Eminimoney Syllabus

This following is a quick guide for new traders to become familiar with the concepts and strategies we use to analyze the emini S&P and put the odds in your favor when trading. This is not meant to be an exhaustive document covering every aspect of our methods. It is not mean to be a substitute for the teaching/training we do in the room. It is meant to be used as a resource for you to get a good foundation from which to build on with your trading. It will answer most of your questions regarding our strategies, money management, timeframes, markets we watch, and market structure. You will also find a simple glossary of terms we use at the end.

It is highly recommended as you come in to this program that you trade on sim or simulator. Ninjatrader has a very effective simulator to practice trade. Some think it is not realistic and easier to get fills. Ninja is set up such that you will not get filled at your limit order until the bid/offer goes to zero. I have seen it go down to 2 or 3 contracts and not fill your order because it never totally wiped out the bid or offer. In real trading you would have been filled at your limit so it does provide realistic execution. The idea that sim is worthless because it’s not real money is a fallacy. However you must approach sim just like real money. When I coached my son’s sports teams I told the players, “You will play exactly how you practice”. If you screw around at practice, that’s how you will play at game time. It’s the same thing with sim trading. We want to build a set of habits that foster good trading skills. Money is not the goal of trading. Money is the “by-product” of trading a sound method, following the rules, and taking the best possible trades you can. If you do that, the money will follow.

When learning any skill, you will make mistakes. There is no reason to risk real money during the initial learning curve. Stick with sim until you show profits on a consistent basis for several weeks. Then you can move to trading real money. Even then it’s not “all or none”. You can go back and forth. Take a real trade. Take some profits. Then go back to sim. Ease in to real money. This is a marathon, not a sprint. We want slow and steady, consistent and confident progress. We want to approach trading with the respect it deserves.

It’s been said you can give 10 traders a 100% winning system and you will get 10 different results. That is because traders are people and people make mistakes, come with biases, misconceptions about trading, and more often than not, just have bad information when it comes to trading. In other words, it’s your mindset, your inner dialogue, that will play a crucial role in your long term success. This is where a lot traders start to tune out, when they hear talk about trading psychology, trading mindset, beliefs, habits, etc. They just want someone to “Show them the entry”. Those traders will not make it in this business.

In Jack Schwager’s book “Market Wizards”, a classic if you have not read it, Ed Seykota says “Everyone gets what they want out of the market”. That’s a tough one to swallow if you are losing day after day. But it is true. You are working out your own beliefs about trading and also money. Whatever your beliefs, they are the programs running in the background that will impact your trading.  You may not be aware of them, but they are there, and when you start trading, those programs go in to high gear. Do not underestimate the impact your upbringing and beliefs play in your results as a trader. The good news is, we have a solid method so you will have the opportunity to work on your mental game without being distracted by the fact that you are trying to trade a method that does not work.

The 5M Candle Chart

This is our primary chart. It is fast enough to catch most significant moves yet slow enough to keep us from overtrading. It’s our chart of choice and the chart we use to make all of our trading decisions. See below:

Market Structure:  The Dow Theory

The Dow theory on stock price movement is a form of technical analysis that includes some aspects of sector rotation. The theory was derived from 255 Wall Street Journal editorials written by Charles H. Dow (1851–1902), journalist, founder and first editor of The Wall Street Journal and co-founder of Dow Jones and Company. Following Dow’s death, William Peter Hamilton, Robert Rhea and E. George Schaefer organized and collectively represented Dow theory, based on Dow’s editorials. Dow himself never used the term Dow theory nor presented it as a trading system.

Charles Dow proposed a theory over 100 years ago about how markets move. The theory states that “A market is in an uptrend when it creates a series of Higher Highs and Higher lows. The market is in a downtrend when it creates a series of Lower Highs and Lower Lows”.

These 2 simple statements are as true today as they were years ago when Charles Dow proposed this theory and this simple premise can be used in our trading the emini each and every day. This concept is the foundation of what we do and how we analyze the market. We call the Dow Theory “Market Structure”.

When a downtrend based on the Dow Theory definition underway, once the market breaks (closes above) a Lower High, the potential for a trend reversal up is very high. When an uptrend based on the Dow Theory definition underway, once the market breaks (closes below) a Higher Low, the potential for a trend reversal down is very high.

This simple pattern presents itself multiple times every single day in the emini S&P and is very reliable. Below is a simple diagram visually showing you what the down theory is and how it applies to “trend”.

5M Chart – Adapting the Dow Theory to Day Trading

When the Dow Theory was formed day trading as we know it did not exist. The theory was not applied to intraday charts, like the 5M chart we use.

The Dow Theory says an uptrend is a series “higher highs and higher lows”, and a downtrend is a series of “lower highs and lower lows”. For intraday trading we define the HH and HL, LH and LL using swing points to determine the current trend of the market objectively.

Swing Points

Swing Highs are defined as a candle that makes a high and has at least “one” candle that is lower than the high candle on each side of the high candle. But it can have more than one candle that is “lower” on either side. One candle on each side is the minimum required to meet the definition. See below:

The same holds true for a Swing Low, only inverted:

The above are 2 basic examples. While most swing points have candle wicks on the top or bottom, the swing high or swing low points do not have to have a candle “wick” to be valid, they may have a candle body at the bottom or top of the swing point. In addition a swing high/low may be 2, even 3 candles all at the same price but those 3 candles must have lower highs on each side to be a swing high, or higher lows on each side to be a swing low. Swing points viewed on the chart should be obvious and jump off the chart like the examples above.

Each day the market moves from a swing high to a swing low and from a swing low to a swing high no matter what the trend is. In a downtrend the market moves from a Lower High (swing high) to a Lower Low (swing low), to a Lower High, to a Lower Low, and so on and so forth. Once the market has found a bottom, it goes and looks for a top, and once it finds a top, it goes and looks for a bottom, whether in an uptrend or a downtrend. We want to take advantage of this movement noting when levels are broken, closed above/below on our 5M chart, and taking the necessary action if required to take a position.

In summary, we define the current market trend based on the Dow Theory using Swing Highs and Swing Lows. An uptrend is a series of Higher Swing Highs and Higher Swing Lows and a downtrend is a series of Lower Swing Highs and Lower Swing Lows. See the chart below.

Market Structure Filter – The 5 and 15 Exponential Moving Average

Because we are trading intraday, there is a lot of irrelevant information, or noise we have to “filter” out. This will help keep us out of “false breaks” increasing our accuracy in our trading.

We do this by combining the crosses of 2 exponential moving averages, or EMA’s, with price movement. Our EMA’s filter most of the false breaks of levels that inevitably occur. Our price movement filters out false crosses of the EMA’s. Price filters the EMA’s, and the EMA’s filter the price. When combined, the synergistic effect puts the odds dramatically in our favor so we can take the highest probability trades a few times a day and consistently hit our daily trading goals.

The EMA’s we use are the 5 and 15. However we do not use the EMA’s like most traders. Whereas most traders are trying to trade the EMA’s crosses like a trading system, cross up buy, cross down sell, we know that is not going to be successful. We use the EMA crosses to “confirm” swing breaks we see on the chart. If price breaks, closes above a swing high, and the 5 EMA crossed from below the 15 to above, we say that we have “confirmation” from the EMA that the swing high break is valid. If a swing low is broken, or closed below, and the EMA 5 crosses from above the 15 to below, we say we have “confirmation” from the EMA the swing low break is valid.

 

In the chart above you can see when the market broke, closed below the swing low on the chart, the EMA’s confirmed the break was valid and the market made its way lower as expected. Later, the market broke a level to the upside by closing above, and once again the EMA’s confirmed and the market moved higher. (don’t concern yourself with entry just yet)

These 2 trades are what we call “Primary” trades because they are the FIRST trade, or Primary trade that occurred AFTER the level was broken, and the EMA confirmed the break. ANY trade taken following the primary in the same direction is called a “Secondary” trade. A secondary trade is nothing more than a “continuation trade.

We now have a foundation for trend analysis using the simple Dow Theory. We have added a trade filter, the EMA’s, to filter any false price breaks on the chart. In turn the chart filters out any false crosses of the EMA’s. How? If the EMA’s cross and no level is broken, it is a false cross of the EMA’s. Most use the EMA’s incorrectly. They are not a trading system. The EMA’s just gives us Red Light or Green Light to take a trade in a given direction.

You now know how to identify Swing Highs and Swing Lows in our analysis for pinpointing the levels needed to break based on the Dow Theory and how we confirm those breaks using the EMA’s. At this point we have 2 basic rules to take a potential trade and those are:

1)     Break a level, close above/below the necessary swing point

2)     The EMA’s cross in the direction of the desired trade confirming the break

Those are the only rules the market has to meet for a “potential” trade. Now that we have our basic rules, the next step is determining the entry zone.

Simple Support and Resistance

While it might seem obvious, the S&P can only do 1 of 3 things. The ES can go UP, it can go DOWN, and it can go SIDEWAYS, or consolidate. That quickly takes the mystery out of market movement.  If we know the market can only do one of 3 things then all we have to do is observe what the market is doing right now. If the market is moving lower, it is making lower highs and lower lows. If the market is moving higher, the market is making higher highs and higher lows. Seldom does the market go straight up or straight down but it does do that at times when reports or political news comes out.

If we look at your typical S&P day, once the market establishes an up trend, it likes to pull back to areas on the chart where there was a disagreement between buyers and sellers. That area would be the “sideways” consolidation. We can see where in an uptrend sellers step in and begin pushing back the buyers while the buyers still keep pushing the market higher. This tug of war goes on until either the sellers give up and the market goes higher or the buyers give up and the market goes lower. It’s that disagreement between buyers and sellers that cause the sideways. It’s that sideways that creates areas of support and resistance.

Once the market moves higher and breaks a level and turns the EMA’s, we call that a move of conviction. We know after a move of conviction the market will typically pullback as it encounters resistance. It will pull back until it encounters buyers, or support. The market pullsback 100% of the time. We just don’t know where or when. But we don’t have to. All we are required to do is wait and watch to see when it pulls back.

These sideways areas can be a simple “pause” of one candle, or can be 3,4, 5, or more candles creating a range. Both create support and resistance with larger sideways ranges being more important because they spent more time creating those levels. The market does not spend time in an area unless it’s important. See the chart below:

This is how all markets move on all timeframes. We can use this information to our advantage once our rules are met. These are the levels on the chart we want to look for to correlate, or match up with our fibs. Notice the rectangles on the chart above are drawn on the candle bodies and ignore the candle wicks? Those wicks are also “market noise” around key support and resistance levels. The core value is in the candle bodies. Unlike the Dow Theory where we use swing points, the ranges are identified using the candle bodies.

More examples of ranges:

In addition to Fibs and ranges or chart levels, we have our EMA’s that we use for confirmation of our swing breaks. They are a quick visual guide right on that that help us in finding a good entry area by combining them with the fibs, the ranges/levels on the chart.

So now our rules look like this:

1)     Break A LEVEL, close above/below the necessary swing point

2)     EMA’s CROSS in the direction of the desired trade confirming the break

3)     Correlate –  (FIBS) – EMA’sSUP/RES (Chart levels/Ranges)

 

#3 is not a rule but it is the next step in taking a trade. It is a powerful combination to find the best possible entry with the greatest chance for success. We do not use Fibs, EMA’s, or chart levels as stand alone entries. We want the combination of at least 2 if not 3 of those to help us fine tune our entry zone.

Trade Entry – Putting it all together

The price we want to enter is not just “one price”. Entry price is a zone. Why? Because no one knows exactly where the market is going to stop. We want to find the ZONE, where other buyers are most likely to enter, in the case of going long, or where other sellers may enter in the case of going short.

The first step is to measure and look for a 38% and 50% Retracement of the last move that broke the swing point. This is standard technical analysis for pullback that has a high degree of probability the market will pullback to those fib levels then reverse enough in our favor to take some profits without our stop being hit. That is all we can ask for on any trade.

Understand we do not randomly buy or sell a 38% or 50%. We want to correlate that fib level with support or resistance on the chart, the ranges that we defined above, and see where the EMA’s are during the pullback. Using the Fibs, EMA’s, and support and resistance gives us 3 point of interest to SEE the most likely place for trade entry and the reversal we are looking for.

See how it all comes together in the chart below:

 

Based on everything we have discussed so far, the ES was in a downtrend. It bottomed out then broke the swing high at 9:00. The EMA’s confirmed that price break by crossing. The market is now in an uptrend based on our rules and definitions. We then measure the last move to see where 38% and50% is AND if there is some level on the chart to support buying around the fibs. As you can see the 2315.50 resistance from the range below became good support once above, which was also at 38%% AND our 15 EMA. Our conditions were met for longs BEFORE the entry occurred, breaking a level, and the EMA’s confirming the move higher. THIS IS A PRIMARY TRADE because it is the FIRST trade following the break of a level and the crossing of the EMA’s.

See below for the same rules, conditions, and entry strategy for a short trade:

Again, as you can see, the Dow Theory, when we broke the HL on that red candle, confirmed by the EMA’s did in fact reverse the market. We simply measure 38% and 50% and correlate with a level on the chart to see what coincided with the fibs and the EMA’s and the market reversed from that “zone” giving nice profits. This again is a primary trade to the downside because it was the FIRST trade after the break of a level and the EMA’s crossing. Any trade taken short following this primary short is a secondary trade.

Below is a chart with 2 primary trades:

And another chart showing a primary short, then long trade:

And again:

And the power of using 50% (Fibs) as a guide in your trading:

These trades happen every day using these simple tools, Fibs, EMA’s, and Ranges or “chart levels”. If you are patient and wait for the market to come to you on your terms, you can do very well without a lot of stress.

These trades were not cherry picked for examples. These trades happen every single day because this is how the market moves and it’s never going to change. Charles Dow got it right, however most traders have either forgotten about the Dow Theory or quickly dismissed the simplicity of this method of analyzing makrkets and trend. We on the other hand will take full advantage of it every time the opportunity presents itself.

Also, these are “textbook” examples of long and short trades. There are variations and those variations will be covered during the room reviews and classes given each day.

Keep in mind the market is not a machine. As accurate as our methods are, and as high probability as they are, the market does not always come right to our chart level, or to our 50% measurements. Sometimes it goes right through them. Sometimes is does not quite reach them. However this is the way the market moves. It’s not perfect though some days it is uncanny how our levels will hold or our targets are hit to the tick. But we should not expect the market to hit our levels to the tick every time. If we do, we will miss many trades due to not being filled or take too much heat on a trade and “panic out” of the trade only to see our stop hold and our trade go to target. The point being is you cannot be mechanical in your approach. You can however be mechanical in the way you apply the rules.

Understanding support and resistance from a visual standpoint is the key. You can’t think a trade, you can only SEE a trade. If you don’t know what a high probability trade looks like, how will you take it? If you can’t see support or resistance, how will you know if you are at support or resistance?

Accepting these simple concepts of market structure, the Dow Theory, and EMA confirmation, then allowing the market to pullback to a reasonably safe level for entry will allow you to focus clearly and confidently on the task at hand which is to observe the market, see if our rules are met, then take the trade when it presents.

Again, our goal here is not to cover every possible detail and scenario, but to give you a good foundation so when you are in the room and we are holding classes you will be familiar with our concepts and terminology so you can follow along with our teaching and begin to learn in a systematic way how to approach the S&P.

Now we have come to the Stochastic. We use the Stochastic for divergence. Divergence is a warning sign the trend may be slowing and follow through on a trade or current position may not be forthcoming.

See the chart below for examples of Divergence:

Notice how after the Divergence, the market slowed down and in these cases revered. At times, on strongly trending days, the market will keep going once, even twice with Divergence present. Our general rule is to not trade against divergence. Trending days may present some exceptions. Even then trading against Divergence must be done with great caution.

Our 5M chart is now complete using the 5 and 15 period EMA along with the 3, 14, 3 Stochastic (see Chart Setup). It’s a simple setup that any one can use with any charting platform. There is no need for proprietary indicators to trade the emini S&P.

Using our chart setup gives you a greater understanding of how the market moves and puts you in a place of emotional control because now you know exactly what you are waiting for. When you know what you are waiting for, you have a much better chance of being patient. You are not sitting there with your hand glued to the mouse for fear of missing a trade. These trades do not sneak up on you, you can see them coming a mile away so you have plenty of time to prepare for entry. It also means that you know when “not” to trade. A valuable skill most traders never learn. 3 or 4 good opportunities in the morning are all you need.

Targets, targets, and more targets – The power of the 60M chart: The 60M chart is the chart a lot of the professionals, the bigger players, the institutions, trade from. While we cannot trade a 60M chart realistically without much deeper pockets or additional risk it has incredible value for us to give us good levels that the bigger players will push the market towards, our targets. Everything we do on the 60M chart for analysis is just like the 5M. I learned many years ago from a great mentor, that any method of analysis that is valid should hold up on any timeframe. This is the case with our market structure and how we can analyze the 60M chart. Just like with the 5M chart, the 60M chart shows us direction moves by making higher highs and higher lows for uptrends and lower highs and lower lows for downtrends. Just like on the 5M, our 60M will go “sideways” and create support and resistance levels. Those are incredibly powerful levels for our trading targets and are hit every single day when appropriate for current market conditions. We would not look for a 10 point target if the ES is in a 6 point range.

It’s the power of those consolidations that our reliable targets are derived. But just like the 5M chart, we want to keep in mind that noise that is on every timeframe. When putting specific lines on our 60M chart to identify support or resistance lines/target lines, we will ignore the candles wicks, just like on the 5M chart. We will “border” the consolidations by putting our lines on the candle bodies which have proven to be extremely accurate for our trading purposes. Take a look at the chart below for a quick illustration of the 60M lines for targets:

 

Once you begin to understand how this works and put in a little time practicing putting in your lines (we cover this in the room) this becomes a powerful tool for upside and downside potential. The fact that we have them BEFORE the open puts us light years ahead of all other traders who are guessing. Buying, hoping the market goes higher, or selling, hoping the market goes lower, is not a strategy. We do not HOPE the market does anything. We know that the probabilities are in favor of the given direction provided certain levels break and our confirmation is in place, these targets are hit 95+% of time. It does not get any better than that.

The 60M chart is the first thing we look at in the morning. It gives us a quick overview of the last several days trading as well as what we call market context, the bigger players and their tendencies. The really good news is, you can cut your premarket prep time down to about 10 minutes before the open for the best results and accuracy. No need for hours of market research, or nightly chart review for tomorrow. Save that time for family as you are not going to be a better trader slaving over charts trying to figure out what tomorrow might bring. The market is going to move tomorrow and we don’t care which way. We just want to be on the right side when it does, and know with a high degree of probability where it is most likely to go.

Increasing the odds of success – Using the YM

Our methods have a high probability of success, somewhere between 80% to 90% if you follow the rules, measure and correlate, and take the trades accordingly. But is there a way to increase our odds even more? There actually is and that is called the YM or the Dow Futures market.

We use the Dow Futures as a correlating market, a “Market Sentiment” indicator if you will. Turn on any financial news channel and what you will quickly here is “The Dow” did this or “The Dow” is down 300 today! It’s the first thing they talk about. As the Dow moves so does the market. We can use this to our advantage.

Let’s do a little math first. If you take the YM/Dow Futures and divide it by the Emini S&P, you get the Dow/S&P Ratio. You can do this any day, at any time. It ranges from 8.50 to around 9.30 or so. For ease of math and correlation we will round it off to 10. So 10 ticks YM = 1 point ES. Now that we have that math established how can it help us?

First let’s look at the YM and see if there is anything pattern or price wise that we can use to our advantage, numbers that may have a greater significance. For example the ES likes 10 point moves. It has been observed over time that the YM likes to trade at 10, 20, 50, 80, and 90 levels of any 100 mark. So, the YM would like to trade around 19210, 19220, 19230, 19250, 19280, and 19290. We also know if the YM breaks one, it will have a tendency to trade to the next level. If the YM breaks 19250 it will make a move to around 19280/19290. Conservatively, 19250 to 19280 = 30 ticks YM. We just did the math and we know that if the YM does in fact go from 19250 to 19280 then the ES should move roughly 3 points. This happens every day. If the YM goes from 19250 down to 19220, the next level down, the ES will move very close to 3 points lower. If the YM moves from 19290 to 19310 (the next 100 level and our key level of 10), that’s 20 ticks and the ES will more than likely move 2 points higher.

The YM does not necessarily lead the ES, however, for the ES to move 2 or 3 points, you can bet the YM will have to move 20 to 30 ticks. It is uncanny watching these markets move in tandem and that is what we want to see, BOTH markets “doing their job” as I like to say when we are looking for extended targets either up or down. We also know if the YM does not go above 19250 for example, the ES WILL NOT GO HIGHER. This is about 98% accurate. The ES seldom will move without the YM. The YM is a great indicator of the broad market and for how far the ES will move and to what extent.

This is the power of using the YM as a supplemental indicator for us to gauge internal ES strength. It is so accurate in fact I would never trade without looking at it. And if the ES and YM happen to be out of sync, moving in opposite directions, one is up on the day above it’s previous close, while one is down on the day, below it’s previous close, or One if making a new high on the day while the other is not, strong caution is in order.

Take a look at the chart below of the YM:

You can see the YM bounces off of these numbers every day and that is why we use this every day in the room because the YM is an integral part our analysis. However you don’t need to spend equal time analyzing the YM. Once we have a trade triggered on the ES and take a position, we know where the YM has to go to get the ES moving to it’s next target. Then it’s just a matter of waiting patiently for both markets to “do their job”.

Money & Trade Management

This is an interesting topic and there are many ways to look at it. The intellectually biased traders believe they will immediately see the flaw of what I am about to go over, but it’s their assumptions are flawed as I you will see.

Our simple money management strategy for profit taking is to take some contracts/profits at one point or so, then move our stops up close to or slightly above entry, and let some contracts run for bigger targets. Now, if you are a one lot trader you don’t have a lot of options. You are either in, or out. Trading one contract though comes with smaller risk, it also comes with the inherent limitations of not having money management options to take some profits and then wait and see where the market wants to go. There is no way around this. You may hold for a point or so, then move your stop and see if you can get a little more, or you may go flat and exit your trade. This is where the intellectual traders will begin to talk about “Risk Reward”. How can you have a 2 point stop and take one point profit and make any money? The answer is simple. The equation is not static and neither is the stop. I spent years doing all sorts of spreadsheets and doing all sort of calculations. It did not make me a better trader nor increase my bottom line. No amount of excel spreadsheet calculations is going to make the market move in my direction any faster or any further. Now I am only concerned with “do I have more money at the end of the day than when I started”. That’s it. I gave up on the spreadsheets.

Once you are in a trade and you see the trade progressing, either taking profits or not, you can begin to ease your stop up a bit thereby reducing your risk, and quite quickly most of the time I might add. We also seldom take full stops because we know where we don’t want the market to go when in a position. Stops are like insurance policies, we don’t want to use the if we don’t have to. So our risk reward is not static. Adding an additional contract and letting it run, even just 2 extra ticks, instantly changes the risk reward. Remember, we are not mechanical system traders or position traders. We are DAY traders and we are sitting right there watching our positions. The argument for risk/reward, and money management having your winners 4 times your losers came from the days when everyone thought computerized models were the Holy Grail of Trading. We all know better now. We can and do exit at will in the emini S&P as there are no problems getting filled in a fraction of a second.

What I recommend is take some contracts at a point, some at 2 points, move stops to +1 or 2 ticks and then see if we have more optimistic targets on the table for the market to hit. You may also have to scalp every now and then taking 2 or 3 ticks. We can’t demand what the market is going to give, only monitor what it is giving. Tight, choppy, range bound markets, be quick to take profits even less than a point. Every day the market has a “tone” to it. Trending, choppy, range bound, wide swinging, all of those will produce different profit taking scenarios. There is no “Cookie Cutter” way to take profits. If you try, you will be disappointed in the long run. However, the majority of the time, taking a point and then seeing what the market has to offer works just fine. Others have used a 3, 5, and 7 tick strategy taking some contracts at 3 tics or .75 points, 1.25 points, and 1.75 points just inside of the 1 and 2 point benchmarks. We have all been in trades that hit our 1 pt target repeatedly without fills. The same for 2 points. So this does have some merit and those 3, 5 and 7 ticks add up fast. Of course you would have to trade a minimum of 3 contracts for that. 3 ticks and 5 ticks can work for a 2 lot trader. The idea is to always get something off the table to immediately reduce our risk exposure while still allowing for some added bonus profits. This is why a static view of risk reward does not work.

Every trader will approach this subject differently based on past experiences, account size, trading experience, and current understanding of how the market works. While we all would like to have a 10 point trade, that comes with an incredible amount of patience and you will be in a position for hours most of the time doing nothing but monitoring the market. What do you do when you want a 10 pt trade but the day’s range is 7 pts? If you want a 10 pt trade, work up to trading 10 contracts and take 1 pt profit, that is a 10 pt trade. Now what you were thinking? Learn to think outside the box. Rather than shooting for 10 pt trades, adopt the mindset of trading size once you are consistent then going for 2 points or so in the first 3 hours of the day.

********AGGRESSIVE TRADE ENTRY*******

This section on money management would not be complete with addressing aggressive vs conservative entries, stop management, and trade management. At times we are aggressive. I DO NOT recommend the majority of traders trade agr entries. That being the case, at times they will be called and it is YOUR RESPONSIBILITY to trade according to your plan. If agr trades are NOT part of your plan, and you take them, and it does not work, then live with your decision. Agr entries are always handled differently than conservative and quite often agr entries lead to conservative entries anyway. Because of that, agr entries are always taken with smaller size. If you are a one or 2 lot trader, leave them alone.

Any time an agr entry is called you will always hear “but it still might pull back to X or Y” as the case may be. If you take an agr entry and we have a conservative entry 1.5 points or so below (if long) your agr stop needs to be where the conservative entry stop would be even if you don’t take the conservative entry if it pulls back. That’s just the way it is. Agr entries come with greater risk. YOU decide if you want the additional risk. It would be silly to take the agr entry, and get stopped out just as the conservative entry presents itself. Yes you might be stopped on everything agr and conservative and really take a beating. That is why MOST should NOT be trading agr entries.

Review the trading plan videos and the accountability factors mentioned in those videos and take responsibility for your trading.

Homework: “Everyone wants to get an “A” in trading, but no one wants to do their homework! There is no such thing as wealth without work. But work does not mean pouring over charts, hour after hour, day after day, all night and weekends. It does not work. I know because I did it. There is however total value in going over charts in history, marking the trades, the 3 conditions we use, level break and the indicator agreement, then measuring your 50%, identifying your peaks and valleys, and marking the most plausible entry. You want to do this for the morning session but feel free to do this for the entire day. Do not use the overnight trading session/premarket to analyze the chart. That is not reliable nor is the last 30 to 45 minutes of the day. Note the trades, the levels, etc on a few charts per day. This should take not more than an hour. Then STOP! Do not spend countless hours. It’s quality over quantity. I have offered up what I call the 21 day challenge. Do 2 charts a day, with trades annotated, levels broken, and what the net result was from taking the trade. Do this for 21 days and you will have 42 charts for your files/notebook you want to create. Building your own database is worth 10 manuals I could provide as it’s based on your understanding and not just reading about mine.

Also, don’t use today as one of your days. That’s easy! Go back in history and see the setups and mark them accordingly. Also, print out a dozen or so charts, even more. Take them with you in a folder. Hand annotate them. This is worth its’ weight in gold. You will get a better fee for the market and the setups. Take them with you when you are going to an appointment and waiting around. Use your time to your advantage.

The idea is to build confidence through repetition going over the charts when you see the same trades over and over again work 90% of the time IF you follow the rules and wait for the proper pullback to support or resistance. There is no other way to build that confidence except going over your charts and in real time in the room seeing the trades set up. The point is, you can’t trade what you can’t see, and you won’t trade what you don’t trust. First learn to SEE, then work on the trusting of the market and your ability to see the trades each day one by one. Build your confidence and your abilities one day at a time and one trade at a time. Then it’s a good chance you will in fact get your “A” in trading.

 Glossary of Terms: Here are some terms that I use in the room during the day and what each one means so you have a clear understanding of what I mean as I walk you through the market.

1) Broken – a price or level is “broken” when a close above/below it occurs on the 3M chart

2) Up against, typically one tick in front of the stated number/price

3) At – right at that exact price for entry and try to get filled

4) In front of – used for taking profits – exit in front of usually means 1 pt or so before the actual target is hit

5) 60M targets – prices identified on the 60M chart that higher timeframe players will reference

7) Higher Timeframe Players – 15 minute, 30 minute, 60 minute, daily weekly, anything substantially greater than our 3M chart

8) In Sync – Usually referring to the YM being in sync with the S&P. Both markets are above their previous close or below their previous close. Both market are making higher highs and higher lows, or lower highs and lower lows. We want to see the market moving almost lockstep.

9) Out of Sync – the opposite of above, YM and ES are at odds, one above the prev close, one below, one making new highs, the other failing to move in the same direction

10) Indicators agree/on board – When Stochastic crosses up/down to agree with 3 minute price breaks (closes above below)

11) Indicators disagree/not on board – Stochastic does not cross up/down to confirm price breaks

12) Flat – on sidelines, out of a position

13) Long – in the market as a buyer, bought at a price anticipating a move higher

14) Short – in the market as a seller, sold at a price anticipating a move lower

15) Divergence – Price makes a lower low and the stochastic does NOT make a lower lower but a higher low. OR, Price makes a higher high and the stochastic does NOT make a higher high but a lower high

16) Scalp – taking 2 to 3 ticks as market is struggling to make progress above/below key sup/res

17) Sellers coming in/Buyers coming in – Time and sales is showing sellers, RED, or time and sales is showing buyers, GREEN, with consistent order flow

18) Fibs – Typically means 38%, 50%

19) Clean close – A candle that closed above the previous candle’s high or below the previous candle’s low is said to have a “Clean Close”

20) Move of conviction – A move that is long enough in time, and far enough in distance, or price, that breaks a level and crosses both indicators. It is the fundamental move we look for to indicate a potential reversal

21) Opposite color candles – Candles that close opposite the direction of the current trend. On our charts, an uptrend has white candles. Any red candles = opposite color candles. In a downtrend where red candles are the direction, any white candles indicate opposite color candles.

22) Pullback – a valid pullback should have at least one opposite color candle but may be several candles against the trend. Pullback may also just be a pause in the market movement, this is covered in the room.

23) Holding the Bid – no matter how much selling, red, we see on the time and sales, the number of contracts at the bid where buyers are does not get smaller but in fact gets bigger as buyers hold their ground.

24) Holding the offer – no matter how much buying, green, we see on the time and sales, the number of contracts at the offer where sellers are does not get smaller but in fact gets bigger as sellers hold their ground.

25) Big Money – institutions, hedge funds

26) Short term trend – The indicators both crossed up, or both crossed down

27) Intermediate term trend or swing trend – The market structure based on the Dow Theory

28) Long term trend – breaking 50% of the days range

29) Primary Trade – The trade taken after the FIRST cross of the stochastic back above 50 or back below 50. This is where our main focus should always be trading during the day

30) Secondary trade – Any trade taken in the same direction as the most recent/previous trade. You will not sticking to primary trades, our trades should always alternate, long, short, long short, OR, short, long, short, long. If we have Short, Long, Long, you know you just took a secondary trade

That should cover most of the terms and their definitions. We will amend the list as necessity demands.

Once again, this document is not meant to be exhaustive nor a substitute the trading room classes. It’s to give you a quick reference point for understanding the basics of what we do, why we do it, and how we trade.

Good Trading!

JC