AbleTrend Software Application Note -
Swing trading futures (hold positions for several hours or a few days)

Many traders are swing trading futures contracts. This application note will cover the details regarding to futures swing trading.

Nature of the Market

It is our belief that the indices price actions, like every other market, alternates between a short-period big price movement and a long-period consolidation. Normally, the length for consolidation is three to four times the length of the big price movement. This observation is very important for trend-following trading. Our software and all related trading methods and strategies are based on this understanding of the nature of the market.

Must-Read Materials

Please spend time on two very important web pages and thoroughly understand the points and rules in these pages:

View Of Market Challenges And The AbleSys Solution Model

The Right Way to Use AbleTrend Software

STM Trading Video at Member section

(You can also find similar materials in AbleTrend 7.0 Manuel as well as the Help within the software program.)

Powerful and Flexible

Because AbleTrend is very flexible to accommodate all trading styles and all markets, each trader can explore settings (selecting different intervals, applying different indicators and fine-tuning parameters for indicators applied) to fit his or her trading style and risk tolerance. This note intends to offer some specific settings and practical implementation details for a first time user of our software.

The Best Interval

We recommend 30-60 minute charts for Forex day trading. If you have some experience, you can use a 15-min chart to act more aggressively if you anticipate that the upcoming session will likely be trending (the prior session was choppy). For the same reason, you can use a 60-min or longer chart to let the software generate fewer signals so you can avoid some of the market choppiness. There is no absolute best interval in trading. It is generally true that charts with smaller intervals will generate more signals with lower initial trading risks and lower signal accuracy while charts with larger intervals will offer the opposite. Traders need to find the balance point that fit their trading profiles.

Again, you enter a position when you see the trading window T1/T2 agrement at the end of a consolidation. The trading window will give you the precise reading of your initial risks. You can also manage the trade with the trailing stop values of the T2. You start with the T2 stop protection as soon as you enter the position. Since the positions are held overnight you need to migrate to the daily chart stop value (T2) once the T2 value is near the position entry price.

Best Setting for Trading Session Time

You can change the session time inside the "S" (symbol) icon window. Normally we just use the default swing setting that is 8:30 to 16:15 EST for day session time.

Coordinate with the Guidance Window

Normally, traders like to use a relatively larger interval chart as guidance, such as using a 30-min chart along with a 3-min trading chart. We can call the 3-min chart the "trading window". A trader will follow the signals and stop values in the trading window to execute trades. We call the 30-min chart a "guidance window". It will be ideal to find the tradable opportunities in the trading window that are also in agreement with the directional bias indicated by the guidance window. For example, trade the long (buy) signal agreement in the trading window while the guidance window also indicates a long (buy) signal. But sometimes, it is not appropriate to mechanically enforce the direction agreement between the trading window and the guidance window with the equal weight (50/50). Under certain conditions (please refer to Day Trading Rule A), we have to give more weigh to the signals in the trading window to "break the tie".

Further Thoughts Regarding STM

The key to the success of STM is its "near 100% mechanical" nature to remove traders' guesswork and emotion in trading. Our software offers colors and dots as well as exact values. Once the trader decides to trade, the entry, stops and exits are pretty much managed by the program. The best entry points are called "sweet spots" that the price is near by the T2 stops. When you see 3 bars that the close prices cannot breakout the T2 dots, it's a good time to enter the position. You will know right or wrong very soon since the prices are near the T2 level. It is fairly straightforward, of course, you also see triangle, flatness and low volume at that time, it's the time to give it a try. You must know, no one can tell ahead the trade win or loss. It's always working on the odds.

Swing Trading Rules

Traders need to understand which phase the market is in. As we mentioned before, the market always alternates between a big thrust and consolidation. As a trend-following trader, you need to get very aggressive in honoring (executing) the signal agreement at the end of a long period of consolidation of the STM rules. The odds for a big thrust or a "run" will be very high at this time. This is just the nature of the market. It is very important to know this. But knowing this phenomenon alone is not specific enough for trading. As a trader, we need to take a much closer look at how the market behaves in most cases. Here is the basic rule for swing trading:

When you see a significant price movement, you will expect a very long period of price consolidation. Actually, the consolidation length is 3-4 times the length of major price movement. If the major price movement takes one hour, then you need be very conservative in taking trades in the next three to four hours. This is generally true for all interval charts. Please note that this filtering rule could be used to "break the tie" if the trading window signals are conflicting with the signals in the guidance window. In other words, if you see 3-4 hours of consolidation in the trading window, the signals in the guidance window are less important. You should be very aggressive in taking trades from this point if see a signal from T1 or T2 in the trading chart.

Risk Management

Due to the uncertain nature of the market, everybody is equally at the mercy of the market once the trade is placed. No body can control the market direction. But we all can control our own trading risks (to a certain degree of course). With "sweet spots", we are entering a trade at a low risk and high reward area. By looking at the T2 value before you place the trade, you know exactly what will be the initial risks. Once the price is heading the direction we desire, we can just follow the T2 trailing stops to manage the trade. We can dramatically cut down the emotional involvement of the real time price fluctuation. We tend to make fewer mistakes if we have less emotional ups and downs when we have positions in the market. T3 (for ASCTrend 3.5 indicators) or T13 (for AbleTrend 7.0) could be used once the market has done an extended move or has tested the key support/resistance a second time.