Charles Pennison is a full time, at home trader who makes his living trading the S&P E-Mini contract. In my interview with him, we start with the big picture and we quickly make our way into the specifics of how he find good trades. He then talks about how he gathers a broad picture of the markets before diving into his daily trading.
Tim Bourquin: Charles, what is the most important thing you watch when you are trading?
Charles Pennison: Cycles. I really pay attention to cycles. You have the seasonal cycle, for instance, mid-March to mid-May is typically a bullish cycle in the market. Market structure meaning if you’re starting to get higher highs and high lows around mid-March, high probability trades would be in the long direction during that period. Then you get the monthly cycles and, of course, most people know about the end of the month bullish cycle when a lot of mutual funds and retirement funds are buying into the equity market. And then you have a shorter term cycle that I pay attention to first discussed by George Douglas Taylor back in the 1950. Back then, he calls it a three-day cycle, and back then maybe it was really a three-cycle, but nowadays it’s more like a two- to five-day cycle where, just quickly, you’ll have a strong trend day and then you’ll have several days of price consolidation where the market just kind of bounces around in a small range. And then you have another trend day and it goes and finds another equilibrium zone to play in. So that’s the type of cycle I pay attention to. So you need to know the difference between are you in a trend day or are you in a day where the market is just going to bounce around in a small range. You really need to pay attention to that. Based on that I answer the question, “What type of market am I going to be in today?”
Tim Bourquin: Next, I talk with Charles about equilibrium zones, how he finds them, how he maps them on his charts and then how he uses them to support as support and resistance zones. We then talk about the timeframes he watches closely. We also talked about how he uses the NYSE tick indicator to look for changes in the short term trend.
Charles Pennison: Well,…
