Day Trading & Forex Forum

mechanicaldaytrader

Being the nice guy that I am, I ask this question and attempt to answer it. Your comments are welcome!

DayTraders need to find a point in the market where two things need to occur at the same time:

* > the market will likely reverse direction
* > the risk of a losing trade will be very small in relation to the likely profit from trading the future reversal

Thus, when looking at a futures chart, at any moment there are at least 3 outcomes:

1. the market is not likely to reverse in the next few moments
2. the market is likely to reverse in the next few moments, but only go a few points in the opposite direction
3. the market is likely to reverse in the next few moments, and will go a substantial number of points in the opposite direction

* When #1 occurs, we are not trading, or already in a current trade.
* When #2 occurs, we do not want to enter the market because the risk of a losing trade outweighs the benefit of a winning trade (a minor move in your trade direction will reverse and probably stop you out for a loss).
* When number #3 occurs, it will be caused by one of the 3 Reversal Principles that are common to futures markets.

SECOND QUESTION: How do you accomplish this without losing your mind?

Well, the alternatives are:
> don't bother, it's too hard
> have a computer program that gives you low risk trade entries without too many false signals & and trade a futures market that moves according to technical rules 100% of the time (note: you need to know the technical rules, and they gotta be simple!)
> use very large stop losses, you'll win most of the time, because you were born lucky

Obviously, the choice is the second one. Now, here are the 5 adavantages to doing it this way.

> #1
You want computer software that disciplines the DayTrader to only look at the market in a logical, analytical way - avoiding high risk and low profit trades, and only trading key reversals and when a trend occurs, to stay in it! Ideally, you want to trade a futures market that is not moved by "news" during the middle of the trading day...you want each reversal or trend during the trading day to occur because of technical reasons 100% of the time. When the market is likely to reverse because of "news", you want to be out of the market or for the market to always follow technical patterns so you can objectively stay in the market with a small stop loss before the news breaks.

> #2
Using this software and some basic futures training, this will change the attitude of the DayTrader from "guessing" the market and likely having inconsistent trading results (and probably large losses), to systematically trading the market all day long, with small, infrequent losses and frequent moderate to large profits. Ya gotta make 6 figures or more each quarter of the year, working no more than 4 days a week, 3 weeks a month. Doing this for a living, you need time to play!

> #3
The software should work on only one market, work every day, and give 12 to 15 profitable trading opportunities every 6 1/2 hour trading day. The DayTrader should have multiple trades every day and have a positive account every day. FOCUS, FOCUS, FOCUS!

> #4
Also, there should be a second chart that "confirms" the likely reversal that refers to the "cash" index that correlates to the "futures" index you are trading. The DayTrader only has to look regularly at no more than two charts during the entire trading day.

> #5 (optional)
There should be a overall "methodology" that can be simply taught, easily followed by logical computer literate folks and the methodology should be guaranteed to produce profitable trades - if a few trading rules are followed. Keep It Simple, Stupid (KISS method) should be used throughout the methodology and trading rules.

Yes it can be done....

These are my recommendations for how newbies or for experienced know-it-alls on how to Make Money in the Futures Market.

Regards,

MechanicalDayTrader

rathcoole_exile

as both a momentum trader and a reversal trader, principally using pivot points to either fade or jump on momentum, I'd have to partially disagree with your post. It's very short-sighted only to focus on reversals, and I humbly submit it is one of the key factors in newbies failure rates. There's something, after all, to be said for buying strength and selling weakness

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if u can't accept that only 2 or 3 trades out of 10 will be small winners, & that 2 or 3 will be scratched for even & that 3 or 4, even 5 will be losers, with possibly only 1 in 10 trades being "payday" then u shouldn't even consider trading

my Opinion is never "humble "

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mechanicaldaytrader

In the futures market (I've got about 9 years experience in index futures), all profitable trades come from reversals. Even trading a Trend -- there are reversals within the Trend. DayTraders consistently add more Long contracts during an Uptrend...they only do so at a likely "reversal" cycle - when there is a temporary 'oversold' window in the Uptrend.

Trending markets slide in and out of "overbought" or "oversold" conditions....DayTraders short during Downtrends when the market is "overbought" [when one of the 3 reversal principles occur] and close out short positions when the "oversold" market is likely to reverse upward substantially.
I do use Momentum to classify cycles, but that is a minor [but useful] critieria that agrees with all the other technical indicators when a trade is likely.

The secret is "cycles" -- when a DayTrader understands that certain cycle patterns substantially reverse the market almost 100% of the time, then the DayTrader can understand how long to stay in trades or when markets are likely to reverse. My chart features a Bottom line that moves up -- Traders buy, or close your short; Top line moves down, Traders short, or close out your long...keep it simple.

There are inherent truths within the index futures market that reveal the need for 'reversals', imo. I teach how, why and what they look like. Without understanding this concept, large losses or frequent losing trades will likely be the norm. If someone is trading a market that is NOT an index futures market, this may not apply.

This works every hour, every day on e-mini Dow market. Some people use Fibs, GANN, retracements, chart patterns...the e-mini index futures market uses known reversals that have consistent mathematical patterns [of time and price] that DayTraders can enter at low risk and likely nail decent profits.

Other markets are probably different, but the e-mini Dow can be nailed consistently, imo.

Regards,

The Mechanical Day Trader

trendie

show me how.

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There are 10 kinds of people in the world; those that understand binary, and those that dont. -Anon
Warning: May contain nuts.

mechanicaldaytrader

send me an email at my profile email address to discuss further

This forum seems to not allow posting of jpgs or graphic images, (which I find very odd). The Forum server could simply scan the image for viruses and then post it to the thread if it was ok. When I post a link to my blog, it's considered advertising....sooooooooooo....just email me.

Regards,

The Mechanical Day Trader

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