By Jack Broz, Eagle Market Makers, Inc.

When trading CBOT Dow futures, you must be aware that many traders in the Dow pit at the CBOT are using technical levels of some sort.  Because they are, it would behoove you to also know where key technical price levels are, if for no other reason that you'll know at what prices the pit traders may become active. This information is vital if you are trading the pit traded CBOT DJIA futures ($10 multiplier), as well as the electronically traded CBOT mini-sized Dow futures ($5 multiplier). 

Technicals should be a key part of Dow futures trading strategies. Levels will give you places where there is a technical reason for a profitable trade.   

I'll use prices as of the close of trade on Thursday, Feb 6, to walk you through a few steps towards developing technical levels of you own.  And note that almost all the information you'll need to compute trading levels can be found on the CBOT's Dow website (www.cbot.com/dow).  My point is, you don't need to pay for real-time quotes and elaborate data feeds to compute these types of levels. Also, the work is done between trading sessions; therefore, you begin the next trading session already prepared.  You can then devote your energy and attention almost entirely to trading  - not looking at charts and quote feeds.

To begin to identify technical price levels, begin with the settlement price of the pit session (7940)  (note: the DJIA & CBOT mini-sized Dow both settle daily to the settlement price from the pit session).  Find the high (8135) and low (7865) price for the current week. Do the same for the current month. (In this case, it's the same.)  Next, you are going to compute Fibonacci Retracements (Fibs) on the week/month range.  To find fibs, subtract the low from the high (8135-7865) and note the difference (270 ticks). Next, multiply 270 by 38.2% (270 x 38.2% = 103.14).  Add 103 to 7865  = 7968.  Then, multiply 270 by 61.8%; that gives you 166.86.  Add 167 to 7865 = 8032.  Finally, find the mid-point (50%) of the range (8000).   

What you now have are 6 price levels that act as technical indicators, which trigger buyers and sellers to be active in the market.  Next Monday, when we start a new week, you'll have 12 (the week and month ranges are usually different, and you'll use this week's close) levels from these computations. 

To give you a few more prices to watch, look at a daily bar chart and look for "spike highs" or "spike lows." Look at the Dow daily bar (again, pit session only) and you'll see that 7180 was a spike low in early October.  December 2 spiked to 9025, and January 13 had a mild spike high (8860 area).  Knowing where "spikes" are will help you identify potential trade entry and exit points because the market often re-tests those prices.  Finally, look for congestion areas.  From January 27, the Dow has been basically chopping sideways between 7870 and 8144.  Half of that range is 8007.  That confirms your 50% for the week (8000); so watch 8003! 

These are just a few of the technical levels you can find simply by studying a daily bar chart and doing some basic calculations. I'll be adding more information, in essence building on this foundation, in the weeks to come.    

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About Jack Broz
Jack Broz, Assistant to the President, Eagle Market Makers, Inc., is a member of the CBOT.  He has traded the Dow in every conceivable away: as a local in the pit, as an off-floor customer phoning orders in to a desk, on the screen, and as an arb. Through it all, and through the evolution of the Dow from a new contract to an extremely efficient market, his technical levels have consistently provided trading opportunities. Jack has written technical analysis articles for Futures Magazine, and his insight into trading the Dow has appeared in several trade publications, including Investors Business Daily.  One of his roles with Eagle Market Makers, Inc, a clearing member firm of the CBOT, is the development and education of new clients.  He can be reached at 800 341 0834 or E-mail JackBroz@EagleMarketMakers.com.

If you trade CBOT Dow futures and are interested in submitting a strategy for publication on the CBOT Web Site please  contact us.

The information in this commentary is provided from sources believed to be reliable, but the Chicago Board of Trade does not guarantee its completeness or accuracy. The opinions expressed within the commentary may change without notice. The commentary was prepared for general circulation and does not have regard for the particular circumstances or needs of any specific person who may read it. Neither the information nor any opinion expressed in the Commentary constitutes a solicitation for the purchase or sale of any futures or options contracts.