The Nasdaq (NQ) futures contract generally trades like most other stock indices, though it does have a few twists and turns that set it apart from the crowd. For anyone who has traded seriously, it’s those “twists and turns” that can spell trouble for the uninitiated when trading NQ. The purpose of this article is to alert traders to some of the idiosyncrasies that are part of NQ trading and how to adjust your trading to take advantage of the attractive parts of the contract and avoid some of the less pleasant outcomes of the contract. instrument can cause.
There are times when this contract is very easy to trade, especially when it is trending. Of course, you could say that all contracts are easy to trade when trending, but NQ (due to volatility) presents some unique challenges and can be profitable if you trade the contract correctly. The challenge in NQ trading is understanding and profiting from the volatile nature of the contract. This can be a double edged sword and the downside of volatility is the tendency for price action to move against your position at high speed.
In a normal “bracketed” market, you can let the trade run against you, depending on the size of your trading account, but sooner or later (it could be days, weeks, even months) the price action will break out and the trade that you let run will become your worst nightmare. The best overall approach is to trade this contract conservatively and with the trend.
Countertrend trading is the formula for burned trading accounts in the NQ. You should repeat this mantra 25 times before going to bed every night. “I will not trade against the trend, I will not trade against the trend…”
These are the techniques that I have found successful when trading the Nasdaq:
· mean reversion: Like most contracts, the Nasdaq is an excellent contract to trade using a technique called “Mean Reversion”. This strategy, in general, discourages traders from taking those terrible breakout and breakout trades that are so often the cause of many losses. I generally wait until the price action is 2-3 standard deviations off a trailing SMA and find this trade phenomenally successful. I added some innovative rules to quantify the trade more accurately and increased the win rate another 15%. I urge you to investigate this unpopular trading style and see how successful it can be.
· Pay specialized attention to support and resistance (SAR): As I mentioned at the beginning, the NQ is a very active contract and making preliminary assumptions about whether or not the price will move via SAR is a mistake. A better idea would be to use an order flow program so you can see the actual order flow in SAR. Are traders on the buy side, on the sell side, or do the orders placed represent that traders are on both supply and demand?
· volume analysis: By now, most traders realize that higher volume in SAR usually results in a market pullback outside of SAR. The corollary is also true, low volume approaches to the SAR may indicate that the price will continue through support/resistance. I highly recommend using a “Best Volume” indicator to indicate, in real time, the nature of each bar. Obviously, high SAR volume often indicates that a change in direction could be on the cards and low volume indicates a possible continuation of a move. The question has always been: “How loud does the volume need to be to signal a change of direction?” Obviously, high SAR volume often indicates that a change in direction could be on the cards and low volume indicates a possible continuation of a move. The question has always been: “How loud does the volume need to be to signal a change of direction?”
Is there a method to find the “perfect” NQ entry point? No, no so much. But, it can be good enough to read between the lines and consistently score winners. Best of luck in your trading.