Built For
Instruments: Stocks/Futures
Trading Style: Day Trading
Playbook Overview
This strategy is built around the concept of a directional auction, also known as a trend day or flow day, where price decisively breaks out of a balanced area and continues in one direction. These are high-opportunity days when institutional participants enter the market and drive strong moves, often triggered by fundamental catalysts such as macroeconomic reports or corporate earnings, that lead to changes in asset prices. The goal is to identify and align with these moves early and manage risk using precise, order flow-based criteria.
Why Directional Auctions Occur?
Directional auctions are driven by distinct market forces that cause price to move away from a balanced state. These include:
Market Events or News
Whenever there is a market event or news that leads the market participants to reassess the fair value.
Examples are better-than-expected earnings, partnerships, product announcements, etc. Anything that basically changes the fundamentals of a company.
Similarly, for indices, data points such as the CPI, jobs report, etc, are usually a source of imbalance.
Technical Levels and Liquidity Events
When price breaks major support or resistance levels, it often triggers stops, forced covering, or breakout participation. These levels act as liquidity zones — areas where orders are clustered and can fuel large moves when breached. A strong reaction in these zones often accelerates the auction.
Price Discovery
When price breaks into areas with no previous trading activity, such as all-time highs — the market enters a price discovery phase. With no recent reference points to guide value, price often moves quickly and aggressively as participants search for a new area of acceptance. This usually leads to a strong directional move.
Key Zones to Observe
Trade decisions should not be made in the middle of nowhere. Specific zones offer structure and context. These include:
- VWAP
- Previous Day Highs/Lows
- Initial Balance Highs/Lows
- Liquidity Zones
- Point of Control (POC)
- Structural Support and Resistance Zones
Playbook Rules
Directional auctions are not random. They follow a clear structure and behavior. The following criteria helps us to identify the potential a directional auction taking place:
Strong Volume
Directional auctions start with strong volume. It’s the first sign that something meaningful is happening and that larger participants may be active.
To measure this, use Relative Volume (RVOL), which compares current volume to the average volume over the last sessions. An RVOL above 1.5 to 2.0 signals unusual activity and increases the likelihood of a directional move.
If a stock typically trades 5 million shares and it’s already traded 7 million early in the session, that’s a strong clue that today’s session is different, and potentially setting up for a directional auction.
Order Book Behavior: Limit vs. Market Orders
Observe the interaction between passive limit orders and aggressive market orders. In a directional auction:
- Limit orders begin to stack and increase in size.
- As price trades into these areas, they are absorbed rather than pulled.
- Once absorbed, aggressive market orders follow in the same direction.
This absorption and follow-through is a sign that strong participants are defending a level and initiating a move. The shift from passive accumulation to aggressive execution confirms the directional intent.
Liquidity Zones
Liquidity zones are areas where a high concentration of stop orders, option hedging, or prior positions exists. These zones often create “pain points” in the market, when breached, they trigger large reactions.
Examples include:
- Prior day highs/lows.
- Obvious swing points.
- Key psychological round numbers.
When price breaks into or out of these areas, it often causes a short squeeze, which accelerates the directional move.
Delta Confirmation
Delta measures the difference between aggressive buyers and sellers (market orders). In a healthy directional move:
- Delta supports the trend (positive delta for an uptrend, negative for a downtrend).
- If delta spikes strongly against the trend during a pullback, it may be a sign of a reversal. However, if the pullback occurs on weak delta and gets absorbed by passive players, it confirms continuation.
Price Behavior
Price should align with all the above factors. The trend should show:
- Clear continuation.
- Controlled pullbacks.
- Respect for key inflection zones.
Sideways or choppy price action with mixed signals often invalidates the setup. Strong price action is a requirement for conviction.
Point of Control (POC) Shift
The Point of Control is the price level with the most traded volume during the session. In a directional auction:
- POC should shift in the direction of the move.
- A rising POC in an uptrend = value is being accepted at higher prices → uptrend is healthy.
If price is trending but POC remains anchored or shifts against the move, it signals a lack of conviction and may invalidate the trend.
VWAP Slope and Confluence
VWAP (Volume Weighted Average Price) represents the average price weighted by volume. It provides a view of value agreement throughout the session.
In a directional auction:
- The slope of VWAP should follow the direction of the move.
- A rising VWAP confirms sustained buying; a falling VWAP confirms selling.
- Confluence with other levels (e.g., POC, liquidity zone) enhances conviction.
- If VWAP and price are diverging, it may suggest the trend is weakening.
Pros and Cons of the Strategy
Like any setup, this strategy has its strengths and limitations. It's powerful when used with focus and discipline, but it requires attention to detail and real-time execution.
Note: The cons listed here aren’t disadvantages. They are things to be aware of — important characteristics that require patience, discipline, and proper management to make the playbook work effectively.
Pros
- High R-multiple potential: Great risk-reward when the setup plays out.
- Works well with volume, delta, and order flow tools: Strong alignment with objective market data.
- Clearly defined thesis: Follows a structured checklist for clean execution.
- Institutional flow driven: Aligns with momentum backed by large participants.
Cons (Things to Be Aware Of and Manage)
- Less frequent setups: Clean directional auctions don’t happen every day.
- Requires patience and discipline: False moves can trap early traders.
- Order flow interpretation has a learning curve: Demands screen time and experience.
- Not suitable for indicator-only traders: Relies on reading raw market behavior.
Trade Breakdown
Trade Example 1 $HOOD
Trade Thesis
Robinhood ($HOOD) opened with a notable gap higher in the pre-market following a Bank of America upgrade to “Buy”, driven by expectations of a sustained rebound in retail trading activity through 2024 and 2025. This upgrade came on the heels of a strong earnings report, which beat estimates — largely fueled by a surge in cryptocurrency trading volume.
This fundamental catalyst aligned with the technical setup, as price had been coiling in a tight consolidation range, placing $HOOD on watch for a potential breakout to the upside.
Pre-market picture of $HOOD after earnings
Bigger Picture Context – Initial Criteria
- Strong fundamental catalyst (analyst upgrade + earnings beat).
- Elevated pre-market volume and volatility.
- Tight consolidation range, suggesting energy build-up.
Entry Criteria – Technical & Order Flow Alignment
Order Book:
- Limit bid orders begin to increase, forming a liquidity floor.
- Buy market orders grow in size and start aggressively lifting the offer.
- Sellers are unable to push price lower, showing signs of absorption.
Volume:
- Volume confirms directional conviction, expanding in sync with the price move.
Price Action:
- Price begins breaking out of consolidation and moving in the direction of the trade thesis.
Point of Control (POC):
- POC shifts higher, indicating that value is being accepted at higher prices.
VWAP (Volume Weighted Average Price):
- VWAP slope turns positive, supporting the price move.
- Pullbacks to VWAP (especially near the bid) are absorbed by buyers.
Liquidity Zones:
- Presence of High Volume Nodes on the Session Volume Profile (SVP).
- High liquidity zones acting as support, providing structure to the trade.
Exit Target
- Targeting the new high of day (HOD).
- Looking to capture a liquidity sweep/short squeeze, as trapped shorts fuel the continuation.
Market Open Behavior & Tape Reading
At the open, $HOOD initially dipped but quickly rebounded, showing strong buying interest as it began to hold above VWAP and the 19.30s level — a key technical zone from the daily chart. This price behavior was the first confirmation that buyers were stepping in with intent.
Shortly after, additional confirmation came as VWAP Accept Strategy criteria began to align:
- The stock consistently held above VWAP.
- The bid was being accepted.
- Order flow and volume continued to support the move higher.
- Price action and liquidity behavior matched the long setup.
Flow Chart
Candlestick Chart
Trade Execution
Once all the criteria were met and the setup was confirmed, the long trade was executed with the target set at the new HOD and anticipated sell-side liquidity.
Trade Example 2 $NVDA
Trade Thesis - $NVDA
The main event for $NVDA was the stock beginning to trade post-split. With the new lower nominal price, the long idea was based on potential increased interest from retail traders and funds looking to rebalance.The plan was to see if price would flush early to test lower liquidity levels, then hold above the key inflection zone at 120 — a major level even pre-split (formerly 1200). It was a line in the sand. On the hourly, there was a bear flag setting up, but as always — patterns don’t guarantee direction. It was important to stay open to both outcomes:
- Bear flag acceptance → breakdown.
- Bear flag trap → rip higher.
Pre-market Picture
Pre-market action was muted — a small dip, nothing aggressive. Main levels on watch were:
- PML / PMH.
- 120 as the main inflection.
Early plan: wait for structure to form and let the tape tell the story.
Setup Criteria – VWAP Playbook
Catalyst: Post-split + fresh attention.
Volatility & volume: Elevated — check.
Entry signals included:
Order Book:
- Bids stepping up, absorbing sellers.
- Aggressive buy market orders hitting the ask.
- Sellers unable to move the price lower.
Volume:
- Expansion in the direction of the move.
Price Action:
- Shift in control — price reclaiming key levels.
POC:
- Moving higher throughout the session → value migrating up.
VWAP:
- Slope turning up.
- Pullbacks to VWAP-BID getting bought up.
Liquidity Zones:
- High volume nodes and resting liquidity acting as support.
Market Open & Tape
Off the open, NVDA dipped — flushed into 119s — but couldn’t hold below. Buyers stepped in quickly. Tape showed aggressive buying and solid velocity on the bounce. That move off 119s was the first sign that the dip was likely a trap. Then VWAP started holding clean, bid getting accepted, and everything from the checklist started to align. Momentum was building, and sellers looked stuck.
Flow Chart
Candlestick Chart
Aftermaths Chart
Execution
Once all the signals were there, the long trade was taken, targeting the new high of the day and a potential liquidity sweep as shorts got caught leaning 3R trade, clean entry, solid structure, tape confirmed the story.
