Day Trading the E-mini Futures

[johnw 10]

..................................................... The real question as I review today is, should I have had a bit more short bias than I did? ..........................................................

 

jd,

 

You need to know your tactical situation at all times to be a Trader.

 

Without this awareness a Chartist cannot evolve into a Trader.

Yesterday for instance was a day when the ask-bid spread was dropping and price could not breakout to the upside ..... this is an unmistakable short bias to put it into your language.... just plot the cum ask-bid spread for the RTH to see what I am talking about.

 

Charting programs like market delta and Pred's program may be attractive because they appear to hone in on a single tic, but while your attention is being drawn into this detail, the big picture is passing you by.

For example, you referred to a trade on the left edge as "not bad not good, small loss" ... well, it was a bad entry because you did not wait until the shorts were washed out and the longs began building.... and you know this!!

 

I know that I bang on about this, but Trading is a competitive sport because all the characteristics are the same ... whether you are concentrating on the next swing in golf or the next point in tennis or the next play in rugby, you must always have a tape playing behind this point of concentration that contains the tactical situation of the game to date and it is constantly updating itself.

 

This sense of focus running over the top of a constantly playing situational tape is what will make you a great Trader ... you must try to enable both at once .. it cannot be an either/or situation otherwise you will wind up on the sideline analysing charts for the rest of your life and telling yourself 'not good, not bad'

 

Detach yourself from what you are trying to do and you are already halfway there.

We are meant to be Traders and not Chartists, unless of course we prefer the safety of charting .....

good luck

[joshdance 10]

Charting programs like market delta and Pred's program may be attractive because they appear to hone in on a single tic, but while your attention is being drawn into this detail, the big picture is passing you by.

For example, you referred to a trade on the left edge as "not bad not good, small loss" ... well, it was a bad entry because you did not wait until the shorts were washed out and the longs began building.... and you know this!!

 

I know that I bang on about this, but Trading is a competitive sport because all the characteristics are the same ... whether you are concentrating on the next swing in golf or the next point in tennis or the next play in rugby, you must always have a tape playing behind this point of concentration that contains the tactical situation of the game to date and it is constantly updating itself.

 

This sense of focus running over the top of a constantly playing situational tape is what will make you a great Trader ... you must try to enable both at once .. it cannot be an either/or situation otherwise you will wind up on the sideline analysing charts for the rest of your life and telling yourself 'not good, not bad'

 

Detach yourself from what you are trying to do and you are already halfway there.

We are meant to be Traders and not Chartists, unless of course we prefer the safety of charting .....

good luck

 

John, thank you for your reply, I think you have some very valid points here. I only disagree about one point and so I will do that first -- not all shifts in momentum occur after a washout. Thus, the fact that I did not wait for one does not invalidate the entry. What was important was that my risk was managed, and I put myself into a position that had a reasonably good (by my belief system) chance of popping at least a point or two for a scale. One other minor difference of opinion -- you refer to cumulative delta (I think that's what you mean by bid-ask spread). It was not particularly "special" yesterday and it was actually up quite well off the low through much of the midday, so nothing for me personally to glean from that. Perhaps you can plot your chart showing what you mean because maybe I am not on the same page with you here.

 

Other than that, I agree with you very much. I am not an avid user of the type of chart I posted, but I do use it if the information can be supportive and helpful. In this case it was extremely so. However, as with managing any small (but important) details, one has the potential to get lost in the trees and miss the forest. I do think I missed the tactical details on this one, but actually a mismanaged trade is the source of the issue. I sold 41.50 around 12:45 ET for the very reason that the market had failed to break above 42s and the balance was occurring between 38 and 42. Thus, tactically I think the premise was spot on at this moment. However, the mistake was covering too early, instead of waiting for 37s as I originally planned to do. In so doing, it made it too easy to look for a bounce at the bottom when in fact continuation began to become clearer.

 

So tactically, I was on at first, and then lost it because of a mismanaged trade.

 

John, I would love to hear more thoughts from you, specifically about:

 

1) Charting vs. Trading

2) Detaching from what we are trying to do.

[joshdance 10]

For example, you referred to a trade on the left edge as "not bad not good, small loss" ... well, it was a bad entry because you did not wait until the shorts were washed out and the longs began building.... and you know this!!

 

After reviewing this trade and thinking about this, I agree with you here John. My intuition was not really 100% with me here and I was too early. Thanks for calling it to my attention.

[DionysusToast 10]

OK - LESSON 1 - BUY & SELL PROGRAMS

 

One of the tricky things about reading order flow on the ES is the number of correlated/inversely correlated markets it has incestuous relationships with. As with any correlated market, people play off those correlations with arbitrage trading.

 

With the ES you have, amongst other things.

Correlation with the big S&P

Correlation with the index/stocks in the index

Futures options

Inverse correlation with the treasuries

 

This means that at any point, someone can come in and arb these markets if they think that have gotten out of line. With any arb trade on the emini, only HALF of the trade is placed on the emini itself. The other half will be eslewhere.

 

The trade will be exited when the normal market correlation is back in place or the pain of the increase in divergence from the norm is such that the trade is killed.

 

In an arb trade, the trader does not care whatsoever which way the market goes after entry. So after buying 5000 e-mini contracts, they might be quite happy to see the market go down as long as the spread between that & the correlated market narrows. These trades therefore are without directional bias. This is important.

 

If you look at indexarb.com, you will see a daily report on the premium (the difference between ths futures & the spot index) and the buy/sell programs that will likely be initiated when the premium reaches that level.

 

As an example, for today, if the premium is -2.36 then SPY will be purchased and an S&P500 buy program will be initiated.

 

Note that this is just based on the premium, not the direction of the market.

 

So, a buy program is just half of an index arb trade. It is non-directional.

 

What you will very often see is a downward market moving down and you get to a point where it halts and a lot of orders are absorbed at the bid. It looks like someone is trying to hold the market. Then it will blow right through that level to a point below where the same thing occurs again.

 

It sort of gets you thinking who would bs stupid enough to stand in front of the market, absorb all of those orders before getting run over. Well - it's not stupid, it's arbitrage.

 

Anyway - I bring this up because of all the "Sell programs executing" nonsense on this thread. Sell/Buy programs are merely half of an arbitrage trade. They are neutral in terms of being a predictor of future direction.

 

When you see sellers or buyers pile in, it has nothing at all to do with buy programs and sell programs. In fact, the competition for these arb opportunities is fierce and as a retailer, you really have no way to benefit from them.

 

HERE ENDS LESSON 1

[MightyMouse 12]

Today is going to be an awesome trading day in ES. Unfortunately, I can't participate because of other obligations.

[johnw 10]

After reviewing this trade and thinking about this, I agree with you here John. My intuition was not really 100% with me here and I was too early. Thanks for calling it to my attention.

 

gm jd,

 

Well, your post is an example of detachment in that you have removed yourself from any stray feelings, leaving only the desire to succeed and win and do what it requires of you.

 

As for Chartists and Traders .... I think that People assume that as their analytical skills improve it will follow that they become good Traders.... this is not a belief that I hold and I call them Chartists..

 

To me, Traders bring a highly competitive attitude to this game .... they want to win and they want to win big .... therefore they will do what is required including changing themselves into the Person that they need to become in order to win big.

They can feel it in their bodies and even taste it .... that is why it is called 'a burning desire' I imagine

Yes they need analytical skills and they will acquire them ... the trick here is to have just the right amount of analysis ... not to little and most certainly not to much.

Each piece of information is an added burden to carry (like too much weight on a marathon runner) therefore the Trader only wants to take on board information that he will use all the time

It is no good having information on the basis that "sometimes I use it and sometimes I don't depending upon the conditions" because now the Trader has set himself up for failure by adding an extra decision level when it is not required.

 

A Chartist will find acquiring tactical awareness very difficult or maybe impossible. ... (this is what I call it and I see here on TL that it is called Context which must be the Industry term)

This is because it is a real time issue and becomes obvious in hindsight to the point of being self serving.

As I have mentioned before, it is a tape playing continuously in the back of the Traders mind, guiding him in entry/management/exit of each trade.

 

So a Trader has his mind running tactical awareness continuously with a heightened tape kicking into gear only when it receives the nod that a possible buy/sell zone is coming into play.

This is important to grasp, because if the Trader leaves himself in a constant state of alert, looking for buy/sell zones he will stuff up and then burn out ... in short he will become bloody useless to himself and wind up a great big failure until he re-programs his mind. (try thinking of your brain/mind as a muscle that needs training)

 

Now in order to make tactical awareness simple and natural the Trader opens a chart

say V25,000 or greater that displays price, horizontal lines (zones) showing supply/demand and cum ask-bid spread or delta as it seems to be called ... this delta needs to be accumulated to infinity or a large number and centred on zero.

At a glance the Trader can see price direction and delta direction plus supply/demands zones ... that is all he needs to be tactically aware of the situation.

 

His entry/management/exit screen set at say V2,000 -5,000 is a slight variation in that the delta is coded to zero itself once every 24 hours ...Glbx open, midnight, RTH open ...the choice is his.

The Trader now begins to accumulate delta at various times of the day ... for example at 11am ET it may be -7,000 one day or +25,000 another day ... and after the RTH open it may cross the zero line three times one day and on another day it never crosses the zero line.

Throw in the corresponding price movement plus the supply/demand zones and our Trader now has an enormous tactical advantage over the market and he is going to exploit it for all it is worth.

But wait because it just gets better.

By watching the momentum washing in and out of the market, he can time his trades so that they take full advantage of other peoples trades ..... he cares not whether other people are big/small/fat/skinny because he is only watching the momo washing in and out

Yes, if the transition of momo from long to short is smooth, he may well speculate that it is the work of big traders and therefore this leg will perform well .

Also, the other benefit of waiting for momo is that if the trade does not fire off quickly then the Trader can scratch it for a tic or two profit and re-enter again...then at the end of the day he finds that his scratch trades cover themselves... win/loss melts into the amateurish past to be replaced by win/scratch.

 

Now the odds that the Trader holds over the market are unassailable providing he remains unemotionally detached

 

It is Xmas and that is why I have made this post ... take from it anything or nothing.

If any Reader is new to this game I would urge you to focus only on price until you are constantly profitable and then consider adding the spread.

I know you willnot/cannot do this because greed will cloud your mind and you will convince yourself that you are not part of the 99.5% who will fail, and you will rush into this and FU ... hopefully you will start over again a much wiser person

Frankly I hope everyone succeeds but I know this is not the case and the statistics do not lie

 

good luck, goodbye and merry Xmas

[humble 10]

 

you did not wait until the shorts were washed out and the longs began building....

 

 

I have seen several references to this type of thing recently and was wondering if someone could maybe clarify what is meant by this and how do you go about determining that shorts or longs have "washed out"?

[Predictor 11]

Dunno how john does this..we had 23K contracts accumulated at market on drive up... that's expensive if those buyers didn't have a reason to go to market. That's 23k*12.5 in cost. This tells us something... We had 6k-10k liquidated so far on drive down...

 

I have seen several references to this type of thing recently and was wondering if someone could maybe clarify what is meant by this and how do you go about determining that shorts or longs have "washed out"?

[johnw 10]

Dunno how john does this..we had 23K contracts accumulated at market on drive up... that's expensive if those buyers didn't have a reason to go to market. That's 23k*12.5 in cost. This tells us something... We had 6k-10k liquidated so far on drive down...

 

 

Yes that is the principle I work to as well ... our numbers don't quite line up, but our thinking does and that is the key to it.

 

The spread needs to convert into tics in order to show efficiency ... when there is a difference then it indicates a wall of limits ahead especially at a supply/demand zone.

This means move with caution.

When the price rolls as the spread deepens it means the the limit wall has been broken.

I think that Pred calls my limit wall 'Limit Resistance'

btw ...Much of my terminology is wrong as it is home grown. I did not come to Retail Trading with trade experience, I just simply brought an attitude with me based on winning, but gradually I am straightening up my terminology.

This is a fascinating game and I love it ... and yes I got off to a shaky start just like most other people.

[Predictor 11]

john.. nothing wrong with terminology.. just added at 18 btw

 

I refer to Limit Resistance in 2 ways... 1. Limit Resistance as high volume transacted on a level, and 2. as book imbalances.. they aren't really the same thing but similar principle

[eron 10]

Dunno how john does this..we had 23K contracts accumulated at market on drive up... that's expensive if those buyers didn't have a reason to go to market. That's 23k*12.5 in cost. This tells us something... We had 6k-10k liquidated so far on drive down...

 

Yes that is the principle I work to as well

 

Appreciate the responses, however maybe I'm a little dense, but I'm still not clear on what is being described when someone references "the shorts (longs) have washed out"? Could you guys expand on this a bit?

[joshdance 10]

John, a couple of thoughts and questions.

 

Now in order to make tactical awareness simple and natural the Trader opens a chart say V25,000 or greater that displays price, horizontal lines (zones) showing supply/demand and cum ask-bid spread or delta as it seems to be called ... this delta needs to be accumulated to infinity or a large number and centred on zero.

At a glance the Trader can see price direction and delta direction plus supply/demands zones ... that is all he needs to be tactically aware of the situation.

 

His entry/management/exit screen set at say V2,000 -5,000 is a slight variation in that the delta is coded to zero itself once every 24 hours ...Glbx open, midnight, RTH open ...the choice is his.

The Trader now begins to accumulate delta at various times of the day ... for example at 11am ET it may be -7,000 one day or +25,000 another day ... and after the RTH open it may cross the zero line three times one day and on another day it never crosses the zero line.

 

I'm curious as to how you use delta. It looks like perhaps you wait for delta to turn in the direction of the trade you are wishing to enter. Sometimes this works, but sometimes it means you're jumping in quite late and prone to getting caught holding the bag. For me delta is an interesting piece of information to look at, but it could certainly fall under the category of things you refer to as an "extra decision level." Generally speaking, I want to be long when delta is up and vice versa, as only market orders can actually move a market, but it's not quite that simple.

 

In the quotes below, you also talk about watching momentum. So basically you have a context ('tactical ..'), a map, if you will, using price and/or volume history. But really that does not matter if the market does not agree with what you consider to be an area to watch for a buy or sell. So you watch for momentum using... tape/dom/other? Some people consider even that to be too myopic, much as you said footprint charts are seeing trees instead of the forest. In other words, many tools can be used to watch for momentum/order flow/whatever you want to call it, and as long as one knows where he is on the race track, then they all have a similar use--trade entry/exit confirmation.

 

But wait because it just gets better.

By watching the momentum washing in and out of the market, he can time his trades so that they take full advantage of other peoples trades .....

 

But generally if taking the other side when others are puking, you have not waited for delta to turn; or, perhaps, you wait for an extreme push and get in early, don't know until you answer the above.

 

Yes, if the transition of momo from long to short is smooth, he may well speculate that it is the work of big traders and therefore this leg will perform well .

 

Not sure about this, can you elaborate?

[DionysusToast 10]

I'm curious as to how you use delta. It looks like perhaps you wait for delta to turn in the direction of the trade you are wishing to enter. Sometimes this works, but sometimes it means you're jumping in quite late and prone to getting caught holding the bag.

 

I'm not John - but couldn't the above just be seen as setting bias?

 

If the market moves down, keep bias short until a move up occurs that carries a significant delta increase.

 

That'll be 2-4 points and 10k+ contracts delta on the ES. As long as you aren't in a narrow range day, heading into lunchtime etc. You should be able to still get a decent entry 2 points or so above the low.

 

The alternative is catching the low itself which is tricky because you don't need to take many shots at the low (or high) before ruining your day.

[DionysusToast 10]

gm jd,

 

Well, your post is an example of detachment in that you have removed yourself from any stray feelings, leaving only the desire to succeed and win and do what it requires of you.

 

As for Chartists and Traders .... I think that People assume that as their analytical skills improve it will follow that they become good Traders.... this is not a belief that I hold and I call them Chartists.

 

Excellent post, John - not just the above but all of it.

[DionysusToast 10]

Got sent this video today.

 

A good example of a real trader trading order flow on the ES.

 

[MadMarketScientist 11]

Predictor's running commentary is moved to its own thread:

http://www.traderslaboratory.com/forums/e-mini-futures-trading-laboratory/15311-day-trading-e-mini-futures-predictor-8.html

 

Let's keep this thread to its original intent:

 

"Okay, so much like the "Reading Charts in Real Time" thread, this thread will be for sharing ideas about future price moves of all the e-mini index futures."

 

thx

MMS