The S&P futures market offers one of the most dynamic and favorable trading
environments for active short term and day traders. We refer to this style
of trading as 'swing trading,' which includes measuring the strength of
intermediate trend, and entering on retracements in the direction of the
trend. 'Tests' are also another valuable concept in swing trading, whereby
market reversals are often preceded by a brief visit to a prior extreme high
or low point. Periods of low volatility provide a different kind of
opportunity for the swing trader, in the form of 'breakouts.' Time of day
tendencies are also very important to the S&P futures trader, as trends
often reverse at certain times during the day more than others. Intraday
trends also tend to last a certain period of time before having a reaction.
Turning points also frequently occur on hourly cycles as well (i.e., at 1,
2, 3 etc.) Divergences give many clues about the S&P's possible future
direction. It is recommended that the active swing trader pay close
attention to the lead-lag relationships between the S&P, Nasdaq 100, Dow
Industrials, Dow Transports and even the Treasury Bond market. There are
also various measures of internal market strength, such as the 'tick,' which
can be used for comparison against the S&P. Indeed, the 'tick' gives
indications that are often less noisy sometimes than the price of the stock
index that is being traded. Trin is an internal measure that tells us how
much up or down volume is coming into the market. It is useful to watch
the direction of Trin, as rising Trin indicates greater selling and falling
Trin indicates greater buying. Regarding exit methodologies, experienced
traders find that exiting in the direction of the trend is often the best
approach. Thus, cover shorts as the market is falling, and sell out long
positions into a rising market, rather than waiting for a reversal. Trend
days usually emerge from a period of low volatility or several narrow range
days, or after a big gap.

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