Quote from downrivertrader:
HispaTrader,
I don't mind trying to answer you at all. I always hope something I do or say helps someone in this business.
1. Could you describe, at a high level, your trading methodology? I gather that you use pivot points, Market Profile (in a general way, not a purist), and fibs.
This is tough to sum up here, but in general....I track value and price distribution on many different time frames. Monthly, Weekly and Daily. I try to use these as a filter or guide to help me with trading decisions at a higher level. Next..I do not use traditional pivot points, although what I do is similar. I track changes in value based on current volatility. It is difficult to explain but it is a technique that I developed and wrote some code for. It is not magic or anything and just a different way of looking at things. Basically, I am basing decisions on current conditions, not for instance a pivot point that is determined based on yesterday's close, or last week's close. Now there are many other nuances to all this, but this is a general description.
I mainly use the fibs and stuff posted here on longer term charts and as a "third" filter if you will. I rarely ever make a trade based on a fib number or the like, but I have done this from time to time if my conviction is strong. Also it is fun playing around with the studies.
2. How do you set stops? Do you use the next pivot point for your stop? In general, how far is your stop when you enter a daytrade/position trade in the Euro? For example, your stops for last week's trades.
Number one. I do not use hard stops. I do not believe in them. Not in this market place where "wierd, manipulative" practices often hunt down the traditional stop points. I also do not really have a risk, reward standard either. I sort of look at each trade with a "theme" and I concentrate on where the market will need to go to prove my "theme" inccorrect. I give myself some wiggle room. What I do know is that I only am willing to give up a certain percentage of my trading equity on any one "theme" if I am wrong. Ideally this level is around 3-5%, but there are time when I will stetch it pretty far if I have a valid reason. So the goal is to always know where I stand in relation to my bucket of money. I am not a traditionalist when it comes to the "rules of trading". I think it is silly to think that you can treat price action with such precision that you are able to say..."okay my stop is 20 ticks or just above yesterday's high". Personally, I think this is why many traders fail in this business but that is another thread.
3. How do you determine how many EC contracts to trade?
I have three trading accounts. (1) with Tradestation - RJO and (2) accounts with IB. One of the accounts is an IRA. Let's focus on my main trading account with TS. This is my bread and butter. I have created my net worth with this account as it feeds my other goals and objectives. The other accounts with IB have gotten pretty large and I move in and out in some decent size in these accounts, but that is not really important for someone trying to figure things out when they are learning.
I keep $150,000 dollars in my bread and butter TS account. This is my bucket. Each week I order a check to be sent to me with any excess. Always pay yourself if you can. I like to have a real check come in the mail just because I am a little old fashioned. I want to add here that this account is what I consider my total risk. What I mean is that if something blows up or goes haywire on a trade I am not risking my entire net worth. Only my trading account. So I do not make silly decisions to close a trade just because it is the weekend or something because my entire life does not depend on the existence of this account. This helps a trader deal with risk. You absolutely have to become comfortable with risk and not let it influence your trading. It took me a couple years to get to this point. Mind you, I still feel uneasy when I am down a few thousand dollars on a trade, but I will not lose sleep or beat the dog. Now, I need to get back on course with your question. In this $150,000 account I will generally trade 30 contracts. The Euro FX contract requires $2835 or so in margin so that is about $85,000. This means I have $65,000 in wiggle room. If I lose some, I will scale back. I have been very fortunate and have a pretty good win/loss ratio but mainly my thought process is that I have $65,000 to play with. The methodolgy I use lends itself to putting on 20 contracts. Once my trade is "acting right" I will add 10 contracts as soon as I can. Likewise, many times I will take off 10 contracts or more if I think I should.
Note: I want to say that I started in this business with $15,000. I lost almost all of it within two weeks. Then over the course of the next couple years I added about another $30,000. My resolve never waivered although my equity did. Once I grew my account to the levels I described above and was able to step up to larger sizes, I became a different trader. It was a process, not magic or anything. I began to think in terms of my long term goals and put a plan in place to get me there. For instance, have you ever done this exercise. Let's say I want to make $1,000,000 per year. I am able to trade 250 days per year. I am trading 30 contracts. So I need to net 14 ticks per day. We can discuss this more in another post, but I am going to post a chart of my equity growth curve. I like to do this because it shows the progression of a trader from novice to competent. I will post it after this.
4. When creating your Market Profile graphic for a currency, what start and end time do you use?
I know you realize this, but I want to state again that I do not subscribe to MP. In the tradestation platform there is a study that can be applied for price distribution. This is what I use for day to day decisions. The session times are just the normal sessions on the CME for EURO FX. Start 1800 End 1700.
I have rambled on a little here, but I hope it helps.
DRT
