The Futures Market as we know trades almost all week around the clock, giving traders the opportunity to be active no matter the time zone and hours.
With that we don’t all need to be prisoners to the US trading session.
First, we have to understand what times are the futures markets open and what are the possible sessions to trade.
Overall the Futures market is open from Sunday 6:00 PM EST to Friday 5:00 PM EST, meaning that there are very few times it’s closed!
To break this down a little more, each day, the futures market closes between 5:00 PM EST and 6:00 PM EST, then reopens for the overnight session.
The sessions are split up as:
- US Trading session (regular trading hours): 9:30 AM EST to 5:00 PM EST.
- Globex (extended hours): 6:00 PM EST to 9:29:59 PM EST.
We can split up the Globex or ETH (extended trading hours) session into:
- Asian session:
- Tokyo: 7:00 PM to 4:00 AM EST
- Sydney: 5:00 PM to 2:00 AM EST
- London Session (Euro session): 3:00 AM to 12:00 PM EST
I know it got a little complicated but bear with me, it’ll be worth it.
Overall trading the Globex session can be done with a few simple tools, where my goal is to have defined levels I can just trade off.
The overnight session is generally slower, less volume trades but it’s longer than the regular trading hours, so we have to exhibit crazy patience and usually hold trades for much longer.
Think of it as an intraday swing that might even overlap into the US session.
What do we need to trade the Overnight session?
Trading the overnight session is different from trading the day session, during the RTH there is more volume, more movement and reactivity from order flow. Making it easier to find even a handful of trades. The trades appear throughout the first 2-3 hours of the market open.
The overnight (ETH) session is much longer, much slower and less volume, price could literally stay in a 5-point range on the S&P500 futures for hours. This doesn’t help us, we don’t want to be in front of the computer all night or day waiting for the area to trade or a reaction.
In that case, I will use auction market theory and profiles, to get the levels I want to trade, and then I can set out limits and just walk away if it’s taking too long!
Trading the RTH involves a trader identifying market imbalances that have been created and leaning on them for a trade set up.
Meaning using auction market theory, we can identify the direction and the levels to trade on the overnight session and get active only there, watching things play out.
No need to stare at the DOM or the footprint to identify confirmation or anything of the sort. This can also be implemented in your day to day trading.
What do I use? Which will all be explained here:
- 200-day cumulative volume profile
- Individual session volume profile
- Individual session delta profile
Getting Information from the past…
Now we all know that past results don’t indicate the potential of future results and there is the constant argument that the past can’t predict the future. Ya sure, agreed, however, the past can give us information in terms of where market imbalances have been created and where the strength comes from in terms of balance acceptance or rejection.
When I use auction market theory, I want to understand where the market has balances and around those balances where imbalance movement was created, because I can then lean on those areas and just place trades there and walk away.
This is where the deep understanding of auction market theory helps us in ETH trading, all I’m going to use is different volume profiles, as well as delta profiles to give me key areas to trade and walk from.
Using Auction Theory & Profiles to trade
To trade the overnight session I will pretty much exclusively trade the profiles, which I had mentioned above, it’s pretty much the same as trading without order flow.
The key here is understanding where market balances and imbalances actually rest based on distributions that you have that are most immediate.
This concept can be used on the ES, NQ and any other futures that are open at the time, you name it.
Step 1: Identify where the large balances are on your large cumulative profile. In this case I’ll be using the 200-day profile to get my regions. This tells me where price is currently in relation to the auctions, meaning the direction of the current market move so I can trade with it. I’ll be using the key extremes of the profiles here and looking at where we came from to actually trade in these balances.
Step 2: Identify what the session profiles are doing, meaning looking at the closes and opens of the sessions, mainly the RTH to compare to the large balances that we have for the following ETH session. I’ll mainly look at the RTH individual profiles in terms of where the value is, as well as where the imbalances on the individual sessions (large volume).
Step 3: Look at the Delta, where there is an imbalanced delta that might agree with the above. When I use the delta profiles, I look for clustering of traders that are trapped at lows of the auctions or at the tops of the auctions.
If we’re above a key area and there are clusters of delta, there is an inclination of upside momentum, adversely if there’s large clusters that are at the tops of auctions and prices are holding below that gives you an understanding that there is momentum trying to hold prices lower.
Regardless of the clustering of delta, meaning positive or negative, it depends on the situation and context of the market.
Now keep in mind that not all ETH sessions have the highest probability setups and if it’s not setting up from the prior RTH as I would want it, then I don’t have to force anything.
I’m looking for a set-up that moves into a new auction, or a failed break out into an auction area.
Step 1: Visualized
Step 2: Visualized
Step 3: Visualized
Trade entries & exits
We’ve done a lot of the heavy lifting with identifying the areas to actually trade, we can also pinpoint the area from a higher degree of confidence if we use the blocks where the delta was created, meaning the start of the delta where the buyer is in the example above, which would put our entry around the 5747 area on the ES.
This is great, however when we are trading the overnight session, we’re treating these trades as multi-hour trades, meaning I want to hold it out to the other extremes of the balance, which would mean I’m looking for a larger move. On the ES the overnight trade set up can span a potential of 15-20 points and more, on the NQ, it can be over 100 point move.
This means I would want to have a wider stop to allow for the potential of this move. On the ES I can use around 5 points, on the NQ around 30-40 points as a stop.
I can also use the delta blocks that are providing clusters and hide behind those large areas.
The ETH Trading Strategy
What better way to help you break it down than explaining it all via video to put the piece together of the ETH trading strategy.
