I like this trade because it is simple and effective, and it goes clearly against the masses who chase this move off

THE 3:52 PLAY: CAPPING OFF THE DAY WITH A FINE CIGAR

THIS IS WHERE THE OTHER PEOPLE START TO PANIC

The 3:52 play is a setup I discovered while working in a trading room observing over 100 other traders going through their daily gyrations with the market. It is commonly known among trader that 330 p.m. Eastern is a key reversal point in the markets. What was fascinating is that I would watch this room full of traders stare at the bounce (or sell off) that would start at 3:30, and then they would wait, wait, and wait some more. They would wait for confirmation, wait for an indicator-based buy or sell signal, wait for their mother to call and tell them it was okay to take the trade, or whatever. The point is they would wait to jump in on the move. Finally, they would succumb to the pressure to get in, and jump in on the move just as it was running out of steam. 1 would spend the rest of the session watching in fascination as they pointed, gyrated, and yelled at their computer screens as the markets drifted against them. Often they would wait until the last possible minute to get out of their S&P futures trades, which is 4:15 p.m. Eastern. They would wait in the hope that the markets would come back to them, and they spent this brief session praying thai their position would work out. Sometimes it did, but often it did not because there were too many of them trapped and hoping for the same move. As the markets neared 4:15 p.m., they had no choice. They could not wait any longer, and they were forced to close out their positions. Like rats on a sinking shipt these traders would all head for the exits at once. If they were long, they would all be selling at once. If they were short, they would all be buying at once.

The interesting part of this is that the liquidity dries up after 4:00 p.m. Eastern. With the decreased liquidity that occurs from 4:00 p.m, to 4:15 p.m., these groups of traders can easily cause exaggerated movements in the markets in the final minutes before the closing bell. This causes the markets to move hard against them, 1 watched them do this day after day,, assuming that one day they would catch on. They never did, and after a while 1 would just sit there and do the opposite of what they were doing, so while they were crying I was cashing in, This same setup continues to work today, and it is something 1 do nearly every trading day. Like a single malt scotch after a filet mignon, it's a great way to cap off a trading session.

TRADING RULES FOR BUYS (SELLS ARE REVERSED)

This is a fade play. I let the 3:30 p.m. Eastern reversal happen, and then 22 minutes later, at 3:52, I take the opposite side of the move.

1. I use this setup for the E-mini S&Ps and the mini-sized Dow futures,

2. I set up a one-minute bar chart without any other indicators or interference,

3. At 3:30 p.m. Eastern I mark where the futures are trading. In the case of this

example, the futures would have started rallying at 3;30 p.m. Eastern,

4. At 3:52 p.m. I take a short using a market order I short at the opening of the 3:52

one-minute bar. This is assuming that the ES is at least I point away and that the

YM is at least 10 points away from where it was trading at 3:30- On days when

this does not occur, I don't take the trade.

5. My stop for the ES is 2 points, and my stop for the YM is 20 points. I do not trail

stops for this play.

6. 1 hold onto the trade until 4:13 p.m. Eastern, at which point I close out at the mar

ket, Technically I could hold on until 4:15, but 1 don't want to get stuck in this

trade overnight, which is why 1 give it two minutes of elbow room. If 1 discover my

PC has locked up, that gives me enough time to call my broker and get out of my

trade. {I use a broker who actually answers the phone and doesn't put me on hold.)

7. Even though the mini-sized Dow doesn't close until 5:00 p.m., I will still use 4:13

p.m. to mirror the E-mini S&P futures markets. By 4M5 Pm ready to take a break

from trading for the day.

E-mini S&PDecember 2004 Contract October 14,2004

1- At 3:30 p.m. Eastern on October 14, 2004, the S&Ps start to rally, and since they are rallying off of 3:30,1 will be looking to short this market at 3:52 {see Fig. 13.1). By watching a one-minute bar, 1 can see that the 3:51 p.m. bar closes at 1104.75. Then at 3:52 p.m. the bar opens at 1104.50, and 1 take the opposite side of this move. I short at the market, and I am filled at 1104.50.1 place a two-point stop at 1106.50.

2, The traders who jumped on this 3:30 p.m. pop late are now starting to watch their trade go under water The longer they hang on, the more nervous they get, and they start getting their stops hit, or just dumping their position using market orders. This pushes the market down even further. At 4:13 p.m., the one-minute bar opens at 1103.00. This is my time signal to get out, and I cover at the market for a gain of + 1.50 E-mini S&P points. One of the things I like about this play is that there is a time limit. I know that when ( get in, I will be getting out 21 minutes later. I also like the fact that I'm not looking for a big move. I'm mentally prepped to take a small scalp, and when this trade does move against me, it is typically fora very small loss, since my actual stop is rarely hit.

E-mini S&PDecember 2004 Contract, October 4, 2004

1. At 3.30 p.m. Eastern on October 4, 2004, the market sells otf into the 3;52 p.m. timeframe. Since the market is selling off from this time reversal point 1 am looking to take the opposite side of this move so I go long. All I am waiting for now is 3:52 p.m., which is my time trigger to get into the trade. At 3:52 p.m., 1 buy at 1136.00 and place a stop at 1134.00. Why do I wait for exactly 3:52 p.m. to fade this move? This is just the time I settled on after doing this on a trial-and-error basis tor a long period of time. I cannot mathematically prove that getting in at 3:52 is better than getting in at 3:50. It's almost like asking whether people prefer blondes or brunettes. They may have a preference, but in the end all that matters is that they are able to gel along with their choice and make a go of it.

2. The markets chops back and forth, and at 4; 13 p.m.. I am out at 1135.50 for --0.50. It is interesting to note that 1 am rarely stopped out on this play. Though I do take losses with this setup, they are typically very small.

1. From 3:30 p.m. Eastern on July 27, 2004, the market rallies into the 3:52 p.m.

timeframe (see Fig. 13.3). At 3:51 the one-minute bar closes at 1094.75. I short

at the open of the next bar, and I'm in at 1094.75. I place a two-point stop at

1096.75.

2. The market drifts downt and when the 4: ] 3 p.m. bar starts, the S&Ps are being

offered at 1093.25.1 cover at the market and I'm out for +1.50.

1. On July 28, 2004, the market rallies off of 3:30 p.m. Eastern and at 3:52 p.m. I

short at 1096.75 (see Fig. 13.4). I place a two-point stop at 1098.75.

2. The market drifts down, gets as low as 1094.75, and then starts drifting back up.

At 4:13 p.m, I cover at 1096,50 for a gain of +0.25.

E-mini S&PSeptember 2004 Contract, July 29, 2004

1. On July 29, 2004, the market sells off from 3:30 p.m. Eastern into 3;52 p.m. At 3:52 p.m., I buy in using a market order, and I'm filled at 1099-00.1

place a stop at 1097.00.

2. The market starts moving higher after 4:00 p.m., and at 4:13 p.m. 1 sell using a

market order I'm out at 1100.50 for a gain +2.50.

Mini-Sized DowSeptember 2004 Contract, July 1, 2004

1. This trade also works well with the mini-sized Dow. 1 don't really have a preference for one market over the other for this play. Since the volume in the mini-sized Dow is less than that of the E-mini S&Ps, the movements in this market can sometimes get a little more exaggerated from 4:00 p.m. to 4:15 p.m., which is a positive tor this trade setup. On September 8t 2004, the mini-sized Dow sells off into 3r52 p.m., so I take a long and am filled at 10311 (see Fig. 136). I place a 20-pointstopat 10291.

2. After 4:00 p.m. the markets start to rally on short covering, and at 4:13 p.m. 1 sell at 10322 for a gain of +21 points.

Mini-Sized DowDecember 2004 Contract, September 13, 2004

1. On September 13, 2004, the mini-sized Dow sells off at 3:30 p.m. Eastern, so at 3:52 p.m. I go long using a market order, and I'm filled at 10309 (see Fig. 13.7). I place a stop at 10289. This is a good example because the market stabilized and started to drift higher at around 3:40 p.m. Shouldn't I then be shorting this rally into 3:52 p.m.? No! The key element to look for is the predominant move after 3:30 p.m. Remember our friends in the trading room? They see the move off 3:30 p,m,, and then they wait, wait, wait to get in. So in this example they are shorting the dead lows of the move, and they will spend the rest of the session covering their shorts for a loss. My basic rule of thumb on this trade is as follows: If it is not crystal clear, then I just don't take the trade. For example, if the market is dead quiet into the final hour of trading and there isn't any reaction at 3:30 p.m., then I don't have a trade to take. This setup is either very obvious, or there isn't a setup. There is usually a clear setup four days out of five.

The short covering continues right into the close, and at 4:13 p.m. I am out at 10321 for a +12 point gain. Note, this trade could also have been done in the September 2004 contract, which was still active though set to expire on Friday, September 17. Remember, during rollover week, the next front month becomes the most active contract the Thursday of the week before expiration. Expiration during this time was setup for Friday, September 17, so the December contract became the official front month on Thursday, September 9, During rollover week both contracts will trade actively, but volume starts pouring into the next contract out, and a trader will want to begin trading that next contract on that Thursday of the week before expiration.

1. On September 14, 2004, the market starts to sell off near the 3:30 p.m. Eastern

timeframe (see Fig. 13,8). Since it is selling off, ]*m waiting for my time entry to

go long. My time entry at 3:52 p.m. appears, and I go long at the market. I'm

filled at 10318, and I place my 20-point stop at 10298.

2. At 4:13 p.m. [ cover at J0324 for a gain of +6 points. This brings to light the vast

differences between scalping and swing trading. A trade like this won't pay the

mortgage, but it does allow me to pick up an extra shot of espresso the next time

I'm at Starbucks. Of course, the idea here is that scalp trades are used to generate

monthly income, and swing trades are used to create wealth.

Mini-Sized DowDecember 2004 Contract, September 24, 2004

1. On September 24, 2004, the mini-sized Dow starts selling off at 3:30 p.m. Eastern (see Fig. 13.9). I wait until 3:52 p.m., at which point I fire off a market order to buy. I'm filled at 10037, and 1 place a stop at 10017.

2. The market chops higher, and at 4:13 p.m. I close out my long at 10044, a gain of +7 points.

Mini-Sized DowDecember 2004 Contract, September 27, 2004

1. On September 27, 2004, the markets start selling off at 3:30 p.m. Eastern (see Fig.

13.10). I sit back, imagining all the traders who are now chasing the market, trying

to get short. At 3:52 p.m. I place a market order to go long, and I'm filled at 9988.

The market continues to sell off, coming close to my 20-poini stop at 9968.

2. I can now watch as the same traders who chased the market short siart to take some

heat and start to cover. The market rallies hard, but the main part of this rally just

gets me back to even. At 4:13 p.m. I offer my contracts out for sale, and I'm filled

at 9990 for +2 points. Well, I won't even be able to do much at Starbucks with this

trade, but I of course appreciate that I can still wear flip flops to the office,

Mini-Sized DowDecember 2004 Contract, October 6, 2004

1, On October 6, 2004, the market starts to sell oft at 3:30 p.m. Eastern, stabilizes about 10 minutes later, and starts to edge higher (see Fig. 13.11). Because the initial move off of 3:30 p.m. was a down move, I am looking to do the opposite and go long. At 3:52 p.m. I go long with a market order, and I'm filled at 10220.1 place a 20-point stop at 10200.

2. All the traders who chased that 3:30 p.m. short start getting smacked around. Their plight turns inio my profit, and at 4:13 p.m. I offer out my contracts. I'm filled at 10239 for a gain of 19 points. Today 1 can buy everyone in the office Starbucks with my last trade. No joke. When we walk into Starbucks on these days, the Starbucks employees whisper, Here comes the ring leader Where else can five people walk into a coffee shop and get a round of flavored water for $20? On principle I had to buy stock in the company. This way I don't feel like I'm getting ripped a new one; I'm just helping to increase the value of my investment. (What's the phrase? Denial ain't just a river in Egypt.)

Mini-Sized DowDecember 2004 Contract, October 8, 2004

1- On October 8,2004, the market rallies from 3:30 p.m. Eastern right into 3:52 p.m., at which point I go short at the market, and I'm filled at 10049 (see Fig. 13.12). 1 place a stop at 10069. We come within eight points of my stop and then start to reverse.

2. At 4:13 p.m. I cover my short, and I'm filled at 10037 for a gain of +12 points.

1. On October 13, 2004, the market rallies nicely off of 3:30 p.m. Eastern, and as we

hit 3:52 p.m. I short faster than a Boston Red Sox fan drinking a beer after their

team won game 7 against the Yankees after being down 3-0 (see Fig, 13,13). (I had

to put that in on October 18,1 was at game 4, six seats behind home plate. The

game lasted 14 innings and was the most memorable sports experience of my life.)

I'm Filled at 9994, and I place a stop at 10014,

2. The market drifts down immediately, and at 4:13 p.m. I cover at 9984 for a gain of

+10 points.

SUMMING UP THE 3:52 PLAY

I like this trade because it is simple and effective, and it goes clearly against the masses who chase this move off of the 3; 30 p.m. reversal timeframe. Like it or not, futures trading is a zero sum game. For someone to win, someone else has to lose, This trade clearly takes advantage of traders' emotions and cleanly separates the winners from the losers.

BOX PLAYSON DAYS WHEN THE STOCK MARKET IS DEAD IN THE WATER, LOOK TO THE CURRENCIES MEASURING THE LENGTH OF THE MOVE BEFORE IT OCCURS

The one thing 1 can say for certain about the markets is that they will never move straight up or straight down forever, A market can definitely rip higher for a long time, but at some point it will have to rest and consolidate, and sometimes it will even come back down to earth and reverse all those spectacular gains. Just as runners can sprint for only a limited amount of time before their body gives out, a market can move only so far before it needs to pause, take a rest, and build up its energy reserves for the next major move.

Box plays are used to discover situations in which a market is taking a break before getting ready for its next major thrust, whether it is the next spurt higher or the next spurt lower-My favorite markets in which to use this play are the forex currency markets. Although these plays also work well on the currency futures, especially the euro (EC), I've found the forex markets tend to set up cleaner'* for this play, with fewer stray ticks and more liquidity in the various currency pairs.

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Previous Issues

200509-23

I'm not looking for any specific candlestick patterns such as Dojis, Hammers Shooting Stars, and so forth

200509-22

Many day traders I talk to ask about the wisdom in swing trading

200509-21

It supersedes all my other intraday trading rules and setups

200509-20

It is important to position size correctly for swing trades

200509-19

Scalper buys and sells are especially useful for traders who like to try to buy bottoms or short tops

200509-18

Things I like about these swing trades is that they tend to take care of themselves

200509-17

Most reversals take place after three consecutive higher closes or three consecutive lower closes