[Text on the Day Trading of Futures]
Monitoring the Morning Trade
"The key to success in monitoring the morning trade is tracking price and time along with key and secondary indicators. The reason that speed is important, as we have suggested above, both in entering and exiting a position, is because the probabilities favor one end of the range [for the day] being established in this critical time period.
"Your choice of indicators to monitor, of course, will be dictated by your market. Nevertheless, some, such as futures prices, will be a critical factor for everyone. So that's the place to begin your inquiry. How is the futures price behaving, both before and after you enter your position? While market adversity [ability of market to do the opposite of what you expect and go against you], especially in the early going, is commonplace, there is a limit to precisely how much you are willing to sustain. It is difficult to assess a fixed time limit on an initial entry position. There will be times when you will recognize a mistake in the very first minute; at other times, you may need to hold your position 15 to 20 minutes."
"I compulsively take notes on the market, even though I have a comprehensive charting program on my TradeStation screen. The bar charts aren't enough for me, I want numbers and times so that I can go back and analyze my trading decisions. I find it is harder to fool yourself if you are writing down these specific numbers at specific intervals. For instance, if notes tell me that the case price was 782.25 at 9:45 A.M. and 782.50 at 10:00 A.M. and 782.02 15 minutes later, is there any chance I can continue to hold a short position into this rally? Chances are, I exited a losing position long ago. Actually, I find five-minute intervals more helpful.
"When working with cash prices, therefore, I'll write down the price and time of day. Then, at five-minute intervals, I will register another price until I have a series of prices. With each new entry, I can make a designation as up or down. Two or more consecutive negative readings on the cash price should be a sign, taken with the other indicators, that perhaps you are on the wrong side of the trade.
"This monitoring approach becomes particularly important when it comes to liquidating the trade. That's because many short-term morning trends last just 25 or 40 minutes, and often times less. This is the period of time that will typically pass before profit-taking enters the market and you have a pull back. To capture these short-term moves, you may very well want to monitor the change in values at an even shorter interval - say, every three or four minutes."
Bob Graham |
