General note on how I trade.
And place to discuss your own trade approaches.
A short discussion note to explain my trade plans and also to know bit more about yours.
What I trade?
I am only trading emini S&P 500 futures these days. Once I get bit more time on my hand I would like to analyse and trade some popular stocks and other liquid futures and forex. I do look at all major markets once a week for longer term trade perspectives or to plan some swing trades. I only trade US markets as the timings suits my work routine.
What time frame?
My usual style is to trade positions for longer period/swing trade if I can identify a trend and can position myself to ride it. For day trades, I only plan and trade the regular trading session for e-mini S&P 500. The overnight session acts as a good guide to what is going to happen in the day session. Remember trading is always about finding the right zone. I start and publish my day trading plan for e-mini around 0730-0800 CET before the futures pits open for trading. Most of the pre-open news like employment numbers, other important announcements are already out by this time and you get a feel of how futures are reacting. Here is how I plan my trading day
Entry Exit and Stop Losses
I come in the day with a general bias (bullish, cautiously bullish, cautiously bearish, bearish) and mostly I colour code my plan. Some days it could be a neutral day where it is not clear what general direction the market is going to trade but most days it is evident which side is pulling more weight. Using these biases I identify minor support, support, minor resistance and main resistance area. I mainly use technical analysis and price actions to determine those support/resistance area using Fibonacci lines, price action, short term range development and volatility for day session ranges. These give me a rough road map of trading day.
Remember, however good the plan, the markets are not dictated by what I am thinking. They have a collective mind of their own and if I am buying, some one else is selling and both of us have a good reason to enter into a trade - otherwise the trade would not happen. So there is no reason to consider your plan on rigid basis and try to force your will on the market. I know from experience. It has never worked. Market can always prove you wrong.
But if the prevailing price action confirms my plan, I enter trades from minor level to major levels. I always use stops and the stops are dependent upon the prevailing volatility and beyond major levels. The idea is to give trades some time but also to ensure that you are not risking too much. Typical rule of thumb is to not risk more than 1% - 2% of your capital per trade.
Good Trade
A good trade is one where the market reacts quickly in your defined zone. Indicating that a lot other participants had similar thinking as yours. Just because you are bullish does not mean whole market is bullish. Each trade has two prevailing set-ups. Long and Short. Say in a major long trend, you are looking to enter on a pull-back. That pull-back is a minor short set-up but an important set-up nonetheless. The major and minor definition is a matter of hind sight. What you thought as minor pull-back can be start of trend change and big move down. So it is important to pay attention to price actions to determine which set-up is winning instead of just sticking to your trade plan.
How to manage trade
Now that you are in trade, with your stops the next thing to watch is failure of minor set-up. So suppose you were entering long on a pull-back, once the pull-back short set-up is broken you can consider your longs bit safe. This is more of an art than exact science but mostly after a few trades and after getting a feel of your market you can develop that gut feeling. I will expand this section once I am able to better represent my thoughts into words. However once you can consider your trade as safe, it is time to move stops. Most times they can be brought to break even OR at least to lesser risk level. Say if you think the low of the day (LOD) is already in, and you have taken longs in that area, you can move your stops to LOD once you consider your trade as safe. This will at least ensure that you do not lose much in case market proves you wrong.
You can also scale out of your positions at key levels as per your trade plan or intra day price actions. There is always a merit in keeping runners - the last bit of position which you can let ride, especially if you had a good entry point and market reacted as per your plan. A good trade can turn into a great trade as long as it is given time to ride. Many a time a very good entry during a day trade can become a swing trade if the intra-day price action confirms that markets are unlikely to re-visit your entry/stop area in near term. Typical risk reward on a trade is about 2:1 or 3:1 but by experience most time you have to take up less than that around 1:1. At the same time you will get trades which will run with you for a very long time. There is no harm in letting a trade go scratch with small profit/loss. Re-entry is just a commission away. It is far more risky and disastrous to move stops when market starts trading near them.
How many trades
That depends on your personal preference but I feel less trades the better. About 2-4 trades in a day can be sufficient if you do not have time to sit in front of screen whole day. Also once you have done for the day it is good to call it a day and not force more trades. You can easily give back what you made.
Trading is an activity which is best enjoyed stress free. If you are trading big positions compared to size of your account or trading too many positions which are getting difficult to manage or if you are generally stressed during the day constantly watching every tick of the market, may be something is wrong. If you are stressed, it makes position management difficult. Profits are taken early. Losses are let to run in hope of "recovery" and all in all it ends in a disaster. Hope you enjoyed reading this. Please post your thoughts in the comments.
