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How to trade the new single stock future Part 6

Advanced Technical Methods for SSFs. Although many trading systems and methods can be used for trading in SSFs, some clearly work better than others. This chapter provides an overview of indicators and methods that I have found particularly useful in the futures markets. | I CHAPTER ELEVEN Advanced Technical Methods for SSFs Although many trading systems and methods can be used for trading in SSFs some clearly work better than others. This chapter provides an overview of indicators and methods that I have found particularly useful in the futures markets. In reviewing these indicators you should bear in mind that systems and methods used for trading stocks are not necessarily effective or applicable to futures given the more volatile nature of the futures market which as you know is a function of its lower margin. I The Gap Trade The opening gap trade is a short-term trade that can be used effectively by day traders. The logic and rules of its application are not only simple but logical and sensible as well. The efficacy of the gap trade is based on trader psychology. The tendency of a stock or SSF contract to open below the previous day s session low or above the previous day s session high is a function of news that in turn prompts traders and investors to sell or buy aggressively. Hence 127 128 How to Trade the New Single Stock Futures bearish news can cause an SSF market to open below the previous day s session low whereas bullish news can cause an SSF market to open above the previous day s session high. Of course the tendency of an SSF to act this way is a function of the behavior of the underlying stock. As examples of gap higher and gap lower openings examine Figures 11.1 and 11.2. I The Gap Trade Concept Now that you can spot gap trades this is the concept When a market opens gap up G there is a tendency for the price to retrace following the emotional buying that promoted the gap higher opening. If the price of the stock or SSF then falls below the high of the previous day there is a tendency for the rest of the day to be lower and for the SSF to close lower than its open as well as lower than the high of the previous day as illustrated in Figures 11.3 and 11.4. At point 1 in Figure 11.3 NEM opened above the high of the .