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TRADING IN SURVIVAL MODE
In chapter 7, the last one in the manual of the 2007 eMini day trading
system, we analyze the type of trading approach that traders should use
when their Initial Equity is under pressure. We have always recommended
a minimum $5,000.00 equity for day trading the eMini contracts. But the
initial equity, the dollar amount to be considered initially for day
trading the eMini, is only $2,000.00, with the balance available in the
event the initial losses may cut into this level.
For that reason we analyze here what a day trader would do if the
Initial Equity dips under the $2,000 level. This could happen for
different reasons.
A trader who has been using several different trading approaches
(apparently not working otherwise why would they be buying our system?)
before using ours, may have an initial difficulty in using our system
exclusively. Old habits don’t die on a set date and time, so our system
may not be used in its entirety.
Among would be errors like ignoring bars completions and tinkering with
the stop level, points that we repeatedly cover in our system analysis.
Accidental losses may also occur for other reasons, so it we will assume
that the $2,000.00 allocated as Initial Equity may at some point be
compromised.
In these instances, it is imperative to use the trading approach that
has the highest probability of becoming winning trades. That is the case
for using the NAC signals when in the same direction of the FAC trading
signals, then exiting whne the faster FAC signals generate a reversal.
In the example we provided for the March 20 chart of the ES June 2007
contract, we showed how we could get theoretical gains of
1.25+1.25+1.00=3.50 points in three hours, without any loss.
When day trading n Survival Mode, we are not trying to trade every
signal and achieve the highest profits but rather to trade as safely as
possible in order to rebuild an eventually damaged Initial Equity. So in
the two pages that we analyze those trades, we indicate how to attempt
to be profitable and avoid taking undue risks. It is the time for being
prudent, not audacious.
One may ask why not use always that same trading approach. The reason is
simply that the trading signals generated by the FAC potentially offer
larger profits but also will occasionally bring losses. These will be
limited in the sense that we use 1.50 points stop losses for the ES or
the ER2, while the winning trades have the potential for larger profits.
All this needs to be analyzed in the context of the time bars that we
elect, since the system works in any time frame. Thus a 2-minute bar
chart will generate many more trades than a 10-minute bar chart (we
don’t use any of these as is amply discussed in the system’s manual) and
unless the intraday range is quite narrow, the profit potential when day
trading the eMini is obviously related to those time frames.
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