Move on to the next level

Imagination is more important than knowledge. - Albert Einstein

Trading is a real big challenge, no doubt about that, truly one of the most difficult endeavors anyone can undertake, but it can turn to be real fun if you follow a set of rules. Following a system means you will only trade when those preset conditions are met, otherwise you will just watch the market, that thing only already takes a good percentage of the stress off the trader.

It's all a matter of learning what to do and have the discipline to follow it day in, day out, and take the profits little by little on the way to your sought-after targets, allowing you to be consistently profitable.

I started trading around 8 years ago and lost consistently for almost 5 years in a row! I was trading daily from open to close and just couldn't make it, I used to win very little in a couple of trades and lose big in most of them, at that time I really thought trading for a living was just impossible... until I decided to create a system (and follow it), only taking trades that fell in the patterns I knew had a good probability of working, little by little the rules got all created and I finally have a system that works! Eureka!

So, after those 5 long years I started seeing the first wins with consistency, which got improved a lot over time and now, after having used it for almost 3 years, I can say I'm very satisfied with the results I'm getting and also being able to help others achieve their dreams in their trading.

I've learned markets behave similarly every day, only the figures change, patterns repeat themselves over and over again, respecting key levels most of the time and  many times to the exact tick.

The system I've put together is so simple, anyone can learn how to use it in one or two weeks, as long as you know how to enter orders in your trading platform that's all you need to start using and taking advantage of it.

 As everything in life, it might look complex at first, but after one week most traders understand all the concepts.

Have you ever played video games? Did you notice how difficult it seemed to be in the beginning just to become much easier after a couple of tries?

You lost a couple of "lives" but after a while you managed to pass on to the next level, true or not?

Same thing with trading when you use a system, in the beginning it may look hard, but after a couple tries you start getting the hang of it and start making money consistently and you will be able to move on to the next level! It's just a matter of practice.

The system is all visual, no guesswork, you see it, you trade it, if the key levels we're watching are not tested, then all we have to do is sit and wait, but if they do, we confidently just take the trade, trading according to our own style, no matter if you're a scalper, day or swing trader, just follow the system the way you feel more comfortable, using the time frames that interest you, if you're a swing trader then your STOP losses will have to be wider, a scalper will use tighter STOPs and will take profits quickier.

Of course if you are just starting in trading then you will want to risk very little, so you would start as a scalper, risking from 4 to 8 ticks (max) on each trade (on ES - SP500 e-minis) and taking profits as targets are met or just getting stopped out and being ready to move on to the next trade. Once you reach your $ targets you may increase the size you trade, this is key to moving faster to your targets.

Decide to do the right thing today and stop wasting time and money, create your own system or just learn one that works, give yourself a chance to move on to the next phase.

If you want to learn how we consistently make 2 to 3 points a day on ES, join us now at: www.diamondsetups.com

Best of luck!

Confidence comes not from always being right but from not fearing to be wrong.


Disclaimer
Notice: Futures involve substantial risk of loss & are not suitable for all investors. Comments are opinions only. Not trade recommendations.

Dancing to the rhythm

After studying the markets for well above the 10,000 hour barrier, as Gladwell puts it in his book "Outliers", I have come to a level that gives me confidence to make the same type of trades day in, day out, as we know the patterns repeat themselves every single day.

Today I'm able to make money week in, week out, with the least stress and risk possible, I use a couple of tricks to get rid of them and that's the main reason why I keep my trading room open and many traders have fun there while enjoying some nice profits from my calls. Oh yes, we do lose sometimes, there is no trading strategy that will win 100% of the trades, we've had a nice 30 trade sequence without being stopped out this year, but then we went back to the normal 6-7 wins in a row.

The system we use offers traders many trading strategies adapting to each market condition and a trader's own trading style, sometimes we have traders going short while others are long, but both make money.

So, according to market behavior we use different methodologies, if we have big volatility in the markets for instance, then we use one strategy, just to give an example, a day trading strategy we use allowed us to make an average of 30 points a week for several weeks, and of course we loved it, because we caught the big moves that began by end of July last year which lasted to the beginning of January this year, we had many many wide range days making it really a perfect time for us, day traders.

I remember we had even a 100-point-day move on the SP500, on that day I called the low in our trading room, right after FOMC announcement, we got it perfectly, with the lowest possible "heat" (a couple of ticks) and then it went up forever giving +100 points in one single day! WOW! That was a really lucky call!! LOL

But after that 6 month period, from February this year, market started making tighter range days, making it much more difficult to those who were used to the 20 to 50 point range days, so now we can use a different strategy, we can say that this time it is more like "Hit and Run", a really simple strategy but really amazing, works above 85% of the time, and most of them getting quickly filled, without having to "suffer" a couple of points down before it goes up, the moves are usually real quick, sometimes the trade is done in just seconds giving the trader no chance to be stressed thinking whether the market will go up or down, we just take the trade and quickly take profits, we wait for key levels to jump in.

Besides that, we can choose when we want to work, those who prefer mornings, OK, they can trade 2 hours a day in the morning and be done by noon, or any time they want.

We don't care about the trend, neither about news, all we want is to take a small bite everyday and go home, or we can stay around and just watch the markets while chatting to friends.

By making only 2 points a day, if you trade for instance 2 cars only on E-mini SP 500, or ES, as we call it, you already have US$ 200.00/day which on a consistently basis is not bad at all, to think that you can increase that to 20, 30, 50, 100 cars, it's the same work but with bigger rewards.

Try to get yourself a trading system, either buy one or create your own, just make sure you put down all the rules, but trust me, it will cost you much less if you buy one.

Best of luck trading this week!

See you next time or in our trading room.

How I manage my trades

In a previous post I wrote about risk management, today I'll let you know how I manage my trades from entry to exit.

When I enter a trade it means the setup is one I like very much, I only take what I call: "Diamond Setups", those are 10 setups from my arsenal that work most of the time. If I look at my stats for this year, I can see they've worked over 70% of the time, it has taken me a long time studying all my setups to see which of them work better, I noticed that from the plus 20 setups I was using to make the decision to pull the trigger, many of them were working "only"  40 to 50% of the time (there are traders whose setups work 10% of the time and they still make money!), so by observing them I decided to cut more than half of them to come to that +70% number. The setups I cut do work during "certain times" of the year though, so I keep them at hand.

Another thing I noticed is that when I enter a trade it's usually profitable for 1 to 3 points just to come back to my entry level and then stop me out, so a profitable trade turns into a loss, that used to drive me crazy! So, to solve that problem, I decided to take half when in profit from +1 to +3 points, depending on market conditions and leave the remainder running and trailing them with a stop to lock in some profits.

If you have been following my twits for some time you know I usually cover my trades way too early (I know my weak points, working on them), you don't have to make the same mistake so try to develop a good trailing strategy.

Since I decided to have those 10 ES points as a weekly target all that matters to me is that I achieve it no matter what, sometimes I leave trades way too early, but most of the time it has been working, so that last week I completed a 10 week winning streak. As an example, last Thursday when I was short from 1152.50 there was no need for me to get out of the trade as I did at 1145, I could have trailed it as the price never challenged to go back up again, anyway, there's always room to make it better in trading, and we are always learning, there is no stop for that, once you stop learning you might start losing, market is very dynamic, it's always changing the way it behaves.

Keep what has been working consistently, trade well and good luck!

Position Sizing X STOPs

I think one of the most important and still most overlooked aspects of trading is risk management.

If you don't have a system to control your risk you can be sure of one thing: you're on the right track to blow your account up (or "optionblast", like we jokingly say on Stocktwits' stream). Trust me on that one, I did blow my account many times before I understood it is a MUST to have a risk control system, at least a simple one as the one I describe here.

Below I explain how I use risk management in my trades on ES (I give ES as an example but it can be used in any market, you just have to do the math).

Before entering a new trade, once I know the area where I'll pull the trigger based on my edge, the first thing I check is where I'll have my STOP in case the trade does not work the way I expect, if the STOP is say 10 points away from my entry point, then this trade is not for me and I will pass it and wait for a better setup, the maximum loss my risk management rules will allow me to have is 3%  of my entire trading account (many people would feel more comfortable with 1 or 2% loss only).

Read this phrase carefully: you gotta love taking small losses, because if you keep the max loss to 3%, you would have to be wrong more than 30 times in a row to blow your account, by using that simple rule you will be able to live for another day, let's see an example:

Let's say your account size is US$ 20,000, the maximum you may lose is US$ 600 in a single trade, so if you have a setup that allows you to have a 3 point STOP, you may play with 4 cars for instance. You have to adapt your limits to the setups that are presented to you, not the other way round, like for example, playing with 8 cars and placing the STOP at 1.5 points, you might easily get stopped out.

And yes! Sometimes you will be stopped out and market will go in your favor, even when the stop is at the "correct" level, it kills you psychologically, but you will be happy that you used the STOP once you go through a fierce movement against you that would have wiped your account out if without a STOP...

Again, the STOP should not be based on a dollar amount but rather in a technical breach, meaning your trade might not work as expected, on the other hand, risk management will take care of the dollar amount to protect you.

This is a basic lesson on how you may determine the size you're going to trade, there's much more you can learn on this topic, but by using this simple system already keeps you protected from a catastrophy.

All you got to do now is objectively identify your edge and control your risk, good luck!

In the book below the author has great ideas about position sizing, I think it is worth reading it, enjoy:

Trade Your Way to Financial Freedom by Van Tharp

Emini: Why 10 ES points as a weekly target?

Many people ask me why I have decided to have a 10 point weekly target, well, the number by itself is already a very good target because if one can make 10 points a week that's 40 points a month, if played with only 2 cars for instance, that would give an annual return of almost US$ 50,000.00 and may be scaled up according to the account size, not bad at all!

I have my risk management set to a max drawdown in any trade of 6 ES points, which is equivalent to 3% on my entire account, so by knowing this I know how many cars I can play on any trade, I like to play with multiples of 5 cars so that according to the type of day, I may play from 1/4 to full position.

I have more or less around 20 good setups that I use to enter trades, but I actually use only 10 of them, I use the ones that have the highest odds of success, I mean I look for a 65-75% rate of success, I have lost quite a bit to understand this business, although I have to confess I was more like a gambler in the beginning years, so I know that if I want to be consistently successful in the markets I have to follow the rules day in and day out, otherwise it's just a waste of time and money.

Below I try to show how I use risk management and how I came to the 10 point weekly target:

These 10 setups that I take without hesitation when they show up, allow me to make around 10 trades a week, but "only" 70% of them will work, so, in a typical week, the trades go more or less like this:

70% of the trades are winners and I make an average of 3 points in each of them.

15% of the trades are half losers or b/e (break even) - I usually scale out and take 2 or 3 points profit depending on what market is willing to give me, I'm not greedy at all, I'll take whatever it gives me, so I'll lose only half, we'll put 6 points loss on half, then I have an average loss of say 3 points on entire position.

The rest 15% of the trades I make are losers, my losers range from 2.5 to a 6 points loss, so let's put an average of 4 points loss and let's see how these numbers work on those 10 trades:

7 x (+3) = 21 points
1.5x(-3)= -4.5 points
1.5x(-4)= -6 points

You don't have to be very good in math to know that the total here will give me 10.5 ES points for the week, got it? So now you know why 10 points a week.

Now it's just a matter of choosing how many cars to play according to the size of the account, I'll talk more about this in the next post.

Be well and happy trading!