For this issue, we’re going to take a dive into a day trade that I took not too long ago in the Dow futures (a.k.a the YM signal, which is the mini). While I’m talking about this keep in mind this trade is something you can do in a variety of ways. The setup that we’re going to talk about can lead to a bit of a choose your own adventure.
Once you know the principles, you can take this setup and apply it to the YM mini like I did in this example, or the micro Dow YM, or the options on the DIA.
With that being said, how did this start?
Well, Gang, we continued to have directional bias that’s bullish in the Dow, which meant that I was looking at the long side and the long side only. That meant when the bell rang I was looking for support and we sold off to aggro support at 30,030 — I actually sent this as an alert out to traders. What that alert meant was that we were ready to take advantage of this trade from this level at 30,030.
So we initially took a position at that level of 30,030.
This was a smaller position keep in mind, Gang since we didn’t drop any lower than that initial level. (When you’re at this stage of the trade, think about micros, options, and things of that nature.)
What did we do next?
Well micros could trigger long, minis could trigger long, or you could get the DIA long call, right?
So the first target that we were focused on as the Dow continued to climb was 30,050 or 30,075. For my own personal gain, I wasn’t super interested in just a 20 point upside since we got in at 30,030, but some traders were and that’s fine. That’s why I made sure to let traders know that it was there, but we were really interested in the 30,075 upside.
At that point once we got there, what we’re talking about is we got in at 30,045 and the target was 30,075. So that’s 30 points x 5 = $150 per contract for the day trade in the mini Dow.
That’s a good start to the day and the day trade as a whole.
But then we stepped back and saw that the market was continuing to go in our favor, so we did a couple of important things:
- We paid ourselves.
- We moved to a protective stop.
Then we started to say, “Well let’s really go for it… what’s the next target?” So remember now we’re’ still looking at 30,030 as the entry but $30,150 as the second target. So now we’re talking about 120 points x 5 = $600.
Now we’ve got a $600 trade per contract on top of the $150 trade per contract from earlier in the day… so $750 per contract.
Then what was the final step we took?
We put in a trailing stop. That means the remainder of the position is also going to be exited at a gain, and that way we know no matter what happens with the remainder of the day, we walk out with at least $750 per contract (or more) in this Dow.
The best part about this trade?
Remember how I said earlier that this setup could be applied in many different ways?
That’s exactly what we did across the Dow, S&P, and the Russell. Being able to take advantage of a setup that you can scale out across the four indices gives you the chance to put together a really comprehensive plan on how to take advantage of this directional bias that’s bullish.