Trade execution is a much talked about subject within index future trading circles and proper execution is covered extensively in our trading room.
In this article we will profile some of the most utilized and popular signals traders add to their trading system and charting software to interpret market direction with the understanding traders are unique individuals and each one will have different preferences.
You may find by adding just one of these trading tools to your arsenal could have have a impact on your trading profitability. However, when you choose to implement a new indicator it is best to test it out in simulation before trading live.
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As a trader you have undoubtedly heard of support and resistance. Pivot points are used to determine areas of support and resistance and are very popular with futures traders. Pivot points can be calculated different ways, however the most utilized method is by averaging the day’s open, high, low, and close divided by 4. Pivot point support and resistance levels are an excellent choice for trading mini-sized index futures contracts and employed by many veteran traders.
Moving averages are another tool used by futures traders to profit, mostly with the day trading method rather than a scalp trading methodology. Many market players only use the 9 and 18 day moving averages however time frames are entirely up to the individual trader.
Although moving averages are lagging indicators they are excellent for determining the market environment and making sure you are on the right side of the trade. Some traders will use the 9 and 18 day moving average to enter the market in the morning when market direction is determined in some cases, and ride the trade all day until close, profiting handsomely.
Price extremes very often send short term traders into a frenzy when indicators reveal futures contracts are reaching overbought/oversold territory. The New York Tick is one such indicator. When showing plus or minus 1000, the market is said to be in severely overbought or oversold territory and a reversal is likely.
The TRIN is also another indicator used by traders to determine the mood of the market. When the TRIN has a reading of 1.0 or above, the market is generally moving down. With a reading below 1.0, the bulls are usually in control of the market.
RSI (Relative Strength Indicator)
The Relative Strength Indicator is another indicator very popular method for determining emini signals. With a range of 0 to 100, oversold conditions are present when the indicator is nearing zero on the RSI and overbought conditions exist when the indicator is nearing the 100 mark. Many traders use the RSI in conjunction with Japanese candlestick charts and moving averages.
The Stochastic is also used by traders to determine oversold and overbought conditions and like the RSI, is has a range of zero to one hundred. Oversold conditions are implied to exist when the Stochastic is nearing or goes below 30. Overbought conditions exist when the Stochastic is nearing or reaches 70. Just like the RSI, the Stochastic is used by index futures traders along with charting software, usually found at the bottom of the chart screen.
Overbought and oversold indicators can help determine market direction and possible reversals, but are better when used with other indicators rather than being used alone to determine signals on entry and exit.
Japanese Candlestick Charts
Candlestick charts have long been the choice of many traders as well as traders across all financial markets. Developed by a rice trader in the 17th century to predict rice prices, modern traders have incorporated them into many popular trading systems.
Easy to read with clearly define opening, high, low and closing levels, candlestick charts can be used across all time frames. Very popular with scalping traders, candlestick charts can be set to a one minute setting to follow even the smallest time frame. Although all traders do not employ candlestick charts, most traders would equate not using candlestick charts to driving a car blindfolded.
These are just a few of the tools utilized by successful index future traders to interpret market conditions and alert them to possible trade setups or when to exit the market. However, an trading system is a must to be successful, not only in the futures market but in any financial market.
Index futures traders live in a fluid and volatile environment where market noise is a constant. Learning to read signals for order entry and exit is part art and part science and is something that is learned only by experience and by implementing a proven trading system.
02:40 EminiTrader 1 comment