Emini Trading Blog

Archive for the ‘Risk’ Category

Our more aggressive trader, “Bob Bright” has had a nice day trading the e-mini S&P, thus far. An aggressive entry on the buy-side before 10 a.m. (all times, EDT) was a nice trade, long from approximately 1001.00. As an aggressive trader, Bob entered with four contracts, despite the high price of his entry, relative to the day’s range at that time. With his personality, looking for the big move so he can “make some real money”, he took profits at +two points for a profit of $200. The remaining contract’s stops were moved to break-even (he is focusing on controlling his aggressive nature), which was reached. Frustrated because of the “small profit” (2% of 10,000 equity), Bob entered long on the pullback, buy filled near 1000.00.

He now feels compelled to make up for his last trade outcome, so he now trades six contracts. Using a three point stop, he risks over 10% of his account equity but, again is looking for the big move. Once price moved in his favor, he takes +two points profit on just one of his six contracts (a gain of $100). This time his aggressive trading personality works in his favor, as price rises to new highs. He looks to take profits near Monday’s high, which has been reached. However, he gets more aggressive thinking more is to be made. So, he takes profits at 1005.00 with only one of his remaining five contracts (gain of $200).

Hoping for more, he leaves his stop way back at break-even, risking unrealized profits. So far for the day however, the more aggressive trader type that we refer to as Bob Bright, has a realized profit of $500 and is still long four contracts from 1000.00. Things are looking great today for Bob and we will check in as this trade continues.

Initial Claims Report, released at approximately 08:30 (all times, EDT) rose unexpectedly, further straining the current bull-market. Or has it? As of 12:25, price has exceeded yesterday’s high by six points! If you believe that “price never lies”, the bulls then are still clearly in charge. That being the case, deciding where to get long is the job at-hand.

Regarding trade entry-tactics, what would you say, is the biggest variable in the answer to the question of where? There are numerous tools available to aid the market technician in positively identifying support. Further, there are numerous tools capable of broadcasting an indication of the strength of the momentum that pushed the price higher.

After working with hundreds of traders, from beginner to 20+ years experience, my opinion is that the biggest variable is YOU, the trade operator. Each trader reacts differently to the readily available data referenced above. Yes our differences can be vast. Remarkably however, most I have worked with, seem to have one of two, primary “trader personality” types.

First, there is the swashbuckling, warrior-style mentality. Exorbitant risk, large drawdowns, and a tremendous sum of hope prominently characterize this type. Secondly, there is the anxious, fearful type. Self-doubt, trade-execution inconsistency and regret rule for this group of traders.

Yet, the majority of BOTH “trader personality” types desire an income. $500 per day is a typical starting point. To showcase how BOTH types trade, how BOTH types face pitfalls peculiar to their “trader personality” and how EARNING $500 PER DAY IS POSSIBLE FOR ANYONE willing to grow, I will now introduce to you two (fictitious) traders!

Trader 1: Bob Bright. Trader Personality Type: Aggressive. High risk, high reward.

Trader 2: J.R. Down. Trader Personality Type: Fearful. Out too soon, if in at all.

Both have $10,000 to start. Watch and read further updates. Both “trader personalities” will be showcased routinely. Then I will address how to move past the limitations associated with keeping rather than expanding your trading mentality. See you soon! – Jared

We started with an approximate 13 point gap to the upside. Without a hint of selling pressure, price traded higher highs and higher lows the entire day. For some, including myself, today was difficult to “get a hold of”. In terms of volatility, today was right at its daily 20 period ATR of roughly 20 points. There is quite a bit we can earn with that kind of swing, at least it would seem. This naturally raises the question: How can I tell when to enter more aggressively?

In real-time I noted the context surrounding today’s price behavior. Clear buying strength through much of Tuesday. Overnight, price rose sharply and held. Large opening gap up, followed by minimal selling. An opening range structure that was decisively traded above, only adds to the bullish reality of today’s market. Yes, the context surrounding any price development in question is pertinent and can be highly valuable to us in our decision-making. You may be wondering, “if context is so helpful, why are you not telling us about all of your buy-entry’s?”

My answer ties back to context. I paused because the voice I have come to trust over years of trading, was asking: “How far is too far?” Yes, when a market trades vertically for a period of days, the probability of continuation decreases. In view of this, I waited for a favorable buy-entry price. But, as you know, such a price was nowhere to be found in today’s ES!

In a less graduated market scenario the context would make today much more trade-able. Today’s highly favorable price structure in terms of trend-likelihood would likely have been of much greater value had less buying preceded it. As it is, I stayed on the sidelines today as market context had me asking, Where Are the Sellers?

The more adept we become at turning a negative into a positive the better off we are, in my opinion. My goal for today is to share with you the specifics of turning a profit out of a potentially negative circumstance, that of a bear-trap market.

So, after a gap up today’s ES contract sought bids with ease for approximately 20 minutes. This, after yesterday violating significant support, may have had you thinking of all the short-side points you were soon to accumulate. Then, the bulls took their stand, right? A strong shove upward, halting selling for nearly just as long. Then it seemed however, by approximately 10:30 a.m. EST, after that stand was wiped out and a new intra-day low was in place, that the day was decided. You anticipated correctly and yes, soon those short-side points you envisioned would be yours! So, as price pushed upward, you piled on the shorts. “Sell, sell, sell” was ringing in your ears as your heart assured you of a quick paycheck. Sadly, your heart was misinformed. It’s strength of falling in love, overpowered it’s sight.

What it failed to see, was the whole picture.

That second sell-off to 699.00 filled the upside gap halfway, at best. Obviously then, yesterday’s low had not been penetrated. In hindsight, that communicates strength. Which for us as daytraders translates into seeking long, rather than short entries, don’t you agree? To learn to trade with the trend is to make your trading day seem effortless. Today’s trend-trade opportunities were to the upside. When price came down to 699.00 was one of them. Additionally, the long opportunities at 12:20 p.m. and 1:15 p.m., EST were viable long trades. All three rapidly reached reasonable profit objectives whether you trade a single contract or scale out.

Making the bear trap pay starts with organizing what the market has done. Doing this enables us to see clearly where it has actually traded. Which is an invaluable aid in responding advisably to what the market has communicated. Next, we must use reliable, specific criteria to trigger our entries. And, since there are no guarantees, we must place the smallest stop-loss order possible, within reason. Lastly, managing our risk aggressively can keep us from letting our earning trades become negative. If you would like to learn how to implement what I have described so that you earn the next time a bear trap snaps, let me know. I am glad to help.