Any tips on how to trade this market?

The size of the bars is not the issue. Remember, all markets and time frames trade the same way regardless of the size of bars. Traders will adjust their risk to appropriate for the given chart and market condition. 

The problem most people have with the Micros right now is that one micro contract is not a small position size anymore, so it causes them to trade differently compared to 4 months ago. It is harder to trade the I don't care size when one has to risk 20 points, especially if they have a small account balance. 

First, I would suggest taking an honest look at what account size you are trading and asking if the balance is an acceptable balance for risking 20 points per micro emini ($100). If one's account balance is $5,000, that is 2% of your account at risk ($100) which means if someone loses three times in a row, that is a 6% drawdown and a lot for one trading day. If one cannot trade small, they should consider trading the SPY of considering trading forex so they can trade the "I don't care size."

Second, 

Consider taking five random trading days over the past week and take five random trading days from last year. Remove the price and time axis so you have no idea what day what is, and print those charts out, shuffle them around, and lay the charts out on a table. This will help you visualize that there really is no difference from the charts from last week, last month, or five years ago. This is a helpful exercise to help one genuinely believe that price action is price action, no matter the chart, time frame, or market. One has to begin to think like an institution does not care about the size of the bars; they adjust. 

Thanks for the reply.

At the moment I am trading on paper since it's a new system. So size isn't an issue because I have unlimited capital, haha.

The issue for me seems to be that I never hit my limit orders. I take an entry, and it's a good entry based on the chart Al posts. This entry say requires a 30 point stop. So to get an equal risk reward I have to look for a 30 point move from that point. I'm never getting that follow through move. It will go maybe 10 or 20 points further, and at some point turn around and go all the way to stop me out. The only way I would be converting a high percent of my trades right now would be to take a reward much lower than my risk... which is not something I'm really keen on doing. Risking 30 to make 10 doesn't really make a lot of sense to me.

So I guess what it comes down to is I feel I am analyzing the chart well. I feel I am taking good entries. But I cannot seem to find a way to manage the trades so that I can close them green. I never really had this issue in the past, but back then I was on a shorter timeframe chart and used smaller stops and limits. Closing 75% of my trades in the red lately definitely doesn't give me the warm fuzzies, haha. So I know I'm not trading this system well.

I guess it comes down to, entering a trade is one thing. But how does one convert that trade to a profit in this system and environment? It seems impossible to close a high percent of trades in the green when it is always requiring 30-40 point moves to make profit.

Hi Philip,

As far as I can see the trades you mentioned were only based on initial risk. I think considering your actual risk would give you a peace of mind. The actual risk equals the number of pips the market moves against you after entry. If you make twice your actual risk you’ll end up with a positive trader’s equation. 

Ideally, actual risks are smaller than initial risks. This also means that the profits will be smaller. If the market stubbornly moves your direction, you don’t have to get out after hitting twice your actual risk – go with the flow.

I think, even if your trades are in demo account, you have to care about money and trade management so, your lot size should matter. At least, that’s my opinion.

Thanks. Perhaps I am sticking too rigidly to trying to get 1x my initial risk minimum. I think where I might be bumping my head is the differences between how I'm used to trading in the past to how I need to trade here. I'll list both below and then describe where I think the issue may lie.

Past: My typical trade management recipe was to trade 2-3 lots. I would place a hard stop based on some form of support nearby, and I would trail it up anytime we set a new major or minor low. I would never bail on a trade early, I would always wait for the stop to trigger me out. For my target strategy I would have 1 lot that I would trail a stop and just let the market eventually stop me out. Then for the other 1-2 lots that I would place hard limits in the market based roughly on my initial risk (1x for lot 1, 2x for lot 2) and adjust +/- for any possible resistance levels I saw nearby.

Current: I've been using 2 lots. I've been using much wider stops as I'm always placing them below the last major low as Al recommends. I move the stop up to the next major low every time we get another break out. For the targets I've been trying a similar strategy as above where I have 1 that I try to get roughly 1x risk and a second that I trail until I see a hard signal with follow through in the other direction.

I just watched the 2 measured move videos today. I probably have not been using MM's enough. I can see in the chart today where that could have been helpful Also, at times I probably hold on longer than I should when the market starts going the other way. It's a tough balancing act there. The swap from "always in long" to "always in short" and likewise is very subjective. Sometimes a wedge for instance only turns into a minor pullback which is worth holding through (and looking to buy back if I already took profit on my 1st lot). Other times it is a major turning point and my face is about to get ripped off. It's hard to tell sometimes. If I go flat too soon, or worse get fooled into reversing too soon, I miss a move or take another losing trade respectively. Yet, if I get out too late it turns a winning trade into a losing trade. My old strategy I was probably less active, letting my trailing stops and limits mostly take me out. Your comments about active risk vs initial risk make me think that maybe here I need to focus on being more active, taking profits earlier than I want to at times, and maybe also flattening up a little more aggressively than I have been. I'm just not sure what the right balance is between aggressively taking profits and going flat vs being patient and giving some breathing room in hopes of riding the trend higher.

Perhaps a good follow on question here for anyone that has been trading this system successfully for a decent period of time, what rough percentage of trades do you actively take profit targets or stops early vs waiting for them to get hit? 

Brad covered some very critical points and I agree with him 100%. Have to, that is what we are taught in this course by Al. Size of the bars are not relevant, PA works regardless of that. I think you should share some of your trades, showing your entries, stops and expected targets. That way, the people around here who know their stuff will be able to actually help you out. Otherwise, it'd just stay a theoretical discussion without actually going anywhere. Trading is a practical discipline after all, doesn't matter how much you know in theory, it is all for naught if you cannot apply it in real-time.

I think, if you posted some pictures of your trades it would be easier to figure out the problem. Maybe some of the guys who are experienced with Al's PA technique would see something you don't see. 🙂

Posted by: @philipmwardoutlook-com

Perhaps a good follow on question here for anyone that has been trading this system successfully for a decent period of time, what rough percentage of trades do you actively take profit targets or stops early vs waiting for them to get hit? 

I will make a video on this topic and post a link (easier to explain than typing). It is really important to understand one has to get out early when your risk-reward is bad. Note: a bad risk-reward is one where one is going for 1x risk. 

Greatly appreciated!

Here is a video I made a couple of months back that may help.

https://youtu.be/7ut_KO5x9PE

I will follow up with another video soon. 

When you buy the market, the most ideal would be to put your initial stop under the last major low, but you don’t always have to do that. If you watch Al’s videos carefully, you’ll see what I mean - often, you’ll have choices.

If you buy H2s (second legs) or second entry wedge bottom breakouts, the probability of the market turning against you is lower – however, your risk is higher. If it turns against you, then you get out before your wide stop gets hit. For example, if you buy the market after a major trend reversal, after a good bull signal bar and follow through bar that closes on its top, but the market, after a bar or two, turns against you, with two bear bars closing on their low, it’s better to get out. Some experienced traders may not exit, because they’ll see the reversal as the third leg of wedge bottom, but most traders would. Some experienced traders would see the previous pattern as incomplete and would scale in lower.

If you chose the right lot size and you manage your trades well, your wide stops shouldn’t be a problem – your loss should be within 1-2% of your account, at worse. Scalpers often use wider stops, because of scaling in, however, most of the time they are right with their initial entries and good with their trade management.

If I were you, I wouldn’t mix trading techniques, the old with the new, or use the old as reference. Also, it matters a lot whether you enter the market with the intention to scalp or the intention to swing. Switching between the two can result in loss. At least, I wouldn’t recommend it unless you are a professional. Integrity and discipline is key.

Thanks that's helpful. Yeah it's not that I'm intentionally mixing techniques, I think it's just old habits. It's not taking the big stops at this point that is worrying me, it's the 75% loss rate I have over the last few weeks even with those large stops. I'm doing really well today though at least. I really am interested in learning how to trade price action and be able to have a system that will work in all markets, timeframes, and is not dependent on a bunch of proprietary indicators that may or may not be maintained forever. It's not an easy transition, but one I think will be well worth it in the end.

My intention is rarely to scalp. I'm more of a person that likes to look for swings, which is why I was leaning towards using my stops and limits to take me out instead of actively managing the trades. But it sounds like the feedback I've gotten from this thread is that most people here actively manage a lot, getting out before a stop and taking profit before initial target, similar to the scenario you listed of getting out after 2 bear bars against you. So I'm going to experiment a bit with that. 

Thanks, yes this video makes a lot of sense. I am putting blinders on and looking at my initial risk, but the way you were calculating actual risk as the trade progresses makes a lot of sense. Risk isn't static, it's dynamic and constantly changing. Certainly a lot to think on, digest, and figure out how to practically put into action live. I look forward to any other future videos you have on the subject, as it's really the trade management part of the equation that I'm trying to figure out at the moment.

The most important thing is to keep your trades simple. I will try to simplify Al’s PA for you.

Firstly, your primary intention should be to trade well, to become disciplined and consistent, to transcend fear and greed – not to make money. Watch the market and try to connect the things you learned with what you see. Let the market test what you know – be humble. The more you watch the market, the better feel you’ll have for it. Feeling comes with practice, same as with music. You’ll need at least 10,000 hours of practice to become a professional.

Get rid of indicators – only keep few of the moving averages, draw trendlines and channels and notice daily openings. Each bar has a story to tell. Also, each cluster of bars have a story to tell. In other words, is it a full-bodied powerful breakout bar or a pin bar? What’s the meaning of this bar in the pattern it appears? Are there more bear bars or bull bars in the cluster it appears in? Mind you, a pin bar is not always a reversal bar - a lot depends on its environment.

You have to become familiar with the terms signal bar, follow through bar, wedge bottom/top, bull/bear flag and major trend reversal, channels and ranges, support and resistance. These patterns will help you orient yourself.

A wedge top is like a bear flag, three pushes up, but it’s at the top or the end of the bull trend – it’s parabolic. You can expect a bear breakout. The wedge bottom is like a bull flag with three pushes down. It appears at the bottom of the bear trend and it’s usually the end of the bear trend - expect a bull breakout followed by a trading range or bull trend.

Downward channels are like bull flags – you can expect a bull breakout most of time. Upward channels are like bear flags – you can expect a bear breakout most of the time. However, many times, this just won’t happen – take the length of channels into consideration and its environment. Channels offer better probability if you trade them the direction of the trend – this will magnify your profits. If it’s a bear channel, short the market. If it’s a bull channel buy the market.

Regarding your entries, your safest bet as a beginner, is to enter H2/L2s or H4/L4s (high2/low2, high4/low4) that is to say, focus on second entries. Buy the market a pip above H2, include the spread. With this you’ll minimize your losses. Consider stop/limit orders – stop orders are easier. Short the market, a pip plus spread, below L2. When you get better and developed a good feel for the market you can enter H1/L1. When you are ready, it’ll automatically happen, without thinking about it. Regarding risks, I already mentioned the difference between actual and initial risk. If you know your actual risk, you can approximate your trading performance.

Have at least three/four timeframes open. If you enter/exit your trades on M5 chart, open M15, H1 and maybe the H4 chart. Personally, I am interested in the daily trend as well. Bigger pictures offer better clarity. Learn to connect the smaller picture with the bigger picture – discover one in the other. If you enter on M5 chart, the M15 chart will show if the environment is favorable – signals for entries/exits. The H1 chart shows how strong the trend is. Sometimes M15 shows a bear channel, but H1 shows a wedge bottom in formation. Or, overlapping bars/weakening trend becomes more visible on a higher timeframe. A higher timeframe can clarify formations on a smaller timeframe.

And finally, get a good trading spreadsheet, where you can record your trades. That way you’ll know your gross/net profit, maximum and average drawdown, SQN trade grade, total wins/losses, average wins/losses, payoff ratio, profit factor, expectancy and return on investment. Although, only some of these are important only. You can measure your trades by the hundreds and know whether it’s worth pursuing a certain strategy or not.

That’s about it.