes below here. We gave this a shot to move to the downside and held onto it for a few minutes, but noticed we weren’t getting the acceleration we wanted. We closed it out for a break-even trade.

Let’s take a look at how the day moved forward a couple of hours later. I’m going to go ahead and speed this up. We can see price did eventually push through here, and then all of a sudden, about an hour or so later, we got a secondary bearish shooter candle that broke down and ranged back all the way through the day. There was a little bit of a news catalyst here.

The point of recapping this is: you take your shots. When you get that bearish shooter candle, heavy rejection, you’ve got everything you need—you manage it properly and get out before it pushes back to the upside. Eventually, we did get our shot to take this thing south later in the day.

Hey everyone, it’s Dale here. I hope you enjoyed the video. If you’d like to trade alongside me and our team of prop firm-funded traders every day, then click the link below the video and hop aboard. We’re looking forward to trading with you.