Day Trading Tips and Tricks – Indicator Warehouse https://www.indicatorwarehouse.com (713) 893-8556 | NinjaTrader Day Trading Software Sat, 23 Jul 2016 22:12:18 +0000 en-US hourly 1 Position Sizing – The Greatest Secret to Trading Success https://www.indicatorwarehouse.com/position-sizing/ https://www.indicatorwarehouse.com/position-sizing/#respond Fri, 22 Jul 2016 16:32:38 +0000 http://www.indicatorwarehouse.com/blog/?p=1592 Read More »]]> The greatest secret to trading or investing success is in your Position Sizing. It’s a secret because very few people understand and even fewer people know how to use it.

Position Sizing Secret

Stick with me… because a the end of this post I’m going to give you a free tool that shows you how many of the top 5% of traders, profit by using position sizing in their trading.

Trading is one of the GREATEST businesses you can ever get into. You can live and trade whenever you want and answer to nobody. Trading can replace your job income and become a career path you only dreamed about.

But, I will warn you… I had to go through HELL to learn how to be a profitable trader AND I DON’T WANT YOU TO MAKE THE SAME MISTAKES I DID.

One of the reasons I started Indicator Warehouse was because of the knowledge and connections I have throughout the trading industry. I know what works and I want you to have access to that information.

But first, let’s take a trading test.

Trading Psychology and Position Sizing

Click HERE to link to a test that will tell you everything you need to know about YOU as a trader. 

I like to help people and it’s my passion to help traders find out what REALLY works. It took me YEARS to uncover the truth, but I want to save you the AGGRAVATION and TIME of trying to uncover this hidden information.

The first two years of my trading I lost money. The next two years I broke even. There is nothing more AGGRAVATING than working your tail off and not show a profit or even worse – a loss.

During this time, I bought every trading system, seminar, book, or newsletter that made sense to me. I felt like I was trying to catch falling daggers! You get to the point where you don’t even want to pull the trigger because you can’t handle another loss, you don’t trust anybody, and to add insult to injury, you start to doubt yourself.

Doubt leads to constant discovery mode where you look for ANYTHING or ANYONE who can help you be profitable.

But here is where you have to CHANGE or you will go BROKE!

You have to find a trading mentor or somebody who knows what they are talking about – in short order, you have to find a profitable trader who will tell you the TRUTH!

I did not find the truth until I found a coach and mentor who knew how this game really worked. That coach was a man named Van Tharp. Van runs the International institute of Trading Mastery.

Van teaches what professional (profitable) traders do. He has worked with over 5,000 of the best traders in the world. And I can tell you this – All of them use the same secret weapon (position sizing).

Van Tharp created his trading methods based on thousands of profitable traders.  During his research, he noticed they all had different trading methods, but they all did the same thing when it came to managing their trades. Van took his findings and formulated a money management that can be easily followed by anybody who wants to create profitable results. REGARDLESS OF YOU ENTRY POINTS OR YOUR METHODOLOGY, this works for EVERYBODY!

Van teaches what the “Holy Grail” of trading really is… and it’s called Position Sizing.

Position Sizing is what accounts for 90% of your PROFITS!

Position sizing is what separates the LOSERS from the WINNERS!

Make no mistake – profitable traders do NOT care how many times they win or lose with their trading method. The only thing these traders care about is this:

“It doesn’t matter how often you are right or wrong, it only matters how much you make when you are right, versus how much you lose when you are wrong.”

Now, you’ve heard me say this before in prior blog posts,  and if you didn’t believe it, I completely understand – because I didn’t believe it either.

Now, here’s the important part…

If I gave you a system that won 39% of the time and lost 61% do you think it would make money?

You would probably say: “That’s horrible, who would trade that?” or “I can build a better system than that!” or you might even say: “That sucks, how can you possibly make money with that?”

NinjaTrader position sizing

Here were the actual test results from 1 full year of trading:

Number of trades: 797

Winners: 310/797 = 38.9%

Losers: 487/797 = 61.1%

Initial acct: $50,000

Final level: $184,846

Percentage Change +273.7%

Average profitable trade: +2.82x initial money risked

Average losing trade: -1.00x initial money risked

The last two lines are the most important. The risk is $1.00 to get back $2.82.

So, let me ask you this – if somebody said to you: “If you give me a $1.00, I’ll give you back $2.82. Would you do it? SURE YOU WOULD! Well, guess what? That’s exactly how profitable traders use position sizing to make money!

At the beginning of this post, I said I would give you a new tool to help you understand these concepts. Here it is: it’s called the Money Expert. It will show you how managing your risk using position sizing produces profits.

http://indicatorwarehouse.com/moneytool

Run it 50 times and see how many times you make money! 

Pretty soon you should start to ask yourself:  “Do I want to be RIGHT or DO I WANT TO MAKE MONEY?”.

Like ANY other business – YOU HAVE TO MANAGE RISK to be profitable!

******************************************************************

We have a product called TRADE MANAGER

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Position Sizing NinjaTrader Software

The Trade Manager automatically does Position Sizing for ANY chart you have on NinjaTrader.  It only takes a few clicks of the mouse.

Why did we come out with the Trade Manager?

Every trader must ask four questions before they take a trade. These critical questions make up the Money Management process for profitable trading and they need to be asked on every trade you take:

1. Find the trade setup

2. Check the Risk to Reward

3. Determine the Position size

4. Cut losses short and Let Profits Run

Position sizing is the greatest secret to trading success!

Comes see the Position Sizing in action in our free trading room every Wednesday.  Click HERE to Register.

 

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Pyramid Trading – Using Multiple Orders to Your Advantage https://www.indicatorwarehouse.com/pyramid-trading/ https://www.indicatorwarehouse.com/pyramid-trading/#respond Wed, 20 Jul 2016 20:15:13 +0000 http://www.indicatorwarehouse.com/?p=96482 Read More »]]>  Pyramid trading - Using Multiple Orders To Your Advantage In Trading

So there you are – you’ve done your homework – and taken the trade. You found a great spot for entry, all signals were go, and you entered the market. Within a few minutes of getting in the market though, you find yourself in drawdown. You have a 10 tick stop and before you know it, you are half-way there.  You think – “Well, if I thought my initial entry was a good price to get in, I should really love where the market is now and take another order. That will make it so much easier to get to profit once the market moves in my favor, IN FACT, I won’t even have to get to my original entry before I hit break even.”

Yes, the old pyramid trading philosophy.  Although this works great much of the time when you are trading based on fundamentals over the longer-term, it can be a seriously risky maneuver when trading based on technicals in the short-term.

The Dark Side of Pyramid Trading

When I started trading futures, I had the unfortunate experience of having VERY good results right at the beginning.  Why was this unfortunate?  Aren’t gains good?  In fact, I tripled my account in under 2 weeks of trading.  What this experience set me up for was a false confidence in my abilities that I did not actually posses, and the willingness to take risks based on that assumption. 

So there I was with my first live account tripled in two weeks and I was ready to make more.  I found myself with a losing position on the emini and I decided to add another position since it was clearly at a better price than my initial entry.  Not using any stops, I started pyramid trading and kept adding positions as my orders kept losing assuming that the instrument would have to turn around.  I watched my open, floating drawdown quickly increase as the instrument continued to move against me.  It never turned around!

Finally after a gut-wrenching 6 hours of watching my account dive deeper into the red (floating profit), my broker closed my losing trades before the account was fully “blown-out”.  Yup, I vaporized 80% of the account in one day of reckless trading. That was almost the end of my trading experience and it took me three months before the word “trading” didn’t come with a bitterness and anger in my heart. It took A LOT of learning and experience with different strategies and systems to figure out exactly the depth of my bad pyramid trading on that fateful day so early in my trading career.

Pyramid trading or Give Up Trading

Pyramid Trading the Right Way

One of the things I learned from that experience was although the pyramid trading principle works pretty well in investing, you actually need to think completely opposite when it comes to successful day trading.  What I am driving at here is rather than adding more positions to losing trades, you should be adding more positions to winning ones!  

There are two primary factors at work here:

1. The Trend is Your Friend

Oh yes, this old adage strikes again, and I’m not just talking about the “bigger picture” trend.  The fact is that usually when you get your first entry right, and go into profit, you actually tend to do better than when the order goes against you.  Much of the time, when you get the direction of movement right, it will continue for some time before making a reversal.  Rather than fighting the direction of the market in the near or mid-term, you are going with the flow of the market.

2. Risk, Risk, Risk

The MOST important factor for pyramid trading is how much total exposure to risk your account will take assuming the worst-case scenario. By adding a new order when you are already in profit, you have the option to move your original stop to b/e or better, therefore eliminating your original risk and potentially only risking your newest order or even less than that in the case of a chain of orders of more than two.  On the other hand, when you add a new order to one that’s already losing, you are simply adding more risk without eliminating any.  Sure, if price turns around it is easier to reach overall b/e than if you hadn’t taken the second or third, etc… order, BUT if price doesn’t turn around you get hit for full risk on every single order.  That can equal a big total loss.

Pyramid Trading Scenarios

Let’s look at a quick pyramid trading example to illustrate my point.  Let’s assume trader #1 adds one order each 20 tick move against their original position while Trader #2 adds one order for every 20 ticks in FAVOR of their original position.  Both traders are using a 50 tick stop for each order and a 50 tick take profit. Each order will risk 2% of the account.  Max of three orders.

Trader 1:

  • Worst Case Scenario:  Trade goes against the position, 2nd trade is taken, then trade continues towards stop loss, so the 3rd position is taken.  Our total risk is 2% X 3 positions for a total of a 6% loss.
  • Best Case Scenario:  Trades go against the trader, but just enough to get three positions into the market and then the market goes into taking full profit for each of the three orders.  Total risk is 6%, but the gain is 6%.
  • Alternate Scenario:  Trade just goes into profit without drawdown.  2% risked for a gain of 2%.

Trader 2:

  • Worst Case Scenario:  Trade goes against initial order all the way to stop.  2% risked, 2% Lost.
  • Best Case Scenario:  Trade goes in favor of order, second trade is taken and first stop is moved to b/e, and then trade continues in support to 3rd order which now places first stop at second order b/e. Total risk=0%  Total gain=6%.  Keep in mind, that the worst possible risk at any time during this process is 2%, but never more because new orders are opened, older orders are adjusted.
  • Alternate Scenario:  Trade just goes into profit, all the way to the third order, and then reverses and stops everything out.  Total Risk=2%, Total Loss = little more than 1% (1st order is +20 stop at third order opening, 2nd is break even stop, and 3rd has the risk of full stop loss)

So in the case of the two traders, you can see that with market conditions being relatively the same, the first trader has a max risk of 6% and a minimum risk of 2% EVERY TIME. Trader 2, on the other hand, has a max risk of 2% and a minimum risk of 0%.  That right there should be enough.

Now let’s go with a more extreme example of pyramid trading and imagine a 30 tick move for both traders with no limits on how many orders they can open.

You can see Trader 1 is ALWAYS adding more risk by adding new orders while Trader 2 is ALWAYS reducing risk by adding new orders.  Trader 1 is fighting against the prevailing movement of the market while Trader 2 is always going with the flow of the market. And think about this, by the time Trader 2 is on their 4th order, they are guaranteed some sort of a win, while Trader 1 is risking 8% of their account and has a ways to go before overall break even.

No matter what, Trader 2 never risks more than 2% in ANY market conditions, while Trader 1 has risk only limited by the number of order they are willing to place.  Of course, whipsaw markets can affect the outcome of either trader, but the risk is guaranteed never to be more than 2% for Trader 2 and Trader 1 better hope for ideal conditions.  Ask yourself this “Would you rather only ever be on the hook for 2% to gain potentially much more, or would you rather risk a fluctuating percentage to make that same percentage back in the best case scenario only?”

Pyramid trading and Day Trading near a holiday

So I now you know that for pyramid trading you must add to winners, and just let my losers go. Although this may fly in the face of real trading, day trading requires not only a new set of trading tools but a new psychological approach as well.  Pyramid trading when you are winning can significantly enhance your gains while never adding risk. However, doing this when you are “underwater” adds extra risk without compensating you adequately for it.

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Tweaking Standard Technical Analysis Indicators https://www.indicatorwarehouse.com/technical-analysis-indicators/ https://www.indicatorwarehouse.com/technical-analysis-indicators/#respond Tue, 19 Jul 2016 22:15:08 +0000 http://www.indicatorwarehouse.com/blog/?p=1724 Read More »]]> Back to the Basics… with NinjaTrader Indicatorstechnical analysis indicators

Whether you are starting out in the trading game or a veteran trader, finding and honing the best technical analysis indicators is always important. Choose wisely and you’ve built a solid foundation for success in day trading. Choose poorly and predators will be lining up, ready to take you out at every turn.

Most novices follow the herd when building their first trading system, grabbing a stack of canned technical analysis indicators and stuffing as many as possible under the price bars of their favorite trading instruments. This “more is better” approach short circuits quality signal production because it looks at the market from too many angles, at once. It’s ironic because indicators work best when they simplify analyze, cutting through the noise and providing usable output on trend, momentum and timing.

Choosing the right NinjaTrader technical analysis indicators can be daunting. But, but it is doable if you focus on the “less is more” principle. Once you have your core set of indicators, then you can begin the process of tweaking inputs to match your trading styles and risk tolerance.

Erich  did a great video on tweaking standard technical analysis indicators to improve your day trading results.  His recommendations are solid points whether you are using standard NinjaTrader indicators or custom indicators from Indicator Warehouse. 

If you’ve been disappointed with technical analysis indicators in the past, this video will restore your faith.

 
See our custom indicators in action every Wednesday for free in our Public Access trading room.  Register HERE.
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Indicator Warehouse Customer Completes $150k TST Combine Only Using DTS! https://www.indicatorwarehouse.com/topstep-trader/ https://www.indicatorwarehouse.com/topstep-trader/#respond Tue, 19 Jul 2016 15:25:38 +0000 https://www.indicatorwarehouse.com/?p=140897 Read More »]]> Recently I wrote about the power of setting S.M.A.R.T. trading goals.  So, I could not have been more pleasantly surprised when I received an email from long time customer, Achim Stollem, that he completed his Topstep Trader $150k Combine using nothing more than the Diversified Trading System (DTS)! 

Achim documented his entire Combine track record in his Tradervue Trading Journal, including screenshots of all the trades.

Here are his Combine statistics.

TopstepTrader Combine

About the Diversified Trading System (DTS) 

DTS for NinjaTrader is the first trading system to use traditional portfolio risk management principles for intra-day trading. DTS use three separate signal generations to scans hundreds of markets in futures, forex, and stocks for the best scalp, swing, and trend trading opportunities. DTS detects building opportunities, so you have plenty of time to get in at the right time. 

About TopStep Trader

TopstepTrader is the first firm of its kind to offer an independent trading evaluation with the opportunity to become a funded trader and earn real capital for your trading.

About Tradervue 

Tradervue was started in 2011 by Greg Reinacker (formerly founder and CTO of NewsGator). The site is intended to offer active stock, futures, forex, and option traders a tool to help them keep a trading journal, and eliminate the busy work associated with keeping that journal. It also offers analytics to help quantify trading performance, potentially leading to the identification of patterns that may have been hidden.

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Discover the Power of Setting Trading Goals https://www.indicatorwarehouse.com/trading-goals/ https://www.indicatorwarehouse.com/trading-goals/#respond Mon, 18 Jul 2016 14:29:51 +0000 http://www.indicatorwarehouse.com/blog/?p=1032 Read More »]]> Trading Goals are Important

Everyone knows goals are important. Most of us have set goals for our personal life.  It should be no different for our Trading Life as well.

Trading Goals for Account Growth

Personal goals may include losing some weight, exercising more, quitting smoking, being active in our community, or spending more quality time with our family.

In our Trading life, we set trading goals to be more organized, earn more money, grow a trading business, complete a trading course, or simplify our trading methodology.

These are certainly all worthy goals. However, most of these trading goals will not be achieved.  Why? Usually, because they were not properly set, to begin with, or the person setting the goal was not committed to making it.

Your attitude is critical – To achieve anything worthwhile in life, you must have a positive mental attitude no matter what other successful attributes you possess.  A positive mental attitude is an energy that when combined with your other skills and attributes, allows you to reach your trading goals. Success is achieved and maintained by people who work hard with a positive mental attitude.

I believe trading becomes fun when we set and achieve specific goals. All successful people have a definite purpose combined with a positive attitude. They regularly ask, “Where am I going? What do I want? What are my trading goals?” When this happens, trading becomes more enjoyable and rewarding instead of an unpleasant means of paying your bills. You become self-motivated and enthusiastic. And that enthusiasm turns into achievement!

The Importance of Self-management

Trading Goals and Self Management

Good self-managers enjoy their trading because they accomplish more, and they give themselves more credit. You can increase your performance by improving your self-management abilities. Setting personal and business goals are tools that will help you improve your self-management.

The Secret To Achieving Trading Goals

  1. Be Positive – State what you want to do. If you want to avoid or stop doing something, state your goal regarding what you want to do instead.
  2. Set a Deadline – A deadline provides you with the needed time frame for achieving your goal. It gives you something to aim for.
  3. Be Specific – You’ll want to measure your progress as you work toward your goal. The more specific your goal, the easier it is to measure your progress. Always quantify your goal.
  4. Be Realistic – Goals should be realistic and yet cause you to “stretch” to reach it. Setting unrealistically high goals will cause you or your people to feel bad for attaining only 90%, or worse, they may not even try to make it. Better to set smaller goals, meet them, and then set a higher goal.
  5. Write Your Goal Down – You must be able to write your trading goals down. Your goal statement must answer as many of the following questions as possible.
    • Who?
    • Will do what?
    • When?
    • Where?
    • To what extent?
    • To what degree?
    • How much? How long? How hard? etc.

Example: My goal is to improve my trading profitability 25% over last year by year end.  I will achieve this by solidifying my trading methodology and aggressively adhering to my trading rules.

The example above emphasizes doing something. It describes what the accomplished goal will look like.

Your Trading Goals Should be S.M.A.R.T.

  • Specific – State exactly what you want to achieve, how you’re going to do it and when you want to make it. A specific goal that is well defined has a much greater chance of being accomplished than a general goal. I suggest you begin with a goal that you can achieve within a week to a month. It’s easy to give up on trading goals that take too long to reach. If you have a big goal, break it down into a series of smaller weekly or daily goals. After you achieve one of the smaller goals, move on to the next. To set a specific goal, you must be able to answer these questions: Who: Who is involved? What: What do I want to accomplish? When: Establish a time frame. Which: Identify requirements and constraints. Why: Specific reasons, purpose or benefits of accomplishing the goal. Example: A general goal would be, “I want to lose some weight.” But a specific goal would be, “I want to lose 20 pounds by joining a health club and working out three days a week and eating healthy meals.”
  • Measurable – To know if the goal is attainable you need to set the criteria for measuring your progress. Measuring your progress makes it easier to stay on track and reach your goal within the time frame you wanted. The excitement that comes from achieving your goal drives you on to set new trading goals. A goal doesn’t do you any good if there’s no way of telling if you’ve achieved it. “I want to feel better” isn’t a very good goal because it’s not specific and it’s difficult to measure. “I want to workout three times a week for 30 minutes,” is a better goal because it’s specific and measurable. To determine if your goal is measurable, ask questions such as – How much? How many? How will I know when it is accomplished?
  • Attainable – Once you identify the goals that are most important, you then must figure out ways to make them come true. You develop the attitudes, abilities, skills, and desire to reach them. You will recognize opportunities to bring yourself closer to achieving your trading goals. Ask yourself whether the goal is within reasonable reach. For instance, completing a marathon is not an achievable goal if you’ve never run before. However, completing a 5K run an attainable goal if you take the steps required to train. History shows people can attain most any goal they set when they plan their steps wisely and establish a time frame that allows them to carry out those actions. Goals that may have seemed far away and out of reach eventually move closer and become attainable, not because your goals shrink, but because you grow and expand to match them. When you list your trading goals, you build your self-image. You see yourself as worthy of these goals and develop the traits and personality that allow you to possess them.
  • Realistic – To be realistic, a goal must represent an objective you are both willing and able to achieve. Goals can be both high and realistic. Is the goal realistic for you? The purpose of a goal is to shift your focus from where you are today to where you want to be in the future. However, you can’t ignore your limitations. Your trading goals need to be within your capabilities. If your business has suffered a serious setback and revenue declined 20% last year, a goal of increasing your revenue by 50% this year may not be realistic. Instead, your goal might be to get back the 20% revenue you lost and then build on that. You are the only one who can decide how high your goal should be set. A high goal is often easier to reach than a low one because a low goal is not as valuable and creates low motivation. Some of the hardest jobs you ever accomplish may seem easy only because you enjoyed what you were doing. Your goal is probably realistic if you truly believe that it can be achieved. Another way to know if your goal is realistic is to determine if you have accomplished anything similar in the past.
  • Timed – Set a specific time frame for achieving the goal; next week, three months, by the end of March. Putting an end point on your goal gives you a clear target to work towards. If you don’t set a time, the commitment is too vague. It tends not to happen because you feel you can start at any time. Without a time limit, there’s no urgency to start taking action now. Remember, the time frame must be measurable, attainable and realistic. Not too long, which can affect project performance.

Trading Goals with NinjaTrader

Achieving Big Trading Goals with Small Steps

Again, let’s use a trading example.   Suppose your goal is to improve trading profitability 25% over last year by year end.

You can’t accomplish that aim or any other without first identifying what actions need to be taken and prioritizing them. In this case, you won’t achieve the goal until:

  1. Consistent revenue from current trading activity is estimated
  2. Trading rules are identified and documented
  3. A plan is created to evaluate daily trade activity
  4. Revenue targets are assessed on a Weekly basis
  5. An on-going education path is documented
  6. Opportunities for technique improvement are identified

Celebrating your victories – Keep in mind the importance of achieving each of the steps is to help you reach your ultimate goal. The key is to know what actions you have to take and prioritize them, so they get DONE!

As the saying goes “Success is the journey, not the destination.” Enjoy the experiences along the way and celebrate each small victory. These little celebrations will help you get through the difficult times you will encounter. Every road to achieving your goals will have its bumps. Celebrating your victories will help you get through them.

Set your trading goals now.  Consistently review them and redefine as needed. Know what actions to take and when to take them.

See the Power of setting Trading Goals in action in our Open Access free trade room. Click Here to register to attend.

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Trade as I Say, Not as I Do – Really? https://www.indicatorwarehouse.com/profits-run/ https://www.indicatorwarehouse.com/profits-run/#respond Sun, 17 Jul 2016 00:10:17 +0000 http://indware.wpengine.com/?p=97927 Read More »]]> Cut losses and let Profits RunBeing a trader, I’m always interested in articles and books on trading. I like to see how other traders do things, and every once in a while I’ll learn something new. I just finished an interesting book on Stock trading the other day. The book itself isn’t important, there are a thousand books just like it, but what I found interesting is what the author of the book tells his readers to do compared to what the author does himself.

You see the author was extolling the same trading axioms you hear all the time: the trend is your friend; don’t hold on to losing positions; don’t average into a declining market – you know the ones – but the axiom that got my attention is the oldie but goodie: Cut Your Losses Short and Let Your Profits Run. Sounds like good advice, doesn’t it?

What I found fascinating is that not only does the author not tell you how to Cut Your Losses Short and Let Your Profits Run, but that he does the exact opposite when describing his trading! You see this particular trader turned author scalps for a living. And not only is he a scalper, but he’s the most extreme type of scalper: the one that trades for a single tick! That’s hardly Letting Your Profits Run no matter what your standard of a Runner is.

Trading for tight profit targets is nothing new. In fact, I’m a big proponent of tight profit targets. I believe tight profit targets increase your probability of a successful trade and to me having a high probability trade is a crucial variable and one which I can have direct control over. But what puzzles me is why would this trader/author tell his readers the opposite? Why would he even bother saying Cut Your Losses Short and Let Your Profits Run if he doesn’t do that himself?

It got me thinking about all the trading advice that most people take for granted and how wrong that advice might truly be. All this great advice and yet people still lose money trading. Why is that? I suppose the simple answer is that the advice isn’t that great after all.

To me, trading boils down to one thing, and only one thing: Risk Control. If you’re able to manage your risk, the rest of the trade will take care of itself. It’s like Paul Tudor Jones said: if people concentrated on their risk, instead of the pie in the sky (reward) they would all be very successful traders.

And PTJ should know. He’s one of the most successful traders of our time. I wonder if he pays attention to any of the trading axioms we do? I doubt it.

Ask Erich Senft about this and any other trading questions every Wednesday in our Free Trade Room.  Click HERE to Register.

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The Secret to Growing Your Trading Account https://www.indicatorwarehouse.com/trading-account/ https://www.indicatorwarehouse.com/trading-account/#respond Thu, 14 Jul 2016 22:58:16 +0000 http://www.indicatorwarehouse.com/blog/?p=1329 Read More »]]>  

Success with a Small Trading Account is Possible… If Done Correctly.

 

Success with a Small Trading AccountLet’s be honest, everyone begins trading with the hopes of making a lot of money through their trades, maybe even enough money that they can quit their jobs and trade for a living. However, when asked how they are going to make “a lot of money trading” most traders would not be able to give you an answer.


Somewhere in the back of their minds they secretly hope that they will catch the one big move that will set them up with a big enough trading account to be able to trade like the big boys. Unfortunately, the odds of catching the “big one” are probably the same as those for winning the lottery, if not worse.

 

Goals for Your Trading Account


A successful trader once told me that I should have a trading goal. The goal did not have to be a large one, but the simple fact of having a goal would help me focus better on the markets. I would come to see better opportunities (note this is not the same as “more opportunities”) as well as managing my money better.


Since I did not have a very large trading account, the trader suggested I start with a goal of netting $250 per week out of the markets. If I could do this consistently for four weeks, I should be able to net $1000 a month from my trades.


I was quick to point out to the trader who shared this advice that I couldn’t exactly live on a $1000 a month! He said that if I could consistently net $250 a week, for the next 12 weeks, theoretically there would be no limit on the amount of money I could earn by trading. Still confused I asked how this was possible.


He said that no trader, who trades for a living, does so trading just one contract at a time. The power of making money in the markets comes through the use of multiple contracts. However, trading multiple contracts without the right tools and methodology would be financial suicide.


The key to starting out with a small trading account is to be able to NET $250 a week from the markets. This means that after commissions and losses you should be up $250 at the end of each week.


Now here is the tricky part: while you should never enter a trade with the hopes of making up losses, the fact remains that if you have a valid system you are going to make consistent gains from your trading, your winning GAINS will need to surpass your losers (plus commissions).  Notice that I said GAINS, not number of winners.


Position Sizing is the Way

 

The more I thought about what the trader told me, the more I came to realize that this was possibly the best argument for position sizing that I had ever heard! It hit home that, while each trade is its own trade, the consequences of managing my risk (number of contracts) would either make, or break me in the long run.

 

The trader went on to point out that because the focus was on a profit goal, it was important to maintain a proper risk/reward ratio. If there was too much money at risk, given the possible reward, then it would put too much pressure on the following trades to make up for losses that were incurred earlier. However, by keeping risk to a minimum, the following trades would have a better chance of adding to the weekly profit goal.


If my profits were not able to largely offset my losses and expenses, then I might as well pack up my trading account right now and take the money to Las Vegas, where at least I could have a good time spending it.


As your trading account grows, you will be able to risk more contracts.  Using a good trailing stop loss, you will be able to take advantage of further market moves. Yet before you can begin trading like this, you first need to build your account and develop your consistency.


While you might be comfortable trading one contract at a time, trading multiple contracts can put a lot of pressure on the psyche. This is why you must have tools to manage the contract sizing for you.  By using a trading tool such as Trade Manager, you will go into a trade knowing that you will not lose more than a clearly defined percentage of assets.


The same holds true for trailing our stops.  Don’t sit there and manually move your stop one tick at a time… that will drive you crazy.  Let technology like Trade Manager do it for you and thereby remove a tremendous amount of emotion from the trading experience.


Take your time and remember that position sizing and letting your profits run are the real goals.

 

Join us every Wednesday to see Trade Manager’s position sizing in action in our Free Trade Room.  Register HERE.

 

 

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Choppy Markets and When Not to Trade https://www.indicatorwarehouse.com/choppy-market/ https://www.indicatorwarehouse.com/choppy-market/#respond Tue, 12 Jul 2016 22:25:50 +0000 http://www.indicatorwarehouse.com/?p=97079 Read More »]]> Conquering the Choppy Market Beast

Mark Twain said: “There is nothing more uncommon than common sense.”

I can’t help but think of that statement when I see how some traders approach the market, in particular to their expectations of what the market should yield on any given day.

I recently spoke with a prospective customer who opened the conversation with this statement:  “I’m just looking for an indicator that will warn me before a choppy market happens and tell me when it’s over.”

I wanted to say to him… “Yes, we have that. It costs 1 Billion dollars per license. How many would you like?”  😉

Choppy Market Trading SignalsNow, don’t get me wrong, I’m all for being optimistic; however it is unreasonable to assume that the market will “give” you a tradeable session every day.

Not all sessions are created equal. Some days the market will trend like a rocket and others it won’t go anywhere. It’s those non-trending days that seem to cause all the problems. Yet, people try to “force” the market to give them a profit, and they usually end up only getting losses in return.

As a trader, it’s important that you realize some days will be a choppy market and not have any follow through. You need to be able to recognize those days and be prepared to either trade carefully or avoid them altogether.

Using a Trading System in a Choppy Market

But, let’s be clear here. No trading system, no matter how good, can PREDICT the beginning and end of a choppy market session.

We have a tool that gets close.  But, when it comes to a trading system, the most you should expect is one that quickly warns you when you’re in choppy market conditions and then identifies suitable trading opportunities once the rough market conditions have subsided.  

In fact, when I shared the previous conversation with Erich, our lead instructor, here was his response:

“I always tell people that when the Hawk [part of the DTS system] starts printing a lot of yellow bars that the market is moving into chop and when we get one of our high probability signals the market is moving out of chop.” 

A choppy market, by definition, has little or no follow through. So unless you’re on the exchange floor, scalping for quarter points, you probably have little hope of making a consistent profit during that period.

Trading in Chop Market A choppy day’s trading usually goes something like this:

  • You get a good signal, take it and the market immediately reverses and stops you out for a loss.
  • You get another good signal; you take it, the market moves towards your profit target, but before finding your target, stalls and reverses on you for a loss.
  • You’re getting annoyed with the “bad” signals, so you pass on the next signal, of course, this is the one that does work out, but you missed it. In hindsight, you come to realize that this was probably the move of the day, but you don’t know that yet so….
  • You take the next signal only to have it fail again. Now you’re thoroughly annoyed and tempted to “revenge” trade to get even with the market, which only leads to more losses and more frustration until the session finally ends.

The real danger of trying to make a choppy market give you something it’s not prepared to give is that it leads to a series of losing trades, increased frustration, and the tendency to overtrade, which could potentially damage your account.

I had a trading friend who used to refer to these sessions as the “abattoir”, which means “slaughterhouse.” He said that is exactly what happens to anyone who tries to trade an uncertain market, they get slaughtered. I think he is right.

So don’t be like the other traders rushing into the slaughterhouse to get butchered. If the market is acting choppy, Use the right tools to realize it’s going to be a stressful day and take steps to protect yourself and your account. Use your common sense. It doesn’t have to be that uncommon.

Join us every Wednesday, even if it’s choppy, in our Free Trading Room.  Click HERE to Register.

 

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A New Perspective on Losing Trades https://www.indicatorwarehouse.com/losing-trades-2/ https://www.indicatorwarehouse.com/losing-trades-2/#respond Tue, 12 Jul 2016 17:56:39 +0000 https://www.indicatorwarehouse.com/?p=140778 Read More »]]> When you are analyzing your charts look for a good trade, do you also actively look for bad trades to ignore?

Here are three reasons why you should do just that. 

Put Away the Rose Colored Glasses

Losing Trades and Rose Colored GlassesEmbracing losing trades helps you to avoid the tendency and temptation to see every signal as a great trade. High-performing traders are great at quickly recognizing significant trade signals. They’re skilled at knowing which signals will play out, and which aren’t worth the energy.

For less seasoned traders, it can be difficult to determine a weak signal from a sure thing. And that means they can chase erroneous signals or trades that won’t play out.

If you can find a way to identify potentially dangerous trades more quickly, you can remove the “chase-me-I’m-shiny” trap of overtrading. And you’ll have more time to work on the high probability trades that are worth your time. 

Protecting Your ASSets

Losing Trades and protecting your accountAccepting the reality of losing trades will help you will better protect your trading account. Our experience in self-directed retail trading shows that risk management can help you trade profitably and grow your account.

However, if you’re working to improve your trading performance, it’s important to remember your trading funds are a finite resource. If you’re juggling too many trades, you’ll minimize the impact risk management offers and not be able to manage your trades correctly.

But if you remove the poor-quality leads from the equation as quickly as possible, you can focus less on juggling and more on meaningful high probability trades. You’ll have more time for the constructive analysis that can lead to for profitable trades. 

Concentrate on the Signals that Matter

The ability to quickly deal with losing trades and continue to trade productively will enable you actually to identify the types signals that have a positive impact on your trade plan.

Focus on Losing TradesJust like in the brick and mortar business world, data insights are critical for executing a strategy. If you can segment the high probability signals and define commonalities like trend direction, support and resistance points, and money management, then you can make sweeping improvements to your entire trading processes.

If you’re focused on the signals with the most potential, you’ll be able to learn more about them.

In the world of trading, asset management can be a tricky proposition because it’s been historically difficult for traders to predict market behavior. But we’re working hard to figure it out. Our trading solutions use a diversification trading model to help you understand the probability and risk of every trade. This way you can get to past the “losers” more quickly and remain focused on the important work of improving your trading experience.

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Learn How to Effectively Use Risk Management Software https://www.indicatorwarehouse.com/risk-management-software/ https://www.indicatorwarehouse.com/risk-management-software/#respond Fri, 08 Jul 2016 20:10:02 +0000 http://www.indicatorwarehouse.com/?p=94028 Read More »]]> The Right Risk Management Software Can Increase Your Profits

Risk Management ToolsBy using risk management software effectively, you can increase your profits and reduce the amount of risk on each trade you make. Reducing risk can sometimes be equated to greater profitability. Many professional day traders understand that an effective risk management plan can serve as one of the most important tools of being a successful day trader. However, many newbie traders often overlook risk management, usually to their detriment.

Win to Loss Ratio

Using a “win to loss” ratio is one of the highlights of an effective risk management plan. Specifically, using a win to loss ratio works as a comparison to how many losing trades you have against profitable ones. As an example, if you had 30 total trades with only 10 losses your average would be 30:10 or 3:1, that would be calculated at ((30 / 10) * 100)  = 300) or a 300% win to loss ratio. The higher the win to loss ratio you experience, the higher your profit levels will be. When you combine that with a low “risk to reward” ratio you have the advantage of being more consistently profitable in the total of your trades.

Risk to Reward Ratio

Most modern day trading systems have highly specialized risk management features including the “risk to reward” ratio. By reducing the amount of risk you take in every trade, the higher the number of your profit levels. Risks to reward ratios are used as a management tool to compare how much money could be lost versus its potential profit in every trade. As an example, imagine you are currently at a risk to reward ratio of 10:30 “ticks”. The indication would be that the particular trade will be risking 10 ticks so that it can profit 20 ticks. The risk to reward ratio would be 10:30 or 1:3, calculated as ((10 / 30) * 100) = 33.3) or 33.3% of potential profit taking through the trade. The lower your risk to reward ratio the less chance you will have of a losing trade, and the higher your profits in winning trades.

Calculating your risks using win to loss ratios and risk to reward ratios is a simple way to minimize your risk and increase your profits. By calculating your risks and combining it with technical analysis indicators and other useful day trading tools, you can maximize the profit of your trades and thereby increase your trading account.

See how we effectively use Risk Management Software in our free-trade room, open every Wednesday to the general public. Register HERE.

 

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