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Signs of Activity

Use all your senses to trade the markets. If trading directly from a screen, watch for the signs of activity in the market. One trader I know booked a $9,500 day trading soybean profit, because he noticed a step up in trading activity as prices were making a new daily high.

How could he know that suddenly the market had become very active? He was watching both contract volume and tick volume.

Normally, these will go together. In the case of the soybean trade, the trader noticed that positive contract volume had become quite low, but negative tick volume diverged, and was quite high.

In other words, a lot of trading was taking place, but not because of buying. The activity showed a frenzy of selling. This told him prices were about to drop, and they did - like a rock. The market fell 24 cents less than two hours later.

Using your senses is part of trading what you see. If you are watching intraday, watch closely the way prices tick. While doing so, try to picture in your mind what is happening to make prices move the way they do. After awhile, your comprehension will begin to expand, and you will develop a "feel" for what is happening, so that in many instances, you will instinctively know a good trade from a bad one.

If you don't have software that shows you tick volume, you might think about changing software suppliers.

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Thursday, 13 June 2024

Derivative transactions, including futures, are complex and carry a high degree of risk. They are intended for sophisticated investors and are not suitable for everyone. There are numerous other factors related to the markets in general or to the implementation of any specific trading program which cannot be fully accounted for in the preparation of hypothetical performance results, and all of which can adversely affect actual trading results. For more information, see the Risk Disclosure Statement for Futures and Options.