Case Study: A Winning Absorption Trade in the S&P 500 E-mini (ES)

Setup Description

In this case study, we will walk through a real-world example of a winning absorption trade in the S&P 500 E-mini (ES). This trade was taken on a 5-minute chart, and it resulted in a profit of 10 points.

The setup for this trade was a classic absorption setup at a key support level. The ES had been in a downtrend for most of the day, but it was starting to show signs of slowing down. As the price approached the support level, we saw a surge in volume on the footprint chart. This was a clear sign that a large number of buyers were stepping in to defend the level.

We also saw a bullish divergence between price and cumulative delta. The price was making a new low, but the cumulative delta was making a higher low. This was a strong confirmation that the selling pressure was weakening, and that the buyers were starting to take control.

Entry Rules

• Identified a key support level at 4000.
• Waited for the price to approach the level and saw a surge in volume on the footprint chart.
• Confirmed the setup with a bullish divergence between price and cumulative delta.
• Entered a long trade at 4001, with a stop loss at 3999.

Exit Rules

• Set a profit target at 4011, which was the next key resistance level.
• Used a trailing stop to protect our profits.
• The trade hit our profit target for a profit of 10 points.

Profit Target Placement

• Targeted the next key resistance level at 4011.

Stop Loss Placement

• Placed our stop loss at 3999, which was below the key support level.

Risk Control

• Risked 2 points on the trade, which was 0.5% of our account.

Money Management

• Used a position size of 1 contract.

Edge Definition

This trade had a clear statistical edge because it was based on a high-probability absorption setup at a key support level. The win rate for this setup is typically in the range of 60-70%, with a profit factor of 2.0 or higher.