[Text on the Day Trading of Futures]
I hope I have not chased everyone away from this thread. ;) If this is inappropriate material for this thread, please let me know. I will continue with another series of excerpts from this book on day trading.
The Open (cont)
"While the open is normally one of the high-volume points of the day (the close is another significant high-volume area), you want to watch tick volume at this critical time. In particular, you want to watch whether the high volume occurs on rallies or declines. A market that rallies on high volume and pulls back on low volume is signifying a dynamically different trading situation than a market that declines on high-volume and struggles to rally on low volume. The key is the direction of prices on high volume. The rule is, the market wants to go in the direction of the high-volume move. This is double important on the open, because this is the time when the day's first trend is scheduled to appear. Accordingly, look for tick volume to soar when the price moves in one direction or another. That's the path of least resistance.
"The other point you will encounter high volume is when reversal occurs. If the market opens, breaks lower, and quickly snaps back up off the bottom, chances are the move will be accompanied by high volume. this is the point where you get a lot of stops, a lot of traders are changing their minds, and a lot of new money is coming into the market, which is accurately reflected by a significant rise in the tick volume."
The Morning Trade
"Given the timing, chances are this first trade will prove to profitable or unprofitable almost immediately. In short, you will have a decision. As a general rule, the winners will take care of themselves, but the losers will require immediate attention. An immediate winner suggests the trade is correct - even if subsequent price actions eats into your profits. If you get profit taking after an early pop, this can be seen as an opportunity to add to a fundamentally sound position. THe key to success rests with the amount of time that the adversity persists. If the market comes back quickly - say, in 15 to 20 minutes - you probably have a winner. If, on the other hand, the market turns negative on your position - and stays negative - chances are you are on the wrong side. I try to keep myself honest in this situation by carefully monitoring key indicators - futures price, cash price, TICK, volume, Dow, etc. - in specific time intervals and comparing their respective directions. Thus,if I am long and a host of negatives have entered the market, I try to decide if this is a temporary setback on an overall higher day or whether the trend is changing. I want higher readings, designated by an UP, as opposed to a DOWN as a lower reading would suggest. Then I assign a fixed amount of time that I'm willing to wait for an improvement, This might be five or ten minutes or some interval between. But I am rarely willing to wait more than twenty minutes, because this suggests my initial position was way off in terms of timing. Remember, we are talking about shortly after the open here, not the noon time when the market may churn sideways for an hour or more. I want confirmation when I am adding to a position - and I want it soon."
Bob Graham |
