A summary and more detailed primate trades ….

 

This is forth post dealing with trading and the 5 minute breakout example.  I want to cover some thoughts about entries, exits, and expand on market context.   Hopefully many of you have found the recent articles helpful in your trading or you have seen some value in a ‘naked’ chart without indicators.

We are going to start planning a series of live trading class this year with a few traders.  They will be pay to attend, so it’s worthwhile for the hosts to spend hour of time setting up and designing the classes.  Sign up for a free account if you don’t already have one and you’ll get the email with more information when they are ready. They will probably be about 1 hour long and 2-3 times a week for 12-15 classes with Q&A.  The idea being that after attending you will have the knowledge to develop and test a trading style on your own.

 

You can read my previous posts.

Monkey Trades #1

Monkey Trades Review #1

Stops and ATR

 

Trading Goals

I also have some goals in the coming year for my trading and I want to share them publicly.  While I am consistently profitable,  I have had some trouble moving from a $100k+ trading account back to a small trading account.  I want to show this year that with enough commitment and willingness to learn new traders can succeed at trading. Long term success at trading is also psychology and emotional control. I have a very supportive wife that’s doesn’t put pressure on me to make the ‘big bucks’, though she wouldn’t turn them down.

My goal is to take a $10,000 account to $100,000 using intraday futures this coming year.  Some things to consider, I won’t be taking out taxes or profits to live. Taxes will be paid from my other trading, hopefully.  This isn’t for the person who has $10,000 left in the world and needs to make money.  This is for the person that has $10,000 that is fun money, losing it will have no bearing on their well being.

 

Trading Plan

I will trade a $10,000 cash account using /YM initially, then moving to /TF once there is $50,000 in the account.

I will start trading 1 contract then move to 1-2 contracts with a limit of 5-10 in total once there is sufficient capital to do so.

I will trade only intra-day. There will be no overnight swings.

I will be using the 5 minute breakout strategy, as well as the things I will continue to go over in this blog.  My goal will be to post a summary of the trades at the end of the day.  I might post weekly summaries if there is something to note.

I will start with the /YM futures using a 2% risk per trade per contract max loss, and a 6% max drawdown limit per day.  So that’s $200 max risk per trade, and $600 max loss per day.

 

Entries and Exits

There are a few things I do when trading that I have found to help me place better entries and exits in my trades.

  1. If I am uncomfortable with a trade I just put on, I simply close the trade.
  2. I don’t beat myself up when I close a trade too soon.
  3. I do not predict the future market direction; I ride the momentum in a direction for a time.
  4. I stick to my trading plan.
  5. I will not swing for a home run on every trade.
  6. I will not counter-trend; nor will I try to pick bottoms or tops.
  7. I will always look to the higher timeframes before placing a trade.

You should have noticed those 7 statements above don’t say anything about my trading system as far as indicator rules, moving average crosses, MACD, RSI, or anything to do with a technical indicator.  You can get everything you need from a chart with price and volume. I also didn’t put a $ amount that I must make each day, I will take what the market gives me.  If there is not trade that day, then there is no trade.

You should always look at a timeframe at least a magnitude higher than the chart you are trading off of. If you are trading off a 5 minute chart then have a 15 or 30 minute chart on another screen.  Force yourself to start with the longer timeframe chart when planning your day.

 

Example

Let’s look at two timeframes from October 5th for the YM.

So let’s start with the 15 minute chart, since you should always look to the higher timeframes. Click to make the chart large.

YM 15 minute chart

The 15 minute is showing that the market has been in an uptrend since Tuesday of the previous week. You can also see that before the bottom on Tuesday there was resistance on Monday night and early Tuesday will a rally up to Monday’s afternoon highs.

If you translate that across the the chart, what do you notice?  We broke over it on Thursday and chopped around and even tested it Thursday night and early Friday during Globex.

Globex low and high are levels to watch.  They can confirm trends and the longer term players.

I’m usually up at least an hour before the market opens.  On Friday there was jobs data that was unexpectedly better and you can seen the volume spike is before the open range. I marked it with a  blue arrow.

The open volume is marked with a yellow arrow.  News lows and highs can sometimes act as support and resistance when paired with large volume.

So we’ll have to watch that 13500, which also is the same area that we had Monday and Tuesday.

Remember we wouldn’t have seen the full chart yet, only the pre-market.

Since we know from previous posts that the ATR of the YM is running at about 100 points, we’ll look for somewhere in that area of a move, starting with 25 points, then 50, and incrementing up to the ATR.

Based on the 15 minute chart and the bullish bias reaction of the jobs numbers, we would be looking for longs above 13500 today.

Now let’s look at the 5 minute chart.

5 minute YM chart

Remember those news highs, you can really see the sideways action and resistance they had with all the candle wicks, as marked by the blue circle.  We are definitely watching that price today.

The 5 minute bar closes and the next bar doesn’t break above.  We were bullish and ready.

As soon as you see something like this happen, and there is no continuation, not just at the open but anytime, look for a trade back to some previous level.  This is more advanced than that 5 minute break out as we have built it so far, but if trading was really that easy then we’d all be rich.

Look how the market went right to that news highs area.  I marked it with a white circle.  You can frame this using concepts of market profile and auction theory, but the bottom line is the level was there as a guide long before the 9:30 EST open.

Don’t forget to look at the economic calendar to make sure you won’t be standing infront of anything nasty.

If we had taken the 5 minute break out short, then we would look to close the trade at this level.  The market likes to restest breakout points and places where news may have motivated buyers and sellers.

I’ll let you play the rest of the day out. ThinkorSwim has a nice feature of being able to replay the market and simulate trading it.

We ended up supporting and breaking out for a while, then some news out of Europe crossed the headlines and we fell right back down.  Look how we hit that pre-market news high again and bounced, but stayed pressed down within the range.

While I didn’t see the headline, someone in our chat room posted it.  That is the benefit of being in a chat room with many people looking at the market in different ways, some watching the news and social media.

The trade of the day was to jump on the breakdown and let it run.  Even when we broke below that pre-market news high we chopped around for a while before falling further and ending near 13500.

Can you use the 5 min range throughout the day?  Sure, if you put a set of rules around it and use the context of the market.

 

Summary

What did I introduce here?

We covered a simple trading plan, by me sharing my goals for a small account this year.

We covered some simple rules to go along with my trading plan.

We covered the 2% and 6% risk for my trades using this system and a small account.

We learned to use the higher timeframe before the market opened to give us some guidelines for the trading day.

We learned that if you use volume spikes w/ price, you can get a build a guide for the day.

We learned how news highs and lows can show areas where buyers and sellers find value. Those can then act as important levels later in the day.

 

What now

Sit down this week before you trade and make yourself a trading plan.  Write out your goals and your risk tolerances.

Pick an instrument and figure out the risk with it using ATR. See my previous post.

Review and study the market you are going to trade, randomly pick days and do analysis using ThinkorSwim’s replay feature.

Try to define and plan your trading; I encourage you not to copy this trading but to explore your own style.

 

 

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