Intraday Trading Session - Decision Making Process
To Shadow Traders,
What follows is the Intraday Trading Decision Process I use, which implements many of the concepts highlighted in Mind Over Markets to determine Early Market Tone.
Use Steps 1-5 in sequence to determine Early Market Tone and determine appropriate Trading Strategy. Once Early Market Tone is know, use Steps 6-8 concurrently for trading the rest of the session.
If there is a high confidence open you may know Early Market Tone in 5-15 minutes. If there is a lower confidence open it may take 30-60 minutes.
The Landscape Futures Contracts referred to below, include futures contracts like /es, /nq, /ym, /dx, /cl, /gc, and /zb. They are those futures contracts that you look at to get a feel for the overall Landscape of the market.
Step 1: Is Overnight Inventory for Landscape Futures Contracts Long, Short, or Neutral?
Is there any Important Scheduled News that will affect Futures and Stocks?
1) If Overnight Inventory Neutral, then no impact.
2) If Overnight Inventory Long, then higher odds of long liquidation break.
3) If Overnight Inventory Short, then higher odds of short covering rally.
4) Record Overnight high and low as day time frame references.
5) When Important Scheduled News is released, trade accordingly around increased volatility.
Step 2: Is Open for Landscape Futures Contracts and Stocks (of interest) Inside or Outside the Yesterday's Value/Range?
1) If Open Inside Value/Range, then smaller opportunity and lower risk and higher odds of rotational/balancing day.
2) If Open Outside Value/Range, then larger opportunity and higher risk and higher odds of directional/trending day.
3) If Opening Gap is large, then lower odds gap will be filled that day and higher odds of more rotational day.
4) Where do Landscape Futures Contracts open?
5) Where do Market Internals open?
6) Which Landscape Futures Contracts, Industry Groups, and Stocks (of interest) are strongest and weakest at the open?
Step 3: Is Opening Type for Landscape Futures Contracts and Stocks (of interest) either Open-Drive or Open-Test-Drive?
1) The Open-Drive and Open-Test-Drive are the highest confidence Opens with higher odds of evolving into a Trend Day or Normal Variation Day.
2) An Open-Drive leaves a long body candle with no tails or small tails.
3) An Open-Test-Drive leaves a long candle with a buying or selling tail.
4) If Open-Drive or Open-Test-Drive Opening Type, then higher odds of either the high or low of the opening range not being taken out (which leaves the day's high or low).
5) If Open Inside Value/Range, then look for a high confidence single print move out of the Value/Range.
6) If Open Outside Value/Range (Opening Gap), then look for high confidence single print move back into Value/Range or a high confidence single print move away from Value/Range (Opening Gap not filled).
7) Do related Landscape Futures Contracts confirm opening type?
8) Do Market Internals and Overall Volume confirm opening type?
9) Which Landscape Futures Contracts, Industry Groups and Stocks (of interest) remain strongest and weakest after the open?
10) Trade Strategy: If early market confidence is high, trade in same direction as the high confidence single print move and trade sooner rather than later. At a minimum, do not trade against a high confidence single print move which could develop into a trend day
11) Trading Strategy: If as a result of a high confidence open, trade scenario buy/sell signals are triggered, execute trades manually or with resting stops (set ahead of time).
Step 4: Is Yesterday's Value/Range for Landscape Futures Contracts and Stocks (of interest) being Accepted or Rejected?
1) If Open is Inside Yesterday's Value/Range is Price being Accepted there?
2) If Open is Outside Yesterday's Value/Range is Price being Accepted there?
Step 5: Is Early Market Tone for Landscape Futures Contracts and Stocks (of interest) Bullish, Bearish, or Neutral and what is level of Market Confidence?
1) Which way is the market trying to go? Is an intraday high or low evident?
2) Is market doing a good job in its attempt to go that way? Trading back and forth thru opening range (low confidence) or not (high confidence single print move)?
3) Who's in control? Day or OTF participants?
4) What type of day is likely to develop? Rotational/Balancing or Directional/Trending?
5) Do related Landscape Futures Contracts confirm early market tone?
6) Do Market Internals and Overall Volume confirm early market tone?
7) For each Futures Contract or Stock to be traded, what is most likely trade scenario?
8) Trade Strategy: If early market confidence is low, trade later rather than sooner giving the market time to setup.
Step 6: Is Market Development (Trending or Balancing) for Landscape Futures Contracts and Stocks (of interest) changing?
1) Whether markets are balancing or trending, monitor for change. If markets are balancing, look for breakouts. If markets are trending, look for reversals. Once change occurs, watch for acceptance or rejection of change.
2) Look for reversals at 10:00am, 10:30am, 11:00am, 2:00pm, 2:30pm, 3:00pm.
3) Do related Landscape Futures Contracts confirm current market development or change to current market development?
4) Do Market Internals and Overall Volume confirm current market development or change to current market development?
5) Trading Strategy: If markets are balancing, sell top of balance area and take profits at bottom of balance area or buy bottom of balance area and take profits at the top of the balance area.
6) Trading Strategy: If markets are trending higher, buy the breaks and take profits on the rallys. If markets are trending lower, sell the rallys and take profits on the breaks.
Step 7: Have any Trade Scenario Buy/Sell Signals occurred?
1) For each Futures Contract or Stock to be traded, monitor for trade scenario buy/sell signals being triggered.
2) Trading Strategy: If trade scenario buy/sell signals are triggered, execute trades manually or with resting stops (set ahead of time).
Step 8: Is it time to exit any trades?
1) Monitor all futures contract and stock positions for continuation.
2) Trading Strategy: If profit targets are reached exit trades or take partial profits.
3) Trading Strategy: If market structure indicates lower odds of continuation, then exit trades to protect profits or minimize losses.
To Shadow Traders,
What follows is the Intraday Trading Decision Process I use, which implements many of the concepts highlighted in Mind Over Markets to determine Early Market Tone.
Use Steps 1-5 in sequence to determine Early Market Tone and determine appropriate Trading Strategy. Once Early Market Tone is know, use Steps 6-8 concurrently for trading the rest of the session.
If there is a high confidence open you may know Early Market Tone in 5-15 minutes. If there is a lower confidence open it may take 30-60 minutes.
The Landscape Futures Contracts referred to below, include futures contracts like /es, /nq, /ym, /dx, /cl, /gc, and /zb. They are those futures contracts that you look at to get a feel for the overall Landscape of the market.
Step 1: Is Overnight Inventory for Landscape Futures Contracts Long, Short, or Neutral?
Is there any Important Scheduled News that will affect Futures and Stocks?
1) If Overnight Inventory Neutral, then no impact.
2) If Overnight Inventory Long, then higher odds of long liquidation break.
3) If Overnight Inventory Short, then higher odds of short covering rally.
4) Record Overnight high and low as day time frame references.
5) When Important Scheduled News is released, trade accordingly around increased volatility.
Step 2: Is Open for Landscape Futures Contracts and Stocks (of interest) Inside or Outside the Yesterday's Value/Range?
1) If Open Inside Value/Range, then smaller opportunity and lower risk and higher odds of rotational/balancing day.
2) If Open Outside Value/Range, then larger opportunity and higher risk and higher odds of directional/trending day.
3) If Opening Gap is large, then lower odds gap will be filled that day and higher odds of more rotational day.
4) Where do Landscape Futures Contracts open?
5) Where do Market Internals open?
6) Which Landscape Futures Contracts, Industry Groups, and Stocks (of interest) are strongest and weakest at the open?
Step 3: Is Opening Type for Landscape Futures Contracts and Stocks (of interest) either Open-Drive or Open-Test-Drive?
1) The Open-Drive and Open-Test-Drive are the highest confidence Opens with higher odds of evolving into a Trend Day or Normal Variation Day.
2) An Open-Drive leaves a long body candle with no tails or small tails.
3) An Open-Test-Drive leaves a long candle with a buying or selling tail.
4) If Open-Drive or Open-Test-Drive Opening Type, then higher odds of either the high or low of the opening range not being taken out (which leaves the day's high or low).
5) If Open Inside Value/Range, then look for a high confidence single print move out of the Value/Range.
6) If Open Outside Value/Range (Opening Gap), then look for high confidence single print move back into Value/Range or a high confidence single print move away from Value/Range (Opening Gap not filled).
7) Do related Landscape Futures Contracts confirm opening type?
8) Do Market Internals and Overall Volume confirm opening type?
9) Which Landscape Futures Contracts, Industry Groups and Stocks (of interest) remain strongest and weakest after the open?
10) Trade Strategy: If early market confidence is high, trade in same direction as the high confidence single print move and trade sooner rather than later. At a minimum, do not trade against a high confidence single print move which could develop into a trend day
11) Trading Strategy: If as a result of a high confidence open, trade scenario buy/sell signals are triggered, execute trades manually or with resting stops (set ahead of time).
Step 4: Is Yesterday's Value/Range for Landscape Futures Contracts and Stocks (of interest) being Accepted or Rejected?
1) If Open is Inside Yesterday's Value/Range is Price being Accepted there?
2) If Open is Outside Yesterday's Value/Range is Price being Accepted there?
Step 5: Is Early Market Tone for Landscape Futures Contracts and Stocks (of interest) Bullish, Bearish, or Neutral and what is level of Market Confidence?
1) Which way is the market trying to go? Is an intraday high or low evident?
2) Is market doing a good job in its attempt to go that way? Trading back and forth thru opening range (low confidence) or not (high confidence single print move)?
3) Who's in control? Day or OTF participants?
4) What type of day is likely to develop? Rotational/Balancing or Directional/Trending?
5) Do related Landscape Futures Contracts confirm early market tone?
6) Do Market Internals and Overall Volume confirm early market tone?
7) For each Futures Contract or Stock to be traded, what is most likely trade scenario?
8) Trade Strategy: If early market confidence is low, trade later rather than sooner giving the market time to setup.
Step 6: Is Market Development (Trending or Balancing) for Landscape Futures Contracts and Stocks (of interest) changing?
1) Whether markets are balancing or trending, monitor for change. If markets are balancing, look for breakouts. If markets are trending, look for reversals. Once change occurs, watch for acceptance or rejection of change.
2) Look for reversals at 10:00am, 10:30am, 11:00am, 2:00pm, 2:30pm, 3:00pm.
3) Do related Landscape Futures Contracts confirm current market development or change to current market development?
4) Do Market Internals and Overall Volume confirm current market development or change to current market development?
5) Trading Strategy: If markets are balancing, sell top of balance area and take profits at bottom of balance area or buy bottom of balance area and take profits at the top of the balance area.
6) Trading Strategy: If markets are trending higher, buy the breaks and take profits on the rallys. If markets are trending lower, sell the rallys and take profits on the breaks.
Step 7: Have any Trade Scenario Buy/Sell Signals occurred?
1) For each Futures Contract or Stock to be traded, monitor for trade scenario buy/sell signals being triggered.
2) Trading Strategy: If trade scenario buy/sell signals are triggered, execute trades manually or with resting stops (set ahead of time).
Step 8: Is it time to exit any trades?
1) Monitor all futures contract and stock positions for continuation.
2) Trading Strategy: If profit targets are reached exit trades or take partial profits.
3) Trading Strategy: If market structure indicates lower odds of continuation, then exit trades to protect profits or minimize losses.
