My motto is “no ego, no snake oil, and no BS“. In tonight’s trading class, I’m going to talk about the “guru paradox”, and why most trading education services are a complete waste of time. I’m also going to talk about the 3 step process for testing and executing a trading strategy – and how to develop confidence.
Bulls have been steadily driving the indices up since the first trading day of the year. And despite what the talking heads on CNBC are saying, there hasn’t been any sign of a slowdown yet. Granted, I could care less where the markets are headed long term. It’s just nice to see volume holding at steady levels.
This week has been interesting to say the least. Even though the markets have been relatively flat (except for today’s breakout), we’ve seen a good Average True Range (ATR) on the S&P 500 e-mini. On average, we’ve seen about a 20 point daily range since contract expiration earlier this month.
Here are some trade signals from today and earlier this week:
This morning was a great reason why the market causes most traders pain. After a gap down from Friday’s close, the market immediately rebounded and stayed in a bull-trend all morning. This is a great example of why you don’t want to have an “emotional directional bias” in the markets. In other words, if everyone thinks the market is falling, odds are you can see a strong reversal, which would trap all undisciplined traders.
In this video I explain where I think the S&P 500 will end up over the next few days. If there’s one thing I’ve learned over the years, it’s “bull market rallies can last a lot longer than you think”. So, we just look to ride market strength and adjust our trading plan based on current market dynamics.
Also, check out this video where Chris Henry walks you through 2 trade setups this morning on the ES and TF. Notice how we were able to find setups at the start of the trend, which showed favorable initial reward-to-risk ratios.
Strategies, indicators, and systems – What Really Matters?
Last week I did a webinar with our trading partner, NinjaTrader. My presentation was all about “How to Find Confidence in Your Trading Strategy“. And my main goal was to help traders understand the difference between a strategy and indicators – and how to quantify and validate your strategy.
We’ve gotten some funny emails lately from traders who’ve seen some “gurus” copying our indicators and call it a strategy, even though it’s nothing more than a subjective way of “reading the market”. In the end, this will just leave you confused and frustrated. The only thing that matters in the “post-high-frequency-trading-era” is if you have a testable strategy and the skill-set to execute your approach.
Last year, we went through a 9 month GRUELING process of back-testing, forward-testing, live market testing, and optimizing our rules-based strategy. The result was the next evolution in our MAP Trading Strategy and the 5th version of our trade signal software.
Check out the recording of this webinar that will give you some insight into the “3 Keys To Finding Confidence In Your Trading Strategy”.
(The audio may be a little off from the screen, but stick with it – it’s good stuff!)
How To Trade Around “Contract Rollover”
Every 3 months, the e-mini futures go through “contract rollover”. This week we switched from trading the March contracts to the June contracts. As day traders, it doesn’t really affect us other than the fact that the market is usually a little choppy around this time.
However, because the volume and volatility has been rockin’ lately, contract rollover didn’t affect us too much. As a general rule, we stay away from the markets all-together on “rollover day”, which was yesterday.
Today’s Market Action & Trade Setups
Today (Friday) has actually been an incredible day for trading and learning. In our live market class, we talked through 3 setups on the e-mini S&P 500 and the Russell 2000.
As of lunch time today, we’ve had two setups on each market with a 75% potential win ratio. There was just one failing trade on the TF (russell 2000).
Here are some charts from the trading room today…
Next Week’s Market Forecast
Most traders should be trading the June 2013 contracts by early next week, which could mean even higher volume and volatility.
In the chart below, notice how the market has been holding the daily lows every day since we gapped above the strong resistance level around 1,520. If this bull rally continues, we could see 1,560′s in the next few weeks.
However, we’re day traders here at the Emini Academy, so longer-term direction doesn’t really matter. We just want to anticipate future volatility.
As this week comes to a close, all I can say is, “Wow”. After a pretty slow January, the markets are back in full action. There are many different ways to trade the markets, and our e-mini day trading strategy gives the most trade setups when volatility is higher.
This week I covered many lessons about staying flexible with changing market environments, quantifying your strategy, and developing a strong mental psychology.
One of the biggest talking points this week was how not to be fooled by “cherry-picked” trades or gurus who promote unrealistic results. “Look how many thousands of dollars you could have made today if you just made all these lucky decisions”, they’ll say. I’ve said it a thousand times, and I’ll say it again - looking back in history and finding lucky trades is NOT how you quantify a strategy, even if you have “setups”.
Now, let’s dive into the markets and talk about what’s happened this week, and why there were way more opportunities over the past 5 days than the entire month of January.
Notice how the market was stuck inside of a slow over-exuberant bullish channel from January 2nd to February 17th. Then, as soon as we sold off outside the channel, bears drove price down to the 50% fibonacci retracement.
This sell-off stopped out many long swing traders, and sucked in some short sellers into the markets. Next, the market made a quick rebound to retest the monthly highs around 1,520.
Taking a look at the volume indicator on the bottom of the chart, we can see that the average volume spiked after February 19th. And one of the reasons why the market traded like it did is because of the pain the market caused with the panic and rally. It’s incredible to see how much heavier the market trades after sticking in a slow range for a while.
Trading Lesson #234,997,238 – Press The Gas When The Market’s Trading With Strength & Press The Brakes When It’s Not!
In our trading room, we’re constantly monitoring live market conditions to determine in a market is “tradeable” or if we should just sit on our hands. This month, we had a healthy mix of both scenarios.
Here’s an example on live screen capture of how to “press the gas” on multiple markets at the same time. Notice how our trading strategy confirms our valid setups (no hindsight cherry-picking), and see how Chris Henry pre-determines his targets and risk.
Also, click on the thumbnail images to see some recent trades submitted to our trading room:
After a few pretty strong down days in the market, this morning gave us incredible upside momentum right off of market open.
And a few minutes after market open we had valid setups that signaled at the same time on the E-mini S&P 500, NASDAQ, and Dow.
So, in this video I wanted to walk you through the setups from entry, all the way through management. Notice how there’s no guessing or cherry-picking; I’m just following the rules of our MAP Trading Strategy. This video is a great complement to Chris Dunn’s blog post from yesterday about “Why individual indicators are useless“.
NOTE:This video is best viewed in HD and full screen
On Wednesday we broke of the slow, grinding, trending channel that we had been keeping our eye on. This gave us high volume and nice volatility which led to some great trading days! Check out the video below for the recap of the week.
NOTE:This video is best viewed in Full Screen and set on HD
If you’ve been following our blog and videos, then you know the stock market has been in a bull trend since the first day of the year. And right now is the first real sign of a potential top in the market, with profit taking and short-sellers coming in around the 1,530 level.
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RISK DISCLOSURE STATEMENT AND DISCLAIMER: THE SERVICES AND CONTENT THAT EMINI ACADEMY PROVIDES ARE SOLELY EDUCATIONAL AND ARE NOT PERSONALIZED OR TAILORED IN ANY MANNER TO ANY CUSTOMERS. COMMODITY FUTURES TRADING INVOLVES SIGNIFICANT RISK OF LOSS AND IS NOT SUITABLE FOR ALL INVESTORS. THE HIGH DEGREE OF LEVERAGE THAT IS OFTEN OBTAINABLE IN FUTURES TRADING CAN WORK AGAINST YOU AS WELL AS FOR YOU. THE USE OF LEVERAGE CAN LEAD TO LARGE LOSSES AS WELL AS GAINS. PAST RESULTS ARE NOT INDICATIVE OF FUTURE RESULTS. TESTIMONIALS ALSO ARE NOT INDICATIVE OF FUTURE SUCCESS AND HAVE NOT BEEN INDEPENDENTLY VERIFIED. RESULTS ARE HYPOTHETICAL AND BASED UPON SIGNALS GENERATED BY THE STRATEGY. HYPOTHETICAL RESULTS HAVE MANY INHERENT LIMITATIONS, INCLUDING THE BENEFIT OF HINDSIGHT AND THE ABSENCE OF FINANCIAL RISK. PLEASE CAREFULLY READ THE FULL DISCLAIMER ON OUR WEBSITE.