Successful trading is about taking it one day at a time. Never overload your wagon. Think about what you see. Make decisions accordingly.
If you try to look too far into the future, you’re going to overwhelm yourself with too much information. All that noise will make it much harder for you to make solid decisions based on what you see.
You may get lucky from time to time. The stars will align and maybe your timing will be just right. But take it from someone who has been trading since the ’70s: Your success will be hard to repeat.
On the other hand, if you’re able to make a routine to check in on what’s happening in the markets, you’ll make life much easier for yourself. Just like your habit of seeing what’s what, your success in the markets will become a habit.
One of the habits I’ve been following for years is to look at what I call “the seven sisters.” It’s so simple, I do it while I have my morning coffee. Since I’ve been in ‘watch mode’ this election week, I thought it would be a good time to give a refresh on what I look at every day.
The Seven Sisters
Like I said, the ‘seven sisters‘ tell me what’s going on in the market. I check in on them every morning, and it gives me the context I need for making decisions.
It may sound like some kind of alchemy or wizardry, but it’s simpler than that:
1. E-Mini S&P
The E-Mini S&P (ticker symbol ES) is traded on the Chicago Mercantile Exchange’s Globex system and is one of the most popular equity index futures contracts in the world.
Hedge funds tend to prefer ES over the big S&P 500 since it’s on an all-electronic system, so there are no delays that affect prices and the execution of trades. The average daily implied volume for ES is over $100 billion, which is a lot more than the combined volume of the 500 underlying stocks.
2. E-Mini Dow Futures
The E-Mini Dow Futures (ticker symbol YM) also trades on the CME. It’s based on the Dow Jones Industrial Average, so it represents the cumulative value of the 30 blue-chip companies represented on that stock index.
3. Deutscher Aktien Index
This is an index of the 30 largest and most liquid German companies on the Frankfurt Exchange.
4. E-Mini Nasdaq-100 Futures
This is an index of the top 100 companies trading on Nasdaq that allows traders to speculate on the future value of Nasdaq.
5. Gold
This refers to the trading price of an ounce of gold. Gold is priced below $1900 / ounce as of this writing.
6. Crude
This refers to the trading price of a barrel of oil. As of this writing, the West Texas Intermediate (WTI) is priced at just below $38 per barrel.
7. Bonds
This is the 30 year US Treasury Bond. Instead of looking at the yield, the bond future looks at the price of the bond. As interest rates move higher, bond price moves lower, and vice versa. This let’s us know what interest rates are doing.
I tend to keep the information I need about the seven sisters in a chart that looks something like this:
This information (along with the ‘four vitals’, which I’ll discuss next week) gives me a good idea of where the opportunities are going to be in a given day. This is the baseline information I need to understand what’s going on in the markets.
Follow the seven sisters, and you can ignore all the shiny toys.
Talk soon,
Tom