📊 How to Approach the Nasdaq and S&P Futures Markets
🤔 Why Choose Futures?
Why focus on trading these two futures markets when individual stocks often present more radical moves? Parabolic trends, breaking news, and emerging themes like Quantum or EVs can offer countless opportunities. So why choose Index Futures?
For me, the answer lies in a specific discretionary edge I've developed through analyzing order flow. In the Futures Markets, all orders are routed through a single exchange, making it possible for me to clearly interpret whether the flow is bearish or bullish. In contrast, equities are traded across multiple exchanges, which makes tracking order flow significantly more complex.
While equities certainly have their own unique edges, I've found the orderflow edge to be far more effective for intraday trading in futures. That's why I day trade futures while reserving equities for swing trades.
📈 Why Nasdaq and S&P500?
Having traded large-cap stocks for years, I've become intimately familiar with their behavior. Thousands of hours spent analyzing the Nasdaq and S&P ETFs, $QQQ and $SPY respectively, have given me a solid understanding of their volatility and liquidity. These markets consistently offer the best opportunities to align with my trading style.
❓ Key Questions to Ask Yourself
You should ask yourself:
- Why are you drawn to index futures?
- Is it the margins that attract you?
- Are you interested in the volatility?
- Is it the prop firm leverage?
- What is your edge in trading these markets?
📝 My Weekly Approach
Even though regular trading hours begin on Monday, my preparation starts late Sunday. Here's how I approach the week:
1. 🔍 Scanning ETF Holdings
I analyze most of the $QQQ ETF holdings on 4-hour and daily charts to develop a bias. What's the general sentiment? Are we seeing choppy action, the formation of a higher low, or a breakout? This process sets my mindset for the week.
2. 📊 Plotting Market-Generated Levels
Next, I move to my /NQ futures chart and plot key market-generated levels. These are not arbitrary but reflect specific prices the market has highlighted. Here are the levels I plot automatically:
- Previous Week High and Low
- Previous Week Value Area High and Low
- Previous Day High, Low, and Close
- 5-Minute Opening Range High, Mid, and Low
🌅 Pre-Market Analysis
I don't trade the overnight session, as it tends to have lower volume, more one-directional moves, and heightened volatility—not ideal for my position sizing. Instead, I focus on regular trading hours (9:30 AM to 4:00 PM EST).
1. ⏰ Hourly Chart
About 15 minutes before the open, I start with a quick glance at the hourly chart to gauge the broader trend. Are we trending up, down, or stuck in a balance zone?
2. 📊 15-Minute Chart
I narrow my focus to the 15-minute chart, excluding overnight action, to assess structure. Are we making higher lows, lower highs, or sitting in a balance zone? This step is crucial for shaping my bias heading into the open.
📗 Main Playbook
Let's dive into the specific setups I look for in the futures markets. These setups form the core of my trading strategy, divided into both long and short scenarios.
📈 Long Setups
1. 📉 Dip Near Previous Day Low
I am looking for a retracement back to the Overnight Low or Previous Day low, preferably after a strong move up. Signs of absorption at the lows signal a long opportunity, with stops below the respective pivot, in this example it was Previous Day Low.
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2. 🚀 Opening Range Breakout Retest
If the market gaps up and rallies quickly at the open, I wait for a retest of the 5-minute opening range high or mid. I avoid chasing violent moves and look for change in tempo and speed as we approach the pivot to confirm that selling is drying up.
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3. ⬆️ Intraday Continuation
After a strong upward move, I look for a pause or base formation that suggests a higher low is forming, indicating potential continuation to the upside.
4. 🎣 Bottom Fishing
This setup involves timing the bottom after a move down. It works best near balance lows or after selling exhaustion, where selling pressure has dried up. I wait for a base to form and use volume, delta, depth of market, and time/sales to confirm the idea. These work best when it is formed with a previous pivot from another day or week. In the example provided, we can see it was based off the previous day Opening Range High, where I would have taken it Long if it was the previous day as well, and stop is always at the OR Mid since we're longing the OR High.
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📉 Short Setups
1. 📌 Gap N' Crap
This occurs when the market gaps up near a strong pivot high or balance-high and then shows little movement or a slow decline before the open. I aim to short with a tight stop above the next respected pivot. So if I am shorting the Opening Range Low, then ideal stop is near the Opening Range Mid - if I am shorting the OR Mid then SL is at the OR High etc.
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2. ⬇️ Gap Down Fade
In a gap-down scenario, I look for a retest of the previous day close or a key zone formed during the overnight session. Rejection at these levels signals a continuation lower, with targets at the day's low and the 100% 5-minute OR extension.
3. 📊 Intraday Continuation
If the market moves lower without me being positioned, I look for a Short entry near the origin of the drop or at a failed retest of previous support. Lower highs and persistent selling indicate strong bearish momentum. This type of setup works best when there is a failed sweep above and price rejects previous resistance pivot once more.
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4. 🎯 Opening Range Retest
After a sharp move down 10-15 minutes into the session, the market often pops up and retests the opening range low or mid. I look for stalling action at these levels and use volume, delta, depth of market, and time/sales for confirmation. Stops are set above the opening range high.
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💬 Conclusion
Approaching the Nasdaq and S&P futures markets requires thorough preparation, a clear strategy, and the discipline to stick to your plan. By developing a strong understanding of market structure, identifying high-probability setups, and leveraging tools like volume and delta, you can gain an edge in these highly liquid and volatile markets.