Why today is a revealing day!

Wednesday Update

Today should be a revealing day of trading.  The markets have had an extended run to the upside after breaking out of the consolidation early last week.  Monday the ESH10 opened the day session at 1110.50 and closed at 1007.50.  This was the first trading day in 7 that recorded a close lower than the open.  This is often a signal that the market is losing momentum and this occurred in proximity to expected resistance at the 50 SMA.  Then yesterday the market once again traded from up to down and closed down approximately 10 ES points on the day, marking the first really down day in some time.

The market was able to rally back some late to close off its lows however and normally after a good momentum move up the first pullback is a buy.  The market is set to open just above its 8 EMA at 1096.30 and the 20 EMA is at 1093.50.  The 8 is back above the 20 and we are watching pullbacks on Wednesday to see if support does in fact come in near these levels.  Tuesday’s low of 1090.25 could be tested again as well and will be an important area if tested.

DTI Partners, Inc.

1.800.745.7444

http://www.dtitrader.com

Disclaimer:

Trading Futures is Risky.  Past performance is not indicative of future results.  Understand the

Risk before you trade. 

DTI – 1555 University Blvd South – Mobile, Al 36609

High-Frequency Trading

By Irene Aldridge

High-frequency trading (HFT) uses quantitative investment computer programs, known as algorithms, to hold short-term positions in equities, options, futures, ETFs, currencies, and all other financial instruments that possess electronic trading capability.  (Some securities, like Credit Default Swaps, for example, cannot be traded electronically, and are incompatible with investment algorithms.) 

Aiming to capture just a fraction of a penny per share or currency unit on every trade, high-frequency traders move in and out of such short-term positions several times each day.  Fractions of a penny accumulate fast to produce significantly positive results at the end of every day.   

“High-frequency trading” became a buzzword in 2009, when Goldman Sachs accused one of their ex-employees of stealing their “cash cow,” a sophisticated computer program capable of generating millions of dollars in trading profits over short periods of time.  Yet, HFT has been around since the early 1980s, when several stock exchanges first decided to experiment with electronic trading.  Since the 1980s, HFT has been growing in scope, speed and its complexity.  

At the heart of HFT is a simple idea that properly programmed computers are better traders than humans.  Computers can easily read and process amounts of data so large, it is inconceivable to humans.  For example, frequently traded financial securities such as EUR/USD exchange rate can produce well over 100 distinct quotes each second.  Each quote, or “tick,” carries unique information about concurrent market conditions.  And while a dedicated team of human traders may be able to detect some tradeable irregularities in such fast-paced data over time, human brains are no match to computers that can accurately resolve and act upon all minute information infusions in the markets.  Add to that the fact that computers seldom get ill, are easily replaceable, and have no emotions.  Oh, and they’ve become really cheap. 

The complexity of computer technology currently required by many HFT systems pales in comparison with that required to play modern video games.  As video game purveyors drive the prices of advanced computer technology down, high-frequency trading becomes increasingly affordable to anyone with an inclination for quantitative analysis and programming.  Call this a .com 4.0 revolution: the latest technology long deployed in many other industries has finally arrived on Wall Street. 

Some high-frequency trading strategies are quantitative investing strategies, deployed at high speeds.  Other strategies, specific to high-frequency trading, work with market minutia, known as “microstructure.”  In both cases, high-frequency traders feed off small intraday variations in prices and do not impact long-term investors. 

Irene Aldridge, the author of “High-Frequency Trading: A Practical Guide to Algorithmic Strategies and Trading Systems” (Wiley), will present a comprehensive overview of high-frequency trading on February 22, 2010.  Irene will be the featured guest speaker for DTI's GLOBAL MARKET MONDAY on monday, February 22, 2010.

Market in Breakout Mode:

One of the key aspects to understand in trading is the cyclicality of both price and volatility.  This past week the market had an inside week, the first in quite some time.  The term “inside” means that that price put in a lower high and a higher low, thus all price action was inside the previous weeks.  This concept can be applied on multiple time frames and it typically signals a period of rest or consolidation for the market. 

Strength of trend vs. consolidation can also be measured by the indicator, ADX, or Average Directional Index.  This useful indicator was developed by J. Welles Wilder as a method to determine the strength of a trend, up or down.  The ADX is an oscillator that ranges from 0 to 100.  However, readings above 60 or below 10 are rare.  Like all oscillators different traders use these tools differently.  It is important to understand that the best trading usually takes place when the ADX is higher vs. lower and is rising vs. declining.  A dropping ADX environment can lead to choppy trading as the market tests both sides of the range and does not trend.  Again, it is important to understand the trading environment you are trading in and adjust your trading plan accordingly.    

With the current ADX on the 60 minute ES chart at 12.3 we know that the market is in a tight trading range on this time frame.  This is the lowest ADX reading on the 60 minute time frame in 2010.  A breakout will occur soon but some traders might wait for the ADX to move above a certain level (i.e. 20) to signal a breakout where others will just be alert that we are in breakout mode.   Some traders also combine the ADX with the DMI. Directional Movement Index which was also developed by Wilder.   The DMI has a positive and negative reading and will determine if the trend is actually up or down based on which reading is higher. 

This can also be seen on a daily chart which shows a lot of price bar overlap.  Anytime you can draw a horizontal line and it touches several bars on any time frame, you know the market is consolidating.  A market that consolidates is building energy that will be unleashed once it breaks out in either direction.  This is what happened earlier this year when the 1125 area on ES was taken out and the market exploded into a solid downtrend.

 Given that the market is in a down trend and has rallied up to potential resistance areas we believe we are in a logical spot to look for the market to turn back down.  We are watching 1056 as a key testing area on the ES and then 1053 and the yearly low at 1040 below those.

DTI Partners, Inc.

1.800.745.7444

http://www.dtitrader.com

Disclaimer:

Trading Futures is Risky.  Past performance is not indicative of future results.  Understand the

Risk before you trade. 

DTI – 1555 University Blvd South – Mobile, Al 36609

“Accelerate the learning process and paper trade with live data 24 hours a day,
7 days a week using NinjaTrader’s Market Replay Technology”

By Ryan Sindelar

As presented in the DTI TradeRoom on Monday, February 1^st at 1:30 PM CST (Chicago Time)

Thank you for attending Monday's training event in the DTI TradeRoom covering NinjaTrader’s powerful array of analytic tools, innovative trade management features and industry proven order execution capabilities.  I appreciate the time and courtesy extended to me by the traders in the room and it is always a pleasure getting to work with the DTI team. 

One highlight from the event was the opportunity to present how NinjaTrader can be used to practice and fine tune your trading skills and strategies 24 hours a day, seven days a week using NinjaTrader’s Market Replay technology.  Imagine replaying the exact moment in time you entered your trade and watch the chart as the trade unfolds during your nightly trade review. Was your exit decision sound and did you follow your trading rules?  NinjaTrader’s market replay allows you to record and replay multiple markets simultaneously at any time in the future.  This technology is an invaluable educational tool that can help accelerate the continual learning process of trading.

NinjaTrader Market Replay Instructions

NinjaTrader makes it easy for DTI students to record and replay data on their own time, at their own pace and as many times as needed.  Unlike most products that only allow you to replay one market at a time, NinjaTrader provides synchronous replay of any and all recorded markets and delivers this market data to all NinjaTrader windows as if it was happening real-time.

You can accomplish setting up NinjaTrader Market Replay by following these instructions…

·         From the NinjaTrader Control Center window select the menu Tools > Options

·         Go to the "Data" tab

·         Enable "Run market replay recorder"

·         Press the "OK" button

With the recorder enabled, NinjaTrader will record all level I and level II data while you are connected. This data will then be available to replay at a later date via the menu File > Connect > Market Replay Connection.  Please join our Friday Market Replay training sessions to learn more!

Click here for our complete schedule of NinjaTrader free training sessions

Click here for more information on Market Replay!

Get Started with NinjaTrader for Free Today!

As an active trader, the trading tools you select will have a dramatic impact on your success. Whether you trade futures, forex, or equities, you can significantly enhance your trading efficiency through NinjaTrader’s powerful array of analytic tools, innovative trade management features and industry proven order execution capabilities. 

NinjaTrader is unique in the trading industry in that we provide an end-to-end trading platform that is FREE to use for advanced charting, market analytics, trading system development and trade simulation using their state of the art trade simulator.

Click here to download NinjaTrader free!

Please email us at sales@ninjatrader.com to learn more!