This week, we are going to take a look at the E-mini Russell 2000 (RTY). At the e-mini, it is around $5 a tick, while at the micro, it is at 5 cents a tick. The value you need to trade will depend on your broker. For Ninja Trader, you are looking at at least $500 for an e-mini contract and $50 for a micro.
Before we proceed, trading is a risky endeavor. You should not risk money you are not willing to lose. Apply proper risk management. We are not commodity trading advisors (CTAs), so decide what you want to do with the information we give you.
Going to the H1 timeframe, we’d like to look at areas where there is a price U-turn. These are points where the market dips low, and it usually happens at the same price point historically. Most people draw their trendlines from a low point in the past to the present. What we like to do is draw the trend line from the recent low backward.
Using this method, we can draw a more accurate line representing when the market will go for another retrace. It isn’t a perfect method, but we are not looking at creating a perfect line. We want to understand when the price forms U-turns. You can also draw from the opposite end, where the market is forming highs.
These U-turn points are not random levels but ones that were established over time. By identifying the pattern and applying good risk management, we’ll be good to go for our trading moving forward.
After drawing the two lines, we can identify that the market is in an uptrend. The highs are becoming bigger, and the range is also starting to expand. Even then, the overall concept remains the same. One of the easier ways to trade during an uptrend is to watch the bottom line you’ve drawn.
Common sense says that we wait for the price to go back down to a lower level before going back up. It’s a logical move as we place our stop below the trend line while waiting for a counter trend line break in a bullish direction.
Another way we can go about it is when the market begins to rally and pushes above resistance. It’s more likely to pull back to the resistance turned support where we’ll look to buy the market. In this case, we need to bring out the Fibonacci to estimate a future high price.
For now, the market is looking to head back down. We wait for a price to hit the low of the trendline before considering an entry. We then set our take profit at the resistance level. Alternatively, the market can break the resistance. We then wait for the price to return to that level before buying at the resistance turned support.
Notice how we always buy at a known level where the price bounces from (the trend line). I’m not interested in taking a position now because it isn’t in an area where there is a high probability of profit.
Someone could trade right now, but we like trading when odds stack in our favor. You don’t win all the trades, but you make money over time. Buying the market at the bottom level and taking profit at the top level makes sense with the pattern we have right now.