WARNING – US Indices – How to play the week ahead.

If there’s one thing assured about the upcoming week on the US indices, it’s that it’s definitely going to be interesting. We have increased risk and increased potential reward. But how to play it? Let’s take a look at what’s going on and what to look out for:

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US Indices

The white boxes are the summer time range, we can see that when we came out of that range, volatility initially increased but since then it’s becoming narrower and narrower.

This is major indecision. It’s potentially a tough market to trade. Fortunately, we have been blessed with a decent daily range – but not with good prices to “play off”. So it’s been a matter of not having a good bias going in but momentum being sufficient that we can just follow the major moves.

For me – I don’t believe anybody can tell which way a market like this will break, although I always favor continuation. Markets tend to work like “coiled springs”, the range gets narrower and narrower building energy until it finally breaks out violently. It’s just a dynamic of speculation. But that’s the technical side – then there’s the non-technical side

The US Indices spanner – Deutsche Bank

Every now & again, we go through periods of increased ‘news risk’. These are times when at any moment, news can come out that will throw the markets sideways. Right now, that risk comes from Deutsche Bank. It appears that a US$15bn fine from the US Department Of Justice could well put the bank out of business. Of course, that is unlikely to happen. What is more likely is that they will get taken over by another bank or bailed out by the German government. It is also possible that they get better terms with the DOJ.

Note that it’s been calculated that restricting Bonuses could save Deutsche Bank $3.2bn a year. Let’s not hold our breath for that announcement…

The actual outcome isn’t what’s important to US Indices traders. The fact is that unlike scheduled economic news releases, there can be news coming out on this subject this at ANY TIME. Trading without listening to a news squawk is pretty dangerous right now. All it takes is an off the cuff comment from a German politician, the DOJ or a bank executive and the market could go into a sudden and violent reaction.

So there’s the increased news risk. Moves can come out of nowhere…

Zooming In – Weekly US Indices

US Indices 2

Looking at this weeks S&P 500 futures market profile so far, we see a single ‘Gaussian’ distribution.  In other words, we’ve just traded over the same area, over and over. Total indecision.

The Daily Picture

US Indices - daily

And this is where it gets interesting/unusual. When the market is directionless, the range is usually low. Right now, we have a directionless market with a good intraday range. The indecision means it’s hard to find a price to trade off based on long term analysis. The range means you probably don’t have to.

Order Flow and Entry Points

US indices

In terms of entries, on days like this, you will probably not get may clues as to where the market will initiate a move before the day starts.

In the example above, we can see the following:

1 & 2 – We moved up from the open and hit point 1, where we saw exceptional size trade (the circles show where exceptional size traded).  Some traders got trapped up there and we got a swift move down. As we moved back to that point, we saw exceptional size trade again – but this time – more people were watching that area and so more people jumped on the move to the downside.

3 – We can see a number of circles on the way down signifying significant size. This is normal and taking a long just because of the circle AGAINST momentum is not a high probability trade. At point 3, we got a final circle but still no decent reference points at that price, and so the move up was lackluster. Speculators didn’t feel comfortable jumping on that move.

4 & 5 – We got to point 4, which was not a significant price. We did trade exceptional volume there and the market moved down. We moved up through point 4 to point 5 but couldn’t hold it (very similar to what we did at points 1&2) and because more people were paying attention to the ares (because of what just happened at point 4), we got a deeper sell off. In addition, if we compare the move down from point 2->3 to the move up to point 3->4, it is clear that there is much more “power” behind the downside moves which again is helps gives sellers confidence.

US Indices – Same Plan, Different reasons

So we have a market that is indecisive yet volatile and we have increased news risk. Going into a day, it will be tough to assess the direction. We may need to take a few attempts to get on board a move but once on board, we should be able to benefit from momentum. With news coming at any time, we need to mitigate risk, so the sensible thing given all this is to scale into positions.

In other words – don’t take a full size position initially – because the news risk could hurt you. Better to take a small position and then as the market moves your way, add to that position.

So on the risk side, we have overall indecision and increased news risk. On the reward side, we have increased range. Scaling into a position will make the most of these conditions.

Jigsaw Trading are proud to be part of the My Trading Buddy Community and look forward to sharing our experience.  To find out more about us, please

Click-the-button.-See-what-happens.-I-dare-you

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After suffering a 30% drawdown at the hands of “independent financial advisors”, Peter started trading in the early 2000’s, figuring there was no point in paying people to lose money for him. By 2005, Peter was day trading NASDAQ stocks and later discovered the value order flow. He struggled with the way order flow data was presented so designed tools that organized Order Flow information more rationally and Trading was born. Those tools are now the #1 ranked software on Investimonials.com.
Today Peter spends his time trading and helping other traders through the Jigsaw community, articles and free one on one sessions.

Jigsaw Trading

After suffering a 30% drawdown at the hands of “independent financial advisors”, Peter started trading in the early 2000’s, figuring there was no point in paying people to lose money for him. By 2005, Peter was day trading NASDAQ stocks and later discovered the value order flow. He struggled with the way order flow data was presented so designed tools that organized Order Flow information more rationally and Trading was born. Those tools are now the #1 ranked software on Investimonials.com. Today Peter spends his time trading and helping other traders through the Jigsaw community, articles and free one on one sessions.

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