[Soultrader]

Here is an interesting trade I took the other day. Thought I'de share this strategy.

The chart below shows Feb. 14th, 2007, the day Bernanke spoke at 10:00am EST. Now the markets did absolutely nothing until 10am. Everyone was waiting for Bernie to speak. On Fed days the markets usually do 1-2-3 move. (1-2-3 moves are... initial move up/down, reversal, and then third wave back in the original direction). However on Bernie speeches, the markets tend to just GO. The key to playing these moments is to get in early and not chase. Moves are usually very fast on the YM and they can take off over 30+pts in a matter of seconds.



Okay.... lets get back to the chart. Price stalls right above value high pivot using it as support twice. The YM is pretty much stuck in a 15pt range from 12685 to 12700. Now what I did was use a bracket order with a buy stop at 12705 and a sell stop at 12680. The strategy is to get in asap in the direction of the move.

The important part is in this strategy is to pick your buy and sell levels carefully. Why 12680 and 12705?? 12683 is value high. My sell stop is placed 3 ticks below this value high pivot. The play would be to ride it down to value low at 12651.

Now, take a look at the chart below. 12703 is 2/9/07, Fridays high. 12700 is also a key psych level making this mark extra key. So my buy stop is placed at 12705.




The markets did go and rally for about 30pts after the Bernie momo breakout and another 30pts in the afternoon. Take a look at your past charts, practice it, and tweak it. It's a pretty easy strategy but the key is picking your two buy/sell levels.

[notouch]

There are not many news events that are good for a straddle but the quarterly Bernanke testimony is one of them. I set up hotkeys for a straddle on my platform and hit them 2 seconds before 10 am, that way you can keep the straddle tight and get in at the best level. It's best to use stop-limit orders so you don't get slipped too much.

[keymoo]

Interesting notouch. How do you set up your stop-limits? I've never used that order-type before. I am currently researching the Bernie testimonies for a pattern and will add this to my setups once my research is done.

[notouch]

If you use stop orders you're exposing your account to unlimited slippage at the time when the risk of slippage is highest. With a stop-limit order you can limit exactly how much slippage you're willing to take. How you set up your stop-limit order depends on what volatility you're expecting and how much slippage you're willing to take. Also make sure your order is held at the exchange rather than at your broker.

[Soultrader]

Good tip there keymoo. Stop-limit is probably the wiser decision under these circumstances. I'll keep that in mind for the next Bernie momo trade.

[keymoo]

notouch, so how do you set up your stop limits? Do you specify how much slippage you want to take? I've never used them and am curious to learn more. The way I understand it is, let's say the market is moving up fast. You set a buy-stop order at say 800.00 on the ER2, for example. The moment the buy-stop is triggered, the order turns into a buy-limit order at a pre-determined amount. So, if I want no more than 5 ticks slippage I would set the buy limit order to 800.50. Is that how it works?

[Soultrader]

keymoo,

If you set your buy limit at 800 flat.. you will get either a partial or full fill at 800 exact. If you get filled half of your position at 800.... but your other half never gets through, the half position will never be filled. This protects you from getting filled let's say a point away from your market order.

[notouch]

Originally Posted by keymoo »

notouch, so how do you set up your stop limits? Do you specify how much slippage you want to take? I've never used them and am curious to learn more. The way I understand it is, let's say the market is moving up fast. You set a buy-stop order at say 800.00 on the ER2, for example. The moment the buy-stop is triggered, the order turns into a buy-limit order at a pre-determined amount. So, if I want no more than 5 ticks slippage I would set the buy limit order to 800.50. Is that how it works?

That's exactly how it works.