Daytrading Breakouts in the ES

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Johnny Rotten

The actual trading method is described in the next post. But first, you need to get set up properly. Here is the chart/screen setup required:
  • ES 5 min chart (chart only from 09:30 – 16:15 EST i.e. pit hours)
  • YM 5 min chart (chart only from 09:30 – 16:15 EST to correlate with ES)
  • DAX 5 min chart (chart full session from 03:00 to 14:00 EST)
  • ESTX50 5 min chart (chart full session from 03:00 to 14:00 EST)
If you have a second monitor, you can put the NQ 5 min chart on it (09:30 – 16:15 EST). Otherwise ignore this symbol because it’s not as important as the other four. Preferably, you should have a second monitor anyway, for your order entry software, because overlaying it on the main screen is distracting. The most important thing is that you want the above four symbols lined up symmetrically for optimal viewing. The reason why I chart the YM ‘incorrectly’ is because it will not be traded. It’s only purpose in life is to compare bar-by-bar with the other three markets.

The following two indicators/settings are put on all charts:
  • Bollinger Bands: Length 10, Standard Deviation 1.8 both sides. The middle line is turned off.
  • Adaptive Moving Average: Length 10. If you don’t have an AMA in your software, use an Exponential Moving Average. It’s not that important what moving average you use. What’s most important is it’s overall direction. It is just a visual aid.
  • Use a bar width setting so that no more than about 30 bars can be displayed on each chart.
Delete all other timeframe charts from your software (including daily charts). This style of trading is about hitting quick momentum moves not picking overall direction for the day. The ability to ‘focus’ is extremely important otherwise you start second guessing yourself. KISS = Keep it simple, stupid.

For you yankee doodles who do not what “DAX” and “ESTX50” are, I say (first): good god! Then I’ll tell you that they are two best electronic daytrading symbols on Eurex – that’s the world’s biggest futures exchange for you dummies in the audience! The DAX is the German stock index and does about 100,000 volume per day. Not the most liquid but good enough. The Eurostoxx 50 contract is an index of Europe’s biggest 50 companies and does about 500,000 volume per day. The DAX is very volatile and is best avoided until your account is big enough and/or you have first mastered ESTX50 trading. The ESTX50 moves on a money basis about the same as the ES – but it tends move “purer” than the ES.

Trading these two Eurex symbols is exactly like trading the ES, NQ or YM. Once you have an account with a broker like www.interactivebrokers.com (IB) there is very little mechanical difference and nothing special required to trade them. The winnings/losses will be in Euros but you can still trade these symbols from a base currency account of Dollars. There’s only two main points of difference from the ES and NQ:
  1. Stop orders are “native” (i.e. held by the exchange) on Eurex while Stop-Limit orders are not. This is the opposite of Globex.
  2. Eurex has a fascist order cancellation fee of 50 cents, with a five order change ‘credit’ per FILL. A trade is two fills so this means that you should not move your stop more than 10 times in a trade, otherwise these fees appear on your statement. Try to place your initial order at a time when you think it will most likely be filled, otherwise you get hit with 50 cents if you cancel it, until such time as you do get filled (when the five order change credit is applied). But don’t sweat it if you make a mistake and end up with a couple of 50 cent charges – there’s more than enough money to be made from the trade and IB’s commissions are low. Probably, one day Globex will start doing the same thing now the CME is for profit.
    [/list=1]
    You will need a datafeed for these two symbols. Esignal are notoriously bad for Eurex quotes i.e. delayed. They’ve been promising for over 8 months to fix the problem and still haven’t (any day now they say). So stay away until you hear lots of satisfied users. If Esignal is your supplier or your supplier doesn’t offer Eurex quotes, my suggestion is to use IB’s datafeed - another good reason for having your brokerage account with them. The cost is only 8 Euros a month. It’s a snapshot datafeed (every 0.7 second I believe) rather than true streaming, but it’s very fast and perfectly good enough! If you want a true streaming feed at a decent price, try MyTrack. For about $68/month inclusive, you can get real-time for all five symbols plus fill-in intraday data for the last 15 days.

    If you use IB’s datafeed (8 Euros month for Eurex) then you need to team it up with charting software. I’d recommend www.sierrachart.com for only $42 per 6 months, the cost is negligible and there’s a large user support forum & email list. You can run IB/Sierrachart alongside your existing datafeed/charting on the same computer without any difficulty. Obviously Win2000 or XP is a must. I was using TradeStation 6 and IB/Sierrachart on the same PC: no problems. For only 8 Euros a month, it’s well worth it.

    The DAX and ESTX50 stay open until 14:00 US Eastern so you don’t have to get up in the middle of the night to track or trade them. But 03:00 – 05:00 US Eastern can offer some excellent moves.

    See attached for what your screen setup should look like when finished – I sized it a little smaller to fit the format for this site, but you get the idea. That’s the screen setup, now for the method …
 

Attachments

This is not a mechanical system: it is discretionary, with guidelines/rules. The objective is to trade only once or maximum twice a day and to make a decent profit. The less time in the market, the better. People who try and scalp 20 times a day with 2 tick stop-losses are idiots. Boring is best.

RULE NUMBER ONE: Times of day

  • DAX & ESTX50: Trade only once between 03:00 – 05:00 EST, and/or once between 09:40 – 11:30 EST. No other trading times are permitted. If you like your sleep, just forget about the first time period and wait for the second.
  • ES: Trade only once between 09:40 – 11:30 EST and/or once between 14:00 – 16:15 EST

Will you miss some big moves by avoiding the other time periods? Yes you will. But more often than not, the middle of the day is shit with people scrapping over relatively minor price movement. Stay in the time periods where the institutions are more likely to come in and drive the market your way. The goal is not to be a clever dick catching every turn – it is just to make some money.

PROFIT OBJECTIVE:

  • DAX: 15 points is 375 Euros (one point is 25 Euros, one tick is half a point i.e. 12.50)
  • ESTX50: 10-15 points is 100-150 Euros (one point is 10 Euros, one tick is one point). This target be too little and is work-in-progress for me
  • ES: 4 points is $200.00 (one point is $50, one tick is 0.25 i.e $12.50)

STOP-LOSSES:

Trail behind a recent pivot low when long, OR a recent strong up bar (open at bottom, close at top, range good), OR $200. Move it behind each strong up bar. Stop-loss placement is quite discretionary. But never initially risk more than you aim for. On occasion you may decide to exit early if you get a strong key reversal bar..

ENTRY CRITERIA WHEN BUYING (rules reversed for selling short):

Wait until a pivot high occurs within the correct time period. This is defined as a bar whose high sticks up over the top Bollinger line. Then wait for a lower high bar to occur, and a lower low bar …which can be the same or different bars. In other words, you must wait for a minimum of one bar after the pivot high. I like to see at least two bars but that’s discretionary. Now buy one tick above the pivot high on a breakout. BUT, you must make sure of the following:

  • No more than 15 bars should have gone by since the pivot high formed. The fewer pullback bars the better. 2-6 bars since the pivot, appears optimal
  • You cannot reference anything other than the most recent pivot high
  • The moving average line should be in a 45 degree upwards direction during the pullback.
  • The breakout must be such that it’s bar would also be pushing through the upper Bollinger line. If you have the Bollinger Band lines set to ‘update every tick’ then this is easy to eyeball.
  • The breakout cannot be coming off of a new intraday low.
  • Check the other 3 symbols for agreement or disagreement.
  • If this criteria is met in one symbol, you can choose to ‘execute’ the signal in another market that may not have technically met the criteria, at your discretion. Example: if the ESTX50 has a valid spivot spike at 09:55 EST but the ES does not i.e. the ES bar did not exceed the upper Bollinger line (but is still a spiky pivot), then you can buy the ES above it’s own 09:55 EST bar. Again, discretion is advised. This point emphasizes the importance of visually lining up all four symbols symmetrically.

The above bullet points are a non-scientific way of saying the market must be strong. The stronger the better. The whole idea is to buy high and sell higher. Most people are preoccupied with buying low. This is the opposite philosophy. If it’s all lined up ‘right’, you will NOT see a pullback from one of these breakouts. So if you think you can wait for the breakout and catch the pullback: forget it. The last point about checking the other three symbols is extremely important. You must look at all four markets and see what their action is.

Some people like to say “don’t bother with European markets – they just follow the US anyway”. But this is far too generic and simplistic. Particularly in these chosen time periods, you have no way of knowing which will be the ‘leader’. As the day wears on i.e. after 11:30 EST I agree that the DAX & ESTX50 tend to become slaves, but from 09:40 – 11:30 EST it is anyone’s game. The ‘leader’ can change from one day to the next. The point being, you cannot afford to trade without all four symbols on your screen. Even if you never intended to trade on Eurex, following the two Eurex symbols can assist your ES trading. Certainly when all four are pointing the same way at the same time, it’s time to load the boat.

So there it is. Lots of nuances and discretion are involved but it’s a good starter for 10 on deciding which breakouts to trade. The profit objectives are always fixed. Get used to “settle” with them and don’t sweat it when the market goes on to make a $1000 move after you cashed in at $200. There’s always tomorrow. And anyway, if you want to make more money, trade more contracts not more signals. The objective is just to make decent money, not to be a clever dick. I know this advice will be ignored by most people who will break all the above rules no matter what I say, which is how I know it’s safe for me to post it! Successful trading is SIMPLE not complicated. That is not to say it is “easy”, but if you think you need to study complex mathematics just to trade well, then you’re either a Guru or a Groupie - but that’s another subject!

And finally:

ORDER TYPES THAT SHOULD BE USED:

  • ES: Enter on a stop-limit one tick above the pivot high (same limit price as stop price). Never use a plain stop because it isn’t native on Globex. Profit objective is a Limit order. Stop-loss is a stop-limit order with at least a 5 point spread between the stop and limit prices. Never use plain stops because they are not native and you can get screwed with them.
  • DAX: Enter via a stop-limit order with one tick (0.50) difference between stop and limit price. This is not a native order but since it’s only Entry and we need to control slippage, it is safe to use. Profit objective is a Limit order. Stop-loss is a plain stop order (native). Do not move your stop more than 10 times when in a trade.
  • ESTX50: Same as DAX except the initial stop-limit order should have the same limit price as stop price.

Even though IB has reasonable order entry capabilities, it is nowhere near as powerful as using a third party solution. Given the above order entry differences, a good program where these parameters can be stored and executed quickly is important. The idea is one of “bracket trading” i.e. you send an entry order which when filled will automatically fire off your target objective and stop-loss (the ‘Bracket’) according to the parameters you set for them. When either target or stop-loss is hit, then the other order is cancelled immediately. The initial leader of the pack with these programs was Bracket Trader. But the best of the bunch is now www.ninjatrader.com. It has the same basic bracket features plus a ton of other useful things in a simple user interface. The developer is really responsive and there’s a growing users email list. Just set up my suggested order entry parameters in it’s “Strategy Manager”. Once you know what you’re doing with NinjaTrader, it takes all the stress out of the ‘mechanics’ of trading.

See attached screenshot for an example of a long today, June 9th in the ESTX50 during the 09:40 – 11:30 EST.
 

Attachments

Simtrader was very kind to give me this trading method before he retired. He says to say “Hi” to all those who put him on their Ignore List. Thanks to him, I’ve been tracking this web site for a while and am appalled at the total useless nonsense that is written half the time. I agree with him that there are basically four types of people on this web site:

GURUS
These are people who spout utter shit and have a core base of loyal followers prepared to follow their hero to the last. They don’t trade, they don’t make money, and you cannot understand what the hell they are saying. If they buggered off and had their own little Guru thread, then fair enough. But most of the time, they crash someone else’s thread and kill it with their stupidity. One classic example is Jack Hershey but there are others out there too. They usually have a very high post count as Elite Members. I have no patience with them because they talk drivel and they distract people.

GROUPIES
Of all the categories, these are the lowest form of life. They always have a Guru, they never trade, don’t make money, and never contribute anything remotely useful or interesting. Big arse-kissing of the Guru is mandatory. Unfortunately, Groupies are also the most obnoxious and ruthless people on this site. These are the people who drive good people away from this board e.g. “who the hell are you, shithead?” that type of thing. I have nothing but scorn for them. Being nice with them or simply adding them to your Ignore list, doesn’t make this web site a better place. Nice is not always best. You have to fuck with them back, and then eliminate them. It’s the only way forward. Why? Because once they learn to shut up, this site becomes more agreeable to new people.

ESTABLISHMENT
These are all the ‘Elite’ members. They all know each by name and spend half their time patting each other on the pack, spouting useless drivvel that doesn’t help you trade better tomorrow. “You’re the best, Fred”, “thanks dude”, “remember, the trend is your friend” and all that stupidity. Half the time you need a bucket for a quick vomit when you see them in full flow. They thoroughly enjoy giving people the benefit of their advice – which usually amounts to no more than one line since that’s the fastest way they can increase their post count, and thereby their social status. About 70% of them also love to preach and moralise about life. They are worldly wise you see! And 80% of them have absolutely no sense of humour. They are just uptight fucking do-gooders who enjoy their status too much, and who are simply boring and a pain in the arse. If you get on their Ignore List, pat yourself on the back for a job well done.

EVERYONE ELSE
The other five people are perfectly normal.

My objective here is to see if just one bastard gives me something back in return; to try and increase the number of normal people to more than five; and to make the newbies feel more comfortable speaking out. Oh, and to “play” with the Groupies most of all
:D
 
Quote from Johnny Rotten:

Simtrader was very kind to give me this trading method before he retired. He says to say “Hi” to all those who put him on their Ignore List. Thanks to him, I’ve been tracking this web site for a while and am appalled at the total useless nonsense that is written half the time. I agree with him that there are basically four types of people on this web site:

GURUS
These are people who spout utter shit and have a core base of loyal followers prepared to follow their hero to the last. They don’t trade, they don’t make money, and you cannot understand what the hell they are saying. If they buggered off and had their own little Guru thread, then fair enough. But most of the time, they crash someone else’s thread and kill it with their stupidity. One classic example is Jack Hershey but there are others out there too. They usually have a very high post count as Elite Members. I have no patience with them because they talk drivel and they distract people.

GROUPIES
Of all the categories, these are the lowest form of life. They always have a Guru, they never trade, don’t make money, and never contribute anything remotely useful or interesting. Big arse-kissing of the Guru is mandatory. Unfortunately, Groupies are also the most obnoxious and ruthless people on this site. These are the people who drive good people away from this board e.g. “who the hell are you, shithead?” that type of thing. I have nothing but scorn for them. Being nice with them or simply adding them to your Ignore list, doesn’t make this web site a better place. Nice is not always best. You have to fuck with them back, and then eliminate them. It’s the only way forward. Why? Because once they learn to shut up, this site becomes more agreeable to new people.

ESTABLISHMENT
These are all the ‘Elite’ members. They all know each by name and spend half their time patting each other on the pack, spouting useless drivvel that doesn’t help you trade better tomorrow. “You’re the best, Fred”, “thanks dude”, “remember, the trend is your friend” and all that stupidity. Half the time you need a bucket for a quick vomit when you see them in full flow. They thoroughly enjoy giving people the benefit of their advice – which usually amounts to no more than one line since that’s the fastest way they can increase their post count, and thereby their social status. About 70% of them also love to preach and moralise about life. They are worldly wise you see! And 80% of them have absolutely no sense of humour. They are just uptight fucking do-gooders who enjoy their status too much, and who are simply boring and a pain in the arse. If you get on their Ignore List, pat yourself on the back for a job well done.

EVERYONE ELSE
The other five people are perfectly normal.

My objective here is to see if just one bastard gives me something back in return; to try and increase the number of normal people to more than five; and to make the newbies feel more comfortable speaking out. Oh, and to “play” with the Groupies most of all
:D
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Let's see how many pathetic loosers, that are so desperate for a clue they are willing to put up with this filth, this thread will attract.
 
Quote from Ditch:



Let's see how many pathetic loosers, that are so desperate for a clue they are willing to put up with this filth, this thread will attract.
More...
Ooooohh, that hurts groupie boy! Jack seems to be on vacation at the moment - is that why PMT has come early for you this month, my darling? I'll tell you what, until he returns, why don't you post your trading method in full detail just as I have done? Oops I forgot - you've got nothing to say on that score. BTW, it's spelled "losers" not "loosers" you remedial idiot :p
 
Quote from Johnny Rotten:



See attached screenshot for an example of a long today, June 9th in the ESTX50 during the 09:40 – 11:30 EST. [/B]
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I would add another entry rule to your method.
When the pivot is formed as you have described it for a BUY, wait for an opposite side of BB pivot and then buy one point above that pivot high. Look at your screen shot for an example.
Walter
 
Quote from Walther:



I would add another entry rule to your method.
When the pivot is formed as you have described it for a BUY, wait for an opposite side of BB pivot and then buy one point above that pivot high. Look at your screen shot for an example.
Walter
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You've lost me - what time bar would you be buying above?
 
Quote from Johnny Rotten:


Ooooohh, that hurts groupie boy! Jack seems to be on vacation at the moment - is that why PMT has come early for you this month, my darling? I'll tell you what, until he returns, why don't you post your trading method in full detail just as I have done? Oops I forgot - you've got nothing to say on that score. BTW, it's spelled "losers" not "loosers" you remedial idiot :p
More...

Cam't you do better than that, punk? it's getting as boring as listening to a SP-record. By the way, up 11 pts today- Es thas is:p
 
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