I am scalper, that’s why. I am looking for very short fluctuations in the markets to exploit and earn 12 ticks, or three points. It’s my only goal in trading. I don’t care if the market it going up or down as I am as comfortable being long as I am being short the ES Emini contract. All I seek is movement and the ability to ascertain which way the market may move for the next ten minutes.

I don’t let any trades go overnight, ever.

I don’t let a winning trade turn into a losing trade. (This is sometimes easier said than done)

I have a system, and I never “guess” what the market might be going to do. The variables in my system must meet certain criteria before I trade.

If I don’t feel good about a potential trade, I don’t take it.

I use an 89 period SMA and if the price action is significantly above the average, I only take long trades and, conversely, if the price action is significantly below the average I take only short trades.

I avoid counter-trend trades like the plague, yet I find myself taking the occasional counter-trend trade.   Don’t ask me why, I do not know why.

I use the MACD, CCI, Average True Range, DecisonBar and Stochastic indicators in combination to select my trade.

The entry points for the CCI and Stochastic indicators must be in agreement for me to take a trade.

I never break my entry rules.

I pay close attention to pivot points, and Fibonacci Retracement levels.  I use these tools as background information, not primary indicators.

I recommend most people start with the YM contract, and then only after a month or so of paper trading where the trader can consistently profit on a daily basis.

There are no born traders, there are well trained, intuitive traders.

My mother thinks trading is for idiots.  (I hope she is wrong, on this one)

On the CCI, pay careful attention to the +100 and -100 levels, they are your entry points.

On the stochastic indicator, pay careful attention to long and short crosses.

Never trade without stops, ever.  Never trade without stops, ever.

Have a target profit point, too.

I sometimes let trades run, but you often risk giving back all your gains when you implement this strategy.  Pigs get fat, hogs get slaughtered.

Decision Bar has kept me out of more terrible trades than I care to think of.

A change in the direction of the divergence line on the MACD might be a good reason to consider exiting a trade.

I never double down on a losing trade.

I’ve never been able to make head or tail of chart formations, as they make no sense to me.  They may work for some people, I ignore them.  To me, Head and Shoulders is shampoo, not a potential entry point.

While you should profit most days, there will be days when you don’t.   That’s okay.

“I would love to hear more of your mistakes. I am sure it would be something everyone could learn from. As for me, why is it when I print out a chart of a day I can see all the spots where I should have gone long or short but when I am in the middle of it all, I miss so many of those opportunities? It is supremely frustrating. Looking forward to the day when my entries look like yours.”

I got a chuckle out of this comment, because if were to enumerate all the boneheaded trades I have made over the years, it would be a 50 page post. I suffer from all the maladies another other trader suffers through. My biggest weakness is to be happy with a three point gain in a trade, especially if I am bracket trading with 12 tick stops. I have also moved stops to accommodate a losing trade if I erroneously feel I am in a good trade and the market isn’t cooperating.

In general, I make the same mistakes most traders make while trading, and that is getting my emotions/ego involved in a trade, which is the recipe for a disaster. I have traded long enough, and professionally, so I don’t make these mistakes as often as I once did, but there will be a real stupid trade on my part at least once a month, and I will try to highlight those trades in the future.

I have always contended we should trade without our emotions and just trade the chart that is in front of use, though I do suggest you be mindful of the economic announcements that are scheduled for that particular day. The problem is, as a human being, it is virtually impossible to check your emotions at the door. Emotions are an integral part of our personalities and we ARE NOT robots, no matter how hard we trade.

As I have often discussed, any trade is has a binary outcome, though the probability of a trade becoming a highly successful trade involves a very complex algorithm, as each step upward (say, in a long trade) has an independent probability than the previous bar. But a convenient way to look at trades is basically a probability play, and I have spent long hours studying and calculating the probability of certain set-ups. Still, if a trade carries a 70% chance of winning, you must not forget that it also has a 30% component of losing. So the probability angle simply becomes an educated and well studied decision to trade when the odds are in your favor, and avoid trades when they are not in your favor. Still, even with that mindset, some of the best setups are going to produce unsatisfactory results. That’s just part of the game. Factor in a few bone-headed trades and you have the makings of an unsuccessful day of trading. I’ve don’t it, believe me.

My thought process when I see a good trade is to find reasons not to take the trade, or at least weight the positive possibilities of the trade against negative possibilities of the trade. In essence, I go through a process of an internal argument against the trade until I reach a conclusion. This facilitates the account busting practice of over trading. If you are trading more than 5-8 trades a day, you may consider whether or not you are overtrading your account. On the other hand, some days present great opportunities and you may have the odd day when you trade a few more times than usual.

In summation, emotions/ego involvement are my Achilles heel, as is true with most trade. I can be stubborn. But remember, if you are in a bad trade and things are definitely not conducive for a good trade. Exit the trade, and find another good set up.

Today I’d like everyone to welcome Michael Michaud from Invest2Success.com.

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Do you use stops on all your trades? Trading without stops is the ego wanted to never be held accountable to admit that a position was a mistake if a certain level is breached or if a certain set of circumstances play out in an unexpected manner.

Let the market take you out. This takes your ego out of the decision – this decision on what stop level to exit should be calculated before entering the trade. Again you want to prevent your mind playing tricks by rationalizing a new reason to hold on to a poor performer. I review my trading journal each day in order to remind myself of the #1 Entry Driver for the positions and key stop levels. If any of these are broken, I have lost the edge projected and should exit such busted trade’s immediately.

Most traders think of stops relating to their exit of a position, but one of the most preferred entry techniques also involves a stop. A stop order to buy (or “buy stop”) becomes a market order when the price trades or is bid at or above the stop price. A stop order to sell (or “sell stop”) becomes a market order when the price trades or is offered at or below the stop price. The objective here is to only buy when the price takes out a significant prior high, or sell when the price breaks to a meaningful new low point. In this way I make the trade prove to me that it wants to make the anticipated move. If it doesn’t, I don’t get into the trade. Many times this method is far superior to the limit order technique of trying to buy below the current market price or sell above the current market price. What I generally have found is that limit orders hoping for a better price are merely another ego behavior to believe that we can tell the market what we want it to do. In turn when I missed out on getting filled due to a tight limit order, I was often left watching from the sidelines as the price mounted a continued trend. The stop entry has triggered me into some trends that I would have otherwise missed.

You should define an initial stop point for your trade, before you enter the trade. This determines the risk you are willing to take. The whole purpose of a stop in my opinion is to define the point at which the trend is invalidated. The potential reward should preferably be three or more times the risk you are willing to take. Next, you need to determine if a position is working for you, how will you protect your profits? This is known as a trailing stop. In a good uptrend, I prefer to use a close under the 10-day exponential moving average as my trailing stop, unless I am using another method as my driver in the trade.

At this point, let me explain my preferred stop method. I tend to use “closing stops”, meaning I don’t want to place my stop order intraday to be gunned by the floor or taken out by day-trader noise. Many battles are fought during the trading day, but the war is won at the close. We want to wait to see who wins the war at the end of each session. If XYZ stock is going to close against my closing stop level, then I place a market order to close the position in the final minutes of trading (if you miss this exit as subscriber for any reason, you can still place a market order to exit on the next morning’s opening price). If the stock happens to be within a few cents of this level and it is unclear, I will wait for the close, and if my level breaks, I will make sure to sell it at the market on the next trading day’s opening price. This has kept me from getting whipped out of a number of good swing trades during the day, while still giving me the ability to exit when the stock has proved me wrong by day’s end. Some worry that a stock may move too far against them by the close compared to an intraday stop, and occasionally a stock will be filled well against our closing stop by the end of the day. But that risk is small compared to the bigger risk of getting whipped out of a position intraday, only to have it post a strong reversal in our favor and be off to the races. I call these “Bend But Don’t Break” points. You want to wait for the end of that bar’s close. If the chart is a weekly chart, wait until the end of the week’s close to stay with the true trend while others will tend to get faked out.

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