April 4, 2011
Is this market too dangerous to day trade right now?
– How do we know when the market is too dangerous to keep trading?
o I need to be aware of when the market is getting too slow and sloppy to keep trading
o Failure to see the market personality change will usually result in losses at the end of the morning.
o My first job is to identify the personality of the market as soon as I can in the morning
o Watch the news for the day
o When is the last news event for today?
§ The market will slow down
o Is there any news this afternoon or tomorrow morning @ 830am?
§ The morning session will end earlier
o Now watch the right tools so you know when the market is slowing down and getting too difficult
o If you know the personality and you know when the news is, you can now use the correct tools
o Tools
§ Pace of Tape Indicator (measures the speed)
· When the speed slows down, we don’t want to trade
· Beware of lack of consistency in the speed at the end of the day
§ Average True Range
· Tells us how WIDE the trading ranges are
· The lower the reading the more challenging your trades will be
§ Time & Sales Window
· Looking for fewer BIG MONEY trades coming into the market
· Use your filtered time and sales window to look for BIG MONEY
· If you don’t see very many (this is where your knowledge of the early personality is vital) big money trades on the tape, you know the smart money has already gone to lunch.
§ Dollar Index
· Use the same tools, and this gives me a broad look at the overall condition of the markets we’re trading
· Is the pace of tape showing more red? Is it more consistently slow?
· Is the Average true range dropping?
· Reading tape…do I see fewer big money orders on the filtered time and sales window?
· If these tools on the DOLLAR are telling you to stop, now you know the markets you’re trading will also be difficult.
