TRADING ES BOUNCES (CONTRA TREND)

This is an addition to Matt's comment when trading  the ES against a trend  and there is separation between the 9 & 20 ma's.

This a first contribution for me.  If there is an interest for other ES trades, I will add them.  My work is solely related to the ES mini.  A shout out to Matt, Steve, Mia, McFly, Edz and all the rest for their stock contributions that I rely on.  Tks.

When trading the ES in a trend, and the ma's are steep, it is necessary, as Matt has noted "to take profits aggressively.  You want to take advantage of quick  sell-offs" when trading against the trend.  To do this, I have certain rules to scalp the market with these trades and take quick profits of 3 ticks.  (Don't be greedy as the trend often re-asserts itself.)  There are patterns where the trend will reverse,  but that is a different type of trade.

For new  future traders, please read the last narrative.

In an uptrend/downtrend, there are bounces that can be taken advantage of with quick trades providing consistent profits.

For this trade, these are the settings:

I use range bars set at 5 tics (Renko charts are used for other trending trades).  RSI 5 is used with a range of 20 and 80.  EMA 9 and SMA 20 are plotted.  Use a data box showing the high and low of the bar and the 9 EMA.  Make sure the 9 EMA includes the current bar.

RULES

To filter out potential losing trades:

1. The RSI must be above 80 or below 20.  This alerts you that a trade could occur.

2. There is separation b/w the 9 and 20 ma. This provides space for the trade to move enough (3 tics)

3. If a trade is coming up, there is (for a long trade) a move from a red bar to a green or white bar.  The opposite for a short trade.

4. For a long trade, the difference between the high of the current green/white bar and the 9 EMA must be at least 1.4 or better.  (The bar is below the 9 EMA .)  The larger the variance, the better.  The larger the variance provides room for the  trade.  Generally, I prefer a minimum variance of 1.5, but will sometimes take a trade with a difference of 1.4.  The best is when the difference is at least 1.75, but there are fewer trades.  

5. The trigger is the next bar.  Place the entry 1 tic above the previous green bar.  Set the profit exit at 3 tics above the entry.

The rules follow for short trades, just opposite entries and exits.

On Thursday, February 21, there were five profitable trades that met the above criteria.  Attached are two charts showing these trades.

Trade #1/Short:  RSI over 80.  Green bar to red bar.  9 EMA variance to  low of first red bar at 1.44.  Trigger is next bar 1 tic below low of first  red bar at  2776.  Exit trade 3 tics below entry at 2775.25.  (Here are the specifics for this trade only:  The variance b/w 9 ema and bottom of  red bar is 2776.25 minus 2774.81 = 1.44).  Previous RSI at 84.93 that alerted you to a potential trade.

Trade #2/Short:     Same set-up as above.  Green bar to red bar. 9 EMA variance to low of first red bar at 1.86.  Trigger is next bar 1 tic below low of first red bar at  2778.50.  Exit trade 3 tics below entry at 2777.75.

Trade #3/Long:    Red bar to green bar set-up for a quick bounce long.  Previous RSI below 20, providing alert for possible long trade.  Looking for a red to green bar move.  Variance between high of first green bar and low of 9 EMA  at 1.77 (bar below 9 EMA).  Trigger is next green bar one tic above previous green bar at 2771.  Exit at 2777.75.

Trade #4/Long:    Red bar to green bar set-up for a quick long trade.  The RSI went below 20, providing an alert for a possible trade.  Variance between  first green bar high and 9 EMA at 1.55.  Trigger 1 tic above high of first green bar at 2765.75.  Exit 2766.50.

Trade #5/Long:    Red bar to green bar set-up.  RSI below 20 (back two bars).  Variance between first green bar high and 9 EMA at1.46.  Trigger is 1 tic above previous green bar 2765.75.  Exit 2766.50.  (Coincidence that trade 4 and 5 enter and exit at same price points).

STOP STRATEGY:

There is no hard and fast rule for exiting a trade that goes against you.  90% of the time, I will risk no more that 5 or 6 tics.  Sometimes I will use a previous high on short trade which often limits the trade going against you with 4 or 5 tics.  Rarely will I let a trade go above or below the previous bar before the trigger at 1 or possibly 2 tics.  Whatever strategy one uses, I would not allow more the 6 tics.

There are other ways to accomplish this trade.  This works best for me as I consider myself to be very risk averse.  But it may work better with a 4 or 6 tic range bar and or two tics above or below the trigger set-up.  Any suggestions are very welcome.  I've traded this type of contra bounce for over a year.  Though I haven't programmed this, I would estimate that using a 3 tic profit provides with this strategy, is profitable in excess of 90%. 

For new future traders, I can't stress enough the necessity to practice, practice and practice with sim trades.  TD Ameritrade can historically sim trade but there is a lot of buffering.  NinjaTrader has an excellent historical sim trader platform for practicing one's trades.  With this trade, the trader has to be very quick as the market cam move fast.  When I enter a trade, the market is automatically bracketed, just in case.  The above trade is only for a quick contra moves against the trend.  There are generally 3 to 5 of these trades each day.  Watching for this is just plain boring, but profitable at 3 tics each.  When you start out, don't be fooled by success.  Use only 1 contract and build from there depending on the size of your account.  But I will tell you, the minute I fall for my own success, is when I make mistakes.

Also, I am showing these trades with TD Ameritrade.  For most futures trades, I use NinjaTrader where the commissions are considerably less.  For short term 3 tic trades, commissions can eat up a high percentage of one's profits.