How to Trade Eminis – Part 3
From Larry Connors:
Steven Primo worked for me as the Director of Education for TradingMarkets for seven years. Previously Steven and I worked together at Donaldson, Lufkin and Jenrette (DLJ) where Steve was one of the firm’s traders on the floor of the Pacific Stock Exchange. When Steve came to me in 2001 about working for us, I jumped at the opportunity to have him aboard.
As good as an equity trader Steven is, he’s in my opinion a great Emini trader. I’m fortunate to be friendly with a number of successful Emini traders and Steve is amongst the best. As I mentioned to his business partner, if given the opportunity, Steven is one of the very few people I would allow to manage my money trading Eminis.
I hope you enjoy this multi-part series from Steve on “How to Trade Eminis”
In my previous articles I shared with you how to trade Eminis with the two main secrets of elite Floor Trading Specialists: 1) trading with the Buy/Sell Line, and 2) trading with Confirmation. Even though I discovered these edges on the floor of the Stock Exchange, I explained how they can easily be transferred over to trading the Eminis. In today’s article I will share with you some recent trade signals that employ these two concepts, but first let’s review.
Edge #1: The BUY/SELL LINE – Too many traders are buying when they should be selling (and vice-versa) which ultimately results in a losing trading strategy. The Buy/Sell Line is an edge designed to get you on the correct side of the market, in any direction and in any time frame.
So just what is the Buy/Sell Line? It’s the 50-period simple moving average, that’s it. But in order to use this tool properly you must first plot the moving average and then ask yourself this question prior to each and every trade. Regardless of the strategy, regardless of the direction or time frame, always ask yourself before you pull the trigger – “Where is the price in relation to the Buy/Sell Line?” You’ll only come up with two possible answers: 1) if the price is above the Buy/Sell Line you’ll only be taking buy signals, and 2) if the price is below the Buy/Sell Line you’ll only be taking sell signals. That’s it. This tool is simple but extremely powerful and has literally saved me hundred of thousand of dollars throughout my trading career. If there were only one technique I could use for the remainder of my trading career, it would be this. (Chart 1)
Edge #2: CONFIRMATION – 99.9% of traders are obsessed with buying at the exact bottom and/or selling at the exact top, regardless of market, time frame, or choice of trading strategy. But just where is the bottom and just where is the top? In 35 years of trading I’ve learned that markets can and will go as low as they want, and much lower than anyone could have ever expected. Rather than try to pick a bottom in the Emini, which is often a recipe for disaster, the only thing needed is for a trader to wait for confirmation. This is the assurance that the Emini has concluded its downward course and is now once again headed in an upward direction; much like a train leaving the station for its desired destination.
So what exactly is confirmation, and how do we use it? A buy confirmation consists of when the Emini, in an uptrend, has sold off to a satisfactory buy level and then reverses and trades higher than the previous bar’s high. Conversely, a sell confirmation consists of when the Emini, in a downtrend, has risen to a satisfactory sell level and then reverses and trades lower than the previous bar’s low. We buy and sell only on confirmation, regardless of the strategy used. (Chart 2)
The Buy/Sell Line and Confirmation edges are the very core of all of our methods and techniques at Specialist Trading. They are the foundation for each and every strategy we teach. Now I would like to share with you some recent Emini trade examples that incorporated both of these concepts using some of our favorite strategies. On 6/18, a 10-min chart of the Emini generated a Strategy #4 buy signal. The signal was above the Buy/Sell Line and using Confirmation we went long 1 tick above the signal bar’s high. The trade produced a +6 point gain in an hour. (Chart 3)
Strategy #6 generated 3 consecutive winning sell signals below the Buy/Sell Line. (Chart 4)
On 5/29 our premier strategy for holding positions overnight, Strategy #7, generated a sell signal in the Emini. We went short the following day when price traded 1 tick below the signal bar’s low, using Confirmation. Our members made over +47 points in just 3 days. (Chart 5)
As you have just seen, if one trades without using the Buy/Sell Line or Confirmation they are simply guessing as to where to place their buy or sell orders. This guesswork is relative to top picking and bottom fishing; styles of trading that will eventually yield negative results.
These edges will not guarantee that all your trades will become profitable, but if you do decide to employ these tools I believe you will substantially increase your odds for success. Why? Because the Buy/Sell Line is designed to put you on the right side of the market whereas Confirmation is the verification that a directional move has concluded and that the trend has resumed. Once you learn how to fully employ both these techniques you will be trading with the Specialist’s Edge.
If you’d like to start trading Eminis with the quantifiable trading strategies developed by Steven Primo, click here and register for the upcoming live webinar with Steven where he will be sharing his unique approach to successfully trading Eminis.