Monthly Archives: October 2019

Bridging the Gap between Sim and E-minis

 

I make it a practice to never recommend any particular market as being suitable for your trading. It's none of my business what you choose to trade. I don't offer financial advise and to do so would be completely irresponsible as I have no insight into your individual needs or circumstances. (For more, see here for my Disclaimer and Terms & Conditions.)

However, I do care that you survive the learning curve.

So if you've made an independent decision to trade a market, and there is a lower risk option available, then please start there.

Prove success at the smaller level first. And build up to full size contracts and larger position sizes.

E-mini traders – don't trade the E-mini's until you've confirmed you can trade the Micro E-mini's. Forex traders – don't trade full size lots until you've confirmed you can trade the mini or micro lots.

If you do have edge, you'll transition quickly to larger size.

But until that is proven, please:

LOWER RISK.

AND INCREASE YOUR ODDS OF SURVIVING THE LEARNING CURVE.

The gap between sim and full-size contracts is quite large (in terms of risk). Make use of these "smaller" markets to bridge the gap and make the transition to live trading just a little smoother.

I was contacted by a trader who has recently gone live but then preceded to bleed his account into a 30% drawdown.

He's not trading the YTC strategy. I was pleased to hear that!

And I was most pleased to hear that he was smart enough to stop trading at 30% loss.

But here's what really annoyed me.

Although his 5-figure account size is sufficient for trading E-minis with 3 contracts, as a new trader he has no right to be starting there when other options are available.

New traders – PLEASE – always start live with the smallest position sizes available. And build from there, slowly and incrementally, as success and consistency are proven at each level.

Since May, the CME has offered Micro E-mini contracts.

MES – Micro E-Mini S&P 500 – the micro equivalent of the ES

MYM – Micro E-Mini Dow – the micro equivalent of the YM

MNQ – Micro E-Mini NASDAQ – the micro equivalent of the NQ

M2K – Micro E-Mini Russell – the micro equivalent of the RTY

All micro contracts being 10 times smaller in size than the equivalent E-mini.

See here for contract specifications – MES, MYM, MNQ, M2K.

Yes… the same markets… almost exactly the same charts… but 10 times smaller.

The number one rule for trading is to survive to trade another day (IIRC this was a lesson I got from Larry Williams). I highly recommend you adopt this rule in your own trading. But as a new trader who has yet to establish a proven track record, it's even more important.

Start small. And build from there slowly and incrementally.

I've finally managed to play with the MNQ in recent weeks.

The following was the 14th October, the Columbus Day holiday. Holidays are typically a "stand aside" day for me due to the potential for low volume, narrow range and largely unfavourable conditions.

So I just "played" with MNQ while doing other work.

<image: Micro E-Mini Futures>

<image: Micro E-Mini Futures>

<image: Micro E-Mini Futures>

<image: Micro E-Mini Futures>

<image: Micro E-Mini Futures>

<image: Micro E-Mini Futures>

<image: Micro E-Mini Futures>

<image: Micro E-Mini Futures>

 

I'm going to use MNQ for testing, alongside NQ. New trade ideas. And different trade management plans.

I've never been good at trading multiple markets at once, on these low timeframes. But with this idea the analysis for both is essentially the same, so I'm aiming to trade NQ and "test and develop" MNQ at the same time.

I'm also going to include more MNQ trades in the newsletter and blog, to hopefully show you that it's not only ok to trade, but a damn good market for bridging the gap from sim to E-minis.

Back to our trader with the drawdown.

He's taking a break to:

  • Clear his mind
  • Replenish his funds
  • Review the cause of his failure
  • Define solutions
  • Restart on sim
  • And transition to micro contracts, building slowly from there, increasing size incrementally as success and consistency is proven at each level.

 

A smarter plan.

A more survivable plan.

If you're just starting out, or approaching the stage where you transition from sim to live markets, consider adopting a similar slow and steady progression plan.

Lower risk. And increase your odds of surviving the learning curve.

Happy trading,

Lance Beggs

 


 

It’s Game On! Let’s Trade!

 

I operate with three general levels of engagement – Trading, Trade with Caution, and Stand Aside.

Because not all conditions in the market are the same.

If you haven't done so, I highly recommend adopting a similar practice. Take some time to consider the factors that might trigger each level of engagement in your own trading business.

Today let's look at three factors which had me in "Trading" mode right at the market open. No delays. No hesitation.

With these three factors in play, I wanted to be in the first opportunity I could find.

<image: It's Game On! Let's Trade!>

<image: It's Game On! Let's Trade!>

<image: It's Game On! Let's Trade!>

A gap open, from a strong and persistent overnight uptrend, with a recent trap showing an inability to drop.

There is emotion in the market.

And I want to trade.

(See here for prior articles on traps just before the open – here and here).

<image: It's Game On! Let's Trade!>

(NB. YTC Price Action Trader concepts – The First Principle is in play, PB setup)

<image: It's Game On! Let's Trade!>

<image: It's Game On! Let's Trade!>

<image: It's Game On! Let's Trade!>

I don't want to trade all market opens.

There are many that I classify as "Trade with Caution". Think of the opposite of today's example – a market opening in the middle of the prior day's range, following a dull and lifeless sideways overnight session. There is no emotion driving the market. And so I have no business in taking a position until something changes. Wait patiently. Let the opening structure form (5 minutes, 15 minutes, 30 minutes… or as long as it takes). And then trade off that structure.

But there are other days when I don't want to wait. Market sentiment appears to be strong and potentially one-sided. This is not a time to wait. This is not a time to "Trade with Caution".

Today was not one for waiting. It's game on. Let's trade.

Again, if you haven't done so, I highly recommend adopting a similar practice of classifying three general levels of engagement – Trading, Trade with Caution, and Stand Aside.

Take some time to consider the factors which might trigger each level of engagement in your own trading business.

Happy trading,

Lance Beggs

 


 

Overnight Range Double Break

 

There were three NQ sessions in the last two weeks which broke both sides of the overnight range. Let's check them out.

The following are all Higher Timeframe 15 minute charts. I chose this timeframe simply because it fits on the image quite nicely. Whatever higher timeframe you use, is fine. The concept here is the same.

<image: Overnight Range Double Break>

<image: Overnight Range Double Break>

<image: Overnight Range Double Break>

<image: Overnight Range Double Break>

<image: Overnight Range Double Break>

<image: Overnight Range Double Break>

<image: Overnight Range Double Break>

<image: Overnight Range Double Break>

<image: Overnight Range Double Break>

Does this always happen?

No.

Does this mean that when it does happen that the trend always will be smooth and easy to trade?

No.

But you can bet your whole account on the fact that when it does happen, I'll be prepared, focused and ready to exploit any trend that does develop.

YTC Price Action Trader with-trend setups ONLY.

Until the market proves otherwise.

Have a look through some of the charts in your own markets and see if you can identify a similar feature. Forex traders will want to use a break of both sides of a narrow range Asian session.

Happy trading,

Lance Beggs

 


 

Managing Trading Decisions with Simple Compliance Checks

 

I want to share a simple process used by a reader in addressing a recurring problem in his trading. I was happy to see him use this approach, because it references a post-session technique I shared quite a few years back.

And perhaps it will be useful to you as well, in ensuring compliance with any changes you wish to make to your trading.

Problem:

With-Trend (WT) trades were providing positive stats but he was consistently giving too much back through his Counter-Trend (CT) trades. The CT trades show some promise so he's not quite willing to abandon them entirely. But he wants to cut back on the number.

So here's the plan:

(a) No CT trades unless the daily P&L is positive.

(b) Aim to ensure that there are more WT trades than CT trades.

The plan for this month is to ensure 100% compliance. Item (a) will avoid his tendency to dig himself into a hole occasionally in fading a trending market. And item (b) will ensure that he is trading (more often than not) in the direction that "should" offer the most opportunity.

One month only. Then reassess.

In particular item (b) because he does recognise that some days are quite rotational and may be better suited to CT trading.

But that's for the future. For this month, 100% compliance. And let's see if that provides improvement to the trading results.

Implementation:

Pre-Session:

  • Reading the plan and making a verbal declaration of intent to comply with both items.

 

In-Session

  • A single sheet of paper with two columns – WT and CT. Place a checkmark after each trade. The aim is to ensure more checkmarks in the WT column than the CT column.

 

Post-Session

  • Addition of two Compliance Check questions to his post-session routine.
    • (1) Were any CT trades taken with P&L at or below zero? If so, why?
    • (2) Did the WT trades outnumber the CT trades? If not, why not?
  • Marking up a calendar with a large green tick if he complied with both items.

 

The use of the calendar is something we discussed here – http://yourtradingcoach.com/trading-business/dont-break-the-chain-a-simple-tool-to-improve-consistency/. The original discussion aimed to ensure consistency in completing each part of your daily routine. What he is doing differently is using this same technique to ensure compliance with desired changes in his decision making. Effectively, using it as a reward or punishment system to guide and shape changes in the way he trades.

I also love the use of green ticks rather than the red crosses we used in the original article. Green ticks provide a more "positive" reinforcement than red crosses.

At Month End:

  • Review the outcome, ideally achieving both WT and CT profits, but at the very least ensuring that CT losses are somewhat contained and do not completely erode the WT profits.
  • Assess the effectiveness of the plan in making positive changes to the trade results.
  • Continue or amend, as required.

 

It's Your Turn to Take Action:

What trading behaviour do you need to reinforce on a daily basis? Is there something you know you need to change, only to find yourself repeating the old behaviour over and over again?

Consider trying a similar process, as described above. Just for a month.

Pre-Session declaration of intent. In-Session tracking to manage your decision making. Post-Session confirmation of compliance and a visual reward system to track your progress.

See if you can keep those green ticks going for the whole month!

It only adds a couple of minutes to your trading routines. But if it can help to reshape your behaviour away from destructive practices, then the benefits could be priceless.

<image: Managing Trading Decisions with Simple Compliance Checks>

Happy trading,

Lance Beggs