Join me for the next Daily Five, April 26, 2022, with StockCharts.com, I’ll be covering the major indexes – SP 500, INDU, and NASDAQ.
Here’s my breakdown of the trading patterns from my appearance on Synergy Traders #36.11: Master Yourself, Master Your Trades with Leslie Jouflas, CMT
By Leslie Jouflas
There are probably at least a thousand ways to trade, especially day trading methods, in particular for the S&P Emini.
The good methods that I am familiar with and use myself all have one thing in common, they all play for targets. They never use an open ended exit that is decided based upon the emotions of the trader. Of course it goes without saying that any good method will use excellent money management.
The good traders do not get caught up in looking back and tormenting over how much they “could” have or “should” have gotten from a trade. Quite the opposite, the methods used for good trading, even on the shortest of time frames and for the smallest targets are going to be tested and the trader will know the optimum win/loss percentage for the pattern being traded.
Most traders know they will not get 100% wins. They do know that if they can trade a good percentage of the trades that are available that have a high win/loss ratio and play for the specific targets that have been tested, they know they will be profitable over time.
I like to think of my trading as going in and taking pieces of a move. I like to use patterns that I know have a high/win loss ratio and ones that I can apply very good trade management to.
I like to make a set of rules for each pattern I trade that tells me what the trigger into the trade is, how much the risk is, where the profit targets are and how to move the stop if it is not a full exit. I never like to go into a trade without knowing where my exits are.
I think one of the biggest mistakes traders can make is just “watching” to see what price does and then try and make a decision about where to exit. The trader is leaving themselves open to a lot of emotional decision making as price is moving either for them or against them.
Setting goals, such as, “I would like to make “x” amount per day trading the S&P emini can be an excellent way to shift thinking to trading for targets rather than for trying to always catch “the big move”. “The big move” just does not happen that often. I believe I heard it said that something like 90% of traders are chasing after a move that only occurs 10% of the time. That is a very interesting statement; I may be off on those percentages just a little, but not by much. When you think about that, could that possibly account for why so many traders can not make a profit trading and especially day- trading?
What if you were one of the 10% of traders that could consistently find a method that yielded small but reasonable profits from what the market is doing 90% of the time on a consistent basis by trading for targets rather than for a big move that may or may not occur that day? If you could net 3-5 points a day trading the S&P emini that would not be a bad annual return. Do you see many swings during the day that would make that possible?
Once you find a pattern or two that can yield those results with very good trade management then figure out how and when to add on a contract and this will increase your yield without stretching for more. Floor traders many times are faced with taking trades they don’t necessarily want and many times are playing for small targets maybe .25 – .50 a point or even scratching the trade quickly, these small profits can add up especially if you have low commissions.
Take a look and do some basic math on trading for some attainable targets on a daily basis and learn to not concern yourself with every tick the market makes with out you. Learn to have patience and wait for that one setup that can get you close to your daily goal. I believe part of maturing as a trader is to understand what you are doing based on your method and realizing that you can not get every piece of the market. Relieve yourself of the burden and unnecessary mental stress of looking back on charts and thinking “oh look at that move, if I just would have gotten in here and gotten out there I would have made…” That is nonsense and doesn’t have anything to do with what will make you a consistently profitable trader.
Here is a little test you can do to see if you have emotions involved with any particular market or stock. First look at a chart of a market that you trade regularly, do you feel a pang of “oh if I just…I could have…I should have”? Do you feel emotions with that, be honest. Now look at a chart of a market that you never trade, like lumber, no one really trades lumber do they? Do you feel any emotional pull whatsoever looking at a market that you do not follow? You probably don’t. Remember this distinct difference in emotions in the future and use that to re-center yourself when feel emotions pulling at you.
Knowing your game and knowing when to go in and take your piece with the least amount of risk is what will give you steady profits over time, of course that is not to mean that every trade will be a winner, but if you keep the losses small and play for reasonable targets, get out and forget about that trade, you will come out a winner over time and move yourself into an elite category of traders!