How to Trade CIT Cycles in the S&P: Part 1
Would you like to know at what time of the day the S&P is most likely to change direction?
Would it make your trading day easier and less stressful if you could know ahead of time at what time of day to look for a trend reversal or acceleration? Then, when the trade was over go take a break, relax and wait for the next forecasted time.
And what if you could use this particular tool, with standard technical indicators that virtually every trading platform has, to take consistent profits out of the markets (not in just the S&P either) week in and week out?
And what if I told you that such a trading tool DOES exist? It’s called CIT (change in trend) cycles and I’ve been demonstrating their results on my Twitter page for over a year now.
Just this past week I started showing results of the CIT cycles on the S&P with JUST standard technical indicators and not my own arsenal of proprietary technical indicators.
It’s still early and I have only been showing results using standard indicators (available in any typical platform for day traders) for a week now, but in just 5 trading days, trades in the S&P 500 E-mini futures contract have generated over 42 handles in profits, just during the U.S. session, with 18 out of 28 trades being profitable. And they have all been reported in as close to real time as possible on Twitter.
And that’s just the results for the S&P. Results in other markets like the Euro, the Yen, Bonds, Gold, Crude Oil, Natural Gas, Soybeans, and even individual stocks (such as Apple, Google, Facebook, Netflix, etc.), are just as good and equally consistent.
But don’t take my word for it. Watch the results unfold yourself with your own eyes and YOU be the judge.
All you need to take advantage of the indications of these ultra short term cycles is the following:
1. Access to a 3 minute chart of the market you intend to trade.
2. 2. Smoothed Bollinger Bands set to 100 periods and 2 standard deviation bands.
3. 3. 7 and 20 period smoothed moving averages
4. 4. A standard smoothed stochastic oscillator set to 21 periods
5. 5. A zigzag indicator set to “2” for peak strength and ATR
6. Also helpful are Magister Pivot Point Calculations for the S&P, which is my proprietary method of calculating intra-day pivot levels. But we’ll deal with that later. For now we’re just going to stick with standard indicators that every day trader has access to.
Once you have those indicators at hand, all you need to know next is how to use them with the CIT cycles and that is what I am going to show you over the course of this and the next few articles.
First let’s start by going over all the trade signals in the S&P 500 on Friday and the rationale behind each one:
The first trade shown actually occurred just before the official 8:30 CT market open during a CIT cycle cluster that occurred at 7:25 and 7:29 Central Time (CT). CIT forecasts are always shown as vertical white lines. When you subscribe to them you should also overlay them on your 3 minute chart as vertical white lines provided you use a black background as I do. If you use a different colored background just pick a color that makes them easily viewable for you.
But as prices approach that cluster of cycles at 7:25 and 7:29 we see the bars are red, indicating negative momentum. This means that the stochastic K line is below the D line. The bars will turn green when the K line moves above the D line.
We also see that the stochastic oscillator at the bottom of the chart is oversold but prices are still holding above their 100 period average and are trading just below the 7 and 20 period averages shown (the grey line being the 7 period average and the red line being the 20 period).
When the price bar turns green just after the CIT forecasts that is our signal to go long and we buy at 1870.00. We want to see prices hold above the 100 period average and that is our “uncle” point, a 3 minute bar close below that level.
From our initial entry at 1870.00 prices then trade slowly higher up to the 7 and 20 period averages where they stall for a bit. The price bar even turns red at the end of the 8:06 bar but the 100 period average is still safely out of reach and the oscillator is not yet overbought. Plus we usually want to see the price bars turn red twice or stay red for at least two consecutive bars before we jettison a relatively new buy signal. But prices quickly stabilized and turned green again after going red for just one bar. They now moved decisively above the 7 and 20 period averages and we set our profit target at the 2 sigma or 2 standard deviation point of the price bands we are using which would put it at 1872.75. That level is hit at 8:18 and we have our first profit of the day of +2.75 handles.
Next we sit back and wait for the next CIT at 9:00. Here we have an instance where the market actually peaked at 8:33 and has already turned lower. As we approach the CIT we have red bars (which normally is an indication to look to go long, and we would have tried a long trade if the bars had turned green) but the oscillator is not yet oversold nor have prices clearly moved through both the 7 and 20 period averages. If we do get a close below the 7 and 20 period averages or a test of the 7 period on a 1 minute chart that fails (which is the equivalent of a 20 period average on the 1 minute) then we will try a short sale with a profit target at the lower 2 standard deviation band, banking on the notion that we will see an acceleration of the prevailing trend. And at 9:06 we do get that confirmation and go short at 1872.25.
Then we come to the 9:15 CIT and we see that prices are trying to hold around the 100 period average. When the price bar turns green at the end of the 9:36 bar that is our confirmation that it appears that a trend reversal higher is occurring off the 9:15 CIT, so we exit our short position at 1872.25 at 1870.25 for a +2.00 handle profit and go long at that same price. Our profit target is the upper 2 standard deviation band that is hit at 1873.50 at 9:58 giving us a profit of +3.25 handles.
Now we relax and bide our time into the 10:55 CIT. Bars are red going into that forecast and the 20 period average is holding. We have also previously exceeded the upper bands suggesting that we could be in a “blow off” or “trend” mode indicating that prices could trend higher for the rest of the day. When the price bar turns green at the end of the 11:18 bar we go long at 1873.75. But that bar stays green for just a single bar and the next bar not only turns red, indicating more negative momentum, but closes below both the 7 and 20 period averages, so we immediately exit our long position, taking a loss of -1.75 handles, and reverse to a short position at 1872.00. Our profit target here is at the 100 period average at 1870.75 market if touched and we exit our short at 1870.75 for a quick profit of +1.25 handles.
However, there is still a lot of time between now and the next CIT forecast at 13:20 and we know that trends that begin from one CIT tend to last into the next. So we are on the lookout for any new opportunities to get short again with the trend. That presents itself when we get the price bar turning green at the end of the 11:45 bar and then turning red on the very next bar after having obviously tested the 7 period average and failing. We quickly move to short the market again at the end of the 11:48 bar at 1870.00. We get a little warning sign at the end of the 12:06 bar when it goes green again with an oversold stochastic, but there is no new CIT around, all the averages are holding their down trends, and the price bar turns red again on the very next bar. Our profit target is at the lower 2 standard deviation band at 1866.75 and this is hit at 12:14 for another profit of +3.25 handles.
At the end of the 13:21 bar we did get a new sell signal at 1861.50 but I foolishly opted to skip this trade because the market seemed so oversold at the time. This ended up costing me an additional +2.00 handle profit as the CIT cycle triggered a buy signal at 1859.50 when the price bar turned green at the end of the 13:33 bar.
The buy signal at 1859.50 would have been looking to exit at the 20 period moving average. For a while it looked like it might reach it, but prices turned lower and again tested the lower 2 standard deviation band at 1858.58 and managed to hold above it even though the price bar turned red again. But I continued to hold the long position because that lower band was not exceeded on a closing basis.
Prices then tried to make their way higher again to the 20 period average. But this time when the price bar turned red on the way back down I had to exit my long position and go short because of the two red bar rule. So I exited my long position at 1859.25 for a loss of -0.25 handles and reversed to a short position at that same price.
What I was expecting was to see prices accelerate lower but instead what they did was to simply bounce off the lower standard deviation band.
If I had realized this quickly enough I would have been able to exit my short at 1857.50 market if touched and realized a +1.50 to +1.75 handle profit. As it was I was not quick enough to pick up on this and was forced to exit my short position when the price bar turned green at the end of the 14:24 bar at 1860.75.
But I was able to exit that trade at 1862.00 when prices touched my profit target at 1862.25 which was where the 20 period average was coming in. So at least that was “some” consolation for the whipsaws I was taking.
Then the price bar went red again at the end of the 14:33 bar suggesting that the lower standard deviation target was in play again. So I went short again at 1858.50 with a profit target at 1856.00 and that was hit at 14:43 giving me a quick +2.50 handle profit and letting me finish the day on a good note.
All in all it was a good day with net profits during the U.S. session of +10.00 handles and +12.75 handles if that first trade just before the open is included. I cost myself +2.00 handles by not taking the short sale at the end of the 13:21 bar and should have been quicker to exit the short at 1859.25 at the end of the 14:12 bar, but these things are going to happen in real life.
But this goes to show you just how simple it is to trade CIT cycles with just some standard technical indicators that are available in any trading platform. Personally, I use CQG and I would recommend them to anyone. And if you do choose to use CQG, eventually I will be able to share with you the other proprietary indicators that I use in my arsenal of trading tools for both short term, intermediate, and long term trading.
These examples should be enough to give you a good idea of what you need to do. But more examples will be forthcoming. That is why this is just “Part 1”
If you have any questions, just drop me an e-mail.