Approach to trading the ES contract

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At 8:45 we get our first pullback in this new downtrend

Looking down at the indicator pane, we have confirmation of a short entry

Short entry at 916.50 provides a nice profitable trade
 

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The main ideas to take away from the preceding charts are as follows;

1. Identify the major trend on a longer term chart
2. Use the $DJX to get a "heads up" as to what the ES is likely to do
3. Identify the minor trend on the tick chart ( I use 1000 ticks)
4. Look for confluence (proximity of two or more signals)
5. Look for a good entry
6. Scaling out allows you to stay in the trade longer. The longer you stay in a profitable trade, the more money you make.
 
No pre-market report today.

What I do want to do however is to refer traders to the method in this link.

http://www.elitetrader.com/vb/showthread.php?s=&postid=2432492#post2432492

The OP is "DonKee". He was kind enough to post a method that uses the MACD (3,10,16) and to show plenty of examples of intraday trades. It works if YOU make it work.

What does that mean? Well it means that you act mechanically to execute when the conditions line up. It means that you take all the trades and hold for at least a couple of points (he suggests putting in a break-even stop at +1.5 pts).

My opinion for trading the ES contract is simple. I wouldn't trade at all unless I could afford to put on 10-12 contracts. Thats how I would trade it. Don't trade for ticks. Once you enter a trade there are three possible outcomes as follows;

1. You take a stop loss (for me this is 2 pts min in the S&P)
2. You take profits
3. You scratch the trade (breakeven minus commissions)

As mentioned previously I won't trade single use systems. So I want at least one additional reason to take a trade. That additional reason could be a filter like $ADD, or $VOLD (my favorite), or previous day's volume (ES #V) and Open Interest (ES #OI). I might also take a trade where the signal occurs in proximity to a pivot, a Market Profile number, or some other price action that you have researched. The reason for this (as previously stated) is that I believe that entry with at least two signals indicates that more traders are on the trade, giving the trade better odds of positive outcome.
 
For Thursday May 21st

Attached see the chart showing the overnight action prior to the market open

Notice the extended move down during Asian and European Market hours.

Market Profile numbers

VAH = 919
VAL = 907.75

Notice that the market opened well below value at 889.75. Combined with the overnight action, we should have expected a correction

The "tell" that occurred early in the session was the move UP to test for buyers right before the reports released.

Reports

Initial Claims
Leading Ind
Philly Fed
 

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21st May

Continuing on we observe the following

At approx 6:50 the market spiked up to test a previous S/R area. To confirm this take a look at the

The question is "Why the move up"? and OUR answer is "The market is looking for evidence that buyers (buy stops) were in place above the open in anticipation of a move up.

Now lets stop here and look at the next chart attached below

Here's the problem with reviewing charts after the fact....First I put a horizontal line in to show how price tested a previous area (support/resistance) at 893....Then I ask you to scan left (I have used this same language before) to illustrate how to put this price action in perspective...

For those interested in actually learning something, this is important take away....you have to learn to do this the opposite way......

You start by placing the horizontal line in under the lower boundary of the consolidation BEFORE the market opens. As you can see, it "forecasts" the possible move up (benefit #1)

AND it allows you to put the move in perspective in such a way as to make money from it....how...well clearly you have a test, and you can trade the failure move off of that test (benefit #2)

Finally, because you are playing the short side, you are trading with the (intraday short term) trend and in this case you have some nice short entries set up right in front of you as price tests up again two more times.

I hope someone gets this because it is the reason that after the fact analysis does so little for new traders (after all its "backwards" from what you see in real time).
 

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As we know I prefer multiple signals as they increase the odds of success.

In the attached photo, we see the same tests outlined AND this time we direct your attention to the last test and then down to the indicator pane where the MACD sets up a short signal (the first of two in this chart).

You see the market breakdown and roll over at the conclusion of the third test. Scanning down to the indicator pane, you see the MACD showing a initial signal for a short, then the histogram confirms the signal dropping down through the zero line at 7:11:36

In my opinion, this is now a high probability short trade, and the only question for me is "where do I enter?" and "how much size do I put on?"
 

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And here is our last comment for the evening

Again we illustrate the concept of putting in a horizontal S/R line and trading the test of that line. As you can see the horizontal line is in place. This is subjective and for that reason, there is a lot of "art" to the placement. In hindsight it is easy, so one should be aware that it will take time to get the feel for how to do this. Once you have it however, you can see the benefits

We put in the horizontal line at the base of the consolidation area at the top left of the chart. Then we wait. The breakdown, signal and short trade that followed was noted on our previous chart.

Then we see signal and confirm from the MACD system (single system signal) that we would probably skip or trade small)

Price climbs back up to test that S/R line, breaks through but cannot take it out, and then climbs back up to test yet again. This time, we see the MACD signal, we see price roll over and the confirmation from the MACD. There are several nice entry points as seen on the chart. Notice that THIS signal has momentum and moves south with conviction (probably because more traders are on this trade).
 

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I think we will will fold our tent at this point.

We will look in periodially to see if there are questions but for the most part we will have to re-direct our efforts to our primary business.

We wish everyone the best of luck

Stevesbg
 
Quote from stevesbg:

I think we will will fold our tent at this point.

We will look in periodially to see if there are questions but for the most part we will have to re-direct our efforts to our primary business.

We wish everyone the best of luck

Stevesbg
More...

Do you believe your methods can be 100% automated, or at least close to 100%?. Or, on the other hand, do you believe the subjective/intuitive/situational component can never be elliminated from your approach?.

If so, how far have you gotten along the automation route?.

What kind of monthly % returns on capital are you looking to obtain from your trading ?.

Nice thread. Thanks and regards.

JW
 
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