A Professional Approach to Trading Futures

[PA3142]

Hi Steve
Interesting to start (properly) reading your thread and your analysis. Always interested in seeing that 10 traders look at the same asset and there are 11 opinions 🙂

On the MES i had 2 strikes (1 small loss and 1 win)

Going to try and download your thread as a file and read on paper (still old school on reading)

Thanks

 

[steven46]

Hello

I hope you are able to find something useful in my posts
Let me know of any questions and I will try to help (if possible)

Good Luck

 

[steven46]

Good Morning London & Euro Traders
It is about 11am in The City

Weekly Prep Part 1 Recap of the Front Half of the Week

This is our Recap of the Weekly Price action
It is divided into a "Front Half" and a "Back Half"
Professionals organize these weekly charts so that they present
an opportunity to identify re-occurring patterns, and once
this becomes apparent and identifiable, they can anticipate
and trade successive days with confidence.

From this chart we also evaluate price action, for example in the chart
below you may notice that price is moved down strongly, to a point
where buyers (buy volume) comes in. This is standard in the industry
and is to be expected. The old descriptors are "Pump & Dump" or
(conversely) "Dump & Pump"

There is a lot to learn here, if one were to take the time to investigate
they would at some point see that there is a structure and a logic that goes with
that structure. Traders who learn this, have an edge that is durable because it is
based on behavior, rather than popularized indicators or Internet gurus.
Our analysis is taken from an approach called "Adaptive Markets Hypothesis"

We attach the chart below (Part 1 of 2)

Now we will see if anyone sees the potential

Good luck

 

[steven46]

And for this chart we add Volume Profiles for each day

Readers should now see a pattern that is consistent
with "Trading Range" behavior, and the size of the range
is significant. Institutions like this type of behavior because
they can make money on the buy side AND the sell side

If there is interest we can discuss further, otherwise we will
assume this is well known

Good luck

 

[steven46]

Good Morning London & Euro Traders
It is 10:26 in The City

This is part 2 of our Weekly Preparation
Process. We divide the week into 2 parts
Monday to Wednesday, and Wednesday to Friday
Monday's range creates an "Initial Balance" and a Template
that an be used throughout the week

On this chart we add Anchored VWAP. Using this tool, and with
benefit of simple analysis, we look for evidence of repetitive behavior
(Trending or Trading Range, Tests of Previous levels of Support & Resistance
and Important Price Levels). Our goal is to identify prices where buyers
or sellers react, or are forced to react (because they are trapped).

Conclusion

From our analysis to date, we know that institutions have moved the markets
lower, and then, trapped them at specific prices, to force them to "give up"
and reverse, creating a continuation of the trend higher. The trend however is
getting to be "overbought" and we think that in the near future it will pullback
and even reverse if economic conditions in the US and Euro countries deteriorate.

The final step is creation of a trading plan. We have covered this step in
previous posts

Good Luck

 

[steven46]

I received several interesting questions about "Anchored VWAP". I have been using it for
quite a long time, and originally it was software that I wrote for a different platform
I like a book by Brian Shannon whose title is "Maximum Trading Gains with Anchored
VWAP" written in 2023

As regards the use of Anchored VWAP on my weekly chart, the bottom line is that most of the
prices are above the lines (all of them) and that of itself, suggests that participants who bought
this week are currently "in the money" while sellers who took short positions this week are less
fortunate and might be either trapped short or have negative VAR positions.

For those who have an interest in becoming "informed", you should know that professionals have
access to imbalance information by way of periodic messaging from the exchanges during Asia, London
and finally, right before the US open. I doubt anyone here has the money to pay for that service however
the institutions do, and they use that data to decide how to structure their buys and sells at the formal
open. I cover this subject in my class.

Good Luck

 

[steven46]

Posting this at 2am London Time so that traders who follow the London
and NY Sessions of the S&P 500 Futures can review and react when they start
their day.

Here is an example of the preliminary prediction we provide for students, for the coming week
----------------------------------------------------

The E-Mini S&P 500 Future continuous contract is currently trading around $6,879.50, having closed the previous week with modest gains. Here's a breakdown of what to expect:

• Consolidation: The primary driver for muted action is the lack of major economic reports scheduled for release on Monday, December 8. The significant events, including the US Consumer Inflation Expectations and the Federal Reserve's rate decision, are later in the week. This typically leads to a "wait-and-see" approach from institutional investors, keeping the price in a relatively tight range.
• Lack of Overnight Volatility: Overnight futures action has been little changed, with S&P 500 futures inching only slightly higher on Sunday evening after the major indexes logged their second straight weekly gain. This continuation of stability suggests no major surprises over the weekend that would trigger a gap open or significant directional bias.
• Technical Levels: The market has strong support and resistance levels from last week's trading range of approximately $6,856.75 to $6,905.00. Traders should look for the open to respect these boundaries unless new, unexpected information emerges

Important note

• Potential for Intraday Swings: While the open might be quiet, as the day progresses, we could see typical intraday volatility as participants jockey for position ahead of the week's key risk events. Watch for potential quick moves if any minor news crosses the wire or large orders are executed in low volume periods.

Previous price action (New York Session) is characterized as follows

1) Trading Range Open (overlapping candles with prominent tails).

2) Breaking our of the range (lower) first to Test a Key Reference (Previous Charts Identify "Key References")

3) At each Downside "Test" Institutions came in to buy (with increased volume) trapping sellers.

4) Buyers remain "in control" currently. Mobilizing significant "buy volume" at critical Downside tests.

5) Institutional Sellers have been unwilling to commit enough sell volume to offset buyers

PREDICTION

Until we see more "high impact" economic news, we expect previous pattern to continue.

 

[steven46]

Here is a markup of the London Open

Notice the pattern. Initial move lower, followed by two (2) reversal attempts higher

The important lesson to learn are that skilled traders can make money both ways
in most market conditions (and they do). The way they do that is to understand
the underlying (repetitive) patterns, THEN to anticipate the repetition, to identify
the setups and to structure the trades to fit the conditions (these were "scalps")
If you read the previous comment, you might notice that we suggest that London
and New York are likely to be less volatile (smaller range) therefore traders will be
scalping, until later in the session or upon release of new economic or world news.

On the attached chart, look at how price bounces off the Anchored VWAP. Do you think
that is coincidence. Hardly, it is the result of algos activated by computer programs that
monitor these tools. Commercial traders from smaller firms know this and they follow along
taking scalp trades while they wait.

From a strategic standpoint it is often the case that professionals will monitor and evaluate
price action on a Monday, then make their REAL decisions as to market direction based on
what they see, and what they hear regarding news. This is practice is how the term ("whisper number")
came into common use in professional circles.


Good luck

 

[steven46]

I received an interesting question regarding the importance of how charts are displayed.

Turns out that HOW the data is displayed is critical. The trader needs to have two (2) "views"
of the data, one that shows a higher time frame (I choose 15 minutes), and to identify setups,
as shorter time frame, that will depend on the time of day (session time).

For my work I choose either a chart with 2 or 3 minute candles for trades taken during the first 30 minutes
I define trend or trading range using the 15 minute chart, and identify setups on the shorter time frame chart.
This allows me to make better decisions regarding early price action, then if/when the market breaks out higher
or lower, I can see it quickly and choose setups that are aligned with that trend.

The attached chart shows 15 minute candles and extends from the Asia Session through a 24 hour cycle

 

[steven46]

This is our preliminary comment for tomorrow's New York Session of the S&P 500 Futures

Economic News Prior to, (and after) the Open

• Lack of Pre-Market Economic Data: There are no high-impact economic reports scheduled before the New York open. The main report of the day, the JOLTS Job Openings, is a moderately high-impact report released at 10:00 AM EST, which could cause a brief reaction.
• Technical Levels: The S&P 500 is currently near record highs, with technical resistance around 6,900 and strong support at the 6,800-6,820 levels. The market may trade within this range as it awaits a catalyst for a decisive breakout.
• "Wait and See" Mode: General market sentiment suggests a "wait and see" approach for the first half of the week due to the high-stakes Fed meeting and upcoming key corporate earnings reports (Oracle, Broadcom).

In summary, expect limited major directional movement early in the session, with potential for some volatility around the 10:00 AM EST JOLTS release, as the market builds anticipation for Wednesday's main event.

 

[steven46]

And our Weekly Cycle Chart which shows the "Back Half" (Wed through Friday),
advanced by one day (showing Monday's price action).

As can be seen, the S&P 500 Futures Market has been exhibiting "Trading Range"
Behavior and the pattern seems to be an early move down to test a "Key Reference"
then a reversal, trapping sellers.

As mentioned, professionals know that they can make money on both sides of a Trading
Range. Institutions simply wait for price to "come back" to them, and they structure trades
with that in mind. We are all looking at the same charts, so there are no secrets. Once you
see the pattern and map it out, it becomes clear how it all works. The difficulty is identifying
WHEN the reversals are going to happen (during which session).

 

[steven46]

Good Evening London & Euro Traders Everywhere
It is 7:52 in The City

Today's S&P 500 Futures Market open was a "Gift"
Based on the pattern we identified previously, we observed a
test and reversal during the London Session. On the weekly chart below
look to the right to see the test and reversal at about 10:30am London time.
Then several hours later, just prior to the NY open, we see price return to
test that price level again. We look for a long entry based on the premise that
the market will react similarly. We outline the next steps below.

Step one (1) is to identify the opportunity PRIOR TO the open
we do that during our pre-open review of the Weekly Cycle Chart

Step two (2) is to setup up our charts to trade the open. As mentioned
previously we have been using a chart with 2 min or 3 min candles,
then when the NY Session opens, we are looking for a long entry at the open.

Step three (3), as the market opens we identify a setup for a long entry. We identify
a "risk bar" which tells us where to place our stoploss, then as price moves higher
we enter long and manage the position, monitoring volume and price in relation to
a "Key Reference". As long as price stays above that reference and volume confirms
we stay long.

Final Comment

To do this requires the following

1) Do the analysis (accurately)
2) At the Open, identify the opportunity
3) Execute and manage (while controlling your emotions)

Its simple but certainly not easy. If a trader can do this consistently and with
a reasonable amount of accuracy, they have put the odds in their favor, just
as the institutions do every day. Its about obtaining and managing your edge.

Good luck

 

[steven46]

We teach struggling traders to "stop the bleeding" by
restricting their trades to a few "Timed" opportunities,
this based on the principle that overtrading is one of the
primary problems that retail traders face.

Here is an example of our "Last Hour" trade, one that professionals
also label as "Last Call". We start our observation of price at 8pm London
time and the recommended exit is within an hour maximum.

The attached chart should be self explanatory

Good Luck

 

[steven46]

Hello London & Euro Traders

After the NY session ends, it is important to create what we call an "After Action"
report. Attached below is the chart upon which we base that report. The report
tries to answer the following questions.

1) Who is in Control (Buyers or Sellers)
2) Which Side was "Trapped" prior to the current session, and which side is trapped now?
3) Is there a Recognizable Repetitive Pattern,
4) Once we can identify a pattern (also known as a "Market inefficiency") How can we
use that information to create an "Reasonable Trading Plan" for the next session?

When readers look at this chart, please note, that we start with the previous session and we
incorporate Volume Profile to show the prices at which most of the volume traded (called "Nodes")
If you extend horizontal lines from those nodes you can see whether buyers or sellers acted
at those prices, and the result (trend or trading range).

We also incorporate CVD (Cumulative Volume Delta) to show the effect of volume coming in
at specific prices.

Finally, we add Anchored VWAP to show in an objective fashion, which side was/or is, "In The Money"

It takes a while to learn this system but once you have it internalized, what you have is an understanding
of "Market Logic", that creates a substantial edge, that can be adapted to every conceivable change
in the market. Whatever the conditions, you can adapt to them.. This is very different than trying to
find an indicator that provides good signals one day, then fails the next.


Good Luck

 

[steven46]

This chart show the last of our tools called the "Volatility Box"
This technique allows us to visually tell whether the market range is
expanding, contracting or staying the same (inside bar, outside bar or doji)
and at which price (or prices) buyers or sellers may be trapped.
We can also infer price action to be trend, trading range or some combination of
the two.

Detail oriented traders may notice that this chart references price as far back
as the previous "Pivot" Wednesday (bottom left side of the chart)

Good luck

 

[steven46]

Good Afternoon London & Euro Traders
where the time is 12:30ish

Here is our preliminary prediction for the NY Session of the
S&P500 Futures, set to open in two (2) hours

• Initial Volatility (2:30pm - 3:30pm): There will likely be a sharp, possibly volatile, reaction in futures markets immediately following the 8:30 AM EST release of the Employment Cost Index (ECI) report. The market will react to whether the report confirms, contradicts, or modifies the current high expectation (around 90%) for a 25 basis-point rate cut.
• "Holding Pattern" / Consolidation (5:30pm - 7:00pm): Once the New York session opens, the market is expected to quickly settle into a low-volume, low-volatility period. Traders and large institutional investors will largely be on the sidelines, reluctant to place significant directional bets ahead of the potentially market-moving clarity from the Fed's official statement and Jerome Powell's press conference. This period may be characterized by:
  • Tight Range Trading: The futures price will likely oscillate within a narrow, defined horizontal range.
  • • Lack of Momentum: Even if the ECI report suggested a clear direction, momentum is likely to fade as the market awaits the more significant news.
    • Choppy/Trappy Moves: The price action might feature "trappy" moves with limited follow-through, catching impatient traders on both the long and short sides
  • Expansion & High Volatility (After 10pm): The quiet period is expected to end abruptly at 10:00pm with the release of the FOMC statement, followed by the press conference at 2:30 PM EST. This is when the significant volatility is expected, and the market will likely break out of its earlier tight range with high volume and a strong directional move, depending on the Fed's language and future guidance (dot plot).
• So basically a trading range day, and because of the lack of follow through, reasonably to assume the following

1) If this preliminary prediction is accurate, avoid swing trades (short hold time on any entry)
2) Scalp trades of two (2) to perhaps as much as five (5) points
3) Entries taken as near as possible to tests of Key References including VWAP and/or 9ema

Good luck

 

[PA3142]

Hi Steven46
Im reading the thread (carefully as i take notes of new/interesting ideas). Quick question: From the start of day how do you define a trading basis (long/short for the start of the day) - or do you go by the overnight flow ?
Thanks

 

[steven46]

Hello, and thanks for your important question

I use a specific routine that begins with analysis of Economic News

Economic Calendar and News Flow

I start by checking the economic calendar for the day's scheduled data releases, as these are known volatility events that can instantly shift market direction.

• Key data points might include the latest inflation reports or employment data, which can heavily influence Federal Reserve policy expectations and market trajectory.
• Overnight news from global markets (Asia and Europe sessions) is crucial. Positive or negative sentiment in these markets often carries over to the U.S. open, providing an early peek into potential domestic market sentiment.
• Central bank communication, such as a Federal Reserve official's press conference, can introduce significant volatility, requiring me to brace for potential rapid price changes and adjust risk management accordingly.

Then I proceed to analyze the Overnight Price Action

2. Overnight Price Action and Gap Analysis
I analyze the price action in the S&P 500 futures (ES) during the extended trading hours (4:00 PM ET close to the 9:30 AM ET open).

• Gap-fill analysis is a primary tool. If the price opens above the previous session's close (as it did this morning at 558.59), I might adopt a slight bearish bias targeting a move back to the close price (filling the gap). Conversely, an open below the close suggests a bullish bias targeting the upside.
• Volume analysis during the pre-market period is important; heavy volume accompanying a gap or a pre-market move suggests stronger conviction behind that price action.

From that data I make a decision as to which side is in control and which side might be "trapped"

3. Identifying Key Technical Levels

Before the open, I identify critical support and resistance levels using a combination of technical indicators and historical price data.

• Anchored VWAP is an important. I use as one measure of "Fair Value" and to determine (in part) which side is in control
• Moving Average, a 9 period Exponential Moving Average (EMA), is used to gauge dynamic support and resistance levels.
• I also analyze the Volume Profile to pinpoint areas of high volume, which often act as strong support or resistance zones. These predetermined levels serve as my entry and exit points for trade execution once the market opens.

In my class I go into all of this in detail including how Volume Profile and Anchored VWAP can be used together to obtain significant levels
to trade from

In the near future I will be livestreaming my preparation and trading (for a short while) so that interested Retail traders can see if my
system works for them.

Good luck

 

[steven46]

Hello London & Euro Traders

Here is my preliminary prediction for tomorrow's NY Session of the S&P 500
Futures

Based on experience, we predict that the S&P 500 futures (ES) will likely see continued upward momentum with some volatility, driven by the Federal Reserve's less hawkish-than-expected tone regarding future rate cuts. The 0.25% interest rate reduction was already largely priced into the market, but the accompanying statement and Fed Chair's comments are the key drivers of the post-announcement rally seen today.

• Initial Momentum: We closed strongly higher today, with the S&P 500 near a record high. Overnight and early trading should carry some of this positive sentiment, potentially pushing futures toward new highs as the "Santa Rally" narrative gains traction.
• Key Levels and Potential Pullbacks: The market will likely test new support and resistance levels. A key factor is the high degree of division within the FOMC, with three dissenting votes on the decision. This internal disagreement could introduce volatility. If early gains are not supported by fresh buying volume, a technical pullback might occur as some traders take profits.
• Focus on Economic Data: Tomorrow's trading will also be influenced by any incoming economic data. The lack of recent official data due to a government shutdown has made markets more sensitive to guidance. Any deviation from the Fed's moderately optimistic GDP forecast could cause intraday shifts.

I am currently biased long, but cautiously.

• Bullish Bias: The expectation of lower borrowing costs in the future generally supports higher equity valuations. Therefore when trading the S&P 500 Futures, we will be looking our preferred "1-2-3" Setups and for "2nd Entries" on minor pullbacks.
• Managing Risk: We are also monitoring the 10-year Treasury yield, which dipped today. A significant reversal in yields could signal a re-evaluation of the Fed's forward guidance and introduce downside risk. Stop-loss orders will be tight to manage against potential "hawkish cut" realignments if market sentiment shifts back toward concerns about sticky inflation.

In summary, expect an upward-trending market tomorrow, but be prepared for sharper intraday corrections than usual due to lingering uncertainty about the long-term rate path. The market has priced in a single cut for next year, but some analysts are betting on two or more, which sets up a potential mismatch in expectations.

Good Luck