Thursday, 5 November 2009

Show Me More Money

Let's say that you have reached a point in trading where you are consistently profitable trading the minimum size. This is after becoming consistently profitable on minimum size using a simulator. With real money you probably make between half and 3/4 of what you made on the simulator. K. is at that level. OK, now where do you go from there?

My next idea is to always trade a size below your weight. NEVER trade a size where, for instance, four losses in a row makes a big difference to you. Of course we know that losing trades are part of the biz but you should not feel fear during a draw down as it will have a huge negative effect on your trading,

In K's case, she trades 3 contracts in either of 2 very liquid markets: the ES or the Dow Euro 50. Both markets would allow you to trade 100 contracts or more as if it was a 1 lot. Its the getting to the 100 lot trades that is the "thing".

My notional margin for each contract traded by K. is 1,500 dollars or euro. This allows for the actual day trade margin plus a draw down. So my "rule" is to add another set of 3 contracts to K's size each time she has made another 5,000. Conversely, if she loses 5,000 she has to go down a set. Pretty simple but very effective.

Is trading like this a business? Resounding YES.  The key for me is threefold:

1. I must know whether "they" are buying or selling. The tools I use clearly tell me that, and,
2. I need to know the CONTEXT I'm trading in. Market Profile fills that requirement. MP gives much more information than most people know, and,
3. I must eliminate the "noise" in the market. I don't want to watch bars building up and down and faking me out. Range Bars get rid of the noise for me and allow me to identify the vertical development pushed by the order flow.

"3" is an important number for me as lots of things come in threes.But more of that in later posts.

K. is trading well. She still has a long way to go but has achieved CONSISTENT PROFITABILITY using my tools and methodology. Some people say that each trader must find their "style". That's rubbish! A trader wants painless profits. If you can get painless profits, you will use the system that gives it to you. The thing that you need to decide is whether you have enough capital for the method and whether you can devote the focused time to harvest the profits. K. is not the first trader I have taught. It is purely a matter of focus and application and the passionate desire to earn your living as a trader.

Today's trading was fairly representative of the methodology and the current volatility. I have showed one of K's trades where she got faked out. Again, this is typical of newer traders and requires discipline to stick to exit criteria rather than try to anticipate what might happen.


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