Gartley Trader Rules for Futures Recommendations
Regarding futures contracts, try to use spot or cash charts. If these are not available, use continuous contracts that roll at contract expiration or based on volume. In the Gartley Trader Newsletter, we are currently using IQFeed data (DTN) and continuous contracts that roll at expiration. What this means is a continuous chart is created by chaining front month futures contracts together. When a contract expires, the next bar of data displayed is based on the next contract that is closest to expiration or the “front month.” By creating a continuous contract in this manner, we can view a chart over a number of months or years.
On occasion, subscribers to the Gartley Trader Newsletter ask what they should do if the trade setup in the newsletter is based on a contract month that is about to expire and is illiquid. This is a legitimate concern as the newsletter is issued once a week and sometimes the recommendations are published months prior to their being filled. In addition, orders may have been placed in a contract month that may have expired, then what? In this situation, simply open the chart that the recommendation or signal was generated on. Below is a chart from a recommendation made in the Gartley Trader Newsletter for the week of May 4,2009.
The recommendation was to sell Silver on a limit at 17.60. The price for the order was based on the Silver front month which at the time was May. Notice that the 78.6 % Fibonacci retracement is displayed at 17.03 (we’ll be referring to this number in a minute.) It wasn’t until 163 days later on October 14,2009 that our silver trade was filled at 18.17. How did we calculate that number? As mentioned, 17.60 was based on the May contract and the last trading day for that contract was on May 27th, 2009. As each front month expires, we need to calculate new order prices based on the new contract month. Below in a chart of the December 2009 Silver contract. October 2009 was the first month since the May contract expired that the Silver market has approached the sell target generated by the May silver contract. With the front month (December) chart open, notice the 78.6% retracement drawn based on the same high and low used to draw the retracement on the May contract. The May contract retracement was 17.03 and the December contract.retracement was at 17.61. The differential between the retracements of the two contract months is .58. This exercise allows us to calculate what our new order price should be with the front month. Simply add .58 to the original price of 17.60 based on May; this gives us 18.18. On October 14,2009 at 2:14 a.m. silver traded at a high of 18.18! 18.18 is the highest high in over a year on the December 2009 silver contract at the time of this writing! See below.
Going through the process of recalculating your entry orders for every contract month may seem like a chore but as you can see from the chart above, the effort is worthwhile. The following rules for the above silver trade were included in the May 4th, 2009 issue of the Gartley Trader newsletter...
“Entry Order – Sell three contracts at 17.60 with limit. Enter the protective buy stop on all three contracts at 19.60. Set the first profit target to buy one contract on a limit at 16.60. If the first target is hit - Move the protective buy stop on the remaining two contracts to 18.60 and set the second profit target to buy one contract at 15.60. If second target hit - Move the stop on the remaining open position to 17.60 and use a three bar trailing stop on the weekly chart as long as the three bar trailing stop is below 17.60.”
Now that we know how to calculate the new price for our entry order, it is simply a matter of adding .58 to the prices discussed in the May newsletter and we now have our new targets calculated. For example the first target for this trade was initially 16.60, however based on the December contract, it is now 17.18 (16.60+.58)