In my experience, a good deal of failure centers around three important factors that directly impact every new trader’s career. They are:

•    System
•    Communication
•    Experience

There are a wide variety of trading systems out there from which traders can choose.  Some of the programs are very large, some are famous.  There is no correlation, in my thinking and experience, between popular systems that can run more than $7-10000 and widely advertized and other systems which are based on sound trading methodology.  I’ve already written several articles on finding a good trading system, so I will not burden this article with that lengthy topic.

1.     Learn the System-  If there is one thing I see over and over is new e-mini traders trading real money and have, at best, developed a very limited skill level with the material and system he or she has paid for with their hard earned money.   I don’t just don’t get that thinking, but it is a rare student who starts simulator trading with me one on one that has properly prepared themselves to trade by learning the basic information of the system they are about to trade. They know some trades. They may know some of the interesting parts of a trading system, but they seldom know the details; and success in trading is in the details.  The end result of this thinking is that I end up spending a good amount of time explaining how charts and bars work when trading, when we could have been working on the business of learning to trade, not wasting time trying to hammer out the lingo and teaching the student material that is well documented in the written and video sections of a quality course.  Poor preparation is industry wide, and I read in the forums about systems I know well, and can trade effectively on my own, being bashed by individuals who “just couldn’t seem to get it” right and the concluded the system is undesirable.  I generally know what really happened.  Don’t study the material half-hearted and expect to learn the “meat and potato’s” of the system in the trading room.  Be over prepared.
2.    Communication- I have scads of new traders and potential traders come into the room and not ask a question, just sit and listen.  The most successful traders I have mentored were individuals who were fully engaged in the trading process and when the didn’t understand something, or some trade, they promptly asked why I am doing this and what did I see on the chart.  My preference is for small trade rooms that allow the room to interact.  Again, I have written an article on  this subject, but when all members of the room can speak to each other, there is a mutual learning process goes on, and their interaction, in my opinion, is often more helpful than the information I may impart.  In short, when you ask questions  you let people see where you need help and may get some suggestions how to remedy this or that.  Communicating creates a synergy in the room that allows everyone to learn.
3.    Experience-  When a new student first starts in the trading room, they generally lack any meaningful e-mini trading experience.  Simulators are great places to gain trading experience under the right conditions.  In order for a simulator to be an effective trading tool, the new e-mini trader must trade the simulator exactly as he or she plans to trade their real money.  Invariably, I notice traders trading 300 contracts on a trade, just to see how it would work.  You will probably not trade 300 contracts in your life, probably not even 100 contracts; but these playful dalliances with non-reality are very damaging to the discipline and emotional control a consistently profitable e-mini trader most employ.  In short, simulated trading programs are great if you trade with them exactly as you plan to trade with real money, but deviation from your specific trading mindset and methodology on the simulation is highly counterproductive.

In summary, I have stated the three most common mistakes new e-mini traders make.  Some spend their money on a course, then never bother to develop some mastery of the information.  Many traders sit and try to learn as “mutes,” and never get the benefit of room wide interaction.  And finally, it is very important to use your simulator in the proper fashion.  When you are consistent on the simulator, you are ready to go to the market.

In any event, it is imperative to always trade with your stop/loss limit defined and in place. I have known many e-mini traders who managed their stops mentally, without even an emergency stop, and eventually they encounter a disastrous result via a spike in the price action.  Always trade with stops in place; enough said.

But how do we set stops that are wide enough to allow a trade to develop, but narrow enough to fall within individual risk parameters.  If you run your stops too tight, you will find yourself stopped out of trades by ordinary market noise.  Too wide, and your losses can be staggering.  There are other factors when considering your stop losses targets, too:

•    Individual appetite for risk, ranging from aggressive to conservative (I recommend a conservative approach to trading.)
•    Market conditions at time of trading
•    Price positioning at time of e-mini trading decision
•    Size of traders account can sometimes dictate a certain trading style

I find myself favoring the use of the Average True Range (ATR) when considering the length of my stop/loss points.  Depending upon which author/system to which you subscribe, the suggested stop/loss is expressed as a % on the ATR; and the percentages range from 50% to 150% of the current ATR.  Though the numeric value of the ATR is an average of a pre-selected time period, they mustn’t be construed as predictive in the sense that they have an incredible sense of accuracy.  What we can glean from the ATR is that over the last, say, 14 time periods the market has average x and if things stay roughly the same, this is the kind of price range you can expect on a 3 minute bar, or whatever time period you have chosen.

So, we have learned that the ATR can give us an idea of what kind of price range/bar we have been experiencing, and barring any knowledge to the contrary, we base our stops on the ATR.
I like to use at least a 1:1 ratio on my ATR-set stops, and that may be a bit wide for some tastes, but I am a vocal proponent of using wide stops, as opposed to tight stops.  With our ATR number in mind, we now have a general idea where the price may move in the next 3-4 bars.  It’s a great technique, but don’t forget to keep an eye on support/resistance lines, fibgrid lines, and important Fibonacci lines when eyeing a trade.  Can you safely execute your trade while staying within the general parameters of support/resistance?

In summary, I have tried to make the point that stop/loss targets should be given consideration.  Too tight, and you find yourself stopped out of a trade on simple market noise; too wide and you expose yourself to excessive risk.  The key is to find that happy medium each day where you can handle a retracement without getting stopped out, and let your trade run when possible.  Great luck trading.

That’s a bit of an anomaly, isn’t it?

The intent of this short article is not to enumerate specific courses that are of high quality and other courses that are of lesser quality; the strengths and effectiveness of training courses run the gamut of effectiveness.  No, my intent is to stress finding a system that works and then learning that system so well that you can trade it instinctively.  Like many e-mini trading educators, I find it frustrating when I have a student fail.  It is my intention to train students to trade the e-mini contracts successfully.  In a sense, their failure becomes my failure.

On the other hand, every student has the responsibility to familiarize and thoroughly learn the methodologies and techniques presented in an e-mini trading course and the accompanying e-mini trading room.  Without a certain level of mastery of methodology and e-mini technique, the student’s chances for success diminish greatly.  There is, in fact, a dual responsibility by both the e-mini trading instructor and student to effectively learn and convey the basic principles of the e-mini course trading style.

Lacking that dual responsibility, most new e-mini traders are destined to fail and e-mini educators feel the pain of failure.  In short, this is the difference between a 90% fail rate and a 50% fail rate.  I have to concede at this point that at least half of all potential e-mini traders will find the trading profession unduly demanding or tedious.  Another group of students do not care to spend the day parked in front of a computer screen.  These are all normal reasons that students will leave an e-mini trading program.  Trading isn’t for everyone, and there is nothing to change that immutable fact.

But the focus of this particular article is the amount of effort that both the instructor and student must expend to reach a level of consistently profitable trading.  This is no small feat considering the wide-ranging level of information traders are required to assimilate.  In short, surveying the level of technical information can seem, at first, daunting and discouraging.  Like most areas of study though, a concerted effort by the student and consistent support by the e-mini trading instructor will result in the potential for positive results.  As I mentioned earlier, the failure of either instructor or student to exert strenuous and ongoing effort will leave a gaping hole in the student’s technical and methodological skill level.

In summary, we have discussed the dual role both students and e-mini instructors play in the game of successful e-mini trading.  A lack of effort on either partner in this “contract of learning” can result in a highly unsatisfactory result.  As a student, choosing a responsive and helpful instructor and time-tested system is essential, but the student also must be willing to provide maximum effort in achieving his or her goals.  Trading is not a profession where instincts and natural ability will necessarily lead to success.

Students with minimal training in my trading room enjoy similar success as the experienced traders who have taken a multitude of e-mini trading courses.  The reason for the disparity in the success lies in past e-mini trading instructors and the effort the student put forth in learning a particular trading course.

<b>Real Live Trading Doesn’t Lie.</b> Spend several days in my trading room and see if you can benefit from a fresh and unique view on trading e-mini contracts. Sign up for your free trading experience by <a target=”_new” href=”http://www.learn-to-trade-and-invest.com”>clicking here</a>.

On the other hand, the theory holds great value for trading in the short term, especially when used in conjunction with Bollinger bands. I generally set by Bollinger bands at 2 standard deviations from the mean and use a setting of 10 time periods. There are other settings, which may be 14 or 18, that give satisfactory results under unusual market conditions; but I find 10 to be the most dependable setting for my personal e-mini trading.

John Bollinger, in his article, “Bollinger Bands-The Basic Rules,” states that closes outside the Bollinger bands are continuation signals not reversal signals. In nearly all cases, closes outside the Bollinger bands tend to be continuation patterns, with certain exceptions.

In reasonably symmetrical continuation channels the Bollinger bands tend to define the highs and lows of the channel. As a quick aside, symmetrical continuation channels refer to channels where the price action is ricocheting off the top line of the Bollinger band and moving in a direct line, with little retracement, to the mean line or the bottom Bollinger band line. These channels are a delight to trade as they are usually very low volume formations and occur during the stand down period (from 11 AM CST to 12:30 PM CST with some daily variations). During the stand down period the market is often dominated by smaller traders. This is especially true on the YM e-mini contract. In a typical trade, the smaller traders will try to push the price action outside the Bollinger band and typically fail. It is at this time that I fade the failed breakout back into the channel.

With very few exceptions, the price action in the above-described scenario will revert to the mean average at the center of the Bollinger bands. I have used this technique for several years and can assure you that continuation channels seldom breakout or breakdown. A more likely scenario for this price action is a reversion to the mean centerline of the Bollinger bands or a move to the lower Bollinger band. (Or an exactly the opposite, depending on the direction of your trade.) The tendency for continuation patterns to revert to the mean defies many investment theorists judgment, but it is true, just the same.

It is important to understand that this principle I have outlined works only in continuation channels and is a disastrous principle to implement in a trending market, or even a choppy market. Its sole use is in a flat continuation channel. It’s also important to use a fairly tight stop should the market action choose to actually breakout or breakdown.

In summary, I have described a unique scenario in e-mini trading where Bollinger bands and Reversion to the Mean Theory can be utilized to initiate frequent and profitable trades. It takes some time and experience to learn as technique, but continuation channels tend to revert to the mean.

Real Live Trading Doesn’t Lie. Spend several days in my trading room and see if you can benefit from a fresh and unique view on trading e-mini contracts. Sign up for your free trading experience by clicking here.

Related Blogs

In this short article we will look at five types of bar charting techniques and give a short analysis of the advantages and disadvantages of each technique. We will be looking at:

• Candlestick charts
• Standard bar charts
• Heiken-Ashi charts
• Renko charts
• Range charts

It is my observation that the most popular charts and use today are candlestick charts. For the sake of convenience, we will be talking about bar charting techniques in relation to e-mini trading; though there are a wide variety of trading disciplines that employ the charting techniques we will discuss.

Candlestick charts

It is assumed by most historians that candlestick charts were developed in the 1500’s in Japan. Japan is considered by many to be the first country to develop a futures market of sorts in the rice trading industry. A candlestick is several components in its composition; a body, upper and lower wicks (though if the price closes at the top or bottom of a candlestick, it will not have a shadow at that point). It is also common to hear the wick formation referred to as a shadow. The body portion of a candlestick chart was traditionally painted black or white indicating the direction the body had moved. On most current charts, you will generally see upward movements in the body painted green and downward movements in the body painted red. There are groups of traders who have used traditional Japanese patterns in candlestick formations to predict movement in the market. The empirical evidence on accuracy of the predictive nature of candlesticks points toward a negative correlation and accuracy, though I would admit that a conclusive decision on this topic is yet to be formalized.

Heiken-Ashi Candlesticks

The Heiken-Ashi version of candlesticks also has its origins in the 1500’s in the Japan rice markets. They differ significantly from traditional candlesticks in that they are weighted in nature and are trend oriented. I have used them with success in my trading, though certain market conditions must exist for them to be used successfully. The formula for calculating Heiken-Ashi bars is as follows:
• Open = (open of previous bar+close of previous bar)/2
• Close = (open+high+low+close)/4
• High = maximum of high, open, or close (whichever is highest)
• Low = minimum of low, open, or close (whichever is lowest)
As you can notice there is a heavy weighting on the latter portion of the bar and the system is especially effective in trend following systems. There are a set of specific guidelines for using Heiken-Ashi charting bars which is reasonably extensive and beyond the scope of this article. However, I recommend any trader investigate this charting system as it has many useful applications.

Standard Bar Charts

While I no longer trade this charting system, when I learned the trade it was the predominant system in use. There are many traders at present who still prefer standard bar charts, especially stock traders, for their charting needs. Standard bar charts are reasonably simple in their construction; there is a vertical line that shows the range of the traders chosen bar time. And a hash mark on the left side of the line to indicate the open, and a hash mark on the right side to indicate the close of that particular bar. This charting system is often referred to as an OHLC chart. While this may be the simplest of charting systems, it’s still important to note that all charting systems are essentially displaying the same data in different formats.

Renko and Range charts

These two charting systems are similar in many ways, though they have some very distinct dissimilarities that should be thoroughly understood before undertaking any serious trading with them. Like candlesticks and Heiken-Ashi charting, Renko bars also have their origin in Japanese trading. Quite literally, Renko means bricks. Renko bars are often referred to as bricks by e-mini traders. When using these bars you set a specific range to be charted. For example, you may set your Range and Renko bars to a setting of four. With a setting of 4, every time the market moves 4 ticks a bar is formed. But there is a fundamental difference between Renko and Range bars. Range bars chart market movement in either direction, while Renko bars chart only in one direction. For example, when using Renko bars the market would have to move 4 ticks upward or downward before a new brick is displayed. On the other hand, a range bar will chart the complete range, up or down, and form a bar indicative of this movement.

In summary, we have taken a close look at 5 different charting tools. While an in-depth discussion of the advantages and disadvantages of each system would entail a very lengthy discussion, I have tried to point out some basic advantages and disadvantages of each system. Each type of bar charting system provides a definite purpose for the e-mini trader, and I recommend serious e-mini traders investigate the advantages and disadvantages of each of these charting systems.

Real Live Trading Doesn’t Lie. Spend several days in my trading room and see if you can benefit from a fresh and unique view on trading e-mini contracts. Sign up for your free trading experience by clicking here.

Related Blogs

For me, the lack of trading consequences leads to long-term problems.

As difficult as it may seem to believe, I have several students in my trading room who have been e-mini trading on simulators for several years. I frequently ask them why they have not moved to trading with real money, and they respond that “they want to completely understand trading before moving to an actual live account.” Of course, the real problem in this equation is fear of failure, and putting off an actual test of their trading skills is a suitable substitute for dealing with the issue of actually winning and losing trades. Even the best traders make trades that lose money. I have been trading for most of my life, and have entire days that end up in the negative column. I don’t enjoy losing, but it is a fact of life in the world of trading. I have even had periods of time where my trading style was not in tune with the market and I have had losing weeks, and occasionally even a losing month. It doesn’t happen often, and never in recent years, but learning to deal with losing trades is part and parcel of learning to trade.

On the other hand, I like for students to use an e-mini trading simulator for several weeks so that they can learn the features of a trading platform like:

• How to place a trade at a specific price
• How to set up stop loss orders
• How to set up staggered profit targets
• Learn the general operating features of a trading platform
• Place simulated trades to get a feel for how the price action looks on a DOM.

In short, simulators are great places to learn how to operate a trading platform and implement the trading strategies the new student has been learning. But when fear begins to replace the learning feature of a trading simulator, it is my experience that most traders seldom make the transition from simulator to trading actual money. Until traders can make that quantum leap from pretend trading to real trading they are doing themselves a great disservice and would probably be best served spending their time in an avocation more suited to their psychological and emotional parameters. Trading is not for everyone.

So, if you have been e-mini trading on a simulator for more than a year I would have a heart to heart conversation with myself. After a year of learning, you should be able to initiate a good number of winning trades, and experience some losing trades. Each trading experience is a learning moment and in order to learn you have to be an actual participant; extended time spent on a simulator is little more than participating in trading as a spectator. This is something for you to consider and take to heart.

In summary, we have pointed out some excellent benefits associated with simulated trading and pointed out that an extended period spent in simulated trading may not be beneficial to a new trader. It is my opinion that traders should learn to trade on live accounts. In short, get off the sidelines and onto the field of play.

Related Blogs

Forex trading has gained a large following in recent years as a popular day trading vehicle. It’s not unusual to observe a barrage of Forex firms touting their services on just about any financial news publication. As a longtime institutional stock trader and commodities trader I am often shocked at some of the outrageous claims and advertising techniques this industry utilizes. This type of advertising and verbiage is simply not allowed by the SEC or the CFTC. The Forex industry, on the other hand, is lightly regulated and offers no centralized exchanges like the securities industry in the United States and has virtually no regulation on advertising technique and claims.

From the onset I want to point out that the United States stock and futures exchanges have their share of hucksters and fraudulent activity. You need only peruse the current SEC and CFTC enforcement actions to get an idea of the amount of illegal activities that occur in our highly regulated exchange based trading structure.

On the other hand, the lightly regulated Forex industry has been in recent years the target of both the SEC and the CFTC, with good reason. Exchange traded securities provide potential traders with a high level of transparency and information in regards to the equity product or series they intend to trade. Variables like a leverage, registration of broker-dealers, and capital adequacy requirements are just a few necessary requirements that would go a long way toward establishing much-needed transparency in the Forex industry. Further, and from a personal standpoint, I believe a centralized exchange for Forex trading would be optimal for the industry.

By means of comparison, the futures industry and stock trading exchanges have rigid leverage, registration and capital adequacy requirements. In addition, e-mini trading is all conducted through well-regulated and orderly exchanges that feature reliable data feeds that provide real-time information on volume, trading entities, and pricing to all participants. This transparency in the futures industry is a sharp contrast to the murky Forex industry which is dominated by individual banking interests. Quite simply, there is a shocking lack of transparency in the Forex industry. In an orderly market, all participants ought to have access to accurate real-time information and standardized trading contracts.

Another concern of the SEC and CFTC is the leverage requirements in the Forex industry. The current United States industry standard for leverage and a Forex industry is 100:1. The most recent regulation proposes lowering the leverage standard to 10:1, which is a departure from the current leverage standard that is a quantum leap in scope. For a variety of reasons, Forex traders have been, by and large, fiercely critical of these regulations. Since the CFTC can only regulate firms in the United States, offshore firms would still be able to offer the absurdly high leverage requirements the Forex industry has enjoyed. The obvious result of this new regulation would be a mass migration of Forex traders from United States based firms to offshore firms that would not fall under the proposed US Forex reforms. There is, however, regulation under consideration that is very similar to offshore betting operations; in short, it is unlawful for US citizens to patronize offshore betting firms in order to circumvent current US law regarding betting. The proposed regulation for patronizing offshore Forex trading operations is very similar to the limitations of US citizens circumventing United States Forex regulation. In short, Forex traders based in the United States would be required to trade through domestic Forex trading operations.

In short, I don’t trade Forex because of the lack of transparency and a centralized exchange. In my opinion, there is simply too much potential for manipulation of bid/ask quotes, front running, and outright fraud. Currently the Forex industry leads security related scams by a wide margin, even though it is a small portion of the total day trading aggregate.

To summarize, the Forex industry has great potential to become a legitimate and profitable day trading option. In my opinion, the industry must institute strict regulation before its legitimacy can be truly realized. I think that in time all of the above addressed the problems will be rectified, but until there is true transparency in the Forex industry I believe I will abstain from participating. We have identified problems like over leverage, lack of registration, and the absence of a centralized exchange as problem areas in the Forex industry. Until these problems are addressed, I don’t think the Forex industry will reach its full potential.

Real Live Trading Doesn’t Lie. Spend several days in my trading room and see if you can benefit from a fresh and unique view on trading e-mini contracts. Sign up for your free trading experience by clicking here.

Related Blogs

I emphasize trading with the trend and rely upon momentum for most of my profitable trades. I find when I trade against the trend, except in a few specific trades, I end up with a marginally profitable or unprofitable e-mini trade. For that reason, I’m going to recommend learning 2 “with the trend” trades and one countertrend trade that I have found to be reliable in my personal trading.

These traits include:

• Breakout and breakdown trades in and around areas of support/resistance
• Entering a trade in the trend after a retracement
• The Ambush Trade

Breakdown Trades in and around Areas of Support/Resistance

I probably don’t trade is often as some e-mini traders because I don’t feel there aren’t that many high probability setups available each day. But one of my favorite setups is at the open of the session and there is a support/resistance line in the proximity of the direction of the markets initial move. I will generally set a buy stop or sell stop 4 or 5 ticks above or below the resistance or support and wait for the price to come to my entry. I pay special attention to volume in this trade and like to see increasing volume is the price nears the support resistance line. Sheer momentum will often carry a price action 10 to 12 ticks past my entry for a nice stop. Often times, there is a great deal of institutional and professional trading volume in these moves and they are very successful.

Entering a Trade in the Trend after a Retracement

During the course of a trend it is common, almost probable, that the trending action will take a short break and retrace some of the ground it has gained. This makes sense, as at some point e-mini traders will begin to take profits and the trend will take a temporary sideways or downward break. Depending upon which author you care to read, the trend resumes about 70% or 80% of the time. So, as the retracement in a trend begins to wane, it is an ideal time to reenter the market in the direction of the trend and ride the second leg of the trend for a profit. I would say that this is probably the most common trade I take on a daily basis and it has a high degree of success.

The Ambush Trade

The ambush trade is one of the few countertrend e-mini trades that I truly have a high degree of confidence in initiating. With this trade the e-mini trader can draw a Fibonacci continuum on graph and wait until the countertrend retracement reaches between 50% and 62%. There is a high probability in this zone, commonly referred to as the ambush zone that the market will once again resume in the direction of the trend. This is a trade I take routinely when the price action has reached 55% of the entire length of the trend as measured by the Fibonacci retracement path.

A quick note here about probability is in order; because there is no such thing in will trading is a guaranteed trade. Every trade has a higher or lower probability of succeeding or failing. (Though it is hard to measure empirically) Even the best setups can fail miserably and disappoint. This does not, however, deter me from taking the same trade should I see it set up again. I understand probability, and even the best setups have a certain component of failure and their probability.

In summary, we have looked at two “with the trend” trades and identified the conditions that need to be present for them to have the highest potential for success. We have also looked at one “against the trend” trade that has a high potential for success. Since trading is based on probability, we know that even the best setups have the potential for failure and except that is a part of and e-mini trader’s mentality.

Real Live Trading Doesn’t Lie. Spend several days in my trading room and see if you can benefit from a fresh and unique view on trading e-mini contracts. Sign up for your free trading experience by clicking here.

Related Blogs