You Gotta Know Who is in Control

As a futures trader it is critical to know who is in control for the day. What is the dominant timeframe in the market? For our purposes I will breakdown participants into four basic groups operating on different timeframes. They have different motives, tactics and tools.  Now, there will be times when groups may overlap blurring the lines. That being said, it does not take away from the importance of determining who is in control.

The first are those operating on the shortest time frame, the Day Time-Frame Traders. They go home flat, no open positions, at the end of the session. Scalpers, Market Makers and Day Traders fit into this group. They rarely push a market much beyond the prior days limits without one of the other longer term players. You will see more low volume back and forth as inventories become too long or too short.

Next we have Short-Term Traders. They will look for trades that last from two to five days. Their reference points will be over multi-day formations trying to be in and out for short trend and counter trend trades and can operate aggressively enough and with enough volume to drive prices from short term balance areas creating small breakout trades lasting one or more days.

Intermediate-Term Traders are trading for the broad swings that will set up in larger consolidations. They aim for longer swings that may terminate at the edges of those formations. Trading with more volume they take on sizable positions as the market transitions into range-expansion mode riding the wave into the next rotational phase.

Lastly, Long Term Traders are the ones who trade fundamentally. They are closest to the markets and usually own the best information on supply demand metrics. These orders can be large enough to upset the balance creating new trends. Trading with large order size they may take special care in hiding their motives initially.

Knowing who is in control will dictate how to trade within your program. Taking the other side of longer time frame traders when they are motivated or working breakout trades with day time frame traders in control can lead to a brief trading career.  Each group has its own broad characteristics. Study the different strategies and tactics. Determine what they are trying to do, and how good of a job they are doing. You can answer these questions by studying the length of swings, level of volume and short- to long-term reference points. Only then you will operate your own game plan with renewed confidence.

Craig Garbie, Contributor

Trader Education