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Here we are in mid-November. You may recall our previous 2015 Super Year videos that said the market would trend bullish by the end of 2015. As price climbed, new highs were met. With these new highs, we have new trading opportunities. Super Years – that is years ending in “5”, tend to perform bullishly.
What’s the market going to do now? What’s going to happen?
To demonstrate, John Paul uses a NinjaTrader daily chart and the December 2015 E-mini contract. With any good trading method, you must use specific rules. John Paul looks for the previous highest high (2110.50) and waits for a pullback (price dropping for about four consecutive days). Should you go long now? Not unless the trade validates. How does it validate? Take that recent high and the most recent lowest low. Then use the NinjaTrader Fib tool with a setting for 0%, 50%, and 100% to easily see where price needs to break the 50% level to validate the trade, so you can go long. Watch the video to see how he uses the Fib tool to accomplish this.
As a reminder, the next eight week Group Mentorship Program begins Dec. 8, 2015. Classes are twice a week: Tuesdays and Thursdays from 3 p.m. to 4 p.m. EST (New York Time). You will be coached live by John Paul on all of our trading action trading methods (about 10 total). All courses and software are included with lifetime licenses. Space is limited, so register early and get the first week’s ATO course and software ahead of time. Click here for information.
High frequency futures trader, Michael Coscia, has been found guilty on 12 accounts of fraud for “spoofing” market activity. He manipulated prices on the Chicago Mercantile Exchange by placing large, unfilled orders (spoofing) and placing smaller orders that were filled. He effectively created deficits in the market, allowing him to temporarily have some control over price in a specific direction. Predictable movement became quite profitable for Coscia.
Spoofing is an illegal practice. Corscia’s case was the first test of anti-spoofing law introduced by the 2010 Dodd Frank Act. High frequency and institutional traders watched the case closely to see if the law was even enforceable. This case is a landmark with potential use against others suspected of similar market deception.
Nine weeks of spoof trading CME futures markets in 2011 earning Coscia’s company $1.9 million. By flooding the market with huge orders that were never intended to be executed, his computer program was able to act within a few thousandths of a second to take advantage of the spoofs. Regular, small profits became a lucrative business.
Coscia’s defense attorney stated his client was clever, called his actions victimless, and suggested the large companies were at fault for their losses. Jurors needed only one hour to unanimously convict Coscia of illegal “bait and switch” tactics. He now faces up to 25 years in prison.
Experts believe Coscia was not a lone wolf – many more spoof traders are believed to be out there.
What do you think?
» Get the Trade Scalper Signals «
In this video, John Paul uses the Trade Scalper method live on the E-mini S&P. A small profit target and stop loss are used multiple times throughout the day. For this specific 1-min E-mini chart, he uses a 3 tick profit target and a 6 tick stop loss. The ATM strategy automatically places the target and stop. He enables the TextAndMarker setting so you can see the exact price at which he entered. The Trade Scalper method is fully explained – it’s not black box. The course provided after purchase fully discloses how to find these trades on your own manually, so you do not have to depend on the Trade Scalper software. The Trade Scalper software gives you entry signals and arrows to show you exactly where you should enter. His short trade gets tagged and filled very quickly, even for scalping. Coincidentally, the Atlas Line on a 5-min chart was providing additional confirmation to go short. Some traders use both methods like this for better trading. Remember, if you want to learn all the methods in one package, the eight week Mentorship Program is the best option – click here for details.
» Get the Atlas Line Signals «
John Paul adds the Atlas Line to his July 31, 2015 E-mini S&P chart to show you the live trades the software produces. The signals that you see in the video are the same for all Atlas Line users. Typically, he uses between 8-12 contracts, depending how comfortable he is with the market conditions. In this trade, the ATR was around 3 points. We like to use pre-configured ATM strategies because they allow quick selection of a commonly used profit target and stop loss. It’s very important to always have a profit target and stop loss in mind, otherwise you open yourself up to emotional decisions instead of price objectivity. The Long signal was given for 2100.75. The profit target and stop loss John Paul uses is based on what current market conditions can provide (as indicated by the ATR). Many traders use a fixed profit and risk strategy, which can get them into trouble. We have plenty of videos that explain exactly why John Paul uses certain profit targets and stops. For this trade, the profit expectation is around 10 to 12 ticks (based on the ATR). The stop, also based on the ATR, is double. Scary, right? But this is only a safety net in case there’s a sudden, and unlikely, catastrophic event. If the profit target does not get hit, we will most likely get out at a smaller loss, break even, or even small profit. You’re taught how to do these other stop strategies in the included live training session. Keep in mind that John Paul is fast-forwarding this video. The BarTimer normally counts down second by second, but you can see it’s sped up in order to show what occurred with the trade more quickly. This trade was good for +2.75 points.
The E-mini S&P, also called S&P E-mini, or simply E-mini, is an index futures security offered by the CME Group and regulated by the CME (Chicago Mercantile Exchange). The E-mini is considered a benchmark of US stock market performance because it consists of various Standard and Poor’s 500 large-cap stocks. On the news, you may see the S&P and wonder how it’s related to the E-mini. Essentially, the E-mini is 1/5 the full S&P that you see on the news. As a futures market, E-mini contracts expire every three months. A new contract is then traded.
Why do people trade the E-mini?
- Low trade costs and greater leverage compared to typical ETFs or stocks (as low as $300 to $500 in some cases, but we recommend a minimum of $4,000 to absorb consecutive losses and learning)
- Minimal bid-ask spread
- Can be traded via buying or selling (short or long)
- Good liquidity and size
- Fast trade executions because the market is entirely electronic
- Regulated by the U.S. CME
The smallest increment on an E-mini chart is called a tick. Each tick is worth $12.50. There are four ticks to a point. Therefore, a point is worth $50. Brokers typically charge less than $5.00 to execute (in and out, also called “round-turn”) each trade. This $5.00 is multiplied by the number of futures contracts being traded. Putting this all together, if you trade one contract and make a profit of 16 ticks, this equates to 4 points, or $200. Since this is one contract, your broker will take about $5.00 from that trade, so you’re left with $195. If you trade two contracts, your profit is $400 before commissions and $390 after commissions. Remember that contracts act as a multiplier.
The E-mini consists of quarterly contracts: March (ESH), June (ESM), September (ESU), and December (ESZ). Some trading platforms, such as NinjaTrader omit the contract month and denote the numerical month value instead. For example, the March contract becomes ES 03-15. On platforms like TradeStation, a trader can specify @ES to monitor price over all contract periods without having to “roll over” to a different period.
Other popular futures markets include the DOW (YM) NASDAQ (NW) and the Russell (TF).
At Day Trade to Win, we focus on intraday trading, which means we look for trades from market open to market close. We do not typically hold positions overnight, and this should certainly be the case for any traders who are trading on margin. In most cases, we hold trades no longer than 20 minutes. We are out of a trade sooner if we make profit via price hitting our profit target or if a stop loss is hit. A stop loss is a safety net price from which you will exit at a loss if price reaches it before hitting your profit target. Our stop loss and profit targets are mostly dynamic and based on market movement. Our trading methods make sense because we trade based on what a given marked can realistically provide.
To avoid costly mistakes beginner traders make, join our next Group Mentorship Program.
Yesterday, our support team received the following email from Danny in Niagara Falls, Canada. He had some questions for John Paul regarding the ABC method. See Danny’s email and John Paul’s response below.
Thanks for the kind words and glad you are enjoying the videos. I’ll try to put some new ones out soon. See my explanation and chart examples from yesterday.
The ABC Method can be very helpful in both finding entry opportunities and determining whether there’s a trend. In the charts below, US/Eastern time (currently EDT or UTC-4) is used. Remember to adjust if your time zone is different.
With the ABC Method, think about splitting the trading day into three periods. The trading section can begin at the U.S. market open at 9:30 a.m. US/Eastern or the London market open at 3:00 a.m. US/Eastern.
We’ll start with one vertical line at 9:30 US/Eastern followed by another vertical line at 12:00 p.m. US/Eastern. This is a 2.5 hour period. You can consider this a range, as it contains a highest high and lowest low of all data (candles) within 9:30 a.m. to 12:00 p.m. This is the A period.
If within the next (B) period, two 5-min candles close above or below the range of the A period, you can go either Long or Short on the close of the second candle. This must occur within the first 1.5 hours (by 1:30 p.m. US/Eastern) of the B period to be valid. Trending days usually break the A period.
The A Period
The B period begins with the same line you drew at 12:00 p.m. US/Eastern (the end of the A session). Remember to add a new line at 2:30 p.m. US/Eastern to conclude the B period. Yes, the B period is also 2.5 hours in duration.
The B Period
The same relationship occurs when comparing period B and period C for potential late-day rallies and breakouts. The C period needs to show two consecutive 5-min closing candles above or below the B range within the first hour of period C.
The C Period
The same relationship occurs during the London session A period, starting at 3:00 a.m. US/Eastern through 5:30 a.m. US/Eastern (2.5 hours). Then the B period occurs from 5:30 a.m. US/Eastern through 8:00 a.m. US/Eastern (2.5 hours). Then the C period occurs from 8:00 a.m. US/Eastern through 9:30 a.m. US/Eastern (only 1.5 hours).
The London Trading Session
Hopefully this clears up your understanding of the ABC method and how it can work with European markets. Remember that switching your cursor to a crosshair will help you easily identify the times on the time axis. Your profit target and stop loss should be relative to the volatility.
The best way to learn more about the ABC and all of our other trading methods is with our eight-week coaching program called Mentorship. Click here to find out more.
This week, the U.S. Department of Justice arrested trader Navinder Singh Sarao, who is believed to be partially responsible for the May 6, 2010 Flash Crash. U.S. prosecutors believe Singh weakened markets through manipulation to cause 2010’s 15 minutes of financial free fall chaos that brought the world’s biggest markets to their knees. His arrest has left regulators and investors very concerned.
How can one person have such influence? Sarao allegedly employed a technique called “spoofing” and “layering.” By placing and removing thousands of orders on the E-mini worth tens of millions of dollars over hundreds days outside the range of market price / execution, it is believed he was able to reduce the price of E-mini futures. Once price dropped and became imbalanced by the cycling of his algorithm during the trading day, he was able to sell contracts ahead of declines and buy them back before anticipated recovery.
On the day of the Flash Crash, prosecutors claim Sarao created vulnerability in the market by repeatedly placing large orders over several hours. It is said he caused close to $200 million worth of downward pressure on the E-mini S&P, thereby representing up to 29% of sell orders. A large trade from an unknown U.S. investor then contributed in causing the crash. As a result, other markets such as the Dow Jones industrial average, began a virtual free fall. The Dow dropped nearly 600 points in minutes. Eventually, the major indexes recovered. However, the confidence of ordinary Americans was shaken. In addition, the event has brought scrutiny to the nature of electronic trading and regulation; particularly that of high-frequency trading and the effectiveness of said regulation.
Over his five-year manipulative trading career, it is believed that Sarao made $40 million. During this time, the Chicago Mercantile Exchange (CME) tolerated Sarao’s alleged manipulation and market destabilization. As a direct result of the Flash Clash, $879,018 is his estimated profit.
Currently, Sarao is awaiting extradition. He was arrested by British authorities on Tuesday. The CFTC is seeking, “disgorgement, fines, and trading suspensions” related to wire and commodities fraud among other counts. His arrest was largely due to a private whistle-blower’s detective work and financial analysis of the Flash Crash, which was provided to the CFTC.
A month before the crash, Sarao created a corporate entity in the Caribbean called “Nav Sarao Miling Markets.” Also before the crash, the CME had questioned him about his trading activity. In response, Sarao called the exchange, and in an email to his own broker describing this, he told the exchange “to kiss my ass.”
What do you think?
Remember, the training in this video does not even scratch the surface of the trading techniques taught in the eight week coaching program known as Mentorship. A new Mentorship class starts today, April 22, 2015. Click here to find out more. We can get you up and running today with the first week’s materials.
Do you make intuitive guesses or blindly trade without having defined trading plan? For starters, it’s important to be aware of upcoming news events. John Paul shows you where to get a news indicator that will show you times high-priority news events will occur. You can then avoid the volatile conditions these news events usually cause. After the news volatility subsides, you can look for a trading opportunity as discussed in this video. Remember the market is a zero-sum game, trying to create equality with buyers and sellers. There is no frequent correlation with positively perceived news driving markets higher or negative news creating bearish conditions.
The Atlas Line produced a short signal at around 10 a.m. EDT. Why? Two consecutive candles plotted below the dashed Atlas Line. Price soon headed short, creating favorable conditions for this trade. If price was to later close twice above the line, then you’d see a long signal.
We know how John Paul uses the ATR to determine the profit target and stop loss on the E-mini. What about the 6E (Euro FX)? At around 40 min in, you’ll see how he performs the calculation by moving the decimal points over.
Later in this recording, you’ll learn some very important advice about trading with ranges and the 0%-50%-100% Fibonacci tool.
We often get asked about the difference between NinjaTrader’s Static SuperDOM and the Dynamic SuperDOM. For those of you unfamiliar with what a SuperDOM is, it’s NinjaTrader’s way of displaying the instrument’s currently traded price, bid buy and sell prices, and allows for order placement among other things. Some platforms call the DOM a price ladder or matrix.
What’s the difference?
In the following picture, we can see a Dynamic SuperDOM on the left and a Static SuperDOM on the right both set to the same instrument. Is there a visual difference? Yes! On the Static, the price rows are “static,” meaning the rows stay in place regardless of price movement. When price reaches the lower portion of the DOM and exceeds it, the Static price ladder is “climbed down”. The inverse is true when price rises to the highest rung of the price ladder. In comparison, the Dynamic DOM constantly shifts prices in each rung of the price ladder – it does not wait for price to reach the upper or lower limits of the ladder.
How do you tell them apart?
The Dynamic SuperDOM has a HOLD button on the top left. The HOLD button assists you with submitting and modifying orders. During volatile conditions, you can “freeze” the price movement. The button will then change to HELD.
Why are there two types of SuperDOMS?
The first reason is trader preference.
The second reason is that the Static SuperDOM uses patented technology from a company called Trading Technologies (TT). Quick history lesson – TT was granted patents after NinjaTrader already adopted the behaviour of the static SuperDOM. Since TT can blow the whistle on companies infringing on its static DOM patents, NinjaTrader was proactive and agreed with TT to charge NinjaTrader users $0.10 per side for trading futures via the Static SuperDOM. This fee and agreement has been established within NinjaTrader since 2006.
Do I get a choice between Dynamic and Static?
Some brokers may require use of one type of SuperDOM over another. We find that both are suitable, although we prefer the Dynamic SuperDOM because there are no extra fees to use it. In some cases, brokers will provide Static SuperDOM credits. Otherwise, the credits can be purchased from NinjaTrader – http://www.ninjatrader.com/purchase-transaction-credits.php
Here’s part two of the most recent webinar. Miss the first webinar? Click here to watch. First, we start off with a review of the Super Year. We already had a good trade with a retracement from the previous 50% level for about 22 points around March 16. If price breaks the most recent highs, John Paul expects for another good long trade. Don’t expect the market to go straight up! That’s why we use a large stop. The market rarely goes in one direction consistently. Therefore, your stop loss has to be large enough to allow for regular price movement. What about a time-based stop? Watch the video to find out.
You’ll also see the first Atlas Line signal of the day plotted live. It’s configured to play a doorbell sound when a Dbl Bar Long or Dbl Bar Short trade appears. The profit target for the first Atlas Line Dbl Bar Long is 2.25 points (rounded down from 2.4) or 2097.75. The first stop in place would be the catastrophic stop (4.5 points – 2x the ATR). If the profit target or catastrophic stop is not hit, then we’ll manage the trade by getting out at four candles (20 min.) on a 5-min chart. In 20 min. time, that could be a small profit, break-even, or loss. A prove-it stop is another type of stop whereby a closing candle on the opposite site is the point at which you close your position. You’ll have to watch the video to see if this trade works.
One of the things John Paul teaches in Power Price Action and Mentorship is trend identification. A trend on a 5-min chart looks different from trends on an hourly, daily, or weekly chart. For 5-min charts and the E-mini S&P, John Paul uses the 6/6 rule to identify trends. Six candles plus six points occurring is a trend. This is explained further in the video.
Near the end of the video, you’ll see how to calculate the ATR value on the 6E and how the Atlas Line performed.
Click here to find out more about our next Group Mentorship session that begins April 22, 2015. All courses and software are included.