Futures Day Trading - Patterns in The S&P 500 and E-mini Futures Contracts, PART 3

Thomas Cathey
 


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Identifying patterns that repeat in the futures market, then jumping on them, is what it's all about. These patterns can be rather complex, requiring an accumulated library of observations. The best way to do it is through your own intuition. There's no better computer trading program than your own trained mind.

More S&P 500 Futures Contract Observations:

"A break above the outer band channels on the 1-minute chart is always a good indication of exhaustion and a reasonable place to put on a short position - buy only after a second test failure to make new highs. "

Normally, the futures market taps the upper band on each swing and then gently retreats before the next tap. This is with whatever moving bands indicator you use. It means the trend is normal and may continue. BUT when time cycles peak in unison, they have extreme strength out of the ordinary and will rip through this same channel in a climax. Alone, it is just one indication, but combined with other patterns, it can be a powerful signal of exhaustion.

The point here is NOT necessarily looking to short, but to take final profits on your existing long futures position. Remember that if this market had the power to rip through a channel, it obviously was in a bull market of some time frame. A trade-able turn usually needs a double top and a secondary test. This secondary top test destined for a downturn almost never breaks through the channel again. To short this first spike is a premature entry and most tries end in frustration.

My rule for entries is, “the commodity futures market always gives you a second chance to get in. ” For example, when looking to get long, price will almost always stab down into the previous highs, giving you a chance to get on board. If not, just let it go.

Chasing futures markets is a bad habit that's tough to break. The reason is once in a while it works and you make a great score, reinforcing sloppy trading. But with patience, most of the time probability lets you have a second chance to get in on a dip. Chasing a market means higher risk and farther away stops when wrong. The funny part about this is the market doesn’t pin medals on those who get the exact first spike bottom. In fact, it usually makes them suffer and sit through double bottoms and spiked lows.

What adds insult to injury is the trader who later buys the second test spike of this bottom is usually IMMEDIATELY rewarded for his patience and control of greed. The market then takes off for the big move right away. It’s not fair, but that’s what often happens. It took me a long time to understand that picking the bottom on the first dive is a loser’s game, even if I am right. The big futures move starts after the second or third test and after you’ve had plenty of time to look at other indications to confirm the projected move. Strange but true. .

I have many more S&P 500 futures contract day trading patterns to talk about. For practice until next time, look for the ones we’ve discussed to this point. Look for more articles about market patterns soon.

Good trading!

There is substantial risk of loss trading futures and options and may not be suitable for all types of investors. Only risk capital should be used.

Thomas Cathey directs the managed futures division of Thomas Capital Management, LLC. Get FREE, his complete 44+ lesson, “Thomas Commodity Trading Course" and free weekly TimeLine Trade Alert emails by visiting: http://www.thomascapitalmanagement.com/commodity/welcome.htm The course is brand new and fun reading. . . a “street-wise" trading e-course. Visit the main Thomas Capital Management trading website at: http://www.ThomasCapitalManagement.com

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