Here we are, heading towards the summer and the market is doing its typical thing – just some massively volatile moves and panic over a good, old-fashioned trade war! Wait, that doesn’t sound quite right.
Yes, things are a bit different in May after a relatively slow and quiet April. It seems the switch has been flipped thanks to plenty of incendiary headlines on trade and the political climate both in the US and abroad.
I often get asked what I change in my Emini S&P 500 (ES) trading when volatility spikes but the answer remains the same – I just stick with the system. I make small adaptations to take bigger profits when available thanks to the larger swings but I still keep stops small. This greater reward to risk helps to balance out the increased number of whipsaws we see from volatility and often sees our trading expectancy increase even with a lower win rate.
That’s the thing about my ES trading, I keep it simple and stick with what works. I don’t make sweeping changes when it’s a difficult week or I take a few losing trades in a row. I just follow the plan and let the edge play out.
If you’ve done this for as many years as I have though, you do occasionally find yourself looking for a bit of trading excitement. Just like any profession there are times when you just need to grind things out with hard work and focus but it’s often the periods where you get to be creative and flexible that are the most satisfying.
For me, I find that satisfaction both from the teaching process and from ongoing trading research and development work that includes trading a variety of markets and instruments. In the periods where I’ve “gone dark” and made few posts on the blog this is always the reason why – I’m exploring new trading ideas and filling that creative need.
One instrument in particular that I’ve traded a great deal in the past couple of years is the Emini NASDAQ 100 (NQ) futures contract. Although closely related, there’s no doubt that the Emini S&P 500 (ES) and the Emini NASDAQ 100 (NQ) are different animals in their behavior. They may get to a similar place at the end of the day but the journey there is rarely the same, especially considering the occasionally wild movements of the NQ.
With the ES I take a very structured approach to my day trading system. It’s a market with huge volume and limit orders are a major driver of movement with many traps and swings meant to capture and fill those orders left in place. I like to break down the structure and market context, place my orders well in advance for price to come back and fill, then carry on with the price momentum.
Things don’t always work the same way in NQ. Market orders are what’s really driving things there and big jumps back and forth aren’t uncommon as bulls and bears battle it out. It’s much more difficult to rely on prior levels or momentum in the NQ as you can’t as easily predict where imbalanced order flow is likely to enter the market. In the NQ, it’s usually best to wait for a bit more confirmation.
This is why I take a more intuitive approach to trading the NQ with something I call Flow Trading. This approach has taken a number of forms in the past couple of years because unlike my ES approach I’m willing to be far more creative and essentially treat my NQ trading as “controlled play”. Trading the NQ in this way fulfills a desire for creative expression and though I don’t trade it with the same size as I would the ES I still find it handles 3-5 contracts easily with minimal slippage. While I’ve experimented with more contracts than that I still need more time and data to see what the NQ can really handle before slippage becomes a major issue.
I look to read the flows of orders as bulls and bears battle it out, try to identify areas where one side may be able to take overwhelming control to allow for a bigger break (thus better reward to risk potential), then I look to trade using Market orders as price confirms. Many times this means I’m just waiting with the finger on the button to enter when necessary but more recently I’ve been trading far more often with Buy and Sell Stop Market orders as price breaks in my direction.
There’s nothing particularly special about these charts. I’ve changed them numerous times in recent months but it doesn’t really matter if I’m using 1 Minute charts, Volume charts or 10 Range Bar charts as I am here. “It all works or none of it works” as I once heard another trader say. If you can read the flows then the way you set up your chart doesn’t really matter all that much.
For today’s trading I’m using a chart setup similar to another STA trader who likes to regularly trade the NQ which includes a 200 Period Donchian Channel and a 100 Period Donchian Channel mean line. I also have my BattleLine set up to act as a guide for trend and overall market strength.
That’s all that stuff is though, just a guide. Indicators have their uses but they mostly provide context letting you know where you are relative to past action. I don’t rely on them to predict the future movement, particularly in something like the NQ which can shift its mood at any time.
Instead it’s about reading price and momentum and looking for structures which provide opportunity for an order flow imbalance. I try to find those areas and structures where if one side exerts control they are likely to do so for a good run.
Part of this is just about practice and getting a feel for how price is reacting (holding edges, churning with no control, over-exerting, etc.) but some traders find order flow tools, Volume Spread Analysis (VSA) or just watching the DOM can help with timing.
The NQ isn't for everyone. I definitely don't think it's a good market for learning how to trade or for picking up the basics of price action. Things just move too fast and are too volatile overall. However, for the more experienced trader that wants to trade in a more intuitive and instinctive manner it can be a great fit. It's a free-flowing and fun instrument to trade and gives endless potential for a trader's creative expression.