Tips on trading markets trading at all-time price levels!

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Day-trading at all-time highs?

Easier said than done. Trend traders generally are looking for places to buy “pullbacks". Counter-trend traders are looking for places to sell. Let’s take a look at Friday’s “Hangman” DOJI in the E-mini S&P 500 stock index futures market at the CME Group. Long Lower Shadow. A green or a red candlestick is formed with a lower tail that has a length of 2/3 or more of the total range of the candlestick. Normally considered a bullish signal when it appears around price support levels, and in this case during the drive up.

This could be considered bullish -- ignore the next Veterans Day candle for a moment since it really doesn’t count. As a matter of fact, you can shuffle the last two candles together and you’ll get a pure DOJI.

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Is this a truly bullish event when butting up against resistance? Is this really resistance? We seem to be continually making new highs. From the October 2nd close to the November 11th open, the ES is up approximately 7.2%. After a quick back of the napkin calculation -- an 85% annualized return. There is momentum and strength that is inherent in the market right now, with or without a China trade deal. Remember stock prices reflect future corporate cash follows. Higher expectations equals higher stock prices.

Market state or Market bias is bullish!

Therefore, counter-trend traders waiting for the home run will be run over until the market state changes from bullish to sideways or from bullish to bearish. A correction will probably come but you simply don’t know when. So, trading with the trend makes more sense, at least today. The main principle here is looking for places to buy the stock index futures. And since it’s an index consisting of 500 large cap stocks, you do not have to worry about an individual incident or one-offs (think McDonald’s CEO).

Retracement Levels

Identifying retracement levels using tools like the Fibonacci retracement can be a good place to start. Taking a look at a 30-minute time frame on November 11, the Fib lines suggest several entry and stop prices to consider. More aggressive traders will want to get long before the 38.2% level is hit, while conservative traders will want to get long when the market approaches 61.8%. Being 2:40 pm on a holiday, this is probably not a “day” trade opportunity, but remember this is a 23-hour market. It only sleeps for one hour, so I would argue that a swing or position trade at least until the European open could be in play. Remember Friday’s close was strong.

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The retracement analysis is still valid.

Moving Average Cross

Consider the below Exponential Moving Average Cross (6 vs 20 period) on a 30-minute E-mini S&P 500 stock index futures candlestick chart.

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The shorter term EMA (blue line) crosses over the longer term EMA (yellow line) potentially signaling a move up. Keep in mind that the signal is not confirmed until the forming candle is closed (circled above). So, the entry is not as good as it looks, but in this case it’s a good signal, nonetheless. Remember, any stand-alone signal or pattern can result in the opposite behavior in which you expected. That’s why multiple confirmation and patience are key.

The Limit Order

The Limit Order is probably the most powerful order type and you should make it your friend. A limit order to buy in a bull market is placed BELOW the last traded price. And your Sell Stop Loss order is BELOW that! The beauty lies in the fact that you can place a limit order to buy at virtually any price below the current market price that you want. Employ the power of patience. Remember your inner Yoda “PATIENCE YOU MUST HAVE, my young Padawan“. Let the market come to you. If you are filled on your order, your open position is more advantageous than it would have been going with a market order. The lower your limit order the greater the relative advantage, and, if you’re not filled, then so what. Try again later.

It is not possible to predict the futures range of a move. However, using the above techniques you can start to identify what has a better probability. By employing patience in your entries, you are taking some control in an otherwise control-less environment.

Remember, the CME Group treats limit orders on a first come, first served basis. And really remember that if the market is not shaping up the way you envision it before you get filled, you can simply cancel your limit order - that's FREE.

In conclusion, look for the trend, identify retracement levels, apply a favorite indicator and then place a limit order (let the market come to you). And as always place a stop loss. Trading futures and options on futures involves substantial risk of loss and is not suitable for all investors. Past Performance is not indicative of future results.