SMAX MACD crossover trading system for e-mini Nasdaq index futures daytrades
chat given by Jimmer on 1/18/02 in PalTalk voice chat
transcribed by google_2, additional notes by laniermasters, edited by dave_b_quick:
posted at dacharts.com

Here's an introduction before answering questions and getting into details. A year ago when the RetroTrader system got going, a 15 min system wasn't ok with me because of my own personal nature. I wanted something of a system set in a lower time frame to be an anchor for my trading. I had been playing with MACD and wanted to enter and exit on crosses, because I had noticed that certain MACD setups worked very well just trading the crosses. I started with MACD 4/11/6. Then I noticed that some trades weren't working well in chop, so I developed some rules.

The most current version of the rules, consistent with trades called recently in the room, is posted on the SMAX page at dacharts.com. Previous versions of the rules can be found at http://groups.yahoo.com/group/SMAX/, post #1 for the original SMAX rules, and posts #117 and #178 for some revisions to the rules by other people.

The SMAX chart setup used for today's discussion will be a 3-minute chart of NQH2 with MACD (8/13/5 exponential) and Stochastic (5/3/3). Two versions of the chart are posted, one with MACD displayed as lines, and the other with MACD displayed as a histogram of the spread between the lines. Take your pick.

My trading goal is 50 NQ points a day. Some folks in the room thought that was an awful lot. I don't find may days when the system generates less than 30 points, some in the 50's and 60's, and a few over 100. Today was a slow day, 35 points. Look at a 55 tick chart and see how many moves of 5 points or more there are. The key was to get at least two 5-point moves per hour.

SMAX uses 2 kinds of entries, MACD crossover entries and continuation entries. Of the two, continuation is usually stronger.

For the crossover entries, when the MACD fast line crosses above the slow line, enter a long, and stay in until an appropriate exit point (vice versa for shorts). This is where discretion comes in. Start out with a 5 point stop-loss on the 3 minute NQ chart. Move the stop to breakeven when 3 to 5 points ahead. Stay in the trade unless prices fall below the the low of the first pullback. If you survive the pullback, just start trailing stops, starting with a 5 point stop and tightening up to 2 or 3 points.

Continuation entries are made when it's starting to trend and there's a 2 to 4-bar pullback. If the pullback runs past 6 bars the continuation play is off and it's a whole new ball game.

In the rules you'll also see anticipation entries. If the crossover is very near but not complete, you can take the trade at the appropriate bar of an anticipated cross. That rule is critical. Many times you'll see the MACD look like it's about to cross. You can use discretion on whether or not to take the trade. You can put a stop entry at the close of the last bar instead of waiting for the close of the next bar.

The reason for the 20-point rule is that if you've had a long run, more or less unbroken, chances are when it reverses you'll have a pullback and a retest. So chances are the first cross won't last long. Wait for a second one. The only time this doesn't apply is during the first hour, when we're likely to have long swings without retests at the turns.

Another important rule designed to keep you out of the chop is the BB (Bolinger Band) rule: Except for continuation trades, never enter long in top 1/3 of the BB range (or vice versa for shorts).

When posting SMAX trades in the room I've been posting according to the rules except for the exits, which are discretionary. Move the stops if you're 3-4 points ahead. Stay in the trade unless you fall below the first pullback. If you have a second pullback then you start thinking about tightening stops.

q: someone backtested and found no edge
J: when I tested it it never had a losing day
it should be around 1.3 times the daily range, so if range is 30 it should give you about 40

q:did you use a system for backtesting?
J: I manually backtest

q: do you trade es as well?
J: I only trade nq, and es isn't as productive with SMAX.

q: do you follow tick and trin?
J: I don't follow tick and trin

q: what timeframe to you use on macd?
J: 8, 13, 5 on 3 minute because it's a little bit smoother

q: do you trade in a certain direction?
J: I trade in direction of smax signals

q: what type of orders do you use for entries and exits?
J: I enter market and limit but exit on market
I'll have a crash stop and keep my finger on the trigger when it's time to go and exit on market

q: how do you use stochastics?
j: I trade with it on 1 min. chart
as far as smax is concerned - it's helpful as exit points

J: on the 1 min. I have stoch and bb but not macd it's not helpful on that timeframe

q: do you use emas?
j:I don't use 20ma but have it on the chart - macd pretty much does all that
I don't use trendlines and they get broken
I'm aware of major support and resistance levels

q: what are the stoch parameters you use on 1 min?
j: I set the 1 min stochastic to 5/3/3.

J: here are yesterday's trades (1/17/02):

ann_87: do you use a 9 period adx and is it just the line?
J:I use a line

q: what are the parameters for macd?
j: 8, 13, 5 macd is very good

ann_87: jimmer for a continuation.. must you have an upbar and if so on which time frame?
J:if I'm looking for continuation I stick to 1 timeframe

TL11: do you watch times frames other than 1 and 3 min?
J:55 tick, 1, 3,5, 2,7min I check 7m every 5-10 minutes

ppusa: jimmer the short you described in the late afternoon was voided because?
J: it just reversed the other way

tk-15: Do you find that the time of day has better or worse trades?
J:people think that lunch time is bad but I don't care - some good trades start at 12:30.

rich012: jimmer, can you explain what the continuation trade is? Do you need a nice trend for a continuation long, or just a higher low, followed by a higher high?
J:You have to say this system is a soft not hard system meaning you have to make judgments on trades. I ask myself if this is a trend or a consolidation?

QSuzy: When do you revert to 55tick rather than minute charts?
we don't use 55 ticks in smax but it's the best chart to trade. If you're looking for reversals it would show on the 55 tick chart.

google_2: Jimmer, would you suggest for someone to test it themselves for a while?
j:People should look and play with it day after day and see how it works.

tkay_1: do you do any backtesting yourself jimmer? or you manually go thru days?
blueem: Are you only trading the NQ? Are you trading the ES, as well? If so, you would be getting about 10 handles per day?

perry8: jimmer do you paper trade first while working on the system ?
J: I papertraded it in real-time.

q: regarding the use of bb as filter to keep you out of bad trades. An example would be?
J: not to enter a long trade if the price you want to enter is in the top 1/3 of the bb range

donsuelo: Do you use adx for indicating trend or higher pivot highs and lows?
J:I used it as a general indicator to measure strength of trend

brandon_131: great session jimmer, appreciate you taking the time. Thanks.
QSuzy: Thanks jimmer.....great job!!
scorp: thanks you very much!
Michaelaf: thanks jimmer
google_2: appreciate it jimmer, this is great
dp_10s: thanks good job-- new to room
tomsurf: jimmer- Thanks, great start and lots to digest :-)
amer_68: Appreciate your efforts jim. You and others here make this a great site.
Buffy_04364: thank you very much jimmer
Rose0001: Thanks.
dp_10s: Appreciate your support. Thanks
fredrickson: thanks jimmer,,,,,very charitable of you

Additional notes made by Lanier during the voice chat and a subsequent informal Q&A:

Jimmer has never seen smax have a losing day. He kind of look for about 1.3 times the daily range. So if daily range is 30 smax should give you close to 40 (today was the reverse). Almost always when you take an entry you'll get a little thrust in the direction you're going. Usually 10 or 12 trades and may be 2 losers, sometimes not even any. Yesterday was 12 trades with 2 losers; today was 6 trades then he stopped about 12:30ish with 2 losers today.

He's manually gone through 50 or 60 days and added up trades.

He only trades NQ. Tried ES but not as productive. The way smax is written there are times you can look and see you're about to get stopped out - you don't have to wait for that. So testing and actually trading are different.

He's aware of tik and trin only to the extent ann posts something about either one.

He uses 8-13-5 MACD rather and what's posted in rules. He trades off the one a lot in the direction of smax signals. But he takes more trades personally than simply the smax trades.

He uses both kinds of entries. He almost always exits off a market order. As far as entries are concerned he enters on both limit orders and market, sometimes not time for limit or stop orders.

Re stochastics: he finds it helpful in picking exit point. He uses that as well as crossover of 5 ema as well as 8 sma.

On min chart he doesn't have macd, just stochastics and bollinger bands. He doesn't find macd to be that helpful on a 1 min. chart.

He doesn't use 20 ema on smax. Doesn't pay much attention to trend lines either. He does use spport and resistance, esp. negative support and resistantce, very aware of recenthighs and lows of retracemtns.

Stochastics uses same 8-13-5 instead of 4-11-6 , also used

9:48 would've been better entry yesteray that he didn't take. was takeout of bottom of previous bar. He thinks he didn't take bec/ it wasn't actually an up bar.

q by rich: why no continuation sell on the 10:24 bar? It took out the low of the prior bar.
that is your 10:21 bar for the short actually. - jimmer says, "Yep, I think you might have a point, Rich. This always happens when I do this, the lawyers come out."

Ann: do you use a 9 pt. adx and it is just the line or the spread (like Buffy's)? He just uses the line.

He stopped posting on yahoo group bec/ he got people knit-picking every little thing. "I'm not selling anything here. I'm not trying to get anybody to do anything."

Some days he trades smax all day long - half the entries look lousy a the time and sometimes they turn out to be the best. He's aware of smax even if he's trading off the one. There are times he says: this is telling me I can only be long - or short. If Macd is + or - 1.5 [on smax 3 min.], he'll go either way on a trade if he's trading stochastics on a one minute. He'll still take long trade from a stochastic 20 on the one minutes, he'll just know it might not go very far.

Ann: for a continuation, must you have an upbar and if so on which time frame?
If he's looking for a continuation, he's looking at same time frame to define what a continuation is or what a retracement is. He watches 55 tik, 1m , 2m 5m and 7m
He keeps, 55t, 1m and 3m big and others minimized on screen so he can look at them quickly.

If you can't decide whether there's a trend going or not, there's probably not.

He doesn't use 55T in smax. But he thinks it's the best chart in the world to trade from. If he's looking at the 3 or 1 min, a lot of times if you want to max out the trade if you see the reversal begin on the 55 T and use normal entry rules, if it takes out first belt bar on tick chart, and enter there, you're way ahead of where you'd be on minute chart. Get and extra couple of points.

You're way ahead just to have a system. The other half is developing the mind training - devleoping a sense of what's noise and what's not. and being able to noit dither but to go ahead an enter a trade when you see what you're looking for. I was the world's worst underachiever for the longest time - I had analysis paralysis.

He doesn't recommend anyone trade anything they don't fully believe and check out for themselves.

I spend a couple of hours every day looking at charts, mostly NQ - I go back over the day with a fine-toothed comb and mostly it's paid dividends for me - it really has.
Macd doesn't have to crossover, many times you'll be too late if you wait.

He's going to try to do a rewrite of the original rules and eliminate some of things we'ren not really doing any more.

PPUSA: I see what I think are trades betw/ 12:00 and 2:00 est., so I think most the credit goes to you as a trader. So they may want to look for a filter, so if these are legitimate smax trades, what would you recommend.

Jmmer: the only rule I have is you didnt' enter a long if the price is in the top 1/3 of BB or s short if in bottom 1/3 of BB (except for continuation entries). That would keep me out of most of these trades. I with there were a better rule, but that's the best one I've been able to come up with.

Every once in a while that rule will keep you out of a heck of a good trade, but keeps you out of more bad ones.

The only thing he's uses adx for is to get a gauge for strength of trend and to occasionally invoke 5 ada exit rule{?} ADX is not at the top of the list of things he's looking at by a long shot.

PPUSA: Price had to go sideways to meet the moving averages today - starting bumping 20 ema and after that sold off.
what time frame - PPUSA says you can look at several check out the 5 and 15 min and you'll see what I'm referring to.l

(05:46 PM) TALLMAN123: usual sell off on expiration day is in last hour check back

PP offers a lot about why things happen in his daily mkt commentary.

PP if someone sees something that confirms what I see, I take the trade.

Michaelaf says Jimmer has a good innate sense of price action.

5/3/3 stoch setting

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