Weekly Review for week of July 15th

In our last few weeks, we have spent time exploring theoretical systems, how to design them, and now we’re going to look back at how to use them in practice. We're going to stick with our examples for now: ATR and Supply/Demand. We’ll review the setups that we saw in this last week’s /ES price action.

We started the week around 5680, with our weekly ATR up at 5802, and ATR down at 5560. This means that within our weekly time frame, we expect a move following the average size of our weekly move would put us in this range.

Our example setup that we discussed last had two versions: a bullish, and bearish side. For bullish setups we were looking to see:

• Price close above the 4hr open

• Price cross above the hourly supply top

• Price within our 4hr ATR range

Our week started off bullish, with our first setup coming Tuesday. We broke above supply at 5695 and made a push up towards our 4hr ATR, hitting it within the next 2 hours. We continued up push up until exhaustion took over at the end of regular trading hours, and we continued to fade into Wednesday. We saw no support from the retest of the broken supply, and continued down into new demand.

Our next setup comes from our move into demand, where we open a new 4hr period right above the bottom of our demand zone. We see price close below this open price, and break below demand. Our next setup is based on:

• Price close below the 4hr open

• Price cross below the hourly demand bottom

• Price within our 4hr ATR range

We have room to our ATR down, so we get the bearish setup on the break below 5674, and push into our 4hr ATR at 5654. This weakness continues down, with our next 4hr period opening below demand, crossing below the open price, and pushing into a further ATR down.

We finally make new demand and see consolidation occur. We chop around, make new supply, and wick back and forth. We attempt to get a bullish setup on the break of this new supply, but fail to get momentum up to our 4hr ATR, and take the stop. We cross below the new demand zone, triggering a bearish setup, before wicking back above and another stop. Finally, we get the break of demand with force and get a strong push down straight through our ATR level. This specific setup makes clear the importance of position management. We had a great entry, but with the ATR close, was not looking for a move this significant, but left some slight risk on for our move to keep momentum. The basis for this was a clean break of our ATR level, which had me trimming wins, and leaving runners to maintain some level of exposure. We saw our next push hit ATR down, and consolidate, forming new demand. We never saw our new demand break while within our 4hr ATR range, but the break of this demand Friday ultimately saw us break down and reach our weekly ATR down at 5560.

Weekly Outlook for week of July 22nd

Coming into this new week, we have OPEX behind us, meaning we may see some more opportunity for good volatility. Our weeks open price is right at 5564.5, and our weekly ATR up is at 5691, and ATR down at 5437. Currently, we have recent supply top at 5604.75, and demand bottom at 5553.5. Based on our flows from last week, we saw a large down move backed by put buying, and these put flows may provide us with some downward pressure, as market makers short these contracts are forced to hedge into downward price action. Our key strikes on these puts are between 5500 and 5475. These strikes being OTM mean that as time goes on, and we stay above these key areas, the puts will start to decay, with their deltas decreasing towards 0. This decay means that there will be less need to hedge these strikes the longer time passes, and participants who are long these strikes may be incentivized to sell these puts before they are crushed too severely.

With this said, we will be watching for bullish price action on the underlying to be accompanied by large put monetization (sales). If we see weakness develop, we will have to be mindful about the potential for sharp downward price action to play out as market makers hedge this exposure. We will look to see if we see interesting dynamics playing out towards demand bottom to potentially tell us we are looking at another leg down.

In bullish outlook, we have call exposure up approaching the 5545-5550 area, so a move towards our supply on /ES may lead to hedging of this exposure.

We will update this page as the week progresses and opportunities present themselves. Check back to see review of these systems at play!

Disclaimer: AlphaLab is not a registered investment advisor. The following information, including the trading system described, is provided for educational and demonstration purposes only. It should not be considered investment advice. The mentioned trading systems are tools to demonstrate the infrastructure and methodology behind systematic trading approaches. Actual trading involves risks, and individuals should conduct their own research and consult with qualified financial professionals or a registered investment advisor before making any investment decisions. The information provided above is an example of the system results of AlphaLab Supply and Demand and any opinions expressed around the systems presented is not specific trading advice and are purely an expression of the opinions of the author.