Technical Analysis – KMMs for effective trading
As part of our regular look at Technical Analysis for Inbox Education we recently introduced the concept of Key Market Metrics (KMMs) (click here to see more information). KMMs are the objective, market-generated patterns of price activity that form the basis of a trading approach. The observation, recording, discussion and subsequent implementation of KMMs form a key component of the Trading Floor Training programme and a very effective technical analysis strategy. The May Trading Floor Training intake has just completed their analysis of KMMs and their findings provide some interesting insight.
Taking the Euro Stoxx 50 – a Blue-chip representation of 50 supersector leaders in the Eurozone and one of the most popular products amongst the Futex traders - as their focus product, our latest trainees have delved into the statistics and generated results that will go a long way to shaping their trading approach over the next 4 weeks. For example, the average trading range in the first hour (the Initial Balance) has tripled in size in May when compared to March. The average daily trading range has also tripled. The volatility that has permeated the financial markets over the past few weeks has manifested itself in the KMMs and trading styles should be amended as a result. It was also interesting to confirm that the outliers in terms of KMM data were as a direct result of significant fundamental drivers, for example the announcement of the European rescue package and the dramatic intraday sell-off, exacerbated by computerized trading, in the US equity markets.
And herein lays the key to the use of KMMS. By regularly analysing their chosen market objectively and in detail as part of their daily/weekly technical analysis routine, our novice traders are able to ensure an intelligent and thus effective trading approach. By studying metrics such as the smallest, largest and average size of an hourly or daily trading range and correlating the results to the day of week and the economic calendar, our trainees become skilled at interpreting in real-time the developing market conditions. They develop an ability to objectively assess whether the unfolding price activity is suggestive of a typical or an atypical trading day. This assessment guides the trading approach and assists in the rational identification and execution of higher probability and lower risk profit opportunities – a key goal for any professional Proprietary Trader.
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Tags: futex, futures, learn to trade, market profile, technical analysis
