Video Transcript:
Hey guys, Dan here from Funded Trader Academy with my Trade of the Week. Let’s break down this 20-point bearish trap setup from Tuesday, February 24th during the New York morning session on the S&P. This setup was framed off a fake move that took out a couple of key levels shortly after the open, trapping some retail traders and then reversing and rallying. We’re going to look at this setup from start to finish and dial in the specifics using the ATAS Order Flow footprint software to trigger this trade. So let’s get into it.
All right, before we dial in the specifics on the footprint, let’s provide a little broader market context using the Volume Profile. If you go back a few days, you can see we’re in a sideways market consisting of four days of balance, essentially just sweeping back and forth from range high to range low over and over again. Heading into the 24th, on the 23rd here we were coming off a range-based sell-off from that four-day balance range high down to the range lows. The overnight session popped up just a little bit and tightened up just above that prior day low at 6832. Heading into the day, I’m looking for one of two things to take place. I’m looking for price to test the overnight high or the low off the open and either fail or accept price. Pretty simple analysis heading into the day. With that as the backdrop, let’s hone in on the footprint chart on the smaller time frames to really dig into price as the market opens and approaches those key levels off the opening bell.
In the run-up to the opening bell, this candle right here is your opening bell candle. This is 8:30 in the morning Central Standard Time. In about the first half hour before that, you start to see price on the descent, marching down toward the 6850 level, one of our key levels that we’re watching. Just before the open we notch just below it, and then the opening bell hits with surging volume that pushes the market down hard. Let’s expand this and look at the actual footprint. We can see the executed orders. This opening candle is a pretty volatile candle. If you look at it from the perspective of distance traveled, price is moving quite a bit. The candle starts off very bullish as price pops up. You see some block orders come in here with some opening positions being placed to buy up top, and then that all gets flushed.
Now when we look at the individual candle itself, we have some aggressive sellers down here. This candle finished with a positive 454 delta on a negative candle, so we have price and delta divergence. The sellers were clearly in control here, yet we have more buying activity in this candle than selling. Let’s move to the next candle. The next candle also shows more positive buying activity. There are more aggressive buyers in this candle than sellers. Then another candle follows. This entire move to the downside had positive delta. So what does that tell us? When you have price going down and delta going up, that’s a massive divergence. We have that all throughout this move. So as we push down below 6850, this move is not built off aggressive selling. It looks more like a potential fake move. You’re starting to see that develop here in real time.
Price then comes down to the low point of our key zone, which we were watching between 6850 and 6832. We get one more final flush to the downside, again with positive delta. As price comes down and takes out this level, you have a couple of block orders here: 342 executed on the ask and 204 executed on the ask. That is passive selling pushing the market just a little bit further down. As price clips the 6832 prior day low, what happens next? More retail sellers are induced to sell down there. They get trapped, and price moves away quickly. We then start to see initiative buying action at the top of this candle. We have a quad stack of imbalances on the bullish side showing buyers taking control, and you start to see this imbalance get completely eviscerated on the way back up.
The delta on this particular candle didn’t finish very impressive, but you can see the maximum exposure to the upside of aggressive buying behavior reached positive 1,259. You can see that progression move all the way through the footprint, showing buyers were in control. We just needed to see price move in conjunction with that, and we got it. If we zoom out a little bit, we can see that price failed a key level and then reclaimed it. On the reclaim, as soon as we break this node right here, my entry is on that close. This is the entry. I’m looking for a value area retrace back up to the overnight high. Price takes off from there and you can see delta build aggressively as it moves up.
My target is 6871 or 6875. 6871 was the conservative approach, which was simply this swing high. So we had a trade from 6851 to 6871, a 20-point move. All built off a fake move to the downside off the open that trapped traders, rotated back up, reclaimed a key level, and then accelerated higher.
Let’s recap the trade. We started with the Volume Profile to frame the day and set our key levels. We then waited for the New York cash session to open to see that surge of volume and whether those key levels would get tested. Once price arrived at our levels, we saw multiple failure signatures. The first was delta divergence on the opening move down, showing a weak move or potential fake move to the downside. Then we saw trapped retailers once price took out the prior day low. Finally, we saw the fake move end and completely reverse, showing aggressive buyers pushing the market back up.
The trigger on this trade was the reclaim and close through a previously failed key level. In this instance, the stop went seven points below in line with the ATR, and the target was the opposite side, the overnight high or that swing high as a more conservative target. That move completes the auction of the failed breakdown and bearish trap.
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, click the link below the video and hop aboard. We’re looking forward to trading with you.
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