Hang Seng Pattern Trading
Pattern trading the Hang Seng index futures is possible even on a 1 minute chart. There is still sufficient liquidity to form patterns. The lower liquidity (about half the CBOT's mini DOW contract) is fully made up for by an average daily range of nearly 1.5%.
These generous swings are quite conducive to a style of trading proposed by
Joe Ross, in his book, Trading by the Minute
Be prepared however for wild ride.
Day-Trading-Secrets, also discusses the exploitation of this daily range pattern in
Day Trading System for the Hang Seng
The following 4 trades were made day trading the Hang Seng, on the morning of 21st April 2004.
T1, above was counter trend. The setup was a classic 123 entry as proposed by Joe. The exit is also a slip technique by Joe. 2 contracts were entered. The first contract was exited at about 1 x ATR and the 2nd at 2 X ATR.
T2, above was another counter trend trade. The huge spike down on huge volume resulted in a next bar which was an inside bar. We bought the breakout of the inside bar and held the 1st contract for a profit target of 1X ATR. When the first contract was sold at 1XATR, NinjaTrader was programmed to move the stop loss to breakeven plus 1 tick. The 2nd contract was liquidated at breakeven.
T3, again another counter trend trade. The ACTUAL entry was 1 bar to the right of the red arrow, at the low of the red arrow bar minus 1 tick. Joe calls this an extreme bottom trade setup. I scratched the trade overriding the system because of a reversal bar and the very slow tick rate at that point.
T4, ditto, another short counter trend trade was scratched for similar reasons as T3. The entry setup was a 123 high.
Some readers have asked what the red lines were connecting the peaks an bottom. Most people think it is the well known zig-zag indicator available with most indicators. (Some readers also noticed a magenta horizontal line.)
The red connecting lines are a bit more subtle than that. They are in fact Gann Swing lines. I used a formulation disclosed by the late Robert Krauze available here at Fibonaccitrader.com. He also wrote a book called W.D. Gann Treasure Discovered. It was a best seller.
, for more information on this book at our bookstore.
The Tradestation Gann Swing Indicator reminds us of the current swing direction. I usually try and trade in the direction of the swing AND in the same direction of the larger trend. The larger trend that day was down and you noticed that all T1, T3 and T4 were shorts.
T2 was counter long(er) term trend and counter swing direction as well. I was willing to lose money on the trade because :-
· the spike was so large,
· the close of the spike bar was well above the low
· and the tick volume on this bar was so high, indicating sheer panic.
That why I was willing to go long above 1 tick above the inside bar. (The initial stop loss was 1x ATR below) but as explained above, it was adjusted to breakeven when the first profit target was filled.
Credit goes to
for observing the link between the abnormal volume during the sharp spike bar. Beginners should consider subscribing to this website for further nuances to the instinctive trading style.
Experienced candlestick chart readers, of course, already know this Hang Seng pattern as the harami pattern.
, to link to Day-Trading-Secrets, Tradestation 2000i mechanical day trading system for the Hang Seng. It only trades once or twice a day and tries to capture larger profits.
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