Observation which comes only with time and experience.
Techniques for Day Trading the ES, NQ, YM, MES, MNQ, and MYM
- Thread starter volpri
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On a day like yesterday i.e. Friday where we had a lot of TR in the ES & MES many traders would not even trade it. To their mind the market is going nowhere and it is all noise. I made 9 trades (and certainly could have made more, but had other things to do) and extracted 23 points out of the so-called noise. 9 winners. One has to learn which tool is the correct tool to use out of the tool box, for the PA that given for that session. Trends and BO’s are not to be traded as ranges. Channels can be traded as ranges but with some modification. See, channels are basically tilted ranges.
I dove in and "enrolled" in the Brooks Trading Course. This has come up and it seems that this is possibly a stumbling point for some. Risk, reward, and probability are tied together for Brooks. All I have ever see mentioned elsewhere is "risk/reward."
@SimpleMeLike maybe you should go back through the Brooks course thinking about probability and risk/reward, instead of risk/reward only.
Brooks is always talking in terms of probabilities from what I see. I think I am getting a good deal from watching. Not sure I would feel that way if I ignored the central role "probability" plays for his way of thinking. For example, Brooks price action stop placement looks scary big. But when you look at it over a bunch of trades and with a 60/40 probability that your profit is hit before your stop loss as @volpri says, then it is not so scary at all. Also, what volpri does here in his trades makes a lot more sense to me now having watched just some of Brooks's trading course.
I know that Volpri answered the question, but I would like to add my own answer, and hope that he agrees.
Watching his many many posts, I think that he simply doesn't concern himself with risk too much. Its simply a matter of "did I get the direction right", and if the answer is still yes, lets add some more contracts to improve the average. We see how often he says that he will look at a 50% pullback level, well, that can be quite a few points away, and if the trade isn't yet invalidated, then there is no reason to exit. Sure, the money drawdown can be big, but if its still just a pullback, or a pause, but no reason to suspect a change in direction, then the trade isn't wrong.
Also, and this is just my gut feeling, if the entry is in the wrong direction, then you have to be prepared to go in the opposite direction. If you aren't yet sure of this, and prepared to exit for a loss and take the other side, this means the original trade isn't yet bust, regardless of how much its going against your entry.
I will back up what I say with his very own charts that I keep a track of. Here, for the second trade, we see 4 averaged in contracts for a short position. This by itself would clearly blow up any prudent risk management. It looks like the lowest short goes against him 8 points (from about 3690 entry to a high of 3698), but with 4 entries, the money drawdown is quite high, and especially in comparison to the 1-4 points he is trying to earn per trade. So this trade is clearly not a good example of traditional risk management or a fixed R:R stop, but its still profitable.
Here is another example. The first long entry is averaged down 2 times. This entry looks to be about 3675, and it looks like price goes to almost 3665, so a good 10 points against the first entry. But as we can see, the exit is perhaps BE, and profitable on the 2 lower long entries.
For both of these trades, the total risk is perhaps about 30 points at its worst, for a net gain of about 10 points (points total from all the contracts), which is obviously not the way you want your R:R to look, but R:R isn't everything. So I suspect that its more important to not think about how many points am I down, but rather, I am wrong about the direction and should I be taking the other side now.
Hello NoahA,
Yes, I hear you man. I just can not do that averaging down stuff man. Seems stressful averaging down on a loss like that. But every trader has its own personal style man and edge.
For example, lets say you down by 30 points on 20 contracts. You starring at loss $50,000 on your account. Do you really want to deal with this daily? Think longer term and big money, not this little bitty money stuff. That average down take a lot of skill and practice. And you aiming at 1 or 2 points. Man, you fuck up, you going to have a lonnngggggg stressful day trying to recover. Then you have to review the chart every day to see where you messing up at. is the entry wrong, the averaging wrong, trade management wrong, exit wrong. Now you troubleshooting like 5 things in the trade. Spinning in circles for months/years trying to figure it out.
I like to just set my stop loss on the trade position and be done with it. Set my profit target, set my stop loss and sit my ass down. If I am wrong, I take my loss, if I am right, I take my win. Manage the trade as required.
Equation A: Entry + Profit target + Stop loss = Win
Equation B: Average Entry 1 + Average Entry 2 + Average Entry 3 + Average Entry 4.........+ Average X + Profit target + Max Stop Loss = Win.
X = contract number.
Which Equation do you want to spend all your free time troubleshooting to see why that damn Trading Account not going up week to week?
Now does it not make smart sense to put the stop loss below the entry bar and bet on the bar you entered as a quality reliable bar to entry on to make X profits? If you do not believe in the bar, then do not bet on it. Does it not make sense to bet on a bar that looks good with close near high/low? If you do not believe in the bar you trading, find another bar type or size. Why bet on candle stick bar, then when it goes against you, buy more and more? I guess I just think differently. If I bet on a trade/bar, it wins or loses.
For example, what makes better business sense?
Betting on the orange circle bar for a short of 2 points or betting on the light blue bar for 2 points? if you wrong, just take that loss.
Work smarter, not harder man.
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1) Yes I have always loathed losing. It eats on me. Of course, trading is about making money but it also is about liking what you do or burn out will soon appear. I had to devise a way I could scalp quickly, maintain a high win rate so I could be “happy” while trading. I simply could not stand losing 9 trades in a row and on my 10th trade make 5 times what I lost on the previous 9. Even though money wise I would be just fine, psychologically I would be a miserable human being. Trading has to be fun. If I can get my lazy carcass out of bed by the open I can’t wait to gulp down a cup of coffee and start trading. Even if yesterday was a losing day. “Yesterday is gone, Tomorrow is a mystery, today I can make a difference”
2) not really but I have always scalped probably 97% of the time. I scalped stocks back in the day before they came out with that damn decimal system. I loved watching several stocks on the NYSE and the AMEX and when the specialist would widen the spread I would jump in the spread and get me 1/8, a 1/4, or a 1/2 point. That was the specialist bread and butter. That belonged to him and they could get pissed when a retail trader is dipping his hand in their cookie jar. Decimals ruined that.
3) a high win rate for me personally is necessary because I am a scalper of 1 to 8 points. IMO a scalper, to make it, has to have a high win rate. A high win rate means I accept quick profits and avoid those whipsaws. I do not like seeing a profit then “puff” it disappears before I can bat an eyelash 5 times. “A bird in the hand is worth 5 in the bush”. I am reminded of the little boy who told the grown man that he had a real fast bird and that he would bet the man $5.00 that when he open his hand that the man could not grab the bird before it flew away. They each put up $5.00. The boy: “you ready?” The man “yes open that hand!” The boy opens his hand and the man snatches at whatever is in the boys closed hand. All he grabs is some bird crap. The little boy tells him “I told you that was a fast bird.” The man say says “where did it go?” The boy says as he is picking up the mans $5.00; “I don’t know where it went all I know is that bird done sh$t and gone.”
A high win rate when when scalping means that because I am scalping I get MORE trading opportunities and a likely chance to compound. For instance say price is dancing around back and forth 4 points. I can go in and grab 2 points and likely get right back in maybe even 3 more times grabbing another point or two each time instead of waiting 30 minutes for some mystery move that will render me 6 points. I can make 1 or 2 points over and over during that 30 minute wait. Because I am scalping for quick profits the odds favor me getting them thus they favor a high win rate. Look not everybody wants to trade that way but I love it. It suits me. I am in the middle of the action swinging the machete.
I am reminded of the class in elementary school and the teacher had the students tell a story then share the moral of the story with the class. Lydia “would you start off” says the teacher? “Lydia says I live on a farm and we raise chickens and sell the eggs. One day we gathered a large basket of eggs and went to town in grandpa’s old pickup to sell the eggs. Grandpa can’t see too good and hit pothole in the road. Half of the eggs broke.” “That is too bad Lydia I am sorry to hear that say the teacher but can you tell us the moral of the story?” Yes, responds Lydia “the moral is never put all your eggs in one basket!”
Very good Lydia now Johnny you share a story and it’s moral. “Ok” says Johnny and proceeds to tell the story. “Aunt Betsy joined the military and went over to the war zone as a paratrooper. They flew over the jump zone in the middle of the enemy territory. As they are jumping out she is the last one to jump. As she is making her way to the door she see a full bottle of whiskey. “Why not” she says? She grabs the bottle and a machete laying on the floor and jumps out. As she is going down 100 enemy troops are firing at her. She thinks “ they might hit this bottle of whiskey and break it so I better drink it down.” She gets finished then cast the bottle aside and takes her weapon and begins firing hard and fast at the enemy. By the time she hits the ground she has killed 50 of them. But her gun is out of ammo. She grabs the machete and kills another 40. Then the machete breaks into two pieces. She throws it down and kills the other 10 with her bare hands. The teacher say “Johnny that is a horrible horrible story.” Can you tell the class the moral of that story, if it even has one? Johnny replies: “the moral of the story is don’t mess with Aunt Betsey when she has been drinking!”
4) Yes, I do but that is contrary to what all the gurus say. Why? It is much easier to assess what price is likely in the next 5 or 10 minutes that what it is likely to do in the next 4 hours or 4 days. Kind of like weather forecasting. The present conditions (context) makes it easier for the weatherman to postulate a likely weather scenario for the next 2 or 3 days than say speculate on it for a month from now or a year from now. In scalping one is closer to the actual present context of things and it is more likely that one can place a SAFER bet on where price will likely be in the next few minutes. Second, one's money is only at risk when one is in the market. Once out, the risk is over. Third, scalping lends itself, by nature, to compounding profits. By nature because the market is like a big auction. Price probing back forth. Price is gonna go where the most transactions take place. Otherwise, brokers would get really really mad with the exchanges! ROFLMAO. So, for instance buy 1 contract of ES at 4400. Sell with 2 points profit. You got a locked in profit! Price probes back down 3 points go long again a point cheaper than your previous entry. Price goes back up to your previous exit. You make 3 more points. In essence you are compounding because you already locked in a profit and are using it to make another, and a bigger profit at that!
5) That I could not tell without looking at what that trader is doing that is causing him not to be profitable. If I have no access to that info the only thing I could tell him is journal every trade as you make it live on the chart (much like I do) and then shortly after the session within the next few days analyze his entries and exits and try to discover what he is doing wrong and come up with a strategy to correct whatever is causing him to not be profitable.
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If its stressful, then you are trading too large size. 30 points on 20 contracts you would have to do with a multi million dollar account. Lets stick to a 10k account, and initially trade 1 MES. If you're wrong and use a 10 point stop, that is $50. If you average in a few times, that might be $200 loss total. But lets not forget that a total loss on an averaged position will be rare. With an averaged position, you will have a much higher win rate than simply taking 1 entry with a tight stop.
You say its hard work to average down, I think its easier because you don't have to be precise. If using a 2 point stop, shit, you gotta be like a ninja. Sure, you can easily take a quick trade and it wins or loses right away and you're off to the next trade. But having a high win rate on this type of trading is very hard. 4-5 losses in a row and you're mentally and emotionally drained. I've done enough Monte Carlo simulations to see how 4-5 losses in a row is extremely common, even if you have a 60-70% win rate.
Most important of all though, you have to do what you're comfortable with. So don't listen to me, but I see the benefits of averaging into a position.
Both end up being winners if managed properly. Of course if you use a tight stop, the orange losses and the blue wins. But if you know how to average, both win. Now its true that after 5 or 6 bear bars, a retracement has to be expected, so any shorts are asking for trouble in the form of a pullback. So this is a rather risky entry in my opinion.
Your circled blue area though is pure highsight analysis. We simply don't know where the pullback will end. That's why Volpri has some rules about entering on the pullback, and then averaging in if it continues to pull back.
Suppose you say you shorted there because of the MA (I know that Volpri was just averaging in on his trade though, but lets go with it). Ok, you got lucky that time, but lets look at another instance of this, at the orange dot. Once again, a bounce off the MA. So lets say you short there, but it keeps going higher. The tight stop would have you sitting at a loss, but an averaged trade will keep you in, especially if you consider that the most recent swing high isn't penetrated, which is outlined by the red line. (As an aside, by the time the red bar is poked at 10:59, its clearly a range now, and we know to short any attempts to leave an established range... so this would have been a great trade. If it continued higher, you short some more because it will either re-enter the range, or at least test the top of the range, and an averaged position would have you exiting at least BE)
I think it all comes down to fear. If your trade goes against you, you are afraid you did something wrong, you are afraid you are losing money. But we have to focus on what is the most correct action necessary in order to make money on a trade. After such a consistent drop, a pullback in to be expected, so it going against your entry is exactly what the market will do. As volpri says, the bulls are trying, and the shorts are exiting, which is what forms the pullback. But very rarely will it do a V reversal and blast off higher with some sort of consolidation or test of the low.
If bulls are jumping on board, they gotta get screwed as well. So the pullback will end and the drop will resume. Now for me, I don't know if it will break the low, but I know that it will at least test it most of the time (which is did just after 10:48). So I want to position myself for what is likely to happen without the thought of losing more money. I have to do what is most likely to happen.
Now of course if 20 contracts and a 30 point drawdown is too rich for your account, don't get into this situation. We are talking 1 MES which is $5 per point. And even this is too much to be honest because an averaged position can easily go $200 against you, and never mind trying to exit and double up. But once again, we have to do what is the right thing to do given how the market behaves, not based on how much we are down.