THE PROBLEM OF ADEQUATE CAPITALIZATION; ENOUGH EQUITY FOR TRADING
For most traders, this is Problem #1.
No matter how amazing your technology may be; financial Weakness compounds
itself, and financial Strength also reinforces itself.
BIG EGOS exist in the Trading business (you know "that guy" !! he never loses);
that is nothing that should come as a surprise to you !!
Check your Ego as you come into thinking about all of this. Ego is your WORST
enemy, and only a Healthy respect for the Market, and following certain
basic principles can move you closer to Consistent Results.
BOOM AND BUST. I used to train Futures Traders (remember those "Big Egos"?)
and it was clearly the case that many had recently Retired; were bored, and their
success in business encouraged them to think "they could trade" with all of that
Accumulated Life Equity. In general, BIG MISTAKE.
We don't want Boom and Bust in our Daily Trading !!! Booms are a "sugar high"
and foster a false sense of confidence; which is soon to be Crushed when you have
a "Bust Day".
YOU NEED ADEQUATE ACCOUNT CAPITALIZATION; IN ORDER TO LEVERAGE THE
APPROACHES YOU'LL NEED.
The typical Trader is WEAK on Capitalization. So let's try to SOLVE that issue right
away. I'm going to make the best recommendation to you; and wouldn't recommend
anything I wouldn't do myself.
PROP TRADING FIRMS WILL OFFER TO FUND YOU. And, further, after "qualifying"
and demonstrating your abilities; will enter into a profit-sharing
contract with
you which will MOST IMPORTANTLY provide you with maybe $100,000 Equity to
work with, so that you are NOT UNDERFUNDED.
I'm not afraid to recommend LeeLoo Trading as a partner. There is also Apex and
there are others who propose "Proprietary Trading Services" to Traders. PLEASE
DON'T DELETE THIS POST JUST BECAUSE I AM RECOMMENDING this very important
solution to your Biggest Problem; which is UNDER CAPITALIZATION.
So, do your independent research. But beward of Prop firms with RESTRICTIVE
RULES about how you are permitted to trade; use only a firm with NO RESTRICTIONS
on the Trading Strategy and Methods you choose !!!!! I CANNOT STRESS THIS
ENOUGH. The Prop Firm should impose NO unreasonable restrictions on
1) how many trades, or 2) when you can trade, or 3) how you can trade.....
MOST OF THEM HAVE THOSE RESTRICTIONS -- YOU HAVE BEEN WARNED.
So... moving on
WHEN DAY TRADING THE
NASDAQ, DO NOT TRADE THE eMINI CONTRACT, NQ !!!
WHY? In short, because you are OVER EXPOSED, and you will not be able to take
advantage of some very important Strategies to be discussed.
EXAMPLE: You BUY 1 NQ contract (which is $20 p/l PER POINT, consisting of 4 Price Ticks
$5 each. IT IS QUITE POSSIBLE THAT NQ CAN MOVE 40
POINTS AGAINST YOU, and
so you LOSE $800, and are Extremely Depressed...
DO NOT USE THE NQ CONTRACT, but use the "MICRO Contract Symbol MNQ" INSTEAD.
I'll go into the Reasons for this; but I can already hear the "Big Ego Traders" scoffing,
and they should really just go elsewhere. There are very good reasons for using
the Smaller MNQ contract, so Trust Me on that (provisionally) since I have some
very good Reasons for my recommendations.
PRICE ADVERSITY TOLERANCE AND LIFO PROFIT-TAKING
Instead of taking ONE SHOT at a Price with the NQ contract; you will take as many
as 10 individually Priced Shots, staggered in Price so that you will be able to
1) IMPROVE YOUR
COST BASIS (YOUR BREAK-EVEN), 2) INCREMENTALLY INCREASE
AND DECREASE YOUR COMMITMENT LEVEL, 3) AVOID PANIC STOP OUTS, AND
4) USE LIFO BASED PROFIT-TAKING which puts money in your Pocket, and Offsets
your Open losses.
Big Ego Traders (with large accounts) will Ridicule you, that you're not a "Real Trader"
or you're too afraid to commit yourself. BUT RESIST THESE CRITICISMS, since we're
trying to buld a Framework Strategy; which will help you to achieve your Goals.
IS THIS A "MARTINGDALE STRATEGY"? That's been discredited.
No, it is not a Martingdale Strategy, which continues to throw "Good money after Bad"
defending a position which may never become profitable. And you will set limits
on your position sizing. You can "drop" a portion of your position without
Fully Stopping Out.
AND YOU WILL GREATLY REDUCE YOUR LEVEL OF FEAR; WHICH IS YOUR WORST
ENEMY. Your Goal, your Expectation, is NOT to have to Stop Out. So just don't
use Stops; except perhaps as a Safety Net; since YOU are not planning to use them !!!
WE DEFEND BECAUSE WE HAVE A REASONABLE IDEA THAT TREND WILL BE CHANGING.
Without some good Analytics, indicating where the market should be moving, you
really should not Trade at all..... When we Defend, by adding Micro
Contracts to Defend,
at Price Intervals; we should be doing so, only if we have Information that we will
NOT need to Defend Adverse Price movement Forever... That is Suicide.
As Price moves down against us, we plan to Add further BUY positions in MNQ at
Regular Price Intervals. This will LOWER YOUR COST BASIS TO BREAK EVEN.
It will ALSO allow you to Take Profit on any Position (the lowest one taken) when it
moves into Profit. That small profit goes into your pocket; and OFFSETs any
Outstanding Price/Profit Adversity.
SO we are NOT thinking of Trading as "One Shot, One Kill" using an NQ Contract.
Instead, we are thinking of 1) Starting
FLAT, then 2) Using a potentially large number
of smaller Micro MNQ Contracts to lower our Cost Basis, and then 3) EVENTUALLY
returning to a FLAT position in MNQ.
THE META TRADE IS THE TRADE !
Imagine that a "Trade" could be thought of as many Dozens of Smaller Trades, each of
which is contributing to this "Meta Trade". You start FLAT, "work" the Positions, maybe
for an hour!, and then after all of that Systematic work,
eventually you become FLAT again. HOPEFULLY either Breaking Even, or generating
significant overall Profits, by "working the trade"..... That's the idea.
CONSIDER that the "Meta Trade" IS "the Trade" and not ALL of the Individually
taken positions need move to Profit, for the Meta-Trade to be Profitable. This is
a KEY concept which allows you to reduce your Fear level, "work" Incremental
Profits, reduce temptation to Stop Out, and allow even "bad" decisions to have
a "soft landing" instead of being a Disaster, as it would be using the larger
contract type, which means you are Over Committed.
IN SUMMARY adequate Capitalization allows you to sustain a reasonable amount of
Price Adversity, and then applying a "Finer Grained" Micro contract based Strategy
based on the Meta-Trade concept, including Partial Profit-taking on Individual
MNQ positions allows you to Control your commitment level, improve your cost
basis, and leverage partial profit-taking against your Open losses using Incremental
Defense Tactics.
JUST FOOD FOR THOUGHT.
hyperscalper