Using Pivot Points When Trading the Emini's

Many times, active traders using short term strategies or scalping strategies, tend to look at very zoomed in charts, includng myself (1-2 min charts, tick charts). As these charts are our tools for our strategy, many times with such zoomed in charts, we tend to lose focus of the BIG picture, such as major psychological levels, VPOC's, 200 day MA's and so on. A lot of times, if you spend too much time worrying about all the different big picture levels, you might lose focus on your short term strategy and start second guessing your trades. Which is why I personally like to use Pivot Points. They help give me an idea of the big picture (for the day). I only look at this once when I start trading, whether we're above or below, and never really have to pay much attention to them, unless price action starts to approach a particular pivot level for the day. I've attached a Screenshot of yesterday's price action (5 min chart). As you can see, we spent most of the overnight session right by the Pivot Point, acting as major support on that level. If you trade premarket, you would have noticed a nice rally, right up to R1. If you were trading that, R1 would have been a great point to take profit, and sit aside and wait for a break or a bounce back to Pivot, or higher to R2. As 9:30 approached, we stalled a bit and headed higher, and hit R2 right on the nose. If you were scalping that rally as I was, R2 would be a great take profit for your core positions, and wait to see either a bounce or a break. Then came the big selloff around 2:30 which headed straight for the Pivot, hit it RIGHT on the nose and bounced right off. Great take profit areas.

I used a 5 min chart to demonstrate this, when I'm actually trading I'm typically using a 512 and 1600 tick chart, which is close to a 1 and 3 min chart, I do not see these pivot points, RI, R2 for most of the day. But they are on my charts, so when price action reaches these levels, I react and trade accordingly only when that happens, but I don't have to constantly keep aware of these levels, unlike, 200 day MA's, VPOC's and any other major levels you can come up with.

Using Options to Make Better Stock Picks

I'm a derivatives s specialist and I have people ask me all the time, How do I get into Options Trading, or What's a good options trade? The matter of fact is, trading of options is quite complex, and not necessarily suitable for the casual investor or even trader. Options can be very confusing and intimidating for a lot of traders especially once you learn about all the greeks, calculus formulas used to price the option and derive the greeks. So I can't and will not be able to teach you all about options in a post, but I can show you how someone can use Options to make better stock trades. This isn't a secret, or strategy per se it's simply common sense, and with a simple knowledge of how a market works, you can derive some great stock trades from watching Option traders.
In Stock trading, with all the algorithmic, high frequency trading and simply the massive amount of money thrown around, makes it impossible to understand who is doing what from Time & Sales or even with Level II quotes. However, Options because there are SO many strikes, and So many months for each Underlying security (or asset) if you know where you look, its actually quite simple to see what was traded, and what was the intention of the trade. In essence, you can follow large institutional players that make their bets on the Options market, because it's much easier to see their trades and understand what kind of bets they are making. This just requires a very basic knowledge of options and how markets work. No Deltas, Gammas, Thetas or calculus.
To begin, you need to have a fairly standard Options Trading Platform and Scanner. ThinkorSwim is what I use, you can even sign up for a demo account to see the tools offered. But also, there is a website www.livevol.com that offers a free version which is very useful as well.
I have a scanner set up to search for "abnormal" volume. This when the volume on a particular stock option sees more than the usual volume on any given day. Some scanners or sites refer to this as the Sizzle Index. Many break it down even further to Call Sizzle and Put Sizzle. Using this, you can easily scan for stocks where the Options Volume traded that day was "abnormal". I like to set my scanners to looks for stocks where the Options volumethat day was at least 1.5 times the average volume. Also, just to keep out tiny stocks I suggest choosing stocks that have a daily volume of at least 2 Million and over $10. Once I run my scanners, I start from top down, starting from the stock with the Highest "Sizzle Index" for the day.
It helps if you have a separate column that breaks it down to Calls Sizzle and Puts Sizzle, but it's not necessary.
Once you have a stock with a High Sizzle Index, simply pull it up in an Options Chain.
With the criterias above for your scanner, once you pull up an Options Chain, it's usually easy to spot the Strike and month that caused the abnormal volume.

Just as an example Today (6/3/10) AYE came up on my Scanner well over 5 times the average volume. Skewed heavily towards the calls, even if you didn't know it was mostly from the calls, once you pull up the options chain it would have been very easy to spot. A nice round 1000 contracts were traded on Jul 22.5 calls. With an already 20,920 outstanding open interest. Now that we've determined WHAT was traded, we just have to see what the intention was. This part gets a little tricky, but with the right tools and some practice, it's nothing difficult


The next step requires you to pull up Time & Sales for that particular Option, which livevol.com provides for free (its just delayed by 15 mins) if your broker doesn't already provide this to you for free. We see that Jul 22.5 calls were traded 4 times, 500 contracts, 100, 200, and 200. But because they were traded with 1 min of each other, we can confidently say they were traded by the same institution. Keep in min 1000 contracts controls 100,000 Shares, at $20.62 a share, that's a $2 Million bet. We also see that they were traded for 20 cents, which is clearly the ASK price at the time which indicates they were bought. (traded at ASK Price = likely they were bought, BID PRICE = likely they were sold) Many time & sales will display each sale as RED or GREEN, making it easier.


Hence, from all this work, we can confidently say that there are large institution out there that thinks this stock will be above 22.5 by Expiration date in July. With the stock trading at $20.62 at the close of today, that's still almost a $2 gain. That works out to be about a 10% gain in less than 2 months time if this plays out. Now this is no exact science or should it be a sole determination for buying this stock, but it gives you a peer into institutional desks and what they are betting on.
Also note, that every time there is abnormal volume DOES NOT mean that there is something going on. Sometimes it could indicate an institution closing a position, which is no good to us. Sometimes they were trades for options very far out (LEAPS) or very close to the money, those are also not really useful for us. Or sometimes, its just hard to tell because the volume was spread out over many months and strikes. Most days I can get at least 7-8 stocks to look at from my scanner, and will usually yield at least 1-2 clear indications. But it really pays off when you can find that one institution that's making a bet over 10,000 contracts. Legg Mason yesterday had a 40,000 contract spread traded, where 20,000 Jul 27 Puts were sold to buy 20,000 Jul 32 Calls. Also another institution a few days prior sold 10,000 Jul 29 Puts to buy 10,000 Jul 34 calls. These are all HUGE bets made with very strong convictions, which the average trader would never have known were made, but this is publicly available information. Many times these large traders step in around 10-11am EST, they tend to avoid the first half hour. I will continue to post more examples of these to help explain this further.

More Examples of my Trading Style

Just another Explanation of my trading.

Step 1. Acc/Dist on Volume breaks below Support: ENTER CORE SHORT POSITION

A. First Trade: Clearly 50 period CCI is well below -100 and 5 period just peaks around 100 forming V: ENTER SHORT POSITION (Targeting 6 ticks with 5-6 tick Stop Loss)

B. Repeat

C. Woodie and LONG CCI starting indicate end of Downtrend, Might consider getting in if your aggressive. It's up to you. I would have closed out core position, but still taking a short position with half the typical size.

D. Clearly Downtrend still stay: Take another Short Trade (Target 6 ticks- same 5-6 tick stop loss)

E&G. Repeat of C. But more pronounced, I would not have taken this trade.

F. With such high volume, and quick 4 quick successful trades already: You might want to take another Short position (I'd suggest half of your typical size)

H. CCI and Woodie confirms end of Downtrend. Close out Core position if your still holding onto it.

My Emini Scalping Strategy

Just wanted to share with everyone what my E-mini Scalping strategy looks like. It sounds like a lot of steps and indicators to keep track of, but actually its fairly simple and mechanical, and it is exactly what I tweet about live when I trade Emini's.

Chart Setup- I usually use a 512 tick chart, but 333, 1600 tick will work as well.

I myself like to use the 1600 tick and 512 tick at the same time. When looking for Step 1 setup, I will like to see both charts to confirm Step 1 before getting into the trade.

Step 1. (Setup) Looks for breakouts of support/resistance or breakouts of uptrend or downtrend on Acc/Dist of volume as my way of keeping on top of market breadth. Dependent on Break down or up, I will take a core position, usually half of what I would trade on subsequent trades.

Step 2. (Entry) Using a Double CCI. 50 period and 5 Period. I look for the 50 Period CCI to stay above 100 if we're looking for a Long positions and the 5 Period to make a sharp quick move below and then cross above the -100; forming a V shape. (see chart). We initiate a Long Position on the formation of the V shape on the 5 period CCI. This forms a very high probability Quick trade usually good for at least a Point and half (6-7 ticks) while allowing for a very tight stop loss (I usually use 5-6 ticks).

Vice Versa from break downward from Step 1. Short Half position Initially on breakout. Look for 50 period CCI to stay below -100 and the 5 period CCI to cross below the 100 forming a V shape to enter full Short Position.

Step 3. From most of the breakouts from Step 1 we can see 2-3 trades on average. Repeat on every V shape from the 5 period CCI, as long as the 50 period stays above 100 and vice versa for Short.

Step 4. Exit initial core trade once the Long CCI falls below the 100 for long positions or above -100 on short postions. I've also used the Woodie CCI before for this purpose before (I've included it in the chart to show)

These trades will allow for very short term scalping with very high probability. You can play around with different time frames for different products, like Euro Futures, Mini Dow. Also you can use almost any oscillator, RSI, Stochastics, instead of the CCI.

Because these are relative short term, your looking at very zoomed in charts. I highly suggest either having a larger time frame chart on the side, or follow other traders on Twitter to keep track of the big picture, like VPOC's, pivot points, 200 day MA's.