Techniques for Day Trading the ES, NQ, YM, MES, MNQ, and MYM

[Illini Trader]

I Martingale’d that one trade (1-2-4-8) -- doubt I would have done that had I been trading real money. And since I was in so deep, as soon as I was up one point on my average entry, I took profits.

Can you imagine in live trading you start with one contract and then you have 15 contracts in 4 entries all going against you. (I am quite sure on that last purchase of 4 you didn't nail the exact turning point) If you did do that in "live" you would not have enjoyed the experience.

As I mentioned earlier I day-trade 30 shares of Apple live and on July 27 I started averaging down to the point that I was long 720 shares and the market was still going against me. I finally got a move up and made up 90% of my loss but I learned a lesson. For me I will not as a strategy average down anymore. @volpri can make it work but he even says you gotta be careful doing it.

 

[volpri]

Can you imagine in live trading you start with one contract and then you have 15 contracts in 4 entries all going against you. (I am quite sure on that last purchase of 4 you didn't nail the exact turning point) If you did do that in "live" you would not have enjoyed the experience.

As I mentioned earlier I day-trade 30 shares of Apple live and on July 27 I started averaging down to the point that I was long 720 shares and the market was still going against me. I finally got a move up and made up 90% of my loss but I learned a lesson. For me I will not as a strategy average down anymore. @volpri can make it work but he even says you gotta be careful doing it.

To go from 30 to 720 shares averaging down you were apparently trying to salvage a loss. You must have had MULTIPLE long entries. A trader cannot be averaging down to avoid a loss. Averaging down is a strategy I use for scalping. What was the larger, intermediate, and immediate context at the time you were averaging down? The three contexts are very important to using the technique correctly.

If you don’t know or understand these things then you are blindly just averaging down and that, if done enough times, will decimate your account. In addition, you have to have an exit strategy at ALL times if things go wrong and a way to quickly get back any loss incurred from averaging down.

If I could see a chart with your trades as you averaged down I could likely tell you what went wrong and why. If you were averaging down 30 shares at a lick then you must have had 23 more times of 30 shares of adding to your losing position after your initial entry. If so, that in no way embodies what I speak of in this journal when I speak of averaging down. You were lucky to get back 90% of your loss. What TF were you trading? What were the contexts?

 

[volpri]

@volpri

After reading some of the recent entries in your journal, I’m looking at your way of trading more closely – even though it violates, not only the first rule of holes, but also the basic tenets of trading that we all learned in the very beginning of this journey.

In fact, I sim-traded one MES contract on the initial entry last Friday (two trades) and all day today (four trades). Out of those six trades, I went 6-0 for a gain of 31.75 contract points. Only one trade required averaging in and I’m counting the four entries on that trade as one completed trade, one of the six. And just for the hell of it, I Martingale’d that one trade (1-2-4-8) -- doubt I would have done that had I been trading real money. And since I was in so deep, as soon as I was up one point on my average entry, I took profits.

Probably beginner’s luck, but that success rate got me to thinking. If a trader got this figured out to where most of the trades were successful on the first entry, that would suggest trading bigger size on the first entry in order to make more money.

However, Murphy’s Law says that if you traded bigger size on the first entry, you would almost instantly have to average in multiple times, leading to significantly more risk, and that trade would end up being the trade that didn’t work out leaving you in a pretty deep hole.

Since you seem to have this figured out, how do you handle that? Do you always start small, just in case, no matter what, meaning only one contract on the first entry in case you do have to average in? And whenever your first entry works out, you just accept the fact that you won’t make as much money as you could had you traded multiple contracts?

I don’t recommend martingaling. When it does work it can be very profitable. To do it a trader has to have great confidence in their ability to read the PA in the 3 contexts I often speak of. I have done it but I don't recommend doing it even if one has unlimited source of money for even then huge sums of monies lost can cascade rapidly.

i don’t always enter with one contract. An initial entry may have 5 contracts and as I average down I will usually average down with the same amount each time.

There are reasons for putting on an initial position and then adding to it when a good opportunity presents itself are:

1) are to have SOMETHING ON at the get go even though it is not my max size.

2) Because of the probing tendency of the markets. Markets probe back and forth I want to have a position on …even if it be 1 contract, 5, or 10. I probably average down on about 60% of my trades. That means the other 40% are straight scalp i.e. I got in, had no initial adverse movement to average down on as the market took off in my direction right off the bat. So, I just scalped it with no averaging down.

3) it can render a high win rate. And that is something a scalper has to have over the long haul.

Finally consider this what if you had been trading ES vs MeS. That same process would have rendered you over 300 vs 31 dollars. The solution when not enough profit is made scalping MES is for me is to go to ES or trade bigger size in MES. But there comes a point where it is cheaper to trade ES instead of MES, as concerns commissions.

When I peak of averaging down it is only in the context of scalping 1 to 8 points in the ES, doing so in the right circumstances (i.e. the three contexts support doing it,) and an exit strategy in place should the averaged down trade continues against me, and a strategy to get back any loss I took in the averaged down position gone bad.

 

[volpri]

I use averaging down to "build” a position when I have reason to believe the trade will go in my favor, even though at the moment I may be experiencing some adverse PA to my position. Averaging down, or scaling in as some call it, should not be used as a mechanism to avoid a loss. It is a strategy for profit, not a means of prolonging a loss. When I am clearly wrong on averaging down it is ALWAYS better to just dump the position and take a position in the correct direction. I will then usually double or triple up position size (over my losing position size) and get my loss back quickly.

Why is better to just dump a losing averaged down position? Because the loss will continue growing bigger and bigger and finally when the pain is unbearable a trader will finally give up and take the loss to save his account. Even then, some traders will not take the loss and end up just blowing their account.

All averaging down in this journal strictly refers to do so when scalping 1 to 8 points in the ES. The point size of scalps will differ some in NQ or YM as opposed to the ES.

Averaging down is a technique for building a position size when price action continues to indicate ones original premise is correct in terms of market direction. Even though adverse movement happened to the initial entry or two that doesn’t mean the initial premise is wrong. It just means the entry was early. And the adverse movement is an opportunity to build a position at a cheaper price. Now this implies I need a mechanism or mechanisms to determine when my premise is wrong and to immediately get out and look for an opportunity to reverse direction.

 

[chillibean]

long only. Don't over leverage. Add as it dips and take bits off when you get the massive rallies. Play with the Fed and you can do well

 

[ondafringe]

Can you imagine in live trading you start with one contract and then you have 15 contracts in 4 entries all going against you. (I am quite sure on that last purchase of 4 you didn't nail the exact turning point) If you did do that in "live" you would not have enjoyed the experience.

As I mentioned earlier I day-trade 30 shares of Apple live and on July 27 I started averaging down to the point that I was long 720 shares and the market was still going against me. I finally got a move up and made up 90% of my loss but I learned a lesson. For me I will not as a strategy average down anymore. @volpri can make it work but he even says you gotta be careful doing it.

As I said, I only did it because I was in Sim. I would never, ever Martingale with real money. As far as averaging in goes, I am considering it because I am tired of being nickeled-and-dimed to death with these three point stops, only to see the market turn and go in my direction after getting stopped out.

I think the trick to averaging in is to have your 5m chart drawn up properly where you can see all the potential support/resistance bounce points and then set your average-in prices at, or a little before, those bounce points.

 

[ondafringe]

...

Finally consider this what if you had been trading ES vs MeS. That same process would have rendered you over 300 vs 31 dollars. The solution when not enough profit is made scalping MES is for me is to go to ES or trade bigger size in MES. But there comes a point where it is cheaper to trade ES instead of MES, as concerns commissions....

Yes, understood. I tend to trade MES when I'm testing a new strategy, even in Sim.

 

[MACD]

long only. Don't over leverage. Add as it dips and take bits off when you get the massive rallies. Play with the Fed and you can do well

@chillibean -- You obviously have NOT READ this excellent Tread of @volpri from the beginning of the brilliant explanation of how he Scalps. WHY would you now post this? (No wonder -- skilled traders are not willing to share their brilliance on ET)

 

[ondafringe]

I use averaging down to "build” a position when I have reason to believe the trade will go in my favor, even though at the moment I may be experiencing some adverse PA to my position. Averaging down, or scaling in as some call it, should not be used as a mechanism to avoid a loss. It is a strategy for profit, not a means of prolonging a loss. When I am clearly wrong on averaging down it is ALWAYS better to just dump the position and take a position in the correct direction. I will then usually double or triple up position size (over my losing position size) and get my loss back quickly.

Yes, I understand what you're saying. On the selloff a couple of hours ago, price was mostly staying above my 200EMA on the 5m chart, so clearly bullish.

I had three support areas marked as possible bounce points. Went long on the first one, then again on the second one. I could have locked in a 2 point gain on my average price but thought price was going higher. That two point paper gain vanished and had to average in again at the last support area I was willing to go long. Given that, I set a 3 point stop below that last entry price. Since I had missed out on that 2 point gain earlier, once I had a 1 point gain over my average entry price for those three longs, I took it. No Martingale this time!

Even in Sim, every time you average in, the psycho-emotional pressure seems to increase --probably because I'm not used to trading this way. A 1 point gain may not be much, but it sure feels good to get out from behind the 8-ball! <lol>

 

[volpri]

While I don't recommend martingale I will sometimes do it. One of the ways to implement it is counter - intuitive to that of fading the edges of a channel, or trading range, that I have talked so much about in this journal. Since the durn thing was broached by @ondafridge I will give an example of ONE way to do it in MES.

1) It requires seeing the channel as a container of price

2) Price BO's of that container (channel) top or bottom, usually fail within 3 to 5 bars (75% of the time)

3) If price is at the top of a channel instead of fading that and going short I go long and add to it the BO fails and price heads back in the channel. But I martingale as I add.

4) If price is at the bottom of a channel instead of fading it and going long I short it and add to the short as price moves up in the channel. I martingale each entry.

5) What am I playing here? I am betting that BO's top or bottom will fail and price will go back into the channel or at least head back within 5 bars or so, enough for a profit. However, instead of fading the BO as it occurs I have ALREADY built a martingale position way before the BO. And I have done so within the price container i.e. the channel.

6) I am still betting the BO will fail but have started building a position from the opposite end of the BO betting it will eventually fail.

7) The downside is while BO's fail in channels 75% of the time (good odds), sooner or later, a BO will succeed. And if I am caught in a martingaled position in a successful BO, I best make haste and quickly take the loss. Otherwise, the loss will grow exponentially.

8) Now when price goes in my favor on a martingaled position the upside is I can quickly get into a good profit and exit with the profit even if I lose on my first 2 entries (as they were smaller in size). The latter larger entries make up for it.

9) Look at the chart. T#3 was a martingaled trade. At that time my running profit was $148.75 from two previous trades in MES. I started T#3. My first entry was 1 contract (1C) followed by a second entry of 2C's, followed by a third entry of 4C's, followed by a 4th entry at the top of the range for 8C's. So, by my 4th entry I am short 15 MES contracts. Price is at the top of the range. I am loaded and wait for any BO out of the top to fail. It did fail. I hold and by bar 12:45 I exited all 15 contracts with a profit, on all the entries. Only a 2 tick profit on my first entry of 1 contract, but still a profit. There were several times I could have exited sooner than I did with a profit on most of the contracts but I just decided to just ride it out. I ended the trade with $430.00 in the account for the day so this martingale trade rendered me 281.25 to be added to my previous $148.75.

10) I DEBATED SHOWING THIS TECHNIQUE FOR MARTINGALING BUT DECIDED TO DO SO AS SOMEBODY, SOMEWHERE, IS GONNA DO IT SO I MIGHT AS WELL SHOW ONE WAY I DO IT. IT CERTAINLY IS NOT THE ONLY WAY. I NOW REFER ALL READERS TO MY POST #1252. READ THAT POST! Martingaling, even on a SIM account, may damage one emotionally so bad, that they may never be able to transcend above the damage. I DO NOT RECOMMEND MARTINGALING EVEN ON A SIM. BEWARE!

11) You will notice volume bars on this chart. When martingaling I like to see volume. Remember, volume is transactions and REMEMBER the goal of the markets is to move price to where more transactions take price. Otherwise, brokers would have fit. ROFLMAO! Martingaling is so dangerous I want to see "what" the transactions are doing... increasing...decreasing...stalling..etc...

12) The circle on the chart shows the martingale trade. I often take slides during PA as the session advances. This is slide 7 but I failed to label the chart. It is a 5 min 24hr chart of MES for today 8-10-2021. Enjoy the chart but don't try the martingaling technique!