Day & Swing Trading Strategies

by John F. Carter
www.TradeTheMarkets.com

Singapore, April 24, 2010

Disclaimer: Futures and options trading are speculative and involve
risk of loss. The information in this seminar is taken from sources
b li d to bbe reliable.
believed li bl ItI is
i intended
i d d ffor information
i f i andd education
d i
only and is not guaranteed by the CME Group as to accuracy,
completeness, nor any trading result. It is not intended as investment
advice, nor does CME Group endorse or support any product or
service represented in the presentation. The views and opinions offered
by individuals or their associated firms in interactive seminars are
solely those of the authors, and do not necessarily represent the views
of the CME Group. The Rules & Regulations of the CME and
CBOT remain i the
th authoritative
th it ti source on allll currentt contract
t t
specifications & regulations.

2 www.tradethemarkets.com
 Why Trade CME Group Futures and Options?

• Lower capital requirements 
Lower capital requirements
than equity markets with 
same exposure
• Around the clock markets 
• Financial safeguards of a 
g
regulated exchange

www.cmegroup.com/resources
Futures trading is not suitable for all investors, and involves the risk of loss. Futures are a leveraged investment, and because only a percentage of a contract’s value is required to trade, it is possible to lose more than the amount of money deposited for a futures position. Therefore, 
traders should only use funds that they can afford to lose without affecting their lifestyles. And only a portion of those funds should be devoted to any one trade because they cannot expect to profit on every trade. All references to options refer to options on futures. CME Group is a 
trademark of CME Group Inc. The Globe logo, CME, Chicago Mercantile Exchange, E‐mini and Globex are trademarks of Chicago Mercantile Exchange Inc. CBOT and Chicago Board of Trade are trademarks of the Board of Trade of the City of Chicago. NYMEX, New York Mercantile Exchange 
and ClearPort are trademarks of New York Mercantile Exchange Inc. COMEX is a trademark of Commodity Exchange Inc. Copyright © 2010 CME Group. All rights reserved.
 Outlinee
Out
„ Today I am discussing shorter term day trading
techniques
h i I employ
l iin the
h ffollowing
ll i CME
Group Futures Contracts: Stock Indexes,
Currency FX
FX, Interest Rates,
Rates Gold,
Gold Oil and
Agricultural contracts.
„ These strategies have been developed over a 20+
year trading career, and are the same strategies I
use as a CTA (Commodity Trading Advisor) and
Principle in Razor Trading, a private money
g
management firm, as well as in tradingg myy own
personal account.
www.tradethemarkets.com 4
 Overall
Ove a Strategy
St ategy
„ There are two types of trading I focus on:
di i l momentum trades
directional d andd ““reversion
i to
the mean” trades.
„ M
Momentum trades
d require
i more attention,
i while
hil
“reversion to the mean” trading is more relaxed.
„ I ddo not hedge
h d my dday trading
di positions.
ii I pick
i ka
direction and use position size and stop losses to
minimize my losses and maximize my gains.
gains
„ Before you can learn how to make money
trading its important to realize how most people
trading,
lose money.
www.tradethemarkets.com 5
 How
ow to Lose
ose Money
o ey Trading
ad g
„ People who lose money trading all do, amazingly, the
same thing.
thing
„ First, they don’t have a real plan. They just chase after
the markets.
„ Second, they over trade with “market” orders.
„ Third,, theyy usuallyy have one trade that wipes
p out a large
g
percentage of their account value.
„ Take small profits and hold onto big losers
„ If you can do the opposite of the above, you will be
ahead of 90% of the traders out there.

www.tradethemarkets.com 6
 How
ow to Make
a e Money
o ey Trading
ad g
„ Have a plan. Pick a specific market to trade on a
specific time frame with a specific signal.
signal Example,
Example “II
will trade the Euro FX Futures contract on an hourly
chart usingg movingg average
g crossovers as myy entryy and
exit signals.”
„ Don’t over leverage. In day trading you shouldn’t lose
more than
h 5% off your account equity i on any given
i
trading day. If you hit that level, have the discipline to
stop
p and live to fight
g another day. y
„ Use limit orders. Limit orders force you to plan your
trades while market orders encourage over trading and
chasing
h i the h market.
k
www.tradethemarkets.com 7
 Day
ay Trading
ad g Strategies
St ateg es

„ TTM Trend Changes

„ 8/21 EMA (exponential moving average) crossovers

„ Bollinger Band Squeezes

www.tradethemarkets.com 8
TTM Trend

www.tradethemarkets.com 9
 TTM Trend
„ The "open,"
p "high,"
g "low," and "close" referred to are of the
current bar. The prefix ha
ha-- indicates the corresponding heikin-
heikin-
ashi modified values.

„ The value haOpen is always set to the midpoint of the body of

the previous bar, while haClose is computed as the average price
of the current bar.
bar The modified high,
high haHigh,
haHigh is chosen as the
highest value of the set {real high (H), modified open (haOpen),
and modified close (haClose)}. The same logic applies to the
definition of the modified low: It is the lowest value in the set
{real low (L), modified open (haOpen), and modified close
(haClose)}.

www.tradethemarkets.com 10
 TTM Trend
„ Simplified, the blue bars represent bullish
activity in a market (buying pressure)
„ Red bars represent bearish activity in a market
(selling pressure).
„ I look for a change in trend with 2 opposing
color bars. So if we have an uptrend with blue
bars, I would need two red bars in a row to
consider a change in trend and potential hedging
situation.

www.tradethemarkets.com 11
Daily Wheat Chart – Hedging Opportunities

www.tradethemarkets.com 12
Daily SOYBEAN Chart – for longer term trends

www.tradethemarkets.com 13
8/21 EMA CROSS BASICS

14 www.tradethemarkets.com
Quick Recap on 8/21 EMA Cross
„ Described in detail in my book as the
“Propulsion Play.”
„ Great way to gain a solid entry into a
downtrending or uptrending market.
„ E
Enter on retracements to the
h 8 EMA
EMA.
„ 21 EMA makes a good trailing stop.
„ Works well with the squeeze play.

15 www.tradethemarkets.com
 Squeeze play

„ What is a Squeeze play?

„ A setup that
h studies
di a market
k that
h hhas gone iinto
a quiet period.

„ The studyy looks to predict

p which wayy it will
move when the quiet period is over.

www.tradethemarkets.com 16
Bollinger Bands contract and expand with market volatilty

www.tradethemarkets.com 17
 Volatility Play Key Points
ƒ But how does a trader know if the next major
move is going to be up or down?
ƒ Byy usingg Bollinger
g Bands and Keltner
Channels with a Momentum Oscillator.
ƒ Keltner Channels stay the same,
same while
Bollinger Bands expand and contract with
volatility.
volatility
ƒ Momentum Oscillator indicates if market
movement will be up or down.
www.tradethemarkets.com 18
Looking for periods when the bollinger bands contract inside of the keltner channels

www.tradethemarkets.com 19
Keltner Channels (red lines) stay in a constant range

www.tradethemarkets.com 20
 Volatility Play Key Points
ƒ When the Bollinger Bands go inside of the
Keltner Channels, that is an alert that a trade
is setting up.
ƒ Once the Bollinger Bands come back outside
of tthee Keltner
o Ke t e Channels,
Channels
C a e s,
s, a ttrade
ade iss triggered.
t gge ed.
ƒ Use a Momentum Oscillator to tell you
whether to go long or short.
short
ƒ If above zero, long.
ƒ If below zero, short.
www.tradethemarkets.com 21
Add Momentum to Give You a Heads up on Market Direction
As the market transitions from Low Volatility to High Volatility

www.tradethemarkets.com 22
 Volatility Play Key Points
ƒ Developed this into an indicator to make it
easier to read and follow.
ƒ Red dots mean Bollinger g Bands are tradingg
inside of the Keltner Channels.
ƒ First green dot after red dots mean a trade is
triggered.
ƒ If hi
histogram isi blue,
bl go llong, if red,
d go short.
h
ƒ Stayy in trade until histogram
g loses momentum
by changing color for 2 bars in a row.
www.tradethemarkets.com 23
Add Momentum to Give You a Heads up on Market Direction
As the market transitions from Low Volatility to High Volatility

www.tradethemarkets.com 24
You Can Take Both Long and Short Squeezes: 

25 www.tradethemarkets.com
 Bring It All Together
ƒ Looking at all three strategies on one chart --

www.tradethemarkets.com 26
27 www.tradethemarkets.com
 Squeeze Exit Strategies
1. Loss of Momentum: 2 darker colored bars on the squeeze
q
histogram. PROS: This is typically the fastest exit signal.
CONS: Can sometimes leave money on the table as
market continues to run.
2. OR: TTM Trend Change: Bars are blue, then you get 2
red bars in a row, etc. Good “middle of the road” exit
signal.
signal
3. OR: 8/21 EMA Cross: PROS: Keeps you in a trade the
longest of the three so you can maximize a trend. CON:
This is the slowest exit signal so you can end up giving
back gains.

28 www.tradethemarkets.com
29 www.tradethemarkets.com
 Best Exit Strategy is a Mix
1. Loss
oss of
o Momentum:
o e t : Close
C ose out
o t 1/3.
/3.
2. TTM Trend Change: Close out 1/3.
3. 8/21 EMA Cross Over: Close out 1/3.
4. STOP: After first 1/3 off, move stop to your entry
point and then leave it alone.
p
5. Why? Trailing stops often get hit BEFORE the
trend has run its course.
6. On a nice trend, these exit strategies will get you
out of the trade BEFORE your stop is hit.

30 www.tradethemarkets.com
31 www.tradethemarkets.com
Ok, so what about 5 red dots or MORE?  Easy . . . BRACKET!

32 www.tradethemarkets.com
 When to Use Brackets
1
1. There needs to be at least 5 red dots to
establish a trading range.
2
2. Works better on 60 minute charts and above
(swing trades) but can be used for day trading.
3. P bl on day
Problem d trading
di is
i they
h can form
f so fast
f
you don’t have time to place the orders.
4. Works great on currency futures and forex.
forex.

33 www.tradethemarkets.com
„ Use a TOP DOWN approach . . .

www.tradethemarkets.com 34
www.tradethemarkets.com 35
www.tradethemarkets.com 36
www.tradethemarkets.com 37
 Summary
ƒ These tools help to keep a trader and hedger on
the right side of the market
ƒ No reason to hedge a cash crop until there is a
sell signal on the week charts
ƒ U signals
Use i l to ease iin and
d out off h
hedged
d d
positions
ƒ Let the charts tell you when its right to hedge –
just because the price seems “too high” doesn’t
mean it won’t go higher
www.tradethemarkets.com 38
Additional Information

www.tradethemarkets.com 39
 Sign up at
TradeTheMarkets.com
For free daily videos on
the
h didirection
i off the
h
financial markets.

www.tradethemarkets.com 40
 Book released 2006
English Version by McGraw Hill
Chinese Version available at
www.stockbooks.com.cn
kb k

www.tradethemarkets.com 41
Additional Questions

JJohn Carter
support@tradethemarkets.com
www.tradethemarkets.com
+1 512-
512-266-
266-8659

Phillip Futures Pte Ltd

www.phillipfutures.com.sg

CME Group
www.cmegroup.com

www.tradethemarkets.com 42