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Daytrading in Quiet Markets
by Ralph Russell, Nasdaq Real-time Signals Trader

Note: This article has been updated as of February 2002, in the following article, Volatility Revisited

When the markets get quiet the trading is tough. Volatility breakout systems do not work well as follow- through is little or nonexistent. The markets spend the majority of their time similar to a basketball team running up and down endlessly on the court and in our case without scoring! They just go over and over the same territory, hour after hour, day after day.

For long-term subscribers that have been with the Nasdaq 100 service since the beginning, you are well aware of what has occurred in our market. It is as if it has an illness and is struggling to survive.

Each morning it tries to make a go of it and soon exhausts itself. It can neither trend up or down and churns in its own tracks, afraid of losing its way if the index becomes brave and tries to see if the world is really flat or is it round?

What Happened to the Daily Range?

In December of 2000 we were averaging about 150 points of range per day on the NQ 100 futures index. Some days were wild and woolly to say the least.

In December of 2001 we are averaging about 30 points per day and some days are well under 30 points of range.

We have had tough sledding since the markets were shut down in September of 2001.

When the markets reopened it was frowned upon if you sold the country short or so the TV told us. The market participants that took the TV's advice and bought stocks after the market reopened after September 11th took a ride into the 21st of the month that surely curled their hair.

On October 2nd Mr. Greenspan again cut rates, the 9th cut of the year, and the Dow rallied hard, but the Nasdaq just sat looking at the happenings. The next morning it was Dow up again and somehow the NQ futures moved up strongly as if to say, "Okay, so you won't go up! I have enough money to force you up." So it went up. And it is up from those lows and it is pitifully dying up here.

Every time it drops a few points someone supports the market that will not go up or down. Why? Are we being manipulated? Has the Fed caused the banking system to support the markets? It seems the Fed wants the balloon ignited again and that is our problem.

Since when did wild speculation become a substitute for sound investment? Stock brokers like to point out that futures trading is wild and wholly but I have never seen futures act like Qualcom at $300 on its way to $50 or even GE at $150+, split 3-1 and then make $30. Or Compaq at $30+ and then as little as $12 or less. We could go on and on. Nothing as bad as that occurs as fast in the commodity markets or the index markets in my experience.

Structure and Math of the Markets are Unchanging

When we step back from our trading problems and look at the market it is still doing the same thing it always does. It is still making structure. Structure and the Math of the Markets are unchanging and consistent if applied correctly.

We used to make 5 wave impulse patterns that had 80, 120, or more points within the run. Today, we are still making 5 wave impulse patterns but they may only have 20 points in the run. So, we need to be satisfied with less and control losses tightly.

I remember a day shortly after I started doing the NQ 100 service in September of 2000, that I lost $3220 and the very next day we made a profit of $4020. At the moment I would like to have a month that makes $4000! Today if we have a day that makes $200-$300 we have had a bang up day of success.

The math is still working and the structure is still talking to us. We have impulsive and overlapping structure every week whether we are wild and woolly or calm and boring, even sleepy.

When we are accustomed to trading the waves of an impulsive pattern, stepping in and grabbing 12-15 points or more on a Wave 3 run of 5 waves we look really good on the bottom line. And it takes minutes most of the time, about 10-13 minutes average to do that trade.

Today we sat in a trade looking for it to move and we may spend an hour doing nothing at all with a stop loss point 4 points away that cannot even be run. Or a sell stop at a location .5 below the lows that cannot be hit! It is amazing.

Considerations for Trading Other Markets

I think at times we need to change markets. To What? Bonds? Sometimes bonds trade for hours in a very tight range of 2 or 3 tics. The S&P? Charles Holt says it is trading no better than the NQ. The Dow? Look at the holes in a 2-minute chart-it is way to thin for me at the moment although the Dow Industrials are trending better than either the S&P or the NQ market.

The currencies? Talk about holes in the charts as with meats and grains. I do not know what the oil complex is doing intraday as I get no New York Markets real Time due my experience with too expensive data fees and many errors in price reporting with New York Commodity Exchanges.

The bottom line is simple: The markets are in the hands of the professional traders and market makers. The public is gone, in my opinion, burnt badly from the drop in the Nasdaq stocks this past 21 months. This will be the second consecutive year of losses for stock traders as a whole, at least in the Nasdaq. When the public is absent from the equation the market trades very technically.

What do we mean by "technically"? The Pivot formula may work today and Gann cardinals and corners as well as square numbers may work tomorrow. Even hourly pivotal computations may work successfully many days. Fibonacci numbers always are in play as many traders are aware of these numbers and many books and most software programs have them within the program in some manner.

We will continue to trade in the NQ 100 market. We may increase quantity of contracts slightly due to the lower margin requirements but we will continue as I see no greener pastures anywhere in the futures world for daytrading.

Position or Swing trading is not something we do at Daytraders Bulletin but it may be something we need to consider by using option strategies perhaps. Anyone with comments is welcome to send them to us through the e-mail addresses found on our contact page.

© 2001-2002 Ralph Russell



Next - Volatility Revisited (An update to this article) More Tips
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