One of the most perplexing things about Day trading is how a given set of rules, strategies or systems will perform great on one day, yet fail miserably the next . Traders are constantly frustrated to discover that their magic indicator or “Holy Grail” system fails to deliver consistent results.  The big problem they have is the inability to properly identify the prevailing market conditions. Many traders want to constantly participate in the market and that’s a huge mistake. This is why they will make profits, only to give them back later in a session. How could you potentially as a trader avoid this?

Obviously one of the worst times to trade is in a choppy market. An experienced trader can glance at a chart and see many clues as to the real time market conditions. Markets generally tend to make a considerable move and then shift into a period of consolidation. During this consolidation phase, the choppy conditions can occur. This is when price movement loses directional volatility. There are different strategies for detecting these choppy periods. One is to look to see if the price moves have shown strong follow through. For example, the price has shown some 20 to 30 tick moves in a fairly straight line as opposed to a twisting, zigzag up and down pattern.

You must know the optimum time to trade your given instrument. For example, if you’re a trader of stock indexes such as the S&P or the Russell you want to trade during times of strong volume. That volume is what propels price to its target quickly. The opening hour from 9:30 am to 10:30 am est. is one of the best times to trade these instruments.  After that time, the market can often tend to get choppy. The last hour between 3pm est. and 4 pm est. is also a good time to find some strong moves. So again, whatever you trade, you will probably find your best opportunities in the opening and closing hours of that market.

Knowing the days economic news event calendar is of the utmost importance as well.  For example, if there is a major news event at 10 am, the market may lack direction until that news is released. The first one to three minutes after the news is usually not a good time to trade. The initial reaction may send the price soaring up in the first few seconds only to inexplicably reverse violently a few moments later. Staying out of the market for at least the first five minutes after the news is often a good plan. By then, the true response to the news is often revealed. Sometimes the event will be an important economic speech that lasts for  a prolonged period of time. During a speech, the reactions can vary immensely. Perhaps the market likes some aspect early in the speech, but a few minutes later the speaker may utter something which causes a complete opposite effect. This again can trigger some very erratic moves which are extremely difficult to trade.

Along with assessing the current market conditions, a trader must also take inventory of his personal condition as well. If you are overly fatigued, anxious, distracted or agitated, then you should not trade. There is a good chance that your performance will suffer.

To sum it up, to be a long term trader, it is just as important to know when not to trade as it is to know when to pull the trigger.  If the market is showing less than optimal conditions or the trader is mentally and physically impaired in some way, the best choice is to stay on the sidelines. Always remember that cash is also a position.

Need help placing orders?   Full Service Futures Commodity Brokerage Services                800 771 6748        or             561 367 8686       for local

Trading futures and options involves substantial risk of loss, and is not suitable for all investors. Past performance in not necessarily indicative of future results.

Trading commodity futures spreads is another way to participate in markets that may exhibit an unusually wide or tight price differential. Commodity spreads measure the price difference between two different contracts over time or across different commodities.

A futures spread is the simultaneous purchase and sale of a single commodity or across different commodities (ie: Buy Corn vs. Sell Wheat) or same commodity with different expiration months (E.g.: Buy April Pork Bellies, Sell July Pork Bellies). All Spreads are placed simultaneously.

The goal is to generate a profit through favorable price differentials within a pre-determined time frame. There are two ways to profit from these opposing market positions:

- Buying the Spread: where we expect the price difference between the two contracts to increase.

- Selling the Spread: where we expect the price difference between the two contracts to decrease.

As in many strategies, there is more than one way to position oneself in spreads to take potential advantage of price differences in the underlying market(s). Generally speaking, spreads (Long and Short) are often considered less risky and less volatile than outright positions (either Long or Short) with the obvious tradeoff of lower profit margins. But, it can be as risky as an out right position.

One of the potential advantages of trading spreads is the lower margin requirements.

An investor who trades spreads is concerned about the price differential  between the open positions and not as concerned about the overall direction of the market. Based on past historical patterns a trader could look at price differentials and determine whether the price will narrow or widen between two futures.

There are four kinds of spreads available to traders:

- Intra-Commodity Spreads involve a Long and a Short position in the same market with different expiration months (ex: Jan Crude Oil vs. March Crude Oil)

- Inter-Commodity Spreads involve a Long and a Short position across two different commodities (ex: Corn vs. Wheat).

- Inter-Market Spreads involve a Long and a Short position on two different exchanges (ex: NY Crude Oil vs. Brent Crude).

- Finally, Supply-chain spreads involve taking positions in commodities while at different stages of production (ex: Crude Oil vs. Gasoline futures).

In our next offering, we will focus on how to spot trends for spreads and how to place the orders specifically.

Need help placing orders?   Full Service Futures Commodity Brokerage Services     800 771 6748  or 561 367 8686 for local

Trading futures and options involves substantial risk of loss, and is not suitable for all investors. Past performance in not necessarily indicative of future results. Fundamental factors, seasonal and weather trends, and current events may have already been factored into the markets. STRATEGIES USING COMBINATIONS OF POSITIONS, SUCH AS “SPREAD” AND “STRADDLE” POSITIONS, MAY BE AS RISKY AS TAKING SIMPLE “LONG” OR “SHORT” POSITIONS.

One strategy a trader may employ is to place stops using a volatility factor. Calculate the trading range for the first 30 minutes the market is open.  You may do this for any commodity.

 For example, the emini S&P on 11/28/2011 had a 6.25 trading range in the first 30 minutes.  The high was 1194.50, the low was 1188.25.  (See chart below).

 Using this range, a trader may take a long position and place a sell stop near the low of the range.  Conversely, a trader may take a short position and place a buy stop near the high of the range.  The strategy is to attempt to limit the risk of the trade to approximately 6 points.

 The futures trader may continue to use this strategy throughout the trading day, risking only the range created for each new 30 minute period.

 The trader may also use different time parameters such as an hour, or 45 minutes or other time frames which would all be calculated starting at the markets opening.

 We believe 30 minutes is the amount of time that it takes for the market to digest news and allow the bulls and bears time to dictate market direction

Need help placing orders?   Full Service Futures Commodity Brokerage Services     800 771 6748  or 561 367 8686 for local

Trading futures and options involves substantial risk of loss, and is not suitable for all investors. Past performance in not necessarily indicative of future results

THE USE OF STOP LOSS OR CONTINGENT ORDERS MAY NOT PROTECT PROFITS OR LIMIT LOSSES TO THE AMOUNT INTENTED. CERTAIN MARKET CONDITIONS MAY MAKE IT DIFFICULT OR IMPOSSIBLE TO EXECUTE SUCH ORDERS. PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.

Many traders become frustrated when the stops they place get elected only to watch as the market returns to the point of entry or the intended point of profit. In particular: Stops get elected and the markets return to their previous point of entry or sometimes the intended point of profit. 

At times this frustration leads them to the wrong conclusions about stops. For example, they discontinue using stops at all or place them too far away, hoping they won’t be elected. Both approaches could lead to less than satisfying results.   Stops should be based on volatility, support and resistance.  These parameters are always changing and therefore traders have to consistently watch and move their stops to fit risk tolerance and capital.

From my observations, reading and discussions I have noticed that more experienced futures traders know how to spot low risk trades hence they attempt to risk very little when it comes to their trade. They would risk anywhere from 2% to 5% of their capital. Professional traders and I refer to those that do trade profitably, do get stopped out and also do go through periods of prolonged draw-downs as well.  This should tell you that no one can make the right decision all the time. To be more specific: Any given methodology cannot withstand all market conditions; therefore it is important to use stops to minimize on losses where there is a mismatch between methodology and market conditions. Even if you choose to stop periodically until such time 

You have to consider the following:  in my honest opinion the difference between professionals and beginners is the ability to place stops technically and not on their risk tolerance or nominal amounts. This could make a big difference for a trader. The ability to look at a chart and determine support/resistance, pivotal points, overbought/oversold, etc

Not using stops may lead a trader to trade on hope rather than on a disciplined trading strategy for managing risk.

Lastly, if you get stopped out, look at the price action after for observation of volatility in the hopes you can adjust it for the next trade. Try not to become frustrated about the trade because what happens to the market after the trade is completed is not relevant.

Trading is about managing risk and it is imperative to place your stops immediately after entering your trade. Your exit point should be determined before you enter a trade, and if the risk is not one you can afford or does not match your risk tolerance you should consider skipping it.  Look at risk before reward on any planned entry to the market.

In the next blog I will illustrate how to determine the potential size of the trade in terms of reward and risk.

Part 2 for click here:  Stop losses for Futures Trader

 If you need help placing orders please contact us at http://optimusfutures.com/commodity-futures-phone-execution.htm

Trading futures and options involves substantial risk of loss, and is not suitable for all investors. Past performance in not necessarily indicative of future results

THE USE OF STOP LOSS OR CONTINGENT ORDERS MAY NOT PROTECT PROFITS OR LIMIT LOSSES TO THE AMOUNT INTENTED. CERTAIN MARKET CONDITIONS MAY MAKE IT DIFFICULT OR IMPOSSIBLE TO EXECUTE SUCH ORDERS. PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.

Instead of guessing the possible magnitude of a market correction, or listening to news reports or opinions, I suggest looking at a particular markets historical pattern of corrections for a possible signal as to future direction.

I have chosen the gold as an example because it is a talked about  and seems to get lots of news coverage. My opinion is that regardless of all the fundamentals that people associate with gold, as a hedge against inflation, etc it still does go through high volatility periods, long ended corrections, and choppy sideways markets.

I have taken the gold chart and analyzed the percentage correction that gold has gone through. My point is clear: One has to look at the percentage correction historically instead of trying to “guess” whether a certain numerical price correction is reasonable.

I have denoted on the chart below points 1-5 between high and low points until the uptrend resumed.

Price Correction 1: High 1007.6 Low 926 – 8% correction

Price Correction 2: High 1236.7 Low 1058.1 – 14.44% correction

Price Correction 3: High 1272.60 Low 1184.9 – 6.9% correction

Price Correction 4: High 1438.2 Low 1328.5 – 7.63% correction

Price Correction 5: High 1573.2 Low 1481 – 5.87% Correction

This is just a reference point that you can use as a historical perspective when it comes to corrections. However, keep in mind that this is just a reference and future corrections could be higher or lower.  As I said in the beginning, in my opinion a quantitative approach could be better than intuition when analyzing the markets.

Trading futures and options involves substantial risk of loss, and is not suitable for all investors. Past performance in not necessarily indicative of future results. Fundamental factors, seasonal and weather trends, and current events may have already been factored into the markets.

Please click on the link below to enlarge chart. Please contact us for our broker assisted trading:http://optimusfutures.com/commodity-futures-phone-execution.htm

We’ve seen a steady decline in corn prices since the dramatic rise we saw throughout the early part of August, peaking on the 18th. This declining trend initially spurred by the recent news coming out of Greece and the questions of the Euro Zone’s stability as a whole, looks to be showing some temporary relief. The USDA’s larger than expected inventories report earlier this month seems to have had little effect on this upward trend and the fact that we’re near a key resistance line is a promising indicator of underlying strength.  The question at this point is whether this is simply a profit-taking rally or if this bullish trend will continue.

According to Fibonacci analysis we’re at a resistance line here at the 38.2% level, and that’s why we’re seeing some consolidation. If the market can push pass this level, we could see this bull market continue on for some time. Otherwise, this could just be a temporary rally, and any downward movement from here would form a bearish flag. Keep in mind that the long-term trend has been one of steay rising prices, with sharp rallies fueled by fundamental news such as the widely-opposed daily limit hike approved in mid-August and the record-breaking rally on the USDA’s lower than expected inventory estimates in the early part of June.

Key Things

• In our opinion Greek insolvency is driving the volatility we’re seeing in the markets.
• Corn is currently consolidating around the 38.2% retracement level.
• The USDA has forecasted larger than expected inventories.
• In our opinion Any move down or up from here, is the likely trend for the next move.

Trading futures and options involves substantial risk of loss, and is not suitable for all investors. Past performance in not necessarily indicative of future results. Fundamental factors, seasonal and weather trends, and current events may have already been factored into the markets.

Please click on the link below to enlarge chart. Please contact us for our broker assisted trading: http://optimusfutures.com/commodity-futures-phone-execution.htm

In the earlier part of the week the bulls were out in full swing with talks of too much Corn and too little Soybeans. Investors were warned that the outlook was bullish as too many US farmers had planted Corn as opposed to Soybeans due to the fact that Soybeans have the least profit margins of any cash crop. It was rumored that Brazil had failed to keep pace with record demand, and the biggest decline in years would be coming to an end.

However, yesterday we saw Soy testing recent lows after a strong one-day rally retracing more than 61.8% of its largest decline in more than two years. What could be forming here is a double bottom chart pattern, pointing to a strong upward trend.

Watch out though, production in Argentina, Brazil, and China could turn this rally into a bearish flag. Soy is the cheapest crop to plant, as opposed to corn or wheat, and the credit crunch is still alive and well in the agricultural sector. The rains are back as well, El Nino is expected to dump some much needed rain over Argentina’s growing regions throughout the month of November, just in time for planting. And farmers in South America know that that US Farmers have opted for more expensive cash crops, meaning a less-than-exceptional US harvest would put the world’s eyes on their Soybean supply.

Ultimately it’s a question of supply and demand, with recent declining prices being fueled by concerns of slowing growth and a possible bullish opportunity if the supply concerns have any merit. Watch this $1225 price level, it’s a strong support line, and where the market moves from here, could be the consensus.

Key Features

• Soy is rumored to not be keeping with rising demand, however it’s still the cheapest crop for farmers to sell, and we believe the credit crunch is far from over.
• We’re currently seeing the biggest decline in Soy prices in two years, as production has been steadily outpacing population growth and there is mounting concern that slowing growth could weaken demand.

Trading futures and options involves substantial risk of loss, and is not suitable for all investors. Past performance in not necessarily indicative of future results. Fundamental factors, seasonal and weather trends, and current events may have already been factored into the markets.

Please click on the link below to enlarge chart. Please contact us for our broker assisted trading: http://optimusfutures.com/commodity-futures-phone-execution.htm

The Euro Zone has been hit with concerns over the solvency of European banks, Greece’s ability pay its debt and the future of the continent as a whole. It looks like the ongoing news flow has taken its toll on the Euro and caused a downward trend.

I have drawn a Fibonacci line from the top to the bottom to illustrate how Fibonacci lines could be used as guidance when large extended moves occur.  Fibonacci could possibly point to retracement levels, support and resistance in such instances and could be used as a stand-alone or an added tool to your methodology.

There are only 2 things that I would like to point out here:

1)      We have achieved the 50% retracement level from the bottom. This could serve as target after long extended moves in my opinion

2)      If the 38.20 support level is broken, it could signal a downward trend.

Trading futures and options involves substantial risk of loss and is not suitable for all investors.  Past performance is not necessarily indicative of future results.  Fundamental factors, seasonal and weather trends, and current events may have already been factored into the markets.

Please click on the link below to enlarge chart. Please contact us for our broker assisted trading: http://optimusfutures.com/commodity-futures-phone-execution.htm

I have captured here 4 rectangles that seem to show that we are in a range on the S&P Emini.  Like many ranges, they could be imprecise however a picture emerges of support and resistance.   Now we are in the 4^th rectangle (4^th from the left) where we have to estimate where the market could go. There is a likelihood that we have hit a resistance level at 1220-1230.  This may be a good place to short the market as the break to the downside creates a possibility that the market fills the hourly gap back down to the 1170 level.

However, an argument could be made that a reversal from the 1190 level could lead to another momentum based rally surpassing the 1230 level and creating the possibility of reaching the 1250-1260 level. The market is held steady overnight despite the disappointing sales figures from AAPL. I tend to think that most breakouts could be “fake” because breakouts are neither precise nor lengthy time wise.

Therefore if you have a long bias you might consider waiting for the 1246 to get enough momentum to reach 1260. Ideally, a break of 1230 would start acting as support as oppose to resistance if we see continues bounces from the 1230 to the upside.

Trading futures and options involves substantial risk of loss and is not suitable for all investors.  Past performance is not necessarily indicative of future results.  Fundamental factors, seasonal and weather trends, and current events may have already been factored into the markets.

Please click on the link below to enlarge chart. Please contact us for our broker assisted trading: http://optimusfutures.com/commodity-futures-phone-execution.htm