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How do you know that a market is to tightly range bound, or insufficiently active to trade effectively? I was talking to someone today who said they had done very little trading in the last two months. "The market is to flat. A lot of people are away on vacation. It is just not a good time to trade. Wait till after labor day"; he said. As I was trying to find a risk/reward justifiable entry in a seemingly one point ranging ES market today, I considered he might be right.
I like, at my level of experience, to be a rules based trader. IF x conditions exist; do Y. So I was trying to figure out what indicators might tell me to stay out of the market. Although I can clearly see that the market today is different than it was a few months ago, I am unsure which basic indicators I should use to make that decision. Or what the standards should be.
So, what are the basic indications, and standards that can tell me when a market is not really ripe for trading?
After all knowing when not to trade is just as important as knowing how to.
Thanks for any insights
Can you help answer these questions from other members on NexusFi?
You might be closer than you think. What can you clearly see? Define and describe it as best you can. Then, you should be able to mathematically describe it, and create your own indicator / measure of range bound activity.
I am making it sound simpler than it really it, but if your truly see the difference clearly, that is your quickest path to getting what you desire.
I was going to start answering, but then I realized there are a few more variables to be answered to give your x y answer:
1. We know you are looking at ES, but People will need to know what time frame you are looking at. I trade am working to trade ES on and Intraday timeframe from a 2min Short term trading chart and 6 min Long term confirmation chart myself. To me range bound will be based on minutes. Others trade based on Hourly, Daily, Monthly, well you get the picture. So what is your long term and short term. A good rule of thumb that was given to me was your long term perspective should be three times your short term for confirmation.
2. Your friend is right in many ways, as many traders in the ES market are gone during the month of AUGUST. If you want to spot when they come back then keep track of the volume on the day, but then again we don't even know if you are trading intraday yet. I keep track of ES Average True Range from 2MIN perspective, Volume Total (on open plus top of the hour, cash, and pit close), and Volume flow on an hourly basis to help gear any call as to market health.
3. Indications that the market is going up TICKS NASDAQ/NYSE above 500 to 1000 depending on Tick provider, Positive slope to both Adv/Decl Lines for NASDAQ/NYSE, Stochastic advance from off lows positive past 20, MACD cross up above zero. Now reverse all that for market going down.
4. Tightly Range Bound is a matter of perspective and will vary based on what you call tightly range bound. I know this sound circular, but so is the market. A mantra of something like "The Market Can Do Anything at Anytime" courtesy of Mark Douglas can save you a boatload of money. (For Me: Low Volume, a 50 period SMA on 2 min chart with slope less than 5%, and and ATR below .5 would be a good indication or range bound for Intraday)
5. Everyone trades differently, so part of this process is finding out what works best for you. Personally I switched back to SIM after losing a boatload of money doing it the wrong way. I am learning when the markets are ripe for the trading for me, but that may not be a ripe time for you.
6. You can help yourself by getting out there and trading a SIM account, plus keeping a daily journal on the site to keep yourself honest with yourself. Journaling will help you find your style and to learn to trade what the market gives you.
I am sure that if you mentioned if you are specifically talking Intraday and ES market plus what time frames that you will get even more input from others.
Attached are some of the market metrics I track that help me.
Just as they have proven that historically the number 1 tool for finding submarines over the years has been the human eye a couple of trend lines drawn on your chart will tell you a lot about where the market is going and if it is safe to trade.
To answer the question about my trading time frames here is my basic setup.
I normally trade of 2 charts with different time frames. The faster chart can be better for exact entry. A pull back can grab a better price. The time frames I use currently depend upon how I access the market. For example today I mostly used a 5 minute and a 1 minute because I feel a tighter range market needs a faster chart. It also needs tighter targets. In a good trending market I might use a trailing stop system. So I was mostly looking for a few ticks or at most a point today . But I really prefer not to use 1 minute because I think the noise level is higher. Also faster trading puts you more at odds with program traders (guessing)
I prefer something like 30 minute with a 5 minute. ( I think this two chart idea is from Elder)
Of course in the early morning I will check longer time frames. And I will also look at charts on the SP500 because the overnight ES data can be a little skewed. I do think it can provide excellent early morning opportunities because overnight ES diverges sometimes from the normal market. ( why this observation has not made me rich I can not say)
After trying lots of indicators and systems I have currently settled on the following indicators. One trend following indicator. I use something called "ergodic". This is just 3,5, 14 TSI that someone wrote a little code to color the histogram and mark some of the signal line cross overs. It has nothing to do with ergodics as a mathematical subject. I prefer it to MACD because it seems to catch the trends earlier. But that might have more to do with it being 14 periods than the indicator itself. I also use one oscillating indicator. The CCI. Specifically I use the the woodies CCI. It has a little more information. I also liked his idea of looking for patterns in the indicator. Which I think has value. But I am not a slave to his system. Also the colors help keep me alert and cheerful. Those are my primary indicators. My price charts also include an indicator that marks swing pivots. I also added the Edler impulse system as an overlay on the TSI/ergodic. It takes no space and just makes a color change at the base of the bar.
I look for simple things. Zero line and signal line crosses in the TSI. Overbought/ oversold CCI signals, as well as simple patterns like trend line breaks, and zero line crosses. I look for fib retracements on the price chart. And also for simple chart patterns. (Trend lines, channels, double tops, simple stuff) So mostly just 1 trend and 1 oscillating, with a few small additions.
I see I have written a lot. so I will stop. I wanted to answer clearly about what I am looking at. Lastly I will quickly add that I think the hardest thing for me is correctly setting my stops and targets in ways that seem correct from a risk/reward stand point. But that also can tolerate normal price fluctuation. (As well as my okay, but not large bank roll.
Sorry to take so long getting back to you on all of this. Looks like you already have a handle on the answer to your question.
As long as it is working I'd stick with what you are doing along with Money Management, Psychology, and actual Trading. There are loads of webinars available which can help here on futures.io (formerly BMT). Keeping records of your trades journaling will help you to find the answer that works for you. As you asked about the WHEN, well there are some set times that you can find from reading and observing the markets. For times to trade I actually at one time bought an overpriced clock that you can just copy the times off of to get rough idea of best times to trade in the market and what type of trading prevails. Cyber Clock - Cyber Trading University
Guess we are all on our own "Yellow Brick Road" with day trading and watching out for the Triple Witch, or learning how she can affect things, as well as the news.
For your exact situation I'd say look at the volumes to look and see if there are participants in the market when you're deciding whether to trade. A real nice way to think of it is, if the market like this is pushed around by big money then the big players need to be in the office. So what are the big players office hours? Take a look at what you feel are your answers for these questions and they'll push you in the right direction regarding when to trade or when you can expect markets to be more flat.
