Saturday, December 3, 2011

Speed up the growth of your account

After having been training traders for over a year, teaching them how to use the Diamond Setups profitably week in, week out, I was able to improve the system even more with their feedback, that was my initial idea for sharing my system, having feedback from different traders so that I could know where I had to tweak the system to make it even better, and that mission has been accomplished, today, if we use the system religiously we are bound to make money every single day, little by little but surely.

As  day traders we don't make big hits, although, with this volatility we've had many trades that allowed us to make 10, 20 even 50 points on ES (Emini SP500 futures) in a single day, on most of the days we end up making from 5 to 10 points on full size (yes, per lot) if a trader takes all or most of the good setups that are triggered on our trading system everyday.

I make from 3 to 8 calls everyday in our trading room and as we know that over 80% of them will work or at least will stop us out at b/e (break even), those are the statistics, it happens everyday, so we confidently take most of the trades triggered by the system.

Just to illustrate with a real example, last week we had no full size stop outs on the whole week out of 28 calls, really nice indeed. By the end of the week, those who took all 28 trades were up 15.50 ES points per lot.

With that knowledge we have created a money management system that allows us to speed up the growth of our account with a very simple rule: we double the size we trade (or increase by a good amount) every  time we reach a target that is big enough so that even if we get stopped out 3 times in a row we will not risk our initial investment, in other words we play a little more aggressively than in the beginning after we accumulate some profits, let me give you an example:

Suppose our account size is US$ 20,000, as a conservative trader we'd start by risking a maximum of 3 or 4% on each trade or US$ 600 to US$ 800. Trading the ES (Emini SP500 futures) we would start trading with a maximum of 4 lots and would use a STOP of 3.50 ES points.

So, by trading 4 lots our initial target for doubling the size we trade will be US$ 25,000, that's the number that will allow us to trade 8 lots and even if we lose 3 times in a row, we will be risking only the profits we have made.

Now to be able to increase again our trading size from 8 to say 16 lots we will need to make at least US$ 4,200, so let's say that our next target will be US$ 30,000 to include our broker's money.

So now your account size is US$ 30,000 and yoou're trading with 16 lots, because you know that if you follow the rules and only take those trades that are triggered by the system you will win over 80% of the time, so what's your next target?

By doing that you speed up the growth of your account with a very simple risk management rule, this simple technique can take you wherever you want to go, it will only depend on the size of your dreams.

This business is one of the few business that can make you fly really high! Even if you start small. But don't fool yourself, the smaller you start the slower you have to move in the beginning, as in this stage you will be like a baby and babies are not supposed to run like an athlete. Discipline + patience = success.

Take the right decision and start doing the right thing now, don't postpone it anymore. Use a methodology that works.

“When your desires are strong enough you will appear to possess superhuman powers to achieve.” - Napoleon Hill

Best of luck in your trading!

Sunday, September 4, 2011

Why and how I scale out of trades on ES

One of the things that is part of my own trading style is scaling out, some traders will prefer to go full size until their final target, OK, nothing wrong with that, but in my experience, lots of trades I take go in my favor for 2 or 3 ES points (Emini SP500) just to come back and hit my STOP loss order, so I learned to scale out as a rule.

I consider scaling out as "an insurance" I pay for a calm state of mind and also a way to protect my capital.

But, don't be mistaken, in my strategy, I play much bigger than I "normally" would with an account as big as the one I trade, let me give you an example to make that thought clearer.

If you have an account of say US$ 50,000, as a conservative trader, you should risk no more than 2 or 3% on each trade, that would be: US$ 1,000 to max US$ 1,500, considering your max STOP will be of 3 ES points (or 12 ticks), the maximum size you'd be allowed to trade would be: 10 lots, if you got stopped out you'd lose US$ 1,500 + "commish". OK.

How would I trade an account that big?

I would set my first target at US$ 60,000 (a US$ 10,000 profit), to reach that target with 10 lots I would need to make 20 ES points on full size, good.

When I reach that target I'd increase my bet size to 16 lots, because now I'd be risking only the profits I already have, and I would have to be wrong 12 times in a row to give all my profits back, something very unlikely when using the system I do that gives me a win rate of over 70%.

So, my next target now would be say: US$ 75.000, I would need to make less than 20 points on full size to reach that new target this time, and so on until I can trade 1,000 lots! ...or more. :-) But that's not the point here, I'll talk about that in a next post...

What we are interested in here is looking how I do the scaling out in my trades on ES.

Usually I'll scale out half at +1 ES point, that already drastically decreases the risk I'm taking to 1/3 only, but if market conditions continue in the weeks ahead with the same kind of volatility it had in August, I can easily go for +2 points for the first half off, see the example below on how that would work:

Trade example: (20 lots) (not considering commish here)

Long 1170 - STOP 1167 - Full size initial risk: US$ 3,000

Scale out half (10 lots off) at 1172, +2 points = +US$ 1,000

Now holding only half position with same STOP at 1167, risk decreased to: US$ 500 (or 1/2 ES point (2 ticks) on full size)

Second scale out at +3 points, only 1/4 off this time or 5 lots at 1173, +US$ 750

Now you'd have a profit even if you got stopped out on last 1/4, total profit so far = US$ 1,750

STOP still at 1167 and if stopped out you would be out of the trade with +US$ 1,000 in profits, not bad.

Now you'll trail the last 5 lots and only leave when stopped out, so let's suppose you made another +8 points = US$ 2,000, that would give a total of: US$ 3,750 on the trade, or +3.75 ES points on full size.

"At the end of the day, the most important thing is how good are you at risk control. Ninety-percent of any great trader is going to be the risk control." by Paul Tudor Jones

Best of luck in your trading, trade well.

Tuesday, August 30, 2011

Unlock your mind: find out what refrains you from pulling the trigger

"Desire is the starting point of all achievement." - Napoleon Hill

There are many good books on trading available in the market, they cover all different aspects, such as: trading strategies, technical analysis, money management... you name it.

All of them are really important for a trader's growth and in pursuing his/her own trading style, but one of the aspects of trading that is fundamental (and most difficult) to master for anyone seeking success in this business is without any doubt the psychological aspect, the trader has to learn to master his/her emotions before he/she can start seeing any degree of success, not even the best strategy or trading system will work if the trader can't pull the trigger at the right time. You will find hundreds of books on that matter, but you will not learn how to master your emotions just by reading books, it is not that easy, trading is an art, you need to practice over and over again, to focus on doing what is right, until you get up and running.

AS we know that a good part of trading is psychological, if you don't have the right state of mind when trading, no matter what you do or try will seem to work and you will end up missing the good trades and taking the ones that will not work, and that is so frustrating!

You will never reach the level of excellence you're looking for if you don't find the reason why you can't take the good trades, if many times, when you decide to just watch the market, it does exactly what you expected it to do with all the details, but every time you try, boom! It fails! That drives you nuts!

So, what would be the reason that is stopping you from succeeding when you have a system that you're sure if you follow it and take those setups you will lose sometimes, yes, but most of the trades will work and at the end of the day you will be deep in green? What is holding you back? It makes no sense at all, it's statistics, pure math, something logical, isn't it? You're sure it works week in, week out and you still can't make it! Why?!

See if any of the situations below sound familiar to you and could be bothering your trading:

Is it the platform you use? If your platform fails now and then, that might be the reason why you're not confident enough, you're not sure you will be able to sell your position when you have to and your platform stops working for any reason... Do you think commissions are too expensive? They'll turn out to be affordable if you get the right platform, get one you can trust.

Or maybe your internet connection fails always at the most important time, right when you decided you would enter the order the connection drops and when it is back up again, you already missed the opportunity, then next time you will be afraid that would happen again... Make sure you have a good connection and an alternative way to have your order in either by a second internet connection (dial up, 3G or other) or by phone.

Or maybe last time you tried to trade you were instantly stopped out seconds after you got in, and now you're afraid that will repeat over and over again... Shrug it off and be ready for the next opportunity.

Or maybe the place where you work from,  as you will have to spend several hours in there everyday, is your office comfortable? is the lighting good enough? is it pleasant to stay there? Is it noisy outside?

Try to check anything that might be bothering you, even a small thing that you take for granted could be important.

All the above are good reasons to make your mind fool you next time you have to pull the trigger, making you miss one, two, three good setups, and then you're so upset you missed so many good setups you take a trade as a revenge... Exactly the one that fails and you get stopped out again... it looks like a nightmare, a never ending cycle!

Patience, persistence and a calm state of mind are really important qualities in this business, without those characteristics, it will be really difficult for you to see any success, if not impossible!

If you already have a system you have confidence on, a system you trust, start today doing it differently, you will not get different results by doing the same thing you have been doing before, make the commitment to take all the good setups that are presented to you by your system, no matter what, if you get stopped out on the first trade, try the next one, if your system is good it would be rare to be stopped out twice in a row.

It might also be a good idea to trade smaller than what you're used to, maybe half or even 1/4 of the size you're used to trade, at least until you gain some confidence again to trade bigger.

Another good idea is to use a good money management system, that is to scale out half size quickly after you get +2 or 3 points, for instance, so that if the market comes back to your entry level or below it, you will be protected, and most important, in a relaxed state of mind as you will not be risking anything but your time, consider it as an insurance price that will be deducted from your profits. Your success will depend partly on your trading techniques and money management rules, so give them some thought before taking the next trade.

It all will depend on your state of mind, have a purpose for trading, a strong reason why you need to make money in the markets day in, day out. That will also help in most cases.

Our mind is very powerful, much beyond what we can think of, decide to do whatever is necessary to succeed and do it! And you will start moving towards those targets and level of excellence you've been dreaming of. It takes time, but once you start moving in the right direction it will make you feel stronger, and the moves will be faster. Act now, stop postponing your success!

"You cannot expect to achieve new goals or move beyond your present circumstances unless you change." - Les Brown

Best of luck!

Saturday, August 20, 2011

Enjoying the volatility?

When trading with our methodology we really don't care whether market is going up or down, it's all the same for us, we don't want to marry a position and try to squeeze 100 points out of a single trade, all we want is to make a couple of ES (Emini SP500) points every trading day, adding up towards our next US$ target. If you want to have consistent positive results, I strongly advise you to find a third party's or create your own methodology as soon as you can, once you find one that works, stick to it and repeat it day in, day out, like a bricklayer.

If the market continues like that making wild ranges in the weeks to come our strategy of making only 1 point a day is totally out of question, we are gunning for much more, for you to have an idea, last Friday, if one would have taken all the 4 good setups that were presented in our trading room, he would be up +70 points (yes, seventy - see chart below with all the 4 trades) in one single day! WOW! What a day!

Of course we know that was an exceptional day and it does not happen very often, but with this kind of volatility, 3 to 5 points a day is not a crazy dream, it's very doable, actually even +10 points a day.

We usually have a bias when we start a new trading day but we've learned long enough to trade what we see, so we wait and let the market tell us what it wants to do before we take our first trade, then, if we take a trade and get stopped out, we will patiently wait for the next good setup for we are sure it is very rare to get stopped out twice in a row when using our trading system, but if the trade works, as it usually does, then we just manage the trade as per our rules for protecting the position by scaling out and trailing.

The good news are, although the targets are much wider in our trades today due to the high volatility, the same is not true for our STOP, as market keeps respecting our levels with the same precision as it used to before the volatility started, allowing us to continue using the same 1 to 3 points STOP on both our scalping and day trades.

We have been using our trading system religiously for 52 weeks now, it failed to work only on 2 of those 52 weeks, so by observing how the setups work during the last year, we know that statistically around 8 out of every 10 trades we take will work and (with this kind of volatility) we can make 5 points or more on full size on each winning trade, so when/if we get stopped out we only lose from 1 to 3 points depending on the kind of setup we've taken.

So, you don't need to be that good in math to know that if we take all or most of the good setups that are presented every single day, at the end of the day our accounts will be deep in the green.

See the chart below with the awesome calls we made on Friday based on our trading setups: (click on chart to enlarge it)

Do the right thing and decide to win from this week, you can do it!

All traders are created equal in the eyes of the market, if I can do it, you can too.

Best of success to you in your trading! Cheers!

Sunday, June 5, 2011

SP500 Emini traders: 1 point a day is all you need

Most of the futures traders I know just want to make a decent living out of trading, they want to make enough for their expenses with dinners in nice restaurants, good wine, weekend and holiday travels, keeping their hobbies and keeping their wives (husbands) happy. :-)

The good news is you don't need much to achieve that, all you need to make is 1 or 2 ES points a day, usually, provided you have a good edge, you will make that in one or two trades, and for that you only need to work from 9 to 11:30 AM EST (around NY Open), no doubt the most relevant time for trading the ES during the day.

The system I use allows me to choose how I want to trade, I can either choose to trade on longer time frames (but then I have to work the whole day), risking a bit more for bigger rewards, or shorter time frames, as in the example below, I use a scalping setup that allows me to make an average of 1.50 points per trade with a win ratio above 70%, this is how the typical breakdown of my trades using a specific setup looks like:

As the risk is only 2.25 points per trade this is what I get out of every 10 trades:

7 winners X 1.50 points = +10.50 points
1 scratch at b/e = 0 points
2 losers = -4.50 points

Total = +6 points

With this kind of setup I quickly scale out half at +1 point, by doing that I'm already protected from a bigger loss, thus risking only 3 ticks on full size. Then when I get +2 points I take another 1/4 off the table and move STOP to break even, already guaranteeing +1 point and leaving the last 1/4 part running with a trailing stop.

By taking small little bites every single day you can go really far by increasing the size of your bets as your account grows, you just need to set monthly targets and add more cars when those targets are met, now you will be risking only your profits. In order to illustrate that trade idea, let's suppose you have US$ 20,000 in your trading account, you could trade like this:

You can start by trading 4 cars until you reach your target at say US$ 24,000, after reaching that target you may double the size of your bets to 8 cars, because now you would have to lose at least 4 times in a row to give all your profits back, and that does not happen if you have a good edge.

Now your next target will be for instance US$ 30,000, when you get there you may increase the size of your bets to say 12 cars, and so on until you're trading 100 cars and more, trading exactly the same way you were when you started with only 4 cars. That is very doable, it only takes a good system and discipline to execute it.

Trade well, best of luck!

Friday, March 25, 2011

From US$ 10,000 to US$ 1 M in 100 weeks

Many traders ask me how much is the minimum amount to start trading futures, that is not very easy to answer because it involves many variables and rules that a trader will have to follow, the smaller the beginning account is, the more disciplined and patient the trader will have to be.

Just for your entertainment and inspiration, I've put a "map" below with a table on how you can start your trading with a "small account" and trade your way to success in a "slow" but steady way to reach US$ 1 million in 100 weeks.

Of course you will need an edge if you want to have a minimal chance at the difficult task of being successful in the markets, there are many good traders offering their tradable levels on Twitter, a good service is my own, Diamond Setups, but there are many others to choose from for all pocket sizes and trading styles, the advantage of my service is that I not only give you the levels for high odds trades but I also teach you how you can find those levels all by yourself.

The table below, let me be clear here, has no technical value, it's just an idea for you to see that it is possible to go from a small amount to a big one by only making 1 ES point a day (yes! one point in SP500 futures). Believe it or not, if you make only 5 points a week it is possible to reach that dreamed-by-many target of 1 million bucks in 100 weeks!

Each time you reach an intermediate target you will increase the # of lots you play with, in a way that you will only risk part of the profits you have already won.

Enjoy yourself by looking at what 1 e-mini point a day can do to your account:

Total Capital in US$            Qty of lots                  Target in US$      Weeks to reach target

        10,000                             2                               20,000                         20
        20,000                             4                               30,000                         10
        30,000                             8                               50,000                         10
        50,000                            20                             100,000                        10
       100,000                           40                             200,000                        10
       200,000                           60                             500,000                        20
       500,000                          100                           1,000,000                      20

Create your own plan and make it happen!

Best of luck in your trading!

Friday, February 25, 2011

You can make it - Don't give up!

When I look back in time at my still-young trading career (this is only my 7th year) I remember how hard it was to lose consistently during my initial 4 years (yes, I struggled during 4 long years), no matter what I tried or what I did when I inserted an order to buy or short the market immediately went against the desired direction, and it used to drive me really mad when I thought: -"no, this time I'll just watch" and the market did e-x-a-c-t-l-y what I expected it to do but I had not inserted any order... 

Oh boy! That was soooo frustrating! I think you know the feeling, I felt like the most miserable person on the whole planet. ...and that would just keep happening over and over again, like a recurring nightmare, it looked like it'd last forever.

So I thought: What on earth do I have to do to change that? I'll do just anything! ANYTHING!

I was really weary, totally tired out, I had been successful in so many different businesses that I challenged myself to do during my whole life, how come now that I was a much more experienced man I had to deal with this thing that just kept saying: NO, NO, NO!??

I had already tried several different trading rooms where the so-called gurus made great calls but even like that it didn't work for me, because I wanted to know WHY he was making such calls so that I would be able to repeat that formula, otherwise it would make no sense, a waste of time... Those gurus don't tell you how to do it, they just tell you (at least most of them) where you could possibly buy or sell... So, it didn't work for me.

So I continued getting the same bad results until one day I read a phrase somewhere that made me change completely the way I traded, that phrase was: 

"You will never get a different result if you keep doing the same thing, taking a chance always makes the difference." -- Bob Bateman

And from that day I decided I would change, even if I had to die (that would have been the only thing that could have stopped me). And that was when I decided to take my 10 best setups and stick to them...

The path to success in this business is simple: Find your edge, make sure it works most of the time and religiously follow your system, don't forget that using all the techniques you've learned on money management and to be disciplined makes all the difference, I think that is what people call the "Holy Grail", simple as that. 

Once you are able to do that, you will be able to make as much money as you have never dreamed of, so don't give up, you might be very close to achieving success, dare to make it differently from now on, make it happen, it could be just a matter of some small detail in what you already do.

I wish you all success in your trading, best of luck!

Saturday, January 29, 2011

Update: 8 to 10 new highs on weekly SP500

Well folks, the pattern is working perfectly the only question now is: will SP500 still make the 10th new weekly high or has a correction started?

Of course after Friday's sell-off (with the biggest trading volume of the year) we tend to think that the 9th new weekly high was the last one for now and we will see new lows next week, but would you bet ALL your money on that idea? I wouldn't!

I have learned the hard way that anything is possible in this business, who in his right mind can say for sure that we will not make the 10th new weekly high next week? Although it looks so much easier to think we will really go much lower next week...

But let's just have a look at the charts (look at your own charts as I'm not posting any today) and see what the possibilities are: we can say that *IF* it breaks 1270 on Monday we will probably see 1262 and then 1255-54.

BUT *IF* it does not break that number above we may go back up to 1285-88 (may be area for shorting) and then, if still strong, go to 1296-1300 and above that... surprise!! We would see the 10th new high where I would be looking to SHORT BIG from 1310 to 1320, if it'd go that far. (Have in mind ES has a difference of more or less minus 3 points from cash).

For the time being ALL we had was a one day sell-off with good volume, but everyone knows one day does not make a trend.

Have a great weekend and trade well this week.

Sunday, January 16, 2011

New 8 to 10 new highs developing on SPX and SPY

After ten weeks this pattern will be back again in play, this week, *IF* we make a new high, it will be the 8th consecutive new high, we might still see the 9th and 10th on the coming weeks, or NOT, because this is how this pattern works it may stop making new highs on ANY of those 3 next new high bars, so what we need is to see if there is any confluence, some important resistance, when it makes new highs this week, how high can it go?

Will it cut the 1300 psychological barrier like a hot knife on butter and just keep going up or will we see some kind of pullback when/if it tests that important area from 1300 to 1307 (CASH)?

Click on the chart to see it bigger.

SP500 Weekly Chart

The same pattern is in play on SPY, let's see what "the boyz" want to do when we make this new high, I intend to start building a short position this week, but of course we might see it going much higher, remember, in this business, anything is possible.

Have a great week every one!