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.