Today we had a great example of what we call a “sweep” on an ES futures trade entry. In the futures market, you cannot fool around with your stops. You have to have them, and we suggest you keep them fairly tight. We use a max of 6-8 ticks on the ES, for example, as a stop. However, sometimes, you can spot a valid technical entry that triggers and stops so fast that really, all that happened was the market showed you that the area you were watching was valid for support and resistance. When that is the case, you can put the same trade with the same entry right back in.
We tend to ignore the futures and stock market in the middle of the session, which is the New York lunch period. It’s represented by the red box in the chart below. However, coming back from lunch, sometimes a trade can be as easy to spot as the high or low of basing action for several hours. We targeted a short in the ES under 1163.50, the low just before lunch. Volume came back after lunch and the market headed down. Our stop was set for 6 ticks after entry. As you can see on this chart, the trade triggered short once, then stopped out almost immediately and just barely. This means that the market has identified that levels as being important, even though we triggered and got out for a 6 or 7 tick loss. So we put the trade right back in, and it triggered again. This time, it really worked, and we closed half at 1160.00 at A and the rest at 1156.50 at B for a net 20 tick winner overall:
So we trade a 6 tick loser for a 20 tick winner, but you have to keep those stops or you’ll get slaughtered in the futures market.
Also, if you are wondering where that final exit point came from, here is the same ES chart with our key Levels drawn. The red line that is a key Gann number came in at 1156, so we closed just above that level. It was also the end of a Seeker 9-bar setup, which is terminated by the red box drawn around the Seeker setup area:
Both of these combined to leading us toward a solid exit point that was near the low of the day.
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