Michael J. Gutmann, a frequent contributor to Futures Magazine, straddles the worlds of discretionary and automated trading. His trade entry setups, though well structured, are discretionary whereas his trade management system is more automated. In The Very Latest E-Mini Trading: Using Market Anticipation to Trade Electronic Futures, 2d ed. (2010) he explains both why he has adopted a hybrid system and what the ingredients of his system are.
Let’s start with the automated side of trading, which is designed to prevent the trader from taking profits prematurely. As Gutmann writes, “We can talk all we want about the importance of trading with the trend and achieving winning runners, but it seems that without some external, automatic mechanism as a guide … , we just can’t not take certain profits. Perhaps what’s important is to recognize this fact and then find the right tools to deal with it.” (p. 247)
Gutmann, using NinjaTrader, employs a three-tiered strategy for trading ES—an initial 10 tick stop loss for all targets, two defined targets (4 and 6 ticks), and a third target that will be trailed with Invivo.Stops. If the market accommodates, the trade will be managed mechanically. There are, however, two occasions on which the trader can override the trailing stop. First, if indicators (the author is particularly fond of his statistical MACD) point to a reversal, the trade can be closed manually before the stop-loss triggers. Second, if the market is trending strongly, the stop may be moved farther away than the software would dictate.
In placing trades as well as in managing them Gutmann stresses the importance of market architecture. What kind of a day is it? Is it, to use the terminology of market profile theory, a non-trend, normal, neutral, double-distribution, or trend day? Where is price relative to the session’s first hour price range or to the point of control? What is volume (Gutmann relies on his cumulative ticks indicator) telling us? Are there any discernible price patterns? What time of day is it?
Answering these questions helps the trader anticipate price movement. And anticipation, the author argues, is essential to success. “Anticipating the market rather than chasing it means using orders set ahead of the market (Limit or Stop Market) to open positions, and at prices that are predefined by the day’s architecture of price action.” (p. 262)
Gutmann packs his book with trade examples complete with charts, which is great. Unfortunately, since he is not a wordsmith, he uses acronyms to identify his trade setups and market conditions. For instance, MML is momentum move with ledge, BOP is breakout pullback, IB RE is initial balance range extension, and RBS is resistance becomes support. For me, at least, it was something of a chore to remember the acronyms; I often had to refer back to the earlier text.
The Very Latest E-Mini Trading is not a book for those who want instant gratification. On the contrary, it demonstrates the necessity of experience, analysis, trial and error, creativity, testing, more experience, more analysis—and the beat goes on. But there is a lot of useful material in this book to help the trader along the way. The developmental and statistical work Gutmann himself undertook will save the trader time (I particularly appreciate his trade management directed graphs), the sample playbook is an excellent guide, and the discussion of market architecture brings home the importance of context. It may not be the easiest book to read, but then who ever said that learning to trade well was easy?