Earlier today our good friend and colleague, Danny Riley of https://mr-topstep.com shared a trading rule from the soon-to-be-released eBook, MrTopStep’s Trading Rules. Although the market did not follow the rule perfectly (it rarely if ever does), heeding the rule did prove profitable as the market did decline on the open and rally to a positive close.
MrTopStep’s Trading Rule “Counter Trend Friday.”
“This is one of MrTopStep’s most important trading rules and works best on a jobs Friday.
From the soon-to-be-released ebook, MrTopStep’s Trading Rules, Counter Trend Friday:
This trade works best on unemployment report Fridays when the S&P futures gap way up or down. You see oversized, pre-market GLOBEX volumes of 400k to 600k ES traded before the 8:30 open. This is what is called a “bus-too-full” trade (pg. 12).
Example: The S&P is down 6 handles at 06:00CT and then down another 8 or more handles after the jobs number is released. Now, the S&P is down 14 handles or more on the 08:30CT open. With over 400k eminis traded before the official open, we know that traders have already voted. Depending on the price action the tactic is to buy a sharply lower open or wait for another 2-5 handle drop just after the open.
You will often see that the opening range has already been predicted by the electronic market. Since it is Friday, most traders can’t hold the futures over the weekend. So they put in buy stops. With all the selling used up before the open, the ES will start to short cover into the buy stops that have been programmed already.
This will lift the offer (buy) side and may present a new buying opportunity. As always, timing is paramount. Just knowing why a move might be happening is not enough (unless you’re just a commentator). Traders have to plan their entry and, most importantly, have an exit strategy that they stick to.
The Counter Trend Friday call is just a day trade and is not a directional call. Our overall view remains that prices will go higher. We know that the higher we go, the higher the tendency for another selloff or pullback. At the same time, we also know the answer to the question, Can stocks go higher as bonds fall? That is a resounding YES. I have been saying it for weeks. That said, expect a two-way tug-of-war today. And don’t forget about the Friday Effect.”
By Christopher Mistal
