Phasmatis here - Latin for Ghost In this journal I'll share a method appropriate for ES small traders (< $100k in account). It could be used by larger accounts to help improve timing, but it's designed to help the little guy. One of the great things about the ES is it's now being used by institutional traders. Unfortunately for them they can't disguise their trading very effectively. This creates a informational edge for the small trader. The way the normal futures market works is the larger player does in futures what they plan on doing in the cash market. For the ES this means big players Buy/Sell ES contracts before they do the same with stocks. By doing so they can reduce slippage as they trade their baskets of stocks. After they're done they unwind the futures position. This method of trading is all about understanding the battle between bulls and bears institutional players. To use it you'll need to track three items. You'll need the ES price, ES volume, and NYSE Tick. All must be available in chart format on a realtime basis. I start out each day with all set to 5 min. bars. I'll explain what I'm doing in a minute. Here's a chart of what I'm starting with.
What I'm interested in is the last two bars to the right. The previous 5 min. bar and the current bar. Everything else is ignored. For the volume I look at the current bar. Obviously it can only be used between the NYSE open and close. I wait out the first 10 min. of the day before trying to trade with this so that most of the NYSE stocks will be open and the Tick starts to have some meaningful numbers. The three elements; ES price, volume, and Tick can be thought of as market descriptors much like odometer, gas gauge, and gas pedal are used in a car. The ES is used to evaluate distance traveled like a odometer. The volume is used to indicate how much gas is flowing at the moment in time. The Tick is used to evaluate how hard we're pressing on the gas pedal. What I'm looking at is the relationship between the current bar and the previous bar for both ES and Tick. I'll explain the relationships with charts and my interpretation in the following posts. I'm running low on energy so I'm going to get some breakfast now. Back soon.
Got caught up with some phone calls that needed followup. I'll be back after the first two hours of trading.