My Favorite Futures Setups By John F. Carter www.tradethemarkets.com
Recognizing Momentum Incredibly easy to do in hindsight.
Get in Before the Move? I m a big believer in not chasing markets. By the time a market starts moving, it s too late. Just admit that you missed it and start looking for the next setup. Don t worry: there will always be another setup!
Starts with a Squeeze A market is either building up momentum for a push, or it is backing and filling. A squeeze is a trigger for a POTENTIAL momentum trade. Not all squeezes are created equal. In fact, some long squeezes are actually short signals and vice versa. Let s understand how this works.
High Volatility vs. Low Volatility A high-volatility market represents a lot of day trading opportunities. But it does NOT represent a lot of swing trading opportunities the train has already left the station. For most swings, you want to get into a position during low volatility and hold as it switches back into high-volatility mode. www.tradethemarkets.com 5
The Squeeze Tells You When You Have Low Enough Volatility to Start Building a Position. 6 www.tradethemarkets.com
Add Momentum to Give You a Heads Up on Market Direction as the Market Transitions from Low Volatility to High Volatility www.tradethemarkets.com 7
Add Momentum to Give You a Heads Up on Market Direction as the Market Transitions from Low Volatility to High Volatility www.tradethemarkets.com 8
Managing the Trade Once you are in the trade, what s the best way to get out? Remember anyone and everyone is really good at getting INTO a trade. The difference between people who do this for a living and those who don t? Those who do this for a living are experts at getting OUT of a trade, whether for a loss or a gain. www.tradethemarkets.com 9
Managing the Trade I like to manage my exits using price action. The TTM Trend highlights bars to tell me whether the action of the prior six bars represents a bullish or bearish bias. I use this to look for changes in sentiment, on all time frames, to exit my trades. www.tradethemarkets.com 10
TTM Trend How It Works 11 www.tradethemarkets.com
Quick Recap on TTM Trend Superior to Single Bar analysis. Refers back to the prior six bars to collect extended data on order flow. Blue bars indicate sustained buying pressure, indicating that the average closing price of the prior six bars is in the upper 50% of the trading range. (Selling pressure = lower 50%) Red bars indicate sustained selling www.tradethemarkets.com 12 pressure.
Not Momentum The rest of the squeezes on the previous charts are NOT momentum trades. Yes, they will move the markets, but they are lacking one key piece of the puzzle to qualify as full-blown momentum trades. Let s look at the waves...
The TTM Wave Indicator This is an introduction to a wave-based timing indicator that was developed over the past decade. The theory behind wave movement is very basic to physical nature and human nature. For example, in the physical realm, ocean tides flow in and flow out in a very timely manner. Tides are governed by waves. They start small and increase in size. As a student of nature, I have observed similar cyclical patterns in human behavior. It s often subtle, yet very relevant. When it comes to behavior in trading, the same patterns appear. Are all of these cycles related? It appears so. Although they vary in amplitude and duration, a cycle is a cycle is a cycle. I have represented these cycles as wave algorithms. You will see from the charts in this presentation just how these natural waves occur. And because some investors are drawn to particular stocks, they create unique wave trading patterns for those stocks. The design and purpose of this new wave indicator is to objectively identify the waves that investors have uniquely created. You will be the first to see the wave change and trade it to your advantage.
This is a tick Tick chart of the ES. Notice the wave crossing below the zero line at ES 1174. This is a SHORT entry.
This is a 13-minute chart of the ES. SHORT at the first arrow and COVER at the second arrow.
Simple Waves When the wave crosses the zero line to the upside, it fires off a long signal. When the wave crosses the zero line to the downside, it fires off a short signal. In many instances, it is an early-warning system.
The last three charts were simple crossover wave patterns. In the following charts, you will see how these simple patterns are part of larger wave patterns. As a trading tool, the larger wave patterns will make it easier for you to make decisions about buying and selling.
There are three large wave patterns: A Wave B Wave C Wave
The wave in this chart is called the A Wave. It is a combination of three short-term waves that are identified as WHITE, ORANGE, and GREEN. When the WHITE wave crosses above the zero line (red arrows), it s a BUY. When the ORANGE and GREEN waves cross above the zero line, you stay in the trade until the WHITE wave crosses back below the zero line (yellow arrows). This is a 21-minute chart of ES. A Wave
The wave in this chart is called the B Wave. It is a combination of three long-term waves that are identified as BLUE, PURPLE, and BROWN. When the BLUE wave crosses below the zero line, it is a SHORT. When the PURPLE and BROWN waves cross below the zero line, you stay in the trade. The longer B Wave makes it easier to see price direction when the shorter A Wave is giving confusing signals. Note the up and down A Wave action inside the yellow circle compared to the clear B Wave SHORT signal (yellow arrow). This is a 13-minute chart of ES. A Wave B Wave
The last wave to be introduced is the C Wave. It has a different function than the A Wave and B Wave. It can be used as a directional anchor. For example, in this 55-minute chart of ES, the C Wave gives you a LONG signal for 30 days (inside yellow oval). During this time period, if you ignored all the SHORT signals from the A Wave and B Wave, and only took the LONG signals as A Wave and B Wave crossed above the zero line, you would have been in sync with the market flow. This would have given you a higher-probability trade. A Wave B Wave C Wave
Review of All the Wave Patterns A Wave is a SHORT-term wave signal that can be traded on its own or used in conjunction with the B Wave. B Wave is a LONG-term wave signal that can be used by itself or instead of the A Wave when the A Wave isn t giving clear signals. C Wave gives you a directional anchor. If you stay on the side of the market, in any time frame, using the C Wave as an anchor, you increase the probability of a profitable trade. The next five graphs will show you trade setups using all three wave patterns.
This is a 5-minute chart of Goldman Sachs, March 25-26, 2010. Notice the WHITE Wave (#1) in A Wave crossing below the zero line, followed by the ORANGE and GREEN Waves crossing below zero. This was followed by the BLUE Wave (#2) in B Wave crossing below zero and then the PURPLE and BROWN Waves below zero. As the entire B Wave goes below the zero line, C Wave (#3) confirms the directional move. This was a very nice option play for 6 points on GS. 1 A 2 B 3 C
SUMMARY This was a presentation of a wave-based timing indicator. The 3 large waves are A Wave, B Wave, and C Wave. The A Wave consists of three short-term waves: White, Orange and Green. The B Wave consists of three long-term waves: Blue, Purple and Brown. The C Wave is used as a directional anchor. You can trade the A Wave and the B Wave, and use the C Wave as the directional anchor. The waves fire off a Long signal when they cross above the zero line. The waves fire off a Short signal when they cross below the zero line. When all waves go either above or below the zero line, it is a very strong signal. This system can be used in all time frames, for day trading, swing trading, or position trading. Each stock has its own wave personality. Look for that wave and trade it. This system can be used to trade stocks, indices, ETFs, and futures. Enjoy this new TTM Wave Timing System. Remember, once you start using this system, you become part of the WAVE.
For day trading, I primarily use tick charts that are part of the Fibonacci Sequence. 1 2 3 5 8 13 21 34 55 89 144 233 377 610 987 1597 2584 4181 6765 10946 17711 28657 144 to 987 are best for day trading. Beyond that we are into swing trades. Before that is scalping.
Not Momentum The C Wave is the driver. On the smaller time frames, if the squeeze fires in the opposite direction of the C Wave, IT IS NOT A MOMENTUM TRADE! If you are a pure momentum trader, you pass and wait for another opportunity. If, however, you like RTM, then it s actually a decent trading opportunity.
Not Momentum That is a key concept. Write it down. It will apply to every day trade you do.
Not Following Your Plan? One thing that gets in the way of pure momentum trades is PRICE and YOUR P&L. I challenge you to try something. Take a few momentum trades with price action removed and your P&L hidden.
Price? If it s a distraction, then get rid of it and just follow the signals..
Not Momentum Now you are just taking the signal and taking it for all it s worth until it peters out. Watching P&L and price action screws up day traders more than anything I know. Instead of trying to overcome this weakness, just remove it from your life.
Not Momentum Let s dig a little deeper into the NOT MOMENTUM day trade. A squeeze that fires off in the opposite direction of the C Wave is just like an extreme tick reading. You don t take that squeeze, you fade it, just like a 1,000-tick reading. FTFS Fade the False Squeeze
Not Momentum This is a critical day trading concept you just learned. I m not going to show 50 more examples it is what it is. Mark the previous slide and put it by your computer as it will save you a lot of frustration. It applies to all markets and all time frames, but especially to day trading.
This short squeeze fires off, it s a PASS. Not in alignment with C Wave. This long squeeze is a go alignment with C Wave, B is rising. A gets us in the squeeze early.
Even with one red dot, if the A Wave goes below zero, you can start sneaking in. By the time this squeeze fired off, the move was 60% over.
Although this short trade worked it was AGAINST the B & C Waves. Going WITH the B & C Waves is typically a bigger trade.
Hourly Euro FX A, B and C Waves are all in alignment above zero. You can start sneaking in early. Start buying after 5 red dots. By the time it fires off, you are fully in and don t have to chase.
Nice long squeeze but not enough dots to sneak in early. Picture-perfect setup fully in and ready to go by the time this fires off.
That Is What It s All About 1. Patience 2. Patience for those really good setups like we just saw on that last one on the previous slide for BIDU. 3. Those are the setups when it all comes together and you can sneak in early just before the volatility explodes. 4. It beats working for a living but you must be patient and wait!
That Is What It s All About 1. The best position you can have is NO POSITION. Your cash is now safe from the Wall Street professionals who are doing everything in their power to steal it from you. 2. The second best position is one where you ve waited patiently, like a cat stalking prey, for a great setup.
That Is What It s All About 1. If you don t have a great setup, then don t take the damned trade! 2. Why drive a used Pinto when you can drive a new Porsche? 3. Just be patient work on yourself EVERY DAY. The market is your psychologist and will give you constant feedback. 4. A knee-jerk trade is just like trying to hit a golf ball as hard as you can. That never works out in the long run.
That Is What It s All About 1. The biggest question I get is, How Can I Become More Disciplined? 2. Simple. WORK ON IT ON EVERY TRADE. 3. There is no magic cure for the discretionary trader. 4. If you have a larger account, you can hire someone to take the trades for you and manage your impulses. Your job is to follow the plan and ignore anything else I tell you even if I scream at you.
That Is What It s All About 1. If you can t do that, then man up (or woman up) and work on yourself on each and every trade. 2. If you can t do that, you will always experience inferior and even disastrous results. 3. If you can do that on each and every trade you will be ahead of 90% of the crowd. 4. If you are having problems with this, make it painful for you to break your rules. Physically painful jump in a pool in winter, etc. 5. Man up! Woman up! You can do this.
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