After looking at how the different index futures have been acting recently, I made the executive decision to focus on the NQ today as it seemed to be trending the strongest. It also fired off a daily long squeeze play yesterday indicating that it was still looking to go higher.

This morning I was actually hoping to buy a gap down, but none occurred so I had to be patient and wait for something juicy to set up. And boy did my mouth start to watter a little after 10:30 this morning when I saw price dropping into an area supported by 2 FFF Reversal Zones on some lighter volume (not shown).

I had my limit buy order set up at 1845.25, a couple ticks above the bottom FFF Zone of 1844.75. At first I was very disappointed that price failed to fall into my buy zone for by all rights price “should” have fallen to that area. That’s when I started to shift my perspective and really look hard at what the market WAS telling me. Namely, that it was getting ready for a nice rally.

Here’s what I started to see:

1.) Price failed to make it to those 2 FFF Reversal Zones which usually act like price vacuums.
2.) Downwards volume was drying up
3.) There was a reverse H&S Pattern starting to form on the 55-tick chart
4.) Price & TRIX were making higher lows
5.) Then there was the trendline break.

On top of all of that, the TRIN was trending down and the basket of index funds that I monitor all seemed to be drifting higher as well. Needless to say, my disappointment dried up real quick and I got long at 1849.50. I started the day with a bullish bias and this seemed like a nice spot to go long.

for the next 30 minutes, price grinded higher but the volume just wasn’t there to keep me in. So when I saw the – Trendline break & TRIX Divergence, I closed my position for a nice gain of 3 NQ points. It ended up being the only trade I made today. If I had stayed in, I would have fared much better as the NQ went on to make new all-time highs today, but I can’t be displeased with the play.

I’ve been fiddling around today a lot with Oanda’s FXGame currency trading demo platform. From what I’ve learned thus far I’d be losing and gaining some advantages by switching to the FX Markets.

Advantages:

No Commissions: You pay the difference in the spread, period. That’s not to say that the spread isn’t a significant cost but not paying a broker’s commission has to count for something
Better Leverage: 100:1 (I’ve heard that some brokers offer 200:1, but let’s not get carried away)
Better Hours: 24/7 trading (which is great, especially if I start selling real estate during the day)
Maximum Liquidity: 1.5 Trillion a day should be enough to cover my positions
Carry / Interest: If you play your cards right and stick with the right currency pairs, you actually earn money on the money you borrow to trade with… 4.00% p.a. with 100:1 leverage sure goes a long way towards putting a dent in your losses

Disadvantages

No Volume: I use volume a great deal in my current style and would have to get used to not having it to lean on
No Market Internals: (NYSE-TICK, TRIN, Put/Call, Basket Monitoring) All of which plays a huge role in my trading methodology and all of which would be useless if I switch to the FX markets
Big Educational Curve: There is so much I need to learn, become familiar with, and master before I feel confident putting up any kind of a real stake in the FX Markets. What kinds of economic reports to pay attention to from the gazillion different countries and when will they report just to name one.

In a way though, if I can become proficient at trading profitably without having to rely on volume and market internals, I think that in the long run it will make me a more robust and profitable trader. I am not looking forward to the lumps I’ll undoubtedly receive as I try to find my way in this new arena, but I always love a good challenge.

I’ve been looking for an opportunity to try out a new exit strategy for my Flash Formation Fractal play and I got it this morning. But first some background information that made me want to change anything in the first place.

As those of you who follow my blog know, I am a big fan of FFFs and counter-trend fades in general under the right conditions. They can offer low risk, high reward entries if you have the guts to pull the trigger. In the past, I have used a standard 1.50 ER2 point stop for such entries and I would hold onto the position until either my stop or target was hit. After evaluating enough of these trades, I started to see a pattern emerging that seemed exploitable.

When FFFs fail, sometimes price would just blow right through the FFF reversal zone like it wasn’t even there. But because FFFs by definition occur only at the end of a prior move, these bursts often would not go too much farther before some sort of reversal is mounted. Under my old exit strategy, 1 of 2 things would usually then happen.

1.) Price would blow right on up and take out my stop prior to a correction
2.) Price would stall and pull back but never make it to my target…when this happened my stop would usually get hit eventually

However, rarely would my target get hit before my stop under these circumstances. This isn’t to say that there weren’t times when the position would show a profit, its just that my binary exit strategy was not robust enough to capture limit my losses and maximize my gains under this scenario.

FFFs are supposed to be areas where a price reversal is imminent, period. Thus if price blows through the FFF zone, it is a red flag that such a reversal is no longer likely and a sign to be looking for the nearest exit.

So my new strategy is this:

Set the initial stop at a reasonable distance beyond the FFF Reversal Zone (‘A’ on the chart above). If price blows through this zone, then wait for the move to stall and look to take a small loss/profit around the entry price as the whole premise of the play is blown.

However, if the FFF holds true and price does reverse, adjust the stop to a more reasonable level (‘B’ on the chart above) but still ensure that it is outside of the FFF Reversal Zone.

Finally, as price makes it halfway to the target, move the stop to just above the FFF Zone (‘C’ on the chart above)

Which brings me to today’s play. It was my only trade today and it yielded a return of 1.53 R-Units. The NYSE-TICK had spent the entire morning under water up to that point. Price was mapping out a controlled upwards corrective move off of the morning drop attempting to go for a gap fill.

What caught my eye on this move though was the lack of increasing volume on the 2-minute chart. While volume spikes were occurring as price increased, each spike was lower than its predecessor. This was all the confirming evidence that I needed to attempt an FFF Fade.

I ran the calculations and the FFF Reversal Line was in the 782.10 area so I set up a Limit Short Sell at 781.90 with an initial stop at ‘A’ . My target on this play was looking for a pullback to the rising channel trendline around 779.00. Not wanting to get greedy, I put a Stop Buy Order at 779.60 and within 15 minutes I was hat hit my Net Daily Goal for the day.

Overall, I had a very productive day.