Most commodity futures markets will tip their hand when it's time to reverse direction. Knowing how to read its language is the challenge. It's not easy. This is important information, since this is all you really need to know! Volatility is a clue as well as price synchronization. Read on about these unique observations. This information can be applied to most any freely traded market of any time frame.
Observation Trading Notes:
Keep watching the five minute futures chart with the horizontal line tool to see price support and resistance. Then confirm this action on the one-minute charts.
We have all seen the stair step action of a trending commodity futures market. Sometimes you can keep buying those corrective spike dips into the previous highs. I call it resting on the "hedge". The futures price will often fall back and find a cushion on the previous highs just like when you rest a board on a flat shrub. The board doesn't stop on the tallest tops, but settles into the average of these branch tops.
It's the same for price dips. Use your horizontal line tool to estimate where this average hedge level is and place a resting order there. With practice, you can sometimes grab the exact low of the correction, positioned for the next futures rally. It's a wonderful feeling when you get that price buffer from buying on a correction.
After your buy, if price starts getting squirrelly and starts to move through the hedge into the bottom range out of character, be alert for a break down and take your loss. Get out and wait for the next set up. If its a "high probability" trade based on other indications, you may considerer averaging down once first.
Observation:
Sometimes you will see a double volatility hump plus a volatility die on declines with volatility increases on rallies near a bottoming area. After this bullish action, look for a LONGER rally than normal, probably a big zigzag upwards on the five minute chart lasting 3++ hours. The first wave up struggles but is persistent, while the third wave up catches the shorts by surprise and is sharp and strong. It may break the previous 5-minute major pivot if it is a big turn with the main trend.
To understand this pattern you will need to develop an indicator tool for measuring futures price volatility. As we know, most trending price action tends to get more volatile on the rallies and dull on the declines. It's the converse in commodity bear markets. Remember that for futures day trading, a bull market may last only 60 minutes before switching over to a 60-minute bear market. We are talking short time frames here.
What I was seeing in this pattern was a CHANGE from the norm. A change from a repeating pattern in most any indicator is a clue. In this case we had a declining market. If the volatility starts to dry up on the declines and begins coming in on the rallies, it is evidence of a potential future change in trend. Some of the sharpest "surprise-surprise" futures rallies come after the price action dies on a bear decline.
In this case, the decline came down in two back-to-back sharp volatility peaks, and then died in two dull ones. I call this a "double die". This is a big change from the norm and needs to be put in context. Obviously, we would not be looking for a top after a sharp decline, so the market must be getting ready for some base building and preparation for the next advance.
As always, don't hang your hat on only one pattern or indication. You need a series of events building and leading up to the decision. It's a probability-numbers game. Over time, if you take many of these high probability futures trades, the odds will favor you. If you are wrong, try to minimize the loss as quickly as possible. Staying with a bad trade and hoping it will turn in your favor is a losing game. Over time, probability will favor you for taking small losses.
Most commodity futures markets will tip their hand when it's time to reverse direction. Knowing how to read its language is the challenge. It's not easy. This is important information, since this is all you really need to know! Volatility is a clue as well as price synchronization. Read on about these unique observations. This information can be applied to most any freely traded market of any time frame.
If you are real confident and have a good reason to stay in after a violation of the first low you bought, averaging in once and possibly twice can be a good technique. This is done into the next lower spike and it takes nerve to do. If the futures market then breaks the second low you just bought, liquidate and take some time off. Obviously you are not seeing well, trading well and need to get away for a while.
I have a rule that if I am feeling frustrated and cannot understand what is going on, it usually means I am fighting against the trend. The "trend" of the market can also be a chop. The frustration is a sign I am trying to force my will on the market. There are days to just stay away. It's so easy to give back money quickly when doing "drunken sailor" trades. Knowing when NOT to play the commodity futures contract and options game is as important as knowing when.
It's normal NOT to know what's going on all the time in the futures markets. Sometimes we think we need to understand what the market is doing at all times. But if you can let it go when it talks in strange tongues and patiently wait for it to talk to you again in your native language, you will be rewarded with fewer losses.
I can still remember a drunken sailor trade I made about 10 years ago. The S&P 500 futures contract had rallied all day and it was about 15 minutes before the close. It was a roaring bull market, up maybe 20 points that day. I was having a poor day trading and couldn't resist forcing one more try. This is usually a big mistake.
In those days you had to call the trading desk to place an order. The futures market was touching a big resistance area as shown by a technique I still use today. I figured it had to have a pull back. I didn't consider the power of the last half hour on a Friday afternoon, nor used the futures time cycles I use today.
I got the desk on the phone and said, "I want to sell one S&P 500 maxi at the market." The order guy said in a loud, surprised voice, "you wanna SELL one S&P ?????? !!!" I said, "Yes, I want to SELL one." He said, "are you sure you wanna SELL one?" For some reason, every time I got that particular guy on the phone I had a loser, so I told him to forget the order and hung up. As a fitting epitaph, the futures market blew through the highs and it would have been an instant loser. Yes, I've made plenty of stupid trades. I've had my fair share. I've made every mistake a trader can make.
As one wise commodity futures trader once said, your success will depend on how you lose and how it affects you. Some commodity traders are devastated, while others bounce back. But then, some never learn from their mistakes and keep blowing themselves out.
A trader that can pull the trigger, handle losses well and remain patient to take only the best set ups is the person to model yourself after. These trading skills will come and go. We are never always on top. Being human and a discretionary, intuitive commodity futures trader can sometimes be tough. But I wouldn't have it any other way.
Observation Trading Notes:
Keep watching the five minute futures chart with the horizontal line tool to see price support and resistance. Then confirm this action on the one-minute charts.
We have all seen the stair step action of a trending commodity futures market. Sometimes you can keep buying those corrective spike dips into the previous highs. I call it resting on the "hedge". The futures price will often fall back and find a cushion on the previous highs just like when you rest a board on a flat shrub. The board doesn't stop on the tallest tops, but settles into the average of these branch tops.
It's the same for price dips. Use your horizontal line tool to estimate where this average hedge level is and place a resting order there. With practice, you can sometimes grab the exact low of the correction, positioned for the next futures rally. It's a wonderful feeling when you get that price buffer from buying on a correction.
After your buy, if price starts getting squirrelly and starts to move through the hedge into the bottom range out of character, be alert for a break down and take your loss. Get out and wait for the next set up. If its a "high probability" trade based on other indications, you may considerer averaging down once first.
Observation:
Sometimes you will see a double volatility hump plus a volatility die on declines with volatility increases on rallies near a bottoming area. After this bullish action, look for a LONGER rally than normal, probably a big zigzag upwards on the five minute chart lasting 3++ hours. The first wave up struggles but is persistent, while the third wave up catches the shorts by surprise and is sharp and strong. It may break the previous 5-minute major pivot if it is a big turn with the main trend.
To understand this pattern you will need to develop an indicator tool for measuring futures price volatility. As we know, most trending price action tends to get more volatile on the rallies and dull on the declines. It's the converse in commodity bear markets. Remember that for futures day trading, a bull market may last only 60 minutes before switching over to a 60-minute bear market. We are talking short time frames here.
What I was seeing in this pattern was a CHANGE from the norm. A change from a repeating pattern in most any indicator is a clue. In this case we had a declining market. If the volatility starts to dry up on the declines and begins coming in on the rallies, it is evidence of a potential future change in trend. Some of the sharpest "surprise-surprise" futures rallies come after the price action dies on a bear decline.
In this case, the decline came down in two back-to-back sharp volatility peaks, and then died in two dull ones. I call this a "double die". This is a big change from the norm and needs to be put in context. Obviously, we would not be looking for a top after a sharp decline, so the market must be getting ready for some base building and preparation for the next advance.
As always, don't hang your hat on only one pattern or indication. You need a series of events building and leading up to the decision. It's a probability-numbers game. Over time, if you take many of these high probability futures trades, the odds will favor you. If you are wrong, try to minimize the loss as quickly as possible. Staying with a bad trade and hoping it will turn in your favor is a losing game. Over time, probability will favor you for taking small losses.
Most commodity futures markets will tip their hand when it's time to reverse direction. Knowing how to read its language is the challenge. It's not easy. This is important information, since this is all you really need to know! Volatility is a clue as well as price synchronization. Read on about these unique observations. This information can be applied to most any freely traded market of any time frame.
If you are real confident and have a good reason to stay in after a violation of the first low you bought, averaging in once and possibly twice can be a good technique. This is done into the next lower spike and it takes nerve to do. If the futures market then breaks the second low you just bought, liquidate and take some time off. Obviously you are not seeing well, trading well and need to get away for a while.
I have a rule that if I am feeling frustrated and cannot understand what is going on, it usually means I am fighting against the trend. The "trend" of the market can also be a chop. The frustration is a sign I am trying to force my will on the market. There are days to just stay away. It's so easy to give back money quickly when doing "drunken sailor" trades. Knowing when NOT to play the commodity futures contract and options game is as important as knowing when.
It's normal NOT to know what's going on all the time in the futures markets. Sometimes we think we need to understand what the market is doing at all times. But if you can let it go when it talks in strange tongues and patiently wait for it to talk to you again in your native language, you will be rewarded with fewer losses.
I can still remember a drunken sailor trade I made about 10 years ago. The S&P 500 futures contract had rallied all day and it was about 15 minutes before the close. It was a roaring bull market, up maybe 20 points that day. I was having a poor day trading and couldn't resist forcing one more try. This is usually a big mistake.
In those days you had to call the trading desk to place an order. The futures market was touching a big resistance area as shown by a technique I still use today. I figured it had to have a pull back. I didn't consider the power of the last half hour on a Friday afternoon, nor used the futures time cycles I use today.
I got the desk on the phone and said, "I want to sell one S&P 500 maxi at the market." The order guy said in a loud, surprised voice, "you wanna SELL one S&P ?????? !!!" I said, "Yes, I want to SELL one." He said, "are you sure you wanna SELL one?" For some reason, every time I got that particular guy on the phone I had a loser, so I told him to forget the order and hung up. As a fitting epitaph, the futures market blew through the highs and it would have been an instant loser. Yes, I've made plenty of stupid trades. I've had my fair share. I've made every mistake a trader can make.
As one wise commodity futures trader once said, your success will depend on how you lose and how it affects you. Some commodity traders are devastated, while others bounce back. But then, some never learn from their mistakes and keep blowing themselves out.
A trader that can pull the trigger, handle losses well and remain patient to take only the best set ups is the person to model yourself after. These trading skills will come and go. We are never always on top. Being human and a discretionary, intuitive commodity futures trader can sometimes be tough. But I wouldn't have it any other way.
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