Trading
Guide
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| The How To Resource... |
This is a WORK IN PROGRESS - Check Back Often For Updates. All Times Are Listed in CENTRAL TIME (CT) (-1Hr from Eastern Time)
The morning session (8:30 - 11:30 AM CT) will provide the best opportunities and will be used to document trades. However, many opportunities develop throughout the day and the charts will will be streamed for your convenience.
It's easy to get overwhelmed at first by all of the indicator colors and shapes and the requirements necessary to enter trades. However, rest assured that after a few real-time examples you'll be calling out new setups like a seasoned pro. Not only do you get the real-time signal, but you get to know why the signal is occurring. This page outlines all of the rules of the system. You'll know exactly when a new setup is about to occur and you'll know in advance how to setup the targets and stops.
The Trading Guide contains a step-by-step demonstration of our trading system. By following this trading guide you will be able to replicate the setups streamed live in the trading room. The Absolute Daytrader makes no recommendations nor is advising you in any way. Consult your financial advisor and determine whether or not the information presented on this page should be applied in your actual trading setup.
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| CYCLE CHANGE |
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A Cycle Change occurs when a bar (candle) closes above or below the PIVOT "Dots". The PIVOT indicator consists of oversized dots connected by a straight line. If the current bar (candle) is above the dots then the color is GREEN. If the current bar (candle) is below the dots then the color is RED. If the current bar (candle) is above the dots and the next bar closes below the GREEN dots then the indicator turns RED. If the current bar (candle) is below the dots and the next bar closes above the RED dots then the indicator turns GREEN. A BULLISH environment is represented by a GREEN colored indicator and a BEARISH environment is represented by a RED colored indicator. The physical change from BULLISH to BEARISH or BEARISH to BULLISH is known as a Cycle Change.
Cycle Changes are used to filter out lower probability setups. Our goal is to trade only the setups with the greatest potential of success. When are Cycle Changes Required?
The opening bar (8:30 AM CT) is our starting marker. We must see one Cycle Change after the opening bar before we can take new setups. Therefore if the opening bar (starting marker) is above the PIVOT (Green Dots) we must see a subsequent bar close below the PIVOT, fulfilling our required Cycle Change. If the opening bar (starting marker) is below the PIVOT (Red Dots) we must see a subsequent bar close above the PIVOT, fulfilling our required Cycle Change.
There are many key economic reports issued at 9 AM CT. We avoid trading 5 minutes before and 5 minutes after this time frame because of the 'noise' associated with these announcements which often produce false signals. Therefore no new trades will be taken between 8:55 AM CT - 9:05 AM CT (refill your coffee mug). We treat the end of this filtered time frame the same as the opening bell. The first opening bar (9:05 AM CT) is our new starting marker and we need to see one Cycle Change after this opening bar before we can take new setups. This filter is great at keeping us out of harm's way and avoids a lot of these false bull and bear traps associated with these news events.
The final Cycle Change requirement occurs after each new setup. Regardless if the most recent setup was a win or a loss, a new Cycle Change is required before taking the next setup. If a setup develops prior to a Cycle Change, that setup is filtered (skipped).
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| TREND CHANGE |
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The TREND indicator is identical to the PIVOT indicator in function. The TREND indicator is physically illustrated with "Tracks" to differentiate from the PIVOT indicator. The TREND indicator resembles small Railroad tracks. You've probably heard the old saying "Stay on the right side of the tracks" - we use this same approach in our trading. We want to avoid trading on the wrong side of the tracks. The TREND indicator uses the same color sequence and definition as the PIVOT indicator. The TREND indicator gives us a Macro view vs. the PIVOT indicator's Micro view of the current cycle. If the current bar (candle) is above the TREND then we're in a BULLISH mode and will only take Long setups. If the current bar (candle) is below the TREND then we're in a BEARISH mode and will only take Short setups. If a setup occurs against the TREND, that setup is filtered (skipped). The TREND and PIVOT indicators must be in unison (same color sequence) to consider a new setup. If the TREND is Bullish, only Long setups will be considered. If the TREND is Bearish, only Short setups will be considered. The TREND is our Macro indicator. Therefore it is the first thing we look at to determine if we're in a Bullish or Bearish mode. A TREND Change = Cycle Change.
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| STARTING MARKER |
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Notice the Cycle Change requirement has us on the sidelines while the opening congestion settles.
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| 1st CYCLE CHANGE |
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Notice the 1st Cycle Change requirement has occurred. However, the PIVOT Indicator ≠ the TREND Indicator. Thus any setups that occur will get filtered (skipped).
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| CONFIRMING TREND & PIVOT |
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The TREND is now Bearish and matches the Bearish PIVOT. Therefore the system will Sell Short the first bounce to the PIVOT "Red Dots". Keep in mind that the PIVOT is dynamic. This means it moves as the price action moves. It's possible that the price action trends lower prior to any test of the PIVOT. Regardless of the price action, the system will Sell Short on the first bounce to this moving PIVOT indicator. Notice that the PIVOT dropped from 1110.25 to 1110.00 as the price action moved lower. You would change your Sell Short price from 1110.25 to 1110.00 in this example. One last note: this setup remains valid until 9:55 AM ET (see CYCLE CHANGE section for explanation).
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| NO TRADE ZONE |
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All existing, unfilled, entry orders should be canceled at 8:55 AM CT. We avoid trading around the top of the first hour because this is when many of the economic reports are released. There's usually an exaggerated level of volatility associated with these news items and we are better served as market observers during this small ten minute window rather than market risk takers.
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| STARTING MARKER #2 |
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The market has exited the No Trade Zone and the first bar is below the PIVOT. Therefore we need to see a bar close above the PIVOT and fulfill the Cycle Change requirement.
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| 1ST CYCLE CHANGE AFTER NO TRADE ZONE |
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Here we get the first Cycle Change following the 2nd Starting Marker. Notice the TREND remains Bearish. As our Macro indicator, the TREND tells us to only consider Sell Short setups at this time. Therefore we need to see a bar close below the PIVOT to confirm this Bearish mode. OR, we need to see a Bullish TREND reversal (bar closes above "Tracks"). We are in wait-and-see mode at this time.
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| TREND STRENGTH INDICATOR |
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Here we get another Cycle Change. This time the PIVOT returns to the Bearish mode matching the Bearish TREND mode. Also in this stage of the learning process you are being introduced to the Trend Strength Indicator. This indicator plots a wide band around the most recent trading range. We simply want to see the lower band trending lower when considering Sell Short setups. Therefore in this example we see that after the Bearish Cycle Change occurs the 3rd bar pierces the yellow dotted-line which causes the dotted-line (Trend Strength Indicator) to move lower, thus fulfilling our requirement that a new TSI low must be made prior to considering a Sell Short setup. This indicator keeps us out of choppy conditions in most situations. Ideally we want to trade when the market is trending. Specifically we want to Sell Short strong Bearish Trends when prices rises to the PIVOT.
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| SELL SHORT ENTRY |
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Having met the requirements:
- Bearish TREND
- Bearish PIVOT
- Break Below Trend Strength Indicator
The system sought to Sell Short the first bounce to the PIVOT (1105.25). The instant price reached 1105.25 the system plotted the Target & Stop price. All of the levels are plotted dynamically for you.
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| STOPPED OUT |
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Short position is stopped out. Must wait for a new Cycle Change before taking a new setup.
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| CYCLE CHANGE - WAITING FOR TSI CONFIRMATION |
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Once again we have a Bearish TREND and Bearish PIVOT. Price needs to break below the yellow dotted-line of Trend Strength Indicator. If this requirement gets fulfilled, a new Sell Short Setup would be created.
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| ALL REQUIREMENTS FULFILLED |
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Here we see that price has broken below the Trend Strength Indicator (yellow dotted-line) and is trending lower. This suggests accelerated weakness. Remember our goal is to Sell Short into a bounce on the first test of the PIVOT "Red Dots". Also remember that the PIVOT is a dynamic indicator and its price can change with each new bar (candle).
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| 2nd SELL SHORT ENTRY |
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Sold Short the first bounce to the PIVOT. Note that the system instantly plotted the Target and Stop price.
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| PROFIT TARGET REACHED |
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Price quickly drops and triggers the Profit Target of +2.25 Points. Note at this time we need to see a new Cycle Change before considering a new setup. Also notice that this particular day was extremely bearish and the system has us focusing on the market's weakness.
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| NEXT CYCLE CHANGE |
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First Cycle Change following last exit. Macro TREND indicator is still bearish. This system focusses on the first 3 hours of the US session. Notice approx 1 hour of potential setups remains.
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| ALL REQUIREMENTS FULFILLED |
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Once again we see a Cycle Change with a Macro Bear TREND and a Micro Bear PIVOT being confirmed by the Trend Strength Indicator (TSI) that is trending lower. The system will Sell Short the first bounce to the PIVOT "Red Dots". Remember that the PIVOT is dynamic and can change as each new bar is created.
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| 3rd SELL SHORT ENTRY |
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Sold Short first bounce to PIVOT at 1093.25 - Notice the system instantly plots the Target and Stop levels. Could possibly be the last trade of the day... as you can see time is whittling away.
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| PROFIT TARGET REACHED |
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After bouncing to the PIVOT, prices quickly reversed and pulled back to secure the Profit Target of +2.25 Points. Once again we need to see a Cycle Change before considering a new setup.
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| NEXT CYCLE CHANGE |
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We see a new Cycle Change here. But the Macro TREND remains Bearish. We need to see either a close above the TREND "Tracks" to indicate a Bullish TREND reversal or another close below the PIVOT "Dots" to indicate a continued Bearish move. Note that we are approaching the cut off time. Specifically we trade the first 3 hours of the US session 8:30 - 11:30 AM CT (9:30 - 12:30 AM ET).
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| ALL REQUIREMENTS FULFILLED FOR LONG SETUP |
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Here we see that the bar (candle) closes above the TREND "Red Railroad Tracks" giving us a Bullish Trend Reversal. Therefore this Macro indicator has us focussing only on Long setups. Notice that the PIVOT indicator is also in a Bullish mode "Green Dots". Finally notice that price has broken above the upper Trend Strength Indicator (TSI - Yellow Dotted-Line) and is trending higher. Therefore all requirements have been met and we would go Long the first pullback to the PIVOT "Green Dots".
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| TIME HAS EXPIRED - END OF TRADING |
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We do not enter new position through the lunch period and we can comfortably trade the first 3 hours of the US session when volume and volatility is at its peak. Though, the charts do stream through the closing bell, we do not document setups created after 11:30 AM CT (12:30 AM ET). This is a typical day of market trading. The S&P eMini took 3 setups. The first setup was a loss of -1.50 points. The second setup was a gain of +2.25 points. The third setup was a gain of +2.25 points. Total gain for the day +3.00 points / contract.
