An NYSE Scalper's Tale - A Trader's Diary

Thursday, February 15, 2007

Mind The S&P Futures

Gross: +$53.15
Net: -$187.55
Loss From Top: $187.55
Trades: 61
Shares Traded: 212200

Stocks Traded Today (net profit/loss):
General Electric Company (GE): +$268.79
Micron Technology Inc. (MU): +$181.12
Alcatel-Lucent (ALU): +$82.92
Elan Corporation (ELN): +$80.11
CSX Corporation (CSX): +$76.23
ABB Ltd (ABB): +$55.72
Agilent Technologies Inc (A): +$49.44
Weyerhaeuser Company (WY): -$77.85
EMC Corporation (EMC): -$119.53
Anheuser-Busch Companies Inc. (BUD): -$200.54
Terex Corporation (TEX): -$254.85
Time Warner Inc. (TWX): -$329.11

Recently a reader asked why is it that I pay so much attention to the S&P Futures, especially now that I'm trading more "stocks-in-the-news". The reader also asked whether these "stocks-in-the-news" really follows the S&P Futures and whether I can just disregard what's happening in the Futures when I trade them.

I would say that if one were a longer-term trader (like holding onto a position for a couple of hours), then I'd say that yes, you could probably disregard what's going on with the Futures, since the overall supply and demand is more likely to move the "stock-in-the-news" in the long run.

BUT, if you are a short-term trader that's in and out very quickly, then I'd say that the Futures MAY have a brief (but noticeable) impact on a stock's movement. Of course, not all stocks will follow the Futures, regardless of whether it's in the news or not.

I'd have to say that if you're a short-term trader and if you want to increase the probability that a trade will go in your favor, then it's best to trade in the overall direction of the S&P Futures.

So if the S&P Futures suddenly moves up, look for longs and if the S&P Futures suddenly tanks, look for shorts.

Yea, sure, you could get into a trade and the stock you're in disregards what's happening with the Futures, but unless you're willing to hold onto a loser for possibly a long time or if you intend on holding your position for a long time, then why take the chance? Trading is all about probabilities, and I like the odds to be in my favor by as much as possible.

So if you are like me (I don't like holding onto losers and I don't have the patience), then using the S&P Futures simply increases the probability the trade will go in your favor. If you are already in a position and the Futures starts moving your way, then great! It'll probably help your position along.

Ok, ok...where am I going with this....

Well, since I've been trading a lot of stocks in the news lately, I've noticed that I've been paying less attention to what the Futures were actually doing. Sure I've taken some good trades, mostly because at the time, the Futures were either moving sideways or at least they weren't moving significantly enough to affect the overall direction of the stock I was trading.

But today I completely ignored what the Futures were doing in the morning and I got myself into a bit of a jam.

I traded both Anheuser-Busch (BUD) and Terex (TEX) early in the morning and on both occasions, I disregarded the fact that the S&P Futures were tanking quite hard and took longs in both stocks.

Both BUD and TEX were in the news and I figured that since both would be actively traded today and both were gapping up, that I could ignore what was going on with the Futures.

Well, had I been a longer-term trader and a trader who doesn't mind looking at a temporary loser, then sure, the trades would have worked.

When I first got into both longs, I saw the Futures tanking hard, but I figure that both stocks are in the news and I can ignore what's going on with the Futures. So I got into them (when every instinct just told me to not to). Well, both stocks fell...not by too much (but I didn't know that...nor did I would I know the extent of the S&P Futures move to the downside) and I had to jump out of my positions for losers (see both bad trades below).

Both were for $200+ losers.

And all morning I kept getting into positions right when the S&P Futures moved strongly in the opposite direction. And every time, I just hesitated...unsure of whether I should get exit my position or not.

My original trading plan had me trading in the direction of the S&P Futures. Go long when the Futures are moving up, go short when the S&P Futures are going down.

Today, I seemed to ignore those rules.

As a result, I was down over $750 by lunch.

I wasn't very happy at that point. There were about 6 trades back-to-back that resulted in losers because the Futures made sudden movements in the opposite direction of my trade.

I then found myself having to trade in a conservative way on reduced share size and I was not liking it at all.

At one point, I just didn't feel like being there. I felt like sitting there in the office was the last place on Earth I wanted to be and I just wanted to get my mind off trading and forget about trading altogether.

Add to that some choppy afternoon markets that traded in a narrow range and you got lots of time to think about what a terrible trading day you've had.

Well, for some reason I just stayed. I wanted to leave the office really badly, but I just stayed and traded the day.

So I began the arduous task of chipping away at my loss. The markets didn't really give me many opportunities to do so, but I just continued to chip away at it and slowly I began digging my way of the hole.

Well, I guess you can just say that time ran out, so I was stuck with a losing day today.

Today I just didn't really feel into it. Like most weeks, my focus and attention level is high on Mondays but I slowly feel fatigued and less excited as the week goes on. I feel as though this post isn't well-written as I'm completely fatigued by this week's trading and my mind feels like mush. I'll try to get some good rest so that I can finish off this week on a good note.

No good trades and two bad ones. Not gonna post up charts...this post has taken longer than expected to type up and I have some things I need to do tonight.

I know, I know, losing days come with the territory and I'm not ashamed of posting a loss....just as long as I learned something from it....at least it reminded me of one of the most basic trading rule I have in my trading plan: Mind The S&P Futures!

Good Trades
None

Bad Trades
9:38:14AM - Anheuser-Busch (BUD) had opened and I was eyeing the $51.75 level because there was some decent size on the offer that I could hit should it break. Well BUD was at that level and just then, the Futures started tanking hard....at the same time, the $51.75 level was breaking, so I went long 2000 shares. BUD quickly fell back down and I wasn't planning on seeing how far down BUD would go. I got out as follows: 9-cent loser (600 shares), 10-cent loser (1400 shares) ($194 loser before fees ; Long 2000 shares @ $51.75 ; Out: 9:38:33AM)

9:40:32AM - Terex (TEX) was moving up and came up to the $65 level. When it broke, the Futures tanked, but I went in long 1000 shares. TEX fell with the Futures, so I got out as follows: 11-cent loser (500 shares), 35-cent loser (200 shares), 42-cent loser (300 shares) ($251 loser before fees ; Long 1000 shares @ $65.00 Out: 9:40:54AM)

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3 Comments:

  • Can you gauge the S&P futures levels to trade by, simply by monitoring the realtime S&P tick readings available with my TDAmeritrade tradestation setup; is there a site that gives us these readings realtime (for no cost). Or, is this a proprietary info flow that will cost me? Thanks and superb site, by the way.

    By Blogger M, at February 15, 2007 8:11 PM  

  • I left two messages regarding entry and exit but haven't received an answer. Am I doing something wrong? Please advise!

    Thank you in advance!

    By Anonymous Anonymous, at February 16, 2007 8:54 AM  

  • M,
    Thanks for your comment. I'm not sure if there are any free real-time S&P Futures quotes. Ideally you'd want some charts as well as the time & sales for the Futures. If you are trading through a brokerage, that will probably cost you a little extra. Keep in mind that you've got to be quick if you want to trade off the Futures movements...if you're just using the S&P Futures values off CNBC or Yahoo, then it's probably too late. Ideally, when you see a sudden movement on the Futures, you should already have an order ready to get you into a position. Hope it helps!

    Anon@8:54AM,
    Thanks for your comments. Sorry about the delay in responding. As you can see I didn't even have time to post up my "On Tap" post because I was too busy last night and this morning I was too busy playing catch up. Again, sorry for the delay!

    By Blogger J.C., at February 16, 2007 5:11 PM  

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