Day Trading the Stock Market
By Mike Reed

Every professional trader I’ve seen day trading the stock market for a living watches the SP futures charts and/or the Nasdaq futures. They do it for one specific reason and that is that Stocks lag behind the futures markets.

Stocks that track with the market indices make their moves a little bit after the futures markets move. It may be a few seconds, or only a fraction of a second, but it’s an exploitable edge that experienced traders use in their stock trading strategies.

That’s primarily why traders who are day trading the stock market subscribe to TradeStalker’s RBI Trader’s Updates. They want to know where the turns and stalls are most likely to happen on the Futures charts, so they can time their entries and exits on the stocks they’re trading.

For example, if a guy day trading the stock market holds a long position in a good tracking stock and it’s going up nicely, but he sees the SP futures jump up to a resistance zone and stall, he’s going to exit that long position, or at least part of it, before the market turns around and clips his gains.

And a break-out stock trader is going to watch the futures market, looking for a futures break out that leads the stock he’s trading.

Take a look at these charts below and you’ll see why day trading the stock market with the RBI support and resistance levels on the SP futures really makes sense… (see charts below)

The chart on top shows the SP e-minis from Friday, 8/12/05 with an RBI support / resistance level at 1236.00 (blue line) that I calculated and published to my subscribers the night before.

The bottom chart shows IBM’s one-minute chart, bar for bar, straight below it.

First take a look at the top (the big circle) on the top chart where the ES futures poke through the RBI s/r level at 1236.00 and get quickly rejected. This is a sign of weakness in the overall market. You would be hoping for another push to that same s/r level so you could short the e-minis.

Now look at the second bar after the top (in the big circle) on the ES chart.

Compare that to the same candle on the IBM chart (in the big circle).

If you were trying to day trade IBM without the ES futures (and my RBI s/r levels), it looks like the pullback at that second bar is weak…

Say you’re holding IBM long. It looks like it will go higher. You would probably stick with the trade and get clobbered in the next down bar, but if you watch the futures with my support and resistance levels, you know the next bar is going to be a long fast down move. So you get out to protect your gains. Or if you’re flat, you might try to short IBM on that second bar in the big circle.

And look at that nice pullback right up to RBI resistance and the quick rejection. That gives you a high probability that the market trend is going down. So when IBM makes those two quick moves back up to the right side of the circle, one look at that area on the futures chart lets you know what’s going to happen. The futures are going to lead IBM down. Time to hold short, or get out of a long position.

Are you day trading the stock market? Without a doubt, the stock trading strategies that the experienced traders use are based on the stock index futures.