Just a quick update on the days trading and some setups. I get questions quite often on how to know if the action is a short or a long. Today's action offered a good opportunity to review what I see and how to pick your bias. I start rambling a bit later in the video, but bear with me. Hope it is useful to you...
Answering an email regarding setups on Friday and the week in review... Hope you had a great weeks trading!
First, finally got the quick drop I've been predicting for the last couple of weeks. Always love a good bearish day! As you may or may not seen on the "store" page, I've been working on the "Finding S/R Zones Guide Book" and decided a good way to convey information was to include a few videos of me finding levels for the next day. If a picture is worth a thousand words, a video is worth a thousand pictures I guess! Anyway, I finished day three today and thought I'd include a sneak peak of the first few minutes to give you a little taste of what I'll be releasing in the near future. The book is really taking shape and I think it will be really helpful. That said, hope you got a piece of the day, I had a good day today... Love those shorts!
What a nice week trading. Hope you all got a piece of it. A quick update on some CME changes and how FOMC played out like expected with a rally followed up by a big dump... Now we just need to see some follow through to confirm the bigger picture bear. One way to play these longer term moves is with some straight options. I used a separate broker for these in the past but with all the updates to TradeStation lately, they have made major strides in the option area on the platform. I'll be changing over to this in the near term I think so if anyone has some suggestions on using TS OptionStation, I'm all ears...
Other than that, have a great week, should be a good one!
Action this week is a little subdued, likely because of the looming FOMC coming on Thursday. I actually enjoyed the lazier action so far, doesn’t have my nerves on-end as much as the last couple of weeks.
Quick trade update today after a nice trending day up. Based on the context, longs were in the cards early and remember that means that we’re waiting for our S/R levels to be broken to the upside and buying pullbacks until the nature changes. I started the day earlier than usual, with my first trade long at 8:35 AM, then followed up with a long at 8:50 AM (1 and 2). The first I was able to scalp out with 1-1/2 points (per lot) then 7 points on the next. Since the action was calm the last few days I increased my lot size back up to 3 contracts instead of 2. I stopped after that, not wanting to look a gift horse in the mouth, and of course there was a dandy setup at (3) twenty minutes later. That run was fast and never looked back until it hit the next resistance zone to the tick, and the sellers stepped in and the buyers took profits… That little move would have been worth about 5 points. There was a risky short at (4) which would not have worked out, but then flipped up for a continuation of the uptrend at (5) for another 4 possible points. From there we turned to molasses, a great place to get chopped up and give back the days profits. Fortunately there weren’t any great setups until later at (6) which was by the e-book, and could have netted another 5-6 points by the time we hit the next resistance zone. So overall a good day for EminiEdge traders, and the zones pulled their weight for us today.
Keep in mind that with the FOMC comes some sporadic action that is worth standing aside for as shown in a previous update “Trends, FOMC and Achilles Heel...” Wednesday will likely soften fairly early so watch out for the possible chop. Followers know that I’m more of a “perma-bear” than not, but in my opinion we’re not in a normal correction here. Bigger picture still points to a longer term pullback still coming ... “Short Covering Move or is the Correction Over?” It seems that the FOMC is the perfect time to trap all those off guard traders who think the market only goes up. Be ready for some fits and starts on Wednesday and possible shake-out Thursday, and remember “Trade What You See, Not What You Think!”
I thought it was time to answer a few rollover questions as asked by EminiEdge followers. Been meaning to get this out for a while and just haven't taken the time. Hope it is useful to you...
Good Trades, Trader Joe
Since CME recently updated its data structure for their market data dissemination I thought I’d give a little update on what this means to us traders trading with our favorite brokers. This will affect the data stream for CME, CBOT, COMEX, NYMEX, CME Europe and a few partner exchanges. First what is important to know without getting too technical is that the data change itself is merely what market data (in our case Emini S&P) is sent to your data provider and in what format. Each data provider then, in my case TradeStation, will process this data to transform it into the actual ticks of data we see show up on our charts. This all takes maybe micro-seconds mind you but is necessary for your platform to understand the information structure of the data string. One of the reasons for updating is better technology allows binary encoding that is optimized for low latency while keeping bandwidth usage low with increased flexibility of the data packet for items such as time stamp and decimal place precision. There is a lot of additional data actually transmitted real time about the markets besides the price which we all rely on as traders. This includes items such as bid, offer, trade size, opening, settlement, volume, open interest, etc. What data is available to the end user and how it is displayed is for the most part is up to the broker to define. Which brings me to “Joe, what are you talking about and why do we care?” First, it is important to know that this data switch has already taken place by the CME starting in late 2014. A lot of brokers have already begun switching their data stream to the new format, and in some cases even added or switched symbols on their platform to accommodate this change. Until now, both sets of data is still being sent by CME. I think TradeStation has already switched over its ES stream format without a peep to its traders as evidenced by the average contracts per trade shown on my charts but I'm not sure why the data shows like it does, I'd actually expect the trades size to increase.
I talked with technical support hoping to get a little inside skinny and unfortunately they were clueless, or just not saying. Somewhere around 2008-2009, CME degraded their reported data by “un-bundling” the trades. This meant that if a larger trader places a 50 lot order and accepts say 10 orders of 5 contracts each, it was now reported as 10 orders of 5 contracts instead of the 1 order of 50 contracts that it was. At the time this felt a little (okay, a lot) like the big players disguising or hiding their trades by not showing the large orders. Apparently it seems CME will be bundling these trades again with precedence going to the "aggressor." Why was this important? Around that time I focused a lot more on the average trade size than I do today, though I still do occasionally. The theory goes that by watching the trade size you can determine the difference between the professionals and the amateurs as the we can assume the amateurs trade in a lot of 1 lots which seems to be backed up by "FINDINGS REGARDING THE MARKET EVENTS OF MAY 6, 2010" report from the SEC in response to the "Flash Crash." This is a fair assumption and I have written indicators in the past to identify this real time. The problem I found was trying to identify if the professionals were buying or selling at a particular point. Since I have evolved my study of price action within market context, I now have a pretty good feel of where pros and amateurs are entering and exiting, so the trade size is a confirming factor only for me. (If you’re interested in the the way I calculate average trade size just drop me an e-mail.) Some of you may find this much more important in your trading strategy, especially if you're using information based on tick charts, so this is one of the reasons I felt compelled to have a little discussion on it. Another reason is that this is important to traders is that with something as significant as a data stream or symbol change, I think the brokers should be a little more up front about it. So from what research I’ve done, the MDP 3.0 protocol will become the default in mid-September and the old “FIX/FAST” channels will be decommissioned in October 2015.
This means it’s changing, “ready or not here we come…” As with any major changeover I expect some brokers (and their platforms) to be caught with their respective pants down which would translate in to an error of one sort or another for us individual traders. Did you see the sentence "Markets will be halted for MDP 3.0 Issues...?" Be on the lookout for glitches and please do your own due diligence to find out how this might affect your trading BEFORE your sitting in front of a crashed or frozen platform with open trades. For those of you who have been following me for a while you know;
Trader Joe's Trading Rule #3...
"There's no room for stupid mistakes..."
...and that includes errors that could have been prevented with a little diligence ahead of time.
From what I’ve been able to find, some of the brokers have pitched a fit and announced that they are not going to change to the new feed as carefully developed strategies that rely on this data are instantly rendered useless. It sound like to me that brokers have no choice as the old FIX/FAST is being decommissioned, so if the old data format is offered, it will be one assembled and distributed by the brokers themselves, probably at additional cost to the subscribers at some point. It is only a guess but if brokers are going to create, offer and maintain a separate data feed to mimic the existing data traders are used to today, someone's gonna pay...
In a nutshell, EminiEdge traders using price action and market context with time based charts are not really affected directly by this change and might even notice some performance improvements during high volume time if the MDP 3.0 performs as expected. If you’re using tick based charts things are changing so be sure to talk to your broker.
From what I’ve read some brokers have indicated as follows:
I'll update as this continues to develop...
As always, Good Trades!
Just a quick video today summarizing the zones and possible setups today. I mentioned previously that we may be dropping back down both in the video "Dead Cat Bounce" and in the commentary here "Short Covering or is the Correction Over?". Just goes to show you that the EminiEdge zones can give you the trading edge on larger time frames as well. Hope you all got a piece of it...
Good Trades, Joe
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"Trader Joe" trades the Emini S&P exclusively and is the main influence behind EminEdge.com.
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