Day Trading the E-mini Futures

[steve46 12]

Apropos of the earlier remarks about price taking out a level by a tick or two, I wanted to post this chart

 

First of all, a lttle background....clearly this is a professional market, meaning that the majority of participants are commercial speculators, banks, funds and other similarly educated folks. Most of the retail investors are on the sideline, except for those who still have a 401 with money in it.....

 

For the S&P 500 (equities and futures alike), the majority of the action is either automated or screen execution upstairs (off the floor)....even so...this market is moved by professional interests and what these participants have in common is an understanding of human behavior...that is if you simply look at the charts you will see behavior meant to generate stress on less educated traders...and to isolate or take advantage of participants traditionally known as "weak hands"....one of the ways that this is accomplished is to move markets so that they "take out" swings high and low by just a few ticks (to as many as a few points) before retracing...the reason?....it allows specific participants the opportunity to

 

1. activate resting orders above and below a price...its called "stop running or stop probe"

2. allows the participant to obtain a slightly better entry price

3. allows the more agressive participant to "strand" other traders

 

There are many examples of this behavior....one of which I have written about a few times (most recently in my blog) called a "basing pattern"....the attached screen capture shows how it works as price moves within a range, until participants decide to drive it up or down a tick or two below the range...if they find no resting orders there, the next move is (in my opinion) predictable.....

 

By the way, the "range" in this example is approximately 4 points with multiple high probability entries available....from my point of view, very much worth trading..

 

Training students I suggest that an aggressive approach works best...for example I see 4 decent entries after the probe down.....If I am trading it alone, I will take three of the four and on the last one I would reduce size by half...I was taught that you want to "hit it until they make you pay" because by that time generally you will have made sufficient profit even if you end with a loser...

Edited December 14, 2011 by steve46

[PJK2 10]

Steve46 - how/where can I access your blog?

 

pjk2

[TheNegotiator 13]

Blogs and students aside steve, thanks for sharing that info with us. In fairness many people wouldn't know that this kind of behaviour can take place although I would hope that many would also be able to take a guess at reasons for it aswell. I'd also point out that while you mention "stop running" and "stop probe" as key phrases(!) there are other reasons for taking out an extreme by a tick or so. One for example is that it is a "failed auction"(!-sry). It is conceivable that short term activity is extremely directional and that a second test of the same area does slightly penetrate an area due to the sheer weight of orders going through. However, the area in question is an important technical level and longer term players are happy to absorb trade. The "new auction" thus fails and a move away from the area ensues.

 

Anyway, gotta do my other post now

Edited December 15, 2011 by TheNegotiator

[TheNegotiator 13]

Short comment today but nice picture! Key prices for those of a bearish persuasion will be yesterday's open 1213.75 and 1219.75 areas. I would suggest that bulls out there will be unlikely to want to see price below 1202.50 and 1198.00 areas.

 

Here's my chart:-

 

[joshdance 10]

I would suggest that bulls out there will be unlikely to want to see price below 1202.50 and 1198.00 areas.

 

Gap finally filled down to 1198 ... 1180 would be next if that support fails, but I have a feeling long term buyers have been waiting for this area to test and hold, and may take this thing up. But that's just a feeling, and in no way connected to what will happen on the chart. Happy trading !

[TheNegotiator 13]

Josh, the gap is a session gap so it hasn't filled. 29th Nov high was 1197.25(back adjusted of course) and so this would be a profile/range gap not a close-open gap. It's also useful to look at. But nonetheless the test was still important as it attempted the low volume area on the profile. Either way it was useful for bulls and now we just have to "see what they've got".

[TheNegotiator 13]

COME ON! TEST THE IB LOW ALREADY!!!!!! lol

[joshdance 10]

COME ON! TEST THE IB LOW ALREADY!!!!!! lol

 

have been thinking the same thing for the last 20 mins! ... looks pretty weak here, declining volume, but not quite enough confirmation for a short for me yet

[TheNegotiator 13]

i get the feeling if it gets there it'll pop thru.

[TheNegotiator 13]

that big delta won't wanna be thru 13.75

[TheNegotiator 13]

(for the record that post about it popping was b4 it actually went )

[joshdance 10]

shorted 13.15, stop 14.15

 

EDIT: er, 13.50, stop 14.50 must be tired

[TheNegotiator 13]

shorted 13.15, stop 14.15

 

EDIT: er, 13.50, stop 14.50 must be tired

 

Tired = sleep

 

Tired ≠ trade

[joshdance 10]

(for the record that post about it popping was b4 it actually went )

 

sure it was....... j/k ;-)

[joshdance 10]

Tired = sleep

 

Tired ≠ trade

 

Yeah I'm joking about being tired .. my thought process is clear, my brain just interpreted "fifty" as "fifteen"

[TheNegotiator 13]

Good. 13.75 was important from yesterday and clearly 12.25 is useful today. Those would be my intial prices to monitor if I were in that trade.

[joshdance 10]

lots of volume here so stop to 13.25 (+0.25)

[TheNegotiator 13]

lots of volume here so stop to 13.25 (+0.25)

 

If you're still in, do you think the stop move might be a little over-aggressive?

[TheNegotiator 13]

1214.50 is btw also high vol on the long term profile and there's the 13.75 of yesterday's open/swing high.

 

Edit: and 14.00 is the session mid

[joshdance 10]

lots of volume here so stop to 13.25 (+0.25)

 

out for + a tick ... probably shaken out

[joshdance 10]

If you're still in, do you think the stop move might be a little over-aggressive?

 

yes ..................

[TheNegotiator 13]

If you're still in, do you think the stop move might be a little over-aggressive?

 

out for + a tick ... probably shaken out

 

I was concerned that may happen. If you are agressive with your stop moves, you'll protect your downside, but you'll have to be prepared for lots of moves that happen after they tick you out like just happened.

[steve46 12]

Interesting...so Josh...I think a comment is in order....it seems you are trying to trade in very exacting manner....certainly your privelige

 

What I observe is that the markets are simply too noisy for that to work....whether you call it a failed auction, a probe or a stop run, one has to admit that this market (the S&P futures) tends to take out both swings high and low, and range boundaries high and low by more than one tick before resuming a trend (or a consolidation) move....If you know that, at some point you may want to build tolerance into your system...or the result will be that you bleed your account (slowly if you are risk intolerant) because in the long run you will not be able to overcome expenses.

 

As I have mentioned on several occaisions I try to teach folks to be aggressive (in an intelligent controlled manner)....I know from experience that it works..IF you have a systematic approach that has an edge (I assume you have that covered).....

 

Today (yet again) we have a late day range...and (yet again) I am "hitting it (trading the extremes) until they make me pay"......I am willing to risk 2 points....it may seem excessive however I know from my testing that I will not often have to pay that price...generally I see about three (3) ticks of heat before I "think" that I am wrong, and STILL I stay with it. because I have seen it reverse and proceed in my favor....the real point to this is that you may need to do additional testing to prove to yourself that you have a systematic approach that can withstand a reasonable stop size (or not)....Perhaps you know this already, if so please excuse (or ignore) the mini-lecture.

 

Edit

 

By the way, in the chart the first arrow (leftmost) is the initial signal.... the second is what I call a "double tap" and serves as a point of entry...a close outside the blue rectangle is my stoploss

Edited December 15, 2011 by steve46

[joshdance 10]

Thanks for advice both of you -- am always interested in trades you are taking, and how you manage your stops during the trade. This would be of great help, no doubt.

[TheNegotiator 13]

Josh, I know that you and I'm sure others have interest in trade specifics and I will continue to post trades from time to time. What I'll try to do in future though is point out trade management to a greater extent. You have good understanding of the market but I think you need to work on your trade management. Anyway, you are definitely heading in the right direction. Keep it up!!