Flag trading the trend

The purpose behind this project is to explore the relationship between risk, reward, and the nature of compounding. In addition to the focus on price action, it is posts from D such as this one that really attracted me to hang out with you guys:


manage risk, trade with an edge, and reward will take care of itself. In my view, trading for a living really blossoms at 3 contracts - whether the ES, YM, CL, NQ, ZB, ZN. I believe a good day trader with an edge who is trading in the zone (trading a formal trading plan and executing it flawlessly) should be able to net $200/contract over 200 trading days/year. I know there are ore than 200 days per year, but I like to enjoy life, take time off, vacation, etc. Also, some days the set ups just are not there. Some days, e.g. FOMC days, I find I lose more often than win, and so I often just watch from the sidelines on those days. So over the course of the year, there should be at least 200 days where the market is cycling enough or trending enough to give me my set ups and to let me get my $200 or more per contract. At three contracts, that is $600/day * 200 days = $120,000 per year, and most of those work days should be done by noon if not sooner.

Now, the thing I am looking at here with this little account, and the reason I picked the highly liquid, big volume ES, is that the question is "why stop at 3 contracts?" Why indeed? If I have an edge, and if I am able to maintain the discipline to trade only my set ups and not chase price, revenge trade, over trade, shoot from the hip degenerate gambler style, then why not compound through size increases and do much more than merely "make a living."

The objective is to do this in a very controlled, business-like manner. And while $2K to $200K in two years looks very aggressive, if not "pie in the sky" delusional on your computer screen, if you stop and apply sound money management to the disciplined execution of a real price action edge, well, then sharpen your penscil and see how reasonable, and perhaps even downright conservative $2K to $200K might look on paper!

And just to be clear, there is no secret sauce and no secret set ups. My trading is an open book to you guys. Any questions, just ask. Reading D's posts has certainly helped rejuvenate my thinking and has improved my trading and renewed my interest and curiosity in the markets. In short, he shook me loose from a boring rut (trading, over time, once you get the hang of it, actually becomes quite boring, imo). So I am here to keep myself energized and growing, and I am here to pay it forward. I hope that something I contribute at some point will make a positive difference in someone else's trading and life.

Trading Books I have found useful:

Mark Douglas, Trading in the Zone & The Disciplined Trader
Linda Raschke: Many articles and webinars (see her on youtube) and a seminar of hers from nearly 20 years ago.
Edwards and Magee's Technical Analysis, especially the 4th edition (I do not like the newer editions)
Jesse Livermore How I Trade in Stocks (the original, not the Richard Smitten edition
Vic Sperandeo's first two books Wall Street Master and Speculator
How to Make Money in Stocks, William O'Neil (especially the 4th edition which has a ton of great chart studies)

Don't think that just because a book focuses on daily and weekly charts that it does not apply to day trading, or that because a book focuses on stocks that it doesn't apply to futures or forex. Markets are markets, and so long as they are liquid and freely traded, the patterns that compose edges are there for us to trade and profit (and lose too, sometimes).

Newer Stuff: I like Bob Volman's books, and I also like Al Brooks. Brooks can be difficult to read, but he is worth the effort, imo.

And last, but not least, Divergence's thread at FF

Superior post DD. In the zone for me was the disapline to execute the Trading plan and trader vic 2b setup helped me to develop my version of a 2b or as I call it a busted 123 pattern. The reason for me not upping my contracts is this I don't want partial fills. And if I can do 5000 a week with 2 lots well that's a lot of money. The ES can take 10 contracts with no partials because it has .2.5 million in volume. So if you get into the 5 lots you will make tons of money DD stick around I want to see this happen

You are doing excellent work Divergence! The difference between us is that I am a "take the money and run" kind of guy. If my first trade gives me at least my $200 minimum, I'm willing to call it quits for the day and I go out and play. I don't arbitrarily cut the trade at $200. For example, yesterday the first trade gave me a 10 point profit before the initial move lost enough steam for me to quit the trade. Today, I was actually up six or seven points, and I was willin gto hold for at least ten, but once up up six or seven, I am not willing to settle for less than four.

You, on the other hand, keep hitting the market for all it is worth up until you 11:30 quitting time, so you maximize your edge through maximum opportunity whereas t a "take the money and run" guy like me will need additional contracts to maximize my edge.

D'ffrent strokes is all. And in my main account, to tell the truth, I am much more like you. For now, I want this little account to grow but also for it not to be too much of a distraction from my trading that I depend upon to pay the mortgage, buy groceries, etc.

When I began trading about 14 yrs ago my goal was to make 500 a day in fx. So when I came to futures it remained my goal. Then I realized something from my football gambling days and that was the parlay trade. Since trading is about probabilities if I have a winning trade I will then parlay it into more money OPM. You are right though a edge via a consistent trading plan and setup that works. I use to be a 1 and done but in futures trading large lots means possible partial fills via fifo and rather than deal with that I just parlay profits. It's easy to trade from profits than capitol

Solid post, D. I do like the way you think. You are a "thinking trader's" trader.

Parlay on, Dude!

Thanks DD and D! It's a great learning experience in here and I'm still in the process of testing and carving out a proper method and plan as I have been trading with a method learned from a "guru". It's been stops and starts for me and looking at this thread, there is much potential for me to take the positives of my current system and integrate what I am learning here. I basically trade breakouts from basic chart patterns in line with overall direction of a longer time frame chart and the 5 min for bias and feel.

Living in Asia, I trade till around 11.30 EST and my primary instruments are ES and CL. I aim to start soon with actual $ with a small account, something like what DD is doing and to grow it from there.

It's not easy days here as our currency has been battered and economically its not looking good. I was a stock broker for 19 years before I decided to call it quits. One of the advantages of earning in USD is the exchange rate is 4 times our currency. So, for same amount of time I spend trading, I 'd potentially make 4x more in futures trading as compared to trading my local stocks. Of course the loss is magnified 4x too, but with proper risk management and risk reward ratio as demonstrated here, I'm confident I can make it work.

Smash & grab off the LO, complete with exit :



Great posts all round, guys (inc zenline)

Nothing like a fun EU trade to spread the Comfort & Joy (like you wrote, H, "yuck" indeed) :

zenline.

I came across this quote again this morning, which is a good reminder to us all :

"Doubt kills more dreams than failure ever will."

thanks JT, good reminder!

great quote jt .. how come you're living in Holland?

(10 pages later, I'm getting closer to an answer....)

It's a long story, 'ras, but the short answer is that of the 6 countries in which I have lived for 1 year of more, The Netherlands is the only one I will be happy to leave - in spite of knowing some delightful Dutch people and that Amsterdam is a great city (I now live in a beautiful spot in the countryside nearby). My 15 year old daughter is at school here, so when she leaves me - 'cos I could never leave her, being wrapped round her little finger since the day she was born - I will leave NL (more accurate answer).

#1 is Italy (the heart of Europe)
"unclassified" is India (the heart of the world)
#2 is Marin County, California, in the US of A

you've moved around a lot jt .. i'm born and bred in in sw england and i'm still here - plan to do 6 months in london at some point just to see what it's like. That's the beauty with what we do .. you're not tied to any one place

I left London (& the UK) in '96 - it's a very different place today, entirely for the worse imho, as well as mind-bogglingly expensive.

That $120k / year before tax that dd mentioned is an absolute minimum to live well there .

come to USA and live well on that not ny of course lived there done that

nice 2b cl:

nice setup a 2b with a pb and momentum going down that's a winning setup for a quick 30

can't get my 1113 ticks graph right .. are these settings correct:

On session time end day is 23 59 59 not 12

On session time end day is 23 59 59 not 12 unchecked evening session