ES Trading Filter – When Not to Trade and Trading TICK Divergence

ES Trading Filter – The TICK Filter Strategy

One of the advantages of ZoneTraderPro is its powerful and useful filter strategies involving the TICK.  The ES Trading Filter TICK filter strategy simply says that we are going to look for a higher tick high and a higher tick low when going into along trade, and vice versa for a short trade. ZoneTraderPro displays the TICK in real time along the bottom of the chart, and it displays the highs and the lows above the currently traded price.  Additionally ZoneTraderPro has an indicator settings that allows a red dot to be painted onto the chart at the exact location when a higher high or a lower low has been made.  This setting has a default of 100 meaning that the previous value can be exceeded by 100 before the dot is painted. The advantages to using this TICK filter also demonstrate when there is a divergence in the tick to create a tradable pattern. Let’s look at the following chart from 10 /25/13.  On the left-hand side of the chart we see if successful exhaustion trade followed by a successful exhaustion trend trade.  At the conclusion of the exhaustion trend trade there is a high tick of 541 and the red dot indicator indicating that the previous five 324 was exceeded.  The price then drops 11 ticks stopping at a blue counter trend zone.  At the blue counter trend zone we see a tick divergence of -396 which is a higher tick low.

10/25/13 Trading Filter Example
10/25/13 Trading Filter Example which demonstrates TICK filter strategy

The reversal trade is then indicated, however all of the ZoneTraderPro filters are advising against the trade.  The background is green indicating the euro is bullish for stocks.  There was a higher tick high and a higher tick low going into the trade. The market trades through the reversal and again to a blue counter trend zone making a lower tick high of 399.  Again we see tick divergence and an unfavorable euro position at this high.  When the reversal is indicated the fact that the tick could not make a higher high going into the trade would create a filter condition which would negate the trade, even though the background is now green.

Trading TICK Divergence

As the market traded to each of the blue counter trend zones that provided a low risk trading opportunity to trade the TICK divergence using the ES Trading Filter and the blue counter trend zones. The tick and the euro were both favorable to the outcome of the trades.

Pattern Trading and a Typical Day

What is a “Typical” Pattern Trading Day?

On Wednesday I had a trader send me an email and ask me questions about ZoneTraderPro.  In response to his email I sent him back a couple of pictures from Wednesday afternoon which illustrates pattern trading that ZoneTraderPro identifies.

Typical trading day 10/09/13
Typical trading day 10/09/13

In the first picture from Wednesday afternoon there were 10 trades of which at least eight made a minimum of a point half.  The remaining two trades did not stop out for losses.  The trader wrote back and asked if this was a typical day.  My response was that it was neither typical or atypical.  The purpose of ZoneTraderPro is to identify constantly repeating patterns based on statistical analysis and plot pattern trades on the chart.  In addition to plotting pattern trading ZoneTraderPro then predicts where the market should trade at in advance of the market trading there.  We see some excellent trades on this afternoon. First we have a nice reversal followed by an exhaustion topping pattern with excellent tick divergence at the trading zone.  We then see another exhaustion trade marking the bottom which has a significantly higher low tick .  Starting at about 245 p.m. we see a series of three trades with the exhaustion trend trade and the reversal trading pattern excellent examples of a perfect trade.

In the second chart we see two excellent exhaustion trades.  The first exhaustion trade is good for almost 10 points and it marks of a bottom at one p.m. At the location of the trade we again see a significantly higher tick low and it is immediately followed by a red tick filter dot to the upside.  The trade is then immediately followed by a four point exhaustion short trade and then exhaustion trend trade.  Prior to the exhaustion trades we see the purpose and the strength of the tick filter.  Right as the market was trading at the price trigger the tick filter indicated that we should not be in this trade, first warning us about a trend short trade and then warning us about a reversal long trade.  In each instance the warning not to take the trade was correct.

So to answer the traders question about whether this is a typical day, it is typical in that ZoneTraderPro is identifying the patterns in a typical day. What is atypical is simply the number of patterns which produced excellent results in a three hour period. It also illustrated the need for a trading plan to avoid needless losses.