subject: Do you Trade ES Emini Market Noise or the Trend [print this page] Author: David S Adams Author: David S Adams
Most equities spend the majority of the time filling and backing, which means the market moves one way for a while then another way for a while and creates the familiar serpentine pattern on our trading charts. More often than not, these patterns (especially on the ES emini chart) may move one way a few points, then the other way for a few points. I like to trade in the trend and in the absence of a clear trend we find ourselves looking at a screen that does not give us an overwhelming number of trading opportunities everyday. I define market noise as the price action that occurs between +100 and -100 on the Commodity Channel Indicator (CCI). This is a purely subjective definition but it one that has worked well for me. I do not like to trade when the market does not pierce either of these lines. I especially do not like to trade when the market is hovering around the center line, the 0 line, as the market is not displaying a definitive trend in either direction. In other words, I like to trade overbought and oversold markets, not market noise. Further, I am often reluctant to try to pick out countertrend trades, as these trades are often difficult to discern. Many of the trading programs out there trumpet their ability to pick that moment when the market is going to turn, I dont even try and know that countertrend trades are futures trading account-busters. I realize the thrill of correctly picking a market turn, but have seen countless traders over the years destroy their accounts trading against the trend. And that is the secret, isnt it? I dont want to be the salmon swimming upstream against the current, and years of trading have hardened me against the practice. Do I ever trade against the trend? I am sorry to admit that from time to time I do trade against the trend, and I am never happy when I do so. But I am primarily a trend trader, and I plot an 89 period Simple Moving Average (SMA) to tell me the short term trend. If the price action on the ES Emini is significantly below the SMA I concentrate on short trades, and the same applies for long trends. I am not talking about a point or a two above and below, when I say significantly I am referring to action 2.0 points or more above or below the SMA. So that leaves us with a lot of market noise to contend with, and staying out of trades that are within the realm of market noise is no simple task. After all, we are traders...we want to trade. There are traders who trade just the market noise, but I have not had success trading the ES Emini in those conditions. Not many people do. Generally speaking, the shorter the time frame, the more difficult it is to discern what is market noise and what is a real trend. Hence, I use the SMA to remind of the short term trend. On the ES Emini chart, I trade on a three minute chart because I am primarily a scalper, so I use different methodology to enter trades than say, a fundamental trader. Throughout the course of the day I will change the time frame just to remind me what the short term and medium trend trends are registering. I know many traders who trade tick charts and 1 minute charts, but I find it difficult to trade my style of trading under those conditions. So, market noise is the hum of the market functioning, and as a trader I am looking for a trade that will swing outside the normal market noise we see everyday. That opportunity, on the ES Emini, will come about 5-7 times a day, then, using my trading style I might actually trade three or four of those trades. If you are consistently trading the noise of the market, and are not specifically trained to trade in that style, you are probably going to find it difficult. Trade the trend, and profit. Stay out of the muck, the market noise.About the Author:
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