1. How to treat gap openings
An open gap up or down is an emotional move and will often reverse course and become an “open trap.” Gaps of less than 4 points on SP Future tend to fill on the same day, especially Tuesday through Thursday. Shifts will occur within 20 to 40 minutes after opening. A trader should watch for a reversal as soon as the initial momentum is lost.
A gap in a good support/resistance zone is almost always a good “fade”, with stops of no more than 1 point on the other side of the support/resistance zone.
(A “fadeout” is simply entering a position opposite the direction of the gap. If the market gapped, you would enter a “fadeout”
a long (buy) position on liquidation.)
2. When the market moves against you, when do you exit a trade?
The way I operate, I get out as fast as possible. There is no point in waiting for your stop-loss to kick in when the perceived edge is gone. I like to stay in control of my trades, and if the market doesn’t work out as expected, I don’t wait for my stop to come.
When there is no longer a high-probability situation, go outside and take a second look.
3. What are the best times of the day to trade?
For me, the best times of the day to trade are the first hour and the last 2 hours.
Here’s an old rule of thumb (and this used to work like clockwork in the “old days”, and although it has slowed down a bit, it still
happens):“The least hour of the day”-
If the market opens higher, there tends to be a pullback in the first 20 to 40 minutes. If the pullback is weak, there will likely be a continuation of the rally into early afternoon. But, if the recoil is sharp, then
you may have seen the high of the day and will want to sell the bounces.“Top Moment of the Day” –
Around the 2:20 pm to 2:40 pm time frame, we will often see moves reversing or gaining strength in that time frame.
People who have been holding positions all day get a little “fidgety”: they have to do something with them before the market.
closed for the day. When people who hold losing positions late in the day see the time until the close is near, that can
cause the market to make some sharp turns in the last 90 minutes. The show’s gang also likes to be active at that time of day.
4. How can anyone trade in a choppy market?
I take various scalps in choppy markets. I calculate the entries with Tick extremes, especially when the price rises to the previous high
areas of congestion or other intraday support and resistance. Moving averages are not good during busy days. (Scalps: small profit, “hit and run” type of trades)
5. How are setbacks measured?
In a trending move, I like to see shallow pullbacks to a steeply sloping moving average on one of the 3 time frames I follow. (the more time frames the better) Retracements to symmetry in a persistent trend are helpful when they are present.
Example: Rally, 2.00 point drop – Another run up, then a 2.25 point drop – Another push higher, then a 1.75 point drop. Note
continuous drops of 1.75-2.25 points are repeatedly maintained. A pattern has developed and you want to buy those shallow pullbacks. This works great if used in conjunction with a steep 20 ema on the 5 minute charts, or on a slightly larger picture, 60 ema on the 5 minute chart.
