Video Transcript:
Hey guys, Dan here with my Trade of the Week. Let’s break down this 20-point bullish trap setup from Thursday, February 12th, during the morning session on the S&P. This setup was framed off a fake move that took a key level shortly after the open, trapped retail traders, and then sold off. We’re going to look at this setup more closely on the footprint chart using the Addis Footprint software, showing the logic for the trade entry, exit, and stop placement. So let’s get into it.
Before we dive into the footprint, let’s provide a little market context from a broader perspective. If we look at this 1-hour chart with a weekly Volume Profile on it, you can see that earlier we were coming from a very strong bullish run from the prior week’s lows. Starting this current week, we went straight into consolidation mode. We went from a bullish rally into tight consolidation Monday consolidation, Tuesday consolidation, Wednesday testing both sides of that consolidation, and then Thursday tightening even further before the opening bell.
Going into the day, I’m looking for one of two things to develop at the extremes of price within this consolidation. I’m looking for price to come up here and show either failure signatures or acceptance. Same thing to the downside I’m looking for failure signatures or acceptance all the way through. With that as a backdrop, when you move from a bullish run into consolidation, what do the textbooks teach you to expect? They teach you to look for a bull flag breakout. If you’re strictly a pattern trader, that’s what you’re looking for here. Keep that in mind as we move forward into this trade setup.
Now let’s move into order flow. We’ve got our structure set, we’ve got our key levels, and we know what we’re looking for. Let’s move into the actual flow of orders to help qualify potential setups as they develop. For those of you who have never seen an order flow footprint chart, let’s quickly break this down. I’m going to oversimplify it for this video, but let’s cover the basics. We’ve got the open, low, high, and close your basic candle structure. Inside, you have more information. You have two columns: the bid and the ask. On the bid side, aggressive sellers transact. On the ask side, aggressive buyers transact. Aggressive imbalances are highlighted.
This candle started hot, pushed up with strong volume, then failed and rotated back down. This level was the overnight high set around 7:40 this morning just before the open. Looking back at our structure and levels, we have the overnight high, the 7,000 psychological level that is also the weekly range high, and the prior day high. As the market opens, I’m looking for a weak run into the high and failure signatures there. About an hour before the open, we did get a weak run into that high.
When the market opens, we see a bullish run, but it’s relatively weak. I measure weakness by the order flow and the delta, which is shown on the stats bar and gives a sense of magnitude for each candle. The sum of the bid and ask columns shows magnitude. The difference gives delta. On the candle we discussed, delta was +706, meaning more aggressive buyers than sellers, yet price could not move further. That’s weakness. The opening candle had positive delta on large volume but still showed weak progress. The next candle pushed slightly higher but with negative delta.
Now to the key candle. I highlighted this one because it’s critical. As price pushed into our first key area the overnight high things got interesting. Price pushed up hard and block orders trapped breakout traders. Aggressive buyers hit the market, but they failed to reclaim the level. After that failure, price rotated down and stops began to trigger. You can see in the order flow where institutions started pressing price lower. In a single candle you can see the trap, the failure, and the change in control in real time.
Buyers tried to play the breakout pattern the bull flag breakout but they failed. Institutions sold into that aggression and drove price down. The candle opened with positive delta and closed deeply negative, showing a true shift in control and a breakdown of VWAP and the opening range lows. This was about 10 minutes after the open. When I saw this, I had a sell stop resting below the lows. As the candle popped slightly up and then rejected with zeros printing, that showed absorption and rejection, and the sell stop triggered as price broke down.
Sellers pushed price lower. We got a small pullback that failed to reclaim VWAP and showed no real strength, then another leg down. I took partial profits on the way down, targeting the range lows around 6957. As price continued, bulls tried to step in but failed repeatedly. You can see the repeated failures and zeros, showing no passive buyers able to lift the market. We stayed below VWAP and then got the final flush into target, where I exited the trade for about a 20-point move.
To recap, we built the structure and identified consolidation for the week, with range highs and range lows defined. We were looking for either failure or acceptance at the extremes. About an hour before the open, the overnight high was set on a weak run. After the open, price returned there on another weak push, trapping breakout traders. That trap at a key level led to institutional selling and a rotation back down through value. This shows the power of footprint charts reading real order flow at key levels. I hope this was helpful. See you in the next video.
Hey everyone, it’s Dale here. I hope you enjoyed the video. If you want to trade alongside me and our team of prop firm funded traders each day, click the link below and join us. We look forward to trading with you.
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