We developed this unique market monitoring device as a tool to assist newer traders in determining current market conditions as they relate to day trading. Since one of the most common pitfalls new traders fall into is overtrading, we feel these gauges can offer the trader insight as to the best times to be in the market, and more importantly when not to be in.
We judge the overall trading climate by using a scale from 0 to 6, one being least favorable trading conditions four being the best. The "gauge" is updated throughout the day as trading conditions change. Our scales are determined by overall market direction, liquidity, news events, institutional participation, technicals on stocks and indices and our own proprietary indicators.
0. Don't trade, there is not enough volume / liquidity to make optimal entry and exit points possible. This scenario arises ahead of major economic news or long holiday weekends.
2. Trade selectively. Again, liquidity is sparse. But if you pick your entry points properly and there is enough momentum, you can scalp effectively. Take profits immediately, cut losing positions immediately.
4. Trade often when setups appear. Overall this type of trading market is somewhat forgiving on late entries and exits due to a higher degree of volatility, increased liquidity and correlation of trading stocks to the S&P 500 futures market. Dump half your position on slowing momentum, hold the other half if market does not go against you.
6. Trade aggressively and trade larger than your normal position size. Setups are abundant, liquidity and volatility are excellent. Dump half your position on slowing momentum. These markets are typically characterized by extreme news events or political/economic factors
Please note: These numbers correspond to our particular trading style, which involves frequent, high-probability, "scalp" trades. If your style is different from this, these numbers may not correspond as well and give you false signals.