It would be very convenient to have a day trading system that worked under all conceivable conditions without fail. Whether the market was consolidating, trending upward, or trending downward the ideal system would churn out profits regardless of prevailing market conditions. Unfortunately, no system adequately deals with varying market conditions that can arise throughout the course of their daily trading session. Obviously, this causes problems for novice and experienced traders alike.

One of the very real problems that day traders experience is adjusting their trading style to the changing personality of the futures market. The very best metaphor that I can conjure is one of fishing. To say the least, fishing is a fickle pastime to engage in. There are days that fish attack a certain type of lure, yet the very next day the exact lure will prove to be of little value. On some days, you’re choice of lures may change throughout the course of the day. The point is a simple one, what works at one point of the day may not work later in the day, or even the next day. In fishing, you have to be flexible and adjust your fishing style and bait to meet the ever changing water and weather conditions.

It’s really not so different when trading. On certain days one set up will consistently result  in profits. On the other hand, the very next day the same set up will produce nothing but losses. I don’t have a rational explanation for this phenomenon other than explaining the market is constantly changing and evolving. Your ability to determine which trades will be a profitable on a certain day is a core skill.

For example, on most days the market tends to honor support and resistance levels. Time and time again the price action will advance and decline to previous support and resistance levels and change direction. Of course, this makes for some very accurate trading for those who are familiar with trading support and resistance. On the very next day however, the market may pay no attention to support and resistance and blast through your support and resistance level as though they did not exist.

What does this mean for you as a trader?

It is essential that you have a number of trades in your trading arsenal and approach the next trading opportunity with a different set up. In my experience, after a few test trades I can usually find the trading setup that is effective for that day. On the other hand, many traders labor away with their preset trading style and endure substantial losses. It is imperative that you ascertain the mood and tenor of the market so that you’re able to match appropriate trades to that day’s particular trading session.

This takes some experience and experimentation to perfect. However it is imperative to adjust your trading style within the overall framework of your trading methodology to meet with changing market conditions. Staying with a trade that worke yesterday but is not working today will results in certain losses. In my own trading, I use a number of setups based upon price action, indicators, and oscillators. I have yet to find a day that one of these indicators would not set up a profitable trade. The secret is to find which setups and/or configurations of setups that will be most effective.

I do say this was one caveat; it is very difficult to trade consolidating markets and I have yet to find a truly effective methodology to profit in markets that are trading in a very narrow range. It is my recommendation that you avoid trading markets that are range bound as they are generally difficult and unprofitable to trade.

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I always get a charge when I read about home-based day traders who are touting some new “red hot” system or methodology of trading based on floor trading, and belittle the existing competition because floor traders do not trade with oscillators or indicators like most home-based floor traders. As a matter of fact, they are right. Floor traders do not use the same methodology home traders utilize. Yet some traders are determined to compare home-based traders and floor traders. The general line of thinking of the promoter of the “red hot” new day trading system is somehow floor-based traders have a methodology that will revolutionize the home trading market.

Nothing could be farther from the truth. Floor trading and trading from your home is like comparing apples and oranges. Floor traders have a wide variety of real time news feeds (and usually a plethora of rumors) to draw upon, and if they are pit traders they have the benefit of trading with the knowledge of what other pit traders, especially the important ones, are trading and whether they are trading short or long.

Of course, the home-based trader who sits alone at his computer in his house hears none of the humdrum of the market floor, nor can he surmise any other pit activities, nor does he have access to the never-ending rumors that circulate endlessly throughout the trading day. No, stay-at-home traders have to rely upon other cues to initiate their trades. That’s why it’s such a hoot to hear the so-called “experts” in explaining that floor traders don’t use indicators or other predictive oscillators most home trader use.

How in the heck would they?

By the time the market has reacted to whatever news is swirling about the market floor the home-based trader is blissfully unaware of what is going on. Granted, some of the volume figures might be of some help to the home-based trader, but again the home trader is lagging the floor trader by a considerable margin, and I doubt the volume figures would be nearly as helpful at home as they are on the floor. And you know, all these trading education “experts” I hear about who claim  “floor traders do this” and “floor traders do that” give me serious doubts about whether or not these guys have ever seen the floor the New York Stock Exchange. If they had, it would be surprising to me that they would make such silly comments comparing home-based day trading and floor trading.  You cannot trade at home in the same manner you would trade on the floor.

And the differences could go on for quite some time. The home day trader is usually trading between 2 and 10 contracts on a given trade, and a floor trader is usually trading thousands, or more, on given trade. No, I really don’t see how you can compare day trading from your home and trading on the floor the New York Stock Exchange or the Chicago Mercantile exchange. It’s just a ridiculous statement to make, and I suppose I am getting tired of hearing it.

Incidentally, floor traders do use certain kinds of indicators, but they are usually fairly complicated algorithms not available or even desirable for the average home day trader. So you can put the rest the notion that floor traders have some sort of sixth sense about when to initiate a trade to buy or sell. Further, he usually has a group of supervisors and market specialists calling trades for him from a corporate trading center telling him to buy and sell. No, let’s lay this nutty argument about floor traders not using indicators or oscillators to rest for good. These two types of trading our different animals and bear no resemblance to each other. At home day trader is usually alone and making his own decisions, a floor trader is usually getting direction from a group of advisers telling him when to trade and not trade, along with using his own judgment as he watches the ongoing trading in whatever pit he or she may be trading.

Just for the record, there are not many pits left, as most trading has gone the way of electronic trading or is in the process of going the way of electronic trading. This trend reduces your average pay a trader to little more than an errand boy. Which I am sure neither he nor the rest of his colleagues are very excited about. Granted, there are some open outcry pits left, but their days are numbered as the markets move forward into the electronic age. And for the record, in electronic age the day traders will be using indicators and oscillators because there will be no open outcry cues for the pit trader to read. So much for the difference between floor traders and home day traders, it’s like comparing apples and oranges (only the oranges are going extinct)

- About the Author: I am a long time retail and institutional trader who now only trades part time, usually in the morning. I enjoy writing informational articles about my style of trading so others may benefit. Would it be convenient to receive valuable trading tips every night in your email? You can sign up for our free video series by Clicking here These videos contain advanced trading strategies and will enhance your trading knowledge immeasurably. Best of all, they are free! So get your free videos and start trading like the pros. Article Source

The goal of every day trader is to enter high probability trades and profit as the price increases. Most traders use a group of indicators, oscillators, and price action to determine the exact set up that will maximize their potential for a winning trade. But there are two outcomes of any trade; the goal is profit, but things don’t always turn out the way a trader has it planned. There are no 100% trades, nothing is guaranteed. Even the best trade setups have the potential to lose money. In short, trading is all about probability.

What do you do when your well-planned trade starts to head south?

Let’s say a trade you frequently use has a 70% success rate. I would take this trade every time I got a chance. Why? The odds are in your favor, though there are few trades that have a 70% success rate. The other side of the argument is the 30% failure rate. In normal trading, then, three out of every 10 trades are going to result in a loss. Losing trades are an integral component of every day trading system and learning how to lose is an essential skill for all traders.

Prior to every trade set up, I make a subjective assessment of the level of risk I am willing to assume if I take a given trade. One component of that risk assessment is where I will place my stops. Typically I use Welles Wilder’s Average True Range to help me to determine the potential profit in a given trade. Though past market action is not a guaranteed indicator of the potential in a trade, it gives me a good idea what the current market mood might be. I do not like to risk more than 16 ticks on any trade and usually inclined to use 8 to 12 ticks as a good stop loss points. I am relatively risk-averse and running long stops is not a practice in which I engage.

Let’s start with a hypothetical day trade. I have taken the high success rate trade set up. I go long. Unfortunately, the market price begins to swing the wrong direction. I really liked the set up prior to executing the trade and feel the market will go in the right direction. But it doesn’t. I have set up with 12 ticks as my stop loss and the current market price is -8 ticks below my entry price. Worse yet, I am still convinced the trade will eventually reverse and move upward, but it looks like it’s gone up breakthrough my stop of -12 ticks before it changes direction.

What should I do?

The answer to this question is simple and unequivocal. I never move my stops to accommodate a losing trade. Ever. This is a hard and fast rule in my trading methodology. I understand probability, and accept the potential risk and reward inherent in every trade. Even on a high probability trade that may reverse direction, I do not move my stops. Why? If the trade is already negative, why would I potentially increase my risk exposure by moving my stops to accommodate the negative price action? I have no real knowledge that the trade will reverse and start climbing in price. The truth is simple, I want the trade to move upward because I will profit. Wanting a trade to move upward as opposed to knowing the trade will move upward are two very different realities. One of the most important principles in my personal trading methodology is understanding the difference between fact and fiction. In other words, I let the price hit my stop and I am out of the trade with a loss. I generally give high probability setups every chance to reverse to a positive outcome, but I will not increase my risk exposure based upon my emotional attachment to a trade.

I think learning to lose the proper way is an extremely important concept to understand. In my experience, I have watched day traders repeatedly move stops to accommodate adverse price direction. The result is fairly predictable, the day trader ends up losing more money than he or she initially intended. The result of moving stops to accommodate trades increases your risk exposure. I like to stick with my initial risk assessment and let the trade play out. Sometimes it’s easier said than done, almost painful, but I never move my stops.

- About the Author: I am a long time retail and institutional trader who now only trades part time, usually in the morning. I enjoy writing informational articles about my style of trading so others may benefit. Would it be convenient to receive valuable trading tips every night in your email? You can sign up for our free video series by Clicking here These videos contain advanced trading strategies and will enhance your trading knowledge immeasurably. Best of all, they are free! So get your free videos and start trading like the pros. Article Source