Day trading futures contract is a tough business. Make sure we have a logical and well thought out plan to approach it. The following is the big picture outline of a day trading plan which I have partially developed and still being developed. The time we spend on developing the plan may well save us a lot more money than paying a “tuition fee” directly to the market. Early in my trading career, I paid this tuition fee. I am glad I am no longer paying it.
- ES futures on 1 minute bar.
- Among others, we are trading against the smartest and most well-capitalized players with superior technology support in this instrument.
- While not the most important, unless we want to join the latency arms race, speedy decision making process and execution is crucial. Automation of information processing is thus desirable.
- ES is considered the most efficient instrument with no obvious and persistent inefficiencies.
- Highly liquid instrument which allow for scalable trading plan.
- If executed properly, the plan may generate consistent profits on monthly basis. It may serve as the bread and butter strategies to mitigate the impact of drawdown from longer term strategies.
- The signals we get may help us in intraday trading on individual stocks.
- There are periods where most stocks move in tandem. Consequently, stock selection skills become less rewarded while market timing skills become well rewarded.
Potential Source of Profit
- Front-running liquidity demand of longer term players.
- Shifting liquidity (take now and provide later) for potentially trapped intraday players.
- Providing liquidity for impatient or forced player.
- Is there important market event expected in the near future? Does it make market players adopt a wait and see approach today?
- Are there upcoming economic /earnings reports before market opens?
- Is there an opening Gap. If there is, is it likely due to:
- economic reports, or
- earnings announcements, or
- decisive pre-market action.
- Is there evidence of liquidity demand from longer term players? Which direction? Will the day likely be trending or rotational?
- Trend and Directional Analysis
- What is the trend apparent to players on 15 minutes, 1 hour, daily and weekly bars?
- Are there directional patterns on 15 minutes, 1 hour, daily and weekly bars?
- Overbought / Oversold Evaluation
- Is the market overbought on 15 minutes, 1 hour, daily and weekly bars?
- Is the market oversold on 15 minutes, 1 hour, daily and weekly bars?
- Where are the key Support & Resistance areas? Is there confluence of Support & Resistance on different time frames?
- What is driving the market now: futures or individual stocks?
- Identify situations leading to one of the three potential profit source
- If there is, assess logical profit target and stop loss
- Assess reward and risk profile
- Allocate capital wisely.
- Define entry trigger.
- Set initial stop, target, and time exit.
Managing Open Position
- Adjust stops, targets, or exit early?
- Lengthen horizon for profitable trades?
- Scaled out of winning trades? Exit on Strength?