Playing the Psychological 00 Levels on the YM

[Soultrader]

YM traders should pay careful attention to every pyschological 00 levels. They act as significant price levels for traders and it is common to see price use this levels as support and resistance.

I want to go over how I play them and what I look for. The key to playing these levels is to watch for price rejection. In an uptrend, the YM likes to violate these 00 levels by a few ticks: usually around 6-8 ticks. It becomes a bull vs bear fight around these levels. Whats important is to wait patiently and not pull the trigger too fast.

Price Rejection Around the 00 Levels

In an uptrend watch for price to violate the 00 level. What I do next is to watch for price rejection. Sometimes due to the momentum, sellers who planned to short at these levels may react to it a little late causing price lift towards 05 and upwards. Price rejection occurs when sellers start dumping above the 00 level and price suddenly moves lower below the psychological 00 print. So you would see: 00, 01, 02, 03, 04, 05. etc.. than BAM! back down to 02, 01, 00, 99, 98. etc..

These rejection is often a good confirmation signal for shorts to be placed. A strategy would be to place a short at around 97-98 once price lifts above 00. Basically you are trying to get in on the short side after a rejection. What I like about this technique is the risk. A 10pt stop would put your stop at around 07-08 making it a fairly low risk trading opportunity.

[TinGull]

Very nice. Thanks Soul!

[walterw]

Thanks Soultrader Excellent stuff... other question I have is : how do you exit your trades... I notice you use some fixed objectives as 10 points... could you expand a little bit on this....

[Soultrader]

Hi Walter,

Whenever I enter a trade I like to have an exit target automatically. Usually these exit points are based on pivots, VAL, VAH, and previous days high/low.

I like to scale out on my winning positions to eliminate risk and try to ride the remaining portion with house money. Usually I like to exit half at 15-20 points... then I bring my stop to break even upon exiting half position. However, this is not always fixed. Depending on price action, if I feel like the move is weak off tape I will exit at 10 pts on half position. My initialy concern upon entry is to dump half as soon as I get a chance to eliminate risk completely.

The remaining half is pure discretionary. I may choose to dump a quarter on the next pop and try to hold my final quarter as much as possible.

[walterw]

Soultrader, I like your explanation on the entry secuence at 98 after the small violation of 00 level... I think this entry method you are showing could be very well used on false breakouts... (m types) that I use where there is a small violation of the previous pivot level and coming back to it and making this small swing down could trigger a good RRR entry... I want to share a chart and would like to hear your feedback on it... thanks Walter.

[Soultrader]

Nice chart walterw. I especially enjoy it because it is a typical lunchtime fakeout breakout. I see this very often during the doldrums which is why I do not trade during this period. A great example of playing failures... and very interesting divergence on the MACD.

I cant see precisely but the failure violated the previous high by roughly 1-1.5 pts? Im not used to the ES so I am not sure if this is the typical average popup on a breakout failure. For the YM its a tiny 3-8 pts... so 1-1.5 ES pts seems like a monster to me. (gets you a little worried if its a valid breakout or failure)

I do think alot of new traders place orders right above the high to play a quick momentum. Once their buy stops trigger, the markets swiftly reverse making this false breakout strategy a good trading opportunity. Similar to the YM setup, you could play the ES with the same risk parameters. Place a short right below the initial breakout point. When price is rejected and comes back down, you are in at a fairly early point. Although price may go on to test the breakout high, usually you have a chance to exit with at least 10-20pts or 1-2ES pts. (I like to scale out)

[walterw]

Thanks Soul for the feedback... actually the posted chart is from NQ so its not too much of a break on that future... I will try to expand on this retest strategy topic on my old thread my entry vs my stop vs my exit ... this could be a much easier way to detect M`s that what I presented (and use) with the triggerlines... cheers Walter.

[Buk]

yeah, very good thread!.......a lot of similar price action triggers & momentum shifts at these Big Figures between the index ftrs & currencies.......which merely highlights the strong emotive behaviour traits which exist at these important 00's.........

your chart example at that critical juncture is also a very common theme on the majors Walter.......so too the accompanying use of price aid confirmation (stochs/macd/rsi etc)......fake plays will generally set up on pretty good r/r flips as stops get fired off +/- 20 or so pips thru the Round Numbers......lots of paring off ensues at these numbers up & down the ladder, which obviously cause the minor pullbacks.....and it's often amusing to witness the frequency of "trappy" price acivity catch the unwary out as they fight tooth & nail to anticipate the initial direction........