Liquidity Raids & VWAP: A Flexible Approach to Trading the MES
Discretionary trading gives traders the freedom to make informed decisions based on market conditions rather than following rigid rules. Our trading system applies this approach specifically to the Micro E-mini S&P 500 (MES), one of the most accessible futures instruments available.
At its core the strategy is built around two key concepts:
- Liquidity Raids: These occur when price briefly moves beyond key support and resistance levels to trigger stop orders and fuel larger moves.
- VWAP (Volume Weighted Average Price): A dynamic benchmark that helps identify fair value and institutional activity, offering crucial trade confirmation.
To ensure accurate validation our backtesting was conducted using a single contract, factoring in all commission costs. However, traders can easily adjust position sizing and risk-reward parameters to match their personal trading style. This flexibility is one of the key advantages of discretionary trading, making it easy to adapt the system to individual preferences.
For subscribers we go deeper into optimized take profit and stop loss levels, as well as refined entry techniques designed to enhance your trading edge.
Watch the performance in action: Youtube
Adapting to Market Volatility with ATR-Based Range Bars
To construct the range bars essential to our strategy we use the Average True Range (ATR) indicator applied to a 60-minute MES chart. The ATR is set to 115, a carefully selected value that captures recent volatility while filtering out irregular price spikes caused by holidays or exceptionally volatile days. This ensures that our range bars reflect stable and consistent market conditions.
Before each Regular Trading Hours (RTH) session we analyze the ATR’s reading at the end of the previous trading day. This value determines the exact tick size for our range bars in the upcoming session. By dynamically adjusting to market conditions, this approach keeps our strategy precise, adaptive and effective throughout the trading day.
Identifying Key Levels: Support, Resistance & Market Structure
With range bars established we can now focus on the core logic of our trading system: identifying support and resistance levels. These key zones, resistance above price and support below price, signal market congestion, a crucial condition for gaining a long-term edge with a mean-reverting approach.
Rather than relying on indicators we use the market’s natural fluctuations, analyzing only OHLC (Open, High, Low, Close) values. This allows for a clean, price-action-based method of determining trend conditions:
- Positive momentum occurs when:
- The current bar (Bar 0) is bearish and its Open is below the Low of Bar 3.
- OR when the High of Bar 0 is below the Low of Bar 3.
- Negative momentum occurs when:
- The Open of Bar 0 is above the High of Bar 3.
- OR when the Low of Bar 0 is above the High of Bar 3.
This method keeps traders in sync with the market’s natural rhythm, ensuring precise decision-making. Refer to the attached chart to study the formation of these key levels.
Execution: Capturing Liquidity Raids with Precision
Once price breaks through a key support or resistance level (a breakout is mandatory) we wait for a quick retracement back into the congestion area before executing a trade.
Currently we use three ultra-short-term charts—20, 30, and 50 seconds—to manually trade the Micro E-mini S&P 500 (MES) futures. Entries can be long or short, provided they meet these key conditions:
- First retracement entry → If no closing candle on any of the three charts has settled beyond the key level, we enter as soon as a visible shadow (wick) forms.
- Delayed entry → If one or more charts close beyond the key level, we wait for all three charts to close back inside the congestion range before entering.
This scalping style approach is designed to capitalize on liquidity raids that occur during Regular Trading Hours (RTH). Given the fast-paced decision-making required, traders should expect a learning curve—several months of demo trading is recommended to build confidence and execution speed.
Performance & Trade Management
The performance of any trading system is shaped by multiple factors, some of which are under the trader’s control—money management being one of the most critical. In managing this discretionary trading system, we use a combination of take profit levels, stop loss placement, and manual trade exits to balance efficiency with adaptability.
Stop loss and take profit levels are always determined through a careful optimization process—one that prioritizes a sustainable balance rather than simply maximizing returns. Based on expected outcome analysis, the following values have proven optimal:
- Stop loss: 15 ticks
- Take profit: 33 ticks
In addition to these predefined levels, we recommend manual trade exits in the following situations:
- Closing a losing trade → If the three second-based charts contradict the initial entry conditions.
- Securing profits → Upon reaching the Anchored VWAP, set at the beginning of the congestion phase.
By adhering to these rules, we maintain a structured yet flexible approach, ensuring alignment with market dynamics while preserving the discretionary nature of the system.
The performance results obtained using these parameters are presented in the attached statistics.
Best regards,
TradingQuant
