Archive for the ‘Risk Management’ Category

Access Trade Risk

Thursday, April 26th, 2012

Today is April 26th, 2012. I would like to post the days chart first here today and then talk a little about the markets after.

Today we saw moves in both directions but the stronger positions were long (up). This is the smaller chart within what I call my T-2 trade screen. There is a larger chart that acts the same but is easier to see it from a bigger perspective. The signals it shows are still yet the same. This T-2 screen is the middle screen, as there is one screen smaller, for very small scalp trades, called my T-1 trade screen and there is one screen larger called my T-3 trade screen. All the charts act the same within the method, but give off different sized moves within there class. The risk and reward is adjusted for each and is always no worst than a 1:1 trade ratio and most often higher.

I say all of that to share the idea that every trading day is different and not likely the same as the previous session. Some days the market is really moving and other days it is range bound and going nowhere. Being ready for what ever the market decides to through out at you is something we need to be prepared for but how is that done?

With the T-3 screen, and or a larger view, a trader could see that there is still upside momentum within the markets. Many of the short trades may be short lived with this stronger upward bias and one would do better looking for long trade setups and leave the smaller short opportunities. Doing this gives you are greater reward when compared to your risk and something most traders actively search for during the session.

Being a scalp trader is a skill that can be learned, but also being able to spot the larger picture is still a big key to ones success. Weeding out the smaller moves or understanding what you can expect out of a trade is important to best and accurately access trade risk before you put on that trade. Not knowing how to do this or when its right to go long and or short will keep you guessing and there is no room for that. Unless you have an edge, you will just be gambling, something traders do all the time.

But how can traders know and put something to work that can be trusted?  You either have to do your own research and work on back testing your idea’s until you see it consistently come through in various market conditions to know it is of value. That process takes a long long time and for some their trading carreer will be over before they get to that point.

Seeing and believing in something that is proven to work for years, not weeks is what traders need. It can be anything that gives you that trading edge,  combined with low risk and that is a huge key, low trade risk.

When you might be in doubt about direction and its not really that clear, you can always default to a pure scalp approach. Taking 1 point out of the market with a 1 point trade risk, is a 1:1 trade ratio and acceptable. The reasoning is your trade percentage will be higher than 50% and thus the edge. In fact hitting something like 65-70 % is pretty good and what we should be shooting for at a minimum. When you combine the fact that you could be getting double the return with the same risk, now you have something very good. You don’t need to get that all the time, but as the market reveals itself to you, take what is offered.

Again, this is done by “reading the market“. Traders pick up the trading edge by reading the market first, then any trading indicators or confirmation method is nice to see kick in. Without the knowledge of knowing what you are doing in a field of professionals, we run the risk again of gambling and no one wants that.

It is a fine line, because if you don’t experience it, how will you ever get to the other side and that is where getting informed and trained first is the key. I know it is and can be hard to hold back and wait, but to many traders graduate themselves prematurely and find out later that they did not know all that they should have known. I might be stepping on toes and ego’s, not my intention, but its just the truth we seek. As I mentioned before, its the truth that will set up free.

Part of that truth can be found in consistent price structure. Something that we can come to count on again and again in its simplest form at a minimum to have that trading edge talked about. Acting on consistent price structure will offer us many things, one being that low trade risk talked about above. It will also offer, what I call opportunities to act on trade to targets, where you see the likely and probable spots on the chart that price will move to.

This all goes back to the opening paragraph where I talk about the three models for different conditions. If you choose to trade out of a bigger model, you will have to commit more time to following the markets for sure. A no trade is a trade while you wait for things to come together and that is work, even when you are doing nothing. It is not easy, but for those committed to the process and the rewards, it is often worth it.

Reading the market can be achieved with some level of consistency while holding the trading edge and being able to access trade risk all at the same time. That is a trading method that works.

There is more than one way to trade, that is for sure, find what works for you and look to higher time frames or tick counts to help lend insight for your smaller entry views.

I wish you all the best, Vince

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Four Weeks of Selling on Wall Street

Saturday, June 4th, 2011

We have seen four weeks of selling on Wall Street in the month of May. That is the worst showing since 2004, but is this just a warm up or things about to move back up? That is on the minds of thousands of investors and traders alike.

There are a lot of factors right now which can point to a continued sell off, but there are some points to still hold this up. The effect of the QE2 are still yet to be felt on Wall Street and it should have some impact, so that is one thing for starters. Some say the Fed will continue to artificially hold interest rates down as a way to stimulate the economy by addition rounds of buy backs in the Treasury Bond market, but that is yet to be seen. Maybe Wall Street is trying to influence the Fed by pushing stocks down in displeasure only to try and get what they want, a continued loose money policy, where Wall Street directly benefits. Where is one to put there money? With rates on Treasuries so low, no one wants to enter that market and get a rate that does not even keep up with inflation and there is where the market benefits as the only other alternative. There are many other more detailed direct benefits to the market, but I will just state the simple one mentioned.

All bond buy backs done by the Fed is not a good thing long term. I hear they have a 2-3 Trillion dollar balance sheet of these buy backs. This is causing foreign investors great concern as to the safety of there investments and some have begun to liquidate some of there positions. A private investment fund that had the largest portfolio of Treasury’s in the country has sold his entire portfolio and now owns none as he stated that it was not worth the risk. I believe Standard and Poor Investment research lowered the Treasury Bond market out-look to negative from stable, which has never happened before. They kept there triple AAA rating though, which confused investors. Needless to say, there are problems on the forefront but we will be looking at a new presidential election next year and I am sure there are many interested parties who would like to see a strong stock market going forward.

Corporate profits are rising and companies are buying back there there own stock which is a good sign. The jobs front does not look good, but I hear that the temp agencies are booming with active workers. Many of them will be the first to get hired to full time when things become more clear. In addition, corporations are sitting on a ton of cash. All of these are good signs, but non of them have yet to take hold and produce, so we are left to wait.

I don’t have access to the sentiment numbers like I use to see, but I had found out in general that the market sentiment had been becoming much more bearish, all of which is a great sign for a continued move back up. When the majority believe a crash of large market drop is coming, it is usually the opposite that shows up.

I am not yet sure that we will see the large drop that many are calling for, but I am not yet ready to be a bull just yet. I did get the last call wrong and I will be straight up with that one. It is one of the few I have gotten wrong at least at first. We will have to see what Monday’s market brings as I was looking for the markets to stabilize at least and best, rally back up late in the day. That did not happen, but Monday and Tuesday’s market will give us another chance to do that.

As day traders, it really does not matter what happens in the course of a day, up-down or sideways. Trained traders can adjust to any market environment and pull something out of the market. The key to remember as I often state, is to just read the market and trade what you read. If you don’t know how to read that language, you need to get to work. The market has many low risk opportunities every trading day. Some days are easier than others, but you just trade what is in front of you and leave your opinions at the door. With that said, I do project the next moves out, but based on what the current market is showing. I think that is fine, because it can show you where prices can go if the position is held. I call that a “trade to target”. When we see those, it is still always a good idea to take some of the trade off the table as that does give you more power to stick around for the whole move, without the stress of giving a large part of the move back. Those are all trade and money management issues and very important to mastering your trading experience.

Trading successfully is Method, Mind and Management. I talk and teach all three of those to interested traders seeking to take there venture to a higher level. It has helped me to become better myself which is a direct benefit.

I did continue my trading on Friday with my second day back from my break and picked up 2.50 points on two gains and did have one flat trade in there. Traded about an hour and that was it. I let a few moves go by and don’t feel bad about it, as the day was a little skewed with the large gap. I did see that there was some nice moves for the rest of the session but I was long gone. Monday is a new day with new beginnings. Still trading a little smaller and likely that way this week, but we will see. My trades from Friday below. Good Trading to all.

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Risk Reward Ratio’s and Day Trading

Thursday, April 28th, 2011

The market rally is continuing from a call last week. I said that we were likely to rally on Mondays Open and it would be a surprise with an upside move. That rally is now continuing for its third day in a row into new high territory.

I started trading yesterday and continued today from the Holiday break. Things went well today and yesterday too, but I did have a few mistakes that could have easily been avoided in yesterdays trading. Basically, I tried to get out on a limit order with a better price than my stop. The two orders, were so close to each other I canceled the stop so I would not get a double fill, that is a mistake, but it does happen once in a while. I need to leave my stop and just try and get the better price if I can and if not, then risk the double fill, it would be safer that way. The other option is hit the close button and I do that at times to eleminate the problem I am talking about.

The next thing was, I tried to scale out, but hit the wrong order. I was short and needed to buy, but sold 1 adding to the problem not making it better. These kind of things do happen, but its what we do after they happen that makes a difference. The best thing to do when you have made a mistake is cover it, immediately. I did not do that, but tried to fix it by allowing for the price to heal my wounds.

Today, was a round of scalp trading small moves. I had one runner, but mostly very small moves long and short. Some were counter trend in my T-1 scalp screen, which I don’t usually do much of, but with limited moves early on, I felt the urge to act on it. The charts and trades for Tuesday and Today are below.

Today is above and Tuesday is below

If you can scalp trade a few ticks here and there and do it with low risk, keeping your overall risk reward profile to a minimum 1 to 1 trade ratio, that is acceptable. What is not acceptable is risking 6-8 ticks for 2-3 ticks of profit. There are not many trade methods that can keep your overall risk down to the level I mentioned, but this is one of them. This short term small target trading is not for everyone. I do use it as I see or feel the need to. I really did not have to go that route as there were a few good moves for several points, but I needed to be waiting for them. I missed a few of them today as you can see, but there was enough of the other to do just fine.

When the opportunities open up, you always have the ability to open up the trade for a more meaningful move. Tuesdays late session rally helped me come out ahead, but only if I left the trade open to accept the gains. I saw the move coming as per the method and that is why I let that run.

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Risk reward trade ratio’s are a guide to help balance your risk and reward, just like it sounds. If over time you are overly exposed to greater market risk than that of your reward, it will get played out with limited profit. Having a balanced approach is key to long term survival.

When scalp trading for small gains as I mentioned above, for me and my method, what is acceptable is risking 2-3 ticks for 2-3 ticks rewards. You do not always have to only target 2-3 ticks, but if the range is tight and the market stingy, then that is very much OK. Where everyone else is getting whip sawed back and fourth with losses, you are snipping off a piece here and there.

It is not always the best trading plan to do this type of trading all the time, but knowing how and when you need to, is a very big plus and does give you the advantage. I have a different screen setup than what you see above, because the objectives are different, that is my T-1 scalp trade screen.

Most often when trading the S&P, I use a 4-5 tick stop and will often close the trade out before my stop is hit one way or another. If my entries are good, I don’t have to worry much about the stops other than moving them up and just managing the trade. There are plenty of trades that a trader can risk very little and get a return of many times that risk. That may be 3, 4 or even 5 to one. Those trades do help to make up for mishaps and bring greater profitability to light.

If one’s objective is to only trade for higher risk reward ratio trades, than you will need more patients and the ability to sit through the quiet times to wait for the movers. Every trader is different and that is the beauty of my method. It is not one size fits all. Tailoring the method to match who you are as a trader is key and what I recommend to all traders within my trading method.

Sniper Day Trading is about finding low risk / high reward trades as well as small scalp trades, always still with low risk, but equal reward. What ever the market is doing, you can come out on top. The market can only go one of two ways, up or down. Finding the dominant trade direction for a small amount of time, is all we need to do. With the trade method its not that hard, without it, well, I won’t say.

Good Luck in all your trade adventures.

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Three Types of Trading Decisions

Tuesday, February 8th, 2011

2-8-11;

Today’s market was up again with the Dow +71 points and the S&P +6 . What a resilient long lasting uptrend we are seeing since Thanksgiving. This market has gone up more than I thought it would given all the bad news, but it goes to show you, when you throw money at something what can happen. Is this smart money or some other kind?  That is the question on everyone’s minds these days.

The bullish market sentiment dropped last week by a few percent which is a little odd with such a strong market. Tomorrow, after the close, the new weekly poll will be taken by the professional newsletter writers and there stand on the current market conditions are noted. This gets sent out to their subscribers all over the world and I am sure people act on a lot of their recommendations. Those market opinions get tracked and recorded and are part of the numbers I look at. I don’t subscribe so, I only see these numbers on late Thursday.

The point is, we have been in an extreme market condition since Thanksgiving, which is very unconventional. This means these guys are finally getting one right. That is amazing. Usually, you will see the opposite happen at certain thresholds just like clock work, unless something bigger is brewing. This may be just one of those times.

With the market showing no signs of letting up, I will only point out that we are currently up against some very strong overhead resistance. It has happened before, but the element of time helped to relieve that market pressure, but what about now?  If we blow past these levels in the days ahead, I would be surprised. Is it possible?  Anything is possible, but I think the odds say that we move sideways to down as more time is allowed to pass.

I do think the easing on the part of the Fed, is a very big part of this market rally, but who could prove that. The timing of their easing policy is right in line with the Thanksgiving take off. In any case, we are very extended and caution if nothing else is in order.

I got back to trading today as the data issues at Trade Station were resolved. I took 4 trades with three of them for OK gains and had one loss for only 1 tick on the S&P emini futures.  Take a look below if you care to.

The loss I took for only 1 tick was an early entry and elected to exit it almost right away. Looking back, it only went against me by 3 ticks, but I did not know that then. Getting out was safer until the better timing entry just a few moments later, which happened to be at the same spot, but was then in a much better position to move out. I did not worry much about the two ticks of draw down after the second entry, because now things were in place. I missed one trade as marked with a no fill that would have been a good 1 point trade, but came up with a new long a few minutes later.

The price action in the market is very narrow and shallow, light volume. I often say, take what you can get easily and without struggle. If you start slugging it out, you are not entering at the most opportune time. Day trading is about timing and entering at the most advantageous times is what we should be shooting for. Don’t try and pick tops or bottoms, because you will be fighting the current momentum and anticipating a market reversal. The market loves to break through double bottoms and tops only to then reverse, but not before it takes you out.

Being exposed to price movements takes time. If, you look at the market price movement in any time frame, their is order there. It may look just like a bunch of up and down moves to the person with an untrained eye, but their is often predictable order within the charts. Not every move or section of the day displays this order, but much of it does. That is the part that you act on. Only that which you know to be true based on similar conditions of the past. We have all heard the term, “History repeats itself”, well, this is no different.  It does not always do it in the exact same fashion, but elements of its past always present itself in the current days charts, enough for us to take action on.Three types of trade orders, buy -sell-wait.

This only comes from knowing what to look for and when to take action. There are three choices when making a decision about the markets. Some think that their are only two, buy and or sell. Those are two of the choices but their is a third, to WAIT.  This is just as much a trading decision and would have to boil down to the most import element not only with the third choice, but within all of the day-trading experience.

Waiting to make a move has tied to it, “trade timing”. You are waiting for the best opportunity for you to extract your piece of the market and transfer that into your trading account. If you don’t wait until the time is right, you will force trades and your then your struggle begins. That is why I say, I like to take the easy and obvious trades with little struggle. The move should move out just after my entering. If it does not, then I may have been to early and have to question my entry.

When trading we always need to keep in mind capital preservation. If we are always shooting for the big move, we to often get nothing and minus nothing, a loss on the day. Sure, we may leave some on the table, but that is emotion of greed speaking there. We trade for income, so find your way to safely get what you can, limiting your risks while doing it and enjoy the fruits of your labor.   Good Trading to all !

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Risk management and Scalp Trading mindset

Monday, January 24th, 2011

1-24-11;   Just a short post here today to put up my results from today. I only had a few minutes to trade as I took off on a road trip. I will likely try and trade for a little bit on Tuesday, but we will see. Today, I took three trades and had very good timing as all were gains.  I measure that by the amount of heat I take on the trade after entry. Today, one trade had no heat and the other two had only one tick each. That means the price only went against me by one  tick after I entered the trade. I can not ask for better than that.

I had risk management in mind today. That is really a key ingredient for success, but with limited time to trade, hitting the hole as I call it, helps keep the draw downs shallow and profits quick. I had a scalp trading mindset, in quick, out quick, gone.

Today’s trades were no big deal, small size, small targets, but it counts. I did not have much time to scope out the big picture and could have done better, but I took what I knew I could get without risking the price coming against me.

The last trade I felt their was more, but took the easy chip and left. Tomorrow, I will try and continue with more insight into scalp trading and how better to overcome our barriers.

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Protecting Your Trading Equity

Sunday, June 13th, 2010

Today Sunday afternoon June 13th and this post is for Fridays market.

The market put in a nice day absorbing the previous days gains and that was good to see. The NASDAQ did the best at +1.12 % with the Dow and S&P coming up behind that. Everything is set for another big day. The NASDAQ market outperformed because it was lagging behind the other two, so now all three of the main index’s are about equal. Currently, the S&P futures are up about 6 points and it would appear in a position to try and take out the 1106 I had talked about for the last two weeks. A break of that will likely send us up substantially, S&P futures , 1122 to 1142 and or greater, as Fridays close was 1085.

Looking at  earlier triggers, I mentioned a break of 1073 will get this market moving up and so far we have had that. That move helped the NASDAQ market just get caught up and in line with the other index’s and still feel that the Dow and NASDAQ market will need to break up from Mondays open. From all indications, we will do that as the NASDAQ futures are up +9.50 point currently 5 pm West Coast Sunday. A lot can change from now until the tomorrows open, but a strong break from the open and holding onto those gains into the later part of the session will be viewed as very bullish and we will be likely on our way to the numbers I mentioned above. It is just to bad that we did not get under the bullish sentiment readings I was looking for. Close, but no cigar, Bullishness at 38%. I was looking for 35% or less to confirm a sustained move.

This breakout if it comes tomorrow, does not mean we won’t see a rally, it just means to me that it may not have full power and longevity behind it. Possibly, just enough to get to the 1122 to 1142 area, which is still a lot. Counting that in Dow Jones points, that would be 570 points if we get to the 1142 number and if you took it from my original long numbers of S&P futures 1073, that is 690 Dow Jones Industrial points if and when we see it.

I leave a small window open that we reverse this pre-market strength and trade off these numbers for a couple of days, but maintaining the trading range to help the sentiment get to its desired overly pessimistic position so that a real sentiment signal could be generated, one that will have bullish legs to it.

If I had it my way, I would elect for the later set-up and trade down for two days. The sentiment polls are taken weekly on the close of Tuesdays session and this again will give it a chance to trade powerfully to the upside if we see those numbers. The service is put out by a company called “Investors Intelligence” and I am able to get free delayed reading from “Market Harmonic’s”. They poll all the major news letter writers with there take on market direction and we look at those number and trade in the opposite direction of there calls. Actually, this is just a tool to give you overall direction and does not really help with the day trading decisions during the day that we face.

Above is an equity chart of Fridays session. I had two real large days early in the week and just traded small and for only about an hour on Friday. Being conservative at times is something every trader needs to gauge. I just know that traders suffer there largest and worst draw downs when they experience there largest gains. So, that is why I often trade smaller inside of a session as the day goes on and do the same inside a strong week.

It is easy to forget that you need to stay humble and never become arrogant or cocky, saying that this is easy and let your guard down in the process. This is my way of keeping my guard up and taking it one step at a time. Once you make the money from trading, that is your money. It is not the markets. It is never considered free money. You worked for it, by the many hours you put into your method or system. You need to guard it and trade accordingly to your plan. If you have a have light hearted approach to it, you will give it back and then some, trying then only to make yourself feel better by saying, “I am only down this much ( ? ) because the other was profits lost. Don’t think that way. In fact it is really better not to think about the money, but just be sure you are trading properly. Then it will not become an issue.

That is what we should do, but that is not what we do most often. We trade for profit and you need to consider and have safeguards against wildly re-entering in an area we feel is a turning point. Do not buck the trend unless you have very compelling evidence and know what you are doing. Never insist your will on the markets. That right there could save you thousands of dollars. If the trade is not “easy and obvious” as I like to say, stay away. Only trade what you know and when you have the “trading edge” and you will be far, far ahead.

I was going to talk about goals and goal setting as it pertains to day trading and or any kind of trading, but I got off on a tangent. Most often, I just start typing, and what ever comes to mind as I proceed down the page is what comes out. I hope some of it helped.

Good Trading and be back tomorrow with more.

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Strength to take your Losses

Friday, May 14th, 2010

Today is Friday May 14th and what a sell off from the top as called.

We moved up to the 1177 area (1175) as called in the night trading two days ago and sold off yesterday with follow through to the downside today.  At 12:19 Friday West Coast time as I write this we are currently at 1127 with 1124 the low for the day That would make a 50 S&P point drop in two days since the call as of now.

As I mentioned I knew there was traders who hold positions overnight just waiting to catch the S&P short at the top. They even did not have to wait up, depending on the time zone as a strategy for those who make such moves is to sell short at a price, say 1174 and put a price in to cover, say 1178. What happens here is if any time during the night the price trades to 1174 or better, they get filled and then there buy stop gets activated at 1178. This is a little risky because you should always watch your positions before entry, but I know it is done all the time for those who can take on the risk.

If that was to much risk, there were low risk area’s to get short in yesterday’s market, especially late in the session at 11:25 (West Coast) as the market dropped nicely. I don’t play the long term swings but I like to follow it, to better stay in touch with the general flow or rhythm of the market. This way, when I come into the market, when ever that is, the open or more likely mid day, I am not having to do as much analysis to get up to speed on the big picture.

In today trading I have a u-tube video of the trade working. I only took three trades today and picked up my minimum daily goal. I don’t always try and make the huge days every day. I find it easier to just trade to a modest target and stop, but that is not every day. Some times when the market is moving nicely, I will take advantage of the movement and go for much more. Traders, I feel need to keep a handle on always wanting more. If you struggle with this, to often you will not only lose what you had and more, as you find yourself saying, “should of, would of, could of”.

If you don’t what to find yourself in that situation, then you need to pick a modest daily goal and stick with that. On days when you see the trades easily and the market is just giving you the move, take those and add to your day for extra returns. I feel we need days like that a few times per month (3-4 minimum ) to help out with any bad or struggling days you may have previously had.

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Strength to take your losses: Every trader is going to have losing days, that is just the way it is, but you can keep it to a minimum by having a daily stop out point for yourself. Sticking to a daily stop point is just as important as not pulling your stops and accepting that you were wrong on that trade. We can not let our ego’s get in the way of attaining our trading goals. Those that do, will struggle more than they need to.

You need to come to the conclusion that you will not get all your trades right and you need to stick to your pre-defined stops. When you pull your stops, you are telling yourself that you are not ready to trade. You can not handle a losing position properly. That is only going to make it worst the next time you put on a trade as well. If you substantially moved your stop or pulled your stop and the market were to recover, you may think that you did the right thing, but you will loose what ever you recovered on this trade and then some on future trades, because you just programed yourself, for when you get in trouble, move your stop or cancel it and give the position more room to come back.That is going to set you up for only bigger losses in the future at a time when you least expect it.

With this kind of trading behavior, you are unstable. You will never come to find the consistent market gains that you so want. The harder you try to cover your losses the more you end up calling them to you.

What is a trader to do? The first thing is to accept that you will have losses and resolve that you will not pull your stops or move them except in the direction of your trade position (locking in profit). This is a mental decision that needs to be resolved before you put on another trade. Next, in order to attain the goals that you set, you will never achieve them by widening your stop, so don’t do it, ever. If you are not sure of the trade and feel uneasy about it, hit the close button and you will go flat and all stops will be canceled. It is better to do that than see your trade go against you when you know something is wrong and try and make up for a bad decision by doing what will never help.

If you are always getting stopped out, that is a sign that your timing is off. Trading is about timing, pure and simple. When to enter and when to exit. If you are getting stopped out, you need to look at your trading model. What ever you do, you need to be consistent in it, that way, once you find where your entries need to be, you will be able to repeat, again and again.

Below I have a screen shot of my T-2 trending model with only one indicator at the bottom. I have many more things to build on the charts to make it complete but only showing this part. This day up until 12 pm West Coast had 18 trades (23 whole day) of at least one S&P point profit in it and carrying only a 1 point stop. I see virtually all winning trades for the day. This is just to give you an idea that timing is the key and it is possible to find if you understand how to trade price action with some help from the indicators to start. As a note, I would not be trading all of these turns and teach how to screen out the best trades in my mentoring program, again, just showing what could be possible.

Have a great weekend to all !   If you need or want help, email me at vinnie@sniperdaytrading.com

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Risk Management – Part two

Thursday, March 25th, 2010

Today is Thursday March 25th and what wild ride on Wall Street today.

It is to bad I did not have or allocate more time to trade today. This is one of those days that my T-2 trade model would have cleaned up, if you had traded it for any length of time. A trending market is great to catch up in any daily trading goals you may have come up short on in past trading days. If a trader could work a trending market a couple of days a month, you can make more than your daily goal by 5 or 10 times.

Yesterday, I suggested that if your trading is flat, to decrease your contract size until more favorable conditions open up, or to just wait it out. The idea is do not increase your size if you are under-performing. If you do, you are being influenced by outside forces, MONEY. That is not a good idea in the long run. The worst thing that can happen is you increase your size when trading poorly and you hit a few good trades to make up for it quickly. I am tempted to do this myself now and then, but it is really not a good idea. You will build precedence for doing this the next time and you may not be so luck then. Doubling up when you are underwater is a form of being impatient. You want what you want and you want it now. Resist the temptation and talk it out, to yourself if you have no one to listen to you, most likely. It is to easy to go only deeper underwater and this is where those dreaded wipe out days come from two or three times a month. You may say to yourself, if I could only remove those really bad days, I would have come out pretty good for the month. Well, there is hope.

First, you need to be strong mentally and not let yourself loose control. Again,resist the temptation and tell yourself  “focus on what is before you at that moment in time” and do not become anxious. Tell yourself, “my moment will come”, just wait and you will see the open door you were looking for. Take each trade one at a time. If it is a choppy market, take it a piece at a time, just use good judgment and take the high probability trades, assuming that you know what those are. (If you don’t, then maybe you should email me get some training & mentoring)  If the market is showing signs of trending, then you should adopt that type of strategy to make the most of it.

This brings me to my main point for today. If you have the time, feeling good and the market is co-operating, that is the day you want to take advantage of the conditions. All three of those need to be present, if you are not feeling great, then it is better to get your daily goal and wrap it up. It is to easy to make mistakes if you are not all mentally there. You may have not gotten enough sleep the night before and or what have ya.

Back to the point, if all three of the above conditions are present, I feel a traders has a green light to clean up. There are several ways to approach that.  A conservative way is to gradually decrease your size as the day goes on, but keep trading. That way, if you have draw downs, as the day comes closer to the close you will ensure that you are going to close well in the green even if you have loses near the close. Try and remember that, it could serve you well. There is nothing wrong with being conservative, you will ensure your survival.

Another way and it is an alternative that can pay big if you have discipline and feel well grounded. As mentioned, with the above conditions met, adding on to positions or “scaling in”, as the market is moving in your favor at key spots. This is a form of “Trade Management”.

I don’t do this that often myself, but I do know how to and could if I want to, for sure. Take a day like today. You need to trade what you see and not what you think to start. Next, in a strong moving market instead of scaling out of your trades, you scale into them, at key spots.

If your first entry is wrong, you have a smaller more manageable loss. If you entry is good, you scale in along the way at key low risk spots. Each add on has its own independent stop and as the trade moves your way, you clean up. This is an advanced strategy and you really need to feel comfortable with the basic all in all out approach first. This is risk management to the upside. The opposite of those big loosing days to the downside. If you get just two days like this per month, you can make up a lot of ground and or you can forge ahead into new equity territory.

If you try and get what you want from the market but do it at the wrong time, you will not only get what you want, but loose what you could have had and then some. Think about it. This is “Risk Management and Trade Management”.

Trade more aggressively when the market tells you to, not when you want to. Again, you will be glad you did.

Trade on and be safe.        P.S. will show two small winning trades I took today in tomorrow post.

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Trading & Risk Management

Wednesday, March 24th, 2010

Today is Wednesday March 24th and we had a little pull back in the major index’s, -5 points on the S&P, -52 on the Dow and -16 on the NASDAQ.

Today’s action was quite normal given the large run up over the past weeks. The market still has plenty of room to move sideways and rest. We saw an inside day for the S&P  futures from yesterdays range. This will build a bit of pressure for Thursdays session. A break out above 1166 should bring us higher prices and a break below 1161 should produce lower prices. Those are pretty key area’s as of now going into tomorrows session. Currently we are right in the middle at 1164.50.

Today I am going to talk about managing risk. This is a question that comes up all the time and I will go over a few points here on the subject.

Risk management is essential to surviving the trading game. I have mentioned recently in my previous posts this last week that a 1 to 1 risk ratio is alright as long as you are right more than you are wrong, sounds pretty simple and it is. I know many traders trade only the same amount on every trade and if that works for them, I guess that is fine. But let me give you an alternative idea. If you are trading poorly and have gone back and forth with no progress, I would suggest to decrease your size if possible, until the best opportunities come along. Waiting the market out, for favorable price pattern opportunities is the best, but if you continue, it is better to decrease your size until you start to see the best opportunities come to you.

There are definitely better trade conditions on some days over others. On the days things do not seem clear, you are better off to trade very small and or wait. I recommend waiting until you are sure you have the edge. If you jump into the market and expect things to fall your way, when you have not done the work necessary to give yourself the trading edge, in this case, “Waiting”, which is a trade position, you can not expect to come out on top.

Waiting the market out, for the trading edge, is as I mentioned “a trade position”. It is a “no position” and that is just as important as putting on a position. Try and let that sink in just a bit. Often, traders will expect, hope, wish and want the conditions that they seek to make there trading goal for the day.

I have to watch this myself and I do, if it does not posses the qualities that gives me the edge, you have to wait. Most of the time if you are a scalper, looking to take a point or more from the S&P futures, you wont have to wait long. By waiting 10-20 minutes, especially in the morning open, you will get a whole new set of reads and new opportunities that will jump out at you or it should.  If it doesn’t, I will use an over used term, but it applies, “Just say No”. You are not under any obligation to take a trade, after all, we are traders and we trade market not the other way around.  The market does not make us trade, we trade against the market and other professionals.

If we are going to have money on the line, we need to be sure that we have the trading edge. Some traders may be saying, what is that and how do I get it? You need to have a model, method or approach that is consistent. Many struggle trying to find this and there are no easy answers. It needs to something that will always work and I would say based on price and its predictable movements. This is the best in my estimation. In addition, once you have that, you will need to get familiar with it and practice. The practice is going to bring the confidence you need to give you the results you are looking for.

If you are going to control your risk, you will have to look to exit the trade if you start to loose the advantage. That is what I do, if I don’t get the results I am looking for after entering a new position. Order placement is going to be the key. If you place your order to buy or sell and you overpay for that position, you run the risk of getting taken out, if you run a small stop. There is a way to do this and keep your risk down. Most traders are not able to find the “Sweet Spot”, in there order placement, but that is what is needed to make this work.

Trade selection and order placement are key components to risk management. Don’t look to trade every twist and turn. If you have a modest trading goal for the day and I think traders should, you only need to break this down into a few  trades. If they are the right trades using method trade selection and you trade multiple contracts, you always have the option to scale out. I know for a fact that lots of traders do not like doing this. The reasoning, if I can get two points on 4 contracts, why not take it all instead of half. The point is, you don’t always know if you are going to see the 2 points in the first place. What started out as a nice gain turns into a loss and creates frustration. “Trade by exception, you will be glad you did”

No trading for me today, I was traveling to the S.F. bay area.  I may continue with this line of reasoning in tomorrows post, so until then.  Good Trading and be Safe ! GMR62JYPQ7EG

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