Thursday Morning Briefing

Welcome to our morning briefing. Here we are reviewing short term setups ahead of the NYSE opening bell. If you are a scalper or swing trader then these setups may be of interest to you. As usual keep in mind that these are short term setups although they could be used as early entries for more longer term positions.

The spoos have arrived at the next short term hurdle – the 100-hour SMA. It looks like the 25-hour is starting to carry now and after some obligatory gyrations we may see a pop higher here. It is definitely starting to look like an attempt to paint a floor here now but the bulls need to finally show some real mojo or Monty Python’s boot will drop once more to stomp on ’em.

Almost identical configuration on the YM (and the NQ – not shown here) – same considerations. I think a short term long position above the 100-hour with a stop below the 25-hour would be appropriate. If you want to play it conservatively then only use 1/2 R and build up your position as it goes your way.

The short side however still has a shot here – in fact being short right now and here with a stop above the SMA (roughly above 15455) has potential. Again if the 100-hour gives way then I will be long with a stop below the now rising 25-hour.

Proper position sizing is key here and it’s important to not risk more than 1R on playing any particular correlated symbol. Meaning if I take both the YM and the spoos then I would only play 1/2R max each. In case you’re wondering – R is all about risk and if you’re unfamiliar with the terminology then I strongly suggest you read up on some of the key concepts.

Let’s assume we’d go long the YM at 15,456 with a stop below 15,390. In order to calculate your proper position size simply deduct your stop from your entry and calculate the ticks. That’s easy on the YM – here we would be risking 66 ticks – that is your 1R. Now all you need to figure out how many contracts you can afford – and that depends on your account principal and your risk ratio. A very easy way to do this in a few seconds is to use our Futures Risk Calculator shown above. Just enter your account size (which will be stored in a cookie for repeated use) and choose your risk ratio (ditto) – I strongly recommend not more than 1%.

Per the YM example with a trading account of US$100,000 you should not risk more than three contracts which should limit your risk to around $990. Done.

Gold is looking interesting as has produced a short term diagonal acting as support. I’m tempted to be long here above the 25-hour with a stop below the diagonal. If stopped out I would give it a bit breathing room and then try a short below the 100-hour. Once again you can use the futures calculator to assess your risk exposure. If you like it then also check out our FX Risk Calculator which is even cooler!

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Cheers,