Futures
Trading 10
Day Trading With
Trend Filters
by Malcolm Robinson
As a trader I trade off
the current price more than I do the chart, it is fairly instinctive trading style that
requires good discipline and fast responses. It also, obviously, requires a direct access
broker with a direct link to the exchange. When I was trading on the exchange floor,
trading in this way, I had an edge on the market just by being on the floor. I could bid
and offer the market, I got immediate fills (I just had to shout “buy”
or “sold” and the deal was done), and my transaction costs were
very low.
As a screen trader life is
a little different. Although many traders do not utilise the advantages of a direct access
broker, these services are available to all. So the edge I enjoyed on the floor is no
longer an edge as everyone can participate in them. We all need an edge to trade
successfully. Our edge now, is solely made up of our ability to read (anticipate) the
market and our skill in implementing the opportunities we perceive.
I am skilled at reading
the current price, which is to perceive opportunities on a very short-term basis, but I
have sometimes found myself on the wrong side of a big and sudden move. (I expect everyone
reading this knows what this is like given recent conditions!) This is because in the past
I have not filtered my trades to make sure I am in line with the broader trend. Take today
for example, as a scalper or day trader, the main opportunities have been on the short
side (in the first 2 hours at least). Anyone focusing only on selling opportunities would
have had a great morning. Looking at the broader market, it is obvious that it is in a
downtrend and that therefore scalping on the short side is a good idea.
Determining the trend of
the market, in a longer time frame than the one you trade in, is a very effective way of
putting the odds in your favour (i.e. giving yourself an edge). So if you trade from
30-minute bars you could use daily or 60-minute bars to determine the broader trend. If
you trade of 1 or 2-minute bars you could use 5 or 10-minute bars to determine the trend.
Then only take trades in line with the trend.
In the recent market the
trend has been fairly obvious, but this is not always the case. So it is useful to have a
method for determining the trend objectively. You could use any one of the basket of
indicators that come with a standard charting package, but I have found most of these to
be either too late in their indications or work only intermittently. I have developed my
own trend indicator, which I won’t reveal here (as it is part of my online trading
manual), but I will use as an example of the effectiveness of filters.
All examples below are
hypothetical and are based on taking signals between 8 – 11 am in the FTSE September
Futures on Wednesday July 24th
5-Minute Chart:
Trading the High/Low trend
system on a 5-minute chart this morning would have produced a profit of 123 points for 3
trades (average 41 points per trade); but filtered by the trend of the 30-minute chart the
result was 113 points for one trade (average 113 points per trade).
2-Minute Chart:
Trading the High/Low trend
system on a 2-minute chart this morning would have produced a profit of 60 points for 5
trades (average 12 points per trade); but filtered by the trend of the 30-minute chart the
result was 77 points for 2 trades (average 38 points per trade).
There are many creative
ways of using trend filters to increase the probability of a successful trade and the
average profit per trade. I hope I have stimulated some interesting thought as to the
possibilities of trading the futures market. For more information about my online trading
course visit my web site, details below.
Learn How To Trade The
Futures Markets
The Online Course Is Now Available!
http://www.TheMasteryOfTrading.com
Copyright © 2002. Malcolm E Robinson. All rights
reserved.
