*A review of 3 weeks worth of trading the Dow Jones Futures and the lessons I have learnt*
Happy Friday to you all. In this blog post I am going to show you the past 3 weeks worth of trading I have done on the Dow Jones futures markets including all technical analysis, trade position entries, trade management and trade position exits. I will finish by telling you exactly how each trade went and what I learnt from them so you can avoid any of the troubles I encountered.
Sit back, grab a drink and let me tell you the story of how I tried to beat the US Fed and Donald Trump at their own game…
The chart above shows the past 25 trading days of price action on the 1 hour timeframe chart and I have marked on all 6 of my short trade entries with black arrows. As you can see I entered multiple short trade positions at various price levels across a 3 week period and every single one produced different results.
Dow Jones Short Trade Positions:
- 31st March 2020 @ $23,420 +2.05R*
- 7th April 2020 @ $23,500 +1.5R
- 8th April 2020 @ $22,900 -1R
- 9th April 2020 @ $23,500 -1R
- 14th April 2020 @ $23,980 +2.23R
- 16th April 2020 @ $23,750 +2.62R
Final Return = +6.4R*
*R represents returns as a ratio of the total value at risk.
The first lesson to be learnt from this whole 3 week saga is that you should not let your fundamental bias block out blatantly obvious technical analysis currently visible on the charts.
I am almost certain that there is going to be more downside moves on stocks over the coming weeks and even months. Covid-19 has damaged almost every industry and sector across the globe and the actual financial value of these damages is yet to be announced. I personally believe a lot of traders and investors are underestimating the impact that a global shut down has had on the economy and financial markets.
However, this does not and should not take precedence over the technicals visible on the charts when trying to enter trade positions and I also did not account for one major factor that is currently heavily influencing the markets right now… The US President and the US Federal Reserve.
Let’s look at my first short position trade.
This trade entry was as simple and effective as they can be. A bullish trendline break and a rejection of an established resistance zone at a key price level of $22,500. I entered a short position with a stop loss above the previous highs and price targets at various support levels on the way down to the multi year lows at $18,200.
This trade started very well and the US stock index fell over 1800 points from my entry at the lows which was an open floating return of around 4.7R. However from there the consolidation began to form over the next 4 days and this eventually resulted in a gap up on the Sunday night futures market open. I immediately closed the trade for a final return of only just slightly more than 2R.
This bullish gap up was caused by a slowdown in corona virus cases recorded over the weekend however it has soon become apparent that this slowdown was purely a lack of data being recorded. Cases are not recorded as fast on weekends for obvious reasons so the beginning of every new week will show a reaction to false news. The data is then released and new Covid-19 cases have not slowed down, they have just been delayed.
It is here that you can all learn another lesson when trading in times like these. Traders and speculators will believe absolutely anything they see on the news and not look in to it in any deep context. Unfortunately that is life and speculators will always trade the quick move instead of the long game.
The chart below shows my next 2 short trade positions.
Once again, I started with a nice and simple trade entry. I shorted at the next available resistance zone which had previously shown multiple price rejections after price had made a strong over-extended bullish run up. From there price sold off over 1000 points in less than 24 hours before it began to consolidate.
I shorted again with a small day trade position at the intraday resistance shown on the chart above (second black arrow). I was confident that sellers were just gathering momentum before the selling continued with the same strong momentum seen just before. Price initially began to drop but then the US Fed announced they would remove certain banking restrictions to allow increased business lending. This was (and is) a big deal! It sent the markets wild again with buyers coming in and pushing price back up.
I eventually had to close this trade after it was clear that the bearish trend was reversing. A higher high and higher low was made for the day so I exited both positions. The first short trade entry was still in profit at around +1.5R but I took a loss on the 2nd entry so this was effectively a zero day for me.
Lesson 3! At this point it was clear I was letting my fundamental bias to overrule my common sense and knowledge of technical analysis. The chart below shows the 1 hour timeframe chart after the first 3 positions had been closed.
As you can clearly see, price was still making higher highs and higher lows on the timeframes I was trying to trade bearishly. This goes against most of the rules I normally abide by when trading.
Let’s look at the 4th short position I entered soon after.
This trade was silly in hindsight. I had planned to trade a very simple day trading head and shoulders pattern and had a sell order placed with my broker at $23,500. Price began to climb back up to my entry (as planned) but it was with very strong momentum. In hindsight I should have cancelled the order but I did not and it was executed and then swiftly closed when price continued to climb higher.
This move upwards was once again caused by the US Fed announcing even more spending in the form of $2.3 trillion of lending and they had even committed to start buying junk bonds in an attempt to keep the markets climbing. This is unprecedented levels of quantitive easing never really seen before.
I should have removed my order and not traded this move but none the less, the position was a losing one and I had to close it for a loss. This then takes us to this week and my most recent and actually my two best short trade positions on the Dow Jones Index futures.
The chart above shows my final 2 short trade positions on the Dow Jones. Once again, the first entry was simply selling at a strong resistance zone ($24,000) after signs of rejections appeared. From there price began to drop over 700 points before pulling back. I had a bullish trendline marked on the chart and this was broken so I was looking to trade this new intraday bearish trend that was potentially forming.
I shorted again at $23,750 on the lower high that formed. I traded both positions down to daily lows at nearly $23,200 before it all began to once again go wrong. Price formed strong daily support at around $23,300 and I was up over 1100 points across the 2 short positions so I decided to take some profits.
I closed 60% of each position at $23,330 to lock in profits. I was unsure what price was going to do next and price action was beginning to form a choppy market structure which I never like to trade. By doing so I locked in around +4.2R of returns. (Positions and profit taking ratios can be seen in the table that follows).
Then shortly after price began to shoot up quickly. I was actually busy yesterday evening when the buying first started on the back of President Trumps speech and the Gilead drug trial news. I swiftly had to rush to my broker platform to monitor the situation.
In the space of around 1hr price climbed 300 points with swift momentum. I finally closed out the remains 40% of my positions at $23,708 which was over 470 points higher than the daily lows. Once again I was on the wrong side of the news.
|Short Position 1||60% Close||Open R Return +2.91||Return locked in +1.74|
|40% Close||Open R Return +1.24||Return locked in +0.49|
|Short Position 1||60% Close||Open R Return +4.1||Return locked in +2.46|
|40% Close||Open R Return +0.42||Return locked in +0.16|
|Total Return +4.85R|
This is where you can learn your final lesson of this blog post… Don’t be greedy! Take profits along the way, be willing to accept you might be wrong with your profit target estimates and lock in returns. This saved me when trading these final 2 positions.
If you look at the Dow Jones Index over the past 3 years, it was extremely rare to see moves of 500 points in a single trading day. In the currently financial markets we are seeing price swings larger than 500 points in multiple directions on multiple trading days. Dont’ be greedy, take what you can from the markets when you can and try and keep your trading capital growing.
Future Price Predictions.
I still have a bearish bias. Fundamentally, the US stock markets are propped up on levels of fiscal stimulus never seen before. Unemployment is at all time highs and increasing by millions every week. The Covid-19 virus is not slowing yet and has certainly not reached it’s peak. The only hopes come from a vaccine and the Gilead news this week was “hopeful” at best.
IMPORTANT! We are yet to receive any financial data in relation to how bad businesses and sectors have been damaged by the global shutdown and I believe many people are underestimating the damages.
From a technical analysis perspective, please see the chart shown above. Price is still climbing but it is getting squeezed in to a tight bearish wedge continuation pattern which is priming itself for a big move. I am going to stop trying to big the very top and instead wait for the breakout to occur before trading with the momentum direction.
If you are interested in learning more about the financial markets, how they work and how to trade them the right way then please check out my Mastering The Markets – Retail Trading Course.
All my technical analysis is done using the TradingView platform. You can get access via the link below.
My preferred broker of choice is IC Markets. Low spreads and trading costs really help long term profitability. A link to their site is below.
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DISCLAIMER: None of the information posted on this site is to be considered investment/financial advice. Trading is high risk and you should only trade with money you can afford to lose.