COPY These 3 Simple Steps To Master The TREND Trading Futures - Anthony Crudele
Interview with Anthony Trudel (Chart Fanatics) presenting a simple, practical 3-step framework to read market environments: 1) consolidation/two-way tape (Bollinger contraction → trade edges, down-timeframes for entries), 2) expansion/trending (Bollinger expansion → trade directionally, start from daily; use 60/30/3-min for entries; targets include previous Bollinger peaks), and 3) mean reversion (use Fibonacci on volatility with levels 30/50/70% to time reversals). Uses 20-period, 3-standard-deviation Bollinger Bands, anchors on daily timeframe, prefers options on futures for managing wide stops/volatility, adjusts position size by dollar risk, and uses a custom 'Beacon' indicator to auto-draw volatility-based fib levels. Sponsors and product mentions are included (Chart Fanatics resources, Apex, FundedNext, TradeZella).
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If you have a strategy that you think is so good, why are you wasting your time? Point and clicking. Find a programmer, spend the money, do it. For my strategy, I look at three things. Are we in? I've met a lot of people over the years. I could literally sit next to somebody who's trading a specific strategy. And what I found incredible throughout my career is that if I were to go and trade that same strategy as them, they're going to outperform me every time. Now why is that? Well, it's because it all comes down to it.
This futures trader has traded hundreds if not thousands, thousands of e mini contracts a day.
Most traders will go and they'll learn from another trader and they'll see a trader execute a strategy and they'll say wow, that trader's doing extremely well trading that strategy well, that trader is the best executor of that strategy. Most retail traders are losing because they're using just. I was a trader that was either fading rallies or fading breaks. And I said how do I prevent myself from doing this? I said Anthony, you have not identified market environments. So then I started looking at this is how I started this strategy.
Because introducing 20 year trading veteran Anthony Trudel he goes through in this episode the exact three specific elements of a trade that he looks for before executing.
That's where I get killed historically and presently everything's a daily for me. Even as a short term trader. I started using this when I was scalping a ton. It was more about understanding what environment we in. This helped me slow it down even for the short term. So when I see this, what does it tell me?
Right?
It tells me this is exactly how you learn to trade full time for the long term term consistently.
And I'll day trade if the markets are really busy. Most simplest way I can look at the market is just what is.
Welcome everyone to chart fanatics the go to channel for all of the very.
Best trading strategies in the world with the very best traders in the world as well.
And today we have a very special guest.
A true trading veteran is the one.
And only Anthony Crudeli riz.
Thanks for having me.
My pleasure, my pleasure. Thank you for being here. And I know today, today we're going to go over sort of a strategy and we're going to start here on the whiteboard. Where should we begin when it comes to that?
For my strategy I look at three things. Are we in mean reversion, consolidation or trending? So that's where it all starts for me. Right. And I think it's important to identify what style of trading that I do these days. And for me I'm swing trader and I'll day trade if the markets are really busy. But most of the time I'm looking at a position for one day to, let's call it five days.
Yeah.
Now that's a typical hold time for me. And I look for the most simplest way I could look at the market is just what is the type of environment. And then once I go from there and I identify what type of environment it is, then I just really execute directionally. So I just pick a side once I know what it is. So if it's mean reversion and it's back in trend, then I'm only in that mean reversion. Look, if it's trending, I'm only in that trend. If it's consolidation, it's two way tape. Typically as a, you know, multi day swing trader I will get chopped up in that type of scenario. Doesn't mean that I won't do it. Sometimes it, it's really dependent on what the overall primary trend is. So if the overall primary trend is bullish or bearish and we get into a consolidation, I'll lean more in to what primary trend is. So it starts off with ballinger bands. I use 20 period 3 standard deviation Ballinger bands. And we joke because you know, nowadays a lot of people aren't using ballinger bands. It's an indicator, you know, that's been around a long time and we kind of joke a little bit sometimes on ninjatrader Live we call them boomer ballinger bands. I'm not a boomer. I'm Gen X though. So just for, just for the record, not quite a boomer, but what I like about them and I think with any indicator that you use I could look at them and in a few seconds I could identify those three things. Is it mean reversion, Is it consolidation, Is it trend? And that to me is so important because as a trader who likes to keep things super simple, I like to look at my charts and understand that immediately. So I could be gone for weeks. I can go and travel, you know, the world, do whatever I want, I can come back, I can open up the chart and within a few seconds I know exactly what type of, of market environment. And you really can't buy that. I don't think with some of these other strategies, just the simplicity of it. So the first thing I want to look at is so a Bollinger band. Now a 20 period 3 standard deviation Ballinger band. Most of you guys, if you open up your Ballinger band, it's going to be a 20 period 2 standard deviation Bollinger band. And all that means is when you're looking at a Bollinger band and you're going to see the band, you know, most of the time you're going to look at them and it's going to look like this. Okay. Now when you get to a three standard deviation, it just going to be further away, right. A two standard deviation is going to be closer. Most people are probably looking at them around like vwaps or stuff like that. You look at the 1, 2, 3 standard deviation. So I use a 3 standard deviation. It's really the sweet spot for me because I trade indexes.
Yeah.
S and P, nasdaq, Russell. And so that three standard deviation gives me just enough room to see, you know, enough away from the current market volatility to understand what I'm about to show everybody.
Got you, Got you.
In terms of the Bollinger bands, though.
As you said, like, it's, it's so interesting because a lot of the traders today are anti indicator for whatever reason, but then you go, you go back just a small amount and a lot of the professional traders have some form indicators. Either it's the Bollinger band or a lot of the time it could be like the rsi. Yeah, they're the two that seem to be very popular and very prevalent and they're very simple in terms of what they're telling you. It's kind of more. More so areas of interest, like where. Areas where price could go to, areas of where we're overbought, oversold, or where we could start to notice a slowdown. And that's all it is. And I think a lot of people assume that when you hear indicators like, oh, you're relying on this thing, when in essence, it's really just like a background information. Right?
Yeah.
And the one thing is, is that it's not the indicators you use, it's how you use the indicators.
That's true.
Okay.
And so if I sat down with John Bollinger and showed him how I use Bollinger bands, he'd probably be like, you know, what is this guy doing? Right. And I, you know, and I created my own indicator, called it Beacon because I wanted to show me the light, baby. Right. And so I'll explain what Beacon is in a moment, but it's, it's ultimately, again, it's just about how I execute and how I want to execute. See, most traders, I'll go and they'll learn from another trader and they'll see a trader execute a strategy and they'll say, wow, that trader's doing extremely well trading that strategy. Well, that trader is the best executor of that strategy. That's the reason why they're so successful. It's not the strategy itself. And I know some people may argue that, but that's really what I believe. I mean, you could look at anybody out there and I've met a lot of people over the years and I could literally sit next to somebody who's trading a specific strategy. And what I found incredible throughout my career is that if I were to go and trade that same strategy as them and you know, unless it's completely systematic and it's buy here, sell here, they're going to outperform me every time. Now why is that? Well, it's because it all comes down to the execution.
Yeah.
And this is why I'm very directional based and why I look at things super simple and I usually just pick. Not usually, I do just pick one direction. The only time it's two directions again is consolidation.
Yeah, that's true.
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So let's talk about that. So when you look at a Bollinger band and let's just, you know, we'll draw some candles in here or just. These are just going to be bar charts. Right. If the market's doing this, what is this ultimately seeing inside the Bollinger bands? What's ultimately happening is we're going into a point. Anytime the Bollinger bands are coming in and you just see them like this, and maybe we came from a time that was like this, right? Anybody can go and look at Bollinger bands and see you've seen many times or the market has done things like this. And ultimately this is what you get into and you get into this consolidation phase. Right. So anytime I see this where Bollinger bands have contracted and I were to look at this, let's take a different marker here and let's just look at this scenario right here. From this point on, consolidation, you got Bollinger bands coming in right here. See that? You've got contraction, you've got really ranged prices. Most of the time you're gonna see that. Very seldom are you gonna see the market making a higher low. In this moment. Yes, that's just the way it is. I mean, the Bollinger band is gonna be at its peak or near its peak or opening up when the market's making a higher low. In this situation, almost always are we coming off of a high or a low? Right. And there could be some rare instances, but for the most part, this is what you're gonna see. So when I see this, what does it tell me? Right? It tells me to weigh tape. I could be long, I could be short.
Yeah.
I then down, what do I do? I go down in time frame. Why? Because when you go down a time frame, anytime you're in a consolidation, short term technicals matter more. See, a lot of people will look at longer term charts and they'll look at them and say, oh, you know, we're in this big bullish trend and, and. Or we're in this big bearish tre. And they'll try to execute that on the short term charts. And what's happening is the longer term trend just overpowers them. Right. And so it's too hard to manage the risk. So maybe they're right in direction and lose money or what have you. Right. And so they're not position sized correctly to take advantage of that bigger move. So if you're one of those traders who understands and looks at bigger primary trends, you want to expand your, you know, your. You want to be trading your position, sizing more according to that timeframe. Yeah, Right. But When I see this, it's like I can't have a big picture view even if we are in a bull market or a bear market. I down my timeframe to 60, 30 minute or even three minutes, which would seem weird as a short term chart for someone like me who's multi day holding. But I'll use it just to help me get in. But I'll look at the short term technicals to see if I can find some nuance within the charts in those moments to execute my trades.
No, I love that and I love the, the fact that when you identify that with consolidation rather than sort of either stepping away, at least going to see more information and understanding, that's when you can be looking at two way directional because a lot of people will just kind of try and stay and try and find the opportunity that's going to break out versus understanding that we're in this period of sideways action. So let's step down here to see what that action actually looks like.
This is when the majority of the people are going to get chopped up. And so just imagine if you drew like a line like right here, right across in just these things. And I did those kind of on purpose. Fake breakout bake back to the range, fake break, fake breakout break back into the range. Fake breakout down here. If I did the same thing back into the range. So if all of a sudden you're trying to chase longer primary trend here, you're just getting hosed. So you have to recognize that anytime you get outside of these ranges, when we're in a two way tape and consolidation, the likelihood of us coming back into that range is high. And so I almost look for like stop runs above recent highs or lows and just to come back in the range. But again, this is when I can get chopped up a lot. And I think most people can relate to this. What ultimately happens is all of a sudden that one day is the day that we go lower, we go higher. Right. And you start to end up really getting screwed, you know, because you're just overtrading the tape. But when I see this, my thought process is trade on the edges of the rain.
Yeah.
Range stay out of the middle.
Yeah, no, perfect. And then where do you go from there then after that?
So from there, I mean, as you can see what happens, there's only a couple, there's only really two scenarios that can happen from here. We start trending higher and we start trending lower. There is no. Because either we're in a two way tape consolidation or eventually what? We're trading higher.
Okay.
Trending higher. Now, it's never perfect, but let's just say, right, it goes up like this. Now ultimately, what are we looking at next? What happens? What I look for is this, this moment right here. Let's use a. Let's use a different market. Let's go to green on this one. What happens right here? And everybody can see it. What happens is the Bollinger bands go from being flat, start pointing outward. What does that mean? Expansion. Anytime you have range expansion, you then depending on the direction of the market. Right. If it's expanding, the Bollinger bands are going up and we're hugging the top Bollinger band, or we could be going down. Like, we have been a lot of what this year is. We're now expanding the range, the potential to expand the range in that direction.
And then from there, what are you looking for? Would you be looking at when you break out? Is that where you're looking to try and enter, to follow that movement?
Exactly. You break out of this high. Right. And now the Bollinger bands are expanding out. Right. And then one thing that I want to keep an eye on is I want to keep an eye on this previous peak over here. And I'll talk about that in a little bit. Why that matters in this peak over.
Here, what time frame would this. I know you said in the range, drop down time frame. So this would be the data.
Everything starts with the daily frame.
Me. All right.
And it starts with the daily, because the daily sets the tone. Again, know your time frame. I don't care what strategy someone's using. Again, I've, I've talked about this. It does not matter. It's the best executor of that strategy that gets the most out of it.
Yeah.
Otherwise, just automate it. I don't even know why you would want to go and put any discretionary measures into it. Because if you have a strategy that, that you think is so good, why are you wasting your time pointing and clicking?
Because.
Find a programmer, spend the money, do it. Now, if you say, oh, there's a discretion, this. Because there's discretion, then. And do it. Okay, I get it. Still find a programmer and if you find your a setup, let that automatically execute for you. Remove the discretion as much as you can. Most retail traders are losing because they're using discretion too early on. They don't have the experience to do it.
Yeah.
So why have this systematic strategy that everyone says works then just automate it.
Yeah.
Don't tell me that, you know, it works great but yet you're not making money. Well then there's something wrong there.
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So I use discretion in mind and what I do is and we could talk a little bit about it. I know we're more technical here but I build a macro theme like what's happening within the marketplace this year. You can't look away that there's, there's, there's tariffs. We've also got, you know, gold making new all time highs. You've got the bond market becoming really volatile. You've got, you know, the dollar moving against currencies. Volatility's up across the board. So you've got a higher vix. So now that plays a role into what's happening, right? Like I am not going to be in that environment chasing a market higher. Even on a daily bollinger band, I'm just going to position size lower. If I'm going to be long period in these conditions I'm be long smaller of course. So then the scratch of the eyes, I'm going to be long smaller I'm going to use options that are maybe a little bit further out and I'll adjust how I get in and out of that position because now I have to withstand volatility. And if I'm going against what I think the overall macro theme is, I have to be small enough to be able to withstand a little shimmy shake. You'd be able to maybe let that trade work out. And if it doesn't work out, it's a smaller hit versus like me, you know, hammering the tape. And when you've got macro coinciding with technicals, then it's like, you know, then I'm all in.
Yeah, that makes complete sense.
So I just wanted to kind of make that point because again, it's. It's all about execution to me. So in this situation, the only thing I'm looking at right now for me is long only. Anytime I see this happen, we get this Bollinger band starts breaking to the upside. This one's to the downside. Expansion make a higher high. Right. And this Bollinger band starts going that way and the market takes out these previous highs. I'm long only, period. There's no debate on that. Yeah, this is how I started this strategy. Because what happened was I was a trader. That was either fading rallies or fading brakes. I like to be a contrarian. Can't help it. That was my nature. And I said, how do I prevent myself from doing this? I said, anthony, you have not identified market environments. So then I started looking at Bollinger bands. And this is back in like 1999, 2000. And I'm looking at it, I'm like, man, it's like, you know, we go from the straight bull market, 2000 bubble market's going straight down. It's like literally I go from just look, everyone's teaching me to be long. And all of a sudden you got to learn how to be short. And it's just. I'm just getting blasted. And I'm like, listen, man, I started looking at Bollinger bands and anybody. We've all been through this. You spend the thousands of hours on the charts and this ultimately, again, I could sit down right now and look at this tape. I know I want to be long only. I don't care what the macro is. I know we came out of a two way tape. I know the primary trend is up.
Yeah.
Period. Because we came from a higher a high here. All in Japan did this consolidation. We made a higher high and this from this range expansion. Long only.
Yeah. And so I would imagine short only would be just the flip side.
Just the flip side. Yeah. I mean if we just turn this around. Yeah. And you did this. We looked that way.
Yeah, exactly. Yeah. Yeah.
I know this year's a bear market, so I know that maybe I should have done this in the bear market. It's the exact same, easily transferable from bull or bear. And you know, again, we could just draw the lines down here and everyone could look and it's the same type of scenario. Right now I'm short only. Do not fade it. Right. So it gets depends on where we are. A lot of people traditionally, you'll see people with Ballinger bands that look for like the peak up into the Bollinger band and that's a short. I'm not saying that that's something that is. This is why I gone. I actually went to 20 period 3 standard deviations versus 20 period 2 standard deviations. Put up a 2 standard deviation on the NASDAQ, it gets it like on a normal day right now it's nothing.
Yeah.
So you need a little bit of room. And so I also didn't want to be like, oh, we're overbought or oversold. I tried to remove activity from my trading even though I was a super short term trader. But over the years, I don't care who you are, everybody, you're going to trade less as time goes by. That's just the way it is. You're going to want to get a stronger hand in the market and you know, you'll take some of the things you learned on short term trading and you'll apply them to, you know, a longer term scenario. But ultimately this is the gist of it.
And in terms of like entries and targets, where would you, in terms of this breakout, would you just be entering on that daily stops below the recent low or the previous, previous day low?
So here's the situation here. So in, in this situation when we're breaking out and what I'll start to do is I'll go down to a 60 minute chart and it'll help me with targets. I'll also use other people and you know, for targets like bigger picture targets like my friend Pax who I know what his bigger picture targets are. So I'll look and see what those are and I'll do something like that. So I am someone who will actually use other people's, you know, big, big picture levels.
Yeah.
Because I'm one directional trader here. So I almost, you know, you hope you never get out of the Position, it's kind of what you want. Right. But the reality is, the way I manage it is it's going to depend on futures or options on futures. Most of the time it's options on futures for me these days, just because I can hold the position through the volatility and, and stay with it. So in this position, I'd be buying calls probably multiple days out. I wouldn't go too far out. Never. I usually go three to five days out because I just think that we're going to keep running higher. And so what will happen is I'll just scaling out as we go and ultimately I'll look for like what some other people's bigger picture targets are or one thing I'll look at. And this, remember I told you about this Ballinger man, that's a target.
Got you. Okay.
The previous, previous high, I consider this unfinished business. Because in this move higher, what happened was the Bollinger band made a peak.
Yeah.
And the Bollinger band was going, going, going. And ultimately when the Bollinger couldn't go anymore, it stopped. So I look at this area right here is what I consider unfinished business. This is a three standard deviation move. So if the market were to continue to go higher in this moment, as it trends up, that previous peak becomes a target.
Got you. I got you. Okay. And then in terms of, let's say, as you said, some people would look too short here if you were prices appear, starts to come down, you're not looking to short yet until you get this move again and then this breakout again. Is that right?
So let's, let's get into phase three. What was the other one? Right. We said consolidation, two way tape, we said expansion. Long only or short only? What's next mean? Reversion. Yes. Okay, so a lot of times what's going to happen is this, you're never going to pick the top or never going to pick the bottom, nor do I suggest trying to even do that. I've tried. It's never happened. It's just never happened. I don't know why that is. It's hard to imagine. And when I've sold the top or bought a bottom, I didn't know until way later because I was way out of it. So ultimately what might happen is a scenario like this where the market makes a high here and then ultimately you see this happen and then you see that now in this moment, the Bollinger band starts to come back in and everyone's like, well, you missed the top. Yeah, no kidding me. Am I trying to catch that.
Yeah.
But now what am I doing? I'm no longer long.
Yes.
Right now I'm looking at mean reversion. So what do I look for in this specific instance? What I'll do is I take a Fibonacci retracement. And I look for. This is the 50% line in a fib. And they're not traditional fibs. So I'm sorry for you purists out there. Again, I don't care how you use your indicators, you use them the way you want.
Yeah.
All right. And then here's 70%. So what I look for is once we get a daily close below 30%.
Yeah.
From these two peaks, my target is 50%. So now I will buy puts or I will short futures until a daily closes above there. Once the daily closes above there, I no longer want to be in it. Because what I think is going to happen is probably consolidation and go higher. We can get into that. But ultimately, once we get a daily Close below the 30% line in this fib, from this peak to there. So instead of using a fib on price, I use a fib on volatility.
Got you. No, it's interesting, exactly what you said there, and I love it in terms of like, it doesn't matter how you use it. It's about how you use it. It's not about how others use it. It's not about what the.
The.
The general rules are, whatever is promoted out there. It's more so about how do you use this to build your edge, build your confidence and your clarity?
Yeah. Two things. I know. When mean reversion happens, I don't care if the primary trend is up. I no longer want to be long. Yeah. Okay. And now I can be short. But because I'm going as primary trend, here's where discretion comes in. I'm short, small. This is my target. Once it's 50%, I'm done. Now the next two levels are like, okay, now I'm gauging the how weak we've turned. Right.
Yeah.
You know, because ultimately what could happen is as you get into nowadays, ultimately what happens is, let's just say the market were to keep moving lower. You know, we got those lines there. Do this right back, test the 50. And then all of a sudden, this were to happen and the Bollinger bands were to do this.
Okay. Yeah.
Okay, now we're in range expansion lower.
So now I'm short.
Short only.
Got you. Love that. Yeah.
So again, I look at it from the most Simplest way, two way tape expansion.
Yep.
What direction am I in? Mean reversion doesn't matter what primary trend is just your position sizing. Look for a mean reversion move once that's hit. Now you wait to see. So a lot of waiting in here. That's the hardest thing. The hardest part is this right here because I don't know if we're going to go into this scenario.
Yeah.
Or if we're going into this. And that's where I get killed historically and presently.
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I can imagine though, because that is the unknown moment, right?
That is the unknown moment because that's.
Where you got clarity here. You have clarity here or here. If it's on the other side, you have some clarity here. But that area there is when it's in between.
Yeah. It all starts from the daily and I take stuff down. I'll use other things in short term to help me again, but that's not my primary strategy. Everything's a daily for me.
Yeah.
Even as a short term trader. I started using this when I was scalping a ton. It was more about understanding what environment we in.
Yeah.
That's all it came down to for me. Right. I mean if I see we're taking on a prior day high and all of a sudden I'm lifting the offers in the S and P or I'm hitting the bids and I didn't know what the primary trend was or I didn't know what was, you know, happening with the Bollinger bands. You know, it's just I just caught myself always, you know, spinning down the, in a little in the toilet bowl. Right. In my own fast market and I would just get chopped up or I'd be fading rallies, buying dips and I just was over trading.
Yeah.
This helped me slow it down. Even for the short term.
I love it. And is there anything more to go over here or should we go into the pros and cons?
This is it.
Yeah, yeah. Love it. In terms of cons, just to always give the disclaimer, it's not saying it's bad, it's more so like hurdles or things to be aware of. But to be fair with this one, I do not see too many. I think just that area we just mentioned there might be the only thing that can, that can stand out which we start, start with the pros.
Pros Are I understand market environment. That's number one for me. I understand what type of tape it is.
Yeah.
Right. I mean you can use moving averages. You can use all these different things. Which I will use.
Yeah.
But ultimately I understand those three things.
Yeah.
Mean reversion, consolidation, or are we trending?
Definitely.
And that to me is the most important thing.
Definitely should rather.
We'll write the pros on this.
Yeah. And so the other pros would be. It keeps me out of bad trades. And I think that this is something that has helped me tremendously. It keeps me out of overtrading and it keeps me out of fading markets. It keeps me out of doing things that I would do on shorter term charts that would drive me to push the button.
Yeah.
So it allows me to be more thoughtful in my thinking. So that's. That's, that's a massive pro for me.
Yeah, no, I definitely think so. I definitely. That's like the killer of most traders in their P and L. I would also say in terms of the benefit of swing trading being sort of more off the charts compared to being really, you know, sort of stuck on them.
Yeah.
Let's say so trading here. My handwriting is terrible compared to, you.
Know, mine's not great either. Yours is pretty. Yours is pretty bad. I tell you.
I like the answer. I think the only con, like I said in terms of what stood out to me, I say con but like something to be aware of was the.
Well one.
Obviously there's patience to wait for certain signals, certain confirmations. That seems to be so far of all of our episodes. The reoccurring theme is that there's a lot of patience even when it's scalping or swing trading, which is phenomenal to see. And then the other one was literally just in between phases, making sure not to get chopped up in between.
And another con that I think, and it's really been an issue for me over the years is, is like, you know, more targets. Right. It's hard to scale out of this type of strategy. You know, I think that this is why, you know, I'll look at what other people are doing and I'll. And I'll. Look at, you know, vwaps or I'll look at other things like that and it'll help me understand like where I should be trimming positions and just gives me a little bit more context within the situation. I'll use order flow tools again. I am now because I know the direction I want to be in.
Yeah.
I can hyper focus on the shorter term Stuff to help me become a better executor of this style. But that is definitely an issue that I think for a lot of newer traders is why I give it away for free. It's open source on Ninja, it's open source on Trading View, because it's again, it's not something that is going to give you these proprietary targets. It's not something that's so crazy. It's just something that's really helped me slow things down, really be in the moment of what the market really is versus what the moment I think the market may be. And, you know, and that's it. I mean, it's. Again, it's, it's. It's one of those things. I mean, I've, I've leaned on this so much because you go back to like the cons, like the patience, but it's like if I believe in it, I can't be patient because I do believe in it.
Yeah.
Because I've seen myself get chopped up in those conditions.
In terms of. You mentioned Beacon earlier. Is that something we need to be on here? Is that going to be there?
Yeah, Beacon's going to be on the chart. And all Beacon is is an automatic fib that's. That draws over the Bollinger bands once the peaks are made.
Gotcha.
So it's really that simple.
Gotcha.
Cool.
Well, let's go over to the charts.
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We've got the charts out. Now we're starting on this. Looks like Es to me. Am I correct?
Yes.
I'm glad.
I'm good.
Where should we begin here?
Okay, so we talked about the Bollinger bands. 20 period, three standard deviations. I've got 8, 21, 34 moving averages here. And the only reason I put those, again, I want to understand trend. And you know, I've got some good friends in the space that use this. I follow their work and it's really helpful, again, to understand what the market's just doing in terms of overall trends, strength and weakness. It never gets me in, in trades, but it does help me with exits. This is the biggest thing, the biggest con of this strategy is like, okay, where am I getting out of this? Like, am I just holding this forever? Like, okay, I'm long in like outer space and where my stops at too? Right. That's the other thing. Placing a stop. We didn't put that as a con, but for me, the stop is. It's. It's not really a con because I'm going to go over here exactly what it is, but the moving averages and other things on top of that are what helped me with that. Okay, so let's look at a couple of things. First, we talked about it, and it's a very similar picture that I drew where it's like we were coming from a previous high. As we all know, the market's been trending down this year. This is the June contract for the E, Mini, S and P. Also at the bottom here, I have the RSI tool. I'll explain how that potentially helps a little bit. Again, doesn't give me in trades understanding environment. So if you look at this moment right here is. And everybody see how the. We were like in consolidation right in here.
Yeah.
Okay. And actually, let's, let's. Let's just draw something there just to make this super simple. Right. This was basically consolidation, right? Yeah, we talked about this. Bollinger bands coming in. Oh, we're going higher. And no, we're going lower. Oh, wait, we're going higher. No, wait, now we're. We're going lower. And then we go lower. And what happens at this exact moment, Bollinger bands expand, expand. At this moment, I'm going, you cannot be long anymore. Short only. This was two way tape. Short only now. Now what happens is you get real extreme volatility like you're seeing right now, and the market just starts getting blasted lower. And so a couple things that will happen is what I'll look at is, you know, so for targets, again, it becomes difficult. This is where I lean on other people's work and stuff. Cause when we start to get here or even pull up weekly charts, I'll look at low. Anybody can find old weekly lows or highs to help with targets. That's a lot of times what I'll use.
Yeah.
But when you start getting really volatile like we saw this year, it's like they're just blowing through everything and it's hard to stay short, which it was for me. But ultimately, let's talk about where I'm wrong in this situation. This high right here. Okay. This high is key right here. Remove this. I keep tightening it up this high before these two highs right here.
Yeah.
So this market rallied and then we gapped lower. So now I look at it and go, first of all, you've got this gap here, which would be concerning if you think we're going to go up and fill it. But this high becomes really pivotal to me because this high is where the tape just turned.
Yeah.
Now this high, if I'm in here now with the gap, I'll have to buy options because the stop, I want to be above the high. I don't want to get stopped out if it fills the gap. So it's kind of a unique spot. It's really hard to manage risk right here. Really hard. And so that's why, like, I'll buy out of the money puts in that situation. Because for me, at that moment, I can just pay for the put and basically put it in my back pocket and say, however much I'm willing to risk, I'm willing to risk. Next thing I'll do is I'll anchor a vwap to that high and I'll look at 1, 2, and 3 standard deviations lower because at least that will help me guide. Guide me from this vwap as the market's starting to go lower.
Yeah.
Okay, can we stay below the vwap? And I'll use 1, 2, and 3.
Standard deviations as exits and use that particular candle due to the fact that that's where the tape turned, as you said. Correct.
I use the moment of the turn. Right. And so, you know, people, again, vwap is important as to where you anchor it. And I really learned this from Brian Shannon, and I talked with him over the years about this, and he's really the one who got me to start using this. And this was way later in my career, and it was really beneficial to me because I was like, man, I could just take it right from that moment because what hell happened is I'm using cumulative delta. I'm using other things, volume profile. And I was trying to find ways to lean on something and trying to stay directionally. And it's hard. But with this, I'm like, okay, if it can't close above the vwap, which it never did, every day it would hit the vwap break. Hit the vwap break. And I'm just using one and two and three standard deviations.
Yeah.
So, like, in this situation in here, this is kind of where. I mean, I got roughed up on this day tremendously. Probably one of my. It was. Was one of my worst kind of few sessions in here was when the market started to come back up very quickly. This was the Trump 90 day pause.
Okay. Yeah.
Okay. I don't know really how anyone else could have. You know, I don't know what to even say when you have a news headline that just market moves the market up 10. It's not the easiest, and a lot of people were looking for oversold. Ultimately, again, it gets really hard for me to manage risk. Even if I was trying to be long, I think I would have struggled in this situation. But I got tagged a little bit in this area, and it was just difficult. Right. Ultimately, now it got above here, and I'm like, okay, you know when to start getting back below the V web. On this particular day, I remember I bought some. I bought some puts again, caught them a little bit, and then we closed back above the next day. And I'm just like, now this is like, you know, what are we getting into? And you look at the Bollinger bands, they were staying really wide.
Yeah.
And so it gets into a unique situation where we go, is it like a mean reversion or is it, like, still heading lower? And this is actually a con again. This is a con because you don't expect a 10% day, number one. And you don't really know, like, as we is, are we still trending lower. Is this thing going to snap back because of data or headlines?
Yeah.
So it got tough, but ultimately this area was a lot of doing nothing for me after that. Like, you get tagged a couple times and you're like, all right, man, I tapped out. So what I'll do is at that moment, I'll take the vwap and I'll, and I'll, I'll delete it. And that's what I ended up doing. So I deleted it and I delete that box and basically now I'm in wait and see mode. And what started to happen over here, which was pretty interesting, was I started to get bearish again. Just probably about six, seven days ago, we couldn't hold the eight day moving average. We had closes below it, the bottom Bollinger band at this moment. See that Riz right there? It was still open. I thought we were going to go back down and test that low. I was short in here. Okay. And I saw that we had a big rally into the end of the day. We got back up here and I ended up covering it. And lo and behold, look what happened the next day. Bollinger bands came in and now we're in mean reversion.
Yeah, yeah.
And the mean reversion. This is the beacon. This is where it draws it from the peak high of the Bollinger Band.
Nice.
70%, 50%, 30%. And this is just 100.
Right.
So now what's my target was? 55, 23, roughly the old 90 day pause high. I talked about this, you know, on Ninja Trader Live and stuff like that, where I was like, look, I just think we're going back up and probably in the perfect scenario to where we did have some news too, where we can grind up and come back up in here. Lo and behold, it was the 34 day moving average, which also helped me as a target. And now I'm planning, that's great.
And then that kind of works when you have these correlating factors as well. Right?
Exactly. And so in this instance, again in here, it's like, now we have a gap up. Here's the thing is where a lot of traders will talk about like, what's risk reward in here? How do you do this? This is where the options market becomes better for me because very hard for me to buy futures here. My stops are just way too wide. There's no way I'm buying futures on this day with 5314 close and I see that I get a signal to be long with a 5180 stop. I mean, it's just. I'm not doing that. You know, it's just like at that point, it's like my risk reward for my target of 55, 23. I can't make money. What I got to do is I got to buy out of the money puts. And I got to say once again, I'm going against primary trend, which is down. I'll be small and let the trade work. But once this 50% hits, I expect a lot of chop. Now I expect look at Bollinger. Bands are coming in. We won from expansion consolidation to mean reversion. And now we don't know now hands in the pocket. We got to wait.
That's it.
That's the strategy.
Love it. Thank you for breaking that down for us. And I think there's so much to take away and I think there's really key lessons. Especially the foundation where we started is like identifying direction, identifying the conditions that we're in. Because once you have that as your foundation, the decisions after that become pretty straightforward. And I know we talked about discretion and, and sort of, you know, having a really clear, clear process that you could even program. But this is almost like you said, the discretion comes in towards more the end, the. The start and the foundation of getting that direction is clear as clear cut. You know, what condition are we in? What is happening? Are we mean reverting? Are we consolidating or are we, you know, expanding? That's clear. Then after that, you then have obviously your execution side. And then the discretion comes in with the management really targets wise. And that's kind of, I would say, pretty standard because it's quite rare to see your traders who are sticking to say, I've just a select risk to reward as their targets and their trades. Right. And then again, as to your point earlier, if you're doing that program, it make it easy for you to stop doing the stress.
Yeah, like if I had my mind program, the reason why I don't have mine program is this would trigger a buy right here. Would a stop below this recent swing low. Yeah, well, that. That risk reward is. Is. Is crap. I can't trade that that way. I wouldn't trade it that way. I would wait intraday to look for some areas to buy or I buy options. The only way to do it.
Yeah.
You know, so that's why I can't do it. For me, the biggest discretion is position sizing. I don't trade every position the same exact size. It's always about the distance of risk. So if my distance of risk one day is 20 points and the next day it's 200, I can't have, you know, 10 minis on for a 200 point risk versus why I should have 50 on for a two point risk. You know what I mean? It's just, it doesn't make sense.
Yeah.
So my, my amount that I'm willing to risk, my risk capital is always going to be a dollar amount and then my position size is going to be adjusted towards that. And that's why buying options is the best way. Last thing, the only thing the RSI does in this situation is were we dramatically oversold on that low? Do I identify this as a good low? And the reality is yes, all I look for in this situation is did we get oversold? Did we get overbought? If we did and we're in a mean reversion potential move, which we were here I say to myself, okay, that actually makes sense. It gives me some confidence that we're going to go up and hit that 50% line.
Got you. Anthony, I really appreciate you breaking this down for us today. Drop a comment of your biggest takeaway from this episode. Any questions, throw them in the chat there.
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