Core Strategy: Risk Mitigation
Taking Care Of Risk, Takes Care Of Everything Else…
If You Have A High Probability System
The Thorny Hedge of Losses
But… Only once the rod of correction wipes out your account, reducing the foolish trader to humility, can true learning take place. It is good for a man to be humbled. FOr he doesn’t listen to anyone until he walks through the scorching fire of painful self-inflicted ordeal. A horrible experience can be the most profound instructor. Ask for it to teach you. Because Very little can be learned without suffering.
The following rules are best read by eyes wet with tears gazing upon the wreckage of destroyed accounts.
You see, A wise man is a learner and delights in learning. And a wise trader can rest his weary head upon the pillow of time-tested rules of risk which keeps your account healthy and your mind humble.
Indulging the carnal desires of over-leveraging and recklessly expanding stop losses only serves to inflate your pride – the greatest of sins.
Only lasting inward change, resulting from the detailed examination of failure, can one remain within the protective hedge, grazing in the good pasture of prosperity.
Do You Need Risk Rules? Crashing A Trade:
Crashing A Trade... Eject! Eject!
You were impatient and entered the trade too early.
Now, your trade starts going the wrong way quickly. Too quickly. Dang. And you entered with your full size instead of a test contract size.
“Dang it. I knew not to do it. Ugh. Crap!”
Your heart rate and breathing increases. A sure sign of stress.
Now, BEFORE you ACT… THINK. Breath.
This exact situation has been well thought-out before today, right? You know what to do in this situation, right?!?! Don’t you?
The first thing you need to know, the first small loss IS the best loss! Eject! Eject!
How can you make the trade WORSE???
How could it get worse?
You need to know… Changing one thing might have a linear effect on the performance of your trade, BUT changing multiple things creates an exponential effect.
For example: Moving your stop just two more points away FOR A DANG GOOD REASON won’t kill you… BUT… adding more contracts AND moving the stop has a geometric effect. Now your trade is uncontrollable. A crash is imminent. Your thinking becomes cloudy as the drawdown happens more rapidly now.
Sometimes, it’s best to eject from the bad trade “early” so you can live to trade another day without the emotional scaring from a self-induced spin resulting in a crashed trade/account. Especially if you know the ENTRY was messed up to begin with.
Straighten up and fly right.
I made three trades yesterday. One pre-market made five points. One in the chop of the morning, I made three points. In the afternoon, I was hoping there’d be a reversal. I had a fantastic short. It went two points, but I kept my stop at a one-tech profit. And that’s all I made because it didn’t keep going. So, I was hoping it would keep going.
Yesterday really made me think a lot about risk because I was watching this, knowing what typical traders were trying to do. They were shorting, they were adding, they were moving their stop, and they were making the situation much, much worse. I just know that’s what was happening. Been there, done that.
So, I made this post last night because I was really thinking about it. And I’ve been thinking a lot about risk lately. And I’m wanting to put together, I don’t know if I’m putting together a book or if I’m putting together just videos. I don’t know, but it’s been in my brain a lot.
So, crashing a trade, once again, I like to use a lot of aviation analogies. You were impatient and entered the trade too early. Now, your trade starts going against you very quickly, too quickly. Dang, and you entered with full size instead of a test contract size, especially if you’re going counter trade. Dang it, I knew it. I knew not to do it. Uh, crap.
Your heart rate and breathing increase, a sure sign of stress. Now, before you act, think, breathe. This exact situation has been well thought out before today, right? You know what to do in this situation, right? Don’t you know this? The first loss is the best loss. Eject, eject. How can you make this trade worse? It’s a great question to ask.
Number one, in any stressful situation, don’t make things worse. That’s the first rule. Don’t make things worse. Number two, changing one thing might have a linear effect on performance, but if you change multiple things, now you’ve created a geometric exponential effect on your trade. For example, moving your stop just two more points away for a dang good reason won’t kill you. But adding more contracts and moving your stop as a geometric effect, now your trade becomes uncontrollable. A crash is imminent. The warning signs are going off in the cockpit.
Your thinking becomes clouded as your drawdown happens more rapidly. Now the numbers are much bigger than normal. Number three, sometimes it’s best to eject from a bad trade early so you can live to trade another day without the emotional scarring from a self-induced spend resulting in a crashed trade or account, especially if you know the entry was messed up to begin with. Straighten up and fly right.
So, that’s a post I made in my group last night that I wanted to share with you. Someone needs to hear that. I made a post a few days ago, and the title of it was something along the lines of ‘Are you Maverick?’ And basically, in Top Gun, Maverick had to learn the first one: ‘I will not leave my wingman. I will not leave my wingman.’ And that video was for you to repeat yourself. ‘I will not add to a losing trade. I will not add to a losing trade. I will not add to a losing trade.’ It’s a very good rule.
Okay, well, I hope yesterday was a successful trading day and your system is working for you. I’m hoping today will be another successful day. Powell is speaking today, so make sure that’s on your calendar and chart. You need to know when that’s happening. It’s a good time to know when not to trade.
Okay, have a good morning.
Risk I: Know when NOT to trade. We cover this in detail in the training. Knowing when NOT to trade is the first thing I want you to learn. There ARE times to NOT trade. You have GOT to know WHEN NOT TO TRADE. This will eliminate MOST of your bad entries.
And the first risk that I want you to consider. Is when not to trade. I have quite a list here for you. And I would recommend you get out your digital notebook and perhaps you take some notes on this. It is absolutely critical.
When I talked to a new trader, probably the first topic we talk about is risk mitigation. And the first topic inside of that is when not to trade. Because the goal is…getting rid of our C and D level traits. We should never be taking a C or D level trade and the first way to eliminate a C and D level trade…
Is easily…eliminated. By knowing when not to trade. Okay. Not entering a trade. Is the easiest thing to do…
And you want to be aware of wind You should not be trading. Some of these factors are common amongst. Us as traders. And some of these factors are going to be based on you. And we’re going to dive into that.
So this is easily the most critical decision you’re going to make. Is when not to trade, not take in a trade. Is a decision. It is a trade. It does affect the risk of your portfolio, the risk of your mental equity.
And it is critical to always be preserving your mental and emotional equity I want to guard that first. And the easiest way to do that is to not be in a trade when the market’s about to go crazy. Or you’re not in a good place. And we’re going to talk about that today. This does require attention to details.
You don’t just come and sit down at the computer, look at the chart and start trading…
Or at least I can’t do that. Um, So it requires attention to detail. Now there are some tools you can use to help you in this list that I’m about to give you one of them As you can use countdown timers, let’s just use a real obvious event. F O M C. Okay.
My be a good idea to have a countdown timer on your screen while you’re trading. So you’ll know when you want to stop trading. Or when that event’s going to happen you can do it however you want. On my live zoom with my traders, I will often have a countdown timer, um in the zoom screen so they can see that as well. You can put vertical lines on your trading view chart.
And add the note, what is coming up? Is that CPI is that sentiment what’s about to happen? When is it going to happen and be aware of how much longer do you have? Because if you only have let’s say 23 minutes before the next news release is that enough time for you to enter a trade. Every minute you get closer to that news event, the risk of being…
And a trade increases…
You can use some sort of automated scheduling software to help you. So Darren our lives zooms. From time to time on a scheduled rotation. We get verbal reminders. For example one of our reminders is, um every 30 minutes it’s going to remind us to look at our higher timeframes.
So we get off the three minute chart We get off the one minute chart flip to that 30 minute chart. And see are we leaving sets of single prints? Whatever we’re looking for. So the scheduling software can help you. Um for example Europe closes at the same time.
Every week. Except when there’s time zone changes or whatever and it gets weird for a week but. If you know, That at X time every day. Certain thing happened, let’s say it’s your quitting time. Well, my automated software for example comes on 15 minutes before my quitting time reminds me in 15 minutes.
Close your charts…
So I know that’s an early warning system of okay. If I’m going to enter a trade I need to know I’ve only got 15 minutes left. And I need to know that if I get into that trade, let’s say it goes against me Time is ticking. I’m probably going to have to just get out of that trade because I know my quitting time, Is absolutely critical to my success. We’re going to talk about that here in a minute.
And then you need access to websites with. A calendar of economic news. And you want to use more than just one economic calendar. Okay. So let’s kind of dive into this.
I want you to check yourself emotionally. Are you upset? Has there been a death in the family? If someone’s sick…
Did you just have a fight with your spouse or your child? Are your parents…
Are you under financial stress…
These emotional checks are really important. And you should ask yourself, am I ready to trade…
Something you should ask yourself during the trading day. Am I ready to trade…
And if you’re not in your conditions change. Close your dorm. But the mouse down and walk away…
Check yourself emotionally. Check yourself physically. Did you sleep well? Are you tired? Are you in the wrong place…
My opinion don’t whip out your cell phone and enter a trade When you’re waiting in the car line to pick up your kid from school. You got shoddy wifi. Your computer has been acting up…
So the first two things is how are you emotionally and where are you physically in art Do you have the right equipment Is that equipment. Working Well, are you in the right place physically? These factors play into it. Victim…
Next one. Not enough time to trade Do you have a dentist appointment in one hour? Are you leaving on vacation tomorrow? And your mind is really on that…
So when you enter a trade is there enough time for that trade to develop…
Only you can answer that question. The next one. Is your pre flight checklist. I use a lot of aviation turn because I absolutely love aviation. Um inside of our core strategy academy the first course is called bootcamp.
The next one’s called flight school are probably gonna have one more called aerobatics because now you’re getting all fancy. Um but pre-flight checklist and that is something uh we, we, uh take very seriously in our group. And part of that pre-flight checklist is what we just talked about. Am I in the right place emotionally, am I in the right place physically? Have I, um done my.
Uh news drivers for the day. Um, Work news drivers are there tomorrow. So this pre-flight checklist is really important You are like a pilot. That goes out to the airplane. And does a preflight checklist.
Um all the way from…
Checking the condition of the tires to. Does the rudder and elevators move freely and…
Everything involved with. Taking off in an airplane. It should be the same level of seriousness. Before you take off and start entering trades. Get up early.
If you get up late. And you come into the. And to your trade station. Your trade computer and the market just opened…
Don’t look at it…
Either don’t trade or have the discipline to say I have got to do my pre-flight checklist before I start start trading. I must do my pre-flight checklist. I recommend to my traders to have it printed out and next to your computer. And one of our indicators for our group. I have on there.
Basic. A basic pre-flight checklist. It’s a reminder of Hey, here’s the most important things you need to do. Before you trade. Have a pre-flight checklist.
These are the things I will do. I will check. I will mark. Before. I trade.
Take it seriously. Next one huge one when not to trade our news drivers. Your Sunday homework…
Is to do a week at a glance knowing what is being released this week. And you’re Mont as well Look at next week. Okay. Cause if next week. Not this week but if let’s say next week was FMC, that’s going to affect how.
The market trades this week you need to be aware of that…
So in my group on Sunday night I’ll post the week at a glance These are the news drivers I’m seeing that we need to have on our chart…during the week And then each day. You check it again. Okay. Because there’s big news events and it doesn’t matter what the news is The only thing that matters is. How does the market react and you shouldn’t be in a trade.
10 minutes before it happens…
N F P non-farm payroll. I also call that not for professionals…
Unemployment rate. Those are released the first Friday after the month ends CPI. It’s about 16 days after the month ends F O M C and their press conference eight times a year. Is Powell speaking as Powell testifying. Is one of the other fed speakers talking or testifying.
Put it on your chart. GDP is the quarterly gauge of our economies health. Unemployment claims weekly on Thursdays…
Then there’s other ones There’s retail there’s housing There’s PMI There’s sentiment. All of these things you need to be aware of, of when they’re happening You don’t need to be an expert in what the heck they are…
At least not for the scalping that we do We just need to be aware of when these news drivers are happening, because it makes price go crazy. I’ve even seen hundred point candles…
When a news event is released. Don’t be in front of it. Go get you some tea Go get you some coffee. Go for a walk. Just don’t trade.
And be aware as what. Be aware. What news drivers are being released tomorrow…
Okay Cause if F O M C is tomorrow. Today is probably going to be characterized by slopping chop. Might be a good day not to trade If you don’t like to trade in slop and shop. If you love slop and chomp, you can make a lot of money trading slop and shop on a 32nd chart…
But you need to know that that tomorrow is FMC. So today we’re probably going to see this type of price action…
Okay. So do that week at a glance on Sunday, do it every day as part of your pre-flight checklist, what news drivers are going to move the market today? Put them on your chart use a countdown timer use some automated software, whatever you have to do. So you are not caught. In the craziness of that news release…
Um, There’s other factors when it comes to time The first thing I do before I enter a trade, my eyeballs go to the upper right of my monitor to check. The time. Okay. Um, I want to be aware of the top of the hour the bottom of the hour How far are we away from Europe closing? Is there enough time for me to be in the trade before either a news driver dentist appointment Europe closing my quitting time…
Those type of issues needs to come into play. In your own trade analysis, last weekend’s homework. And our discord group. Was covering…
How to download your transactions from trade of eight. I was just using trade away because a lot of us use try to bait. Get them into a spreadsheet Get them into air table. And let’s do some analysis on these numbers. Now there are softwares that can help you.
I find them to be too expensive to be homicide so I don’t use them I just I hand to do my analysis. How do I trade by day? Are there certain hours I rock. And are there certain hours I stink. And the answer to that question is yes…
How are my trades by trend How were they by type by level R T H versus ETH? How do I compare in the morning session versus a lunchtime? Versus PM. How are my trades If I try to train the trade in the Asia market and the not Asia market during the Asian timeframe, you know, evening. What about London time…
Sometimes I do get up at two 3:00 AM in the morning and trade the London open How do I do. How do I do it versus the New York session? And learn And the goal here…is for you to learn when you should not be trading. I know exactly when I should not be trading and I try to be very strict about those rules. If I do trade into a timeframe.
In which…I historically have not done well…
I forced myself to trade the smallest leverage possible. And if I have a losing trade. I’m out. I knew I shouldn’t have been trading during that timeframe. But I try not to trade it at all.
His historic historical records have proven. There are certain times I don’t do well…
And sometimes that’s based off your tiredness. A lot of people don’t even trade on Friday. Especially the older you get I’m going to be honest the more tired you’re going to be by the end of the week. I’m not as sharp and crisp on Friday as I am on Monday…
And I know that. So I only trade in the mornings on Friday as an example. If I make a Broady afternoon trade which…I actually did. Um Friday. Got a couple of days ago.
I was sitting here programming, uh some of our indicators for our group making some changes and betrayed just presented itself But I entered with one MES. The smallest leverage. It was outside of my prime hours And. Luckily it bounced and it ran at touched and goat and. And turn into a B a net net 10 pointer.
And um I was hoping it would be something bigger but Hey I’m happy with that too. The lesson is though try to trade in your best hours and you have to do that analysis to know when you trade best, what data you trade best What hours do you trade best? Um I know my single best hour. Is. I’m putting this in Eastern time zone…
Um 10 to 11. That is when I trade the best. When I sort all of my transactions by hour of the day. That hour crushes any other hour. Big time…
Then the very next hour is my worst hour…
So guess when my quitting time is. It is around. That time. Of when holy cow I can’t believe how…much worse I did. In this particular hour and how great I did.
In this. Hour…and you know what you take that data. And you get rid of your C and D level trades on an overall. Scale and realize you know what that particular hour I don’t do as well. That’s when Europe’s closing things get squirrely Uh, for me it’s better to be out…
So guys knowing when not to trade is absolutely critical to you getting rid of your C and D level trades. Okay. Now when you first starting C and D level trades. Are the real horrible traits. As you get better you still have C and D level trades…
It’s just. They don’t hurt as much. And the first thing to help you is knowing when not to trade…
Okay So if you’d like to be part of a group of S and P futures traders that’s what we do here at micros trader. And you’re welcome to learn more about our core strategy on the email@example.com. In fact I give you links to learn most of this core strategy. On your own now how I put it together and the special recipe and all that stuff is, is unique to me. And um but that’s what I teach at the core strategy academy.
I hope you guys have a great week. Bye…
Risk II: Know EXACTLY how much you are willing to lose on every trade AND your max loss per day. Stick to it. Take the loss like a man. Be the best loser you’ve ever known. Leverage Matrix
So let’s say you passed all of that…
You’re in the right place. You’re not on vacation. You are right mentally You didn’t just have a fight with your wife. There’s no orthodontist or dentist appointments today. Your spouse’s left The house is just you at the computer.
You woke up early this morning after a great night’s sleep, you’re energetic and you’re excited to trade. You’ve marked your levels. If you’re a member of my group, go to the trading floor and see if I posted any charts with some levels that I think need to be on your chart. Um, You are prepared. To trade.
Okay So how do we know when to stop…
While you’re trading. Well we’re going to talk about the obvious one today is about your losses. Okay So once again we are risk first. Traders. So before you even started your trading this week or before you’ve even started trading one of the decisions you need to have made is what is going to be my max loss.
This is critical This is the risk rule we’re talking about today. No exactly how much you’re willing to lose on every trade. And your max loss per day. Stick to it. Take your loss like a man and be the best loser you’ve ever known.
And then you’ll see a link there that says leverage matrix. I have a video on the lever to metrics on my channel or go to my website and you’ll see it there as well…
So the first decision is how much am I willing to lose? You could do it in a month. And then how much am I willing to lose in a week? And as a day trader the most important one is how much am I willing to lose today before I make the decision? To close my Dom shut down my computer and be done for the day.
Take my acceptable loss that does not tilt me. And walk away. Because I’m going to tell you you’re all energized You’re all in this passion…
But if you walk away from the computer, And you go do your grocery shopping. You take your kids to the park. You go for a long walk. You will calm down. And you will be able to take your small loss and walk away.
If you cannot walk away from the chart the chart owns you…
I want you to be able to walk away from the chart. You want a little exercise. One day your first trade is a loser. Shut down your computer shut down your Dom and walk away and say I am taking that loss today. I am going to do it.
For the discipline. Of doing it. The market’s going to be here tomorrow. Take that little loss. Walk a way.
I want you to go through those feelings that you’re going to have to combat. When the lard when the losses are larger and the emotions are greater…
So tomorrow next day you trade. If your first trades a loser stop. Take that loss walk away. Prove to yourself and you can do it prove that you are in control, not the gambling casino called. Trading…
So what’s your max loss. For the week. And you can divide that out. However you want There’s Monday Tuesday Wednesday Thursday Friday. Which days do you trade Bess?
Do you trade better in the morning The afternoon? Do you trade better on Monday and Wednesday than you do Thursday Friday? You could spread out that money however you want. I even suggest that perhaps if you trade better on Monday and Wednesday, put a larger portion of that loss. On those days.
And stick to it…
You might say Hey I don’t trade the PM sessions at all I’m only am only, I only trade Monday and Tuesday because that’s when I’m the freshest and the best And I ignore the rest of the week. Do it however you want but it doesn’t have to be the same amount every day. That’s what I’m trying to get at. So 500 bucks does not mean I’m at $1,500 for the week Does not mean you got to do $300 a day. That’s not what that means.
So spread it out. I would tend to, I tend to trade best on Mondays and Wednesdays For some reason that tends to be my best days. So maybe I could put more of the stop loss. On those two days and much smaller on Friday where I do much worst where I only want the loss on Friday to be so small and boom I’m done. I’m not going to allow Fridays to hurt me.
So you can scale those by day and by sessions…
Okay Now let’s get down to let’s say you were going to do $500 max loss per day. Okay. So that could be five trades in a row You can say you know what If I do five max trades in a row, I’m done I’m out. You might say if I’d lose two. In a row…
As a safety valve I’m out. Decide how you want to do it but let’s just stick with the example $500 max loss loss per day. You’re willing to lose five trades in a row Lesser your first five trades Just go bad…
That would be a hundred dollars Max loss portrayed as simple math would reveal…
Yes it’s $5 per point. So if you portrayed one contract you could use a 20 point stop-loss. I recommend you do that but we’re doing this for math. If you traded two contracts you could use a 10 point stop loss. If you trade at three contracts you could use a six point stop-loss.
So now we went from how much we’re willing to lose for the week. And we have really dialed it in to how we are going to trade today. How we’re going to manage our risks today. We know how many contracts we can trade We know what sort of stop-losses we can look. We know when we’re done for the day.
It’s very clear in black and white and then you have to follow the rules. I’m not at the computer to slap your hand off the mouse and turn off your computer. You. Have to manage yourself pretend you’re the pit boss standing over yourself watching new trade…
Yank yourself off the trade desk. Walk away Get away, calm down. Take the small loss, take the acceptable loss and move on. So if you know that at $300 max loss for the day you tilt. Well you should never have a $500 max loss number.
No you let’s not get close to the number that makes you go crazy. So a $500 makes you go crazy…
And you’re going to start doubling and tripling your leverage just to get back to even when your max loss should probably be $200. If 500 makes you go crazy your max loss should probably be 200. That way you don’t come close to the 500 where you start being stupid. You have to protect yourself from yourself…
Okay let’s dig a little deeper. So let’s say you were going to do the $500 max loss per day, where you could scale your risk. Hey when I’m freshest and I’m the best and I’m going to be patient and wait for the absolute best setup. Maybe you allow yourself a larger…stop-loss…and then if you lose that you dial it down then you dial it down Then you dial it down. As the example here.
So the first loss you could say Hey 200 bucks. That’s going to allow me to leverage bigger. I’m going to be able to do more contracts or I’m going to be able to do a bigger stop…
I’m freshest. I’m seeing the charts Great. I’m gonna allow that first trade to carry more of the risk. And then with each loss I’m going to trade smaller…
I’m going to trade smaller. Till I get back to my $500. So let’s walk through an example. Frustrates max loss you lose 200 bucks…
Your system says the next trade I can only risk a one 50. You have to stay at that risk level. Until you get back to even. When you get back to eat when you have now earned the right to go back to the first Los leverage. Okay.
Let’s say you lose the first two trades You’re now at the third loss where you can risk $100 per trade. You have to stay at that risk profile until you have made back everything and gotten to zero. Then you can return to the first level of risk. Or you just close the Dom. And move on.
When there’s a better day because they’re easier days and there are easier traits…
So. What’s your max loss per week. What’s your max loss per day Make sure that max loss is way under your tilt number. You can also scale your leverage based off your best trading days. Make the leverage smallest on your worst day for me is Friday…
You can scale your leverage based off first trade versus second trade versus third trade. So let’s say you do the first trade and you have $200 max loss. It touches your level Bounce does beautiful…
You make money, you can still stay at the $200. First loss number…
Okay. You don’t have to scale down. You can always scaled helm by the way, but you can stick there at that first leverage amount. But when you lose it is a smart. Plan to leverage down.
You could make a rule that says okay, when I have a loss, I immediately go to the lowest leverage trade. Immediately. For the next trade. So let’s say you lost $200 on your first trade. Well the next one I’m going to do 50.
If I make money I can now go to the second loss leverage because that’s where I should be. You have to stay there until you get back to breakeven. And then you can restore yourself to the first loss leverage. There’s many ways you can work this, but I love the concept of de-leveraging after a loss, not staying with the same leverage and certainly. Not going bigger when you’re emotional and probably upset about the loss.
It’s smartest D leverage till you get back to break even go back to the first trade leverage…
Okay So first rule knowing when not to trade…
Second rule is once you’re trading How do when should I stop? We’re not talking about profits here We’re talking about just one. Area which is…the loss. Because I’m all about risk mitigation. First.
If we can have a high probability system and we’re good at containing our risk you will be successful over time…
What’s your max loss per day. How are you going to. Scale that…
And how are you going to scale that over the week? Are certain days better than other days. So Monday on best on freshest. I do really well on Mondays…
So that day I could front-load my risk for the week. What if I had a $1,500 number for the week and I put a thousand on Monday…
That’s okay. That’s typically historically my data and I have very detailed data. I know when I trade best…
That doesn’t mean I’m going to take that loss. It just means I trading so good. I’m willing to allow myself to have higher leverage. During the times I trade best…
Might be something for you to consider. Of course none of this is investment advice This is just one trader talking to another trader about risk. How much are you willing to lose today…
How much are you willing to lose per trade And how can you scale those numbers It doesn’t have to be an exact thing exactly the same. Every single trade. In my humble opinion…
Okay, thank you for listening And I hope you take this into consideration and add it to your trade plan…
Risk III: Never add to a loser. A losing trade does NOT need more leverage. Stop “hoping” price comes back. Just don’t do it!
episode of Risk rules to get a complete
list of the Risk rules go to my website
microstrader.com click the hamburger
menu at the top click Risk rules and it
will take you to the web page that lists
out most of the Risk rules risk is the
only thing you control as I create these
videos I will continue to build out that
so let’s talk about the Risk rules we’ve
already discussed the first one was know
when not to trade
the next is knowing your max trade loss
how much are you willing to lose per
trade and what’s the max loss for the
day before you say I’m done and today
we’re going to discuss the super
important topic that blows up more
accounts than anything else
is never add to a loser
okay let’s get to it before we’re done
this whole screen is going to be full of
information it is quite involved it’s
taken me several days to put this
together so I hope you find it valuable
so for today’s exercise we’re going to
pretend that you took a short right here
for whatever reason for our group it
would be because it’s a bounce level
this is six points from your hard exit
then I have a backup level right here
that I have a different backup level
here within two points to help fill out
because although the risk rule is do not
add to a losing trade there is a section
that we we can add to our trade and that
is under the hard exit Okay and we’re
going to talk about that
where do you not want to add I don’t
want you to add above the hard exit this
is adding to a loser and we’re going to
discuss all of this
let’s talk about the profitable Trader
so the profitable Trader
manages losses within this region they
manage their entries within this region
and we’re going to discuss that and then
of course below your entry on a short
you’re now managing your profits down
here and that’s what you do this is your
job mainly this and then hopefully that
if you have a high probability system
hopefully you’re managing profits more
than you’re managing your losses but
both are absolutely vital and what’s
even more vital
is the fact you do not add to your
position up here making your losses
worse further away from your entry
so what resides up there
Doom that’s what’s up resides up there
this is where Traders go to Die the
charts are littered with Traders bodies
who decide to stay in their trade past
their hard exit who decide to add to
their trade beyond beyond their hard
exit it’s littered
with their bones and their debt accounts
one thing to note
a failed trade does not equal a failed
if you have a high probability system
and you need it
you can take this acceptable loss that
just makes you go oh well no big deal it
happens the size of this loss needs to
be where you go oh well whatever no big
deal there’s another high probability
trade around the corner if this loss
size causes you to freak out in any way
it’s too big you don’t need to be taking
that trade with that amount of Leverage
with the stop that far away
so what you need to know is that up here
is the graveyard of Traders these are
unacceptable losses you should be fired
from being a Trader you must submit and
surrender and plan for
and not allowing anything up here to
this is a no trade region for you you’re
out you’re waiting for your next high
probability trade if you knew that you
had a system where 92 percent of your
trades were profitable
don’t you think you’d have
the confidence to just get out of this
just get out wait for the next entry
it’s no big deal it is absolutely no big
deal just get out
okay so this is where we want to live
we’re going to manage our entries here
we’re going to manage our profits down
here and when it gets to our line we’re
simply out this is the red line
in your car
you don’t want to blow your engine you
don’t want to blow your account this is
like putting a limiter on your audio
saying I don’t want frequencies above or
below this because it is unpleasant to
the ears well I’m going to tell you
right now trading up here is unpleasant
to your mental and physical and account
Health this is not good for you
just stop it get out
we do not add to a losing trade a week
or two ago I made a YouTube video where
I just repeated over and over I will not
add to a losing trade I will not add to
a losing trade I will not add to a
I encourage you to repeat that remember
it I certainly repeat it inside of my
mind I sure do
okay so let’s get rid of these two
let’s get more into the Nitty Gritty
we’re going to talk about this first
we want to use a risk first approach
this goes back to reviewing our first
Risk rules we’ve talked about risk rule
number one is should I be Trading
when should you not be Trading
and then the converse of that is should
I be Trading
you’ve got to be able to answer that
question next one is what are the high
time frames telling you where are you
are we laddering up are we laddering
down are we in chop are we headed to a
high time frame inefficiency on the
chart where are we headed the main thing
though is you need to know where are you
next thing is have you decided your max
loss but this was risk rule number two
your max loss per trade and your max
loss per day we need all of this
to even be Trading
we need this information to even be
trading okay must have that next thing
in our core strategy Academy in our boot
camp I encourage my Traders
to hand draw
three to five
perfect setups I want that diagram drawn
if we were at Chili’s and I handed you a
piece of paper and I said draw for me
your ideal entry
I want you to be able to draw it because
if you can draw it you can own it and
then does the picture that I drew or the
picture that I screenshotted does that
picture match the candlesticks on my
if they match
I probably have an entry if they don’t
match why am I entering
so I want you to have three to five
setups that you can reference
does the chart match the diagram you
next decision we need all four P we all
need we need all all of this information
what is our Trend are we with the trend
wtt with the trend are we counter or are
we chop and the reason why I want to
know that information is because I will
allow a different Max loss based off
Trend okay so I have my daily loss and
how am I going to divide that up well if
I’m with the trend I’m willing to use up
more of that daily loss because I want
to trade bigger because I have
statistics that show that when I
determine we are with the trend I have a
super high win rate so therefore let’s
leverage that a little better
next thing you have got to be able to
discern you’ve got to discern
where is my ideal
stop loss where is that and our core
strategy we know exactly where that is
and you need to know where that is
calculate the distance
and know how far that is because all of
that information is going to go into our
if you haven’t watched my leverage
metrics video or downloaded the Google
go to my website microstrader.com in the
upper right is a little hamburger menu
so scroll down to you see leverage
Matrix the video in the Google sheet is
there on that page my gift to you from
Trader to Trader
so we need this information because this
will tell me how many contracts I can
given Trend and given the stop loss and
given the max amount I’m willing to lose
based off that trend
we’re getting somewhere
next thing is what type of Entry do we
want to do ah
this is important
do we do it as a single entry do we do a
test entry do we spread out our orders
across the range
is there multiple bounce levels I demand
for our core strategy there to be at
least one bounce level between my entry
and my exit I want to give the trade an
let’s say price went past my first my
entry level but if I got a backup level
is that where it’s going to bounce is it
going to bounce off this level it’s
going to bounce off this level I want to
have at least one backup level
between my entry and my exit preferably
too preferably some high time frame
bounce levels on top of it
so now let’s discuss
the entry possibilities so five entry
decisions in my opinion are you just
going to do a full all of your entries
at your first bounce level
so let’s say the leveraging metric said
I could do four entries am I going to
put all four right here that’s one
option if you do all four right here
price just rips through sorry I should
have used an arrow rips through and hits
your stop loss well that’s four
contracts at six points at five dollars
a point we’re using mes here that’s a
hundred and twenty dollar full stop loss
that’s the amount you’ve decided Max I
can take that no big deal oh well let me
get back in the game let me reanalyze
the chart where’s my next trade 120
bucks Max loss no big deal you might be
a big dog where you’re doing ESS and
1200 bucks is no big deal okay it
doesn’t matter just know your numbers
that’s one way to enter is putting all
four contracts here at your entry or you
could decide hey I’m going to use the
four contracts but I’m going to dial
down my entries in other words I’m going
to put one at the six points one at the
Four Points one at the two points and
one at the one point
now if price rips all the way through
the levels and hits this I sustained
half loss because one was at six one was
at four one was at two and one was at
that’s pretty nice I could take half a
loss well what if
I just traded the wings
what if I only traded the wings where I
I entry here with one and I did three up
entering on the edges
of your range
entering on the edges
of your range that’s why it’s called the
if I did that well one contract
experienced a six point loss
and three of them experienced the one
point loss that’s a quarter loss
but then I still got in all my entries
pretty cool I prefer spreading out my
orders or using the wings
I don’t like entering all my Leverage
right on my initial bounce level that’s
just me I tend to play Risk first
and that’s how I roll now the other way
to do that is
let’s say price comes to your level gets
you into your one contract and bounces
awesome now my goal is to add contracts
further down to get to my four
very cool not a problem
you could also do a test entry here
it comes up
you do your butterfly
you bought you you you enter at the
edges you enter at the wings your break
even is going to be really
low here and as soon as it crosses I’m
going to manage at that
um break even and that’s going to be my
new quote-unquote entry level okay so
there’s a number of ways here to manage
your four contract entry all four
we do one one one one
or we do the wings
like this or if we come here it touches
and bounces we add to our winners I much
prefer adding to my winners than I do
adding to my losers okay which is one
reason I favor the wings I do a test
entry here I’m expecting a touch and
but if it comes up
I’m willing to add at the edge of the
those contracts have the least risk
I like that
I like that a lot
next thing we got to decide first of all
it’s good for me to tell you I manage
for touch and goes okay so everything
I’m about to discuss here I manage
because I want price to touch my level
I don’t want it to go through my level
so we’re going to talk about full loss
heart stop don’t make things worse so if
price just rips through you need to have
your stop up here and you just get out
and go oh well I miscalculated something
some news event may be happening
anything like that who knows the next
thing is is could I possibly get out at
a half loss
what would that look like well let’s say
came up it did bounce off this level it
didn’t make it back down to give me the
gift of a break entry and started going
I’m gonna get out why we’re now
laddering the wrong direction
so I am not afraid to take a half loss
no problem what about a paper cut loss
well price comes up it comes back it
does this stuff
I’m just out I’ll take a paper cut loss
no problem no problem at all what if
price just rips through this comes back
to break even and gives me the gift of a
break even trade I’ll take that too no
I don’t mind taking a break even I have
a high probability trade right around
and when do you just get out whenever
you’re tired of watching the trade
whenever it’s just not doing what you
paid it to do whenever you start hoping
that price comes back you just get out
who cares there’s another high
probability trade right around the
corner price either bounced or it didn’t
the extra juice here is adding to your
winners okay that’s really important
because I typically like to enter
with the wings
a lot of times price will hit my level
and bounce and go that direction and now
I’m trying to be in the business of
adding to my winners and adding to your
winners will really juice your returns
adding to losers will not
um it works sometimes and then when it
doesn’t work it hurts so bad
which is one reason just to bring this
chart back up I like these different
I’m typically not entering my full
contracts will I yes it’s got to be the
most perfect setup and I go I gotta do
all my contracts here
okay that happens very rarely
where all the stars on our alignment
I prefer either spreading out my orders
or trading the wings or just doing a one
contract and if it bounces my direction
I plan on adding to my position once I
receive confirmation that it actually
bounced and we are moving and laddering
in the direction that makes me profit
so at the end of the day
when it’s all said and done
the disciplined Trader is going to live
this is where Traders go to die
don’t do it
manage your risk
manage your entries
know your max loss that you can stomach
have a high probability system so you
have the confidence to get out oh well
that didn’t work
there’s another trade around the corner
please make sure you go watch my risk
rule one when not to trade
I published a video yesterday about high
time frame analysis
I did risk rule two the trade
what’s your maximum loss per trade and
your maximum loss per day and this is
risk rule three do not add to a losing
but you should do the converse of that
which is add to winning trades think
about this for a second if if you look
at your trading career and you never add
it to a loser
and you always add it to your winners
would you be in a much better position
I’m going to say yes you would probably
be in a much better position today if
you never add it to a loser and you only
added to your winners but you know what
the trader within us the Gambler that
lives within you wants to add
when you’re down because now price only
has to come back half the distance and I
can get out
well that works until it doesn’t and it
destroys you that is dynamite we don’t
play with that Don’t redline your car
just get out of the trade
all right I hope that you found this
information useful if you like this type
of information and you believe this
could help your trading please check us
out at microstrader.com have a great day
Risk IV: Never move your stop thus incurring a larger loss. Stick to you initial plan. It is OK to be wrong, just don’t be wrong for TOO long. Just don’t do it! A small loss is “easy” to make back. A small loss reduces stress too. Protect yourself from yourself.
Risk V: Protect your mental capital/emotional equity FIRST. Profits are SECOND. This means, know your RISK RULES and STICK TO THEM. Period. End of Story. If you only incurred small losses, imagine how great your trading career could be!
Risk VI: Learn HOW and WHEN to take HALF losses. You don’t have to take a FULL LOSS. You don’t. Learn WHEN you should lose quickly. Get over it. Reset your mind. Look for the next set up.
Risk VII: Make your initial entry SMALL knowing you can ADD to your winner. Consider it a “test entry”. And… as a bonus… Small test entries equals small losses.
Risk VIII: Have a high probability system and you will KNOW there is another trade around the corner. This helps you take the loss! Think about that. Welcome to the Core Strategy!
Risk IX: Waiting patiently… for perfect entries solves nearly every problem when using our Core Strategy. “Perfect entry solves all problems” is something I say often. Perfect entry means entering at the perfect price with the perfect price action structure with perfect leverage (sized perfectly given trend analysis) and a perfect stop loss during prime trading hours.
Risk X: Ask yourself… before you start trading and WHILE you are trading…. “Should I be trading?“. Answer honestly. Is the price action favorable or not? Is price bouncing perfectly? Are you upset about something? Did you have a fight with your spouse before market open? Do you have a dentist appointment in one hour? “Should I be trading?“. This goes back to the FIRST one, “Know When NOT To Trade”.
BONUS I: Learn To ADD to winners! Compound your winnings! Start small and build a position with your stop behind protection layers. We cover this in our training.
BONUS II: Wake up EARLY and do your entire Pre-Flight Checklist! With our Core Strategy, you WILL have a Pre-Flight Checklist. Like a pilot preparing to fly, you NEED to prepare to trade. If you arrive late to your trade desk, don’t trade. Just take the day off. No biggie.
BONUS III: Personally, there is a point where I will NOT let a winner turn into a loser. I’d rather take a “break even” and wait for the next high probability set up. Break evens are winners to me! Plus… when you aren’t in a trade, you can see the “chess board” more clearly.
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Transcipt: good morning Traders let's talk about taking a half loss which I did yesterday I was up three points before this trade and ended up down four points and this is not a core strategy trade this was definitely an early adopter trade I would call this a George...
Transcipt: Okay let's talk about a couple of things today First of all whenever you're presented the opportunity to take a break from the charts, take the break. So it was a holiday on Monday, and I tried to take the next day as a holiday as well. Calls typically...
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ADDITIONAL NOTES: I use my streamdeck for lots of ES Futures Trading. (more videos inbound!) I mark levels, breaks, holds, trend, .... Using a stream deck speeds up my trading because I am fiddling with the mouse MUCH less. Thus, more efficiency. With my simple...
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Losing money is just a normal part of trading. It's tough, especially if it's a big loss, but it's important to remember that losses are just part of the process. The first thing you should do when you have a losing trade is make sure that you didn't make any mistakes...
Bold and True Futures traders, bold and true, With nerves of steel and a keen view, You stand at the front line of the fight, Trading with all your might. In the world of futures, there is no room for doubt, You must stay sharp and never lose your route, For the...
Price action in the futures market refers to the movement of prices for futures contracts over a given period of time. It is a key concept in technical analysis, which involves using past price movements to predict future price movements. In the futures market,...
Fear of missing out, or "FOMO," is a common emotion that can affect traders of all levels of experience. It can be especially dangerous in the fast-paced world of trading, where the temptation to make impulsive decisions can be strong. However, with the right...