What an odd week it has been. We went from plenty of trading activity and volatility to very little and then right back to the fun stuff again. It’s not really much of a surprise when we considering the unusual combination of factors working on the market.
As many of you know, contract rollover was today. In futures the contracts switch every three months so today we went from the 03-13 contract (March expiration) to the 06-13 contract (June expiration). Normally this leads to some unusual activity but this time there was a little bit extra due to the release of Non-Farm Payroll at the same time. This doesn’t happen often because NFP is generally on the first Friday of a month and contracts expire on the second Friday, but this time they overlapped. What this led to was some extra slow days before NFP (especially yesterday) but then once we made the contract switch and had the volatility of NFP enter the market things really opened up for us.
There was no great secret to trading it – just identify the market momentum and jump on for the ride.
The most difficult part of the day was right at the beginning. As you can see there was a very large spike up on Non-Farm Payroll release but that quickly retraced before heading up once again. By the time the market officially opened however, we had not been able to reach that prior high near 1548. This gave a fair bit of uncertainty to the market that a trader needed to be aware of if they were going to make good decisions and quickly adapt to changing conditions.
This is exactly what happened at the start where I tried to go long in line with the overall trend up but very quickly it showed signs that it was likely to fail. I managed to reduce my risk a bit and used the contrary signal that got me out of the previous trade to get me into a new one in the opposite direction. The quick reversal is a very difficult trading skill so this is admittedly more of an advanced trade and somewhat risky as well.
Luckily I quickly got my move and I was able to manage 3 points to a clear area. Why not the usual 2 points, you ask? Well, a part of trading is trying to identify the probabilities of certain scenarios and from the way I read the market I saw that if price made it 2 points it was highly likely to push a bit lower for at least 3 in this specific case. When price made it to my target I considered moving it even lower but unfortunately I was filled before I had the glance. Left a bunch of ticks on the table but I was still happy with the overall outcome.
It’s important to know when to be more aggressive in terms of your targets and this was a place where it made perfect sense.
The rest of the move down is pretty straight-forward stuff as we rode the waves until the market threw us off. Sounds simple – and it is – but that doesn’t mean it’s always easy. The further a move goes the harder it can be to place the trade and get back in but until you are given a compelling reason not to take a trade you have to keep pushing. Confidence is a big part of this and having a strong, tested trading plan makes a huge difference in this regard.
The failure and the small loss (along with some other factors) helped us to identify the market turn but I avoided the first long as I wanted a bit more confirmation before any trades to the upside. The second try from 1539.75 was ideal and a perfect 2 points right to our previous area. The next potential setup was one that according to our plan is fairly high risk and would be avoided by most traders. I considered an immediate entry as I felt I could manage my way out of it if need be but instead I removed my order and decided to wait and see.
I became convinced of the area and the likely upside so I took one final long. Things were getting quite slow at this point so I reduced my target a tick into the prior highs and just let the trade take care of itself from there. It turns out that I could have had a fair bit more on this trade if I was willing to hold it but being a Friday and having some nice points in the bank I was more than pleased with the conservative exit to wrap things up.
Edit: Someone pointed out to me that I missed mentioning one of the trades in my recap. The omission has now been corrected. I guess that’s what happens when you are trying to wrap things up to quickly on a Friday!
Hope you all had a great trading week!