Great traders and true value investors know that it’s not only the return function that dictat...
How a Professional E-Mini Trader Finds Great Trades (Part 1)
08/23/2010 12:07 pm EST
We focus on two very important things at Market Geometry: Our first priority is to help people become consistently profitable traders; our second priority is to teach traders to think about and manage trades like a seasoned professional trader. I have been a professional trader for 40 years and have been mentoring other professional traders since 1987. I try to approach every person who approaches me to learn to become a better trader, no matter their level of experience, with those two goals in mind.
It always gives me a great deal of pleasure to watch someone I have been teaching mature into a full-time professional trader, and I am proud to say there are quite a few traders making a full-time living after either beginning their education with me, or after I spent time with them breaking down the barriers that had been keeping them from being consistently profitable.
One of the traders I am particularly proud of is Shane Blankenship. Shane spent many years asking questions on my free public forum, then took my basic Market Maps Seminar and eventually entered one-on-one mentoring with me. You can see Shane these days showing his charting and trading skills alongside mine each day at Market Geometry. He became such a wonderful chartist and trader that when I recently moved to Arizona, I brought him to Market Geometry to help me with the daily live mid-day Market Geometry mentoring sessions. He's been with me for six months and has become indispensable.
In this article, I am going to show you my re-creations of a week's worth of charting of the e- mini S&P that Shane showed members live in our mid-day sessions because they tell how a professional approaches the market, prepares and waits for a trade entry, and then executes the planned trade flawlessly. He embodies what I try to teach at Market Geometry, and I hope you find this set of charts and the story behind them from a recent week in the e-mini S&P futures interesting and informative. I know I did!
Shane generally charts only five-minute bar charts of the e-mini S&P futures. This means he is often staring at gaps created from the overnight action. Many traders do not like to deal with gaps or have trouble dealing with the meaning of them, but Shane finds that gaps carry a great deal of information that he can use when mapping a market.
I tell this next story to my students often to encourage them to think outside the box. In the early 1980s, one of the largest currency portfolio managers in the world kept three separate sets of data and charts for each major area of the world. He would keep data and charts on the New York currency markets, a separate set of data and charts on the Tokyo currency markets, and a separate set on the London markets. Odd as it sounds, he would take positions based on the eight hours of the New York markets, positions based on the Tokyo market hours, and positions based on the London markets, and yes, at times these positions conflicted. His thinking? Each of these money centers had flows that had to be dealt with and his data, charts, and positions were based on the flows for each of the three money centers.
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Back to Shane's chart: The majority of the money that flows through the US stock markets flows when the US cash markets are open, and they are best represented by charting day- only session charts. Another way to represent the flow of cash that is popular with larger traders like myself is to chart day-only futures that begin at 8:30 am CST and end at 3 pm CST, which mirrors the beginning and end of the New York Stock Exchange's main hours and the majority of the US stock market cash flows as well. I personally like to chart 13- minute or 39-minute day-only charts that begin at 8:30 am CST and end at 3 pm CST, because it gives me a unique look at the US stock market. (Yes, I ignore the final 15 minutes of trading of the e-mini S&P futures on these charts because the cash stock market has already closed.) But these are my re-recreations of Shane's charts:
As the week opens and Shane prepares his charts, you can see that the market left five days of price action above the current price action on day-only charts. This formation, until closed, weighs heavily on the markets, and you can see that price sold off quite sharply on the following two opens. This chart ends on Friday's close.
Shane begins by connecting the extremes of the open gap, using a simple down-sloping trend line.
Next he looks at the action from the last two days of the prior week and notices an up-sloping simple trend line that connects three pivots (a multi-pivot line) and adds that to his chart.
Now he begins to add potentially important details to his market map. First, he makes a copy of the red, down-sloping simple trend line and transfers it to the morning's high of the same day and notices it catches the close of the day as well. He leaves this new parallel simple trend line on the chart and measures the distance between the two lines.
Can you guess why he would be interested in the distance between the two down-sloping parallel lines?
Continued tomorrow in part 2…By Tim Morge of MarketGeometry.com
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