I was invited to sit in on a internet trading room a couple of days ago. I enjoy listening and watching other traders because I never fail to learn something new. And this emini trading room was no exception. I made few comments or suggestions during the session, nor did I completely understand the trading philosophy or methodology the group implemented. I just watched and marveled.
My guess is that they were a trend following group, but the day was a little choppy, no, it was very choppy and the market never developed a clear trend until the end of the day. A closing rally.
Generally speaking the group traded the emini using price action and chart formations, which is an area of trading I am not overly enthusiastic about, and seldom use in my own trading. Which is not to say that there are not chart formations, only that chart formations do not resonate with me, and I trade them poorly.
More to the point, the group spent the day chasing the ES price long and short. Usually late getting in, or not filtering their trades and taking poorly thought out positions, they had a difficult time finding profitable trades. The group did not have a clearly defined exit strategy, on the winning or losing side, so they tended to let bad trades run too long, and exit winning trades when they pocketed a few points. Needless to say, the group had a disappointing day in their accounts. They lost money. They lamented winning trades they sold out of too quickly, and losing trades they let run too far.
They were nice guys.
The problem was clear from the onset, they were letting the market dictate their trading. They entered trades based upon intuition or a few bars headed in the right direction. They let losing trades run until they could not bear the loss of money further, and exited the market when they became giddy over a few points of profit.
They chased the Dragon, and lost, like anyone who dares to challenge the Dragon on the Dragon’s terms.
Trading e-mini futures is a zero-sum game, which is to say for every winner there is a loser. It is also important to bring your “A” game to the trading platform, some of the best traders in the world trade the ES emini contract.
Winning traders don’t chase the Dragon, most days they slay the Dragon.
I am a pretty fair golfer, and one of the techniques I learned during my competition years was to visualize a shot before I took my swing. I needed to have an idea in my mind, see the idea mentally come to fruition, then execute the shot. You need to be at least that prepared when it is time to trade. You need to:
1. Have a clearly defined set of criterion you follow to the tee, no deviation, for entering trades. You need to have this set of criterion foremost in your mind.
2. You need to have a clearly defined exit strategy, no deviation, for every trade you take. It doesn’t matter what the strategy is, as long as it is feasible and within the mainstream of investment thought. Bracket trade, trailing stops, 12 ticks either side…put your stops wherever you feel comfortable, but never let a bad trade destroy you. If you got stopped out for a loss. it’s okay.
3. Develop a clear philosophy of how the market functions, and implement that philosophy into your trading style.
4. Keep a daily journal, including charts, of your trading activity. I don’t usually review recent trading, but look back at trading six months ago. It can be humiliating.
5. Trade the market, not the economy. One television station is particular would have you think the world is always rosy. Your job is to trade the chart in front of you, not the news.
In short, don’t chase the Dragon.
Oh, and remember, on some days your best is not good enough. Those are days to be spent on the golf course. Life is short, enjoy it. Tomorrow is another day.
