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.

Who wants to be a millionaire?

Oh yes, trading can do wonders for the ones who are disciplined, willing to pay their dues and work as a bricklayer doing the same thing everyday, certain that it's just a matter of time until they can reach even their wildest targets, all they have to do is plan the road ahead and travel safely all the way to their destination.

But most of the small traders I know are not looking to make millions of dollars in the markets, at least not in the short term, they know this is not possible with a small account, all they want is to be able to have a decent living out of trading, as any other small business owner; you don't want to start a business with say US$ 50,000 and expect that bu the end of the year you will have made US$ 1,000,000 in profits, that's not very likely, unless you come up with a brilliant idea on the internet with a new killer website/application...

We know there are lots of pitfalls along the way and we need to be aware of changes of conditions in the markets, sometimes we will be able to make a killing in the markets such as on the period between August and November/2011 when the volatility went wild and we were able to make a great deal of points when trading the SP500 e-minis, 20 points and more were common on most of the weeks during that period for any day trader with a good strategy, but things already started changing in December with tighter ranges making it more difficult to grab fat profits, so let's wait and see if the return of volume to the market will bring the volatility back or will we continue into a period of tighter ranges in the beginning of the new year?

No matter how the market behaves, we, day traders, will have to continue patient and disciplined waiting for the good setups to show up and only trade when they do, we will not force trades as we know they have a good probability of failing, we want the high odds trades only.

So, what exactly do I mean when I say: "do the same thing everyday"?

When you use a trading system you know the market will repeat a couple of patterns everyday, traders will show their greed and fear and that is what will make the market move the prices up and down, so your job is to wait until you see a "good setup" and make sure you pull the trigger when you recognize it, because you know that in more than 80% of the time that trade will be a winner or you will be ready to lose in case your STOP gets hit and you will patiently wait for the next setup, so it's the very same thing everyday, you just need to follow the system and you know that in the end of the day you will be profitable, we work with probabilities and we know what to expect.

One important thing to observe is to make sure you have your targets set for the day, week, month, year and a long-term one, where you want to be in 5 or 10 years from now, and also that you will increase the size you trade by the time you reach the key targets as I have explained in my previous blog post.

So, kick start the year doing the right thing and by the end of this year you will be rewarded with a good harvest, paying off for all the hard work you've put in during the whole year.

Below I put a small checklist with the 7 key things a trader needs to be successful in 2012:

1- Find yourself a good trading system

- If you don't have a plan on how you will trade, a plan you know that works most of the time, it'll be really hard to achieve consistent results, so make sure you create your own system or buy one from a reliable system vendor, as you probably know, I have put together a really simple system, easy to learn and use, the Diamond Setups.

2- Make sure you have a good software/platform

- Trading futures with a Forex account will make it almost impossible for you to be successful, competition is stiff, you need the best tools, make sure your broker is a specialist in futures, there are many good platforms out there, find one that will fit your trading style. Same with the charting software, make sure you get one that is flexible and that will allow you to customize it to fit your needs.

3- Have a good internet connection

- Of course if you will be day trading you need a reliable internet connection, make sure you get the best money can buy and also have a second one available in case the main one fails, it might be either a 3G connection or even a dial up emergency connection so that you will not be totally in the dark.

4- Have a comfortable and pleasant place to work

- If you trade from your garage or from the basement, make sure you have created a properly set up office space, with good lighting and well organized, it's hard to do the right thing if you're trading locked in a cubicle. If the place is noisy, with your neighbor's dog barking all the time, that might bother you and influence on your trading, pay attention to the small little things.

5- Get rid of those "friends" who say you can't

- Most of us have some "friends" who will always want to make fun of you when you start trading for a living, don't let them spoil your weekend as that could last the whole week and make you have a bad week, your state of mind is really important, get rid of those types... OH! Is it your wife/husband who says you can't? No one can stop you when you know where you want to get.

6- Read good books on trading

- As Warren buffet says: "I don't know a single rich person who doesn't like reading". You need to read to learn how others have succeeded in this business and follow their example, so make sure you read the good books available out there. On the right side of my blog I have a list with the 10 books a trader must read, there are many other good books, of course, but those 10 are definitely must reads.

7- Be disciplined

- And last but not least: Be disciplined with your trading this year, if you do the right thing every single day the rewards will show up automatically, you don't have to think about your profits, just make sure you trade well and the money will come to you. You will never be able to do good while you're failing to pull the trigger on good setups, or getting out of a trade without being stopped out, or by taking profits too quickly instead of letting your winners run, these are only a couple examples, you will never regret you were disciplined by the end of this year.

Maybe you think it'll take too long until you become a millionaire, but maybe you're wrong.

"Make measurable progress in reasonable time." ~ Jim Rohn

Wishing you all the luck in your trading in 2012.

Happy New Year!

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!

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.

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!

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!

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!