Saturday, October 13, 2007

Futures Rule Change Consideration

There are two distinct periods during the day: (1) morning session and (2) afternoon session. In between is the doldrums (lunch break in the east). Given that I am in the west, the doldrums show up during the 9:00 to 10:20 period. I use 10:20 due mostly to past observations of the market. I've found that volatility picks up quite a bit around this time, sometimes with head fakes, sometimes it's the beginning of a move for the afternoon session. I have also noticed that the head fakes turn into chop until 11:15ish period. So, my goal is to just use my momentum indicator during periods of trend. It's noticing the chop and then standing aside until trends kick in. I have my rules for the morning session to catch trends (see previous Futures post), I now am attempting to establish a rule for the afternoon session. What I have noticed is that the range established during the doldrums sets up support and resistance areas that are honored until the market wants to trend. Using a momentum indicator during this chop period just does not work. I spot checked doldrum periods going back through a 500 day period and found that this is indeed a distinct range that needs to be honored if using a momentum indicator. The good news is that been false breaks tend to give up 20 YM ticks before reversing. My rules have me peeling off my first target once 20 pts is attained. I may modify my afternoon targets to be T1=10 ticks and T2=20 ticks, but more research is needed before I make this change.

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