The following is a guest post from Doug Pless.
As discussed previously in my approach to trading futures with SpotGamma, I begin my morning preparation by reading the SpotGamma AM Report when I plan to trade ES futures.
This report provides key metrics as well as updated gamma levels including the Volatility Trigger, Zero Gamma, Call Wall, Combo Levels and more.
These levels consistently act as support, resistance, and price targets. The levels are automatically updated on my Bookmap chart every morning through a Cloud Notes link (futures trading links are available to SpotGamma Advanced and SpotGamma Pro subscribers). I draw a white dashed line at these levels and note the levels expected to act as support and resistance.
Bullish Reversal Trade Setup with SpotGamma
One of my favorite setups is to look for a bullish reversal at a level noted as support. This setup involves many of the following elements that often occur in the same sequence:
- “Sell stop run” into a SpotGamma support level
- Buyers absorb sellers
- “Buy Iceberg” orders execute (these are orders that larger traders use to hide their size)
- Liquidity bid imbalance
- Market maker hedging flow shifts from bearish/neutral to bullish as traders initiate bullish options trades
- Aggressive buyers move price higher
- Price moves higher until it reaches a target, often a SpotGamma level noted as resistance, a level of high liquidity, or both
This setup is very reliable and repeats over and over again. One example from July 23, 2021 is shown in the article referenced above. Two more examples from August 3 and 4, 2021 are shown below.
In all three examples, ES reversed at the level noted as support in the AM Report.
Trade Example #1: August 3, 2021
In this example, ES reversed at the L2 level (ES 4366, SPX 4375) noted as support in the AM Report. A clip of the report as well as an annotated Bookmap chart that provides details of the setup are shown below.
Trade Example #2: August 4, 2021
In this example, ES reversed at the L3 level (ES 4391, SPX 4400) noted as support in the AM Report. A clip of the report as well as an annotated Bookmap chart that provides details of the setup are shown below
For further definitions and information on the terms used in this article, please see the SpotGamma Support Center for a list of dozens of SpotGamma proprietary terms, as well as context for common market terminology.
SpotGamma Products Used:
- SpotGamma Pro
- HIRO Indicator (available now on Bookmap)