Today's Highest Probability Set-ups for Stocks, Futures, and Options

11/17/2007 12:00 am EST

Focus: COMMODITIES

John Carter

Author, Mastering the Trade

In his workshop, John Carter gave traders a thorough lesson on specific daytrading and intraday trading strategies, including internals, tick fades, TRIN extremes, capitalizing on gaps, and RSI trend reversals.

He discussed several important indicators such as net buying/net selling on the NYSE, put/call measure, and up/down volume on the NYSE.

John told traders that the first hour of the trading day sets the trend for the day. His strategy is to only take trades between 10:00 am - 3:30 pm EST, and his favorite time to trade is during lunch, when the market is quiet.

He commented that by using tick charts, charts that plot by time frames are irrelevant. He suggested highlighting 800, 1000, 1200, plus the corresponding negative values, and then setting alerts so you don’t have to miss signals. Anything below 600 ticks is noise; just ignore. Start paying attention at 800, and depending on the type of day it is, it may be an indication to fade the market. His specific trading advice:  

  • If long, his favorite exit is 1000 ticks
  • If short, his favorite exit is -1000 ticks
  • Look for how much time ticks are spending above or below zero line
  • 1000 ticks is not maintainable and prices will roll over

In the first half hour of the day, if all tick readings are below zero, that’s usually an indication that the market will trend down all day long.

John stated that he likes to use ticks in conjunction with other market charts and indicators, like pivots. He looks for a first test and second, too, if in conjunction with extreme tick reading.

He explained the put/call ratio and how to use it to determine tops and bottoms of the market. When the ratio is over one, it is often a bullish signal—a sign that there is an excessive amount of put buying and many times, people may also be shorting futures and stocks. The key is where the market closes, which will then determine if it is truly a bullish sign.

John also explained TRIN levels, noting that following TRIN is really good for folks who don’t watch the news and instead, rely on the charts. He cited the example of the London subway bombings of 2005, in which the TRIN declined from 3.5 to one. Many people panicked and sold, but it was actually indicating buying pressure, a bullish trend. The next day the market rallied about 150 points.

He suggested that you wait one-half hour after the market opens before trading based on TRIN. John also suggested several trading opportunities, including:

  • At the end of the day, TRIN over 1.5 results in a bounce the next day nine times out of ten
  • A close under .50 is way overbought

John closed his workshop, giving traders some tips to improve their trading skills—before risking their funds. He suggested setting up screens to show trends, put/call and ticks, and then spend a week looking at them for an hour at a time. Don’t put the prices up on the screen, but check the prices from time to time. In that way, you will learn to read the markets based on internals. Good advice—for novice, as well, as experienced traders.

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