Trading Commodity Futures - Intuitively Day Trading The S&P 500 and E-Mini - PART 1

By Thomas Cathey

Every trading market has its own special patterns and oddities that will communicate its intentions. Patterns don't always work every time of course, but even that can be a clue of underlying extreme weakness or strength. Just like knowing a spouse well, learning to read your special market can pay dividends. Read on to learn more...

More Observations From My Trading Notes:

"Each day is different – don’t expect scenarios. One exception is to watch when the previous day had big buying or selling at a stalled out area. The old tops are sometimes spiked the next day and then a long decline occurs. Also watch for signs of a pattern I call 'stilting'. This is a bearish formation where the futures market chops in big swings within a rectangle. It forms below a spiked high panic area. A big, long decline to the end of the day usually follows this type action with little chance to get on board after the last anemic volatility rally."

Yes, each day IS different. We get accustomed to the previous session or trend. Then when the change comes, it takes us time to change gears. The problem is that when the trend turns, it is sharp and catches the majority off guard. Being wrong at these sharp turning points is expensive compared to being wrong in the middle of a trend. Try to come into each day of trading with a blank mind. Carry over no “pre-programming” from the last session about what worked and what didn’t. The only information to bring over from the previous day concerns major highs or bottoms tested with active price action and volatility.

Back to "stilting." This formation is the FIRST correction in a new downtrend. Usually, legitimate subsequent trending corrections are more orderly and quieter affairs. But the nasty, swinging stilting formations more often than not break into new lows and become all-day one-way streets. This is where many of the counter-trend pit commodity traders have a bad day as they buy all the way down.

The signal to get on board after these stilting formations is when price breaks the rectangle lows and then has an anemic, dull rally back into these same stilting lows. The market can be sold here with confidence for a long ride down. Of course, be ready to bail out if wrong. It’s all about taking these high probability commodity trades and letting the odds work for you over time.


"Trade in the direction of the A-D line only. Over time the odds favor it." Absolutely. It’s a losing battle always going against the A-D line. It can be done in certain situations, but you had better be nimble to get out with a fast profit. There are so many other good trades going with the trend and A-D line. Remember that you only need one or two carefully picked trades each day to do well.


"No overnight futures day trades." This is an important commodity futures day-trader’s rule. Of course, day-trading means daytime-only trades, but it doesn't always work out that way. I made this rule for my futures trading after being “sure” of the market’s direction on the close and then holding overnight. But the next morning I'd often find the market 6-10 points against me. It’s happened too many times. I feel that I can make forecasts for up to an hour or two, but overnight is way out of my comfort zone.

If you follow various time cycles like I do, you will find the short ones for day trading futures will have come and gone many times overnight. So, why hold a position when time is totally out of your control? Time is one-half of the total equation. The other half is price. The only control you have overnight is using a fixed stop loss order. Much of your control edge is gone, unless you stay up all night. (no, thanks)

Part Two of Four 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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