Thursday, August 25, 2016

John Paul's Trading Tips and Tricks - Phantom Orders, Overbought Markets, and ATR

The E-mini S&P is John Paul's favorite market. Why? It's more predictable than other markets. Oil prices are globally manipulated - far more than the U.S. companies that make up the ES. Even with the E-mini, you can expect some crazy volatility with the upcoming, controversial U.S. election. You need to be able to quickly gauge market speed. The Average True Range (ATR) provides just that. With a period value of four, the last four candles are used to plot the green line you see on the bottom of the chart. Reading the ATR on multiple markets is not the same - you will need to move the decimal point if on the Euro FX. Generally, you want to trade between 1 and 4 points. Anything below or above is either too slow or too volatile. Avoid those constant losses and chop.

News events - almost every day, a news event has an impact on the markets. By using Bloomberg's news event calendar, you can know ahead of time whether an event will take place. Red star events are the big market-movers. Stay out of the market until the volatility subsides. Also, Fed Chair Janet Yellen's announcements can be just as influential. About five to fifteen minutes is what you will have to wait before things return to normal.

Another important concept - do not trust the buy and sell orders you see on the DOM, price ladder, or matrix. These numbers are manipulated by big firms and algorithms to make money off of each other and small, retail traders like yourself. John Paul calls these Phantom Orders. At one time, when this data could be trusted, traders employed a technique called tape reading to predict areas of support and resistance. Now, the numbers might as well be random. Let price action on the chart dictate your traders - not order info from the grid.

Finally, you must be able to assess whether a market is overbought or oversold. To do this, John Paul measures the distance between numbers, and candle closing price and wicks. With the Atlas Line, you can figure this out by looking at the space between the candles and the dashed line. Overbought/sold markets may appear they are volatile, but in reality, they are too exhausted to continue. During these periods, you are better off waiting until the market resumes normal volatility.

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