Thursday, August 11, 2011

Daytrader Toolbox, EMA talk

We wanted to go a bit further into how we trade futures and use the EMA.  A couple of points:
  • The reason we watch 3 min, 5 min, 15 min, and 60 min simultaneously is because we always want to know which time-frame the market is keying off.   Our golden standard for 10AM to 1PM is usually the 5 min chart with 9/20EMA.  But we also often have an eye on the 15 min chart.
  • Most times the market responds to the EMAs/ pivot points on the $SPY, but not always.   Lately we’ve found the $ES_F has been leading.   Note that Pivot points on SPY/ES_F do not correspond with each other.
  • We’ve also often found that the ES trades better when we have no daily spots (stock alerts), which of course works well as a complement.  Volatility in stocks makes things very messy, but often gives excellent ES opportunities.
  • We try to only trade futures when the EMA is smooth ascending/descending.   For our way of trading if we only trade the ES_F when the EMA is non-wavy our consistency rate is excellent, and the exact inverse is true when it’s wavy/flat. 
We were keying off the 15 min on the ES_F today — note the perfect Indy set-up.  We run up fast to 1150 zone, base until 9 EMA catches up, and then rip up.  Excellent long risk/reward trade. 
SPY 5 min was also decent pattern, but not as clear.   Note how SPY constantly hammered on the EMA refusing to close under it, finding support on R1 – very bullish sign.

Second clear trade came at shorting R2 with a very tight stop on the ES_F for a decent scalp.   The only way though to take a short like this is when stock rips up from base extended from base, and into resistance.  If EMA had caught up we would never go short this pattern.  

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