Risk Structure

/in , , /by

RISK STRUCTURE

Volatility Indices are used to identify the underlying risk condition or STATE a market is currently in. The PriceMap sentiment bias or R LEVEL for the underlying security or futures contract defines the RISK STRUCTURE of the RISK STATE.  Observing price action of the underlying security or futures contract, within the RISK STRUCTURE, in the context of the VIX RISK STATE provides awareness to markets vulnerabilities.

Example

The image below shows the Monthly, Weekly and Daily R LEVEL sentiment bias for the SP500 E-Mini.   In general: Trading above the R LEVEL is positive and below negative. Observing the differential between the current price and the R LEVEL provides insight to its influence as either a repellent when near or attraction when far away. The influence is also determined by the time frame of the structure. The available time frames are Monthly, Weekly and Daily which outline the RISK STRUCTURE of the market.

UNDERLYING RISK STUCTURE

Daily, Weekly, Monthly R-LEVEL Risk Structure

In the example above the ES futures market price is above the Monthly, Weekly and Daily R-LEVEL, identifying RISK OFF structure. Confluence of this fact with the RISK STATE of the underlying VIX provide clarity to the real vulnerabilities of the market. The example below shows that the VIX is below its Monthly R LEVEL. The Monthly time frame being the highest value in terms of market influence. As long as the VIX is below the 12.35 DIR (DIRECTIONAL) R LEVEL, volatility is in a RISK OFF position. Combining this with the fact that the ES futures are trading above all 3 sentiment bias time frames puts the current rally in a strong position with supporting volatility expectations.

The CBOE (Chicago Board of Options Exchange) and the CFE (Chicago Futures Exchange) has expanded coverage of volatility indices or VIX into grains, currencies, crude oil and interest rates along with sector ETFs and individual stocks. Knowing the fact associated with a markets RISK STATE and STRUCTURE  improves awareness and offers an indicator of confluence to standardize trading tactics into a more structured approach.

For more information Click HERE.

 

Risk State

/in , , /by

RISK STATE

Hedging is about managing risk which can be defined in term of volatility. Volatility Indices identify the RISK STATE or condition of the underlying security or futures market. The price points at which the RISK STATE will change are identified in the RISK STRUCTURE of a markets associated VIX. The RISK STRUCTURE alignment can be used as the foundation framework to create a hedge strategy in the underlying security or futures market position to be hedged. This is done by observing the current price position in relation to the PriceMap R LEVEL within the PriceMap framework of a markets VIX.

R LEVEL

The R LEVEL is the dynamic point of equilibrium that defines the Sentiment Bias for the trade period. It is the price level where the bias shifts from positive to negative and vice versa. Where the R LEVEL is on the PriceMap framework determines the RISK STATE. In terms of a Volatility Index like the SP500 VIX the bias shift can be looked at as RISK ON /RISK OFF flip switch for the RISK STATE.

Example

The following is a Hedge Strategy Overlay example applying JSAnalytics to the SP500 VIX. The example shows how to identify the current risk condition and the specific action qualifiers that will trigger shifts in that condition along with the recommended strategy themes and tactics to construct a hedge to protect against an increase in volatility.

RISK STATE

$VIX RISK STATE

The image above shows the Monthly structure for the cash VIX Index which is in a LOW RISK condition below the R LEVEL. A move above the R LEVEL will change the state to a RISK position.  Knowing the FACTS of the RISK condition or State provides clarity, which can be used as the basis to construct a systematic approach to managing risk and constructing a Hedge Strategy.

The CBOE (Chicago Board of Options Exchange) and the CFE (Chicago Futures Exchange) has expanded coverage of volatility indices or VIX into grains, currencies, crude oil and interest rates along with sector ETFs and individual stocks. Knowing the fact associated with a markets RISK STATE improves awareness and offers an indicator of confluence to standardize trading tactics into a more structured approach.

For more information Click HERE.

 

JSNotes Bookmap Integration

/in , /by

JSAnalytics provides context for dynamic order book events which improves awareness and offer a framework to apply a more systematic trading approach.

 

BookMap xRayMap xRay delivers a configurable heat map display that visualizes both real-time order flow and live trade analysis, showing you exactly how the limit order book evolves over time. This granularity is essential to improve awareness of the micro dynamics so trading tactics can be optimized and make the execution of a macro trade strategy more effective. It is also true that micro order book trading tactics can be made more sustainable when they are aligned with macro conditions or more specifically the structure of the market state.

JSPriceMap

JSAnalytics incorporate both technical and behavioral variables, that have been developed from observations over the past 30 years, into a quantitative model, to define the structure of the market state. This structure or PriceMap Framework is integrated into the BookMap Order-Book Heat-Map display as an independent “JSNotes” column.

PriceMap Framework                                                 Heat Map – JSNotes Column

Macro Structure                                                 Micro Structure

 

The integration is strengthened by JSServices Desktop application which identifies the current market state and optimal strategy theme, along with the PriceMap market structure framework, to provide a complete picture of the macro condition.

 

STATE                                         STRUCTURE                                STRATEGY

JSDesktop

 

Clarity of real time events is achieved by observing order flow dynamics within the PriceMap Framework in the context of the market State and PlayBook Strategy themes. JSAnalytics more than anything else, is an awareness tool that provides clarity to what the current conditions are, so trading methods can be optimized by aligning tactics with these facts.

 

Practical Application – Creating a Structured Trading Approach

The following is a practical application of standardizing JSAnalytics with trading tactics that incorporate dynamic order flow events to improve their effectiveness and make them more sustainable.

STEP 1

What is the CONTEXT of the current condition?

  • Identify the market State, Structure and PlayBook Strategy themes as an underlying macro foundation.

JSDesktop displays the JSAnalytics

CONTEXT

  • FACT is the MKT is in a BULL TREND
  • FACT is that trend is engaged above the R LEVEL
  • FACT is the Optimal Strategy Theme is a BUY BREAKOUT
 STEP 2

Where is an order book event occurring within the Structure of the State?

  • Identify the order book event within the PriceMap framework. IF the order book event is occurring within the PriceMap Risk Parameter Entry Acceptance Zone THEN the it has value. IF the event is not occurring within the zone it has less value.

 Example of a Liquidity Shift event occurring at the top of the PriceMap Entry Acceptance Zone

 

STRUCTURE

  • FACT a Liquidity Shift is occurring in the order book
  • FACT the shift is occurring within the PriceMap Entry Acceptance Zone
  • FACT the Liquidity Shift is supported with price structure that is in alignment with PriceMap metrics
 STEP 3

What PlayBook Strategy theme is the order book event in alignment with?

  • Identify if the order book event is in alignment with a PlayBook Strategy theme. If so use the PriceMap risk/reward parameters to optimize trade entry/exit techniques using order flow dynamics displayed in the Heat Map.

BUY R BREAKOUT Strategy Theme is “in play”

STANDARDIZE

  • TRADE ENTRY – Entry Limit orders are standardized within the Entry Acceptance Zone using PriceMap market metrics that are aligned with of historical Resting Paper.
  • STOP EXIT – The PriceMap risk parameters provide a unified approach to standardize trade exit techniques which can be applied across all markets and optimized using historical resting paper alignment.
  • EXIT LIMIT – The PriceMap reward parameters identify the price segment movement the market is trading in or in other words the reward that the market is “paying out”. Standardizing Exit Limits to this fact using the PriceMap framework offers a systematic approach to defining exit targets which can be optimizes by incorporating dynamic order flow events.

 

Trade tactics can be optimized when executed within Entry Acceptance Zones and their effectiveness improved by using real time order book events that are in alignment PriceMap market metrics. By standardizing trading tactics with JSAnalytics trading methods become more structured and sustainable.

 

DEMO JSNotes Integration and JSDesktop

The JSNotes integration works in conjunction with the JSDesktop so you will need to download both applications.

  1. Please click here for a  JSNotes DEMO
  2. Please click here for a  JSDesktop DEMO

For more information please contact us at info@jsservices.com

 

 

 

 

JS ADL Algo Library Launch

/in /by

Feb 10 2017

JSServices launches Algo execution library with Trading Technologies ADL which fully integrate the PriceMap analytics and Market Metrics into an OTA (Order Ticket Algos). The Algos allow a trader to manually enter a trade and then the Algo position manages it based on user defined parameters and the PriceMap structure. For more information please send inquiries to info@jsservices.com.

 

ADL Integration

 

Getting Started – Market State

/in , , /by

MARKET STATE

Standardize your method with the characteristics of the market STATE using JSServices MarketColor Analytics to create a more sustainable trade plan.

  • Identify the STATE conditions your trading style works best in or is more comfortable for you to trade
  • Know the characteristics that define each market STATE
  • Use the MarketColor Grid to identify markets whose current STATE compliments your trading style

11-8-2016-11-37-55-am

11-7-2016-9-18-38-pm

Desktop Features Overview

/in , /by

MarketColor Grid

The MarketColor Grid is the control panel that drives the application by clicking on a market of interest on the grid which then updates all analytics to that market. The selected market description and current contract month is listed at the bottom of the application in addition to the symbol pull-down menu, which can be used to Change the symbol selection on the grid.

12-10-2016-11-59-34-am

Features

  • The MarketColor Grid provides a color coded display that shows the market State condition for grid symbols including descriptive tags. The MarketColor Grid also functions as the control panel to dynamically updated both the Structure and Strategy sections of the application to match the market that is selected on the MarketColor Grid.

Benefits

  • Traders are able to quickly identify markets whose current State and Structure are optimal for specific trading tactics and easily navigate from one market to the next to identify opportunity.

 ELEMENTS

MarketColor Grid Symbol Tile

Each FULL market symbol on the GRID contains 3 descriptive elements which define the market STATE and STRUCTURE:

  1. General Market State TYPE
  2. SIGNATURE Market State #TAG or Market Structure Bias (MSB):
  3. R LEVEL position (R=)

jsdesktopmarketgridexplination_v02

 

TYPE – The TYPE is the general market State condition. Identifying market State is similar to painting a picture and the TYPE is the base color coat of the canvass. The TYPE consists of the generally accepted market State conditions such as TREND, NON TREND, EXTREME and PIVOTAL. Identifying a market by its general market State TYPE provides context to the underlying condition so trading tactics can be aligned with this fact.

SIGNATURE #TAG – Is the identifier used to classify the signature market State the context of which is defined in the Desktop STATE TAB. The coloring of the grid symbol tile matches the signature State color coding providing an “at a glance” awareness to the technical landscape of symbols in the MarketColor Grid.

R= – Identifies the R LEVEL position on the PriceMap which defines further defines the context of the market State and its Market Structure Bias. The R LEVEL or  Sentiment Bias is the price point where sentiment turns from positive to negative and vice versa. Therefore trading below this price level will give the market state expectation a negative tone and above it a positive tone. This fact can dramatically change the market state expectation. For example, a market in positive BULL TREND market state with the R= below the market will have sentiment aligned with the underlying positive trend and a higher price expectation. A market in a BULL TREND with sentiment above the market however would have a negative or “corrective” expectation even though the market is currently in a positive BULL TREND state condition.

Market STATE Only Markets

Markets that do not contain all 3 tab elements and are missing the R= element are Market State only symbols which will not have a PriceMap associated with them nor the STRUCTURE or STRATEGY tabs. Only the Market STATE tab in the Commentary section will be active.

12-10-2016-8-02-28-pm

TRADE DATE and HISTORICAL DATA

The Application provides 10 days of historical data which can be viewed through the date pull-down menu. By selecting the desired date from the pull-down menu it will change all the analytics for that date. The MCV Plot on the market STRUCTURE tab will continue to display “todays” full 10 days of historical data regardless of the date selected.

12-12-2016-10-38-57-am

 INDICATOR SORT

The MarketColor Grid provides a color coded overview of different MarketColor Indicators. The pull-down menu allows you to select the indicator of interest, which will then dynamically update the MarketColor Grid, displaying each markets color profile for that indicator. The default indicator is the MSB (Market Structure Bias) which provides the highest level of market state definition.

12-12-2016-10-55-22-am

LAYOUT

The entire Application is dynamically re sizable by grabbing a corner with the mouse, hold down a left click and drag to the desired size. The application will dynamically adjust. Preset layouts are also available from the LAYOUT pull down menu with a standard FULL View, PriceMap View which includes the PriceMap and MarketColor Grid only view.

12-12-2016-11-24-13-am

 

Webinar – Optimizing TradeTactics with Order Book Dynamics

/in , , /by

This webinar demonstrates how to optimizing Trade Tactics using JSServices analytics which define a markets macro structure and Jigsaw Trading micro structure order book display.

Optimize Trading Tactics To Make Them More Effective

11-22-2016-1-04-22-pm

 

PlayBook Entry Strategy Tactics

/in , /by

Trade Entry Tactics

The PlayBook Strategy Themes represent the best risk defined opportunities for the trade session and are defined using 3 basic ENTRY tactics;

  • FADE momentum
  • BREAKOUT, trade with momentum
  • REVERSAL, false breakout exhaustive signal

entry-strat-1

The naming schema for a PlayBook Trade Tactic BUY R FADE strategy reads as follows; looks to BUY the market at the R LEVEL using a FADE entry technique. This is a “theme” so the essence of the strategy is to FADE momentum into the R LEVEL area. Trading tactics and methods should be aligned with the basic properties of a FADE.

Risk Parameters

The Risk Parameters identify the area of influence or acceptance zone surrounding a trade entry level in which an opportunity remains valid when executing a specific trade tactic. The reason is that many profitable opportunities cannot be filled at the optimal entry level, in which case the surrounding acceptance zone is used to gauge if the fill price still presents an acceptable trade opportunity. The surrounding acceptance zone boundaries are defined by the AD (Alert Distance) and VAR (Variance) PriceMap Market Metrics offer a guideline for a systematic approach to the Trade Entry process by defining where to enter the market with the best chance to succeed with acceptable risk.

marketmetric-apmd-7

  • VAR (Variance) metric defines the variance surrounding a PriceMap level that should be considered “at the level”. This metric can be used for risk management but its primary function is to identify the optimal ENTRY area. The VAR is also the signal acceptance zone for a minor or validation level.
  • AD (Alert Distance) metric defines the signal acceptance area surrounding a Directional or Major PriceMap level. This metric also qualifies the structure thresholds for conditional alerts and stop placement for JSServices PlayBook strategy themes.

The Risk Parameters should be used to systematize the 3 main components of Trade Entry, the Conditional Alert, Entry Price and Exit Stop price.

Example: The image above shows a basic textbook example of a FADE, BREAKOUT and REVERSAL Entry Tactic incorporating the Risk parameter Acceptance Zone.

Conditional Alert

The Risk Parameters are used to confirm a Trade Entry Tactic is “true” or valid.

  • FADE technique is the most basic as it has only 1 conditional alert (A1). This is to confirm that the LTP (Last Traded Price) is “in front” of the PriceMap level so momentum can then be “faded” in the acceptance zone. The example above shows the AD (Alert Distance) being used as the A1 Conditional Alert.
  • BREAKOUT technique has 2 conditional alerts. A1 to confirm that price was qualified “in front” of the PriceMap level on the opposing side of the acceptance zone and then A2 to confirm a BREAKOUT through the PriceMap level creating a new bias. Once the BREAKOUT statement is “true” entry orders can be executed anywhere within the acceptance zone.
  • REVERSAL technique has 3 conditional alerts that must be met in sequence. Price must confirm that A1 is true first, then A2 and finally A3 to make the REVERSAL statement true. Once this occurs then entry orders may be placed anywhere within the acceptance zone.
Entry Price

After the Conditional Alert confirms the Entry Tactic the Risk Parameters can be used to systematize Entry orders within the acceptance zone.

  • FADE, in the example the BUY FADE entry is placed at the VAR (Variance) with the expectation that the momentum is going to press into the acceptance zone and afford an entry close to the PriceMap level.
  • BREAKOUT places an order at the AD as the expectation is that the new buy signal is going to just “ go” with a minimal pull-back.
  • REVERSAL order is placed in the middle between the AD and VAR as a balance between a “choppy” transition or a steady shift in momentum.

The example presented are basic guidelines which can be optimized by taking into consideration the characteristics of the market state, the position on the PriceMap framework, the Strategy Theme the trade is aligned with and the dynamic micro structure of the order book.

Exit Stop Price

The Risk Parameters Market Metrics VAR, AD, and MSD can be used as parameters to set Exit Stops. Reward expectations should be considered when selecting which metric to use for an Exit Stop. The stop should never be placed “at the metric” as this represents the boundary limit which is anticipated to be tested but not broken. As a rule of thumb a minimum 1-3 tic variance through the metric should be used to avoid getting “dinked” at the risk parameter extreme. Price Structure and the order book dynamics can be used to optimize stop placement as well as entry

The image above shows how Entry and Exit Stop orders can be optimized when price structure and resting paper in the order book are in alignment with Risk Parameters.

General Thoughts on Trade Entry Tactics

  • Awareness of the Risk Parameters provides additional insight and clarity to the current condition.
  • Signal acceptance should be limited to within the AD (Alert Distance) acceptance zone.
  • Entry within the VAR acceptance zone should be considered optimal.
  • Trading outside the acceptance zone assumes much higher risk and slippage and should be avoided.
  • The opposing VAR and AD can be used for STOP placement. The placement of such orders can be optimized with price structure confluence. In fact when price structure and market structure metrics are aligned it signals a good risk based opportunity.
  • Historical resting paper in the order book that is in alignment with Risk Parameter Market Metrics  can be used to optimize Stop Exit placement by adjusting stops through the liquidity.
  • If an ENTRY LIMIT order is placed too close to the PriceMap Level, the strategy will “miss” opportunities (winners), that “just didn’t make it” to the point of entry but will participated in all of the losers because market went through the PriceMap level.
  • If you want to have a position it is best to enter the MKT at the AD and then average in with a lower entry at the VAR. Ideally the micro structure of the order book should be used to optimize ENTRY orders with supporting liquidity events.

 

R LEVEL – Market Structure Bias (MSB)

/in , /by

SENTIMENT BIAS – The R LEVEL

The R LEVEL [Reversal Level] is the “Over-Under” number for the trade period. Trading above the R signals a positive buy break bias and trading below the R signals a negative sell rally bias. This is the inflection point where sentiment shifts from positive to negative and vice versa.

r-level

The R LEVEL is the most significant price level on the PriceMap as it defines the session bias and is the best actionable starting point when using the analytics. Traders should be aware of price activity in relation to the R level and note if the current action is with or against the bias. In a general sense, signals in the direction of the R bias should be expected to be smoother, with follow through potential, and signals against the R bias to be more laborious and unlikely to be sustained.

Market Structure Bias (MSB)

The R LEVEL represents the sentiment bias for the trading period which further defines the market State expectation by its position on the PriceMap. Where the R level is on the PriceMap Framework will skew the condition of the market state and define a Market Structure Bias (MSB). There are 9 potential R LEVEL positions on the PriceMap Framework each with its own unique influence on the current condition. Trading tactics should be aligned with the MSB skew to improve their effectiveness.

pricemaprlevelpositions

PriceMap Framework R LEVEL Positions

Market Structure Bias (MSB) R LEVEL positions

R =DIR

The R LEVEL equal to the DIR (Directional) is in a classic pivot point position, as sentiment is balanced or “on the fence”. The market is indecisive or is preparing to make a move. Any market State condition with the R=DIR structure bias should respect the pivotal nature of sentiment. Typically, when the R LEVEL is in this position it will either just breakout and “go” producing a linear move or a difficult rotational trade will consume the market for the trade period within the CR+ and CR- validation levels.

msb-image-dir

R=UP

The R LEVEL at the top of the Critical Range defines a “hard” resistance point at the UP (Upside Pivot). Energy is centered at this price point and a violation should be expected to produce sharp interest. A downside failure below the DP (Downside Pivot) however should NOT be expected to have the same energy and have a more measured expectation. This structure bias identifies a corrective expectation for positive trend type states and the optimal entry area for negative trend states.

msb-image-up

R >UP

The R LEVL above the UP but less than the UT1 creates a RESISTANCE BAND with the UP. Trading tactics should focus on the entire zone for signal acceptance. Typically this would be on the sell side as this is a resistance band but will transition into a support band if the market violates the R LEVEL and starts to transition higher. This structure bias identifies a corrective expectation for a positive trend type states and the optimal entry area for negative trend states.

msb-image-gt-up

R =UT1

The R LEVEL = to the UT1 (Upside Target #1) creates an even wider resistance band with the UP. Signal acceptance anywhere in the price band is acceptable however it is best to commit to opportunities closer to the UP or UT1. As the R LEVEL moves farther outside the CriticalRange the energy in the market place is skewed higher. Any lower price movement should be expected to be move measured and any positive turn from lower levels should be expected to target the R LEVEL. This structure bias identifies a corrective or digestive expectation for positive trend type states with the R LEVEL defining current lid for the underlying positive momentum. For negative trend states the R LEVEL identifies where the real selling energy is and the optimal entry area to get back on the down trend.

msb-imageut1

R >UT1

The R LEVEL above the UT1 identifies the high point for any price squeeze against the underlying trend if it is going to resume in the session. A market in this position has an underlying negative tone and any sell signals within the UP to R LEVEL range, are an actionable opportunity. Sales below the DP is a lower value opportunity and the threat of a corrective squeeze up to the R LEVEL is real. Typically the market will attempt some type of corrective move when the R LEVEL is in this position. A good “tell” is either an exhaustive REVERSAL signal at the DP or a transitional positive BREAKOUT at the DIR targeting the R LEVEL.

msb-image-gt-ut1

R =DP

The R LEVEL at the bottom of the Critical Range defines a “hard” support level at the DP (Downside Pivot). Energy is centered at this price point and a failure should be expected to produce aggressive offers. An upside breakout above the UP (Upside Pivot) however should be expected to NOT have the same energy and any upside breakout to be more measured. This structure bias identifies a corrective expectation for negative trend type states and the optimal entry area for positive trend states.

msb-image-dp

R <DP

The R LEVEL below the DP but greater than the DT1 creates a SUPPORT BAND with the DP. Trading tactics should focus on the entire zone for signal acceptance. Typically this would be on the buy side as this is a support band but will transition into a resistance band if the market violates the R LEVEL and starts to transition lower. This structure bias identifies a corrective expectation for a negative trend type states and the optimal entry area for positive trend states.

msb-image-lt-dp

R =DT1

The R LEVEL = to the DT1 (Downside Target #1) creates an even wider support band with the DP. Signal acceptance anywhere in the price band is acceptable however it is best to commit to opportunities closer to the DP or DT1. As the R LEVEL moves farther below the DIR the energy in the market place is skewed lower. Any higher price movement should be expected to be move measure and any negative turn from higher levels should be expected to target the R LEVEL. This structure bias identifies a corrective or digestive expectation for negative trend type states with the R LEVEL defining current floor for the underlying negative momentum. For positive trend states the R LEVEL identifies where the real buying energy is and the optimal entry area to get back on the up-trend.

msb-image-lt-dp

R < DT1

The R LEVEL below the DT1 identifies the low point for any price squeeze against the underlying trend if it is going to resume in the session. A market in this position has a defined underlying positive tone and any buy signals within the DP to R LEVEL range are an actionable opportunity. Buys above the UP are a lower value opportunity and the threat of a corrective squeeze down to the R LEVEL is real. Typically the market will attempt some type of corrective move when the R LEVEL is in this position. A good “tell” is either an exhaustive REVERSAL signal at the UP or a transitional negative BREAKOUT at the DIR targeting the R LEVEL.

msb-image-lt-dt1

Analysis – TradePlan Development Worksheet

/in , /by

MyTradePlan

This questionnaire provides the foundation to develop a TradePlan that will allow you to:

  • Continually evaluate your trading in an objective way
  • Trade without emotion and with minimal stress.
  • Make needed adjustments as “matter of fact” not with the emotion that plan-less trading invokes.

Make your answers to the questions as clear and succinct as possible. There is no room for ambiguity in your plan; so avoid vague, fuzzy statements. Also, where possible, always define and qualify your statements.

10-21-2016-12-05-48-pm

Personality Profile

Countless papers have been written about how the best traders are cool as cucumbers and show no difference in emotion regardless of whether they are winning or incurring heavy losses. On the other hand a novice trades well on a simulator only to be faced with a whirlwind of emotion when real money is at risk. How do you avoid becoming a slave to emotion? With a TradePlan.

  • Why do You Want to be a Trader?
  • What Type of trading appeals to you?
  • What are Your Personal Strengths and Weaknesses?
  • What frame of mind are you in now?
  • What are Your Income Targets?

Setting Goals

Setting goals is an essential part succeeding at anything worthwhile. Goals therefore; are a big part of your TradePlan as they provide you with a meaningful (to you personally) objective to work towards. The plan provides the way to track progress. Think in terms of your development as a trader, as opposed to thinking of purely financial goals.

  • Where do you want to be as a trader in one year?
  • Monthly?
  • Weekly?
  • Daily?

Some Details

Most Plans will recommend limiting your market of focus but with a Strategy Based Trading approach that same edge can be applied to market state conditions and specific structure bias. In this approach limiting your trading to markets that are only in a NON TREND state with sentiment outside the CriticalRange to apply your deviation tactics can be even more empowering than only focusing on U.S. Stock Indices or Yield curve trades. Your personality traits will typically drive the type of trading that is best suited for creating a sustainable TradePlan. The charts and applications you use must correspond with this view.

  • Which Markets do you want to trade and why?
  • What timeframe do you want to Trade and why?

 

Tools of the Trade

Your broker and trading platform are critical to your performance, ask questions look for recommendations here is a list of concerns:

  1. The type of markets that you wish to trade. If, for example, you wish to trade U.S. stock indexes, which broker offers the largest universe of futures and do they also allow you to trade securities.
  2. The size of your account. If you have only limited capital with which to fund your trading, you need to start with mini products or micro currencies.
  3. The platform you use to trade. Which ones does your broker support if you have questions.
  4. The level of support and customer service offered by the broker. There are hands off and full service brokers see which one is the best for you – most appropriate is not always the cheapest
  • Which Trading Platform are you going to use and why?
  • Do you have experience with it?
  • What Infrastructure do you have supporting your trading?

 

Before the Market Opens . . .

To begin trading without doing your homework beforehand is like building a house without a blueprint – possible? Maybe but not recommended at all. Have a TradePlan and develop a routine to ensure that you are prepared fully for the trading day ahead; this decreases your susceptibility to seat of the pants trading and emotional mistakes. In addition it builds self-confidence and improves your ability to trade more intuitively.

  •  What is your Daily Pre-market Routine (or post close routine)?
  •  Do You Analyze Yesterday’s Trades?
  • Do you consider the Fundamental Market Conditions?
  • What does your trading day look like by the Hour?
  • Do you keep and update a trade watch list of markets that are in your preferred market state?

Risk & Money Management

This is the crux of ANY trading successful trading endeavor period. Failure to apply sound risk and money management principles will, almost certainly, be financially ruinous. First of all, let us define the difference between risk and money management. Risk management focuses on the steps necessary to minimize losses by assessing market state conditions, sentiment bias influence, volatility expectations, risk-reward, probabilities and the proper use of stop loss orders etc. Money management, on the other hand, focuses on the steps necessary to maximize profits by the use of trailing stops and adjusting position size etc. This is summed up perfectly in that giant of trading axioms: ‘cut your losses short and let your profits run. It is important that your feelings about risk are compatible with your TradePlan.

  • What is Your Attitude toward Risk?
  • What is your Overall Market (account) Risk?
  • Do you understand your Broker and Hardware Risk?
  • Do you understand the risks associated with your trading tactics? Please explain

ALL strategies break down. This is due to the markets constant transition from one trading environments to the next. It is crucial to identify what market states compliment the criteria of a trading strategy or tactic and monitor its performance during different market state themes. Markets are constantly in transition and we need to constantly update our tactics as conditions change.

Advanced Risk Management Topics

When it comes to assessing the specific risk associated with a proposed trade, most traders focus only on the risk-reward ratio. Unfortunately, this is only a part of the picture, unless probability is factored into the equation. Here’s why: suppose the risk-reward ratio is 4:1 – a gain of 80 points while only risking 20. In isolation, this looks excellent. However, if the probability of a trade being successful is only – say 20%, i.e. the probability of a 20 point loss is 80%, suddenly the proposed trade does not look quite so attractive! To assess the probability of success of a trading strategy we must start by standardizing our TradePlan to market state and structure conditions. This needs to be precise with no ambiguity. “IF the market is in this state and structure; THEN my strategy is to does that”. This is vital in order to build the foundation to create a sustainable trade program.

  • Do you understand the Probability of a Successful Trade?  What is the real risk of an opportunity?
  • Do you understand the Risk-Reward Ratio of your strategies?
  • Do Calculate the Risk Per Trade?
  • How do you make decisions on where to place Your Stop Loss Orders?
  • At what point will You Cease Trading for the day?

 

General Money Management

Your trading capital must be money that you can afford to lose and be set aside from everyday expenses. If you lose the lot, it should make no difference to your standard of living. Clearly define in your plan the extent to which you will credit additional funds to your account in the event of large drawdowns and debit the account when it starts to burst at the seams with huge profits.

  • Large Drawdowns and Profits – What will you do?
  • What Money Management Approaches do You Use?

 

Specific Money Management

Utilizing a trailing stop to lock in profits once the trade is on the right side of break even has two clear advantages. 1) At worst, you may end up with a scratch trade – but no losses. 2) At best, it allows profits to run which enables you to take a sizeable chunk out of the expected move. Part of standardizing a TradePlan should consider how trial stops adjustments should be anticipated in different market state and structure conditions to reduce profit give-back as much as possible. Profit Give-Back refers to how much unrealized profits do you “give-back” on a trade. This should be a function of the opportunity as well as the overall risk management aspects of a TradePlan.

  • How do You Determine Your Position Size?
  • How do you lock in Profits?
  • Do you use a Profit Give-back ratio?
  • At what dollar amount of unrealized profit would cause your mental state to change?
  • What is your profit give-back ratio [the amount of unrealized profit you would “lock in” with a trail stop] for the following scenarios?

Unrealized                         Expectation                        Profit Give-back Ratio

+100                                      +300

+200                                      +300

+200                                      +500

+200                                      +750

+400                                      +750

+400                                      +1500

+400                                      +2500

+750                                      +1500

+750                                      +2500

 

Exit Strategy

Exit strategies are harder to get right than entry strategies. Unfortunately, they are much more important because, self evidently, they control the profit and loss. Arguably, for discretionary traders, the best exit strategy is one that is dynamic and market controlled, as opposed to a rigid mechanical strategy imposed upon each trade, regardless of market conditions. A dynamic, market controlled exit enables you to take some money off the table offered by the eventual losers and let the big winners run to realize a greater proportion of the increased gains on offer. These additional profits could transform an overall trading strategy from one that barely breaks even into one that is profitable beyond what we thought possible.

  • Losing trades – Do You Exit before Your Stop is Hit? Explain
  • Losing trades – Which Signals Will See You Exit Early?
  • Winning Trades – Which Signals Will See You Exit before the Initial Target is Hit?
  • Winning Trades – Which Signals Will See You Close Half?
  •  Winning Trades – When Will You Close the Remainder?

 

Trade Strategies, Setups & Entries

Strategies will vary in their profitability and usefulness according to market state conditions and structure alignment. Virtually all strategies fall into one of three generic groups: BREAKOUT, FADE (retracements) and REVESALS. Within these groups are a multitude of trading tactics, but basically follow one of these themes.

Based on your Personality Profile you may gravitate towards one entry strategy type but should be comfortable with each theme and a solid understanding of what market states they will work best in.

  • Which Market States do you like to Trade?
  • What are tactics do you apply and what are Your Setups?
  • How do You Find Your Setups? 
  • Which Signals Will Trigger Your Entry?

 

After the Market Closes

Once you have finished trading for the day it seems like you should just walk away from the stress. The process should include examining both winning and losing trades. It is essential that you know what you did right and, just as importantly, what you did wrong.

  • Do You Recorded Today’s Trades?
  •  Do you note if you executed Your Trades According to Your Plan in a journal?

 

Discipline

Having trading plan with detailed entry and exit instructions and excellent risk and money management procedures all count for nothing if you lack the necessary discipline to implement them. The next questions are about ensuring that you stick rigidly to the commitments that you have made to YOURSELF . Adhering to your plan is relatively easy during periods of profit. However, the real test will be your ability to stick to it even when your trading is not going so well.

  • Have you Back Test or Forward Test (Sim) your strategy?
  • Do you have any Promises to Yourself [consequences of following or not following the Trade Plan]?
  • What Questions do You Ask after a Winning Trade?
  • What Questions do You Ask after a Losing Trade?
  • What Steps are You Taking to Learn More about Trading?