Today’s Lesson: A new use for ATR

Welles Wilder was mentioned yesterday when explaining a use for his Parabolic SAR. Possibly his most famous indicator is ATR (Average True Range). The word “true” in the name refers to the fact that this includes gaps in the calculation. Average Range would not.

There are numerous ways to use ATR in your trading. One common way is to position your stop loss as a multiple of ATR, expecting that price won’t go there (anytime soon). Likewise, you can use it for profit targets.

One way I’ve found that can be uncannily accurate is ATR Extension. Looking at the chart above you’ll see a dotted line near the top. This was the ATR added to the prior day’s close. There is another (unseen on the chart) line for ATR subtracted from the prior day’s close.

These ATR extensions act like magnets when price runs far. They can be stalls, reversals or simply profit targets. Think about it, price has made an extended move...

Today’s Lesson: Trail Stopping

The idea of moving your stop loss automatically so it follows or “trails” price moving in your direction is alluring. The main deficit is that price can be “noisy” moving in choppy impulses and corrections that trigger the stop. You’ll miss plenty of great moves.

On the contrary, you don’t want to leave your stop the same after price has moved well in your favor but not to your profit target yet. Watching a winning trade lose is painful and unnecessary.

There are several ways to place a trailing stop. The first decision you must make is whether you want to manually adjust it or not. For automatic trailing stops any decent trading platform will allow you to enter the stop by points/dollars or percentage. If your initial stop is 4 points away, let that be the trailing stop. Easy enough.

If you’re willing to manually move the stop there are chart patterns and indicators that can smooth out the noise of the...

Today’s Lesson: Power in confluence.

You have a trade plan with specific rules of entry and exit that produce a positive expectation (if not, get one or quit trading). If EVERY trader used the same plan and followed it precisely there would be no one to trade against.

You WANT and NEED traders to do something different than you. This is a good thing. Now if you want to step up your performance you’ll learn OTHER popular trading strategies. Not necessarily to trade them, but to consider what OTHERS may be doing at the same time.

Here's a simple example: the 20-period moving average is a popular technical indicator. You may not use it because it is a lagging indicator or you haven’t been taught HOW to make it work. Regardless, there are traders who use it. Put it on your chart.

Why? Because if your strategy is getting a signal to enter around there you might be finding some confluence (with other trade plans). If you’re short in the trade and wondering about a...

Today’s Lesson: Think global.

Successful investors and traders alike have a rule-based strategy that provides them a financial advantage or “edge.” A combination of fundamental and technical analysis are typical components. Another analysis you can add to the recipe is investor “mood” commonly called sentiment. In other words, do market participants feel bullish, bearish or neutral about the future?

While every region and country has a unique economy, given the volume of international trade those individual economies are part of a larger “global” economy. The U.S. economy is the largest in the world but more importantly for us it is also the last market traded on the daily clock. This allows U.S. traders a glimpse at how the Asian and European markets are trading before our stock market opens.

Many years ago, I developed a simple indicator for world sentiment, which I call the World Index. The foundation of which is the daily cash market...

Today’s Lesson: Trade at night.

With 23-hour futures markets for the most liquid contracts, anyone can find time around their work schedule to trade. Our research (and experience) shows repeatedly that trading the S&P futures from 6 PM ET until the cash market open at 9:30 AM ET is better than the day session.

Here's a trade from last night to analyze (see chart).

1. Price opened within the day’s high-volume level.
2. Trading below signals a short entry.
3. Ultimate profit target would be the next volume level @ 44.25
4. Prior day low is a typical stall/bounce price, chose to exit there.

OK, that’s all easy enough. My point in sharing this is twofold:

First, while I entered the trade at 6:04 PM ET, the final exit occurred at 3:08 AM ET while I was sleeping. Now THAT is effective use of your time!

Second, if you don’t have the time or skill to create a Globex trading plan with EDGE then let’s get you started!

Join me tomorrow at 10:00 AM ET for Lookback (5)....

Today’s Lesson: The Power of Review

Join me on Saturday morning @ 10:00 ET to watch as we review every trade taken in our trading room this week… S&P, Gold & Oil futures. Winners, losers, break-evens, all will be analyzed.

You can meet some of the team and get your questions answered. Click here to reserve your seat.

For Thu 211028 (Plenty can change by the open, be aware.)

Globex Review: No trades triggered yet in a narrow range-bound market.

Day Session Analysis: Sentiment is mixed leaning bearish. Stats are mixed. Jobless Claims & GDP will determine the early trend. Willing to trade either direction under Alt1 stop movement UNLESS/UNTIL the Globex range increases plenty OR the expected move of the SPXW is wide. Thursday (both sessions combined) garnered ONLY 4% of all the gains over the past 5 years in dollars. Breakouts (95%) crush Reversals (5%). Consider not trading Volume Profile. Trading ES/CL/GC using Vol Rev with filters (download the new Edge)....

Today’s Lesson: Winning streaks.

Yesterday was the perfect day… 6 trades all winners trading the S&P, Gold and Oil. The buy at 4560.75 for the S&P caught the exact bottom (read the September 24th blog to understand WHY you should always buy ON the proximal line moving your stop IN if need be).

Everyone enjoys winning streaks and no one knows when they’ll end. But they do.

How many wins in a row is likely? What is the probability? There is a simple mathematical formula to help visualize this called Theory of Runs. You only need two data points to determine the odds of the next trade being a winner: Total number of trades (sample size) and historical win percentage.

Before you shake your head when you read what the win percentage is for our strategies you need to know that breakeven trades are counted as “wins” simply because they are not losses. It’s a reframing technique to help your personal trading psychology. The number is around 60%...

Today’s Lesson: Move Stop or Not?

Blindly saying “never move your stop” is saying market conditions don’t change, which makes no sense at all.

In our trading room we find that aggressive stop movement is warranted in certain market conditions. Slow stop movement is warranted in other conditions. NOT moving the stop is flat-out WORSE (both mathematically AND psychologically).

Let’s define the difference between “aggressive” and “slow” stop movement. Using our strategy rules the aggressive rules move the stop to breakeven for the trade itself after target 1 is filled, and to breakeven for remaining contracts after target 2 is filled.

Our slow rules move the stop to a trailing pivot after target 2 is filled.

Choice depends on market conditions. A trending market deserves time and patience. Use the slow method. A choppy market requires fast reaction. Use the aggressive method.

Using Friday’s suggested levels (chart above) the...

Today’s Lesson: Payday Friday

If you’re like most retail traders you are focused on growing your trading account so you can increase your risk and ultimately your expected reward. Taking a “paycheck” from your trading account seems like taking a step backward.

The trading account is intangible. The figures on the statement don’t mean the same to you as a tangible reward. Psychologically, you NEED to be rewarded for a job well done. Make those wins REAL.

Here’s a simple trick for getting paid, growing your account, and improving your trading skills simultaneously:

1. Determine your payday (weekly, bi-weekly, monthly).
2. Log your trading account balance at the start.
3. On payday calculate your gain/loss in the account.
4. Pay yourself a pre-determined percentage of the gain. Take nothing if you lost.

If you’re more interested in growing the account make the percentage small, maybe 10% or 20% of the gain. Even though the actual paycheck may be small,...

Today’s Lesson: Know your trade probabilities.

One certainty we have in trading is that price will move. Which way and how far are what we must figure out. Guessing doesn’t work. Using probabilities based on a large body of evidence does (at least enough of the time).

You get your probabilities by capturing trade data (lots of it) and analyzing. Most traders will initiate a strategy by back-testing and documenting what happened. The more stats you have for each historical trade the better.

Here are the key statistics you’ll need to know for both long and short entries (strategies are rarely “symmetrical” which means your eventual rules for longs and shorts will be different): win%, average winner, loss%, average loser, maximum adverse move, maximum favorable move, time of day, higher timeframe trend, etc.

You already know to capture and use the win/loss data. A strategy that wins 50% of the time and has a bigger average winner than loser is a great...