Search This Site

Tim Morges' Real-Time Trade Blog Archives
Navigation
Saturday
Oct152011

I Love it When a [Trading] Plan Comes Together!

As a trader, there is nothing more fulfilling than watching a trading plan play out exactly as you designed it. As an educator, it is equally exciting to watch a student plan a trade and then watch that plan unfold, step by step, as the student artfully executes it. Let me take you step by step through a recent trade by one of our students at Market Geometry:

During a live session a few Monday’s ago, we drew out the following map of the 240 minute $USDAUD [the Australian Dollar against the U.S. Dollar]:

We began by noting and marking the ‘Sunday Gap Rip’. When markets first began trading literally 24 hours a day, from Sunday afternoon until Friday afternoon, gaps became less and less common occurrences. But the recent high volatility in the markets have begun spinning more and  more gaps into the picture – and the traders not experienced enough to remember how to deal with them have to do their homework to understand the implications of gaps and how to deal with them.

One of the ways I have found to help traders think about open gaps is the ‘Gap Rip’. Imagine printing out a chart and ripping it down the middle, separating price into two discontinuous sections: You have two charts of the same commodity or currency but they are no longer connected. When a market Gaps open and the Gap remains open, this is exactly what has happened: the Price action was so violent it disconnected the current action from the prior price action.

The first Open Gap lower on the chart occurred on a Sunday opening and it not only disconnected the current action from the prior price action, it broke below prior minor Swing Lows to the left. At that point, we added a red Major down sloping Median Line and its Parallels to give us the Probable Path of Price. We then noted that after heading lower, price climbed back to retest the Open Gap area but failed to climb higher to test the red down sloping Upper Parallel.

When price broke back below the Gap Zone with a Wide Range Bar, we added a green down sloping inside Median Line and its Parallels that seemed to be doing a much better job interacting with price action. Three bars later marked the end of trading on Friday. When trading resumed on Sunday afternoon, price Gapped open lower once again, and the Gap remained open, literally ripping the price action from the prior week away from the unfolding price action of the upcoming week. These are signs of a violent move lower-the sellers have a lot to sell and they are pressing to sell before price slips further away from them!

The last three bars deal with the price action on Monday, when we were hosting our live mid-day Mentoring session. If you look above at the first open gap, I marked the timing of the horizontal consolidation with a dotted magenta line – and then transferred it down to the current opening bar from Sunday night. This dotted bar serves to remind me that price consolidated for that amount of time above, at the prior Open Gap, before beginning its violent move lower. I put it in place now because one of the Newtonian Laws we use over and over, as stated in the Emerald Tablet, ‘As above, so below’, generally comes into play in these situations [For every action, there is an equal and opposite reaction]. I will watch closely as price unfolds and I literally expect a violent reaction as price reaches the end of the magenta dotted timing bar.

As I pointed my feelings about this timing bar and its relationship to the ‘Gap Rip’ to the members attending the live session, I also circled the confluence formed by the red down sloping Median Line and the green down sloping Outer Parallel –and remarked that the area of confluence [or Energy Point] coincided with the end of the timing bar, and the Energy Point would hit around Friday. I told everyone it should be interesting to watch how price played out between now [that Monday] and Friday. If it formed a mature structure with some horizontal consolidation, I would expect there might be a great opportunity to short this market Friday if price had not significantly violated the Open Gap area. I finished marking out the chart and saved it in my charting program, so we could revisit it later in the week to see how price had unfolded. We also put this chart on alert as a part of everyone’s homework for the week.

As it turned out, we did revisit this chart on Friday, though it was on everyone’s homework alert. But let’s see what one student did with the simple map I drew on Monday as Friday approached:

Though we did not revisit the potential trade set up on Friday, at least one of our students did her homework: As Friday approached, she entered her limit sell order at 1.0370 in the Australian Dollar with a 41 pip initial stop loss order. She noted on her chart that price had consolidated in a horizontal fashion all week and there was selling pressure at the Open Gap area all week long. She placed her stop loss order above that selling pressure at the same time she placed her limit sell order and waited patiently as Thursday turned into Friday – she was letting price catch up with the price action. And when Friday came around, she was rewarded with a fill in her limit sell order. She noted on her chart that she was planning on holding the position over the weekend. She also marked several potential Profit Objectives with purple horizontal lines, just below 1.02, around 1.01 and the last at 0.9925. Any of these objectives if reached would give her a solid risk reward ratio – at minimum, well over four to one using a 41 pip stop.

Let’s see how the trade looked after the weekend:

Price Gapped open lower again on Sunday night by 50 pips. On Monday morning, she took a partial profit on one half of the position at 1.0180, booking 190 pips. As price climbed back out of the hole early Tuesday, she entered an order to sell back out the half she had taken profits on at 1.0302, with an initial stop loss of 1.0333 [a stop loss of 31 pips] and was filled on her limit sell order quickly. It is important to note that she is treating this second entry as a separate order, with its own stop loss. Though it is not apparent on this chart, she moved to a break even stop loss order on the open half of her first trade. She is now playing with the market’s money, and even if she is stopped out of both of the current open positions, she will make money on this idea and the two positions combined. She framed her trade and as price unfolded, she adapted it to the market conditions, taking profits on one half and then reinstating the full position at a better price. She is continuing to use the Open Gap to show here where the selling pressure remains – that is the key to the original trade as well as the secondary entry at 1.0302.

Let’s take a look at how the trade progressed on Tuesday and Wednesday:

Take a close look at this last chart and read her comments as the trades unfold. She started with a carefully framed trade, looking to reach a potential four to one risk reward ratio. Bu taking partial profits and then re-entering at the Open Gap resistance area, she was able to successfully adjust her plan as price unfolded after price opened on Sunday afternoon.

Here are the profit objectives she planned and achieved:

  1. 1.0180, on one half of the position, netting her 190 pips, reached on 9/19/2011 at 10 am.
  2. 1.0150, on one half of the position, netting her 220 pips, reached on 9/21/2011 at 2:30 pm.
  3. 1.0088, on the one half she re-entered, netting her 214 pips, reached on 9/21/2011 at 2:30 pm.

Her total risk on this position was 113 pips total and her total profit for this position was 624 pips. This gave her a total achieved risk reward ratio of better than five to one, better than her originally planned risk reward ratio of four to one.

As she did her post analysis of this trade on her last chart, note that she chided herself what she considered a mistake: She believed price would test the prior low [‘look to the Left and be Right’] and her original order was to take profits on her entire position at 1.0090 but the anxiety of holding the position made her change her plan and take half off at 1.0150 – but all in all, this trade was a planned well and executed well. She had very logical entry points and did a wonderful job collapsing her risk, moving her initial stop loss entry to break even as soon as price moved well below her entry level and then finding logical areas to leave her limit buy orders to lock in profits.

We stress the importance of planning your trade before entering your trade and then trading the plan you have made. If you wish to trade like a professional trader, you have to learn to think, manage and execute like a professional trader. Our upcoming seminar, Building a Professional Trade Plan, will focus on this extremely important topic, taking you step by step through all the essentials a solid trade plan needs if you wish to be consistently profitable. 

Let’s use this trade to highlight one last important thought about trading: Some have tried to paint Market Geometry, our web site, as giving ‘endless education’ but giving no live analysis or signals. First, we are proud to offer ‘endless education’; there is no better compliment in my mind. Second, the results of our students speak for the results of our efforts to teach traders to be consistently profitable using what they have learned from us to find and enter their own trades in any market, on any time frame. We teach live, we use live charts, we point out potential trade areas in advance, as diagrammed in the trade above – we just don’t hold ourselves out as a ‘chat room’ that is there to call out mindless trades. Let’s compare the results of this single trade with an entire month’s results from a ‘chat room’ style web site.

Before I begin this rate of return analysis, let me state up front I am not taking these results from one of what I consider to be a ‘shady’ website, one that misrepresents their results. I am using their results because they are stated relatively clearly, their numbers seem to be accurate and the results they show on their web site look quite impressive. Here are their results for the same month our student made her Australian Dollar trade: 

According to their risk disclaimer, subscribers must have a minimum of $200,000 in their account and this amount will be fully margined; at minimum, they trade two full size Gold futures contracts and two Silver futures contracts at all times. Here are there results for the month:

On $200,000 worth of margined positions, they made a gross profit of $73,060 – This looks like a very handsome profit, indeed! In their disclaimer at the bottom of the page, in smaller print, they note they are currently in a drawdown of $42,300 from that profit and are apparently still holding the open position. According to my calculations, that leaves them with a net profit of $30,760 for the month, based on $200,000 of margin. But let’s assume they finished the month with their entire $73,060 intact.

Now let’s see how our student’s single trade, lasting about three trading days, holds up to their month of trading. To compare ‘apples with apples’, we will normalize the leverage used by adjusting the amount of contracts she used when entering her planning and executing her trades to match their leverage:

To make the math easier, we’ll convert her trades from cash Forex to CME Australian Dollar futures contracts. Each Australian Dollar future requires she put up a minimum margin of $2,363. If she used the maximum $200,000 as margin, she would be able to trade $200,000/$2363 = 84 contracts. Since she made 660 ticks, she would have netted a profit of over $554,000 on her $200,000 account in three trading days [a simple rate of return of over 750 percent]. Now stop for a moment and look at these numbers, please. Are they possible? Yes. Are they repeatable over time? No.

If you used maximum leverage on your account, as many ‘chat sites’ and ‘trade touting’ sites show in their flashy numbers, when you hit a losing streak, you will quickly lose all the money in your account and more.

Let’s assume a more conservative stance: The web site we referred to stated they traded at minimum two Gold contracts and two Silver contracts. Because of a recent margin hike by the CME Group in August, it would take $72,700 in margin to trade two Gold futures contracts and two Silver futures contracts. If our trader had used $72,700 in margin, she would have been able to trade 30 Australian Dollar futures contracts and she would have netted $198,000 in profits before brokerage, compared with their stated net maximum profits for the month of $73,060.

But are those numbers realistic and sustainable: Of course not! Our trader would have made over 270 percent on her over-leveraged account but any run of losers would quickly wipe her account out. These numbers are unrealistic and not sustainable.

We teach traders to be consistently profitable. We want them to learn their craft and then be around for years to come, as their accounts grow at a sustainable pace. Let’s look at a ‘sustainable’ rate of return. If our trader had $200,000 cash in her account and traded 8 contracts, using a total maximum margin of $18,904, she would have used less than ten percent of her account on a margined basis and she would have netted over $52,000 on her three day trade. She would have realized a 26 percent simple rate of return. These numbers are more realistic – and had she taken a loss, she would not have lost her trading account; had she been stopped out at her initial Stop Loss order, she would have lost $3,280 – roughly 1.6 percent of her account.

But let’s look at her trade using an even more conservative approach: What if she used no leverage in her trading, simply trading $200,000 unleveraged in the cash Forex markets? If she sold $200,000 worth of Australian Dollars at 1.066 and bought them back at 1.000, she would have made a net profit of $13,200. On a single trade that lasted three days, she would have netted a simple 6.6 percent rate of return. Is this realistic? This is absolutely a realistic rate of return, though I would caution everyone, including her, that the best traders in the world lose at least 1/3 of the time, so solid money management is extremely important, even when you are trading using low or no leverage. Top money managers average 15 to 35 percent rate of returns, not 200 or 300 percent.

The key to becoming a consistently profitable trader is to begin with a solid trade plan, based on quality money management principles. Only take trades with good risk reward ratios [I suggest three to one or better as a starting place for most traders] and set a maximum stop loss you are willing to take on any trade and never take a trade requiring a larger stop loss. Last, once you plan your trade, keep that trade plan in front of you and follow it religiously. ‘Plan your trade and trade your trade’.

If you are interested in learning more about what we teach, how we teach professional traders to be better traders and non-professional traders how to be become consistently profitable, come visit us at Market Geometry. And if you want to learn how professional traders plan their trades, we’re hosting a seminar October 22nd via the internet. You can see all the details by clicking here.

Wednesday
Oct272010

Charting the E-mini S&P Using Advanced Techniques

We focus on two very important things at Market Geometry: Our first priority is to help people become consistently profitable traders; our second priority is to teach traders to think about and manage trades like a seasoned professional trader. I have been a professional trader for forty years and I have been mentoring other professional traders since 1987, and I try to approach every person that approaches me to learn to be a better trader, no matter their level of experience, with those two goals in mind.

It always gives me a great deal of pleasure to watch someone I have been teaching mature into a full time professional trader, and I am proud to say there quite a few traders making a full-time living after either beginning their education with me or after I spent time with them correcting the barriers that had been keeping them from being consistently profitable.

One of the traders I am particularly proud of is Shane Blankenship. Shane spent many years asking questions on my free public forum, then took my Basic Market Maps Seminar and eventually entered one on one Mentoring with me. You can see Shane these days showing his charting and trading skills alongside mine each day at Market Geometry - He became such a wonderful chartist and trader that when I recently moved to Arizona, I brought him to Market Geometry to help me with the daily live Mid-Day Market Geometry Mentoring sessions. He's been with me six months and become indispensible. In this article, I am going to show you my re-creations of a week's worth of charting of the E Mini S&Ps Shane showed members live in our Mid-Day sessions, because they tell how a profession approaches the market, prepares and waits for a trade entry, then executes the planned trade flawlessly. He embodies what I try to teach at Market Geometry, and I hope you find this set of charts and the story behind them from a recent week in the E Mini S&P futures interesting and informative-I know I did!

  Shane generally charts day only five minute bar charts of the E Mini S&P futures; this means he is often staring at gaps created from the overnight action. Many traders do not like to deal with gaps or have trouble dealing with the meaning of gaps but Shane finds that gaps carry a great deal of information that he can use when 'Mapping' a market.

I tell this story to my students often to encourage them to think 'out of the box': In the early 1980's, one of the largest currency portfolio managers in the world kept three separate sets of data and charts for each Major Area of the world: He would keep data and charts on the New York currency markets, a separate set of data and charts on the Tokyo currency markets and a separate set on the London markets. Odd as it sounds, he would take positions based on the eight hours of the New York markets, positions based on the Tokyo market hours and positions based on the London markets; and yes, at times these positions conflicted. His thinking? Each of these Money Centers had flows that had to be dealt with and his data,  charts and positions were based on the flows for each of the three Money Centers.

Back to Shane's chart: The majority of the money that flows through the U.S. stock markets flow when the U.S. 'cash' markets are open, and they are best represented by charting day only session charts. Another way to represent the flow of cash that is popular with larger traders like myself is to chart day only futures that begin at 8:30 am CST and end at 3 pm CST, which mirrors the beginning and end of the New York Stock Exchange's main hours and the majority of the U.S. stock market cash flows as well. I personally like to chart 13 minute or 39 minute day only charts that begin at 8:30 am CST and end at 3 pm CST, because it gives me a unique look at the U.S. stock market [Yes, I ignore the final 15 minutes of trading of the E Mini S&P futures on these  charts, because the cash stock market has already closed]. But these are my re-recreation of Shane's charts.

As the week opens, and Shane prepares his charts, you can see that the market left five days of price action above the current price action, on day only charts; this formation, until closed, weighs heavily on the markets and you can see price sold off quite sharply on the following two opens. This chart ends on Friday's close.

Shane begins by connecting the extremes of the Open Gap, using a Simple down sloping Trend Line.

Next he looks at the action from the last two days of the prior week and notices an up sloping Simple Trend Line that connects three pivots [a Multi-Pivot Line] and adds that to his chart.

Now he begins to add potentially important details to his 'Market Map'. First, he makes a copy of the red down sloping Simple Trend Line and transfers it to the morning's high of the same day - and notices it catches the close of the day as well; he leaves this new parallel Simple Trend Line on the chart and measures the distance between the two lines.

Can you guess why he would be interested in the distance between the two down sloping parallel lines?

Remember, Dr. Andrews and Roger Babson were students of Sir Isaac Newton, who was a well known Mathematician and Physicist. But Newton was also the most well-known alchemist of his times, and although the term 'alchemist' has fallen in stature these days, most well-schooled scientists know that the alchemists of Newton's days, as well as those that proceeded him, laid the ground work for our most powerful scientific principles. Newton's work, in particular, holds many of the the keys to modern physics. His simple Three Laws of Motion spurred the work of Albert Einstein and Stephen Hawkins and continues to spur Physicists around the world more than 200 years after they were written. And most physicists believe his inspiration came from a treatise written at least several thousand years earlier, 'The Emerald Tablet'. Newton's translation of this simple alchemical work is still used as the best and most useful translation. When we look at its most well-known phrase, 'As above, so below', we may be looking at the inspiration for Newton's best known Law of Motion, 'For every Action, there is an Equal and Opposite Reaction.'

I marked where price interacts with these lines to make it easier for you to see why Shane might use these types of projections, as well as to spur you to ponder how these same lines may come into play later.

Shane measured the distance between the parallel down sloping lines and then projected that distance forward [or downward, in the probable path of price]; then he placed a Simple Trend Line with the same slope at that distance. The original red down sloping line was the Center Line, the line that captured the frequency of price-it was a Multi-Pivot Line as well. The Simple Trend Line above captures the first swing or pivot prior to the Center Line; this measures the amount of energy price can carry forward from the Center Line when it 'Reacts'. And of course, by projecting forward a line with the same slope with the same distance below the Center Line,  Shane now has a first Reaction Line, where price will have spent an 'Equal and Opposite' amount of energy; as Newton translated: 'As above, so below'.

Still working on his 'Market Map', Shane performs the same exercise with the up sloping blue Simple Trend Line: he copies the slope of the Simple Trend Line drawn from the low of the Gap Opening and adds a new Simple Trend Line with the same slope to the high of that day; this will serve as his Action Line and the original blue up sloping Simple Trend Line-also a Multi-Pivot Line-acts as the Center Line. Now he simply measures the distance between the two lines and projects it forward [in this case it projects below price, because that is the probable path of price and the natural path of a 'Reaction'] and then adds a new Simple Trend Line at that distance, below the current price structure. This new blue up sloping line will act as the Reaction Line, a measure of where price will have expended its reaction energy off of the Center Line, should it continue lower-and so it is named the 'Reaction Line'. He also adds a second red down sloping Reaction Line [I'll label it R2] in case price continues much lower.

He then adds a horizontal black Simple Trend Line - a Multi-Pivot Line - that connects the high of the Open Gap and a handful of upper pivots.

Shane has his Market Map for the upcoming day and is ready to see the opening action-and ready to look for the high probability trade set ups he uses when he trades this market in this time frame if one begins to develop.

This chart shows a zoomed in version of Shane's Market Map, along with the first five minute bar of the day session; when this bar closes, it is 8:35 am CST on Monday morning.

I highlighted two particular bars - both wide range bars and both bars that gapped open quite a bit to the down side. Note that in both cases, once the 'morning imbalances' are smoothed out by the market makers in the U.S. stock market, both in some individual stocks and in some large portfolios, the selling dries up. Then the larger traders, the Whales, begin buying out right, pushing the stock indices higher. They are trying to drag mid-sized and smaller retail players into having to chase these markets higher, in case price does indeed go high enough to fill the Open Gap. Look at the close on both extremely wide range bars: Price closes at or near the bar's highs.

But let's look carefully at Shane's Market Map. Remember the blue up sloping Reaction Line he added before the market opened? This up sloped line was based on a Multi-Pivot Line, in this case a Center Line, and the distance from the Center Line to the prior high pivot, which he had used to form the Action Line. As Newton would say, 'As above, so below'. Look at where price turned after the extremely wide range lower gap: Right at Shane's blue up sloping Reaction Line. And that's why he projected that line forward: 'For every action, there is an equal and opposite reaction' and if price sold off on Monday morning, an equal and opposite reaction from the Action Line, projected from the Center Line and its frequency was reflected by the up sloping blue Reaction Line. But that's far from the end of projections contained in Shane's Market Map.

I have been researching and teaching the concept of Lines of Opposing Forces, or Energy Points, for quite some time; I am proud to say it's one addition I have made to Technical Analysis. These Energy Points act as Price Attractors and often serve as areas where price makes a 'Change in Behavior'. I don't use them to anticipate turns in Price; instead I mark them and watch those areas carefully for price to exhibit Changes in Behavior.

In this case, you can see that Shane's red down sloping Second Reaction Line [R2] and his up sloping blue Reaction Line [which are Lines of Opposing Force or Lines with Opposite Slopes] cross at the area that coincides where price does indeed Gap Open - and price shows a Change in Behavior by forming an extremely wide range bar that closes near its highs. In many ways, you can think of these Lines of Opposing Force projecting a sense of a time where Price MAY exhibit a Change in Behavior. And in this case, Price and Time came together, and a Change in Behavior seems to be happening.

Although Shane's Market Map going into Monday's trading was 'picture perfect', he did not see a high probability trade entry set up that he uses on a regular basis to allow him to enter a trade. The majority of traders feel they must have an open position if they are watching the market; successful professional traders learn they survive and prosper by taking trades that have a successful outcome for them on a consistent basis. There are often days that go by when they 'know' where the market is likely going, but they have no edge, no acceptable money management stop or they don't see a high probability trade entry set up they use - and so they don't take a trade. We have seen that when we show live action and 'bar by bar' replay during our Market Geometry Live Mid-Day sessions, mid-sized and retail traders find it at first surprising that we watch without positions even when our Market Maps are so accurate that particular day and then they find it comforting, because it takes some of the pressure off of them to always have a position any time they are in front of the screen watching the market.

At the end of Monday, Shane made a single addition to his Market Map from Sunday night: He added a green up sloping Median Line [or pitchfork] to project the probable path of price if Monday's Gap Open Low was indeed a significant low and price continued higher Tuesday.

Tuesday, Shane took a personal day away from trading and wasn't present at the Live Market Geometry Mid-Day Session. But we all peeked at his Market Map from the night before to see if it had any relevance to Price. You can see that price Gapped Open higher, above the blue up sloping Center Line, above the red down sloping Reaction Line, above the green up sloping Median Line and above the black horizontal Multi-Pivot Line. If you push your chair back and look at the chart, you'll see Price gapped open above an area where these all meet or clump together - And you should consider this a form of Energy Point. This area is a Price Attractor, but you have to watch Price for it to tell you how it is going to react at this Energy Point.

Dr. Andrews, one of my early Mentors and the person that gave us Median Lines and did years and years of research on Action Reaction Lines, taught that if price zoomed through a Median Line, it would come back and test the same Median Line. This is one of the high probability trade entries we teach at Market Geometry, after we put in countless thousands of hours of research on various Median Line trade entry set ups. Now that price has gapped or zoomed above the Median Line, you can buy the retest of that Median Line; in this case, there was no acceptable initial stop loss at this point, so I would personally pass on the trade. But Price has left a poke with a double bottom formation that did recently test this up sloping Median Line. IF price retested the Median Line again within the next three to five bars, I would buy a retest of the Median Line [and in this case, a retest of the Multi-Pivot Line and blue up sloping Center Line as well] with a stop roughly five E Mini S&P ticks below the prior test, which was the low of the day.

This is a set of Shane's Market Maps from the week, but I could not resist showing the gorgeous trade opportunity he had prepared for when he did his Market Map the night before; again, he had personal business to take care of, and did not trade this day. But this is how I would have traded his Market Map [I could have written that Shane took this gorgeous trade or that I took it, but again, our focus at Market Geometry is to teach people interested in trading how to trade and manage their trades as professional traders - and there are simply days when you have other things to do, or you miss a set up. There's no shame in that! That's life as it really is! I know showing potential trades we missed or losing trades, as well as teaching people how to set up Market Maps and become consistently profitable traders takes a great deal of emotional pressure off of them; professional traders miss trades. There will always be another trade. And even the best professional traders have losing trades 35 to 40 percent of the time. If you can keep your Risk Reward Ratio high enough, you can make a very good amount of money with a winning percentage approaching fifty percent.

I note the high Risk Reward on the potential trade set up [6.5 to 1] and I also note that when price did turn lower on the day, it was right at the red down sloping Center Line from Shane's Market Map, a line he added to his charts Sunday night.

The cascade continues lower to test the black horizontal Multi-Pivot Line that begins with the original Open Gap; what was resistance has clearly become support and you can see though price tested this horizontal line, it then turned higher early Wednesday morning and climbed back to retest the red down sloping Center Line that had stopped the rise in Price the prior day, Tuesday. Shane waited patiently for a trade set up he recognized and he didn't see one until late in the day on Wednesday.

When price began to show weakness by breaking out of a tightly coiling or congesting formation to the downside, he added a new down sloping Median Line. Although there was only a bit more than an hour to trade, he wanted to sell a test of the Upper Parallel IF price climbed back to test that high, with an Initial Stop Loss order above the high of the day. His Profit Target would be the down sloping Median Line, which was more than ten E Mini S&P points below where he wanted to enter, so this potential trade would have a Risk Reward of about three to one.

The sell off accelerated and never let Shane into the trade. You can see that even with just over an hour left to trade in the day, the 'imbalances' pushed Prices quite a bit lower; he had the right idea but sometimes, Price doesn't allow you to enter at a price with an acceptable stop loss -  and chasing price in a running market is usually a losing proposition. Again, we strive to teach traders to trade and manage their trades as professional traders manage their trades. Sometimes you have the right idea but can't find an entry with the right Risk Reward Ratio, or the Initial Stop Loss is too large for you or Price doesn't let you in; don't waste your focus being frustrated or angry! Prepare for the next trade - There will always be another trade opportunity!

Thursday also brings no action that Shane finds interesting enough to open a trade in the E Mini S&Ps. But by Friday's Live Market Geometry Mid-Day Mentoring Session, he is watching and carefully watching an area where IF price is going to exhibit a Change in Behavior, it will probably be here. This is the price area, off the original Reaction 2 Line, where the early week rally began. Price has left some markers, triple tops and a Multi-Pivot Line connecting some bottoms and tops, that Shane is watching closely. If he sees Price show strength and can find a trade entry set up with an acceptable Risk Reward and Initial Stop, he'll attempt a trade in this area.

Once price breaks above the triple tops, Shane feels confident the Original Reaction Line 2 will hold, as it did earlier in the week. He diagrams his trade out live in the Mid-Day Session. This trade will have a Risk Reward of four to one, which is quite nice. Risk Reward Ratios above three to one really help keep your trading account balance healthy.

Now Shane has to wait to see if Price will fill his Limit Buy order and give him a trade, winner or loser, in the E Mini S&Ps this week.

Price finally let Shane into a trade in the E Mini S&P futures just after the Live Market Maps Session ended Friday afternoon. He netted seven E Mini S&P points on this trade - which had a very nice Risk Reward Ratio of four to one. And although many people might think he spent the week kicking furniture because of missed opportunities, he had several nice trades in the U.S. Ten Year Note futures, so in truth, he had a very nice week trading.

I hope some of you take away an understanding that the market does what it wants and using your focus and energy being angry about not getting filled or about being away from the screen when a trade you were stalking finally hits - and you miss it - is only a waste of your focus and energy. Professional traders live with this day in and day out; those that are consistently profitable learn that this is a part of trading. How do we deal with it? We make our Market Maps, study the markets, do research, and manage the trades professionally that the market allows us to enter.

I hope it was interesting watching an entire week's set of charts and potential trade entries from a trader that I taught and mentored. He's now a full time professional trader and I certainly respect his charting abilities, as well as the way he has mastered himself, which is the most difficult part of becoming a consistently profitable trader.

That's why my tagline since 1987 has been:

"Master your tools, Master yourself."®

Timothy Morge

A print friendly version of this and all articles are located in Articles.

Monday
Oct112010

Money Management Worksheets

At today's free Monday Mini-Mentoring Session Tim focused on several topics centering around money management.

Money management is a skill as important as the Market Maps trading methodology Tim and Shane teach. If you weren't able to attend this session it is strongly advised you review the recording before it is removed on Wednesday, October 13. The purpose and use of each of these spreadsheets as well as some real life examples of the benefits these worksheets bring to your trading business.

The Market Maps Trade Entry Worksheet is your tool for entering key details of a prospective trade. Recording this information before the trade allows you to layout your rules for managing the trade as it develops.

Download the Market Maps Trade Entry Worksheet here.

The Market Geometry Basic Monthly Statistics Worksheet is a business management tool for recording your end of month trading results. The statistical data recorded on these worksheets each month provides you with an alternative view of your trading track record.

Download the Market Geometry Basic Monthly Statistics Worksheet

The Market Geometry Manage Yourself Guideline Worksheet allows you to layout daily, weekly, monthly profit and loss limit rules. Establishing rules helps you take emotion out of trading and allows you to make choices based on sound business decisions.

Download the Market Geometry Manage Yourself Guideline Worksheet