I spent a couple of decades on the trading floors in Chicago. As a broker I serviced numerous professional traders. Some used only fundamental data, economic reports or order flow to make decisions. Quite a few used charts and technical indicators, while several entered trades because an automated system or “black box” gave the signal to buy or sell. Some traders incorporated all this information in their decision making.

One of the most valuable services I provided was to relay information I saw in the trading pit. Off-the-floor traders frequently called the trading floor to find out who was buying or selling and how much. If I reported that the big firms were favoring the short side, it could help a trader exit a long position before it became too costly.  If the large orders were mostly bids, then price would rise, and that information might allow a trader to hang onto a long position and realize bigger profits. This type of information is no longer available because most trades are executed electronically. However, the lessons I learned from dealing with professionals still resonate.

I had been publishing daily updates for treasury and equity futures for many years when I left the exchange due to the popularity of electronic trading. I employed a logical format to analyze markets and soon found that the approach worked well with all commodities and stocks. This format was developed over years of answering the questions the institutional traders asked. If you address the following questions before each trade, you will begin to think like a pro.

• Who controls momentum? Interpret near-term direction
• Is the timing right for trend?
• When it moves and how far? Price projection
• Where will value area develop? Is higher or lower value likely
• Where are support and resistance levels? Buy and sell areas
• Is there event risk? Economic reports, etc.
• Will the range be average or above or below? Track average ranges
• What is the risk? Where does momentum reverse
• Is market too rich or too cheap? Overbought/oversold

Each morning before sending trade recommendations I try to answer the questions above for the most widely traded markets. Those markets are treasury futures, equity index, precious metal, energy, foreign exchange (currencies) and grains, and on occasion I will check the softs (coffee, cocoa, etc.).

Apply a consistent format to analyzing markets. It will allow you to scan for the best trading opportunities in many markets in a short period of time.

John Seguin, Market Taker Mentoring