Day & Swing Trading Strategies by John F. Carter www.TradeTheMarkets.com
Singapore, April 24, 2010
Disclaimer: Futures and options trading are speculative and involve risk of loss. The information in this seminar is taken from sources b li d to bbe reliable. believed li bl It I is i intended i d d ffor information i f i andd education d i only and is not guaranteed by the CME Group as to accuracy, completeness, nor any trading result. It is not intended as investment advice, nor does CME Group endorse or support any product or service represented in the presentation. The views and opinions offered by individuals or their associated firms in interactive seminars are solely those of the authors, and do not necessarily represent the views of the CME Group. The Rules & Regulations of the CME and CBOT remain i the th authoritative th it ti source on allll currentt contract t t specifications & regulations.
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Why Trade CME Group Futures and Options?
• Lower capital requirements Lower capital requirements than equity markets with same exposure • Around the clock markets • Financial safeguards of a g regulated exchange www.cmegroup.com/resources Futures trading is not suitable for all investors, and involves the risk of loss. Futures are a leveraged investment, and because only a percentage of a contract’s value is required to trade, it is possible to lose more than the amount of money deposited for a futures position. Therefore, traders should only use funds that they can afford to lose without affecting their lifestyles. And only a portion of those funds should be devoted to any one trade because they cannot expect to profit on every trade. All references to options refer to options on futures. CME Group is a trademark of CME Group Inc. The Globe logo, CME, Chicago Mercantile Exchange, E‐mini and Globex are trademarks of Chicago Mercantile Exchange Inc. CBOT and Chicago Board of Trade are trademarks of the Board of Trade of the City of Chicago. NYMEX, New York Mercantile Exchange and ClearPort are trademarks of New York Mercantile Exchange Inc. COMEX is a trademark of Commodity Exchange Inc. Copyright © 2010 CME Group. All rights reserved.
Outlinee Out
Today I am discussing shorter term day trading techniques h i I employ l iin the h ffollowing ll i CME Group Futures Contracts: Stock Indexes, Currency FX FX, Interest Rates, Rates Gold, Gold Oil and Agricultural contracts. These strategies have been developed over a 20+ year trading career, and are the same strategies I use as a CTA (Commodity Trading Advisor) and Principle in Razor Trading, a private money g firm, as well as in tradingg myy own management personal account. www.tradethemarkets.com
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Overall Ove a Strategy St ategy
There are two types of trading I focus on: di i l momentum trades directional d andd ““reversion i to the mean” trades. M Momentum trades d require i more attention, i while hil “reversion to the mean” trading is more relaxed. I ddo not hedge h d my dday trading di positions. ii I pick i ka direction and use position size and stop losses to minimize my losses and maximize my gains. gains Before you can learn how to make money trading its important to realize how most people trading, lose money. www.tradethemarkets.com
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How ow to Lose ose Money o ey Trading ad g
People who lose money trading all do, amazingly, the same thing. thing First, they don’t have a real plan. They just chase after the markets. Second, they over trade with “market” orders. Third,, theyy usuallyy have one trade that wipes p out a large g percentage of their account value. Take small profits and hold onto big losers If you can do the opposite of the above, you will be ahead of 90% of the traders out there. www.tradethemarkets.com
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How ow to Make a e Money o ey Trading ad g
Have a plan. Pick a specific market to trade on a specific time frame with a specific signal. signal Example, Example “II will trade the Euro FX Futures contract on an hourly chart usingg movingg average g crossovers as myy entryy and exit signals.” Don’t over leverage. In day trading you shouldn’t lose more than h 5% off your account equity i on any given i trading day. If you hit that level, have the discipline to stop p and live to fight g another day. y Use limit orders. Limit orders force you to plan your trades while market orders encourage over trading and chasing h i the h market. k www.tradethemarkets.com
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Day ay Trading ad g Strategies St ateg es TTM Trend Changes 8/21 EMA (exponential moving average) crossovers Bollinger Band Squeezes
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TTM Trend
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TTM Trend
The "open," p "high," g "low," and "close" referred to are of the current bar. The prefix ha ha-- indicates the corresponding heikinheikinashi modified values.
The value haOpen is always set to the midpoint of the body of the previous bar, while haClose is computed as the average price of the current bar. bar The modified high, high haHigh, haHigh is chosen as the highest value of the set {real high (H), modified open (haOpen), and modified close (haClose)}. The same logic applies to the definition of the modified low: It is the lowest value in the set {real low (L), modified open (haOpen), and modified close (haClose)}.
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TTM Trend
Simplified, the blue bars represent bullish activity in a market (buying pressure) Red bars represent bearish activity in a market (selling pressure). I look for a change in trend with 2 opposing color bars. So if we have an uptrend with blue bars, I would need two red bars in a row to consider a change in trend and potential hedging situation. www.tradethemarkets.com
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Daily Wheat Chart – Hedging Opportunities
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Daily SOYBEAN Chart – for longer term trends
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8/21 EMA CROSS BASICS
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Quick Recap on 8/21 EMA Cross
Described in detail in my book as the “Propulsion Play.” Great way to gain a solid entry into a downtrending or uptrending market. E Enter on retracements to the h 8 EMA EMA. 21 EMA makes a good trailing stop. Works well with the squeeze play.
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Squeeze play
What is a Squeeze play?
A setup that h studies di a market k that h h has gone iinto a quiet period.
The studyy looks to predict p which wayy it will move when the quiet period is over.
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Bollinger Bands contract and expand with market volatilty
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Volatility Play Key Points
But how does a trader know if the next major move is going to be up or down? Byy usingg Bollinger g Bands and Keltner Channels with a Momentum Oscillator. Keltner Channels stay the same, same while Bollinger Bands expand and contract with volatility. volatility Momentum Oscillator indicates if market movement will be up or down. www.tradethemarkets.com
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Looking for periods when the bollinger bands contract inside of the keltner channels
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Keltner Channels (red lines) stay in a constant range
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Volatility Play Key Points
When the Bollinger Bands go inside of the Keltner Channels, that is an alert that a trade is setting up. Once the Bollinger Bands come back outside of tthee Keltner o Ke t e Channels, Channels C a e s, s, a ttrade ade iss triggered. t gge ed. Use a Momentum Oscillator to tell you whether to go long or short. short If above zero, long. If below zero, short. www.tradethemarkets.com
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Add Momentum to Give You a Heads up on Market Direction As the market transitions from Low Volatility to High Volatility
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Volatility Play Key Points
Developed this into an indicator to make it easier to read and follow. Red dots mean Bollinger g Bands are tradingg inside of the Keltner Channels. First green dot after red dots mean a trade is triggered. If hi histogram is i blue, bl go llong, if red, d go short. h Stayy in trade until histogram g loses momentum by changing color for 2 bars in a row. www.tradethemarkets.com
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Add Momentum to Give You a Heads up on Market Direction As the market transitions from Low Volatility to High Volatility
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You Can Take Both Long and Short Squeezes:
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Bring It All Together
Looking at all three strategies on one chart --
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Squeeze Exit Strategies 1. Loss of Momentum: 2 darker colored bars on the squeeze q histogram. PROS: This is typically the fastest exit signal. CONS: Can sometimes leave money on the table as market continues to run. 2. OR: TTM Trend Change: Bars are blue, then you get 2 red bars in a row, etc. Good “middle of the road” exit signal. signal 3. OR: 8/21 EMA Cross: PROS: Keeps you in a trade the longest of the three so you can maximize a trend. CON: This is the slowest exit signal so you can end up giving back gains.
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Best Exit Strategy is a Mix 1. 2. 3. 4. 5. 6.
Loss oss of o Momentum: o e t : Close C ose out o t 1/3. /3. TTM Trend Change: Close out 1/3. 8/21 EMA Cross Over: Close out 1/3. STOP: After first 1/3 off, move stop to your entry point and then leave it alone. p Why? Trailing stops often get hit BEFORE the trend has run its course. On a nice trend, these exit strategies will get you out of the trade BEFORE your stop is hit. 30
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Ok, so what about 5 red dots or MORE? Easy . . . BRACKET!
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When to Use Brackets 1 1.
2 2.
3.
4.
There needs to be at least 5 red dots to establish a trading range. Works better on 60 minute charts and above (swing trades) but can be used for day trading. P bl on day Problem d trading di is i they h can form f so fast f you don’t have time to place the orders. Works great on currency futures and forex. forex.
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Use a TOP DOWN approach . . .
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Summary
These tools help to keep a trader and hedger on the right side of the market No reason to hedge a cash crop until there is a sell signal on the week charts U signals Use i l to ease iin and d out off h hedged d d positions Let the charts tell you when its right to hedge – just because the price seems “too high” doesn’t mean it won’t go higher www.tradethemarkets.com
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Additional Information
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Sign up at TradeTheMarkets.com For free daily videos on the h di direction i off the h financial markets.
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Book released 2006 English Version by McGraw Hill Chinese Version available at www.stockbooks.com.cn kb k
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Additional Questions JJohn Carter
[email protected] www.tradethemarkets.com +1 512512-266266-8659 Phillip Futures Pte Ltd www.phillipfutures.com.sg CME Group www.cmegroup.com www.tradethemarkets.com
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