How do you trade?


As previously mentioned we won’t be focusing on specific setups. Not because they are “proprietary” or otherwise held out to be “secret special guru setups”, but simply because how one trader enters the market over another really has very little to do with his or her success. This is what separates pros from amateurs. Pros know you could have a strategy that throws a dart into the computer screen and it could make money provided risk and capital is properly managed. Trading is gambling. Period. You either accept that and learn that like all gambling strategies it can be edged and designed to be consistently profitable in the long run, or you keep on searching for the top secret, mindless mechanical formula that always wins no matter what and never find it while you lose all your money. In fact, one of the most valuable things members will post here is commentary about the reality of LOSING trades. You will notice one thing right away and that is more often then not we will say something like, “…we wouldn’t do anything different – happy with the trade – we lost because the market decided to go the way we didn’t think it would go.” Other days we will lament making a mistake which caused our loss and you will see how we instantly separate one from the other so that if it is a mistake we can learn from it. We will be talking lots about process in the member forums, but in general most members trade like this:

Members generally trade rejection of unfair prices by the market and target strong areas of interest where the market has previously been in balance. Balance is comfort and comfort is a magnet for price. Most members use some combination of fundamentals, market internals, and volume analysis to identify the areas of buyer/seller contention which they think will become opportunistic. Once the various general “battle” areas are identified members generally wait for price to enter their area and watch the order flow to time trade entries by seeking confirmation of prints around a few key prices. Simple, dynamic, nimble & effective.

Some members also trade pullbacks to breakouts through those unfair prices, but much less often then they fade them due to the need to use larger stops and sweat increased volatility. But they are trading in the direction of what most would call an intraday “trend” instead of against it as with the fade trades. We would rather wait until the market has already come through the volatile part of the unfair price area and is on its way to the next known support or resistance area – in the tractor beam as we call it. These entries can use much smaller stops, and depending on how close the next structure is, greater reward to risk than many of the fade opportunities. Another thing to note is that many amateur traders insist on trading intraday trends in markets not well suited to those behaviors in our view. There are markets that trend well consistently intraday, but the ES isn’t one of them. It is a noisy, jumpy market that is far better suited to shorter term reversion or continuation trading between individual structures in our opinion. This is partly because of its participants being so diverse – programs, spreading, speculators, dividend chasing in the underlying stocks, hedgers, etc. The S&P is a big, sloshing, global risk appetite dumpster. A parking lot at its best – and worst. A place for the world to park money that is too hungry at the moment for risk off instruments. For all these reasons, there are far better markets to trend trade if you would rather be a pure trend trader.

Next: How much will you share?

 Posted by at 1:49 pm