Firstly I would like to wish Happy New Year to all our Safety in the Market traders. What a start to 2013 it has been, the U.S. safely avoided falling over the fiscal cliff (wasn’t that a big surprise, not). December 21 did not signal the end of days as the doomsayers had hoped and here we are in 2013 ready to keep trading and making profits - now that is a relief!
This month I’m going to follow on from the article and analysis on the E-mini NASDAQ Stock Index futures (ProfitSource code EN-SpotV) that we looked at in December. There is have been some volatile movements in the NASDAQ since I last wrote, with false breaks on both the up- and downside and I’ll talk more about false breaks later. For now let’s catch up on the market action in relation to last month’s analysis.
Chart 1 – E-mini NASDAQ (EN-SpotV) – Daily Bar Chart 50% Danger Zone Bigger Picture
click chart to enlarge
Chart 1 has us looking at the bigger picture ranges and ABC formations so we can utilise our understanding of the importance of milestones. Our first big picture ABC was on the upside where we had:
Point A – 2480.25 on 4 June 2012
Point B – 2871.75 on 21 September 2012
Point C – 2492.0 on 16 November 2012
Using this formation gave us an AB reference range of 391.0 points. By adding this range to our Point C (2492.0) we determined the 50% milestone (danger zone) to be 2711.0 as a place to watch.
Now I’ll jump in here and admit that I was initially looking for a short opportunities last article. Ultimately speculating on a big picture ABC on the downside with 21 September (2871.25) to 16 November (2492.0) ending up as an AB range on the downside and our Point C to hopefully come in somewhere around the 2711.0 danger zone level. Initially things looked good when the market (after making a false break to the downside) ran up and topped at 2713.75 on 19 December.
Well, it doesn’t take Einstein to work out that market is now above 2711.0! Here’s the good news though. Through the use of proper stop management strategies I managed to make quite a nice profit (whilst only a relatively short term trade) by going short out of the 19 December high. Let’s have a look in more detail and where things are at now. Chart 2 zooms in to the daily chart action to help us see more details.
Chart 2 – E-Mini NASDAQ (EN-SpotV) – Zooming into the Daily Bar Chart Action
click chart to enlarge
After writing about the 2711.0 danger zone last month, the market first moved down and on 17 December made the first false break of recent lows on the downside (circled in red). Then, in a short sharp move upward, the market took out the early December highs to make a top on 19 December, which, based on the closing price that day, looked like a false break on the upside (circled in red). So, using a simple confirmation of a swing top entry signal, the short signal was given on 20 December at 2687.25 as prices broke the low of 19 December
After 6 days down in a row and the fiscal cliff solution looming, a plan using tighter stops seemed a prudent strategy. Using a buy-on-stop order ‘1 tick’ above the high of each day is a conservative strategy for locking in profits after several days down in a row. This produced an exit price of 2630.75 on 31 December (1 tick above the high of 28 December). Not a bad result considering the market action since!
The bounce out of the 31 December low was very strong. In the end we had 3 days of consecutive higher tops to 3 January and prices pushed strongly through the 50% danger zone (2711.0) from our bigger picture work. We initially were watching 2711.0 as resistance, which now broken, we look for it to become potential support. Following 3 January we have seen 3 days of lower lows and the formation of a very nice ABC long pattern on the daily chart, where our Point B and entry stop are both above the 2711.0 level. This is a nice looking trade considering its position within the big picture above the 2711 Danger Zone from the bigger picture.
The E-Mini NASDAQ is quite a simple and well-priced contract for traders new to stock index futures. Some quick facts for new traders to the E-mini NASDAQ contract:
- ProfitSource Code: EN-SpotV
- Exchange Code: NQ
- Tick size: 0.25 index points
- Tick value: US$5 (each whole point is worth US$20)
- Contract months: March, June, September and December
- Commission: around US$8 per contract (total)
Once you have an education on the basics of a couple of types of futures contracts, particularly a cross section of contracts (for example a stock index, currency and commodity), you will find that picking up the necessary facts required to trade a contract to be relatively straightforward. Futures provide fantastic leverage, great liquidity, extremely low cost and are exchange traded.
I will be conducting and extremely well-priced 1-day online event in February to do with all things futures starting from the ground up. All students of my one-day class should be able to go away and start trading or paper trading the futures contract of their choice. We will spend some time also talking about the opportunities that lie within understanding false breaks. As with all online events the sessions will be recorded for students to review. If you have desire to learn more about the world of opportunity futures opens up for a trader, then I strongly recommend you join me in February. Keep and eye out for more information coming soon.
Keep your eye on the future...
Professional Derivatives Trader