Setting Up E-Mini Intraday Trading Charts
The bread and butter of
my trading is intraday
breakout/breakdown and momentum trading relying on price levels.
Each morning I mark the
“AM†top and bottom pivots. Now these aren’t traditional pivot levels, but
rather, the levels that first show a change in momentum: the first time the
buyers take control (bottom pivot) and the first time the sellers take control
(top pivot). These usually form during the “clearing period†or the first 30
minutes of the day. I use the 9:30 open and the 4pm close (EST) as that is when
the volume comes in.
On days, such as Tuesday
(the chart below), knowing that there is a major report coming out at 10am — in
this case the Consumer Confidence number — I will also mark the 60 minute high
and low because I will seldom take a trade in front of a report and many times
the “AM†pivots will be violated so I need second set of breakout/breakdown
levels.
The indicators that I have
on this five minute ESU2 chart are the 12 and 36 Simple Moving Average
and MACD Histogram (12/26/9). The indicators are merely “guides†or “filtersâ€.
I never make a decision to trade based solely upon indicators! They are
lagging tools, but none-the-less helpful to the overall decision making
process: to push the button or not to push the button.
I will mark the gap close
level first and extend the line across the length of my chart. I also think it
is important to have a multi-day view of price action for support and
resistance. I keep at minimum two to five days (not shown). I don’t mind
making mistakes…but I hate surprises. Keeping two to five days rather than just
a few hours or simply the day on my screen keeps me from getting big surprises.
I can see the day unfold in relation to past price action.
After marking the “lines
and levelsâ€, I can now react to the day. I now know precisely where I will be
bullish or bearish. Because the Consumer Confidence number will create a
reaction (one I cannot foretell) I will be sure to be flat a few minutes before
10am. Which is typical of my day regardless because I still need my “AM†pivots
marked before I will trade. The only exception being if I fade the gap (if
any), which will be marked on my chart at the open.
The gap close level here at
900 will be resistance until the market proves to me otherwise.
Significant levels such as a gap close coupled with a key decade, or as in this
case, a century number, are best assumed to be an obstacle on the first
approach. The 10am report means I will not automatically take the AM top pivot
trade on the first break. And I will be patient and also mark the 60 min.
high/low. Whether I’ll be aggressive and use the “AM†top pivot or more
conservative and trade the 60 min. high, at some point after 10:30, I’m long.
Prices are marching up and
are soon near the gap closes level. I automatically put in my limit order to
exit before 900, I want to be out before the mass of orders that will be
waiting at that century level. I also call levels like 900 in this scenario
“psychological numbers†because it is not uncommon to see orders gravitate
towards such common levels. We think in whole numbers, in even numbers, in
fives and tens…it’s part of our daily lives to do so. So I take advantage of
this.
So now I’ve exited and I’m
flat. I now watch the “arm wrestle†between the bulls and bears at 900. It’s
worth watching knowing that I’ve protected my profit.
Any fool can make
money, keeping it is another point.
When can I re-renter to
the long side? It’s not uncommon to
see a second or third attempt to break above key resistance like that which 900
represents. The second time was a charm. Taking this lunch time trade is a
personal choice. So folks do, some don’t.
For you Naz E-Mini traders
here’s a look at my five minute NQU2 chart:
The action in the NQ was a
bit different. You can see that I had a gap close to mark right at the 9:30
open. However, the “AM†bottom pivot and the 60 minute low ended up at the same
level. Furthermore, the NQ closed the gap before the first 60 minutes of the
day and thus the gap close was the also the 60 minute high. An aggressive long
entry from the “AM†top pivot level would have you exit just before the gap
close just shy of the 970 decade level.
What if I were trading
stocks with the help of these E-Mini charts and “lines and levels�
I was and I do every day. Drawing the parallels can be a very powerful
confirmation tool for stock traders.
Here’s a five minute view
of MSFT:
The set up on MSFT is
bundled. All three breakout “buy†signals share the same level. This is pretty
powerful. The 48.20 price level was precisely where the “arm wrestleâ€
was going on. Sit back and let someone win…For those of you that the fade the
open. This was a picture perfect gap close. This breakout above the 48.20 was
further confirmed by the NQU2 breaking above minor resistance at the 980
decade level. But it’s the ESU2 chart I’d like you to take a peek at…
Notice how the gap close
breakout — the 900 century level “arm wrestle†— was showing the bulls running
at 1:05pm. The action of stocks and futures are intertwined. Neglecting that
relationship can cost you profitable trades!
The Role of the Indicators
After the “lines and
levels†have been marked I use my indicators to filter the breakouts (or
breakdowns). The other tool in my arsenal is the S&P Pit Squawk Box. I tune it
out most of the day but when I am ready to pull the trigger I will listen to the
tape for momentum, size, and players. Using the squawk is another “indicatorâ€
and like any indicator it requires a personal style and practice.
The Moving Averages allow
me to gauge the chop. I don’t like sideways, dizzy moving average lines. The
12/36 combo also works nicely as “dynamic†support and resistance line for my
trading. The MACD Histogram is my final filter. Very simply I use the “0â€
level as my signal line: above “0†long trades only, below “0†short trades
only. It is not a hard-and-fast rule but as I mentioned above, it is a guide.
Go back and look at the breakout levels and the position of the moving averages
and MACD Histogram and make your own decision.