Day & Swing Trading Strategies

by John F. Carter www.TradeTheMarkets.com

Singapore, April 24, 2010

Disclaimer: Futures and options trading are speculative and involve risk of loss. The information in this seminar is taken from sources believed be li bl It i i d d for i f b li d to b reliable. I is intended f information and education i d d i only and is not guaranteed by the CME Group as to accuracy, completeness, nor any trading result. It is not intended as investment advice, nor does CME Group endorse or support any product or service represented in the presentation. The views and opinions offered by individuals or their associated firms in interactive seminars are solely those of the authors, and do not necessarily represent the views of the CME Group. The Rules & Regulations of the CME and CBOT remain the authoritative source on all current contract i th th it ti ll t t t specifications & regulations.

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Why Trade CME Group Futures and Options?

Lower capital requirements Lowercapitalrequirements thanequitymarketswith sameexposure Aroundtheclockmarkets Financialsafeguardsofa g regulatedexchange

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Futurestradingisnotsuitableforallinvestors,andinvolvestheriskofloss.Futuresarealeveragedinvestment,andbecauseonlyapercentageofacontractsvalueisrequiredtotrade,itispossibletolosemorethantheamountofmoneydepositedforafuturesposition.Therefore, tradersshouldonlyusefundsthattheycanaffordtolosewithoutaffectingtheirlifestyles.Andonlyaportionofthosefunds shouldbedevotedtoanyonetradebecausetheycannotexpecttoprofitoneverytrade.Allreferencestooptionsrefertooptionsonfutures.CMEGroupisa trademarkofCMEGroupInc.TheGlobelogo,CME,ChicagoMercantileExchange,EminiandGlobexaretrademarksofChicagoMercantileExchangeInc.CBOTandChicagoBoardofTradearetrademarksoftheBoardofTradeoftheCityofChicago.NYMEX,NewYorkMercantileExchange andClearPortaretrademarksofNewYorkMercantileExchangeInc.COMEXisatrademarkofCommodityExchangeInc.Copyright 2010CMEGroup.Allrightsreserved.

Out e Outline
Today I am discussing shorter term day trading techniques I employ i the f ll i CME h i l in h following Group Futures Contracts: Stock Indexes, Currency FX Interest Rates, Gold, Oil and FX, Rates Gold Agricultural contracts. These strategies have been developed over a 20+ year trading career, and are the same strategies I use as a CTA (Commodity Trading Advisor) and Principle in Razor Trading, a private money g g y management firm, as well as in trading my own personal account.
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Overall Strategy Ove a St ategy

There are two types of trading I focus on: directional di i l momentum trades and d d reversion to i the mean trades. Momentum trades require more attention, while M d i i hil reversion to the mean trading is more relaxed. I d not hedge my d trading positions. I pick a do h d day di ii i k direction and use position size and stop losses to minimize my losses and maximize my gains. gains Before you can learn how to make money trading, trading its important to realize how most people lose money.
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How to Lose Money Trading ow ose o ey ad g

People who lose money trading all do, amazingly, the same thing. thing First, they dont have a real plan. They just chase after the markets. Second, they over trade with market orders. Third, they usually have one trade that wipes out a large , y y p g percentage of their account value. Take small profits and hold onto big losers If you can do the opposite of the above, you will be ahead of 90% of the traders out there.
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How to Make Money Trading ow a e o ey ad g

Have a plan. Pick a specific market to trade on a specific time frame with a specific signal. Example, I signal Example I will trade the Euro FX Futures contract on an hourly chart using moving average crossovers as my entry and g g g y y exit signals. Dont over leverage. In day trading you shouldnt lose more than 5% of your account equity on any given h f i i trading day. If you hit that level, have the discipline to stop and live to fight another day. p g y Use limit orders. Limit orders force you to plan your trades while market orders encourage over trading and chasing the market. h i h k
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Day Trading Strategies ay ad g St ateg es

TTM Trend Changes 8/21 EMA (exponential moving average) crossovers Bollinger Band Squeezes

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TTM Trend

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TTM Trend
The "open," "high," "low," and "close" referred to are of the p g current bar. The prefix ha- indicates the corresponding heikinhaheikinashi modified values. The value haOpen is always set to the midpoint of the body of the previous bar, while haClose is computed as the average price of the current bar. The modified high, haHigh, is chosen as the bar high haHigh highest value of the set {real high (H), modified open (haOpen), and modified close (haClose)}. The same logic applies to the definition of the modified low: It is the lowest value in the set {real low (L), modified open (haOpen), and modified close (haClose)}.

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TTM Trend
Simplified, the blue bars represent bullish activity in a market (buying pressure) Red bars represent bearish activity in a market (selling pressure). I look for a change in trend with 2 opposing color bars. So if we have an uptrend with blue bars, I would need two red bars in a row to consider a change in trend and potential hedging situation.
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Daily Wheat Chart Hedging Opportunities

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Daily SOYBEAN Chart for longer term trends

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8/21EMACROSSBASICS

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Quick Recap on 8/21 EMA Cross

Described in detail in my book as the Propulsion Play. Great way to gain a solid entry into a downtrending or uptrending market. Enter on retracements to the 8 EMA E h EMA. 21 EMA makes a good trailing stop. Works well with the squeeze play.

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Squeeze play
What is a Squeeze play? A setup that studies a market that h gone i h di k h has into a quiet period. The study looks to predict which way it will y p y move when the quiet period is over.

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Bollinger Bands contract and expand with market volatilty

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Volatility Play Key Points

But how does a trader know if the next major move is going to be up or down? By using Bollinger Bands and Keltner y g g Channels with a Momentum Oscillator. Keltner Channels stay the same, while same Bollinger Bands expand and contract with volatility. volatility Momentum Oscillator indicates if market movement will be up or down.
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Looking for periods when the bollinger bands contract inside of the keltner channels

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Keltner Channels (red lines) stay in a constant range

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Volatility Play Key Points

When the Bollinger Bands go inside of the Keltner Channels, that is an alert that a trade is setting up. Once the Bollinger Bands come back outside o the Ke t e Channels, trade s t gge ed. of t e Keltner Channels, a t ade is triggered. C a es s, Use a Momentum Oscillator to tell you whether to go long or short. short If above zero, long. If below zero, short.
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AddMomentumtoGiveYouaHeadsuponMarketDirection AsthemarkettransitionsfromLowVolatilitytoHighVolatility

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Volatility Play Key Points

Developed this into an indicator to make it easier to read and follow. Red dots mean Bollinger Bands are trading g g inside of the Keltner Channels. First green dot after red dots mean a trade is triggered. If hi histogram is blue, go l i bl long, if red, go short. d h Stay in trade until histogram loses momentum y g by changing color for 2 bars in a row.
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AddMomentumtoGiveYouaHeadsuponMarketDirection AsthemarkettransitionsfromLowVolatilitytoHighVolatility

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YouCanTakeBothLongandShortSqueezes:

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Bring It All Together

Looking at all three strategies on one chart --

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Squeeze Exit Strategies

1. Loss of Momentum: 2 darker colored bars on the squeeze q histogram. PROS: This is typically the fastest exit signal. CONS: Can sometimes leave money on the table as market continues to run. 2. OR: TTM Trend Change: Bars are blue, then you get 2 red bars in a row, etc. Good middle of the road exit signal. signal 3. OR: 8/21 EMA Cross: PROS: Keeps you in a trade the longest of the three so you can maximize a trend. CON: This is the slowest exit signal so you can end up giving back gains.

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Best Exit Strategy is a Mix

1. 2. 3. 4. 5. 6.

Loss of Momentum: Close out 1/3. oss o o e t : C ose o t /3. TTM Trend Change: Close out 1/3. 8/21 EMA Cross Over: Close out 1/3. STOP: After first 1/3 off, move stop to your entry p point and then leave it alone. Why? Trailing stops often get hit BEFORE the trend has run its course. On a nice trend, these exit strategies will get you out of the trade BEFORE your stop is hit.
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Ok,sowhatabout5reddotsorMORE?Easy...BRACKET!

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When to Use Brackets

1. 1

2. 2

3.

4.

There needs to be at least 5 red dots to establish a trading range. Works better on 60 minute charts and above (swing trades) but can be used for day trading. Problem P bl on day trading is they can form so fast d di i h f f you dont have time to place the orders. Works great on currency futures and forex. forex.

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Use a TOP DOWN approach . . .

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Summary
These tools help to keep a trader and hedger on the right side of the market No reason to hedge a cash crop until there is a sell signal on the week charts Use i l U signals to ease i and out of h d d in d f hedged positions Let the charts tell you when its right to hedge just because the price seems too high doesnt mean it wont go higher
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Additional Information

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Sign up at TradeTheMarkets.com For free daily videos on the di i of the h direction f h financial markets.

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Book released 2006 English Version by McGraw Hill Chinese Version available at www.stockbooks.com.cn kb k

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Additional Questions
J John Carter support@tradethemarkets.com www.tradethemarkets.com +1 512-266-8659 512-266Phillip Futures Pte Ltd www.phillipfutures.com.sg CME Group www.cmegroup.com
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