VSA Trading: Reading the Tape & Learning to Wait

Got shaken out of my position with that huge reversal. I licked my wounds and re-entered various new shorts on Friday in SPY, JNJ and NOW. The S&P 500 particularly was the impetus that incentivized me to establish positions in the others... It was down half a percent on the day, but the story was much more bearish, w/ a rally at the open that exceeded the highs of the prior day, but a selloff throughout the rest of the day, resulting in a close beyond the lows of the prior day (aka an engulfing bar). It also was the last bar of the week, which made for a more bearish down bar on the weekly as well.

In terms of longs, I bought XLE and XOM. Bar-by-Bar VSA analysis suggested that it was in a re-accumulation phase and so I pulled the trigger.

Markets open in 15m. Definitely curious to see how things look initially w/ all the war stuff going on.

On another note, TLT (potential bonds trade) has completely shit the bed over the last two weeks. It's gonna need some stopping volume or multiple days of testing before I give it ral attention and think about getting involved again.

Futures open isn't looking promising Will see how things play out

I have calls on 2 positions for energy exposure (XOM, XLE) but I'm bearish AF and have puts on 4 positions (JNJ, MSFT, NEM and SPY).

I'm not big on fundamentals typically but it does feel noteworthy when it reinforces a VSA narrative. I was generally bearish given layoffs due to AI + tariffs being a drag on the market but this Iran War is next level. My understanding based on being a news junkie and listening to former experts is that this alone can take us into a global recession! Here are some of the affected areas:

1. Everyone knows oil is needed for shipping goods. Every good you buy will cost more
2. Everyone also knows oil is needed for transportation of people. Traveling to work/for work/for fun will cost more
3. Sulfur is needed for fertilizer to feed people. Everything you eat will cost more
4. Helium is needed for semiconductors (arguably been the only thing keeping the market afloat). Technology will cost more
5. The Middle East have been the biggest investor of the US in Trump's second term. As Iran bombs its neighbors, they are losing money and faith in the US. Acts of War can void contracts, so they might possibly yank funding from some big projects via force majeure. Over half of the Magnificent Seven are exposed here.

Couple this w/ an inexperienced administration that has fired all of the people smart enough to manage the situation and it's a ticking time bomb. I'm loaded to the hilt ATM. I wanted to open more short positions but ran out of capital.

My recent updates have all spoken to my increasing bearishness. I've been trying to time the move lower w/ very tight stops and have been repeatedly shaken out due to the volatility, even as I increased my size because of conviction to the downside...

...Ended up w/ a YTD drawdown of 15% but it's down to 6% w/ today's price action. In retrospect, everyone's pretty bearish but timing the entry is the hard part. It seemed silly AF seeing price rally over the last two days but here we are. To paraphrase Keynes, "markets can stay irrational longer than you can stay solvent". W/ VSA in my toolbelt, I think that the market's 'irrationality' is actually just price moving higher/lower than expected because it realizes that supply/demand is still present... Ilogical w/o that context but rational w/i the context of supply/demand. Easier said than done tho clearly.

Hopefully I weathered that storm and it is smooth sailing lower.

Triple witching Friday, after the markets appear to have falsely held support, while going into a weekend, in the middle of a war.

WATTBA

Today's (ongoing) price action so far appears to be the nail in the coffin that cements my earlier bearishness as correct.

Now that I'm resting a bit easier, I want to share one of my trades/position, warts and all. (I will use the simulator inside of TradingView to show how things played out in real-time)

MSFT
Here was the setup. PoLR bar means 'path of least resistance" bar aka a ND bar signalling that the path of least resistance is lower or or a test signaling the path of least resistance is higher.

I missed the first bar because I wasn't watching MSFT, but I recognized the last bar and so I drilled down and entered on weakness on the 30m

Price instantly went in my favor. Yay me! I made 2x what I risked at this point but I want much bigger profits so I will sit tight

You have got to be shitting me

Here's a screenshot from my broker (EST time)



Here is where I turned the corner in my trading. In the past, this would cause me to throw my hands in the air and either go on tilt or take a break from the markets and have the markets inevitable run w/o me when I'm on my break lol.

This time, I decided to accept the stop out and allow my bearishness to remind me to reset and look for opportunity again.

Zooming back out to the daily, let's take stock of how things look

How things started to develop intraday:

Here's my stop:

Here is how things look on the daily



That is a high level overview to try and share my thought process for the trade. In retrospect, it doesn't touch on the nuances of managing the trade, dealing w/ pullbacks, EoD review of the position, believing in the background, etc.

What is important is that I believed that the markets were undergoing redistribution and I created a rich VSA narrative. When that resulted in a stop out, I didn't blindly re-enter yet I had the conviction to try and find another seemingly higher probability setup.

Hopefully it provides some context so that A) my current position doesn't look like I am a master who doesn't get stopped out B) the position doesn't look like I blindly stumbled into a winner.

Behold the power of VSA + tight stops


Currently managing the position but I am in a 'strong hands' position at this point. If the market is bearish for the foreseeable future, then this position will just continue to grow. That is another area of growth that I'm realizing... until I see the background change clearly, exiting the position seems completely unthinkable. I think that is a sign that I am much stronger as a VSA trader, but it could partially be due to an exceptionally chart that required minimal decision making. I'm making $ either way. My other positions are similarly profitable so I'm kinda just biding my time at this point

Oil trader putting the current issue in scope:


The next few weeks are going to be volatile AF. Definitely a good time to reduce size if you are concerned about volatility.

Trump Thinks He Can Magically Control the Price of Oil
Great read. Here's a quote that stood out:
My read/realization here is that Trump is doing the post-modern equivalent of a Greenspan/Bernanke/Fed put by flooding the zone w/ 'positive' news over social media when markets get nervous.

The Fed Put worked because the Fed had a tool (monetary policy) that actually could affect the underlying variable (credit conditions, asset prices) by printing demand via Quantitative Easing. Trump doesn't have an equivalent tool for oil. He can't print barrels. Jawboning only works as long as there's a plausible scenario where reality catches up to the rhetoric.

Trump is taking a political position against the market without a corresponding financial mechanism. He's short oil rhetorically while being unable to deliver physical supply. That's not a put... it's a naked short with no hedge and Iran is the counterparty actively working to force a squeeze.

Moving away from the fundamentals and back to VSA.

Here's a breakdown of crude oil as it's now the tail wagging the dog that is the global economy (double entendre, don't axe me how)
Weekly Chart

Daily Chart

Got smoked last week on the +2.8% up-bar at the lows that was coupled w/ oil stocks dumping lower. Was literally up +$30k and gave it all back. Woof. Been flat for the last few days but starting to see potential in the market again.

Ironically I'm actually pretty content. Frustrated that I gave such a large amount of profits back to be sure, but overall, the experience was tangible evidence that my VSA reading/timing is improving, and that I can get outsized rewards by timing my options entries.

Looking back, there was nothing out-of-the-ordinary re: my entries, the market selloff or big pop higher, so I'm determined to replicate the success and sidestep my missteps the next time around. There will be new rakes to step on for sure, but there's one less rake if I handle this properly

Some cliff notes on my takeaways:

1. Deep in the money options have a high delta and therefore need a shorter lease/tighter stop. ie: As out-of-the-money options become deep-in-the-money, it literally shifts from "I am managing 5 contracts of a $100 stock" "Every tick has the impact of a $500,000 stock position"
2. On a related note, another adjustment I am making is realizing that deep-in-the-money options do not allow "for deep retracements even tho the background is unchanged"... a short-term but violent rally will eat away profits very quickly and there's little extrinsic value left to provide a cushion. As a result, I need to manage risk more aggressive once a move becomes overbought/sold, with the understanding that I can re-establish a position when the rally runs out of steam
3. When managing positions w/ VSA, there's a lot of 'wait and see' and brief moments of a flashing 'ACT NOW' sign. It is hard but you have to stay switched on. "Ignore at your own peril" as Tom used to say.
4. A +2.8% intraday move hadn't happened for like a year. So once in 250 trading days means it happens 0.4% of the time. Tough break
5. At the same time, as the market becomes more volatile during a bearish market in general, so this type of price action goes from improbable -> unlikely. I should expect fat tails in the current market env and manage risk accordingly

Tight stop on TLT entered earlier today:
Weekly

Attached Image (click to enlarge)

Daily

I've been otherwise wholly unprepared for this strong rally response that the markets have had. The signs were there, but my mindset was bearish and I missed the forest for the trees. Will do a postmortem to be prepared the next time...

I've been reflecting on some underlying ideas and I think I have a better appreciation for market dynamics, but have to balance that w/ overwhelming myself w/ too many nuanced strategies I'm trying to implement.

Stopped out of TLT yesterday.

Looking for a tight re-entry today if there's intraday testing:


Zooming out, this is a triple confluence level. All of the dotted lines show the mid point of different price channels (aka value areas):

Pulled the trigger on TLT again just now:

(The analysis in the prior post is all a contributing factor outside of the intraday setup FYI)

Jumped in Dollar General later in the day as well. Great pop going into the close which is promising:
Daily

Attached Image (click to enlarge)

Intraday

Stopped out of both positions the next day

I have since re-entered TLT on Friday, but may not have the space to stay in if tomorrow is a gap lower...

Cut back on my entries over the last week or two. A part of me thinks the stop outs are making my gun-shy, but also, I have tightened my entry criteria a tad to stem the bleeding. Contemplating reducing size as well.

On a more positive overall note, I have sharpened my Background reading immediately after smart money enters the picture, which was/is a conscious/unconscious sticking point for me.

Lastly, planning on utilizing backtesting more in my down-time to get more reps and muscle memory as I wait for trades.

Better to be lucky than good.

Established a position in FCEL on Friday. Legit my only position since my last stop outs but I forgot to mention it. Really reminded me what true breakouts look like and whether I should be looking more aggressively for similar setups.

The highlighted bar was what made me take a position. Admittedly a bit greedy w/ the stop placement not even encompassing the entire bar. Barely hung on this AM but it has been off to the races otherwise. cautiously optimistic.

Bought RTX yesterday but misread the volume going into the close and exited prematurely.

Today, I realized it was still in play and jumped back on for a much better fill on the retracement.
Daily


65m

Attached Image (click to enlarge)

Still passively managing FCEL but cautiously optimistic. Volatile AF though. Was down over 8% only to close up over 7%... I am not used to 15% swings intraday, let alone w/ options leverage lol. Currently up 6R which has clawed back the losses from the earlier TLT trades

My bonds trade went to shit, but my current working 'big picture' theory is that there is no clear off-ramp for the Iran War, and Oil + Gas are too pricey/volatile. I hear balcony solar is really popular in Gemany and is rapidly getting legislated on a state level in the US even as Trump tries to blockade it federally. Looking to get general exposure to renewables. Got lucky w/ FCEL since apparently it's both a renewable play and a data center play? Not too well-versed in it admittedly, but the chart shows promise

Stopped out of RTX on a rough shakeout. Still on my watchlist given the price action.

Jumped in SLB but will likely tighten my stop in the AM if the opening bar isn't ideal.

Entered on what looked to be a test but after the close, the bar has heavy volume. Might be a squat bar, but given the weak volume in the prior rally, I am shifting defensively