After twelve years of watching and day-trading the S&P 500 almost every day, I've come to some conclusions of what works and what doesn't. These methods can also be applied to other markets as well, for both long and short-term trading.
Let's say our mental make up is type A, being best suited to focus on day-trading commodity futures contracts. We understand there are no easy roads to finding a trading edge. So where do we go from here? The next step is to select a futures market that is liquid and presents day trading opportunities. Possibly the currencies, US Bonds, and a few other markets that occasionally show good action will suit you.
You can choose anything you like, though I suggest you pick the S&P 500 futures market and be done with it. It has everything you need; liquidity, action and 24-hour trading. This 24-hour activity is important. Not because you will be trading the night Globex session, but because the overnight session holds valuable information to anticipate the next day session. A quick morning inspection of overnight activity can give you crucial information about changes in trend, important support and resistance tests and much more.
The next step of preparation is to set up a delayed futures contracts quote service. They're cheap. There’s no need for real time commodity futures quotes at this point. You will also need some computer charting software. Personally, I use my old and trusty TradeStation 4.0 that I bought back around ’94. It does everything I want and more. You couldn’t give me a later version for free. I guess once we get to know a piece of software intimately, it becomes an old friend and a hard habit to break. With TradeStation 4.0, I've experimented with the S&P 500 futures contract for over 12 years, writing my own indicators and methods.
It seems like I’ve spent a lifetime trying anything I could think of. Evidence of this is looking at my long list of custom trading indicators. I currently use only about ten of the hundreds I've written. But you need to find what works and suits yourself.
Modeling software like this is such a blessing. I remember in 1979 when I would haunt the local library asking the librarians to bring up last year’s Wall Street Journals from the cellar. I sat there for days plotting out daily, weekly and monthly commodity futures charts for cattle. That was just the beginning, of course.
Now I can plot that data in seconds with indicators that would have taken hours to calculate. In those days we didn't know what worked and what didn't. There just wasn't enough time to try it all. I didn't know there is no Holy Grail. It took the computer to prove this to me years later. I’m glad to live in this technological age.
It all comes down to developing a few trading indicators that you feel comfortable with. I have long thrown out the over-used, price based moving averages, oscillators, and other similar stuff that many watch. Besides, a trained eye can see price action just fine. There's no need for a delayed version of price to color your thinking.
You want something that ADDS new trading information to what is already there. There are several things you cannot easily see with your eye that requires computer calculation and graphic presentation. Besides, being right in front of us, unique indicators remind us to pay attention to them. It’s easy to forget to check certain critical market parameters. One example would be a routine that can flag when certain a-periodic cycles are due. That's something you cannot easily see with your eye.
Part Two of Four Parts - Next!
There is substantial risk of loss trading futures and options and may not be suitable for all types of investors. Only risk capital should be used.
Thomas Cathey - 27-year trading veteran heads the managed futures division of Thomas Capital Management, LLC. Get FREE, his complete 44+ lesson, "Thomas Commodity Trading Course" and weekly TimeLine commodity newsletter by visiting: http://www.thomascapitalmanagement.com/commodity/welcome.htm It's brand new and a fun reading "street-wise" e-course. Main site: http://www.ThomasCapitalManagement.com
