Commodity Futures Day Trading The S&P 500 and E-Mini - Observations - PART 2

By Thomas Cathey

Not all conventional commodity trading folklore is correct. Some is and some isn't. Much is anecdotal. Most of it is designed to make you feel comfortable in a trade. Feeling "comfortable" is the fastest way to the poorhouse in commodity trading. We are paid to provide liquidity and take on risk. Read on to see if you adhere to this basic and important market law.

More S&P 500 and E-Mini Futures Contract Observations: PART 2

"The one minute e-mini futures chart will sometimes magically touch or spike the outer band channel."

When you set up a pair of moving upper and lower price bands to contain e-mini price action, set them so the price breaks out of the band only on climax tops or bottoms. It’s amazing how well this signal works. It appears that when an e-mini climax takes place, all the cycles are in synchronization and burn themselves out at the same time. This united power spikes out of the normal band boundaries. Since most of the cycles are rolling over after the climax, this backing off can be quick for a few bars and leaves the spike area isolated like an island top.

Next, the e-mini futures market may erode slowly down like a normal bull correction, fooling the majority. This is a situation when a quiet decline is NOT bullish, but bearish. Know the difference. Price may anemically try for the top again, but usually fails. This is where the real decline starts. As usual, selling the first and exact high is a mistake. Wait for the secondary try while you are looking at other indications of failure.

This is one of the few times the e-mini futures market is kind. It actually rewards you for getting in later than the traders who have the nerve to sell the first panic high. But if you are a big gun, the first panic gives you the liquidity needed to put on a big line. The contract volume at these spikes can sometimes be tremendous.


"If trading against the A-D line, have good reasons and always take quick profits. This will usually occur on the downside, only."

Over time, e-mini futures trades against the A-D line are losers when viewed with long-term probability eyes. The time it works is when the e-mini market makes a daily reversal. These reversals occur maybe every 3-5 days. So, if you are always looking for them, you will make only about one out of twenty trades with the trend.

These are poor odds, for sure. Even if you catch a big reversal, the chances that you will hold on for the big move are slim. This is because big e-mini moves require lots of time to put in a top or bottom, sometimes even spiking the first panic pivot point a few times. The market doesn’t pin medals on the heroes who catch the exact top.

I’m not sure why so many of us get lured into selling a day that is a one-way up market and buying big bear days. I think we want to outsmart the market and be proud if we catch a “major” top. But, to be more humble and simply buy dips and sell rallies with the main trend is the way to make money over the long haul. It appears that if you MUST trade against the A-D line, then do it on the short side because of the fast corrective declines in a normal e-mini bull market.

Buying when anticipating a bear rally can be quick affair too. But when the market turns back down, the move is usually fast and it’s easy to give back what little profit you made scalping.

Part Three of Five Parts - Next!

There is substantial risk of loss trading futures and options and may not be suitable for all types of investors. Only risk capital should be used.

Thomas Cathey - 27-year trading veteran heads the managed futures division of Thomas Capital Management, LLC. View his TimeLine Trading market predictions and get his complete 44+ lesson, "Thomas Commodity Trading Course" - they're all free. Main site:

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