There is a natural desire, especially by beginning traders, to want to trade excessively. This is not difficult to understand. A day trader cannot make money unless he or she is in a trade; this is the general outlook of most novice day traders. But this line of thinking has some serious faults, and it is important to learn to select your trades in a systematic and emotion free state of mind.

Of course, selecting high-quality trades is easier said than done. At various times, very unproductive trades form set up patterns that can be very enticing. Low probability trades are like the lure of Medusa, they look great at first glance, but can cause serious losses if systematic analysis of the trade is not undertaken.

How do you know the difference between a high probability trade and a low probability trade?

First and foremost, every day trader must make an assessment of whether the trade is with the trend or against the trend. While many popular courses on trading tout the wisdom of trading retracements and identifying peaks and troughs in trading patterns, these are all unsound trading methodologies and I know of few successful day traders who employ them. Great traders are masters at taking what the market offers, and not trying to create trading opportunities themselves. A novice trader’s ability to effectively identify trending patterns is an essential skill because the very best traders trade primarily with the trend. In my view, less than 10% of your trades should be countertrend trades.

Secondly, many novice day traders and a plethora of trading systems rely heavily upon oscillators and indicators to choose potential trades. On the other hand, most seasoned day traders pay close attention to actual price action when trading. Important principles like support and resistance are prime movers in determining whether a trade has real potential. For example, taking a short trade into a known support is the recipe for a losing trade. Obviously, a successful day trader must have the ability and experience to identify known areas of support and resistance to avoid taking trades into these hazardous trading zones. Most experienced traders can spot support and resistance by glancing at a chart; this skill is learned through observing thousands of charts throughout trader’s career. Of course, there are add-on programs to most charting platforms that can spot support and resistance for a day trader who has not acquired the ability to identify support and resistance on his or her own. For some, these add-on programs can be very effective and helpful. In any event, any trade that will lead a trader prematurely into known support or resistance is often a trade that is doomed to failure and it’s important to realize these trades are very low probability in nature. In short, price action is where the real trade selection takes place, and indicators and oscillators supply filtering information to reinforce the strength or weakness of the trade under consideration.

This is among the most difficult concepts to learn in trading, as many day traders are looking for a magic oscillator or indicator that will revolutionize their trading results. I am sorry to report that, to date, no such magical oscillator or indicator exists. Look to identify solid trades in the price action of any chart, and then calculate the potential to profit by identifying where support and resistance will affect the performance of your trade. Many traders use pivots and other predictive indicators to calculate support and resistance. For many years, I was in this camp. As I have grown older, I prefer to identify support and resistance as it develops on the chart, not through some artificial predictive means. This attitude is subjective in nature, and his a choice each individual trader has to make.

In summary, we have looked at trading against the trend and concluded that countertrend trading results in low probability trades, on the other hand trading with the trend results in higher probability trades. We have also noted that known support and resistance are prime movers in determining the feasibility and potential profitability of any trade. Price action is the name of the game, and learning to read and interpret what price action is telling a day trader is the real secret to trading success. If you can master reading price action, it is highly likely you can become a successful day trader.

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Countless numbers of day traders spend their time and money searching for that magic indicator that will unlock the secret of trading profits. To be sure, I have seen aspiring traders purchase trading program after trading program in search of the new indicator that will send their trading profits soaring. Unfortunately, no such indicator exist and it is unlikely that a magical indicator will be developed that can revolutionize profits for the e-mini day trader.

On the other hand, thousands of e-mini day traders successfully trade every day without any wondrous and magical indicator. Of course, it would be much more convenient to have an indicator that unlocks the secrets of e-mini trading. To date though, we are far from developing any such trading tool. So that leaves us with the trading tools we have at hand, and there certainly is no shortage of indicators for the e-mini trader to utilize. The question remains, though, which indicators are the best ones to utilize?

While some indicators claim to be leading indicators, that is to say that they have a predictive quality in their results, the evidence suggests that this predictive quality is sketchy, at best. Most indicators are lagging indicators and indicate the status of current trends based upon recent history. As any good trader knows, recent history can be helpful, but the market contains a random element that can easily deviate from past history. We are left with indicators that give us, at best, an educated guess as to the path the market price action will take in the near term future. In short, short-term trading can be a rather inexact science, at best.

One important aspect of trading is often overlooked by traders who depend solely upon indicators and oscillators to time their trades. In my world, price action is the driving force in my trade selection. While I do employ oscillators and indicators, their purpose is primarily to confirm potential trades I spot by observing price action. I pay careful attention to support and resistance, volume, and price movement in choosing my trades. Obviously taking trades into known resistance or support it is risky business, at best. Unfortunately, strict oscillator and indicator traders do not have a handle on where or support and resistance may lie and often blindly take indicator or oscillator indicated trades into these danger zones.

Further, price movement and price analysis can give a trader a unique view in which the market functions. Specifically, I analyze each bar and note whether the bars make higher highs and higher lows. Conversely, I am also interested in the opposite price action, and that is whether the bars are making lower highs and lower lows. Each of these price formations can be indicative of potential market moves in their respective directions. From there, I can have a good look at my oscillators and indicators to determine the strength and velocity of these potential moves and decide whether or not the trade is a high probability or low probability trade.

Price action, along with support and resistance and volume, are often overlooked in trade selection. But learning to actually read price action will give any trader a much better understanding of what is actually happening in the market and provide the trader with insight into high probability trades and conversely, help him or her avoid low probability trades. Very few traders are excited about entering low probability trades and seek to avoid them at all costs. It is my contention that ignoring price action and relying strictly upon oscillators and indicators will often lead traders into low probability trades.

A second common mistake made by oscillator traders is the failure to recognize the trend in the market. Regardless of whether the oscillator or indicator being used indicates a nice trade, if it is against the trend you will often find yourself on the losing side of the trade. From a statistical standpoint, a trend is likely to resume (after a short retracement) 80% of the time. Obviously, trading with the trend is a habit all traders should cultivate. The only way to truly ascertain whether or not the market is trending is by observing the price action and subsequent retracements.

In summary, we have stressed the importance of observing price action and the benefits price action has to offer traders. Trends, retracements, and then market noise can all be identified very easily by observing price action. We have also noted that strict oscillator trading can often lead a trader into low probability trades, which should be avoided. Watch the price action and you’re trading will improve immeasurably.

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A casual perusal of the e-mini day trading courses available will leave a potential new trader with sticker shock. It is not unusual to see courses that are priced at $5000 or more. By any measure, this is a high-end purchase for most individuals. Of course, the question is a simple one, why are day trading courses so expensive?

Many trading systems are proprietary in nature and the owners of the system feel obligated to protect the systems and technologies they have developed. As courses become more popular, either through effective marketing or word-of-mouth success stories, the owners of the trading systems are able to command a greater price for their products. Some traders have developed a very recognizable brand name and this allows them to charge a premium price for the product they have developed.

The question a potential new trader must ask himself is whether the value of the course is equal to the premium price the owner of the course is charging. This is a very difficult evaluation to make, as no breakthrough technologies in e-mini day trading have emerged. The fact of the matter is startling; most trading educators use a similar set of oscillators and price movement analysis to determine potential trades. Granted, new oscillators have appeared in recent years, though none have provided that “Eureka” moment many traders are looking for.

Quite simply, trading is a learned skill and learning to recognize potential setups is gained through experience and a basic understanding of the technologies and setups that can result in potentially profitable trades. Needless to say, some trading systems are better than others. But most time-tested trading systems have been around for quite some time and employ similar trading techniques. Oscillators, duel time frame analysis, channel analysis, price movement analysis… these are all common to nearly every trading system currently on the market. I will admit that some trading educators deploy and utilize the information gleaned from charts and indicators and a more effective fashion than others, but there is a striking similarity between most systems on the market.

One common question trading educators are asked is to post their success record for evaluation. I am in sympathy with most trading educators and being hesitant to disclose this sort of information because potential traders enter trading with a very different skill set. One trader may be very adept at identifying and visualizing a range of indicators and price movements in a very effective manner. On the other hand, there are those students who struggle with these sorts of abstractions and have a very difficult time succeeding. In short, all potential traders are not created equal. Some new traders assimilate information very quickly and translate that assimilation into trading success, while others are slower at learning the information and implementing it, and still others are unable to trade effectively under any circumstances.

In short, the price you pay for an e-mini day trading course is directly related to the value a potential investor perceives in the system being promoted. If I were in the market to purchase an e-mini day trading system I would shy away from advertisements claiming bombastic and incredible rates of return. As most seasoned traders know, the e-mini day trading business is not a get rich quick proposition. The real chance of earning 1000% on your money in the first month of trading is remote, at best.

It is not unfair question to ask a trading educator what his or her success rate with students who continue in the trading business might be. Many studies have pegged the failure rate for new traders at nearly 90%. There are many reasons for this, and an explanation for this failure rate is a topic for another article. In my opinion, any success rate near 50% would be a good indicator that the course is reputable.

Still, why the high price for the e-mini day trading courses?

Whether it is brand recognition, celebrity status of the trader, or word-of-mouth recommendation from other traders, most trading educators are going to charge as much as the market will bear. In other words, if trading educators can consistently sell courses in the $5000 range; they will do just that. It is up to the potential student to gauge the value of a trading course and evaluate its potential benefits relative to their current financial situation.

Personally, I feel most trading courses are grossly overpriced for the value they deliver. But I am a longtime trader, and my opinion may be biased as I have seen many of the systems in various shapes and forms throughout the last 25 years. The truth be known, not much has changed in trading in the last 25 years. Yes, some fads in trading have come and gone as the market changes in personality, but most courses employ similar technologies and techniques to achieve their end.

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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

In my trading, I keep my countertrend trades to less than 10% of my total trades. In other words, I am trading with the trend 90% of the time. There are several reasons for this, the most obvious is that trading with the trend is consistently profitable. Conversely, trying to initiate countertrend trades generally results in disastrous and unprofitable results. Yet I consistently see traders attempting to buck the trend when they see what appears to be an excellent countertrend trade set up. Generally speaking, these trades start toward the countertrend trade side, and then resume back in the direction of the trend. It takes real discipline to ignore nice countertrend trade setups because they are enticing, they are also poison.

Scientific analysis from a number of sources reveal that future prices have a strong random component accompanied by a small trending component. The ramifications for this statement suggests that any trade not in the direction of the trend stands a less than average chance of success. The lesson is a simple one; when prices are trending upwards you should buy; and when prices are trending downwards you should go short. This explanation seems simplistic but the tremendous number of traders who violate the simple precept is staggering. It would seem intrinsically obvious to the casual observer that trading in the direction of the trend simply make sense.

I don’t have a scientific reason why people violate trading with the trend, only my own subjective observations. Most traders use some form of methodology involving oscillators and rate of change indicators and very often during a trend these indicators will indicate a buy/sell signal against the trend. Since most traders trust their indicators, they tend to take the indicated trade even though it is against the trend. Bad mistake. Oscillators and rate of change indicators do not differentiate trending and non-trending markets. They simply take into account specific price action and display the results. So often you’ll see a oscillator indicated trade against the trend, and you have to learn to ignore this buy/sell indicator. In reality, it is no simple task and takes a high degree of self-discipline.

Other traders pride themselves on identifying market peaks and market troughs. If you think about it, this trading is predictive in nature. As I have stated in many articles, the randomness component in futures trading makes any futures market predictions a low probability proposition. I preach trading in a reactive faction, which means identifying trends and taking trades in the direction of the trend. It only makes sense. In my opinion, the only truly successful futures traders always trade in the direction of the trend. But back to our predictive traders, there is certainly no shortage of vendors hawking the latest predictive mechanism which will enable traders to spot market peaks and troughs. Usually these products fall to the wayside in short order. Here is the problem; certain techniques work under finite market conditions, but the market is a creature of many moods and predictive techniques are unable to adjust to the many market conditions that occur. Quite simply, there is no predicting what the market will do and anyone who claims they have figured out, in a predictive sense, where the market is headed is simply wrong. It’s never been done, and scientific evidence suggests it cannot be done.

The results speak for themselves, and trend following is one of the few valid methods for real profits in the futures market. Once a trend is identified, a trader can use his oscillators or other indicators to find a valid entry point and generally do very well. One nice and profitable result of trend following is the ability to let your profits run. If the market is headed in one direction, stay with the trade. There will be periodic retracements in any trend, and they are to be expected. But don’t be fooled by these retracements, as a trending market will resume its original trend after a short retracement period. In my opinion, traders who are enticed into trading the retracements are convinced the trend has changed, only to find out exactly the opposite. Trading retracements is dicey business, and I avoid it.

In summary, the vast majority of the trades you make should be with the trend. It would be wise to repeat this 20 times every day. Countertrend trading is dangerous and unprofitable trading technique and should be avoided. Find a trend, follow the trend, and let your profits run. It’s a pretty simple formula, but it has been working for decades and I see no reason to deviate from this profitable approach to trading.

- 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 recieve 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