Category: Trading


3 Solid Techniques for NQ Trade Entries


The Nasdaq futures contract (NQ) generally trades like most of the other equity indexes though it has a few twists and turns that set it apart from the crowd. For anyone who has traded seriously, it is those “twists and turns” that can spell trouble for the uninitiated when trading the NQ. The purpose of this article is to alert traders to some of the idiosyncrasies that are part of trading the NQ and how to adjust your trading to take advantage of the attractive parts of the contract and avoid some of the less-than-pleasant outcomes this instrument can cause.

There are times when this contract is very easy to trade, especially when it is trending. Of course, you might say all contracts are easy to trade when trending but the NQ (because of volatility) presents some unique challenges and can be profitable if you trade the contract correctly. The challenge in trading the NQ is to understand and profit from the volatile nature of the contract. This can be a double edge sword and the downside of volatility is the tendency of price action to move against your position at a high rate of speed.

In a normal “bracketed” market you can let the trade run against you some, depending on the size of your trading account, but sooner or later (it may be days, weeks, even months) the price action will break out and the trade you let run will become your worst nightmare. The best general approach is to trade this contract conservatively and with the trend.

Countertrend trading is the formula for blown trading accounts on the NQ. You should repeat this mantra 25 times before going to bed each night. “I will not trade against the trend, I will not trade against the trend… “

Here are the techniques that have been successful for me in trading the Nasdaq:

· Reversion to the Mean: Like most contracts, the Nasdaq is a great contract to trade using a technique called “Reversion to the Mean.” This strategy, in general, discourages traders from taking those awful breakout and breakdown trades that are, so often, the cause of many losses. I generally wait until the price action is between 2 and 3 standard deviations against a backtested SMA and find this trade phenomenally successful. I have added a few game-changing rules to quantify the trade more precisely and upped the win rate another 15%. I urge you to investigate this less-than-popular style of trading and see how truly successful it can be.

· Pay specialized attention to support and resistance (SAR): As I mentioned at the onset, the NQ is a very active contract and making any preliminary assumptions about whether or not the price is going to move through SAR is a mistake. A better idea would be to use an order flow program so that you can see the actual order flow at SAR. Are traders hitting the buy side, the sell side, or are the orders placed that represent traders are on both the bid and ask.

· Volume Analysis: By now, most traders realize that increased volume at SAR generally results in a market pullback off SAR. The corollary is true also, low volume approaches to SAR may indicate that price is going to continue through support/resistance. I strongly recommend using a “Better Volume” indicator to indicate, in real time, the nature of each bar. Obviously, high volume at SAR often indicates that a change of direction could be in the cards and low volume signals a possible continuation of a move. The question has always been, “How high should the volume be to indicate a reverse in direction?” Obviously, high volume at SAR often indicates that a change of direction could be in the cards and low volume signals a possible continuation of a move. The question has always been, “How high should the volume be to indicate a reverse in direction?”

Is there a method for finding the “perfect” NQ entry point? No, not so much. But, you can get good enough to read between the lines and consistently score winners. Best of luck in your trading.

3 Types of Financial Analysis and When They Matter

January 10, 2020

Trading

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Financial analysis is conducted using information posted on a business’ financial statements to evaluate the current financial position and the past performance.

Financial Key performance indicators such as liquidity, profitability, and solvency among others highlighted by this process are used to ascertain the financial strengths and weaknesses of the business entity.

This analysis can be performed internally within the organization to facilitate decision making by management. External parties and stakeholders such as auditors, regulators, financial analysts, investors, and competitors can also conduct their analysis using the available facts to ascertain the entity’s financial position. These stakeholders equally utilize the information for decision-making suitable for their respective interests.

Three types of financial analyses can be performed with businesses financial statements are horizontal analysis, vertical analysis, and ratio analysis.

  1. Horizontal analysis

Horizontal analysis of financial information entails the assessment and comparison of the relative changes in specific items in a financial statement over stipulated accounting periods. The items in question could be sales, revenue, etc., and the accounting periods can be months, quarters, years, etc.

This type of financial analysis is best applied when seeking to determine the dynamic behaviour of an item so as to observe the trend of the item over the specified accounting periods. This is important in determining the factors behind the trend, whether positive or negative. For example, the net profit of a business can be tracked over a five-year period.

However, there are two ways of conducting a horizontal analysis, namely; percentage analysis and absolute analysis.

In the absolute analysis, the comparisons are carried out using the figures posted in the financial statements whereas in percentage analysis, the comparisons entail presenting the relative change in the figures into percentages.

  1. Vertical analysis

Also known as the common-size analysis, this vertical analysis involves comparison of figures of separate items to a standard figure on the balance sheet over a specified accounting period. For example, taking the total revenue of an accounting period to be 100%, other items such as employee benefits and debt repayment for a particular period can be calculated as percentages against the total revenue of the specific accounting period.

This form of analysis is most useful in the determination of the efficiency of business items by comparing how they stack up against common items such as income.

  1. Ratio analysis

This method of financial analysis correlates the different items of a balance sheet to the income statement to determine the financial performance of the firm. Assets are measured against liabilities and presented in a simpler way that is comprehensible without quoting huge figures.

Ratio analysis matters most when analysts and stakeholders seek to determine the viability and sustainability of an entity’s long-term and short-term financial strategies.

Chris Bouchard is a strategic consultant who works with non-profit leaders and social entrepreneurs to apply concepts and techniques to identify complex strategic issues, find practical solutions, and devise strategies to create and win a unique strategic position. He also offers project development, proposal writing, and project evaluation services.


Day Trading Stock Index Futures S&P 500, NASDAQ 100 & Dow Futures Shocking Secrets

January 10, 2020

Trading

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Many day traders trade stock indexes and make a successful living. Now days, almost every stock exchange in the world has got a stock index associated with it like the famous Dow Index, NASDAQ, FTSE, CAC, DAX, Hang Sen and so on. Currently more than 70 stock index contracts are traded on at least 20 exchanges in the world. You don’t need to trade every major futures contract in the world to be successful. You just need to find one or two these futures contracts with which you are comfortable.

So stock index futures are contracts based on indexes that are composed of stocks. For example, S&P 500 futures are based on the famous S&P 500 Index; a group of 500 commonly traded US stocks. When you are trading these futures, you are betting on the general direction of the market not on some individual stocks. This way you are blocking out a good deal of noise that is associated with the daily gyrations in the stock prices. Stock index futures are used for both hedging as well as speculation. These futures are used by hedge fund managers in hedging their stock portfolios.

The most popularly traded stock index futures contract is the S&P 500 futures. It trades on the Chicago Mercantile Exchange (CME). S&P 500 Index is made up of 400 industrial companies, 40 financial companies, 40 utilities and 20 transportation companies offering a fairly diversified view of the US economy. One tick on S&P 500 contract is worth $25. So there is an inbuilt element of leverage in these futures contract.

If the S&P 500 moves one point, you either make $250 or lose $250 depending on which side of the market you were. These contracts also get traded on the GLOBEX Electronic Platform after the regular trading hours. Margin requirements can vary. If the S&P 500 Index is at 1000 points, the contract is worth $250*1000=$250,000. A huge amount for most of the day traders.

NASDAQ-100 Futures Index contract is the second most popular stock index futures contract. It is based on the famous NASDAQ 100 Index that includes many technology and biotech firms. The margin requirements for this contract maybe too high for most day traders. Similarly, Dow Futures are written on DJIA. Due to these facts, a mini version of these contracts was introduced.

E-mini S&P 500 (ES) and e-mini NASDAQ 100 (NQ) are among the most popular stock index futures contracts as they enable you to trade the market trend with only one fifth of the margin requirement.