A Typical Day

This week we have seen some pretty easy and standard trading. In the Emini S&P today, we saw a long covering coming into the open with an opportunity to get short pretty soon at 1401.75. At 10am we had weaker than expected housing data which added to the downside move. There was no reason to get out of your shorts until the market established value low at 1397. After the market established a value low, the market tried to extend this value, however the market rejected lower prices with short covering to trade higher and develop value for the day.  Towards the end of the session we had fully established our trade area for the day and we clearly had most of the market covering longs. This gave us our final short in to the close from 1401.25 with a target of value low down at 1397.25 which was achieved


Remember you're traders and not analysis. This is how you should be viewing the market each day as it's all about where people want to trade. There's a large chunk of people out there who fail because they feel the need to justify everything that is happening. They will be asking questions like 'why is someone selling/buying there', 'what does this indicator mean?' or 'I hear X person does this, what does it mean, and how can I do it?'.......

The need to justify everything will be the end of your trading career if you're not careful. A lot of rookie traders will often admit that they can't make a penny, but if given the opportunity to learn from someone with experience, instead of listening and taking on board a concept and experience, they will tend to waste that valuable experience by asking question after question, the vast majority of the questions will be completely irrelevant.

Trading isn't about all the lingo and jargon. It is what it is, which is just people buying and selling. Is the asset that you're speculating in undervalued or overvalued? Most people seem to want to learn to talk the talk first so they can impress other people. Very few actually understand the concept of trading.

Which group do you fall into?

A Quiet End To The Week

Today was a quiet end to the week with just over 1.3 million contracts trading for the day. How many contracts have traded should be of concern to you as a trader, as it gives us so much information on different angles of trading.

I want to discuss a couple of examples about how watching how many contracts have traded will give you a good edge each day. The first hour of the day is quite important as this tends to set the tone for the rest of the session. If you trade the Emini S&P 500 futures, you can tell if it's going to be a busy day or a quiet day quite early on, and you should adjust your trading accordingly. If after the first 30-45mins only 500k contracts have traded, you know it's going to be quite a quiet day. There's probably only going to be one decent move, and the rest of the day will probably range unless there's news to move it. So adjust your trading.

If after 30-45 mins 1.2 million contracts have traded, then you know that is quite a lot by that time of day given the current market conditions. It's most likely going to be quite a busy day with a sustainable move. Adjust your trading accordingly. If you're on the right side of the market, make sure you ride it for what it's worth.

You also need to know how many contracts are trading so you know what's going on. In my first post I used a car as an example of how you should trade. If you know a car sells for $15000 and you see it for sale at $8000, then there's an opportunity for you to make $7000. Remember that trading is the same, today when the market opened up, the market established the 1399.50 area as fair value. We know that the market thought them prices were fair value because that's where everyone did business. We had an early sell off and the market then tried to establish lower prices but people weren't really prepared to do business at lower prices. The market tried to establish value at 1396.50 but only roughly 46k contracts traded there compared to the 75k contracts that traded at 1399.50. If everyone wants to do business at 1399.50, and the market is trading at 1396.50 then the Emini S&P 500 June Futures Contract is undervalued. If it's undervalued.... what are you going to do? Buy or sell?

The Right Tools For The Job

I get a lot of emails from people asking me about what I actually look at throughout the day when I'm trading. As an intra-day trader, my biggest tool is my order book (the above screenshot is my order book from today trading the Emini S&P futures), and this is what I spend 95% of my time looking at. I know a lot of people out there are looking at charts on various time frames, but the simple fact of the matter is that a chart is historical. Even if it's a quick chart such as a 1min chart.... it's still 1min old. Think of it this way.... do you think the guys in the pits are running about looking at charts? ..... No they're not...

As traders we need to know how much is being traded and at what prices. A professional grade order book will not only give you the depth of market from the bid and offer, but also include information such as how many contracts are currently trading into the bid/offer as well as the total amount of contracts traded at each price. We can use this information to read the supply and demand in the markets which is reading order flow.

If you're an intra-day trader and you're just looking at charts, I suggest you close them down and get yourself a professional grade order book if you want to last as a trader.

Consumer Price Index

I just thought I'd make a quick post about Consumer Price Index seeing as we have a CPI release tomorrow. As a trader you must be aware of the economic releases that move your market. Only the ignorant ignore economic releases, and those who do ignore them tend to wipe out their accounts quite quickly. When you're on a trading floor, one of the quickest ways to get fired when you first start out is by having orders in the market just before the release.

So what's the big fuss then? Well from a traders point of view, the release of economic data, depending on it's result, will shift the balance of supply and demand in the market which will give traders an opportunity to profit. Not all economic releases have a big impact on the markets, however the Consumer Price Index is one of the big figures that does, alongside other figures such as Non Farm Payroll.

A consumer price index (CPI) is a measure estimating the average price of consumer goods and services purchased by households.

The CPI measures a price change for a constant market basket of goods and services from one period to the next within the same area. This area can be a city, region, or country.

This is a price index determined by measuring the price of a standard group of goods meant to represent the typical market basket of a typical urban consumer.

It is one of several price indices calculated by most national statistical agencies. The percent change in the CPI is a measure estimating inflation. The CPI is frequently used to adjust for the effect of inflation on the real value of money. For example, wages, salaries, pensions, Treasury Inflation-Protected Securities (TIPS) and regulated or contracted prices will be increased (or decreased) according to changes in the CPI.

The CPI is one of the most closely watched national economic statistics.

First Post - Back To Basics...

So this is the first post of many to come as many people have requested I start a blog. I guess people like what I have to say, which isn't saying much given how much rubbish is out there in regards to trading. The last point annoys me a lot as a trader. 'Why?' you might ask.... well the reason is that as traders, we all start off in the same place... we know we have found something that we want to pursue, for whatever reason, but we haven't got a clue where to start or what trading is about, all we know is that this is what we're going to do. The learning curve is steep and many don't make it....

In my opinion, the reason why most don't make it is simply because of their position on the information curve. Most new traders trying to learn the markets are at the very back of the information curve and are trying to gain success through a concoction of technical analysis and chart patterns which are pushed upon them by people who seriously don't have an idea themselves. New traders get caught up in a lot of things that are pretty irrelevant, stuff such as, what time frame?, what charting package?, what indicator settings?.... and as they chase their tails, they lose sight of what they're actually trying to do, until they're past the point of no return and end up giving up. So in this post, we're going back to the basics of what trading is.

Whatever you're speculating in to make money on, it could be cars, property, washing machines, TV's or the markets, the aim really is to be able to buy it for cheap and sell it for a higher price. If I see a car that sells for $15,000 selling for $8000 then there's an opportunity for me to make $7000. Trading futures is no different, and one should never forget this. It's all about value..... if a futures contract is under value, then there's an opportunity to buy it while it's undervalue and to sell it at a higher price where fair value is. If a futures contract is over valued then there's an opportunity to short sell the contract back down to fair value.

As a trader this is what you should be focusing on, and if you're a day trader like myself, yes it does happen multiple times a day. The main market that I trade is the Emini S&P 500, and today I've had three beautiful trades based on the ES contract being under value. It doesn't matter what market you trade. You could be trading the Mini Dow (YM) contact on the CBOT, or you could be trading Light Sweet Crude Oil on Nymex, or 10 T-Notes on the CME, it doesn't matter as all markets work the same. It's an auction process based on supply and demand.

Never forget this....