Part of any trading plan is to have “decision levels.” These are price zones and references that are meaningful to the auction and present an opportunity for the trader to make a decision. We make decisions with respect to these prices, because we have an expectation that they will engage a “fight” for price between buyers and sellers.
The “decision levels” you see presented here are the “decision” levels we publish as part of the DAILY OUTLOOK that is sent to developing traders in our DEVELOPMENT PATHWAY. We build daily plans to give a framework for putting PATHWAY principles into action. One of the key takeaways of using profiling and volume analytical tools is that some prices are more meaningful to the auction than others. In Module 12 of our PATHWAY, we describe how to define “static” and “dynamic” decision levels. The levels you will see here are largely “static” with the exception of VWAPS, which migrate. Composite VPOCs also move, but less frequently than VWAPS.
For any given session, as part of my plan, I select 6 “decision levels” above the closing price and 6 below the closing price. I typically find at least 3 above or below that are within the expected range of the day as seen in the implied ranges generated by the underlying’s option inventory and pricing. These “decision levels” are not mathematically generated pivots. They are discretionary references seen in the auction inventory.
CLOUD LEVEL LINKS 👇
<aside> 💡 We encourage you to reference these prices. We often set alerts at these prices and do nothing between them. Sometimes we trade from one level to the other, ignoring the auction between. You will learn that more often than not, these levels provoke a response in the auction flow. A pause, a reversal, a fight before continuation, etc. We share these as evidence to encourage you to see the power of this type of analysis to support your decision making.
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REGARDING MARKETS AND RISK
THE RISK OF LOSS IN TRADING COMMODITY INTERESTS CAN BE SUBSTANTIAL. YOU SHOULD THEREFORE CAREFULLY CONSIDER WHETHER SUCH TRADING IS SUITABLE FOR YOU IN LIGHT OF YOUR FINANCIAL CONDITION.
IN CONSIDERING WHETHER TO TRADE OR TO AUTHORIZE SOMEONE ELSE TO TRADE FOR YOU, YOU SHOULD BE AWARE OF THE FOLLOWING: IF YOU PURCHASE A COMMODITY OPTION, YOU MAY SUSTAIN A TOTAL LOSS OF THE PREMIUM AND OF ALL TRANSACTION COSTS. IF YOU PURCHASE OR SELL A COMMODITY FUTURES CONTRACT OR SELL A COMMODITY OPTION OR ENGAGE IN OFF-EXCHANGE FOREIGN CURRENCY TRADING YOU MAY SUSTAIN A TOTAL LOSS OF THE INITIAL MARGIN FUNDS OR SECURITY DEPOSIT AND ANY ADDITIONAL FUNDS THAT YOU DEPOSIT WITH YOUR BROKER TO ESTABLISH OR MAINTAIN YOUR POSITION. IF THE MARKET MOVES AGAINST YOUR POSITION, YOU MAY BE CALLED UPON BY YOUR BROKER TO DEPOSIT A SUBSTANTIAL AMOUNT OF ADDITIONAL MARGIN FUNDS, ON SHORT NOTICE, IN ORDER TO MAINTAIN YOUR POSITION. IF YOU DO NOT PROVIDE THE REQUESTED FUNDS WITHIN THE PRESCRIBED TIME, YOUR POSITION MAY BE LIQUIDATED AT A LOSS, AND YOU WILL BE LIABLE FOR ANY RESULTING DEFICIT IN YOUR ACCOUNT.
UNDER CERTAIN MARKET CONDITIONS, YOU MAY FIND IT DIFFICULT OR IMPOSSIBLE TO LIQUIDATE A POSITION. THIS CAN OCCUR FOR EXAMPLE WHEN THE MARKET MAKES A “LIMIT MOVE.” THE PLACEMENT OF CONTINGENT ORDERS BY YOU OR YOUR TRADING ADVISER, SUCH AS A “STOP-LOSS” OR “STOP-LIMIT” ORDER, WILL NOT NECESSARILY LIMIT YOUR LOSSES TO THE INTENDED AMOUNTS, SINCE MARKET CONDITIONS MAY MAKE IT IMPOSSIBLE TO EXECUTE SUCH ORDERS. A “SPREAD” POSITION MAY NOT BE LESS RISKY THAN A SIMPLE “LONG” OR “SHORT” POSITION. THE HIGH DEGREE OF LEVERAGE THAT IS OFTEN OBTAINABLE IN COMMODITY INTEREST TRADING CAN WORK AGAINST YOU AS WELL AS FOR YOU.