ER2 and the 34ema

[TinGull 10]

So...those of you in the chat room in the mornings know that Paul and I are goo goo ga ga over the 34ema and the ER2. I wanted to perhaps get some feedback on this methodology, as I really want to implement it.

 

I think I may start posting at the end of each session here what the opportunities were at the end of the day. Today, there were 8 total, one was after hours that I was papertrading.

 

It's a very interesting concept, and even if you take 2-3 of the opportunities that come up thats a nice supplement to the income stream.

 

The delta divergences that I use also tend to work well with this methodology, giving less total opportunities, but more defined ones.

I've attached a chart, so hopefully we can get some discussion going about this.

 

I'd love to know peoples' takes on stop placement, first of all. From the looks of it, one could place a stop right under the low of the bar prior and be safe. It gives a small amount of risk for the 1.00 looking to be gained.

 

I'm looking at a 233t chart and looking at this as a scalping method, not a longer term (5-30 minutes) method. This would be over and done with within 2-3 minutes most times. And getting 100 dollars per contract in 2-3 minutes....not bad.

 

So...let's discuss What are your thoughts on the strategy?

[TinGull 10]

Also...I think that having a holistic view of the market is very critical to this working. If you can see we're getting choppy, then dont attempt this. This can get you whacked up pretty good in a very tight rangebound market.

[MrPaul 10]

I like to use it when it's right in line with a pivot either for support or resistance. An example would be price at VAL on the chart you posted. Imo it is most effective this way.

[sudha78 10]

Please explain ER2 in detail or provide link to learn this in detail.

[Soultrader 12]

sudha78,

 

ER2 is just the name for the emini Russell contract. Are you familiar with emini index futures at all?

[MrPaul 10]

Please explain ER2 in detail or provide link to learn this in detail.

 

Hey sudha78,

 

The "ER2" is an e-mini stock index future contract

 

From CME:

CME® E-mini® Russell 2000® futures and options on futures offer investors an affordable way to trade the Russell 2000 Index, a key benchmark index for small-cap stocks. The CME E-mini Russell 2000 product is one-fifth the size of its standard counterpart and trades exclusively on the CME Globex® electronic trading system.

 

Link:

CME E-mini Russell 2000 Futures & Options

[TinGull 10]

I like to use it when it's right in line with a pivot either for support or resistance. An example would be price at VAL on the chart you posted. Imo it is most effective this way.

 

I can totally see how it would be more effective at a pivot...I'll be paper trading this for sure tomorrow. It's got me very interested.

 

Also, Paul...how are you setting your stops?

[Soultrader 12]

Ive been paying attention to how the ER2 respects the 34ema as well. In hindsight it looks beautiful. However, a few things do make me feel uncomfortable.

 

The scalping method automatically assumes entry smack at the 34ema. Ive been watching the ER2 trade when it reaches the 34ema and it tends to reverse very fast. As the ema moves constantly, a limit order would be hard to place thus resorting to market orders. Timing the entry would be fairly hard.

 

Obviously, traders must learn to recognize chop from trend. In a choppy market this strategy can annihilate a trader. In a trending market this strategy works like a charm. However, in a rangebound market (not too choppy) the probability of wins tends to decrease. It becomes hard to identify which setups to take unless you add another filter; ex. pivot, tape, divergence, etc...

 

Ive also never been a fan of moving averages so applying this strategy into my trading would be a serious commitment. I'll keep an eye on it and try to combine it with some other techniques. Will keep this thread posted.

[MseTrap 10]

Despite the tight range, this is one of those fortunate days that the russell was very consistant. You had consistant higher highs and higher lows in the uptrends and lower lows and lower highs of the down trend. Trading from moving averages was ideal for these kinds of days. Also the market didnt suffer a lot a painfull consolidation before changing short term trends. The strategy would have made a profit today.

Here are a few things to try as well:

1) Instead of the moving average line, create a 34ema of the highs and 34ema of the lows, use this small channel to help avoid trading into consolidation or ranged cycles, which is the times you want to *not* be using a trendline for setups.

2) Create a MACD of the 5 and 34 ema values to better highlight divergance. This will help when market gets choppy and also provide a stronger signal when that pattern occures near of price of resistance or support.

[walterw 10]

Well Tingull , 34 and 50 emas are great dynamic S&R Levels... In my experience it has a 50/50 performance wich its ok... the key is having tight stops and long trails... so you have a RRR that will work on that performance ... if you are good detecting trending conditions vs cycling you can get up to a 60/40 performance ... it is a simple strategy and you can get good at it... nice thread indeed...

[momentom 10]

I've been trading the 34ema bounce for a couple of years now. I use tick or volume charts. I've even automated it for TradeStation but the fills have too much slippage and TS gets out of sync easily due to the number of trades a day. It works better trading it with an oscillator that gets over bought or oversold as well as the steepness of the angle of the ema.

[TinGull 10]

Very interesting momentom! You should stop by the trading room sometime. We meet there every morning. Would love to talk about ER trading with you some more.

 

Take care,

Chris

[walterw 10]

The angle of 34 ema is being thougt by woodie and gb007 at woodiescciclub... now what happens some times is that this angle gets flat during the exact pullback (test) and then it becomes steep again as it continues the trend to evolve... one thing I like is to put both 34 and 50 emas and if they are enough apart one from each other it means good momentum... some other tecnique I use to take the trade is using a 1/5 scale chart (ej: 233T / 47T )(Drummond concepts) and use some average croosovers on the smaller time frame where I can see more decompressed data to take the exact spot for the trade, If you only look at the 233T chart its hard to find the best spot on so compressed data, and it makes dificult to establish a competitive stop... I attach example of both scales working.... cheers Walter.

[walterw 10]

I add another example on the scales 110T / 22T it seems like there is more amount of opportunities on this timeframe.... also stops are not that far away... thought objectives are also smaller...

 

Thanks Tingull for inspiration... you are good generous people...

 

cheers Walter.

[TinGull 10]

You certainly bring up some interesting points Walter...ones that I'll definitely look into further You're welcome, and thanks MrPaul for the 34ema trick, and thanks Walter for more insight

[momentom 10]

Guys, when measuring the ema angle a la woodie, I look at the angle 3 bars before the bounce due to the fact, as walterw rightly points out, the ema flattens on the pullback.

 

The countertrade when the price is far from the ema is also a very good trade when filtered by an oscillator to show overbought/sold condition. The CCI is perfect for this. Try the 50 CCI, not shorter.

[TinGull 10]

The thing I look for is a divergence in the delta of the bid/ask going into the 34ema, especially at or very close to Market Profile levels. It also can give you a good exit point on a scalp. ER seems to love MP levels too.

 

The first pic is a real quicky on what to do without too much MP levels to play off of. You can see rejection inside of value from Friday as we exit value area and bounce back up to the 34ema with a huge divergence. (dont mind the s3 level...my charts daily pivots were messed up friday). As we get the confluence of the 34ema, val, and weekly S1 AND divergence...sweet. Good trade placement would've been right under the 34 as we came back down, just to make sure we were headin' in that direction. A few bars later we get another entry if you missed the first one. Good for a 1-2 point scalp, and then another divergence/34ema entry good for another 1-2 point scalp.

 

The second pic is of a great trade of the ER being accepted inside of value. There's 2 opportunities to get into this trade at VAL. Both show divergences on the delta graph meaning selling is decreasing as price still wants to move lower. Coming into value area low with divergence AND a market profile level is sweet. As you can see...good for 3 points bottom to top. At around 13:56 you had another entry exactly the same play from VAL to the daily pivot. While one might be tempted to flip the trade there from a triple top...I'm not that brazen. I want to wait for the next 34ema/MP move. at 14:57 price starts showing us acceptance out of value. We blast back up to VAL with a divergence AND the 34ema....sweetness again. From there we ride down to the weekly pivot. A little over 3 points top to bottom. So...this day showed us 9 points using Market Profile and the 34ema.

 

The red trendline is a 5ema. I use it to see how choppy things might be. When it hangs around the 34 for too long, I dont want to take trades until we see some movement away from the 34 and back to it. Just to play it safe.

[walterw 10]

Great stuff Tingull ¡¡ one thing I will like to call your atention worth more analisis is on the fact that when you are at the 34 ema area ready to get a reject trade there are clear M `s and W`s patterns being formed.... sounds like market needs to do this types of "come and go" before rejecting the 34 ema... this delta indicator you use, shows it very clear... would be nice if we could understand why does the market do this and exploid the best spot to make an entry on this pattern too... I attach some examples on this pattern... cheers Walter.

[TinGull 10]

Once again Walter, thanks! Cool that you're name begins with a "W" eh? Just thought of that....hehe

 

As for the delta, since it's just showing the net difference between the bid and the ask contracts going into the market, it's pretty easy to grasp whats happening. As we head into a critical area (be it the 34ema, a market profile level or whatever) the contracts going in the movement of price start decreasing. If price is heading up, the net buying contracts starts going down. This is just signaling that the bulls lack confidence into that move and you can exploit that.

 

Happy trading

[walterw 10]

Oh yes Tingull W is in all parts of nature jejejejeje its like fibonacci numbers ¡¡¡

trade well... cheers Walter.

[walterw 10]

About the best time of the day to trade 34 ema rejections.... would be nice to make some stats about at wich time of the trading day this has the best performance.... so far seems like the first 2 hours of trading are the most reliable... then market gets tricky...

[TinGull 10]

I'm sensing that too. Then the afternoon 50% fib retracement seems to offer a nice little snack

[MseTrap 10]

I'm not too embarrassed to say that i was stuck in a pattern early on in my trading where I would make good gains in the first 2 hours of trading and then in the next hour give back half my winning as the market would fall into chop. Its strange how a market can start to fall asleep and do more consolidation in a sneaky manner without realizing it, especially if your focused too much on setups. Reading the tape definitely helps cure this. Now, after the 1st 2 hours of the market I either change my strategy to suite the market or just walk away and feel good about it.

[walterw 10]

Well yes Msetrap, it also happens to me that I normally make very good money on the first two hours and if I keep trading after that, most of the times I end giving back gains... it takes lots of experience to deal with a sleepy market... Tingull could you expand on does 50% fibonacci retracements at lunch hour ? I mostly look for some coil breakouts at this time of the day, but there is 50/50 false breakouts... so it gets hard to be consistent at lunch time... at least myself....:o I normally take a deep on my swiming pool after this two hours.... its more healthy for my pocket:cool:

 

cheers Walter.