There are many ways to read the markets and one of them is through the “price action”. Some traders study more than others, some do extra charting, some read more, while others employ various indicators to help them trade. All of the above and more should be part of your daily trading tool box. The one that I like the most is deciphering patterns that exist in the daily “price action” of the S&P 500 futures.
One of the great things about being on the trading floor of the CME Group is you are surrounding by hundreds of quote boards, quotes, scrolling news and giant televisions. If it’s not a Bloomberg headline it’s from one of the major news networks. There is not one place on the floor you can go that you won’t be surrounded by quotes. They flash thousands of times a day.
While we look at the ES (electronic mini-S&P ) the boards on the floor show the last 7 trades in the big S&P futures. After years of staring at the boards we have developed something that helps us read the price action and recognize patterns.
After looking at the S&P boards since 1985 there are times throughout the day and week when patterns appear and establish daily highs and lows. We see them without the use of any charts. After following the price action we know that if the S&P is at or near an early high it has to do at least one retest. After that we look for changes in the premium levels between the S&P cash and the S&P futures. It’s all visual.
MrTopStep Trading Rules
Straight up, the MrTopStep Trading Rules are observations. Like the MrTopStep 10-Handle Rule. After years of doing UBS’s program trading business in the S&P I noticed that after several buy programs the index would exhaust itself and then do several sell programs and again exhaust itself taking the locals and retail from long into the rally to short into the decline.
After seeing this day after day, week after week, I concluded that the S&P moved in 10-handle increments. I further concluded that the 10-handle moves turned out to be inflection points. No one helped me discover that; it was the constant price action itself that led me to the conclusion.
I have made many trading rules and they all live in the MrTopStep Trading Rules. My newest addition was something I noticed a little over 3 months ago, when I wrote a story called “Beware the Late Friday Rip.” While some people may dismiss some of the things we talk about, the charts don’t lie.
The gallery at the end of this post of the Fridays just in May, June, July and the first Friday in August show a telling pattern. Out of 14 Fridays from May 3 through August 2, only 2 occasions failed to see a late-day rip higher. We are not 100% sure why the late day rips occur but we believe it has to do the the mutual funds putting money to work late on Friday to help mark up stock prices before the close.
While it has been all Thin-to-Win over the last 3 months there is something noticeable going on with the late “Friday Rips.” As we said, don’t just take our word for it. The charts don’t lie.