M. William Scheier - Pivots, Patterns, and Intraday Swing Trades: Derivatives Analysis with the E-mini and Russell Futures Contracts

P IVOTS ,
P ATTERNS,
AND I NTRADAY
S WING T RADES

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P IVOTS ,
P ATTERNS,
AND I NTRADAY
S WING T RADES

Derivatives Analysis with the E-mini
and Russell Futures Contracts

M. William Scheier
ValhallaFutures.com

Cover Design: Wiley
Cover Image: iStockphoto.com / epic11

Copyright 2014 by M. William Scheier. All rights reserved.
Published by John Wiley & Sons, Inc., Hoboken, New Jersey.

All charts wherein courtesy of Ninjatrader.com
All data courtesy of Kinetic, a subsidiary of Ninjatrader.com
Published simultaneously in Canada.

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Library of Congress Cataloging-in-Publication Data:
Scheier, M. William.
Pivots, patterns and intraday swing trades : derivatives analysis with the e-mini and Russell futures contracts / M. William Scheier.
pages cm. (Wiley trading series)
Includes bibliographical references and index.
ISBN 978-1-118-77579-0 (cloth); ISBN 978-1-118-77586-8 (ebk); ISBN 978-1-118-77584-4 (ebk)
1. Technical analysis (Investment analysis) 2. Speculation. 3. StocksCharts, diagrams, etc. 4. Derivative securities. I. Title.
HG4529.S35 2014
332.645dc23

2013038867

Dedicated to the memory of Randolph Newman,
and to his wonderful granddaughter Glenny,
who saw in me something of merit
when I was a young man.

PREFACE

M y initial efforts in trading were focused almost exclusively on what is known as position trading , using equities and the physical commodity futures. Stretched out over the days and weeks a position could last, a trend in that time frame would eventually begin to make sense in technical terms, unfolding gradually as it proceeded on. There was a pace to the decision process. As a trader, one could mull over the conflicting elements of the technical picture. Some aspects would recede into the background and render themselves less relevant; some would grow in their importance and become glaring.

Initial forays into day trading stock index futures reveal a starkly different decision environment. There is no time to dwell on technical conditions. A day trade opportunity does not take shape over days and weeks. Opposing technical signals don't recede in time enough to sweep away the cross current of doubts before a decision is required. By the time a trend finally makes sense, it is often about to end. Intraday volatility in the stock indices is far more exaggerated than the daily bar charts of other markets, partly due to the extreme leverage, partly due to the intense participation. And positioning techniques that survive in the action of the long-term trends in other instruments get slaughtered in the countertrend reactions of the highly leveraged S&P 500 futures contract within the short term.

When starting out, understanding the day as it unfolded on a day trading scale was akin to trying to read a foreign language or decipher a secret code. Somehow the tremendous opportunities in these intraday trend swings were surely being captured successfully, but by whom?

The less-experienced student will often assume that floor traders in the pit capture the intraday swings. After all, those guys must be in the know. Their access is so immediate. They literally create price. That being out therehanging 10 on the leading edge to the rhythm of historymust provide a better view, and information not otherwise available to the rest of us must be streaming across the pit at critical moments, providing the insight to decipher the head fakes from the real trend swings. One could easily come to the conclusion that because these guys are the professionals, they must surely make up that slim minority who are consistently taking the profits from those less skilled working off-floor on their video screens.

But nothing could be further from the truth. Floor traders are, for the most part, scalpers. They tend to front-run or fade the order flow. To them, swing trading intraday trends would be position trading. I was also surprised to learn that the majority of floor traders see the world from the point of view of Efficient Market Theorists, admittedly or not. For floor traders, if paper flow into the pit is the current of energy driving the markets, then it is the news and news events that provide the power supply for that energy. Why should they believe otherwise, given their worldview!

Nor is the S&P pit in Chicago the bastion of capitalism and free trade one might think it to be. The number of Efficient Market Practitioners on the floor of the futures exchange is only surpassed by the number of pit traders whose politics reveal an inclination toward unionism, trade regulation, intervention, and controls. Remarks from otherwise very talented traders actually reveal the belief that it was one U.S. President's tenure or another that caused a difficult period of market activity or a particularly beneficial one. With thinking like that underlying the operations of the S&P pit, how much insight is to be garnered there for a conceptual understanding of market trend structure? The theory of Random Walk never had more adamant proponents.