Day Trading
About the company
PivotHunter.com started out just like most businesses do: with a very simple idea. That idea? Creating trading indicators that are not only easy and clear to understand but also effective and reliable. In our infancy, we were just a group of six traders. We come from different backgrounds, different ages, different understandings of the markets and different risk tolerances. Some of us had charts loaded with different indicators, some of us used simple crossovers. It started to get difficult to collaborate with such different tools.
Quickly realizing the need for a uniform set of indicators, we sought out to build our own. We were making a dozen new indicators a week and before long, we had way too many. The group sat down and began analyzing the various indicators we had built. Eliminating all but the ones we each agreed as having substantial value, we came up with the set of indicators we currently use.
Give our indicators a try. All 6 specialized indicators for $299 lifetime. We also offer world-class professional support.
Thanks,
The PivotHunter Team
Qualities of successful traders
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They have a carefully crafted trading plan. This contains their strategy and tactics right down to entry and exit rules and rules for risk and money management.
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They are well funded and are trading with capital that they can afford to risk. They will need to risk a smaller percentage of their capital in each trade, this means that they will have less emotional involvement with each trade and will be more objective in dealing with draw downs
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Trading is typically not their only income. This helps them to keep trading in perspective and helps them to better cope with a large number of consecutive losers that are within the tolerances they have set in their plan. It also means that they will feel less need to trade and will be less likely to force trades.
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They treat trading as a business. Regardless of which timeframe they are trading they tend to think about profit and loss over a longer timeframe.
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They protect their capital. Typically, they will not keep adding funds to a losing account but will actively reduce size or switch to simulation until they understand and rectify the reasons why their plan isn’t working.
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They are realistic in their expectations. They set realistic and achievable goals and actively monitor their progress towards those goals.
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They have a defined methodology. They are consistent in their approach to the market and become expert at a single method and small set of tools.
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They carefully consider Risk and Reward on every trade. They typically have a minimum reward to risk ratio to validate a trade
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They have tested the rules of their plan and verified their edge. Because they take a long term view and they know that the numbers will work out favorably in the longer term they are more comfortable holding positions and enduring draw downs within the tolerances set out in their trading plan.
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They are consistent in executing their plan. They either execute their plan automatically using an algorithm or they trade it consistently themselves much like a golf pro who strives continually to perfect his swing.
Trade What?
Only trade what you are comfortable with. If you try something new, always sim trade it. Most brokers have simulated trading features.
Because it’s difficult for almost anyone to select only the top-performing individual stocks, even in bull market conditions, investing in products that track stock indexes, which provide exposure to the whole market or a sector of the market rather than a few individual stocks, has become increasingly popular.
You should consider stock index futures instead for two main reasons: flexibility and leverage. We trade the Dow30 (ym), Nasdaq (nq) and the S&P emini (es). More than enough liquidity and nice leverage.
Stock index futures have attracted many new traders, and for good reason. These innovative futures contracts can serve you in a number of ways and be used with a variety of trading strategies and different financial objectives.
The reasons to trade stock index futures are numerous and compelling. You can use them to take action on your opinion of the market, manage risk and gain exposure to various market sectors efficiently and cheaply.
What Are Futures?
Futures are contractual agreements made between parties through a regulated futures exchange. The parties agree to buy or sell an asset – metals, a foreign currency, or some other item – at a certain time in the future at a mutually agreed upon price. Each futures contract specifies the quantity and quality of the item, expiration month, the time of delivery and virtually all the details of the transaction except price, which the two parties agree on based on current market conditions. Some of these contracts call for the actual, physical delivery of the underlying commodity or financial instrument at the end of the contract. Others simply call for a cash settlement at contract termination. Generally, market participants do not hold their futures contracts until termination but rather exit by a subsequent buy or sale depending on whether they were ‘SHORT’ or ‘LONG.’
In broadest terms, futures are about anticipating prices of commodities, and financial instruments, based on current information. Futures are concerned with such questions as: What will the price of cattle be next December? What will interest rates be in six months? How much will a euro be worth in May?
Because commodity prices are constantly changing, many businesses face ongoing price risk. Meat processors face risk from fluctuating cattle prices, lenders from changing interest rates, and international businesses from varying currency rates. All these businesses can use futures to help manage risk.
Futures contracts price agreements are bought and sold in what is basically a marketplace of opportunity for two groups: hedgers, who seek to offset price risk, and speculators, who try to make a profit from price fluctuations. Hedgers are businesses and financial institutions who buy and sell futures contracts seeking to lock in future prices for commodities. Speculators are groups that includes day traders, financial institutions such as banks and hedge funds, and arbitragers. These groups are brought together at a futures exchange, which provides a venue where their orders may interact on a trading floor or a computer network, and where price agreements can be agreed on.
Traders decisions generally are not random, but are based on a combination of a great deal of data and a variety of different strategies. Some people make trading decisions based on fundamental analysis of supply and demand (fundamental analysis); others trade based on an analysis of market trends and price chart patterns (technical analysis).
Because futures prices represent the aggregate of all available information that may affect the market, they are viewed as reflecting a process of price discovery. Prices change constantly in response to numerous factors. The futures markets assimilate that information and provide a means of determining the price buyers and sellers will agree to based on supply and demand. It is an auction market just like all trading venues. The price of futures and the underlying cash markets tend to come together or converge by contract expiration. The price of a futures contract at expiration and the cash (spot) price of the underlying asset must be the same, both refer to the same asset and are equivalent.
PERIODICITY
What causes the next bar or candlestick to form?
Different events can be used.
The most common is time. On a five minute chart a new bar is formed each five minutes.
However, taking time out of the equation is often preferred in day trading.
You can set the next bar to form when:
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A certain total volume level is reached.
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A certain number of transactions occur.
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A certain number of price movements (ticks) occur.
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A specific volume at any one price to cause the next bar to form.
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You can set a tick range value to cause the next bar to form. This last one is what we prefer.
TICK RANGE – WHAT IS IT?
Each instrument you trade has a monetary value for each price change. Anywhere from a fraction of a penny to $25 or so. Each price movement from one level to the next, either up or down, is a tick. A tick can also be a transaction without price movement. For our discussion, a tick is a price movement up or down.
If you use tick range as your periodicity setting, you are taking time out of the equation. Lets say you have set the periodicity to 10 tick range. You are trading an instrument that has tick value of $1.00. Each tick up or down moves the price of the instrument by that dollar. If the bar opens at current price of $100, a new bar will not form until the price has moved 10 ticks. You would think it then has to go to $110 or $90 before a new bar forms. Than is true, but it can also go up 5 ticks to $105, stop, retreat back to $95 and a new bar forms. Why? Because from the top of the bar to the bottom is ten ticks or $10. It could go up 2 ticks and down 8 ticks, any combination of ten will close the bar and a new bar forms.
Understanding order flow
When an instrument is bought or sold a transaction occurs. The instrument is offered by the owner at a price. A buyer makes a bid for the instrument at a lower price. One has to give and move to the other. If the owner gives and moves to the buyer the bid is hit. If the buyer gives and moves to the owner the offer is lifted. This process is called an auction and it can happen at blazing speed.
So as the process moves along during the day, volume accumulates on the buy side and the sell side. The difference between the two is called DELTA.
Delta, is just a greek letter used in math and it simply means DIFFERENCE between two values. The two values we are referring to are buying volume vs selling volume. Buying volume minus selling volume gives you DELTA. This number moves up and down during the day. Usually it moves in direct relation to price, BUT it doesn’t have to. It is important to understand how this could be.
Suppose the owners want $100 for their instrument and there are 100 of them. The buyers are offering $90 but there are 500 of them. The owners give in to the buyers and hit the bid at $90. The buyers absorb all the sellers (owners) at $90. Delta is negative 100. There are no more owners offering at $100. They have been absorbed.
The next level of owners are offering at $110 and there are 100 of them. The buyers move their bid up to $100 but they do not go to the $110 offer. The owners give in and move down to the $100 bid. All 100 of them are absorbed at $100. The price has now moved up $10 but DELTA has moved to 200 negative. This happens three more times and price is now $140 but delta is a negative 500. It is important to see this happening graphically on a chart. This is order flow. Is the transaction happening on the buy side or sell side and is it moving with or against price? The majority of the time price and order flow are in agreement. Just be aware, that does NOT have to be the absolute norm.
How to Determine the Roll Over and Expiration of Futures Contracts
E-mini stock index futures trade on the March quarterly expiration cycle. That means you will either be trading the March, June, September or December contract depending on the time of year. Each of these months is represented by a letter.
Month |
Letter Representation |
March |
H |
June |
M |
September |
U |
December |
Z |
Each contract is known by its ticker symbol, contract month and year. See below for an example of how to determine the complete name of the December 2018 Nasdaq futures contract.
Ticker Symbol |
Contract Month |
Year |
NQ |
Z |
20 |
In order to determine how to look up the contract you want to trade you will need to know the ticker symbol of the futures contract you’d like to trade, the contract month, and the year. If you have those three items, you can easily find the particular futures contract you are interested in trading.
It is important to understand that there is an expiration of all futures contracts. All futures contracts have a specified expiration. The final day of trading, or expiration, of the e-mini futures is set on the third Friday at 9:30 am EST of the contract month. So, if you were trading the December, 2020 Nasdaq futures, the third Friday of December is the expiration date (last day of trading) of that contract.
That explains the expiration of an e-mini futures contract. It’s important to also understand how contracts transition, or rollover, to the next contract before expiration of the current contract. At Pivot Hunter, we look a lot at volume. Rollover happens on the second Thursday of the contract month. Simply put, rollover happens Thursday a week before expiration. If you haven’t already heard this, you most likely will hear it again, most traders don’t trade Rollover Thursday due to unpredictable volatility. Trade expiration and contract rollover days with extreme caution!
Getting Started
Here is a detailed suggestion from a proven trader:
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Sim until you have increased your sim account by $2,000
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Trade 1 contract until you have increased your cash account by $2,000
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Per day number of round trip trade limit is 10, however it rolls over ad infinitum
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Initial daily goal is $100. Stop when you reach it.
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When you have added $2,000 to your cash account you may trade 2 contracts
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Additional $3,000 for 3 contracts or $5,000 over beginning balance
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Additional $4,000 for 4 contracts or $9,000 over beginning balance
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Additional $5,000 for 5 contracts or $14,000 over beginning balance
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Additional $6,000 for 6 contracts or $20,000 over beginning balance
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Additional $7,000 for 7 contracts or $27,000 over beginning balance
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Additional $8,000 for 8 contracts or $35,000 over beginning balance
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Additional $9,000 for 9 contracts or $44,000 over beginning balance
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Additional $10,000 for 10 contracts or $54,000 over beginning balance
When you trade 2 contracts your daily goal is $200.
As you progress to the next level of contracts, you increase your daily goal by $100
10 Contracts makes your daily goal $1,000
What has been your experience with day trading? If you are like me, you have found it to be daunting, confusing, and seemingly impossible to conquer. I am not here to say I have found the Holy Grail, but to just point out some things that are obvious. Most of the gurus show incredibly compelling charts with seemingly dazzling complexity. I have tried to follow their lead and make some sense of it all by trading it as explained. Have you ever heard the expression ‘…dazzle them with brilliance, or baffle them with b.s.’?
With this in mind, I began a quest to see if there could be a very simple indicator or set of indicators that are easy to understand and can be trusted to tell me what I need to know: are we in consolidation or are we trending. Our company has developed many unique indicators over the last 7 years. While they are very cool, in my opinion, they can also baffle just because of feature creep. Most traders keep looking for the solution, keep trying different things to see if they can find the answer. I am no different. I still fight the urge to just add one more indicator to see just one more thing.
So what did I do? I put the usual candle sticks on a chart, nothing else. I ran the chart backwards, then forwards. Hmm, nope, this was not enough. No surprise, hu? Well, what is one of the simplest indicators there is? A moving average. So I put a 10 period simple moving average on the chart. That helped some. Then I started looking for nice runs to see if there was something common that the moving average could tell me, so that it ran enough to make me my daily goal, or I could cobble enough of those runs together to get my daily goal.
I noticed that significant turns, pivots, were accompanied by a moving
average that turned with a pretty significant angle….. hmmm, obvious right?. Could there possibly be an angle to the moving average that would give me an edge, an alert to the real possibility this was a significant pivot?
Immediately the most obvious thing is the severity of the angle. The steeper the angle, the better the move. But, what degree angle would be giving me an edge? Just to be clear, if the moving average were moving perfectly sideways, the angle is zero. If it were moving straight up it would be plus ninety degrees, moving straight down would be minus ninety degrees. Now a moving average never moves straight up or straight down, there is always an angle somewhere between zero and plus or minus ninety degrees..
So, how much of an angle would be a good angle for entering a trade? And how would I know when the moving average got there? Hmm, is there any way to measure and display the angle? And if there were, could I change the angle to whatever degree I wanted for a couple of things to happen, i.e., the color to change and a sound happen to alert me to the change?
Lets say I wanted the color to change and a sound alert to happen simultaneously when the angle reaches forty-five degrees, up or down. At this point this value is just plucked from air.
I quickly noticed that having the angle set to one value for changing from neutral (+44 to -44 degrees) to green (+45) or red (-45) and then back to neutral at the same 45 was way to close and would whip you in and out of the trade. So we designed Angler to be completely controlled by the trader as to angle degrees for turning green or red and a totally independent angle
for going back to neutral. IOW, the first could be set to 45 degrees and the second could be set to 25. Both totally arbitrary for the trader to experiment with and decide for himself. So, here’s the PivotHunter Angler. You can select any value between zero and ninety degrees to change the color of the moving average from neutral to up (green or any color) or from neutral to down (red or any color). Secondly, you can select any value to change the color from up to neutral and change the color from down to neutral.
Next, the moving average itself needs to be adjustable, just like all of them are on any charting platform I have ever seen. The Moving Average Period Length needs to be adjustable and the Input Data Type needs to be selectable, Most are set on Close. But, we think the most important price on any given bar is not the open, high, low or close, rather the price that has the most volume. This is often called the point of control. So, one of the choices of the type of data you can set the Angler to is: the POC.
Lastly, you need to be able to see the current angle value of the moving average in something we call the Angle Badge. It is a dynamic display of the ever changing angle value. It can be placed anywhere you want it on your chart for easy and quick reference. It also reflects the current color of the moving average. You can also set a second Badge to show you the value of the moving average as the cursor scrolls over it. Sometimes helpful in visually back testing to see what angle resulted in a significant pivot.
You can set individual sounds to each chart to alert you when your preset angle is reached. It can also be set to alert you to when the release angle is reached. This allows you to monitor multiple instruments simultaneously.
THE ANGLER ALLOWS YOU TO SET THE EXACT UP OR DOWN ANGLE OF ANY MOVING AVERAGE, OR ANY INDICATOR ON A CHART THAT DRAWS A LINE, WHERE THE COLOR AND A SOUND ALERT OF YOUR CHOOSING ARE TRIGGERED. THE LINE WILL STAY THAT COLOR UNTIL A PRESET RELEASE ANGLE OF YOUR CHOOSING IS REACHED. THE LINE WILL THEN GO TO A PRESET NEUTRAL COLOR AND A SOUND, OR NO SOUND, OF YOUR CHOOSING.
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The content is not intended to provide investment, financial, accounting, legal, tax or other professional advice and should not be relied upon or regarded as a substitute for such advice. We recommend that you seek advice from a qualified professional adviser before acting on any information or other content appearing on this website or any website to which may be linked. Past performance is not indicative of future results. There is a risk of loss in trading.