By now, you should know quite a bit about trading futures. At the very least, you should know the following:
- What a broker is
- How to find, read, and get access to charts
- How to find direction, trend lines, and counter-trend lines
- Know where to place your stops and limits
- Large timers and smaller timers
- What Fibonacci is
Next, I’m going to show you the complete process of how to recognize market trading patterns. Before we begin, watch the above video that goes along with this post!
Let’s get started.
- Finding The Direction
- Trend Lines, Market Speed, and Opportunities
- Being a Disciplined Trader
- Watching Out for the Red Lights and Green Lights
- Entering the Market Strategically
- The Market Moves in Two Waves
- Bringing in the Fibonacci
- The Key Takeaway: Monthly timing for direction
Finding the Direction
Now, this is the S&P 500 E-mini future. We’re going to start with the monthly timeframe. If there’s a trading opportunity, we’re going to take it. If there’s none, no big deal. But we’re going to outline what I’m going to be looking for. The very first thing we need to do is find direction.
How do we find direction? We apply our trend lines, look at the monthly timeframe, mark, and follow the process that we all learned. We’re going to mark the lowest and highest points that we see on the chart. From there, we’re going to only show the highest and lowest points.
Then, we’re going to draw our trend line starting from the lowest point of the trend, and then we’re going to raise it. Whatever touches the candlestick, we’re going to release.
We’re going to stay from where we last touched.
Trend Lines, Market Speed, and Opportunities
There are three things you need to remember:
- Trend lines: What do trend lines do? It lets you know where the buy and sell zones are. Anything above the trend line is a buy zone. Anything below is a sell zone.
- Market speed: How fast or how slow are we making higher highs and higher lows.
- Opportunities: Whenever our market comes near the trend line, that’s where we’re looking for the opportunity trade.
Right now, we’re still in the uptrend. We’re still in the buy zone, and the trend is still up.
One of the things that we must understand with a monthly timeframe is that you’re trying to find what’s going to happen in the next one to three months. Understanding the short-term move is very important, too.
One of the things that we can see here is that the market created a little bit of a consolidation range. And they go ahead and break this out a little bit. So, what we have here is a level resistance, level support, or feature high price, future low price.
Let’s get rid of this and outline this overall consolidation range. Some people call them flagpole pinnate. Some people call them consolidation. Some people call them reversal patterns.
When the market moves left to right, they create clear boundaries of where the major u-turns are. What you need to do is figure out how to recognize them. A lot of it is just time, and you’ll get it. Trust me, it will come naturally to you.
Right now, when the market touches the top blue level, that’s where the market predominately falls. We haven’t quite touched that top blue level, so we’re still going to expect the market to push up a little bit to about 30/30.
Being a Disciplined Trader
That’s going to give us right around 665 ticks. Now, I could be completely wrong, but that’s okay because I’m following a process. And what’s more important to me is following a process that allows me to win more trades than I lose.
You can see that the market falls when the market touches the blue level. When it touches the bottom level, the market rallies. That’s what I’m going to follow. That’s the kind of discipline you have to have if you’re going to be a trader. You could come in here and randomly do whatever you want, but you’re going to have random results.
If you can follow a process and follow a consistency, the results should be consistent. It’s also a little easier to change your process patterns to try to improve your overall results.
So, here’s the plan: we’re going to expect the market to push towards the top of the blue level. Whenever the market touches that blue level, I’m going to expect the market to u-turn to fall. That means I’m going to go in my direction until 30/30, which will give me about 600–700 ticks of movement.
Now, I need to go to the daily timeframe. If my daily time is at a low price, I’m going to start to deploy my buying strategy. If we’re at a high price, I’m going to back off. Trust me, that is one of the hardest things you’re ever going to do but will also be one of the greatest things you’re ever going to do. Why?
Because traders want to trade, whenever I say, “hey, directions up, and I’m not buying,” I’m just leaving it alone, some people get frustrated. But my track record stands the way it stands because I follow very specific rules and am a disciplined trader.
Watching Out for the Red Lights and Green Lights
If the direction is up, your daily timing becomes your red-light–green-light — almost as if you’re driving a car. Whenever the price is low on your daily time-frame, that’s your green light. Whenever the price is high, that’s your red light.
If you look at the below daily time-frame, you can see we’re very, very high. This was just a few days ago. Here’s a great example. Look how low we are. The market just fell for 11 days:
Because it fell for 11 days, it’s easy to come in here and say, “wow, the market’s low.” If the market’s off on the one-hour time frame, whatever time-frame you use, break into the buy zone and you can start applying counter trend line breaks on the way up.
Entering the Market Strategically
If you look at a one-hour time frame, you’ll be able to see multiple counter line breaks, and it’s what has made your trading simple. Below is an example of what it would have looked like in real-time.
The market broke the downtrend line. Enter it above the trend line in the buy zone, and then you can see the markets going up. And you could have been trading this uptrend until the market took it out, which is just recent. You would have had your trend line drawn like this:
You could have bought all of these counter-trend lines. Everybody says, “Josh, when you enter in, you make it look so easy.” Well, I’m just entering strategically where the market gives me the best push. And you have that same choice if you want straightforward, easy, or hard trading because whenever the market breaks these counter-trend lines on the way up, it makes trading simple.
With this big push of six, seven days, you can see that upward movement can be identified when the daily time frames at a low price. But that has already happened. So, that means nothing anymore. That’s already a could’ve-would’ve-should’ve.
The Market Moves in Two Waves
If the direction is up, how can I project and potentially predict right where the next future low will be? Everything moves in two waves. You can have Fibonacci’s from this high to the left to the right, to this low, left to the right. You can see that the market has retraced to 618. So, the next extension is going to be the 1.6.
What does this mean? Basically, we’re going to expect the market to fall all the way down to price point 2699. It hits that daily Fibonacci unless it goes higher, which gives it a deeper retracement as seen below:
Once it touches 2699, we’re going to expect to come back up to 30/30. Here you have a decision, and your decision is very straightforward. If we’re expecting the market to fall 700 ticks what do you do? You can go in a one-hour time frame, and you can start to sell counter-trendline breaks in the sale zone, but that’s high risk.
Why? Because the monthly time-frame direction is up. When the monthly time-frame direction is up, whenever you sell is a higher risk. It is because if you press the sell button, and the longer you hold onto that trade, the more you’re going to lose. If you press the buy button, and the longer you hold onto the trade, the more you’re going to make because the overall direction is up.
If you want to be a little bit more of a high-risk trader, go ahead. Go to the one-hour time frame. Draw an uptrend line that enters into the sell zone. Start selling counter trend line breaks on the way down. Check out the below picture for an example:
If not, wait for that low price, around 2699. And then buy the market when it enters into the buy zone. From there, start buying counter-trend breaks on the way up.
Bringing in the Fibonacci
Let’s say you’re a high-risk trader. You go, “I want to start selling the market.” Great. You broke the uptrend line. You’re in the sell zone. Now you’re on a daily high price. The market is going to fall anyway, so what can you do? Bring in Fibonacci. That’s what we learned about this whole process.
Bring in Fibonacci. Mark from the high-price to the low-price. The market moves in waves, lower lows, lower highs.
Let the market pull back. It will be a few hours before the market pulls back and brings in the counter trend line. If the market can close below the counter trend line, sell it. Place your stop above the one. Place your limit at whatever the Fibonacci extension is, and then here’s your trade plan. Like this:
Now, you don’t have to use Fibonacci. You don’t have to use counter trend line break, but at least you know when to start deploying them!
The Key Takeaway
The biggest takeaway is this: you’re going to use the monthly timing for direction. The monthly timeframe for direction stays up if you just buy the market when your daily timings are low when you turn. But when exactly?
Well, if the direction is up, whenever you see a low price, start buying it. Turn on your strategy. Start to use it because, more than likely, you’re going to enjoy four, five, six, or seven days of a push in your direction.
Whenever you’re at a high price, stop. The market is expected to fall. You know that long-term the market should go up. You know that because I just showed it to you!
And if you still want to take advantage of the short trade, at least take advantage of the short trade strategically. Have an entry. Have a stop. Have a limit, counter trend line breaks, Fibonacci’s, and whatever your favorite entry strategy is.
I hope this helps out a whole lot. Remember where we are now, the markets that were going to fall were expected to fall to 2699. From there, we can expect to go to 30/30. Hopefully, I’m spot-on, so in the future, anyone who’s watching the video and reading this post is gonna say, “Josh is incredible,” and he’ll want to find out more information about who I am and what I do!