Beware of Markets With Suspended Trading Hours

Beware of Markets With Suspended Trading Hours

Don Dawson

Instructor

This weekend I was reflecting back on my trading career and some of the many changes I have seen in the Futures markets. August 2013 marked 26 years of Futures trading for me. The memories of how the markets were traded in the past only made me realize how important it is to always be a student of the markets and never feel like I know it all. As a trader I feel like I have done my best to keep up with all the changes in the markets while still keeping an open mind that there are still plenty of changes to come.
One of the changes that all traders are still dealing with is the almost 24 hour markets we now have.  Back in the 80′s we had paper charts to update once per day.  The prices we updated every day were simply the entire day’s range.  There were no intra-day charts available.  Some Floor Traders used point & figure charts to help track some of the intra-day moves, but for off the floor traders we primarily used daily charts.  This day’s range was also just the open outcry session because there was no Globex electronic trading overnight.  Once the trading pits closed there was no trading until the next morning.  For us Treasury market traders this was very nice because for years the Treasury markets were only open for 6 hours per day.  This meant that any institution or commercial entity that had to hedge their portfolios only had 6 hours to get the job done.  This meant the entire trading day was very actively traded especially the morning opens and afternoon closes.  All this business had to be conducted in a very short time frame.
Today we have almost 24 hour markets in most of the Financial Futures.  Now the sense of urgency to get your orders filled has been relieved slightly due to these longer trading hours.
But along with these longer trading hours we also have intra-day charts with a host of multiple timeframes that we can do our market analysis on.  Another benefit of trading on our paper charts was that the majority of market participants were all looking at the same daily timeframe charts.  Therefore if there was a supply/demand level on a daily chart you can bet it was well respected.  Today with so many different timeframes to look at the challenge becomes finding optimal timeframes to trade.  The king of all timeframes, in my opinion remains the daily chart.
Another issue we have to deal with in these 24 hour Futures markets is that some of them have suspended trading hours during the trading session.  These suspended trading hours are different from the two sessions each day – Open Outcry and Electronic trading.  We know that the Electronic sessions run both pre and post the Open Outcry sessions in many of the markets.  This excludes the Inter-Continental Exchange (ICE) where all of their trading is done Electronically and there are no Open Outcry sessions.
The suspended sessions I am referring to occur in the Stock Indexes (traded on the CMEGroup Exchange) and the Grain markets.
We will start with the Grain markets first and describe these hours.  The primary Grain markets are:

• Corn
• Soybeans
• Soybean Oil
• Soybean Meal
• Wheat

These are the oldest Futures markets that trade on the CMEGroup Exchange.  For many years the trading was all done in the trading pits through on Open Outcry auction process.  The trading hours were 10:30 ET (Eastern Time)  to 14:15 ET.  Once the trading pits closed at 14:15 there was no more trading done in the United States for the Grain markets.  This created a lot of gaps when the market opened the next morning because the markets had been closed for so long.  Another event that happened more back then was if a market closed limit up or down (maximum price change from previous day’s close) there was always a possibility that the next day would open limit up or down also.  The Electronic trading has taken some of that price pressure off the markets now and rarely do we have markets opening limit up or down proceeding a limit move day.  I’m not saying it cannot happen, it just happens very infrequently now.
The most liquid time of day to trade these markets (highest volume time of day) are still during the Open Outcry session even though you would trade the Grain markets on the Electronic platform.
Here are the hours that the Grain markets now trade:

• Sunday evening at 20:00 ET the Electronic Grain markets begin trading
• Each morning at 8:45 ET the Electronic trading is suspended
• At 9:30 ET the Electronic trading resumes and the Open Outcry session starts
• Both Electronic and Open Outcry sessions will stop trading at 14:15 ET

The Grain markets trade Sunday evening until Friday afternoon with these hours.
Notice at 8:45 ET the Grain markets suspend trading for 45 minutes before they resume again.  Not long ago this was done because the United States Department of Agriculture (USDA) would release a very significant report once a month during this suspended trading period.  The report requires Commercial traders to analyze the numbers before making trading/hedging decisions, this takes more time than a Financial report.  This particular Supply/Demand Crop report has multiple numbers to analyze including the bushels per acre number.  Since the majority of the market volume was not trading when this report came out the Exchange felt it was to the investors best interest to have the report released while the market was suspended.
There was almost always a large gap up or down when the market would resume trading after these reports because nobody could react to the report until trading started again.  Therefore a huge imbalance of buy or sell orders would hit the Grain markets once trading resumed.
At one point the CMEGroup convinced the USDA to release this report while the Open Outcry session was open hoping to have more liquidity available and to reduce the volatility.  The USDA obliged the CMEGroup and changed the release time of the report.  Once the report release time was changed the CMEGroup discontinued the suspended trading hours. This major Supply/Demand Crop report is now released once a month at 12:00 ET.
Soon after this change many of the CMEGroup’s Commercial and Large Traders complained that releasing the report during trading hours does not give them time to analyze the numbers.  Finally the CMEGroup changed the trading hours again to accommodate their clients and reinstituted the suspended trading time early in the mornings.  However, the USDA is reluctant to change their report release time now and they are insisting the report will remain at 12:00 ET.  My feelings are that the lobbyist of the CMEGroup Exchange (and they are large) will win this battle and force the USDA to get in line with the CMEGroup and release the report in the morning again, time will tell.
The other market sector that has suspended trading time during the session are the Stock Indexes that trade on the CMEGroup Exchange.  This would include the ES, YM & NQ.
Since these symbols are for the Electronic trading because they do not have an Open Outcry session, the most liquid time of the trading session is during the Open Outcry times when the full size S&P, DOW and Nasdaq trade.
When Electronic trading first started in the Stock Indexes the Floor Traders would not allow Electronic trading simultaneously while the Open Outcry session was open.  The Floor Traders felt this to be a threat to their profits because they are market makers.  So the Electronic trading only ran after the Open Outcry session closed up to an hour before it opened again the next day.
Soon Electronic trading was allowed to run during the Open Outcry session as well as at night.  We soon had almost 24 hour trading.  The hours were recently changed and now they have a suspended trading session in the afternoons that traders should be aware of.
Here are the hours the Stock Indexes on the CMEGroup trade:

• Sunday evening the Electronic trading starts at 18:00 ET
• Monday morning at 9:30 ET the Open Outcry session for the large contracts begin.  This is the most liquid time of the day to trade Stock Indexes
• At 16:15 ET the Open Outcry ends the trading session and the official settlement price for the day is calculated on where the price is at this time
• During this same time of 16:15 ET the Electronic trading suspends trading
• Then at 16:30 ET the Electronic trading resumes trading and prices are still part of the day’s range
• When 17:15 ET arrives the Electronic trading will stop.  This is the last trade price of the day, but the official settlement price seen on the Daily chart is still the settlement price from 16:15 ET.
• At 18:00 ET the official open starts the new trading session

These markets trade from Sunday night through Friday afternoon, there is no trading on Saturday.
These are the only two Futures sectors that have these suspended trading hours.  All others are continuous trading hours from open to close.  I wanted to point these out to you because it is always possible that you might have a position on and your data will stop coming in on your charts.  Instead of being in a panic you will now know that this is simply a suspended trading session.  The Stock Indexes have the least impact of suspended trading.  When the Grains resume trading there is often a gap even if there is no report released.  Be careful day trading Grains pre market due to this potential gap against your position. 
“If we’re growing, we’re always going to be out of our comfort zone”  John Maxwell
- Don Dawson
ARTICLE SOURCE: TRADINGACADEMYDOTCOM

August Market Update

August Market Update

Brandon Wendell

Instructor, CMT

There has been much debate by the talking heads about whether the current bull-run in equities is coming to an end. Rather than debating the Fed’s potential “tapering” or other events, I choose to focus on what really matters, the charts.
The S&P 500 Weekly chart has been retreating from all time highs. Since we did not have supply overhead until out most recent drop, I am not willing to short until I see a defined downtrend and a retest of a supply zone.  A break of the low 1600 demand zone could also trigger some panic.

The 2007-2008 market crash was preceded by a drop in the Russell 2000 index.  I am also watching this index for signs of weakness.  The daily chart has broken from a head and shoulders and may be headed toward the demand at 956.

If the daily demand doesn’t hold, the 938 weekly demand zone is old and tested and may only offer a small bounce to make a lower high before breaking to the 850 area.

In my article from a couple of weeks ago, I suggested that without the supply zones to tell us the top, we may have to rely on some related securities hitting demand to signal reversals.  I am closely watching the weekly supply zone on the 10 year note.  If prices of the note hold the demand zone and rates hold supply, then the equity markets may weaken.

So there is a lot to watch for the next few weeks in the markets. For investors and longer term traders, this indecision is a time to be cautious.  Wait to enter in either direction until you have clarity.  Deciding not to trade is a trading decision and may be the best way to protect your capital until you have more certainty in the markets.
ARTICLE SOURCE: TRADINGACADEMY.COM

Successful Traders Practice

Successful Traders Practice

Dr. Woody Johnson

Instructor

Darla was as frustrated as a grounded kid during a holiday weekend. She looked at the Demand Zone trade that she had taken. It was on the NQ. She had established her levels and the price action had taken a drop-base-drop into a fresh DZ. She even looked at her odds enhancers from which she determined that it was a high probability trade. Her plan called for a 2-tick stop just below the lower line of the DZ on the 5 minute chart that she used to execute on.  Then it happened; the price action inched toward her stop and took her out.  The good news was that she allowed the stop to do its job; but unfortunately when she went back through the plan afterwards, she realized that the stop was too tight.  That was when she understood that it would be supportive if she practiced establishing her zones more carefully, which would include the placement of her stops.
Mastering anything involves learning, incessant practice, and being willing to fail…a lot.  Failure is the secret key to success.  That may sound contradictory on the surface; however, true achievers and champions will tell you that before they enjoyed the sweet smell of consistent victory, they tasted the brew of failure.  Actually, failure is where the most important lessons are learned, and that is where strength, endurance, perseverance and persistence are built.  In other words, you must create consistency in your diligent pursuit of protocols (trading strategies, rules, procedures & set-ups) that are supported by effective routines, which then are tracked through documentation and then repeated to habituate the whole thing…that is skill building.  This skill-building formula for developing your capacity to be better is supported by employing mental and emotional tools to keep you focused on follow-through.  Creating consistency in doing the right things habitually will get you the right results habitually…and that means you’ll enlarge your comfort zone in order to tolerate the negative emotions like anxiety, fear and greed associated with bad trading behavior.  So, like Darla, embrace the realization that you’ve got to practice, practice and practice some more.  But, it’s not just any practice.  In this article, I’m going to share with you a specific kind of practice; a practice that’s not really practice in the normal sense but a step above and if you do it, it will ramp up your learning and your results.
As children, you learned to model effective behavior by observing your environment and using all of your senses to gather information.  From this observation, you began to develop strategies to get the results you wanted and, in many cases, these strategies were developed intuitively.  But the higher and more complicated your objectives, the more important it is that your strategies be conscious in order to optimize the structure.  To do this, you must consistently look for and be receptive to feedback from your environment to: a) Determine what strategies are likely to get the desired result; and b) Modify or change that strategy if you’re not getting the result you aimed for.
One of the ways to increase your chances of modeling or tracking successful behavior is to use a template to lay your modeling structure on.  One way to do that is the Test Operate Test Exit method or TOTE. The principal underlying TOTE is that your behavior is driven or motivated by an outcome.  You recognize when you have achieved the outcome by a unique set of evidence criteria (i.e., what you will see, hear, and feel when you have achieved the outcome, the vision of success).  You are constantly comparing your present state or reality to your desired state or future reality to find out if they match.  When they do match, you know you have reached the exit and have achieved your outcome.  If the present state does not match the desired state, you must complete another operation to discover if that makes a difference.
You are running TOTEs throughout your life comparing where you are with where you want to be, taking actions to bring you closer, and eventually to, the exit itself.  Examples of this in everyday life include:

• Learning to walk – you try and fail, changing this and that until you are successful
• Riding a bike
• Learning to play a game
• Learning a subject in school
• Trading

Another example from modeling successful traders is that successful traders keep going until they have reached a successful T.O.T. E match (their desired state of both the trade and their internal focused state match, in other words, they are focused on doing only that which will create consistency in keeping commitments and following rules.  Whereas others—those who do not naturally excel at trading, abandon the T.O.T.E  before they get the match and experience a distinct disconnect between their desired state or trade result as in trading their plan and following rules and the frustration associated with commitment breakdowns.  This may be due to fatigue, anxiety, distraction, distortion, fear, greed or loss of confidence in their ability to follow-through and achieve the outcome.
When I was in college, I knew a guy, Kyle, who was a great basketball player.  He did not begin as a great b-baller.  In fact he did not play much his freshman year.  But everyday he would watch the older, more accomplished players.  He studied the way they moved, the way they practiced, the way they held the ball, the way they dribbled and played defense, the way they hustled, and the way they talked with passion.  He studied how they stretched and how hard they trained.  He saw himself going through practice as if it were a game; moving as they moved.  With every play that he learned, he imagined himself going through all of the steps.  By feeling the leather of the ball, hearing the swish of the nets, feeling how his body felt when he dribbled through the defense for a lay-up or charged the basket for a rebound, seeing the wholeness of the court and sensing a balance of where everyone was, he would feel the passion for playing, the excitement of each step.  By breaking down and “practicing” or T.O.T.E-ing this strategy, he became a great player.
When Kyle became successful from modeling his winning team members’ strategies, he was running a TOTE.  He tried, failed, modified, tried, failed, modified, tried, and so forth.  You get the picture.  He tested, operated and checked for a match in desired outcome (state) vs. outcome (state) attained.  In other words, if the outcomes or states are not equal and do not match, then back to operation #2, and test again. If no match, then operation #3, then test and so on until they MATCH, then exit.
When Kyle’s basketball outcomes, i.e., dribbling, passing, defense, and shooting, all matched the desired outcome, he exited the TOTE for that time, only to be repeated when he identified another level of outcome of state to achieve.  At that point, he would again run the TOTE until he achieved the match.  Furthermore, TOTEs can exist within TOTEs.  For example, dribbling can be a TOTE, passing can be a TOTE, and so forth.  Some TOTEs run every few minutes, some every few hours, days, weeks or years.  Another word in our lexicon for TOTEs is practice; however, it is important to understand the concept of TOTEs because the level of specificity greatly supports the system alignment and effective coding of the successful strategy.  To just say “practice” is to leave much of the process incomplete.  Essentially, the TOTE is a feedback loop designed to prompt you to find what you need to achieve your desired state.  Key skills for successfully navigating the TOTE in order to be able to model are: sensitivity to what is happening, a willingness to learn from feedback, and the flexibility to do or learn something different when what you are doing is not working.
So, as we look at trading it is important to establish T.O.T.E.’s as you breakdown the important subcategories of the strategies that you are using.  These might be for example, establishing levels, planning, execution, rule-set-up and following, identifying targets, etc.  There are many, many examples of trading categories and subcategories that you can identify to run T.O.T.E.’s with.  This is just another of the long list of tools that we teach in Mastering the Mental Game that are designed to support the building of your “A” Game high-rise to create the consistent results that you want in your trading.  Ask your Online Trading Academy representative for more information.  Also, my book, “From Pain to Profit: Secrets of the Peak Performance Trader,” is available on Amazon.com.
Happy Trading.
ARTICLE SOURCE : tradingacademy.com

Market Tricks

Market Tricks

Brandon Wendell

Instructor, CMT

Prior to joining the Online Trading Academy team, I had a brief stint as a trader for a retail stock brokerage in the United States. As a trader, I was charged with executing the brokers’ orders from their customers. I was to work the orders and try to gain some advantage for the brokerage in the spread that would not be passed on to the customer. All of this while the customer was paying a commission too! That is why as a trader for myself I would never think of trading without a direct access platform.
The brokers used small pieces of paper called a chit.  A blue chit was a buy order and a pink chit was a sell order.  As the trader for the brokerage, I would be met every morning in the office by a big pile of chit on my desk, (Don’t worry, you’ll get the joke if you read it again).  I had the task to execute these orders so the brokerage would make commissions and as I mentioned some of the spread too.
This daily process was repeated throughout brokerage offices all over the world.  All of these retail orders would flood in every morning, fueled by investors who heard about the next biggest thing on the news or a recommendation from the broker the night before.  As my duty required, I would execute the orders at the open of the market.  Feverishly working to fill all of those investors’ dreams of retiring from one great trade!
Knowing what we do about supply and demand, what do you think would happen as soon as those orders were filled?  The markets would immediately reverse as all of the emotion that was driving price strongly in one particular direction was suddenly over.  Think about it, if everyone who wanted to buy a particular stock just did, then how can the price continue to rise?  The stock becomes saturated with nervous sellers and collapses under its own weight.  I do not use the term nervous seller lightly.  Anyone who buys a stock becomes a nervous seller as they can only profit by selling the same stock they just bought.  The nervousness enters as they decide when to sell to maximize profits and minimize loss.
Brokerages not only have to fill the customer orders in the open market, but can also transfer shares from their inventory or even sell short as a market maker as long as they give the customer the best price as indicated by the exchange at the time of processing the order.  A smart trader who has seen the pattern repeat time after time, would take the opportunity to short into this strength in anticipation of the reversal that occurs from profit taking or stop losses being triggered once the buying pressure has been exhausted.  This is exactly what many market makers and specialists do every day.

The same reversal action occurs when there is bad news and panic in the markets.  For every share that is sold by a scared investor, someone had to buy it to either close a short or initiate a new long position.  Once the selling flood has subsided, the prices will typically rise as there is nothing to hold down price and some bottom pickers try to profit from a bounce.  The professionals who traded counter to the masses are now profiting as supply is gone and prices move higher.

Be careful not to think that this new trend will last as those who profited from the reversal will look to book profits as those who did not participate in the initial thrust of the market try on the second test.  Yes, there will usually be a second reversal that sends the stock into its trend for the rest of the day.
Knowing how to anticipate these two reversals and timing them correctly is something that we work on all the time in the XLT program.  If you are not aware of how to identify or trade these key reversals of the morning, then you should learn before venturing into trading that timeframe.  Fortunately we teach that in our Professional Trader courses at Online Trading Academy and trade it live in the Extended Learning Track online.  I welcome you to join us and learn how the professionals trade.  Until next time, trade safe and trade well!
ARTICLE SOURCE : TRADINGACADEMY.COM

Profit Zones

Profit Zones

Online Trading Academy, Chief Education, Products, and Services Officer

All market speculators share the same goal, which is to enjoy consistent low-risk profits. To accomplish this goal, you must be able to identify market turning points and market moves in advance with a very high degree of accuracy. This is the only way to attain low-risk and high-reward entries into market (trading) positions. Whether you are a short term trader for income or a longer term trader for wealth, nothing changes. Identifying key market turning points is the only way to attain the ideal risk / reward opportunity. Leading Extended Learning Track (XLT) sessions for so long, I have come across many people in the program. Occasionally, I receive an email from a member that is not satisfied with their results and desires better returns. Most of the time, they are not necessarily losing money but they are not making money or not making enough money, and desire more. One of my first questions to them has to do with strategy. I ask them, “Do you have a plan and are you following that plan?” Half the time the answer is no, so we dive into creating a proper plan and the importance of following that plan. The other half says they do have a plan and for the most part, follow it much of the time. For this group, my questions turn to the details of their plan, the strategy, where I look to see if their rules are proper or not. Sometimes, there is a rule or two that is incorrect and the student doesn’t know it so we correct it. In my many years of experience, I have found that most of the time, there is one specific and crucial rule that is missing from people’s plans more than any other and that is the focus of this piece.
Before we discuss this rule and its importance, let’s first turn our attention back to market turning points. Where are market turning points and where do market moves originate? Price movement in any and all markets is a function of an ongoing demand and supply equation. Market prices turn at price levels where this simple and straight forward equation is out of balance. Therefore, price in any market turns at price levels where demand and supply are out of balance which means the strongest turns in price occur at price levels where demand and supply are most out of balance. So, the question for us is this: what exactly does this picture look like on a price chart?
When I ask students this question, they quickly describe the picture of demand that I have shown in articles for years which is a “Drop – Base – Rally.” They then describe supply which is “Rally – Base – Drop.” These are the two pictures that clearly show price levels where demand and supply are out of balance which is what we as market speculators are looking for. Next, students go right into their rules for entries, targets, and stops and this is where I stop them as they are ignoring perhaps the most crucial rule that should be included in their trading plan. Drop – Base – Rally may be the picture of a price level where demand exceeds supply, a demand level. But, what EXACTLY is a demand level for you and your trading plan? I find that most people don’t quantify this with numbers and they need to. Quantifying exactly what “demand” (or supply) is to you and your plan is a key component to a trading plan that helps you have an edge over other trading plans that don’t. To explain this further and dive into the details, let’s look at an options trade I recently took and shared with some XLT students.

The chart above is a weekly chart of General Motors (GM). In the upper left portion of the chart, we identified an XLT supply level. As you can see, it is a large time frame rally – base – decline, the base is in between the two black supply lines which create our supply zone. Just because it represents the pattern/picture we are looking for does not at all mean we have a low risk / high reward trading opportunity. One of the most important questions that comes next is whether there is a significant Profit Zone associated with this demand level or not. The initial profit zone in this case is the distance between the two black circles (supply and demand). The presence of a significant profit zone is key for two reasons. The first is that it helps quantify the risk and reward. Second, the larger the profit zone, the higher the probability. This is because a big profit zone means price is far from equilibrium and out at price levels where the demand and supply imbalance is greatest. Compare the size of the supply base area between the two black supply lines with the distance to the demand below. The distance between the two black lines is the distance from our entry point to our protective stop loss price. We sell short at the supply zone and place our stop above the supply zone. This helps measure our risk. The distance from the supply zone to the demand below represents our potential profit zone. The logic is that if price was able to fall that far, this means there is no significant demand until the demand level below or lower. Back to our rule…
Rule: A supply level only becomes a supply level if the distance from the supply level to the demand is at least three times the supply level (1:3 Risk/Reward). Meaning, if the distance from entry to stop is two points in a market, the profit zone must offer at least six points or it does not qualify as a supply level for me. I will typically ignore any levels that don’t meet this minimum requirement.
While I require a 1:3 as a minimum requirement to actually meet the definition of a quality level, it may be different for you. You may require 1:4 or whatever. One of the most important factors for this successful trade was the profit zone and the length and speed of price to and from those levels. This is a rule many market speculators fail to consider.
Many people talk about supply and demand when trading and writing trading plans. Few actually define what supply and demand levels are exactly. This is another step in building the edge required to get paid from your competition instead of paying them. There are more subtle but important rules to consider but they are beyond the scope of this piece. If you have any questions or comments, feel free to email anytime.
ARTICLE SOURCE:TRADING ACADEMY.COM