Last week the model flagged bullish and that resulted in me taking my knocks all week long. Fortunately it was a holiday shortened week. Also one of my favorite trade setups materialized Thursday morning which allowed me to recapture some losses. I am going to explain that trade in a very simply way since I had a few people ask about it.
But first a quick note regarding this Sunday’s Exodus strategy session. The model flagged neutral after a four week long streak of flagging directional bias. It went bearish four weeks ago then bullish for the last three. It is back to neutral. There are no major economic releases scheduled next week, so I will only be trading my bread-and-butter top trade setup, scalping the price levels highlighted in my morning reports, and taking the ‘day after trend day’ setup up if it again materializes. I will otherwise be sidelined. This is how I trade when the IndexModel goes neutral.
Alright let’s go.
Last Wednesday the NASDAQ 100, which I track and trade via the E-MINI NASDAQ 100, a futures contract which trades on the CME, printed what I can best describe as a ‘double distribution trend down’. It was not a full trend day. A full trend day [down] prints a lower high and lower low during every 30-minute time period, all the way into the close and closes at-or-near session low. Wednesday the market caught a bounce late in the morning, right up to the daily midpoint, but then it methodically worked lower the rest of the day. The session did not form two distributions but it’s the closest name for what actually happened. In short—it was a trend day but not a full blown trend day.
The trade then has to setup overnight. After the market closed Wednesday it went into a drift but never took out that Wednesday low. Here’s an expert from the Thursday morning trading plan:
NASDAQ futures are coming into Thursday flat after an overnight session featuring extreme range on normal volume. Price was balanced overnight, hovering along the bottom quadrant of Wednesday’s range. As we approach cash open price has yet to take out Wednesday’s low.
The setup was in place. My first trade was to sell short the NASDAQ 100, via the front month futures contract (September 2018, or @NQU18) and target the Wednesday low. Hence the primary expectation of the Thursday trading plan:
Heading into today my primary expectation is for sellers to work down through overnight low 7509.75. Look for buyers down at 7495.75 (08/24 gap) and two way trade to ensue.
The trade netted nearly 40 points. This is a simple trade that my statistics show has a high win rate.
But my bread-and-butter trade is the overnight gap in-range. This setup occurs when we are trading inside the prior day’s range but price has moved away from where we closed the day before. My first trade of most days is to close this gap. My trading career is built on closing overnight gaps.
And that’s the thing about trading. You actually don’t need a bunch of sophisticated trades—just a few setups that you can execute well over-and-over, building size into them as you become more competent. Bruce Lee famously says that he doesn’t fear the man who has practiced 10,000 kicks once but the one who practiced one kick 10,000 times.
Those are my two favorite trades. They setup often, they setup when my ability to trade is its sharpest, and they are simple. At the end of every Exodus Strategy session it says trade simple. Simplicity is the one thing I feel most people misunderstand about trading. Hopefully this quick blog entry has some light bulbs flickering on in your minds.
Let’s have a strong beard first full week of September.
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