Approach to trading the ES contract

[StevenBruce]

Okay its a new day Tues 12 May

We start by reviewing the longer term data which indicates that we are still in an uptrend however we are at extremes. This means we could see a correction at any time.

We check in with Forex factory and Briefing.com economic calendars to see if there are reports or events that might impact the day.

We check out the overnight action and look at our Market Profile numbers, which tell us

Value Area High = 913.50
Value Area Low = 909.00

Price opens at about 912. Because we opened under the Value Area High, we normally work a short trade on a test and failure of the number.

As you can see from our chart, price moved up to touch the number but could not take it out.

We are running both the $DJX (Dow Cash) and ES futures side by side. So we can see what the Dow is going to suggest and match it to the price action on the futures.

Look carefully at the Dow Cash chart. As you can see it opened at the previous day's low and moved right up to test the high. Look at how it goes right up to the support/resistance line, then scan to the left and see how it corresponds with previous high from yesterday. The next candle cannot take it out. This is called a test and failure. We look to enter short on the open of the next candle

 

[StevenBruce]

To enter the short we watch the futures chart ESM9 and we see that it tests the Value Area High at 913.50, hitting it briefly. Our resting order did not get filled so we put in a marketable order which did get filled at 913.25

Price fails down below the Pivot and below the EMA. This confluence gives us some breathing room and confidence to hold the position as we recognize that this is a possible correction down. As long as price maintains a distance from the EMA, we will continue to hold our position.

Our money management process is to scale out along the way and when price closes above the EMA at 6:54am we close the position, waiting for a new signal.

 

[StevenBruce]

Looking at the Cash Dow again we see that it tests another of our support and resistance lines at 7:00am PST

Looking at the futures chart we notice that the pending short signal is confirmed at 7:01 PST and that is our next continuation short at either 7:03 or 7:04 (905.25 or 904.50)

That short takes us down to 900 before retracing to 903 area, for a possible profit of 5 pts.

 

[StevenBruce]

This is the futures chart that goes to the previous post

As can be seen in the chart we have multiple signals (confluence) from the Dow Cash and the MACD confirmation signal.

Based on this a trader would be paid for the day and done after about 1 hour of pretty concentrated work.

My initial comment on this is that the confluence and use of the Cash Dow chart seem to work pretty well.

Additionally I would suggest to traders that the most important and productive part of the day is the open (first hour). This is when a trader is likely to see the best opportunities for profit (or loss) because this market often "follows through" (moves a significant distance) based on open orders and imbalance correction. New traders are advised to work on getting to recognize signals that usually occur within the first 5-10 minutes. and to lay off of entries that are late.

As you develop experience with this market you will see that moves are often 5 to 10 points. Therefore entering late when a move has already gone 7 or 8 points is counterproductive and usually leads to whipsaw moves that chop the newby up. Do not enter more than .50 to .75 late on a signal.

 

[StevenBruce]

Here is another item of info that could help traders

Regarding MACD, I was taught to use it to provide entry and exit during an established trend. I was also taught that when price transitions from trend to chop, that MACD is not as effective and to use another method.

The method I use for choppy or consolidating markets is to identify the range of the channel using the first high and low. Placing a horizontal line at each extreme I wait for price to exceed either extreme (giving preference to entries that represent continuation of previous trend). So as can be seen in the chart example, we have a consolidation high of 903.50 and a consolidation low of 899.25.

When price breaks up out of the range we wait for it to fail. This represents a possible continuation entry short. The short is when price re-enters the range (903) and the stop is very tight right above the previous high (904.50). In this case the short entry would have been profitable, bringing in 3 pts as of this post. We would be shooting for a re-test of 899.25 or better.

 

[StevenBruce]

and at about 8:50am PST we get our test of 899.25.

and a failure and breakdown. At this point we would hold looking for a test of S2 at 895 or thereabouts.

We did not take this last trade, however it is a trade we would normally look for at the end of significant correction off a high.

 

[StevenBruce]

Its 9:21am PST and we are about to test the S2 at 895.25

If price takes out this price point our next important obstacle would be 893.25 which is a Market Profile number. If we get there that would mean this trade "continued" and turned into a 10 pointer (give or take a tick). and yes I wish I had taken it.

 

[StevenBruce]

A couple of comments quickly

First I notice that readers have given this thread the max amount of stars. To me that means people believe there is value in the information and (perhaps) want to learn more. It also means that the thread is flying beneath the troll radar for the moment, which is nice.

That being the case, before I proceed forward I will take questions that readers may have. I don't think of myself as a particularly skilled teacher but I will try to help as best I can.

 

[StevenBruce]

This interesting exercise for those who are following along with the use of the $DJX (Dow Cash) chart.

As you know, we put in support & resistance lines on that chart and use it as part of the decision making process.

What do you think might happen if you simply replace the $DJX symbol with the futures symbol? (ES #F for Esignal users).

Here is that chart with the support & resistance lines in place but framing the ES futures data instead of the $DJX cash. I have also put pivots in place (daily, weekly & monthly).

Basically a trader could have just traded the chart the way it is.

 

[StevenBruce]

And to put things in perspective we review today' price action in the Dow Cash as follows (using a chart with 15 minute candles)

First, price opened and ran up to test the top of the previous day's channel. It failed to take out that resistance. About 45 minutes into the session, a minor rally took price back up to test the previous low. Price failed here as well, trending down to test the low of the longer term channel at 9:45am PST.

At 10:00 am PST buyers came in to initiate a sustained move from the lows up to a high at 12:15 PST. If you scan to the left you can see that price tested the midpoint of the previous "wide range" candle (opening candle on 5/11). It failed again to take out that price point, falling back into the channel created by the previous action on 5/11.

This leaves us about in the middle of the channel created several weeks ago.