How Differences in Markets Can Impact Your Trading

It is late August, typically a slow, low volume, narrow range days period of market action. But then again, pretty much the same can be said for much if not most of 2014 (and 2013) when it comes to intraday stock market behavior.

S&P 500 10 Minute Chart

Last week’s chart of the S&P 500 futures (link above) shows the intraday ranges and approximate dollar-per-contract value of each move. One may look at that and think, “I see plenty of room for opportunity inside there.”

Which may be true. Depending on how surgical you can become to work inside those relatively narrow swings to wrest meager gains while at the same time trying to cap repeated small losses likewise depends on your own individual end results. The difference between profit or loss often depends on a single tick where entry is filled or not, stop is hit or not.

S&P 500 1 Minute Chart

Dialing into a 1min chart view of that same bigger picture, what do you see? Do you see smooth, deliberate, methodical consolidation and expansion of price? Or do you see spiky, choppy, erratic movement from A to B to C to D?

Sometimes a trade entry attempt will go completely unfilled. Even when the market traded right to the exact tick your order to fill was parked at.Therein lies your problem with attempting to trade ES inside narrow-range, choppy tapes like the bulk of 2014 (and 2013) have gone. The balancing act of avoiding cumulative loss while attempting to accumulate net gain is damn tough for everyone… you and all the other aspiring ES traders out there with zero exceptions.

Russell 2000 10 Minute Chart

When it comes to the Russell 2000, it most certainly has wider ranges and some pretty nice $$ per contract swings. No question about that.

Russell 2000 1 Minute Chart

But the same micro-view behavior exists there too. Inside between those directional swings is a lot of chop, spikes and whips that take out protective stops no matter where they are. And anyone stupid enough to think they can trade futures markets without use of protective stops create a 100% total-loss failure rate without one single exception, ever.

So there is that, and also the fact that Russell futures are no longer liquid enough at every point in time to allow multiple-contract positions traded without major issues involved. After you work real hard to limit loss in the whip-chop and overall prevail from directional moves caught, the size of trade positions possible is capped.

Crude Oil 10 Minute Chart

Now contrast the ES chart with its ample liquidity to these average, usual $$ per contract price swings intraday. No comparison. Those ranges are 2x to 3x greater and somewhat straighter. It is much easier taking $300 – $400 per contract from within a $1,000 total price move than it is from inside a $450 total price move.

In Reality
And that’s the part where rubber meets the road. I hear – see – read where a lot of ES traders say they have reached a point in their progress where the best they can do is be breakeven traders over time. I hear – read – see where TF(RLM) traders say they would have been net profitable for a day or week if only a trade(s) would have filled all their contracts, or filled any contracts at all period instead of price spiking or slamming away unfilled.

Hypothetically, you can profit from any financial market. Realistically, consistent success is more possible if not outright probable in some versus others. Sometimes it is not the trader who makes a difference between success and lack thereof overall. Sometimes it is merely a choice of target markets. I’m long past the stage of trying to convince anyone of who should trade what. Not my job. I do outline the realities of each market above and that is the truth regardless of opinions or emotion.

The markets are what they are. Each has pros & cons, strengths and pitfalls, certain behaviors and quirks. Knowing the difference and dealing with such can be the lone difference in your consistent success, or constant quest for consistent success that eludes you to date.

For more daily updates from Austin, visit his blog at Coiled Markets.