Trading Weekly Review: June 13

My focus for the week was to take time to develop a coherent “story” for each trade. In addition to aligning high and low timeframes, this involves thinking through the market microstructure for each trade.

My microstructure checklist:

1. Regime: Momentum, mean reversion, or chop?

2. Control: Who is winning? Who is losing?

3. Positioning: Who is underwater? Where are traders trapped?

4. Liquidity: Where are stops? Where are resting limit orders?

5. Trade quality: Where is entry? Where is invalidation? Where is first trouble area?

6. Execution quality: If filled, did the market confirm my thesis or adversely select me?

7. Final decision: Would I still be happy to own this trade after the fill?

$VELVET was a particularly eventful trade this week.

VELVET had a massive selloff yesterday, at one point going down 80% in 4hrs. My directional bias was short. Prior to my entry, VELVET just went on a 3hr choppy uptrend, had a selloff and began to enter what looked like a tighter regime (2hr). I was prepared to take an mean reversion long if I got a good entry at the 1 hour support (P1L).

VELVET puked right through my P1L support level. At this point, I still thought I could catch it at the P4L. It broke through P4L for a second flush.

I sought the next swing pivot and drew a discretionary level here. The price broke through this level for a 3rd consecutive flush.

Clearly, sellers were winning this battle and my initial MR Long strategy had to be adjusted into a continuation short, specifically a failed support, retest short. I waited for price to reclaim the support level below P4L and put in a limit short. I got an entry 7 candles later, price chopped around at wicked to my TP.

In hindsight, I could have waited for the new regime (after 3 consecutive flushes) to play out before trying to enter. Because I changed my directional strategy (MR long -> MR short), I reduced my position size by 50% but still wanted to see how this played out.

A couple months ago, I would for sure have tried to catch the 3 falling knives presented to me and I would not have updated my read on the market so I was pleased to be a more nimble market participant today.

https://www.tradingview.com/x/TXQxobqK/

Weekly Trading Insight

Forming a narrative for my trade that covers control (who’s winning?), positioning (who’s underwater?) and liquidity (resting limit orders) helps me better react and adjust to the trade, updating my strategy/bias as needed.

Adopting the counter-trade to my intended strategy (Momentum Long over Mean Reversion Long) also helps me get a feel for the market.