Tuesday, December 19, 2006

Daytrading Russell 2000 Futures

Today I started my morning routine as usual - set my alerts, and bring up the charts on some items of interest to draw out more support/resistance levels. Once the market started, I was left sitting there waiting - waiting for something to go off. Eventually, I had short alerts go off on CROX and MDC. However, I wanted to know what the tone of this market was, so I just let both of them go through my alert price without making any trade. Sure enough, within a few minutes, both stocks bounced back above the alert price. I also had short alerts on BOT and AMR, but those two bounced back up as well. So today's gap down was met with support from the "buy the dippers", and the gaps from all 4 indicies (Russell 2k, SP500, Dow and Nasdaq) were eventually filled.

I looked at the usual suspects (AKAM, AAPL, BIDU, RIMM, GOOG) for any possible options play, but most of them looked like they wanted to fill the gap and no more (except maybe AKAM, but I wasn't prepared to daytrade AKAM calls). Today looked like a day strictly for daytrading, and not swing trading. I couldn't find any decent swing setups.

So, before long, my attention wandered over to the futures. I mentioned before that I tried a futures trade to get my feet wet. Today, I did more than just that, I became fully immersed.

I also had a couple more scalps that I could not fit into the chart above. I also took a few scalps at the Nasdaq futures (NQ), but found myself more comfortable with the Russell 2k futures (ER2).

Clearly I overtraded. However, I began to get into the rhythm of ER2's price patterns and behaviour, and it turned out to be profitable (4 losses, 9 winners), so I can't say that the overtrading was all bad. In fact, I had a mini-win streak going at one point, and that certainly felt good.

A few notes:

  • The four horizontal lines helped me a lot to identify support/resistance zones. They were not all drawn at the same time. The top one was drawn @10AM, the next one down was drawn @11AM, the bottom one was drawn @1145AM, and the last one was drawn @1230PM (times used are according to the chart).
  • The 9/19 EMA trendline also helped to identify the directional movements
  • I also had a 5min. chart of ER2 that I was looking at at the same time, overlaid with the actual Russell2K Index to help me identify potential congestion and mini-reversal points. I also had charts of the EMini-Dow, and the E-Mini Nasdaq up. Even then, it was still hard to identify reversals.
  • At certain times, what used to work no longer worked - support was breached and then came back up, resistance was broken and then came back down, there were no NR dummy bars, trendlines were no longer reliable, etc. Sometimes, the anti-trend play would work, and sometimes it would not work. You had to be quick to adapt to what was working.
  • The red circles identify what I felt were the higher-probability, lower risk play. There were only 2 high-probability trades for the whole day - first one was a short on the failure to break above the 19d EMA line (short @787.30). 783.50 was identified as the place to cover the trade, but after thinking about it, it would have been more realistic to cover on the break above that candle, which was 784.60-ish. The next decent play was the break above 787.80, close @791.
If I had to do this over again, and in order to cut down on the number of trades, I would wait until I had at least one horizontal line identified before making any trades.
I'm actually not sure if I will regularly trade the ER2, I will have to think about it overnight.


Anonymous said...

You mentioned you couldn't find any decent swing setup. How do you usually look for such swing setup? And in your opinion, what kind of criteria fulfilled would you consider it to be decent? Thx


Phileo said...

Hi Learner,

I have devoted a whole post to your two questions. Let me know if you still have any questions.