Wednesday, 19 January 2011

What a Business

Do you think of trading as: "What a business!" or "What? A business?".

My Dad developed real estate. His projects were always successful unless he got caught by the cyclical recessions that came and went. This taught me a couple of important lessons which I apply to my business.

Firstly, when, as a boy,  I asked him how he knew that the project was going to be successful he said, "I make my profit going into the project. I do my research and then I buy the land and improve it's value by getting a building approval onto it. I then build the building while I sell it to buyers off the plan. I know it will be profitable because each step improves value."  This taught me to do a lot of preparation in my methodology and make sure that the odds were on my side when going into a trade. Assuring my profit going in.

The second lesson I learned is that stuff happens. Recessions come, wars break out, announcements are made. Don't take overnight positions.

Although I have wandered from this last lesson somewhat, I do it in a very protected way. I use options extensively as part of my strategies. The bulk of what I make comes from intraday, as it's safer. Lots of smaller risks are more comfortable than one larger risk.

So in constructing a TP, these are the things to also keep in mind. It's not very different to any other type of business in that respect. Can you imagine a business surviving if it only made profits on, say, 40% of it's sales and lost money on the other 60%?

Due to the way I envisioned today, I did NOT tweet the Gap trade. The market went down as I envisioned. I'm showing a 3 tick range bar chart today to show what I do when I want to see more or scalp. As it turned out, today this chart gave a much better entry into the ES shorts than the 5 or 6 range bar chart.  Price did the right thing and hit my Fib line targets too. This is discretionary trading.


  1. Hi,

    Do you always look at both 3 AND 5 range bars and go with what looks better? how do you decide when to switch over to the 3 ticks? is it because in 5TR the price was "too far" from the 33 EMA?


  2. when switching to a 3 Tick chart (I suppose 0.75 setting)must you also change all your EMA's? It looks very different on my Tradestation which I'm accustomed to a 1.25 Range, 5 Tick setting

  3. Regarding win rate, if you enter with three contracts, do you count each contract as three separate trades or one trade when figuring out win rate? For example, if you hit your targets on your first two contracts and break even on your third, do you have one winning trade or two winning trades and a scratch?

  4. Rdftrd, I NEVER change the EMAs. They are fundamental to identifying fair price for me. I understand that there are some extra settings in TradeStation for range bars. Make them the shortest. If it doesn't work for you don't use the 3 tick. % works great, just a little slower which is not a bad thing if you are still working towards CP.
    Anon 01:36, As we said on the floor, a scratch trade is a winning trade. It's up to you as long as you are consistent.

  5. Rdftrd1,

    In TradeStation, use "Momentum Bars" and your charts will look the same as ELs.

  6. Thanks for the tips on Momo and Tick!