How understanding market context can keep you profitable

Market Context

Market Context is one of the most important things to understand as a trader. Appreciating the context of the market can help you select the correct setup and more importantly can help you avoid selecting an unsuitable setup. Understanding context is one of those things that comes with time as a trader increases his screen time and expertise on that market. It is impossible to turn context into an actual science, there are literally unlimited variables that need to be taken into account when understanding context. Market behavior changes regularly, and what was “normal” last week can become obsolete the next. However appreciating the major factors that affect context can give you a significant head start. Some key variables to take into account when appreciating context:

? Pre market action
? Recent or scheduled news
? Recent trend
? Expected and current range
? Expected and current volume
? Yesterday’s action
? Position relative to today’s open
? Position relative to key levels
? Footprint of the day and past few days
? High and low levels
? How much time spent at levels
? How many touches of a level
? Current pace of the market
? Time of day
? Any in focus catalysts (eg oil price, dollar, financials, specific news)

These are just some of the things to look at before firstly defining the type of day and then judging if the setup you are planning to execute is still valid. How much weight you put on context depends on the setup. With certain setups it will be absolutely crucial that key variables are in place before even considering the trade. For example you would not take a counter trend trade against a low level support area if some unexpected data has just been announced.