The cyclical nature of trading

Hi everybody................

For those who are new to trading you must realize that trading goes though cycles, I call it the “cyclical nature of trading”, where the good times are followed by quieter times which is then followed by a few small losses.

In other words, do not expect to make profits everyday or every week or every month. You have to take what the market gives you.

And as we have had a few very very good days this week, I anticipated that we are in for a few harder few days, so you must expect this. You job as a professional trader on this harder days is to just keep your head above water so you are ready for the good times when they come round again.

Too many amateurs expect big profits every day, so when the harder times come round they get frustrated so then they miss the good part of the next cycle. So knowing about the “cyclical nature of trading”, will help you to anticipated what to expect from day to day.

I hope this helps ?

Steve

OK, continuing the current ES example ................

OK, continuing................

Now let’s take a look at the shorter term 3 and 5min charts, bearing in mind the larger degree 15min chart was in a nice uptrend.

Well, the 5min ES gave us a very nice TS3 buy setup early in the day. So was this one good one to consider ? Yes, exactly, as the 15min trend was up..........

You should have also been thinking that because the 15min trend was up, not to bail out of this TS3 long trade too early, and even look to run the long trade, until (at least) the 15min DP was reached (as outlined in my post below).

Well, that is exactly what happened, the TS3 long reached the second projected profit target (which was also in the same area as the larger degree 15min DP), so was a good time to tighten stops. The result, a very nice +6.5R Profit.

But do you all see, how this was a nice trade because it was “in the direction of” the larger degree, 15min Chart.

Steve

larger degree trend example

Hi Everybody,

Continuing with the theme earlier in the week on only trading “in the direction of” the larger degree trend, yesterday on the ES was another brilliant example. So let’s start with the position on the 15min Chart. As you can see from the chart on the right, the 15min ES had a DP that the market was rallying up to early in the day, so any buys setups should have been preferred. Then caution should have set in as this 15min DP was reached.

OK, so now let’s move onto the 3 and 5min charts to see how any setups on these “fit in” with the larger degree up trend (for most of the day) on the 15min ES chart yesterday...........

Steve

How to handle losses - keep them small

As a PS to my post below.......

In fact, showing losses and understanding how to keep losses small is so important that I will show two losses on the 3min NQ on Wednesday as well. There are so few software vendors and so called Gurus that never mention losses, it is no wonder so many amateur traders never know how to handle them when they come along.

Here we had two losses, on a day when the larger degree trend was unclear, so it would have been difficult to filter them out using the 15min chart.

But do you see how they were kept small, so two -1R losses here then added to the nice +6.5R Profit on the 3min ES made money over all. Small losses and Big profits, that is the key to successful trading.

But it is important to know, and understand, that losses can and do unfold when trading.......

Steve

+6.5R Profit on the 3min ES

Hi Everybody,

I was out of the office yesterday, so could not post. But Wednesday was another good day on the US eminis with some very nice trades, the best of which was the TS4 buy that unfolded late in the day on the 3min ES.

As you can see, this results in a nice +6.5R Profit as the ES rallied strongly into the close.

Note how we swapped to use the ATRStop (which held the long into the close) once the STF had exceeded its strength band. This is our standard trade management guidelines.

Thanks

Steve

PS. It is always important to remember that although this was a good trade, losses can and do unfold. But because we use correct Position Sizing, these are kept small as just -1R. So even with 2 or 3 losses, the +6.5R profit on the trade shown here would more than cover 2 or 3 losses. But I just wanted to make sure that everybody does understand that any methodology will have losses. The trick is to keep these inevitable losses small and the profit large.