RULES AND MONEY MANAGEMENT
.
.
TRADING SYSTEM
The NIGHTLY PATTERNS trading system is based on daily bars patterns recognition. As an example: three higher closes below 50 days SMA and increasing volumes three days in a row. This is a typical, and very rudimentary, price pattern. I also use SPY volume, Bollinger Bands, RSI oscillator, daily ranges and volumes, historical volatility and VIX daily values, momentum indicator and seasonality patterns. When I find a new pattern, I just include it in an algo that screens the market data every day, looking for previously discovered patterns. The overall patterns library keeps adapting and increasing its number of patterns as it keep pace with changing markets dynamics. Use the library to check each pattern with its number written on the daily post.
ENTRY/EXIT TIMING
Nightly trades are opened no more than five minutes before the Futures close at 4.15 pm EST, and closed one or two minutes before the following day’s SPY morning open at 9.30 AM EST.I consider for my track record the entry to be at 4.13 PM EST (two minutes before futures close).
FINANCIAL PRODUCT TRADED
This systems trades only with ES or ES mini futures. As all the backtests are done using SPY data, traders can trade SPY too. The ES future is the most liquid instrument in the world. The only time GLOBEX market is closed is for a quarter of an hour after Wall Street’s close, and this is the only time, together with weekends and stock market holidays, stop loss orders are not active.
LEVERAGE
For my trading I use a 14X leverage: 7% future margin. So profits and losses of ES %change are 14 times plain vanilla profits and losses. This is the margin to what my track record refers to.
Higher or lower margins, can be used, depending on brokers or different risk tolerance. I do trade a more aggressive account with a 5% margin or 20X leverage too.
With 14X leverage, $ gained or loss per ES points (50$ per ES point) is the same for 20X leverage:
brokers, to lower leverage to 14X, just require you more money to buy the same number of ES future contracts.
MONEY MANAGEMENT
In order to reinvest profits and to be able to face drawdowns without reducing the number of contracts used, the following money management approaches are advisable.
Equity must be kept at a 40% level. The amount of money used for the futures margin must not be above the 40% of all the money available. So with 60% of cash, we can face the worst possible drawdown. The number of future contracts used must be raised only if the 40/60 rule is satisfied.
On the contrary, if trader is not reinvesting profits to increase the number of contracts, the above rules are advisable just for the beginning. Then profits accumulated will be used to face drawdowns.
STOP LOSS
Now, I use a fixed % stop loss equal to 1.3% of the ES future entry price.
Please read the following articles:
TRAILING STOP
When we’re approaching the open ( during the last hour of the night session) and the trade is looking flat, I try to exit with a little profit without waiting for the exit two minutes before the open. I just want to “scratch the trade” to get a small win instead of a small loss. When job’s data are released I will wait for them before setting the stop.
TAKE PROFIT
Now, I implemented seasonality based take profit orders, which are described in the this article I published for System Trader Success:
Subscribe Nightly Patterns
Marco Simioni
NIGHTLY PATTERNS - Overnight Trading 
Hi
Can you tell me what is the stop loss and the
Trailing stop and profit in ticks
Thank you
Arnold
LikeLike
Well Arnold, the stop loss is about 1.3% of your entry price, looking at SPY. You must calculate the Emini or ES prices equivalent then. Anyway I always write it in all the alerts. No trailing stop. Profit target is written in the alert too. You can read my articles on stop loss and take profit orders Nightly Patterns “papers” page.
Thanks,
Marco
LikeLike
Hi,
thanks for sharing. I am very new on this subject. How much money one may need to trade 10 ES contracts, and what broker you are using?
Do you try using options with this system?
thank you
LikeLike
Hello! You can use also 1 contract. It depends on your broker and your margins.
I have some friends who does it with options but I’ve never tried.
LikeLike
Hello,
Why do you enter 5 min before Futures close @ 4.15 pm? I was told that when you do this you need to have higher margin requirement ($5,000). Where as, when you enter at the market open at 6 pm, you need to have only $500. You could buy more contracts!.
LikeLike
Hello Ravi. I need to be in before the close to exploit all the overnight move. I want to be in from the close to the open.
LikeLike
Hello Immediately after you enter at the close the market will halt for 15 min.
What if the market gaps open far from your intended stop ?
LikeLike
You are right. In those 15 minutes the Black Swan may happen. This is why I use Nightly Patterns in a more wide set of strategies to diversify my trading: QuantFor.
If you are trading only Nightly Patterns, you have “money management” rules page to follow.
And as in all strategies and systems you can never bet more than what you are willing to lose.
LikeLike
Hi, I would like an example in AMP Futures with micro contracts. The maintenance margin is $1,200 per 1 Micro E-mini S&P 500 contract from 4:15 to 6 PM Eastern time. Then the day trade margin is reduced to $40. The stop loss is 1.3% of the entry price, so it would be 42 to 45 points = 42*$5 point= $210 to $225. So how much is the recommended amount for 1 contract? $1,200 + ($225*$3 just in case 3 loses in a row) = Approximately $1,875 to start this strategy? . Thanks
LikeLike
Hello Nil, well your description of Micro dynamics is correct. Anyway I recommend allocating at least $18.500 per Emini contract when we are above 200 SMA (looking at SPY etf chart). When we go below 200 SMA and wild ranges market regime comes we need to trade 2x leveraged etfs (for all the $18.500) or 2 Micro futures contract per each $18.500 allocated to Nightly Patterns strategy. You cannot trade this strategy with lower capital than $18.500 (you can’t trade the Emini futures contract with enough cash reserve for drawdowns).
If you only trade Micros all the time (both above 200 SMA and below 200 SMA stock market regime) you can’t even cover the subscription fees for the service.
Thanks,
Marco Simioni
LikeLike
One question here, what would be the effectiveness of this strategy if we enter the trade at 6:01 PM? to avoid the maintenance fee required for holding one position? How much could be the difference in the strategy? More loses, less stop losses, more profit? Since we could put more contracts in the market with this approach? Could you model it? Thanks.
LikeLike
Well, I’m making many posts on trading each quarter of an hour as a backtest idea. But I don’t recommend to enter so late, as we need to be in the trade since futures close at 4.15 PM EST to exploit the maximum overnight movements as possible.
Thanks,
Marco Simioni
LikeLike