Trading Ranges Continue to Tighten

Follow @MrTopStep on Twitter and please share if you find our work valuable!

Our View

All the hype about the CPI number and the ES ends up with a 25-point range. The options market was only pricing in ~60 basis point move for the SPX coming into the event, one of the tightest CPI ranges in a long time. While it seemed underpriced, those market makers nailed it.

These narrow ranges have become commonplace and are only good for one thing: scalping. I am a firm believer of the old saying, “sell the rips and buy the dips.”

My methodology is to buy into weakness using tight stops. If I get stopped out and still like the idea, I get back in. I try not to do it more than 2 or 3 times and when it happens, I know that it’s not working. But if I’m right, I’ll get out of half the position to book some profit and try to hold the rest for longer.

One example is I buy 2 NQ and 3 ES. Up 10 points on the NQ I take one off and offer the other contract 20 to 30 points higher. If the NQ keeps going I’ll start peeling off the ES 8 to 10 points higher and keep a runner. I use the profits of the NQ to offset the losses in the ES if the markets reverse.

If I’m using a 5-point stop and the ES starts going back down, I may get out before the stop is hit. If the ES goes bid again, I get long again with a stop.

I also like fading the gap-up or gap-down opens as long as the futures are within the previous day’s trading range. What I’m saying is, it helps to have some type of methodology you follow and perfect over time. It may take years, but when you find what works, you can hone it over time.

Oh yeah, and for me, always use a stop!