Free Futures Trading Course – Page 3

Context The Key To It All – Legend To My Depth of Market

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Context – The Key To It All

A very important concept for all of the trade set ups below is “Context”. No two situations are alike. I could take the exact same still frame shot of a depth of market and paint two very different ways I handled the a trade in that situation. The reason is trading is a moving picture. Kind of like choose your own adventure. What happened leading up to the trade matters as much as the trade itself. That is the context, what were the events that led up to the moment of deciding to enter a trade.

Definition of Context: the circumstances that form the setting for an event, statement, or idea, and in terms of which it can be fully understood and assessed.

The context of each situation is what matters quite a bit when reading order flow and deciding if you should take a trade, and how to manage that trade. This is also why I can’t give you a specific “When A happens, do B”. There are no hard and fast rules. It’s an art.

Legend To My Depth of Market in Jigsaw Daytradr

Below is an explanation of what each of the columns are and a few other notes as well. Use this for reference in each of my trade set up explanations. You’ll be seeing lots of Jigsaw DOM in all my trade set ups.

  1. Profit and Loss Column – when in an active trade it shows the P&L for each price level.
  2. Volume Profile – how many contracts have traded at each price level. The Pink number is the price with the highest number of traded contracts for the session. The Orange is VWAP (a default in Jigsaw, I don’t use this). Green Bars vs Grey Bars – Green is just a quick visual on where the bulk of the trades have taken place.
  3. Price of the instrument. Numbers in white mean contracts have traded at that price this session, numbers in black have not had activity this session. You can also tell by the volume profile in Column 2 that contracts traded.
  4. Change in Bids – since the last price movement, the net change in Bids positive or negative. This can change because either bids are being added or pulled, or because contracts are traded at this price, reducing the quantity. It’s a quick visual of where there is strength or weakness. Buyers adding on while sellers are pulling away tells a story.
  5. Limit orders on the bid (buyers). This is what you would see on a normal simple DOM.
  6. Contracts traded at the Bid. Currently there are none when I took this screen shot. I should mention these clear out when I enter a position, and since I just joined the buyers these were zero’d out.
  7. Contracts traded at the Ask. You see a quantity of 6 at the price of 201’10. These are buyers who came up and hit the sellers at that price.
  8. Limit orders on the Ask (sellers) Sell side equivalent of column 5.
  9. Change in Asks – sell side equivalent of column 4. Additions and subtractions to the quantity of limit orders.
  10. Blue in the Price Column 3 – price you entered a trade at. Blue means you are long, Red would mean you were a short. I’m currently Long at the price of 201’10.
  11. Take Profit – since I am long (see 10) this is a Sell order at the price of 201’14. “4L” means quantity of 4, Limit Order (take profit). Q43 is my position in the queue. You see there are 46 sell limit orders on the book (column 8) and we are 43rd in line to be filled.
  12. Stop Loss – again since I am long this is at a stop at lower price. Side note – I wouldn’t actually put a stop this far away in practice, I just wanted to be able to clearly label the image. “4S” means quantity of 4, S means Stop. This is a Stop Market order. Stop Limit orders are shown as SL. “V30” means Volume Stop Quantity 30. What this means is my stop won’t be triggered unless the limit orders is less than 30. Now currently it is 31, so there isn’t much of an impact. But say the orders sitting there were 60. My stop wouldn’t be triggered until that worked down to 30 or less. The reason for this is what you don’t want is for 1 contract to trade at this price and your stop is triggered automatically since it’s a market order. You are saying “I only want a market stop order if the volume thins out”, which in theory means the buyers are pulling orders and/or getting filled, and the price is likely to continue down.

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Risk Disclosure:

Futures and forex trading contains substantial risk and is not for every investor. An investor could potentially lose all or more than the initial investment. Risk capital is money that can be lost without jeopardizing ones’ financial security or life style. Only risk capital should be used for trading and only those with sufficient risk capital should consider trading. Past performance is not necessarily indicative of future results.

Hypothetical Performance Disclosure: 

Hypothetical performance results have many inherent limitations, some of which are described below. No representation is being made that any account will or is likely to achieve profits or losses similar to those shown; in fact, there are frequently sharp differences between hypothetical performance results and the actual results subsequently achieved by any particular trading program. One of the limitations of hypothetical performance results is that they are generally prepared with the benefit of hindsight.

In addition, hypothetical trading does not involve financial risk, and no hypothetical trading record can completely account for the impact of financial risk of actual trading. for example, the ability to withstand losses or to adhere to a particular trading program in spite of trading losses are material points which can also adversely affect actual trading results. There are numerous other factors related to the markets in general or to the implementation of any specific trading program which cannot be fully accounted for in the preparation of hypothetical performance results and all which can adversely affect trading results.

You can read more here: Risk Disclosure

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