by Thomas L. Busby
The market is kind of like an ocean, sometimes it’s flat, but sometimes, if you are there at the exact right time, you can catch a break and ride it for big profit. A lot of traders rely on trying to “pick the top” and get short, or sell the market. Of course, the same can be said for those who watch the market and buy the market if they believe we have made a low and are about to head higher. Since my early days at the major wire houses, I know this for a fact, that stuff might work some of the time, but I have found that it does not work all of the time. I trade the trend. Because after all, it’s the truth, so write this down… The Trend is Your Friend. One of the strategies I employ in my personal trading and in teaching others is the use of a 0-minute chart to capture moves in the market. The key is to use the best thirty-minute time frame to help frame the support and resistance of the market.
So…let’s take a moment to talk about how “time of day” factors into trading. There are some traders who believe that some of the more popular technical indicators, such as Stochastics, Bollinger Bands, and Elliott Wave…will show them the way to consistent profits. I have tried them all, year after yea, starting back in the early 90’s. Not one technical indicator ever showed me a consistent way to make money in the markets. Some technicals may have served as a “confirmation” of the trend, but none were ever as accurate as the one constant we all have as humans, as traders, and that is “time of day”.
Many traders spend countless hours studying charts, all in the pursuit of mastering technical analysis. Believe me when I say this: The key to the trade can be found in the price and the time. In order to achieve consistency in trading, the market should be viewed as a global market, a 24-hour machine that cranks up at 5:00pm Central on Sunday nights and runs virtually non-stop until Friday at 3:15pm. Rather than rely on moving averages or candle patterns, I use the price action in the E-mini S&P futures index as one of my top indicators for trend identification. I view the market as one moving entity by also factoring in other major indexes, such as the Dow E-Mini the NASDAQ E-mini, the German DAX Index, and the advance/decline line on the NYSE and NASDAQ exchanges. (Yes, I just gave you the keys to the castle in one line of text!)
Before we talk strategies, let’s talk about the power of leverage. The S&P E-mini, at $50.00 per point and traded on margin, is a trader’s paradise when you consider the leverage and accessibility it offers. Think of it like this: on Friday, September 4, 2009 the E-mini S&P opened up at 1001.50. To find the value of the E-mini simply multiply the price, 00.50, by the value per point, $50.00. In this example one contract on the S&P E-Mini index is worth $50,05.00 in stock value. As a trader you need to ask yourself where your money will be best spent. The SEC requires $25,000 in a stock ac-count to day trade stocks, where the futures indexes percentage-wise provide much greater leverage, dollar for dollar. In a futures account you can post approximately $2,500 in margin per contract and control over $50,000 of stock value. It’s a matter of simple math.
There are four key times that you can capture a pivot off the S&P E-mini to help identify if the market is moving higher or lower. I use the following times to gather these numbers, then treat them like a dot-to-dot to see how the market has traded in the overnight session. The times are: 3:30pm, 3:30am, 8:30am and 12:30pm (all times are central). The times all correspond to key changes in the market during the 24-hour session. The times can be correlated to shift changes in the market based on where the sun is located. I consider the 3:30pm opening price on the E-mini S&P in the afternoon to be the most pivotal price that is given in the 24-hour session. This is clearly the line in the sand between the bulls and the bears for that trading day. The next time that is important is when the sun has made the shift from Asia to Europe; in this segment the time and price I focus on is 3:30am in the US morning, this is number will carry me until the sunshine has moved to New York and the US stock market opens up at 8:30am. The final price I will consider is the opening price on the S&P E-mini at 12:30pm. This will mark the final time that the market may experience either an acceleration or a reversal of the trend that is in place at that specific time.
Figure A.1 below shows the S&P E-mini September contract on August 20 – 21, 2009. The chart is made up of 30-minute candles. Candle 1 represents the Asian overnight session; Candle 2 represents the time when Europe is in control; Candle 3 is the U.S. market once the NYSE opens, and Candle 4 is the U.S. afternoon session. In this 24-hour cycle, the S&P E-mini had an opening price at 3:30pm of 1004.50. This 0-minute candle is tagged in Figure A as a “”. This is the candle that sets the tone, from high to low, for the Asian session (Think: Where’s the sun?) Once the high or low of the noted blue 0-minute candle is broken, the market has a tendency to gain momentum and continue higher if the high is broken, and lower if the low is broke. The point here is that the market is made up of people and people are creatures of habit. These times have been incorporated in my approach to trading the global markets since 99, and continue to help me see not only the short-term trend, but have significantly improved my accuracy in noting major shift changes in the longer term trend.
Incorporating “time of day” into trading the futures indexes is paramount to success in trading. While there are technical indicators that can help improve your trading, the ultimate indicator for trend direction is the S&P E-mini Futures Index, and of course, the clock.
Figure A – The S&P E-mini Futures September contract on August 20-21, 2009 (30-minute candles)/ Note: Once the high or low of the blue candle is broken, a trend follows.
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