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Prop Trading Futures

Special Situations for the week of December 7 2015 No ratings yet.

Commodities, Financials and FOREX

Special Situations

for the week of December 7 2015

editor : Robert Main

MARKETS IN PLAY

Futures, currencies (and, occasionally, stocks) that have completed 10+ week chart formations (Head and Shoulders, Triangles Cup and Handle, Rectangle or Wedges) by means of decisive breakout.

Markets that are in Play are moving toward their measured move target and never had a serious pullback to the price range prior to the breakout.

Within these markets I’m looking the daily charts with the aim to:

  • build a position trade of expected holding period equal three or more weeks;
  • engage in swing trade of expected holding period equal to two or less weeks;
  • build a combination of the two above.

HOW TO APPROACH A MARKET IN PLAY

A market that breaks from a 10+ week long chart pattern gives to traders two edges:

  • A follow through from from the breakout trigger price in the direction indicated by the chart pattern.
  • A follow through of subsequent breakouts from smaller chart patterns in the same direction.

The probability that each single trade plays out in the favour of the trader is 50% and the result of each trade is unknown to the trader (no matter the amount of time and the quality of his or her analysis).

SCAN MARKETS AND PICK SHARES, CONTRACTS AND PAIRS

I do believe that successful discretionary trading has more to do with correctly scan markets and find the right picks than with trade management. Good traders usually come up with much smaller watchlists than novice ones. The latest tend to have too much tolerance for less than ideal setups. Chart analysis is a skill and as such it requires practice and time. A master trader sees things that a good trader cannot see (unless guided). While scanning through markets, is true the adage according to which the less (positions pass the filtering eye of the trader), the better.

CAPITAL ALLOCATION TO EACH SINGLE TRADE

It is at trader’s discretion to assign capital/risk (variable from “zero” to “max risk”) to each single setup. Over the long run this is a key ingredient of discretional trading success.

While systematic trading foresee some fixed money allocation rules, a discretionary trader relay on its intimate knowledge on a given market to determine how and when press “the pedal to the metal” and when be more risk averse.

CURRENCIES – EURO

Following Thursday’s ECB decision, the EURO bounced right at the the trend line. Was Thursday a fake move or a trend change (in the Euro, but also in other several exchange rates and markets)? Hard to say and hopefully this coming week we can get a better interpretation of what is going on. After that, with the Xmas holiday that the door and many big players preparing for the holiday, read the markets will become extremely difficult. For the moment I remain bearish below 1.09557 (on closing basis).

CURRENCIES – SWISS FRANC

If not already short the Euro, I would buy the Swiss Franc right here with a stop at .09754.

COMMODITIES – SUGAR#11

Nothing has changed since last week. Short term, Sugar (below I present the chart of SGG/ETF) could be forming a small wedge – another sign that a medium term bottom is in.

CURRENCIES – CHINESE YUAN

DEVELOPING PATTERNS

These markets are not trending (in the sense that are NOT in “in play”, as per the definition in the previous paragraph). In this category are included all markets that I believe have the potential to start to trend and be “in play” in two weeks or less.

A regularly (in my case, once a weekly basis) review of developing patterns not only allow a trader to be prepared and do not miss eventual breakouts, but will also allow to build anticipatory positions and, finally, to train the eye to the price action.

ANTICIPATORY POSITIONS

Anticipatory positions are build in those markets where simply buy or sell the breakout would not be the best thing to do (either because of the structure of the market – i.e. in case of patterns with sloping trendlines – or because of the size of the position that one wants to build within the limitation allowed by his/her risk management rules).

Trade anticipatory positions means to place a bet in the “chaos” of a directionless market. In 90% of the case I’m against building anticipatory positions because they are based on the wrong assumptions that the trader “knows” in which direction the market will breakout and also when.

FINANCIALS – EURODOLLAR GE7

The only interesting developing pattern out there this week.

December 2017 Eurodollar could be forming a top with the shape of a 4-month Head and Shoulder. Watch for a break below November low.

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