Posts Tagged ‘Risk Management’

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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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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