Tactical Futures Trading

Multiple time frame analysis

2012-01-20T12:55:00.000-08:00

We have a new post at NAS Trading covering multiple time frame analysis. We look at a breakout setup in March Sugar, then examine a common intra-day pattern that unfolds after the breakout day.

Click the image above to read the article at NAS Trading.

HUGE downtrend in Natural Gas Accelerates to downside

2012-01-17T20:54:00.000-08:00

The Downtrend in Natural Gas has literally fallen through the floor since the turn of the year. Check out the chart below:

What were the clues that this market was worth getting (or staying) short? For starters, Natural Gas has been in massive contango for months. This means that even if the spot price had not changed at all, the forward contracts would naturally decline as time passes and the date moves towards the contracts expiration date. (Check out this article for details on this concept).

Technically speaking, there has really been no reason to get long since the downtrend began. Price has not ventured above a prior month high for at least 7 months. The hard part of this trade was simply sitting still as prices ground down, as at least for the early part of the trend, there was allot of backing and filling type price action.

Given the recent acceleration of the trend, I would not be surprised to hear that some large trading or energy company has recieved margin calls and is now bankrupt. Time will tell.

How could a shorter term trader have played this? Simple: Use small 2 - 4 day pullbacks to Get short while using a longer term trend exit as the stop-loss level. Look to cover part of the position at swing lows, and ride the other half. This could be played so long as the longer term trend signal is down, and the fundamental factor (steep contango) still exists.

On a side note, natural Gas has tremendous potential as a fuel for heavy trucks and similar applications. It could largely replace smoggy diesel, the supply is there. If prices stay low long enough, new uses will be found (and old ones expanded via capital projects at power stations, etc) which will eventually soak up the excess supply that has been created via fracking.

Sugar futures: Consolidating ahead of an explosive breakout?

2012-01-17T13:02:00.000-08:00

Check out the following chart: It looks like Sugar might be preparing for a massive breakout. The market is still in backwardation, which supports long positions in commodity futures over a longer holding period (see here). Consequently, we would like to see this resolve in an upside breakout.

Regardless, we will let price action guide our bias, as over shorter periods of time (a few days to a few weeks) the backwardation effect is not really in play.

Does the ACD Trading method work?

2011-10-13T10:39:00.000-07:00

Does Mark Fisher’s ACD trading method really work? It is actually a difficult question to answer, because the ACD method is not something that can be plugged into a computer and backtested.

The ACD approach to trading is not a trading system in and of itself. Rather, it is a lens, or framework for viewing the markets and spotting trading opportunities.

If you are not familiar with the approach, the building blocks are basically this: An opening range is defined by a period of time after the market open. In this example we will use 30 minutes. After the completion of the opening range, a certain amount is added to the opening range (for buy levels) or subtracted from the opening range (for sell levels) to create the A value. The B value is the other end of the opening range from the A level, which is used as the stop loss level for the initial trade. The C level is the breakout level on the opposite side of the A level. A C level only comes into play if an A signal has already been generated. The D level is mirror image of the C level. It is the stop loss level for any trade generated at the C level, and equal to the other end of the opening range.

The above all sounds very confusing. Let me map it out with a chart example:

The ACD method can also be applied to longer term time horizons. On a monthly chart, the opening range would be the first day of the month. A, B, C and D trading levels are then framed around this first day.

To say the above is the ACD method is a vast, vast understatement. You really can’t understand what the method is about without reading Mark Fisher’s book, “the logical trader”. It is in my opinion one of the most important best books on short term trading and price analysis.

I use ACD type analysis all of the time, both in real money trading and in backtesting. Do I calculate ACD values or any of his other indicators? No, in fact I do not. My use of the methods is more conceptual and less based on the actual indicators.

I actually attended a seminar Mark Fisher put on 9 or 10 years ago in NYC. Fisher is pretty funny and a great speaker, so the event was both fun and informative. However, the book is actually pretty complete. There is no reason to go to a seminar or anything else.

The best way to get started with ACD concepts is to simply read the book, then start tracking the approach on the markets that you trade. Don’t take the method as the Holy Grail or bible trading. As you learn about the method and the markets you are trading, you will find that you lean on the concepts, not things like “how to calculate A values, etc.

For more articles on trading, visit my commercial site: http://nastrading.com/blog

Bond Futures trading setup

2011-10-12T20:23:00.000-07:00

We go into tomorrow's 30 year bond auction (Thurs. 13th 1pm EST) with price testing a significant swing low in an uptrend.

While we believe there are high odds that the bull trend in Bond futures is now over, the immediate play is for a post auction rally and a test of the 142 area (December 11 contract). If we are correct price should not venture much below the 138 level post auction.

Emini day trading articles

2011-10-07T08:45:00.000-07:00

Just a heads up: I have a series of articles on emini scalping over at my subscriber site.
Part 1 is here
Part 2 is here
A chart example of one of the methods I outline can be found here.

The thing about discretionary emini scalping is that it is easiest to succeed at if it is not the primary strategy one uses. With emini scalp trading you want to pick up the low hanging fruit, and that is ALL. Fighting it out and burning commissions all day long is a recipe to make your broker rich, not you.

Why I am OVER the European crisis

2011-10-07T08:33:00.000-07:00

The euro crisis has been harped about in the MSM for what, several years now? I am over it. I could care less about the euro crisis. I, for one, would not mind if the euro-currency is torn apart and flushed like an old piece toilet-paper. I will buy more of the worlds best companies for my long term investment accounts and make a fortune trading the waves.

Why is the euro crisis touted in the media? Why have investors become so afraid? In my opinion, they are afraid because fear is good for the financial news industry.

This "crisis" or that "crisis" from one point of view is simply a scam designed to entice investors to part with their good securities at bad prices. Mr. Market is quite the trickster.

In the meantime, lets ride the waves and make some money swing trading forex and futures. Check out the following chart:

These are the kind of moves you want to capture when you are swing trading Forex and Futures. Two day holding period, don't get greedy. You will not win every time (no strategy does) but nice wins like this more than pay for the losers. Less stress too because there is no reason to stare at the screen (unless you are a stimulation junky).

Learn Futures Trading: A 10 Step plan to jump start Commodity Trading Success

2011-10-03T12:18:00.000-07:00

The following is a 10 step plan for those who truly want to succeed at commodity trading or forex trading.

1. Learn the mechanics of the futures markets and futures trading: Everyone wants to skip this step! You can begin separating yourself from the competition by being thorough. I suggest buying a used study manual for the series three licensing exam (Futures broker exam) at Amazon. Two other excellent resources are the books, "Trading and Exchanges" by Larry Harris and "The CRB Commodity Yearbook" put out each year by the Commodity Research Bureau.

2. Observation and study: Start making observations about the markets you want to trade as soon as possible. One good practice is to keep a notebook or journal and to make a habit of recording your observations each day. What types of things should you record? Let me give you an example of a journal entry that focuses on price action: "The Emini (mini SP500 futures contract) has closed higher than the previous day for three days in a row. This was the highest close of the past five trading days. The Range was also the largest of the past five days. The close was in the top 10% of the day's range and we are below the 200 day moving average." After making observations for some time you will likely start to identify patterns. In fact, the pattern I just gave you is actually a useful trading pattern that -if used properly- can generate a high-probability trade!

3. Education: Books, advisory services, and Seminars are all good ways for the new trader to learn. You do not need to spend a fortune! Some of my favorite trading authors are Victor Sperandeo, James Altucher, Toby Crabel, David Aronson, Jim Rogers, and Larry Harris. You must use your common sense to determine which authors and educators are most likely to have merit.

4. Backtest your trading ideas: This can be done with a computer program or by hand. If you backtest by hand, just use a notebook and record buy and sell levels as you progress forward through a chart. I know many successful traders who first developed their approach using this simple method! One of the best books on how to properly backtest a strategy is "Evidence Based Technical Analysis" by David Aronson. I highly recommend it even though I do not completely agree with the author's philosophy of trading.

5. Create your first trading plan: When you feel ready, combine what you have learned from your personal observation, reading, and backtesting to create a preliminary trading plan. It should include things like: Which markets you will be trading, your entry and exit signals, what time of day you will be monitoring the markets and trading, what types of orders you will use, and how many contracts you will be trading.

6. Paper trade: Once you have a defined plan, it is a good idea to observe or "paper trade" your signals for a time so you can get comfortable with the approach. One outstanding platform for doing simulated trading is called NinjaTrader. It is available for free so long as you use it for simulation and not actual trading. As you paper trade, remember that nothing is ever set in stone. Your trading plan will naturally evolve as you continue to follow the markets and learn.

7. Funding your venture: Spend some time deciding how much risk capital to commit to your trading venture. The great thing about futures is that you can get started trading with very little money. Just keep in mind that no plan is perfect, so you will need enough capital to weather through inevitable down periods or slumps.

8. Choose a broker: Shop around and find a brokerage that offers the level of service you need, has quality platforms, and a good reputation. If you will be actively swing-trading or day-trading, it is imperative that you use a discount broker! Shop around to make sure that your costs are competitive. Make sure to try the brokers demo platform before deciding to fund the account. (By the way: Many brokers have trade simulators that are extremely deceptive in how they execute your "paper trade" orders. As a result, broker provided simulators should be used to evaluate their trading platform, not to evaluate your trading approach.

9. Start trading! Once you have your strategy ironed out and are familiar with your brokerage system, you are ready to begin trading! I think the best way for both new and experienced traders to trade is via pre-set limit and stop-limit orders. This will force you to anticipate the market's next action and will prevent you from missing trades. It also eliminates the "trigger shy" feeling some get when they are unsure when to start their live trading.

10. Feedback: Never think that your plan is set in stone. In order to succeed at trading, it is absolutely critical that you learn from the feedback that the market provides you with. Are you having more losing trades than you expected? Slow down, step back, and re-evaluate. Perhaps you will find a subtle change or shift in your plan is all that is needed. Even for experienced traders, trading is often like a series of campaigns: Victory is followed by setback, which must then be overcome so that victory can once again be achieved.

go for it!

For more ideas on how to profit in the futures and forex markets, go to http://nastrading.com

The after Trend Day Setup - A consistent day trading pattern you can scalp for quick profits

2011-10-03T12:15:00.000-07:00

One of the most predictable scalp trading patterns in emini futures day trading is the "after trend day" setup. This pattern starts (as the name suggests) with a trend day, which can usually be identified on a daily chart as a day that opens at one extreme and closes on the other, with a wider than normal range.

The next day is when the setup occurs: The market usually enters a period of consolidation, where prices swing quickly from a relative high point to a relative low point, often with a center point of the swings being the opening price for the day. Basically, This pattern gives the trader the edge by giving them a "heads up" that the next morning will most likely be a reversal trading environment, meaning the trader should look to sell strength and buy weakness.

With this setup the best moves usually happen in the morning trading session, or first 1.5 hours of the regular trading session (or even earlier, a sharp day trader might want to get started several hours before the open).

Now, we do not "know" where the top end and bottom end of the consolidation will be. However, If we have an edge on calling the "type" of day it is, we can establish trades that have a high probability of making money.

One technique I use to identify "after trend day" support or resistance levels is to look at support and resistance levels from the prior day. For example, if the swing low of the last 2 hours of the trading day was 1215, I would look to buy this level the next morning with a slight price scale. By this I mean I would have orders in to buy at 1215.75, 1215, 1214.25 or something similar.

Another important support level is the overnight low. Look to buy with a small scale (see above) set just above and just below the overnight session low, and look to profit from a quick reversal back up.

I do not usually advocate "scalp" trading, however strategic scalp setups (where a good trade can easily net 3+ points) like this are an exception. The post trend-day action is often one of the best, most reliable day trading setups that occur each month and is well worth learning.

If you master a few setups that repeat with some consistency like the "after trend day" setup, you might find that in a few hours in the morning a few days each month, you can generate an entire month's worth of income!

Futures market patterns: A monthly pattern in Crude Oil Futures?

2011-09-15T10:55:00.000-07:00

Is it possible that commodity ETFs such as USO are creating monthly price cycles in Crude Oil?

Please note the following, taken from the fund's prospectus:

"The investment objective of USOF is to have changes in percentage terms of the units’ NAV reflect the changes in percentage terms of the spot price of light, sweet crude oil delivered to Cushing, Oklahoma, as measured by changes in the price of the futures contract on light, sweet crude oil as traded on the NYMEX that is the near month contract to expire, except when the near month contract is within two weeks of expiration,in which case the futures contract will be the next month contract to expire."

Since the objective of the fund is for its net asset value to reflect price changes in the near month NYMEX futures contract, it would seem logical that this is where the fund get most of (or a substantial part of) its exposure to the price of crude oil. Because the CL (crude oil) contract expires monthly, this would mean that every month, the fund needs to do a complete round turn transaction: It must sell out of the expiring spot month contract, and purchase into the next spot month contract. The dates on which the fund rolls its contract positions forward is actually posted on its web site (See here).

I believe it is possible that this type of mechanical buying and selling is impacting the markets: Lets examine the following strategy: Sell short the third trading day of the month, reverse and go long the 12th trading day of the month:

The most interesting feature of this monthly trading pattern is that it seems to start right around the time a number of commodity ETFs either started trading or became popular with investors.

Is this an idea that can or should be directly traded? I do not think so. However, I believe this monthly pattern can be used as a factor in setting up swing trades.

Breakout and False-Breakout Trades in Bond (ZB) Futures

2011-09-14T19:39:00.000-07:00

This site will feature chart analysis of Futures and Forex markets. Our primary trading oriented site will continue to be nastrading.com

click to enlarge:

Hope to see you there!