Gaining an edge in the markets is almost impossible. In the open outcry system of buying and selling futures, the brokers and the locals had the edge, but in today’s high-flying world of electronic trading the only ones getting the edge are the algorithms and program traders. The computers automatically take the edge, all day long.
There are various ways to make money trading futures and options. You can hire a CTA (commodity trading advisor) to trade for you. Maybe you know someone who does it for a living and can teach you how to trade, like one of our expert trader-educators. Or you can pick an automated trading system such as an algorithmic program.
Or you can do it the old-fashioned way: sit down and teach yourself, take a class and get trading. Whichever path you choose, make sure you have some type of risk control in place.
The floor traders’ edge still works for some
The days of jumping into the futures pits are almost gone. With the exception of the CME’s S&P 500 futures pits, most have only a few order fillers and locals left standing in them. Many in the industry used to say that the CME kept the futures pits open in case Globex ever went down, but 5 or 6 brokers and 60 locals could never take on the volume that goes through the electronic platforms.
So why do the locals stand in the pit when there are only 3,000 or 4,000 contracts trading in the pit each day? It’s not for the “paper.” They go there because of all the flashing quotes and news that surround the S&P pit. They feel their chances of making money are better on the floor and have adapted by using their own tools to help them.
For example, the locals in the S&P pit know not to take the other side of the trade if someone is selling 500 big S&P futures. They know the customer will sell the E-mini electronically after he is done selling in the pit.
The MiM is the new end-of-session edge
While a method like Mark Fisher’s ACD system of using the opening range is a great way to detect the early direction of the S&P, the MrTopStep Imbalance Meter (MiM™) can be a great guide to direction late in the day.
The MiIM adds up the remaining unfilled orders to buy or sell stocks just the cash close and tells you the relative percentage of buys versus sells.
At 2:00 CT Wednesday afternoon, when the market seemed to be correcting after its big move up, the MiIM started providing an early look at the close with over 80% of all stocks on the NYSE showing “big to buy.”
Sure enough, the market stopped its decline right at 3pm for a quick rally going into the closing bell.
The Asian markets closed mostly mostly higher and Europe is trading mostly higher as well. There is a whirlwind of economic numbers to get past today. While yesterday’s numbers were received well, not all the news was good and we don’t expect it to be today either.
The Middle East remains front and center on traders’ minds and President Obama continues to search for support for the Syrian attack. Despite the lack of global enthusiasm, the markets shrugged off the news yesterday and plowed higher. One of the things I have tried to do during the recent decline in the S&P is to stay away from projecting lower prices. We put out 1620-1625 as support and the most recent low is 1625. After that we had a decent push back up and a decent push back down and a few higher lows. That type of price action should not be considered bearish, but there are just too many potential negatives in the next 3-4 weeks to get overly bullish, either. For now, that leaves the S&P futures in a range trade from 1635 to 1660.
Our rule after a big up day is that the S&P generally goes sideways to down. The big thing this a.m. is all the economic releases. We lean to selling the early rally and looking to buy weakness. The S&P may be in a range right now, but it won’t stay like that for very long.
As always, keep an eye on the 10-handle rule and please use stops when trading futures.[pullquote]Marty the PitBull Schwartz speaking at Amherst College.[/pullquote]
- In Asia, 9 of 11 markets closed higher (Hang Seng +0.98%, Shanghai Comp. -0.24%, Nikkei +0.08%).
- In Europe, 10 of 12 markets are trading higher (DAX +0.10%, FTSE +0.42%)
- Morning headline: Investors seek balance between central banks, Syria and rebounding economy (Reuters)
- Total volume: 1.6 million ESU and 7.6k SPU (mostly ETFs) traded
- Economic calendar: Challenger job-cut report, ADP employment report, jobless claims, productivity & costs, Fed’s Kocherlakota speaks, factory orders, ISM non-mfg index, natural gas inventories, oil inventories, Fed balance sheet/money supply, chain-store sales, G-20 summit
- MrTopStep Closing Print Video