Top Banner

LESSONS & TRADING RULES 

 

$ Millions Of Dollars Have Been Lost Before.

Do Not Become Part of The Statistics and Do Your Homework!

I have chosen to be a day trader.  It is a matter of preference.  Also, it limits risk to the days' news, events and price action.  A day trade, may develop into a swing trade but that is not the initial plan.

The market provides each an every day trade entry opportunities for the day trader.  That is not the case for the Swing trader.  For Example, on Friday 4/20/2018, Gold (/GC), Standard and Poor's 500 (/ES) and Oil (/CL) provided opportunities with significant profit potential.

One must also wait and be patient to allow a set up to develop, test areas of support or resistance, allow back tests to occur and then take the failed moves rejecting the level tested.  

As a Swing Trader, extreme patience is needed. You must wait for days, sometimes weeks for a proper set up to occur.  This is one of the reasons, Swing Traders trade several symbols.  Sometimes they trade 10 to 20 symbols so that there are opportunities a couple of days a week.

Depending on your trading plan, geographic location, risk tolerance, account size and trading style, your rules will vary.

Each Symbol (ie: /ES, /CL, etc) Has their own rhythm. You Must Learn to Trade to their music!

How Can A Trader Learn any Symbol's Rhythm? by hours and hours of studying charts. This is only obtained with effort and experience.

Deciding on what sessions to trade will depend on your location.  I am located in Miami, FL.  This makes it easy for me to trade the US Session.  I have been studying the European session for over 8 months.  Getting up at 2:50 AM each and everyday.  This is not fun.  At least not for me.  But it has been a great education.  There is a ton of opportunity when you are able to trade the European and US Sessions.  Moving to Spain would be ideal for me!

When Day Trading both sessions (Europe & USA), one will get easily 3 to 5 trades with significant profit potential.  For example, my trading plan for Oil (/CL) targets moves from $0.30 cents up to a $1 or two if the setup is strong.  The goal is to trade with a tight stop (usually $150 per contract) but increase the number of contracts and take profits or adjust stop proactively. 

This is a lesson learned from Marty Schwartz

You want to hear your cash register each and everyday.
Smaller moves with multiple contracts, tight stops plus aggressive management.

blackFLAG Calculating your stop loss 2018-04-22_7-19-02

WHERE TO PLACE YOUR STOPS? My system does not require to calculate where to place your stop. The charts show it automatically. It shows where to Enter the Trade, Where to put the Stop and Multiple Profit Targets. It is up to the individual to decide when to get out based on their risk / reward profile.

The Stop Loss of $150.00 is a possibility but it does require extreme patience and experience reading charts and the indicators to be successful.  It is easier to start with a larger stop when the set up occurs and as price moves as expected, then adjust the stop to smaller size and eventually get to break even plus.  This process may take just a couple of minutes.  By default, I have a $500 stop for each instrument being tested: /ES, /CL and /GC.

Considering the Possibilities!

Trading All Sessions?? is it possible?

Yes, there are teams created for that purpose.  This will occur within  companies were a group of 3 to 4 traders work around the clock to monitor and manage positions overtime.  For the individual technical trader, this is just not possible.  

Determining Stop Loss Size.  

For most traders, specially those with smaller accounts (ie. $100K) struggle with managing stops.  The larger your account, the less the concern about you stop loss size.  For larger accounts, they tend to do their entry analysis and enter a trade with an initial larger stop.  As price action develops in their expected direction, then the stop is adjusted over time until at least break even is met.

I will initially use a larger stop such as $400 to $500 per contract.  Within a few minutes of entry, I start to adjust the stop to bring it to $150 per contract.  As price moves as expected, then my first goal is to reach break even plus.  Then, the process of managing profits starts.

Find Trade Entry Opportunity

Calculate Stop Loss

Manage Stop To Breakeven Plus

Locate a strong Support or Resistance level.  Find one where price has come to before and rejected at least two times.  Ideally, you want to draw channels and use channel walls as the guide.

Gold Long Entry Alerts

Manage Profits

Once a trader figures out a system that allows to protect capital, eliminating a "Big Loss", then the focus becomes how and when to manage profits. 

A traders success is measured by their ability to select a proper entry, protect capital without being taken out too early from the trade and the ability to stay with the trade to an optimum profitable point of exit.   If exiting a trade early, you can always get back in when retracement to support / resistance level occurs.  

Determine a dollar amount that you are willing to risk on the entry.  ie. $100 per contract etc.  In my case, my stops range from $150 (best option once price is moving as expected) to $500 per contract maximum.  Some traders with large accounts and a significant level of experience will use much larger stops and take longer to adjust their stops into break even.

The process of entering a trade and adjusting your stops requires knowledge and experience.  Take your time to figure out what works for you as a trader.  

From The Start - Set Your Stop and Profit Levels. Adjust Stop to protect profits only.

Use Pre Set Orders With Built In Profit Targets and Stop Loss Protection

Sell Order ThinkOrSwim TD Ameritrade

My number one GOAL of a trade is to bring it to break even plus.  Once the trade starts to develop as expected, adjust the stop to protect more profits.  Continue this process as long as price action is agreeing with your expectations, if price action / trend fails to continue, adjust the stop or close the trade.  

If after entering a trade based on your analysis, price does not move as expected, either adjust the stop or close the trade.  

Buy Order ThinkOrSwim TDAmeritrade

Adjust your Take Profit Target if Momentum Stops or Speeds up. Manage Profits.

Adjust Stop To Protect More and More Profits.

Thousands of traders lose fortunes in the process of learning these lessons.  It is actually harder than you think to implement consistently the lessons learned by traders before us and stick to your rules overtime. 

It is quite simple to read a concept and think, it is easy to follow thru with them.  The market will teach you a lesson each and everyday.  Stay humble and respect the market.  If not, the market will take control of your account.  Once your psychology starts to work against you, you are in big trouble and in some cases paralyzed.  Once you react to a market move, you have lost thousands dollars.  

Position Size

New traders must stick to 1 contract maximum.  After months of profitable consistent trading, 2 contracts assuming that the account is large enough to handle it.  Stop Loss of $500 per contract at trade entry and quickly adjusted to $300 or $200 unit break even plus or more.   

Experienced traders using blackFLAG FTS can use up to 4 contracts per symbol once a day.  Then, 1 contract per trade per symbol.  The goal is to capture the best set up of the day.  Bank as much profit as possible and then trade small if any after that.  To see an example of a bad day trading, please click here!

Account Size

Preferred Minimum Account Size $100,000 and higher.

Maximum Acceptable Loss / Day

It is a good idea to have a maximum amount of loss you are ok with a day.  If that amount is reached, stop trading for the day.  If your market analysis is not working out due to outside forces, be it news, politics, volume, etc, it best to STOP TRADING and wait for the next day.  There is no rush to put money at risk without proper trade performance.

blackFLAG Futures Trading Alerts

 

 

DAILY PROFIT TARGET

Most traders do not like having a profit target at all.  Usually, the larger your account, the less important or relevant is a profit target.  If they have a huge account, they know what they are doing already to be successful traders.  The ones that need discipline, a clear plan of action and specific targets are the newer traders with smaller accounts ie: $100k to $250k or so.

If Your NET PROFIT Goal Is Met in 30 Minutes, and turns over, Call it A Day! DO NOT OVER TRADE

If the entry is awesome, and you meet the profit goal but price action continues in your expected direction, stay on until the move is over.  You may also scale out of the position.

Why traders should have a profit target for the day?

Successful traders have a plan and follow the plan.  While the goal is proper trade setup before entering a trade, a financial daily goal is just as important.  Specially if price action changes expected move.  Take your money and wait for the next day when proper set ups occur once again.  This goal also helps in controlling over trading.  There are 252 trading days / Year. 

Assumption - Account Size: $100,000

The $2,000 Target is conservative.  A days trading with proper set ups and continued trend can generate $4,000 to $10,000 OR MORE in a day.  (does not occur often but it does) 

There is abundance in the markets.  Do not be Greedy.
GREED kills trading accounts dead!

DO NOT KID YOURSELF.  EXPERIENCE MATTERS!

Strict Money Management Rules apply
to all trades.   Max Loss Per Day $500. If met, no more trading on this day!

IDEAL ASSUMPTIONS FOR A PROFIT TARGET - Considerations

If profit target is met in one entry.  Adjust stops to protect more of your profit. Scale out  Ride it Close Position as momentum faces out.

WORK IN PROGRESS

  • Trading US Session
  • Channels and Pivot Levels Review by 7:00 AM
  • Initial Stop Loss Size / Contract $300 - $500

  • When Using blackFLAG FTS, the Stop Loss is usually adjusted to break even almost immediately after trade entry.  


  • Adjust Stop Almost Immediately After Entry (In ThinkOrSwim - is it much easier to move orders around on the chart to the desired level)

PROS of having a Daily Profit Target

  • Clarity
  • Having a Plan
  • Simplicity
  • Beginning and End in Sight
  • etc.

CONS of haveing a Daily Profit Target

  • Added pressure
  • Creating a Rush to reach target mentality
  • Competitiveness driven trading vs set ups
  • Lack of Patience
  • Trading Psychology affecting your decisions
  • etc.

Scaling Up

Once a position is entered and the stop is at break even plus, if there is a dip in the market, you may add another contract with its $150.00 Stop Loss in place.  As price continues to move in the direction of the trend, adjust the stop to break even plus as well.  

Scaling Out

Taking profits is as important as a proper entry.  An experienced trader understands the importance of support and resistance levels and plans ahead for possible areas where the price trend may face a challenge.  It is at these points or prior to that, one must consider taking profits on a portion of the position or close the trade depending your your analysis.   

DO NOT TRADE DURING US. HOLIDAYS

I prefer to trade only when the European and US markets are opened.  During US Holidays, volume is usually low and price momentum is minimal.  It is not worth risking hard earned money or working capital during these times.

LOW VS. HIGH VOLATILITY

As a trader, one must have experience trading during different market conditions as they change overtime.  In the past several years, the VIX has been extremely low and stable.  Trading when the VIX is a 9 or 12 vs 50 is quite different.  For example, the DOW JONES Futures /YM can swing 200 to 400 points in a matter of seconds.  It is extremely volatile and it is best to stay out of the market.  As a trader, one must look for pretitable moves and not speculate as to what may happen.  Trading with a high VIX or Implied Volatility of the instrument to be traded should be left for highly experienced traders.