Slope of Hope Blog Posts

Slope initially began as a blog, so this is where most of the website’s content resides. Here we have tens of thousands of posts dating back over a decade. These are listed in reverse chronological order. Click on any category icon below to see posts tagged with that particular subject, or click on a word in the category cloud on the right side of the screen for more specific choices.

6E: Pivot Seeking Missile? (by Trade Flight Plan)

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Many FX currency futures traders look for the currencies to return
back to the next day's pivot, especially during early globex hours after
a notable move.  While this certainly seems to happen a lot based on
observation and experience, we are compelled to do our own study.  The
distribution below shows how frequently the Euro futures contract (root
ticker 6E or EC) trades within 5 pips of its daily pivot in hourly time
slices.  The daily pivot is calculated as (H+L+C)/3.

While the statistics of 6E eventually reaching its daily pivot are
quite high on any given day, it can happen at virtually any time, with
the greatest likelihood – surprise, surprise – during the
European/London market open.

COT Data and the Euro (by Trade Flight Plan)

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Eurodollar fans – here's an excerpt from our latest blog entry.

The weekly Commitment of Traders (COT) data
published by the Commodity Futures Trading Commission (CFTC) can be
useful in identifying larger trends that shape Euro futures contracts (6E or EC ticker symbol root).  There's a lot of great information
about the COT data on the web, so we won't go into details here.  To
net it out, the weekly COT data reports the net short and long positions
held by commercial traders (producers and consumers of commodities) and
noncommercial traders (speculators) for various futures contracts.

The weekly chart below shows some revealing trends experienced by the
Euro over the past five years.  The blue line shows the net position of
noncommercial traders (in this case, large speculators and hedge
funds).  The yellow line shows the net positions of other speculators
(in this case, non-reportable smaller traders).

Let's take a look at what happens when the blue and yellow lines
decisively cross above or below the zero line, implying speculative
traders are either loading up or unloading 6E, depending on direction.

For example, in December 2005, both the blue and yellow lines cross
above zero, suggesting large and small speculative traders are
establishing long positions on the Euro.  The net positions do not cross
below zero until May 2008.  A complex top forms with net short
positions crossing again in July 2008 (coincidentally just a few weeks
before the market implosion).  Smaller traders attempt to establish long
positions in November 2008, with larger speculators joining them in
late April 2009.

Significant turning points on 6E appear to take place when both the
blue and yellow lines cross meaningfully above or below zero.  The
smaller traders seem to serve as the canaries in the coal mine, with
further confirmation when joined by their larger speculative brethren.

Clearly, 6E trades cannot and should not be based on COT data alone.
However, COT data can serve as a useful tool when used with other
information.  For example, if we see noncommercial entities shift
positions from net short to net long, we'll think twice before heavily
shorting 6E.

Lately, the Euro has been suffering (or enjoying, depending on your
perspective) a period of notable decline.  In fact, noncommercial net
short positions are at their most significant levels in 10 years.  Does
this guarantee the Euro will continue its decline?  Not necessarily.  6E
can continue to sell off from current levels, or we could see a big
retracement. However, it is interesting to observe that noncommercial
traders crossed to net short positions in December 2009, with smaller
speculators piling on shortly thereafter.

Either way, we need to allow price behavior and support/resistance
levels serve as our guides.  And, we will definitely be paying attention
should noncommercial entities shift their positions to net long.

2009 ES Gap Fill Summary Part Deux (by TradeFlightPlan)

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Our prior post on the 2009 ES Gap Fill Summary
received a nice response with several followup questions and thirst for
more. The most frequent questions in our inbox asked what effect the
size of the opening gap had on the gap fill probabilities.

Well, let's take a look. In this analysis, we determine the size of
the opening gap as the difference between the opening price at 9:30AM
ET and the prior day's 4:00PM ET close for each day in 2009.

It is important to note that we observe astute traders initiate gap fill trades during the Globex session before
the regular market open at 9:30AM. The hour before market open provides
some of the best entry opportunities. However, for a quick study and
gap size distribution, we went ahead and used the 9:30AM opening price
for this analysis.

Many traders use a gap of less than 80-100 points on the Dow futures
(YM) as a signal that the ES is likely to fill its gap. We ran the
analysis for both ES gap fills and half gap fills. As you can see from
the tables and charts, our analysis suggests an ES gap of less than 5-6
points seems to yield the best results.

The opening gap is expressed in ES points, rounded up or down to
contain the actual size of the gap. For example, an actual ES gap of
-3.25 would fall within -4 ES points, an actual ES gap of +3.25 would fall within +4 ES points.

These tables summarize the 2009 ES gap fill statistics based on the
absolute value of the opening gap, regardless of whether it was a
positive or negative value. Click on each table or chart to view in
full size.

ES_GF_Table

ES_HGF_Table

Just to make sure the results didn't wildly differ, we also took a
quick look at the 2009 statistical distribution across all opening gap
values, from negative to positive.

ES_GF_Chart

ES_HGF_Chart

Make It Worth Your While: Hourly 6E Ranges

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One of the rules avid traders recognize is that time in the market =
risk. Of course, the objective is to make the most profits in the
shortest amount of time, minimizing the time active positions remain in
the market unless profit objectives are being met. Volatility is a
trader's friend.

Many traders adore the Euro/USD futures contracts (6E or EC ticker
root symbols). They're fast, volatile, and can generate big returns (or
losses) in a matter of minutes.

Newer traders are lured by availability – Euro/USD futures can be
traded round the clock, 23 hours a day, 5 weekdays a week, and Sunday
nights. But, that doesn't mean they should be traded round the clock.
Like any instrument, 6E has its high and low volatility periods.
Trading 6E during low volatility periods can be an exercise in
frustration, with frequent stopouts or wider than comfortable stops,
only to see profit targets ultimately hit.

Recognizing 6E's 24 hour footprint is useful in picking the best
times to trade this unruly beast. The attached chart averages the past
year of hourly 6E pip ranges. Average hourly ranges are based on the
difference between the highs and the lows of each hour in the 2009
trading year.

2010-01-13_0003

When we trade 6E, we want to see motion, in a trending market, that
gives us the best opportunities for hitting our profit targets, quickly.

News events can cause large 6E price spikes any time of day, but the
averages are interesting. Certain times of day are 2-3 times more
likely to offer movement than others.

To that end, three times emerge throughout the day as some of the best times we like to trade 6E.
* 2:00-3:00AM Eastern, as London and Europe sessions open
* 9:00-11:00AM Eastern, as the NY session opens and reacts to USD moves
* to a lesser extent, 7:00-8:00PM Eastern, as Asian markets open

Lately, 6E has had a tendency to remain dormant during many
afternoons, resulting in price action that does not always justify the
risk:reward for new positions after lunchtime in the US. Might as well
book profits, protect swing trades in the morning, then take the
afternoon off.

Recognizing the times of day that 6E is most likely to yield liquid,
volatile ranges that present trading opportunities can help traders
structure their trading days, minimize risk, and reduce unproductive
time in the market.

2009 ES Gap Fill Summary (by TradeFlightPlan)

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Long time listener, first time caller here.  I enjoy Slope so much,
I decided it was high time I make a contribution.  The following is an
excerpt from my blog (tradeflight.com) – hope it helps.

2009 ES GAP FILL SUMMARY
Many traders regard the gap fill on the
E-mini S&P 500 futures contract (designated on many trading
platforms by ticker symbol root ES) as one of the highest probability
trades each trading day.

Well, let’s see if the statistics held true in 2009. The gap fill is
defined by price action that touches or breaks through the closing
price of the previous trading day.

Since many traders regard the 4:00PM Eastern Time close as the gap
to be filled, we’ll use the 4:00PM closing time for our analysis. Many
trading platforms show the ES closing prices based on the 4:15PM
session close, so custom tweaks are required to show the previous
trading day’s 4:00PM closing price.

In this analysis, we track the number of trading days the ES filled
its gap, or at least touched the 4:00 closing price from the previous
trading day. We also observe the hourly time slot the ES first fills
its gap on gap fill days.

Traders often regard the half gap fill as an even higher probability
trade. The half gap is defined as half the distance between the opening
price at 9:30AM Eastern Time and the previous trading day’s 4:00PM
closing price.

No surprise here: Further analysis of the ES reveals that the half gap fill was truly a higher probability trade in 2009.

IMPORTANT DISCLAIMERS
Of course, past performance and 2009 statistics are no guarantee for
future results. And, 60-80% probabilities do not necessarily reflect
optimal trade entry and exit execution points. Finally, not every
trading day affords a gap fill or half gap fill that is worth taking.
Traders must ask themselves whether the remaining distance to the gap
or half gap is worth the risk:reward ratio involved from the point of
entry and stop loss levels. Often, ES gap fill trade setups occur in
premarket globex trading hours, before the 9:30AM opening bell. Trades
always require discretion and should never be placed blindly. However,
astute traders keep these things in mind as they observe what many
regard as one of the highest probability ES trades.

FUTURE ANALYSIS
We can continue our study of ES gap fills by considering 4:15PM closing
prices, the average number of points for trades placed precisely at
9:30AM market open, option expiration day Fridays, etc. Perhaps we’ll
revisit a few of these in the near future.