Tag Archives: Trade Management

Context Can Also Involve Time… Not Just Price

 

or… Why I held this trade drawdown longer than I usually would!

On Monday I entered a PB short in expectation of a downtrend continuing lower.

Context can also involve time - the entry

By far the best entry area would occur on a weak pullback to the shaded region (A).

And the last Trading-Timeframe (TTF) green candle certainly makes it seem like that's a possibility.

But the Lower Timeframe (LTF) stalled and offered a double top entry at short-term resistance, so I entered a position as I didn't want to miss the chance of strong continuation lower (B).

The plan was for an immediate reduction of risk should price break the short-term ledge (C) with a stop for the remainder a few ticks higher. I'd then seek another entry opportunity higher in the vicinity of A.

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Reader Session Review

 

I received an email recently from trader MK which I want to share, as it contains a few good lessons.

MK has kindly provided permission to share his session review. (His words… “You can use the email and the charts, that is why I sent them. It is important for traders to know that if you put the time in you will get to a point where you will trust your skills are up to the task.”)

 

Email Received:

Hey Lance,

Here is a picture of where I am at on one of my better days. I am constantly working on my weaknesses but they are now finally in a minority of sessions.

Thanks for all your help and guidance over the past. wow, almost 5 years. Your weekly insights and of course your Ebook (Read the first three sections more times than I can count) have been instrumental in my development as a trader.

You Lance are, the “Real Deal” and I would highly recommend YTC for anyone who aspires to be a trader.

MK

2 Things I learned from Lance that helped a ton.

1. Forgive your self for your mistakes, you will make many, and move on.

2. If you can not do it on the simulator you will never do it in the real world.

🙂

 

Charts:

(NB. Click on the images to open a full-size copy in your browser!)

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Feeling Joy When I Look at this Price Action

 

I absolutely love this email I received recently, from a trader who is making tremendous progress in his growth and development.

It's nice and simple. Just one single line…

Feeling joy when I look at this PA.

And here's the attached image:   (It's a large one so I've reduced the size. Click on the image if you wish to open a full-size version in your browser!)

Click on the image to open a full size version in your browser

 

I also feel great joy when looking at this. Here's what I see…

Trapped Longs

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Trading a Small Account with One Contract (Part Two)

 

Last week we discussed my thoughts on trading a small account with one contract.

See here if you missed the article – http://yourtradingcoach.com/trading-business/trading-a-small-account-with-one-contract-part-one/

We finished up by stating the following:

  • It doesn’t matter which management style you choose; a higher probability smaller win target (like my “part one”) or a lower probability larger win target (like my “part two”).
  • Both management styles will incur psychological challenges during periods of underperformance.
  • Both have the same goal – building your account to the point where it allows multiple contracts.
  • Both will achieve the goal if your edge is real.
  • Both will fail if your edge is not real.

However, having said all that, there are other options.

1. Your chosen trade management style does not need to be a “one or the other” decision.

You don’t need to choose just the close target or the further target and stick with that forever. You may decide to use both at varying times.

You might decide to target the first potential opposing orderflow (the closer target) as the default option, switching to the further target whenever the market context suggests the potential for runner.

When does market action suggest a potential runner? Your market structure journal will help you find these situations. But for starters let’s consider the following:

  • Volatility contraction leads to volatility expansion – as a period of contraction tightens into the apex you might consider holding any entry gained within that contraction for the multiple-R wider target, should the contraction break into expansion. And of course the same applies to any pullback which retests the point of expansion.
  • Compression of price against an area of S/R can lead to multiple-R expansion. This will often display as a form of volatility contraction, but that’s not always the case. A short-term ledge pushing against resistance can offer great opportunity, either with a pre-break entry or again the first pullback after confirmed break.

Let’s “borrow” some YTC Facebook posts showing examples where a wider target may be the wiser option. (The text on the images will not relate to the issue of trading a small account with one contract; look to the price action and market structure to identify the multiple-R potential. And if you don’t follow YTC Facebook, consider liking the page if you want to get new images like this every couple of days!)

In this first example we see a long-term volatility contraction. As price approaches the apex, any trade opportunity within the contraction could be held for it’s potential to break the structure and provide a larger directional expansion. If missed though, further opportunity is available on the first pullback after the break of the structure (at point C).

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Trading a Small Account with One Contract (Part One)

 

When I receive two questions on the same topic within one week, I know that there is a topic I’ve neglected to discuss in sufficient detail (or at all). So it’s time to address the issue of trading a small account with one contract.

Question from NJ:

  • Quick question: Can you touch upon the pros and cons and Trade Management and Emotional Challenges when trading only 1 contract vs. multiple contracts? Thank you, NJ

Question from AB:

  • I like your 2 part trade management ideas but they won’t work for me. My account is small and I can only trade one contract positions. How should I manage my trades? How should I choose a target?

I like to trade a multiple part position because it’s a good fit for my personality and mindset.

Entry is usually All-In. Exit is usually scaled out in two parts. “Part One” trade management targeting some quick profits (ideally 1-2R), providing a free trade for “Part Two” which targets a bigger win.

Part one – higher probability with a smaller size win.

Part two – lower probability with a larger win.

It’s certainly not the only way though. There are traders who operate with an All-In/All-Out trade management approach, which is essentially what you’re forced to do if you trade with only one contract.

Given that you said you like my two part approach though, my primary suggestion would be to either:

  1. Remain trading in a sim or demo environment while working to increase your account size to the point that it allows you to scale out a two part position;
  2. Consider whether reducing timeframe is an option, so that individual position risk is smaller and it will allow a two part position (assuming that your problem is not simply a margin issue); or
  3. Consider changing markets to one that allows smaller account sizes (forex for example offers micro-lots which allow for incredibly small accounts).

But let’s assume that these obvious solutions are not an option for you, for some reason, and you do wish to remain trading in your current market with your current account size with only one single contract (or mini-lot).

And let’s answer the questions, “how should I manage my trades?” and “how should I choose a target?”

We’ll start by looking at a recent sequence of price action.

 

Trading a small account with one contract - let's examine a recent session

 

This was traded with two part positions (that’s how I like to trade).

But for the purposes of this article I want to break each into their component parts, as if part one and part two were separate positions with different management styles.

The chart below examines our part one trades.

 

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IF-THEN Analysis at Session Open

 

Continuing a theme from previous articles – here and here.

  • Keep your focus ahead of price
  • Never let price action take you somewhere your brain didn’t get to five minutes earlier.

This is not just a concept to apply during the trading session.

It also applies at session open.

Start the session with some thought as to likely expectations for the type of environment and for likely initial price action sequences.

This can be done for markets which have a defined pit-session opening time and for 24 hour markets at the time of major session openings (eg. UK, US forex session opening times).

  • Where is price going?
  • How is it likely to act? Why?
  • Will that provide trade opportunity?
  • What will it look like if my analysis is correct?
  • What will price look like if I’m wrong?
  • What else could it do?

This is not prediction. This is simply forward planning… developing “IF-THEN” scenarios based upon your assessment of the likely future price action.

If your “read” of price movement proves correct, you will have trade opportunity. If it proves incorrect, you stand aside and reassess.

This will ensure your actions in the market are pre-considered and your trades only occur when the market has conformed to your expectations.

And you will be less likely to be caught in a trap through impulsive reaction to unexpected price movement.

(** Important Note: This is only our initial expectation. Ongoing bar-by-bar analysis will adjust our expectations if price provides something different from our initial analysis. Don’t rigidly stick to your initial expectations against all evidence to the contrary.)

We saw an example of an opening IF-THEN scenario in last week’s article where we discussed an early-session trade opportunity in the SPI futures.

late session breakout provides early session opportunity

See here if you wish to review that article in full: http://yourtradingcoach.com/trading-process-and-strategy/late-session-breakout-early-session-opportunity/

But let’s look at another example.

This time from the Crude Oil market as it opened today, Monday 9th June 2014.

We’ll start with the Higher Timeframe in order to get a picture of the structure of the market.

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Trading Timeframe Narrow Range Bar Entry – Part Two

 

Last week we discussed the Trading Timeframe (TTF) Narrow Range (NR) bar entry and looked at a trade example.

See here if you missed it. You’ll want to read this first. (Link: http://yourtradingcoach.com/trading-process-and-strategy/trading-timeframe-narrow-range-bar-entry-part-one/)

So now, as promised, let’s look at another trade example from later in the same session.

(Again this is a difficult trade example with messy price action sequences – ’cause that’s what the market often provides – and because it’s my belief that they provide you with greater educational value than simple “textbook perfect” examples that are in actual fact a rarity!)

Trading timeframe narrow range (NR) bar entry

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