A High-Probability E-Mini Trade

ES 12-13 (3 Min)  11_5_2013Hi, Friends, one of the many useful techniques that Todd Mitchell teaches is trading breakouts. I was of course familiar with the concept from my years on FX trading desks, but Todd helped me to use the tool more consistently, and without hurting myself as frequently. Today’s price action offers an illustration.

A look at the chart will reveal the presence of a number of small arrows. These mark the 3 minute vertical bars that found a top at 1759.75. I have no idea where the selling interest at that level may have come from, but there were enough failed tests to form a “ledge”, in effect a line of bars that have reached the same level and found themselves unable to push any further. A useful rule of thumb is that the more times a test of a given level is repeated, the more rapid the move when it does break is likely to be.

Since in this case, there were several tests, it seemed likely that a move through 1760 was likely to resemble a popping cork. Consequently, I left a buy stop at 1760.25, with a 1760.50 limit. On the sixth try (the final arrow), it broke, and I was filled at my limit, 1760.50. I was hoping for two full points, but didn’t get it, as 1762.25 proved to be the limit of the initial move. It didn’t back off far, however, and I was able to realize a quick 1.5 point profit, or $75/contract.

This doesn’t always work, but the odds that it will be profitable increase with the number of retests. It also isn’t at all unusual for a “break” to move just a tick or two to the next round number – which in this case would have been 1760 – and reverse, somertimes in a nasty manner. That’s the rationale for placing the buy stop at the next price (1760.25). I’ll give up a tick or two of potential profit in order to have greater certainty that a trade will work as intended.

Here’s hoping that all of your trades are working well today. Best of luck!

 

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