Futures Trading Bootcamp – Week 1

I’ve had a number of subscribers recently ask me if they could get some more information about how to pick entry points.

To me that’s what DOM trading is all about. When using the DOM to locate entry points you can often times get fills without the market even ticking against you. So how do you do this?

Well the first thing you need to do, is go through the process of being able to actually read the DOM. And it’s not easy.

The first time you open it up is very likely going to be overwhelming. I remember when I first started using the DOM, I couldn’t actually stare at it for more than 30 minutes as I simply couldn’t concentrate. It takes time to firstly condition your eyes to what you’re seeing then secondly to actually be able to identify the points at which buying and selling are taking place.

I would say at a minimum it’s going to take you a month of staring at the DOM to build up that mental conditioning.

So what I’m going to do today is prepare a month long bootcamp to get you up to speed with your DOM reading.

Week 1

This is the time to get your eyes used to reading the DOM. There are the bids on the left and offers on the right. However what we are more interested in is the column on the far right that shows all the contracts that are trading at either the bid or the offer.

Imagine for a moment that you want to buy 500 contracts. Do you just hit the orderbook with a market order? Probably not. Similarly would you just plonk those 500 contracts on the bid – again probably not.

Realistically you’d work the order slowly – attempting to disguise what you were doing in an effort to get the best price you can.

So knowing that, consider that as a futures trader it is in fact your job to discover all the signs that someone with a lot of contracts is trying to either buy or sell. And that’s effectively your edge as a short term trader.

Exercise

For this exercise I want to you to study the cumulative contracts that are being traded at each price level. They are the ones that are showing up on the very far right column in our image.

When you see three or four times the size of the bid or offer trading at that price – enter an order.

For example:

Let’s say we have 21 contracts on the bid like in the image.

If 80+ new contracts trade at the bid price (5493) and there remains contracts on the bid – then that’s telling you that someone is there trying to buy at that price.

Place a limit order and try to get it filled – on the demo only of course.

See if you can make 1-2 ticks profit.

If it goes against you by a tick or two just exit and wait until the next setup.

These targets are based on slower moving, ‘thicker’, type markets. You can make up your own profit targets for more active markets. The aim is not to make money, just to look for buying and selling. The more trades you enter the better. Don’t worry about being right or wrong. That’s one of the most important habits you need to break.

Try and do this for the first two hours each day on the open of your favourite market.

If you don’t have a preferred market to trade then I suggest the ZN – 10-year US Treasury Note. Aim to watch this market from 8am-10am.

If you can’t get through the entire two hours – don’t worry. When I started I was struggling to watch it for even 30 minutes.

Tools

You really need to be using a DOM that shows the cumulative contracts that trade at each price level. In the image you’re seeing Xtrader by TT. You can also consider Qtrader from CQG, or Jigsaw Trading which is an add on for Ninja Trader. You can get a free demo of Xtrader from a number of brokers and that’s the best way to start that doesn’t cost you anything.

Next Time

I’ll be back with week 2 of our Futures Trading Bootcamp, which will be another exercise that builds on this one.

If I haven’t been very clear about the exercise or you need some help getting up and running please leave a comment below or email me.

Good Luck