Each Market Has its Quirks

In addition to careful preparation and close attention to order flow, Broz stresses the importance of knowing the unique aspects of each market. Broz claims, "The T-bond market is arguably the best trading market of all". Introduced almost 30 years ago, the T-bond market rapidly matured into a very liquid market that has attracted a wide variety of large institutional investors - including traders from the world's central banks, the biggest pension funds, insurance companies, and mortgage companies. "While this keeps the trade very 'true'," Broz says, "it also tends to make the market move slowly. Many traders often miss the trading gem that bonds are because they misread its grinding nature as not moving". Broz says traders must be patient when trading the bonds and other Treasury futures: "Identify your entry point and upon getting filled, place a stop 3 to 5 ticks away. Then stay patient - very patient". This patience will pay off, Broz says: "While a 3 to 4 tick winner is a very good bond trade, sometimes you can ride the bonds for several more ticks". In contrast, according to Broz, the CBOT mini-sized Dow market usually moves very quickly, which makes this market the ideal trading venue for certain traders. He says, "A trader who likes to know right away if he is right or wrong will find the mini-sized Dow the market to trade. A trader who likes to stay active in the market should look at the mini-sized Dow. A trader who has other commitments, and can only devote a few hours a day to trading, should trade the mini-sized Dow. The mini-sized Dow moves, and in the course of several minutes a trader can make several trades. "When trading the mini-sized Dow, we like to enter trades looking for at least 8-10 ticks and risking an 8 to 10 tick stop", Broz says. "To risk more in the mini-sized Dow is too aggressive. To attempt to trade with a tighter stop is too conservative".


Riding the Ebb and Flow of the Dow

Although the CBOT mini-sized Dow market is in some ways a different market from the Treasury futures markets, the preparation for trading this market is largely the same. In preparing to trade the mini-sized Dow, Broz says, "We use a bit more Fibonacci Retracement analysis and trend lines as we prepare for the trading session, but the core of the preparatory analysis is the same: looking at charts with different time frames to identify prices that keep repeating. Those prices have been where the action is, where the volume has traded, so we want to focus on those prices". The mini-sized Dow is a great scalping market, according to Broz. Because of this, he and Shaoul can identify trading opportunities, in addition to their "parked" orders, as they watch the order book. "We focus on the upticks and downticks", Broz says. "If the market is chopping up and down 3 or 4 ticks, we will place sell orders 4 and 5 ticks above the market, and buy orders 4 and 5 ticks below the market. For example, if 11,130 is trading, we'll place a sell up at 11,135 and a buy down at 11,125. We are, in effect trying to get ‘picked off,’ and if the market flows up to 11,135 and fills us, we might just pick up 5 ticks as it ebbs back down to 11,130".


Keeping Trading Expectations Realistic

Another important part of preparing to trade the mini-sized Dow is to identify what the realistic profit potential is in the current market. Broz says, "We'll look at the number of ticks that comprise the average bar on a 5-minute bar chart. If the average 5-minute bar is 7 ticks, we know it will be very risky attempting to take 10 ticks out of our scalps".

Broz says traders should apply this same principle to stop-loss placement, saying that "if the market is very volatile, with an average 5-minute bar covering 20 ticks, placing a stop at anything less than 20 ticks would be too conservative".


source:



About article author:
Jack Broz and Saul Shaoul are active CBOT traders and partners in The Marlin Letter. Concentrating on Treasury and CBOT mini-sized Dow futures, these traders essentially look for scalp trades that have the potential to become slightly longer-term. To locate these opportunities, they analyze charts covering time frames ranging out to a year in search of key price levels, repeating prices, and 50 percent retracements within the various ranges.

The views and opinions given herein are solely those of the individuals quoted and do not necessarily represent the views and opinions of the Chicago Board of Trade.

The information in this publication is taken from sources believed to be reliable. However, it is intended for purposes of information and education only and is not guaranteed by the Chicago Board of Trade as to accuracy, completeness, nor any trading result and does not constitute trading advice or constitute a solicitation of the purchase or sales of any futures or options. The Rules and Regulations of the Chicago Board of Trade should be consulted as the authoritative source on all current contract specifications and regulations.