My Favorite Futures Setups

By John F. Carter
www.TradeTheMarkets.com

Recognizing Momentum
Incredibly easy to do in hindsight.

Get in Before the Move?

Im a big believer in not chasing markets.
By the time a market starts moving, its too
late.
Just admit that you missed it and start
looking for the next setup.
Dont worry: there will always be another
setup!

Starts with a Squeeze

A market is either building up momentum
for a push, or it is backing and filling.
A squeeze is a trigger for a POTENTIAL
momentum trade.
Not all squeezes are created equal.
In fact, some long squeezes are actually
short signals and vice versa.
Lets understand how this works.

High Volatility vs. Low Volatility

A high-volatility market represents a lot of
day trading opportunities.
But it does NOT represent a lot of swing
trading opportunities the train has
already left the station.
For most swings, you want to get into a
position during low volatility and hold as it
switches back into high-volatility mode.
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The Squeeze Tells You When You Have

Low Enough Volatility to Start Building a Position.

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AddMomentumtoGiveYouaHeadsUponMarketDirection
astheMarketTransitionsfromLowVolatilitytoHighVolatility

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AddMomentumtoGiveYouaHeadsUponMarketDirection
astheMarketTransitionsfromLowVolatilitytoHighVolatility

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Managing the Trade

Once you are in the trade, whats the best
way to get out?
Remember anyone and everyone is
really good at getting INTO a trade.
The difference between people who do
this for a living and those who dont?
Those who do this for a living are experts
at getting OUT of a trade, whether for a
loss or a gain.
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Managing the Trade

I like to manage my exits using price
action.
The TTM Trend highlights bars to tell me
whether the action of the prior six bars
represents a bullish or bearish bias.
I use this to look for changes in sentiment,
on all time frames, to exit my trades.

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TTMTrend HowItWorks

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Quick Recap on TTM Trend

Superior to Single Bar analysis.
Refers back to the prior six bars to collect
extended data on order flow.
Blue bars indicate sustained buying
pressure, indicating that the average
closing price of the prior six bars is in the
upper 50% of the trading range. (Selling
pressure = lower 50%)
Red bars indicate sustained selling
pressure.
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Not Momentum
The rest of the squeezes on the previous
charts are NOT momentum trades.
Yes, they will move the markets, but they
are lacking one key piece of the puzzle to
qualify as full-blown momentum trades.
Lets look at the waves . . .

The TTM Wave Indicator

This is an introduction to a wave-based timing indicator that was
developed over the past decade. The theory behind wave movement
is very basic to physical nature and human nature. For example, in
the physical realm, ocean tides flow in and flow out in a very timely
manner. Tides are governed by waves. They start small and increase
in size. As a student of nature, I have observed similar cyclical
patterns in human behavior. Its often subtle, yet very relevant.
When it comes to behavior in trading, the same patterns appear.
Are all of these cycles related? It appears so. Although they vary in
amplitude and duration, a cycle is a cycle is a cycle. I have
represented these cycles as wave algorithms. You will see from the
charts in this presentation just how these natural waves occur.
And because some investors are drawn to particular stocks, they
create unique wave trading patterns for those stocks.
The design and purpose of this new wave indicator is to objectively
identify the waves that investors have uniquely created. You will be
the first to see the wave change and trade it to your advantage.

This is a tick
Tickchart
chartof
ofthe
theES.
ES.
Notice the wave crossing below
the zero line at ES 1174. This is a
SHORT entry.

This is a 13-minute chart of the ES.

SHORT at the first arrow and
COVER at the second arrow.

Simple Waves
When the wave crosses the zero line to
the upside, it fires off a long signal.
When the wave crosses the zero line to
the downside, it fires off a short signal.
In many instances, it is an early-warning
system.

The last three charts were simple crossover

wave patterns. In the following charts, you
will see how these simple patterns are part
of larger wave patterns.
As a trading tool, the larger wave
patterns will make it easier for you to
make decisions about buying and
selling.

There are three large wave

patterns:
A Wave
B Wave
C Wave

The wave in this chart is called the A Wave. It is a combination of three short-term waves that are
identified as WHITE, ORANGE, and GREEN. When the WHITE wave crosses above the zero line (red
arrows), its a BUY. When the ORANGE and GREEN waves cross above the zero line, you stay in the
trade until the WHITE wave crosses back below the zero line (yellow arrows).
This is a 21-minute chart of ES.

A Wave

The wave in this chart is called the B Wave. It is a combination of three long-term waves that are
identified as BLUE, PURPLE, and BROWN. When the BLUE wave crosses below the zero line, it is a
SHORT. When the PURPLE and BROWN waves cross below the zero line, you stay in the trade. The
longer B Wave makes it easier to see price direction when the shorter A Wave is giving confusing signals.
Note the up and down A Wave action inside the yellow circle compared to the clear B Wave SHORT
signal (yellow arrow). This is a 13-minute chart of ES.

A Wave

B Wave

The last wave to be introduced is the C Wave. It has a different function than the A Wave and
B Wave. It can be used as a directional anchor. For example, in this 55-minute chart of ES, the
C Wave gives you a LONG signal for 30 days (inside yellow oval). During this time period, if you ignored all
the SHORT signals from the A Wave and B Wave, and only took the LONG signals as
A Wave and B Wave crossed above the zero line, you would have been in sync with the market flow. This
would have given you a higher-probability trade.

A Wave

B Wave

C Wave

Review of All the Wave Patterns

A Wave is a SHORT-term wave signal that can be
traded on its own or used in conjunction with the B
Wave.
B Wave is a LONG-term wave signal that can be used
by itself or instead of the A Wave when the A Wave isnt
giving clear signals.
C Wave gives you a directional anchor. If you stay on the
side of the market, in any time frame, using the C Wave
as an anchor, you increase the probability of a profitable
trade.
The next five graphs will show you trade setups using all
three wave patterns.

This is a 5-minute chart of Goldman Sachs, March 25-26, 2010. Notice the WHITE Wave (#1) in A Wave
crossing below the zero line, followed by the ORANGE and GREEN Waves crossing below zero. This
was followed by the BLUE Wave (#2) in B Wave crossing below zero and then the PURPLE and
BROWN Waves below zero. As the entire B Wave goes below the zero line, C Wave (#3) confirms the
directional move. This was a very nice option play for 6 points on GS.

1
A
2
B
3
C

SUMMARY

This was a presentation of a wave-based timing indicator.

The 3 large waves are A Wave, B Wave, and C Wave.
The A Wave consists of three short-term waves: White, Orange and Green.
The B Wave consists of three long-term waves: Blue, Purple and Brown.
The C Wave is used as a directional anchor.
You can trade the A Wave and the B Wave, and use the C Wave as the
directional anchor.
The waves fire off a Long signal when they cross above the zero line.
The waves fire off a Short signal when they cross below the zero line.
When all waves go either above or below the zero line, it is a very strong signal.
This system can be used in all time frames, for day trading, swing trading, or
position trading.
Each stock has its own wave personality. Look for that wave and trade it.
This system can be used to trade stocks, indices, ETFs, and futures.
Enjoy this new TTM Wave Timing System.
Remember, once you start using this system, you become part of the WAVE.

For day trading, I primarily use tick charts that

are part of the Fibonacci Sequence.

13

21

34

55

89

144

233

377

610

987

1597

144 to 987 are best for day trading.

Beyond that we are into swing trades.
Before that is scalping.

2584

4181

6765

10946

17711

28657

Not Momentum
The C Wave is the driver. On the smaller
time frames, if the squeeze fires in the
opposite direction of the C Wave, IT IS
NOT A MOMENTUM TRADE!
If you are a pure momentum trader, you
pass and wait for another opportunity.
If, however, you like RTM, then its actually
a decent trading opportunity.

Not Momentum
That is a key concept.
Write it down.
It will apply to every day trade you do.

Not Following Your Plan?

One thing that gets in the way of pure
momentum trades is PRICE and YOUR
P&L.
I challenge you to try something.
Take a few momentum trades with price
action removed and your P&L hidden.

Price? If its a distraction,

then get rid of it and just
follow the signals..

Not Momentum
Now you are just taking the signal and
taking it for all its worth until it peters
out.
Watching P&L and price action screws up
day traders more than anything I know.
Instead of trying to overcome this
weakness, just remove it from your life.

Not Momentum
Lets dig a little deeper into the NOT
MOMENTUM day trade.
A squeeze that fires off in the opposite
direction of the C Wave is just like an
extreme tick reading.
You dont take that squeeze, you fade it,
just like a 1,000-tick reading.
FTFS Fade the False Squeeze

Not Momentum
This is a critical day trading concept you
just learned. Im not going to show 50
more examples it is what it is.
Mark the previous slide and put it by your
computer as it will save you a lot of
frustration.
It applies to all markets and all time
frames, but especially to day trading.

This short squeeze fires

off, its a PASS. Not in
alignment with C Wave.

This long squeeze is

a go alignment with
C Wave, B is rising.
A gets us in the
squeeze early.

Even with one red dot, if the A

Wave goes below zero, you can
start sneaking in. By the time
this squeeze fired off, the move
was 60% over.

Although this short trade worked it was

AGAINST the B & C Waves. Going WITH
the B & C Waves is typically a bigger trade.

Hourly Euro
FX A, B and
C Waves are
all in
alignment
above zero.
You can start
sneaking in
early.

Start buying after

5 red dots. By
the time it fires
off, you are fully
in and dont
have to chase.

Nice long
squeeze but not
enough dots to
sneak in early.

Picture-perfect setup
fully in and ready to
go by the time this
fires off.

That Is What Its All About

1. Patience
2. Patience for those really good setups
like we just saw on that last one on the
previous slide for BIDU.
3. Those are the setups when it all comes
together and you can sneak in early just
before the volatility explodes.
4. It beats working for a living but you
must be patient and wait!

That Is What Its All About

1. The best position you can have is NO
POSITION. Your cash is now safe from
the Wall Street professionals who are
doing everything in their power to steal it
from you.
2. The second best position is one where
youve waited patiently, like a cat stalking
prey, for a great setup.

That Is What Its All About

1. If you dont have a great setup, then dont take
the damned trade!
2. Why drive a used Pinto when you can drive a
new Porsche?
3. Just be patient work on yourself EVERY
DAY. The market is your psychologist and will
give you constant feedback.
4. A knee-jerk trade is just like trying to hit a golf
ball as hard as you can. That never works out
in the long run.

That Is What Its All About

1. The biggest question I get is, How Can I
Become More Disciplined?
2. Simple. WORK ON IT ON EVERY TRADE.
3. There is no magic cure for the discretionary
trader.
4. If you have a larger account, you can hire
someone to take the trades for you and
manage your impulses. Your job is to follow
the plan and ignore anything else I tell you
even if I scream at you.

That Is What Its All About

1. If you cant do that, then man up (or woman up)
and work on yourself on each and every trade.
2. If you cant do that, you will always experience
inferior and even disastrous results.
3. If you can do that on each and every trade
you will be ahead of 90% of the crowd.
4. If you are having problems with this, make it
painful for you to break your rules. Physically
painful jump in a pool in winter, etc.
5. Man up! Woman up! You can do this.

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