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SuperTrader S&P500 Mechanical Systems $TICKvPrice Divergence

My ES Trading Rules

1 March, 2010

I use these rules and a meditative state to trade the ES each trading day.

Objectives

I trade for 90-120 mins a trading day to capture between 1-3R from the price movement in the mini S&P contract (ES). I use a mechanical set of rules for entry and exit that I only override with intuition/experience as to whether I take or do not take the signals.
A long term goal of mine is to be informed on which trades to take or ignore from a meditative state.

I’ve uploaded backtest performance spreadsheets to the downloads section.

Basic System Rules

See these beliefs and make sure you agree with them before attempting to trade this system

These are supplemented by a finer set of distinctions you could glean from the daily posts. I will eventually make available a full set of rules and training videos.

Trade from 830 to 1000 Exchange Time
Trade E-Mini S&P Future Front month
Chart is set-up with
Price on top
$TICK under Price
Chart is divided into 30 second bars
All trades are entered on a stop and exited on a stop. This creates a strategy that can be relied on to backtest as it will trade in practice.
Backtest results require price to move through price and reach target for a profitable trade to be recorded. Price can touch entry and not pass through and go to stop and will be counted as a stop.

Entry Rules

Go With flow opening trade

If Tick and price are trending in the same direction and price is moving with conviction. Look to buy/sell the first retracement.

Retracement Entry

For a long

Condition 1
Down tick on 2 period MA of $TICK and some slowing in price
Condition 2
Up tick on 2 period MA of $TICK
Entry – Market in

Reversal Entry

Price to TICK divergence with at least one bar between the divergent bars. We are looking for a pullback in price or tick to give us a valid signal.

For a long – trending market

Condition 1
Price low can be equal or lower while TICK is higher or equal (both cannot be equal)
Condition 2
HOLP – High of the Low Period – A close above the High confirms a reversal long opportunity
Entry is set at high of HOLP bar and is worked down if price does not go through initial placement of entry
Once filled stop is set at HOLP bar – 2 ticks. Target is set at 5 points and scale in entry point is set at 2 points from initial entry. Two points is PFA…

For a long – Divergence with trend

Price low can be equal or lower while TICK is higher or equal (both cannot be equal)
Entry is at high of divergent bar and is worked down if price does not go through initial placement of entry
Once filled stop is set at HOLP bar – 2 ticks. Target is set at 5 points and scale in entry point is set at 2 points from initial entry. Two points is PFA…

For a long – consolidating market

Price low can be equal or lower while TICK is higher or equal (both cannot be equal)
Entry is at high of divergent bar and is worked down if price does not go through initial placement of entry
Once filled stop is set at HOLP bar – 2 ticks. Target is set at 5 points and scale in entry point is set at 2 points from initial entry. Two points is PFA…

For a short

Opposite of long rules

Trade Management

For Go With and Reversal Trades

Scale-In

2nd contract entry is placed as 1st contract is filled at 2 pts from initial entry
If price retraces and provides a Go With entry before 2 point profit and the entry price is at least 3 ticks higher (for longs) than the initial entry price then this becomes the Scale-In entry point. Target is set at the initial trade target.

Exit Rules

Stop movement

Stop is moved below (for longs) the swing low of the retracement – 2 ticks used to enter a Go With trade.
Stop is moved to B/E + 1 tick after scale-in is filled
If a reversal Condition 1 is triggered and Condition 2 is not triggered (failed Divergence) then stop is moved up under swing low – 2 ticks. Stop is then trailed under swings as price moves towards target
When price reaches 4.25 pts to target stop is tightened under low of most recent bar and ratcheted up to lock in as much of profit as possible

Target

Initial target is set at 5 points
Targets may be made smaller if it resistance (for longs) is below target price. Such resistance may be overnight high, BIG numbers

News Stop

If flat – No trade initiated 5 minutes before and up to 5 minutes after news.
If news does not move market substantially then look for entries after a minute from news release
If in trade and profit locked in then hold trade through news
If in trade and no profit locked in then close trade out 1 minute before news for  profit or a loss

Other Exits

Tick +/- 800-1200 Extreme + Divergence Market Out

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