Using the value area to trade S&P 500 EMini

The S&P 500 eMini is popular with all four eMini Futures to trade. Traders are beginning to appreciate the S&P 500 eMini because its trading stock offers a “middle ground” compared to its stalwart siblings, the Dow-30, rising leader, Nasdaq-100, and hypertensive sibling, Russell 2000.

Trading the S&P 500 eMini (ES) requires an understanding of market dynamics and an idea of ​​where price is headed. Closely monitoring the price action in the daily value area of ​​the ES gives the trader an idea of ​​intraday price direction.

The value area is defined as the price range of the instrument where 70% of yesterday’s volume was traded. The Value Area is important because it defines the current ‘Comfort Zone’ where traders feel comfortable trading under a neutral bias.

By accounting for price movement with the Value Area, you can pinpoint intraday Price Direction. The value area for the ES is particularly accurate in signaling price direction because the ES is the ‘midpoint’ eMini trading instrument.

Signals in intraday price direction are very useful for traders to quickly decide which trades to take during the day. Below is a discussion of value area signals.

80% rule sign. The 80% Rule is easy to understand and quite reliable in determining the direction of the market. When the market is above or below the value area and then breaks into the value area for two consecutive half-hour periods, the market has an 80% chance of filling at least the value area.

The trader has the opportunity to place a trade once the signal is triggered and move the price up through the Value Area before deciding to exit the trade.

Above value area sign. When the market opens and holds above the value area, this indicates a very strong uptrend. Institutional buying is occurring in the market pushing the market higher. A trader can buy the market during dips, sometimes when the top of the value area is being tested, before it resumes its rally.

Below the value area sign. When the market opens and remains below the value area, this indicates a very strong downtrend. Institutional selling is occurring in the market pushing the market lower. You may be able to sell on market rallies, such as a test of the value area bottom, but you don’t want to trade for too long when institutions are selling.

Support/resistance signals. The bottom and top of the Value Area are excellent support and resistance levels. For example, if you were long above the Value Area, you would put a sell stop just below the top of the Value Area because if the market breaks into the Value Area, a strong downtrend is signaled. If you want to buy and the market is below the Value Area, you would place your buy order just above the bottom of the Value Area, because if the market breaks into the Value Area, a strong uptrend is signaled.

Additionally, watching the other eMinis as the ES approaches the top or bottom of its value area can be very helpful in guiding a trader’s decision. For example, when the ES is within its value area but hovering just below its value area top, if the Nasdaq eMini is showing strength, then there is a higher chance that the ES will break into its value area top. value area, indicating a bullish bias and a buy. If the Nasdaq is showing weakness, then there is a higher chance that the ES will turn down from its upper value area, indicating a bearish bias and selling.

In conclusion, looking at the movement of the S&P 500 eMini relative to its value area is an excellent method of deciphering market direction. The more a trader controls the price action of the eMini in its value area, the better “tuned” the trader will be to its dynamics.