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Recognise the Current Conditions. And Adapt.

 

I'm displaying charts without any trade markers here, so that you can focus on the price action without any distraction.

Because there is a very important fact that not everyone gets. And rarely is it displayed in such a simple and obvious manner, as it is with the two charts we'll discuss today.

That fact is that NOT ALL DAYS ARE EQUAL.

Regardless of your approach to trading, some sessions will provide structure and conditions which are highly favourable. In these sessions you want to actively and aggressively engage the markets. You want to press your advantage.

Some sessions will be highly unfavourable. In these sessions you want to step back and limit engagement. Your primary aim is to minimise any damage and survive to trade another day.

And of course the majority of sessions will fit somewhere in-between – at times slightly more favourable – and at times slightly more unfavourable.

Your job is to recognise the current conditions. And adapt.

Most people focus far too much on their setups. And focus far too little on the context of the market – the background structure and conditions within which they're seeking to trade their setups.

The following two charts display the E-mini NASDAQ (NQ) 1-minute chart from 09:30 till midday. This is my primary trading period. The two charts cover Monday the 2nd and Tuesday the 3rd of December. Of note, the vertical price scale (RHS) is the same on each chart.

<image: Recognise the Current Conditions. And Adapt.>

<image: Recognise the Current Conditions. And Adapt.>

Perhaps what you consider favourable and unfavourable will differ from my preferences Perhaps if you have a preference for counter-trend mean-reversion scalping, then you'll prefer Tuesday's action to Monday's.

Regardless… the same point still applies.

Most people focus far too much on their setups. And focus far too little on the context of the market – the background structure and conditions within which they're seeking to trade their setups.

Spend some time identifying the structure and conditions in which you're most in sync with the market and most easily able to trade. And also, the structure and conditions which cause you problems.

Set up "rules" to allow quick recognition of the current state of the market. And guidelines for how you will trade.

The sooner you can recognise the current state of the market, the sooner you can adapt.

And perhaps you can stop giving back all of your "favourable day profits" when you find yourself chopped up in an unfavourable session.

Happy trading,

Lance Beggs

 


 

Step Back – Define the Edges – and Wait

 

Let's talk about recovery from a poor start to a trading session.

Like this one…

<image: Step Back - Define the Edges - and Wait>

<image: Step Back - Define the Edges - and Wait>

<image: Step Back - Define the Edges - and Wait>

<image: Step Back - Define the Edges - and Wait>

So here's the plan in three stages…

<image: Step Back - Define the Edges - and Wait>

<image: Step Back - Define the Edges - and Wait>

<image: Step Back - Define the Edges - and Wait>

<image: Step Back - Define the Edges - and Wait>

<image: Step Back - Define the Edges - and Wait>

Whenever you step away from a chart and miss a sequence of price action, you can almost always look back at it with hindsight and see opportunity that you could have taken.

Ignore it.

It wasn't yours to take.

When you've started a session poorly and have struggled to get in sync with the price movement, your job is to step back and clear your mind. Any opportunity you miss during that period of recovery is irrelevant. Let it go.

Step back. Clear your mind.

Define the edges of the structure which caused you problems.

And then wait until price has broken that structure and the market has shown you the directional bias.

Only then is it time to trade.

Happy trading,

Lance Beggs

 


 

Traps Just Before RTH Open – 3

 

This has been a favourite topic of mine throughout the last year. We explored the idea here and here, along with a bunch of other examples on social media.

But then the market just keeps providing more examples.

So let's look one more time.

The general concept is a trap that occurs through failure of a significant break, very late in the pre-session market and just before RTH Open (RTH = Regular Trading Hours; ie. the pit session).

<image: Traps Just Before RTH Open>

<image: Traps Just Before RTH Open>

Our most recent example fits in the second category – a break to new overnight highs, failing on or shortly after the session open, giving us opportunity to enter SHORT.

Let's begin… with the NQ 1 minute chart on Friday 15th November, 2019.

<image: Traps Just Before RTH Open>

<image: Traps Just Before RTH Open>

<image: Traps Just Before RTH Open>

<image: Traps Just Before RTH Open>

<image: Traps Just Before RTH Open>

<image: Traps Just Before RTH Open>

<image: Traps Just Before RTH Open>

<image: Traps Just Before RTH Open>

<image: Traps Just Before RTH Open>

I've written a lot about displaying patience at the open. About waiting till the bias is clear and trading conditions are favourable.

But there are some situations where I don't display patience.

Where I'm keen to get a trade on as soon as I can.

No patience. No delays. It's game on!

One of these situations is when the market sets up a trap just before or just after the RTH Open.

Keep an eye out for similar opportunity in your own trading.

Happy trading,

Lance Beggs

 


 

One Winner One Loser

 

A question received last Monday: "Are you trading today? It's a holiday but the market is open."

For future readers… Monday was 11th November 2019. Veterans Day.

And yes, the economic calendar which I use also has this listed as a US holiday. But the market is definitely open all day (or at least the index futures which I trade).

Here's my plan for holidays, because as the question noted, there are different kinds of holidays:

  • Holidays where the market is closed – no trading!  (Duh!)
  • Holidays where the market is open for one of those "half day" sessions – no trading! I don't care if it does move. That's the low probability outcome. More likely it will be dull, lifeless, narrow range chop.
  • Holidays where the market is open all day – My preference is to avoid it, but if I've got nothing better to do then let the opening structure play out and then make an assessment.

 

I had nothing better to do. So I let the opening structure play out. And then assessed.

How much opening structure? There's no rule here. Make an judgment call as to how much is necessary to see if there is sufficient liquidity, pace, volatility etc.

If the market opens with a gap outside the prior day's range, and outside any higher timeframe congestion, I might be satisfied just with the opening TTF price swing, or just waiting a short time period like 5-15 minutes. Then assessing.

Or on days like today, where the market opened within the prior days range, I will wait a bit longer.

<image: One Winner One Loser>

 

I was completely comfortable with no trades. But if I could see edge, then let's play.

<image: One Winner One Loser>

<image: One Winner One Loser>

 

For readers of the YTC Price Action Trader – The Principle being applied here, and in fact the reason for the whole trade, should be obvious. If not, email me.

<image: One Winner One Loser>

<image: One Winner One Loser>

<image: One Winner One Loser>

<image: One Winner One Loser>

<image: One Winner One Loser>

<image: One Winner One Loser>

 

One winner. And one loser. Just a small day, but it is a "holiday" session and I'm happy with nothing.

Of great importance though – the loser is much smaller in size than the winner.

Which reminds me of one of the most important points I've shared over the years at YTC, accepting of course that a two trade sample size is way too small (but the concept is what is important)… what if you could be happy with a 50% win rate, and learn to profit from a positive Win/Loss Size Ratio?

Ok, so back to the main point of the article:

Here's my plan for holidays, because as the question noted, there are different kinds of holidays:

  • Holidays where the market is closed – no trading!  (Duh!)
  • Holidays where the market is open for one of those "half day" sessions – no trading! I don't care if it does move. That's the low probability outcome. More likely it will be dull, lifeless, narrow range chop.
  • Holidays where the market is open all day – My preference is to avoid it, but if I've got nothing better to do then let the opening structure play out and then make an assessment.

 

Happy trading,

Lance Beggs

 


 

Pre-Session Analysis Starts with the Daily Chart

 

I was recently asked on Twitter about my pre-session analysis. My response was simply that I've outlined the process in detail in the YTC Price Action Trader.

However, since publication, I have added a couple of minor steps. Let's look at one today.

It occurs just once a day, right at the beginning of my analysis process.

It involves the daily chart. And about 5 to 10 seconds of work.

Not for levels, or structure, or trend. We get those from our normal Higher Timeframe (HTF) and Trading Timeframe (TTF) charts.

The daily is used to provide a "best guess" as to the potential range of movement we can expect in the upcoming session.

There is no great accuracy required. I don't need to get it right within a small number of ticks. It's just a quick assessment based upon experience. Part of building our bigger-picture contextual awareness.

It allows me to operate throughout the day with some sense for whether the market has more room to move, or whether the market is possibly close to it's expected range already.

This is the chart layout I use:

<image: Pre-Session Analysis Starts with the Daily Chart>

 

Let's have a look at how it is constructed.

<image: Pre-Session Analysis Starts with the Daily Chart>

<image: Pre-Session Analysis Starts with the Daily Chart>

<image: Pre-Session Analysis Starts with the Daily Chart>

<image: Pre-Session Analysis Starts with the Daily Chart>

<image: Pre-Session Analysis Starts with the Daily Chart>

 

And the Three Step process for using this data.

 

<image: Pre-Session Analysis Starts with the Daily Chart>

<image: Pre-Session Analysis Starts with the Daily Chart>

<image: Pre-Session Analysis Starts with the Daily Chart>

<image: Pre-Session Analysis Starts with the Daily Chart>

<image: Pre-Session Analysis Starts with the Daily Chart>

<image: Pre-Session Analysis Starts with the Daily Chart>

<image: Pre-Session Analysis Starts with the Daily Chart>

<image: Pre-Session Analysis Starts with the Daily Chart>

Summary:

  1. My expectation for today's potential range starts as the Average Daily Range.
  2. I increase this slightly in an expansion environment, and decrease slightly during contraction.
  3. And adjust again as required, if a quick assessment of daily price action suggests good potential for either a wide-range trend day or narrow-range consolidation.

 

And of course, update throughout the day as more data unfolds.

Don't expect perfection.

It's just "background" contextual information that can be used as an input to your trade selection and trade management decisions.

Happy trading,

Lance Beggs

 


 

5 Steps for Daily Improvement

 

The following screen capture was sent out via social media a fortnight ago.

I think it's so important that I want this to go out to everyone on the newsletter list as well. Plus an entry into the blog for future readers.

It's a quick response to an exceptional question – what are five things I do every day which have got me to where I am.

Thanks Alessandro. Great question!

Enjoy…

<image: 5 Steps for Daily Improvement>

Add these steps into your process, if they're not already there.

And repeat.

Every day.

This is the path to trading success – incremental improvements in skill driven by a quality review process.

Happy trading,

Lance Beggs

 


 

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