Lessons from Market Wizard Peter Brandt & An Example Nasdaq Futures Trade

Last week Jack D. Schwager released book #5 (“Unknown Market Wizards“) in his “Market Wizards” book series.

Chapter 1 features Peter Brandt, a Futures swing trader who has been trading since 1975.

This chapter was very timely for me, as many of the lessons Peter shared I have been molding and applying to my trading style as I refine my edge.

Two specific lessons stood out. First, Peter’s perspective on the purpose of charts:

Charts are wonderful in finding specific spots for asymmetric risk/reward trades. That’s it.

All that charts do is give me a point at which I’m willing to take a bet. They give me a point at which I can say, “The market should trend from this exact price.”

Second, his perspective on risk management:

It isn’t the charts that give me my edge; it’s risk management. I get an edge from discipline, patience, and order execution.

The hardest thing for me early on was figuring out the answer to the question: What is my pitch? What is the pitch that I’m willing to swing on. Can you define with high specificity what trade you’re willing to take a swing at?

My methodology is based on identifying asymmetric trade opportunities—trades where the perceived upside potential significantly exceeds the required risk.

Example Nasdaq 100 Futures Trade

This example trade encompasses Peter Brandt’s lessons (using charts to find specific entry points), and it’s the type asymmetric risk/reward trade that my current trading system has me hunting for.

The trade revealed itself on Friday November 10th. For this example I’ll cover only the technical levels I was monitoring. My overall thesis did factor in economic news events, macro trends, and market sentiment during the trading week.

To set the context for the trade, the first chart is a daily chart starting from the October low of 2022:

Using the Fibonacci Retracement Levels, we see that the October sell off broke the 38.2% level on 10/26/23, but then closed above that level on 10/30/23. A bullish signal. For as long as we continue to hold the 38.2% level, we increase the likelihood of retesting the July high of 16240.

The next daily chart begins from July 2023. A clear down trendline had been established:

At the start of this past trading week (Nov 6) – my focus was on how the market would react to a test of that trendline.

On Monday Nov 6 the daily candle tested the trendline, but did not break it.

On Tuesday Nov 7 the market blasted through the trendline and closed well above it. The subsequent two red candles remained above the trendline.

Then on Friday Nov 10 we saw a test and hold of the trendline, with a strong 400+ point candle. The break, retest, and hold of the trendline was another bullish signal.

When the trendline was broken on Nov 7, the target resistance level was at 15470. This is the key level for this trade.

On Thursday Nov 9 we almost tested 15470, but saw a strong rejection and a red candle close.

Then on Friday Nov 10 in the first half of the trading day we saw a test and hold of the down trend line, followed by a reattempt at the 15470 resistance level.

Side note: another input I had for the 15470 level came courtsey of the “On The Tape” podcast. One of my favorite trading themed podcasts. Host Dan Nathan recently presented a bearish Nasdaq Futures trade, and his stop was set at 15470. Thus I inferred it would be bullish if the Nasdaq breaks through this resistance level, as other traders likely had stops set at this level as well.

The trade revealed itself on Friday Nov 10. Here is the 5m chart from the day:

The 5m candles I’ve highlighted with the rectangle are the possible trade entry points. The 12:05 candle broke through 15470, and the subsequent 4 candles held that level.

What was once resistance has now become support.

And thus the trade is to enter around ~15480, with a stop at ~15460. A clearly defined risk of 20 points, with an upside target of 15720 (see the previous image for that next key horizontal resistance level).

Risking 20 points to potentially get 240, a 12:1 trade.

Although my time frames are much shorter than what Peter Brandt may use, the principles remain the same. For this trade I’ve used technical levels to identify the points where the market should trend from. I’ve defined my risk, and I’ve set a theoretical target.

The hardest part is patience. Waiting for the right pitch and not chasing it if you miss it. Patience is truly a virtue.