Always in the E-Mini: If You Enjoy the Excitement of Being in the Market, You Might Want to Consider an Always-In Approach to Trading. Here's How to Use Price Action Analysis in an Always-In Swing Strategy in the E-Mini S&Ps
Brooks, Al, Futures (Cedar Falls, IA)
Most traders don't have the temperament to watch every tick of the market, finding it more profitable to specialize in intraday swing trading. You can trade successfully with just a five-minute chart and a 20-bar exponential moving average (EMA). If you aren't greedy and if you have patience, you don't need to process a slate of technical indicators to make money.
That said, the specific execution of this approach can vary. Some traders employ heavy volume when a favorite set-up occurs, even if it develops only a few times a week. However, most day-traders look to trade several times every day and enjoy being part of the market. These traders might want to consider an always-in approach.
While you will have to think about the market constantly, you will find yourself learning price action quickly. Although you theoretically can trade every reversal on the five-minute chart profitably, in practice, this is almost impossible. However, if you cherry pick, you invariably will miss the best cherries. Staying in the market all day, and being patient with your reversals, is usually a forgiving approach.
IT'S A PROCESS
Whenever you try something new, it is best to take your time. With this trading strategy, print out several days of charts and study them before you risk real money. When you are ready to trade, start with one contract, regardless of how large a position your account size can support.
Next, consider trade management. Even though this strategy requires you to switch back and forth between long and short, you can get distracted and lose money. Therefore, whenever you are in a trade, always have a stop in the market, risking about six ticks. Once a trade moves at least six ticks in your direction, move your stop to breakeven or to one tick beyond the entry bar (a good trade should never reverse the entry bar). Sometimes, however, you may consider continuing to risk one or two more ticks if the first move in your direction was strong. Often, the best moves will have pullbacks that do not hit a breakeven stop and often just miss it by one tick.
All entries and reversals are on a stop, one tick beyond the high or low of the prior bar. If you are long one contract and there is a set-up for a short trade, place a sell stop for two lots at one tick below the set-up (signal) bar. If the stop is hit, this bar becomes the entry and you will reverse to being short one contract. You continue to hold this short position until there is a long entry, which will cause you to reverse, or until your six-tick stop is hit.
If you miss the first few entries or if you exited at some point during the day, you simply resume the process. Look for the next long or short set-up, place your order, and let the market take you in on a stop. If the order is not hit, cancel it and look for the next set-up. You will soon be in the market and then you can use the always-in approach for the rest of the day.
Even if you overtrade and take every five-minute reversal, you might theoretically be profitable, but when you hit a day with a small range, your losses will be significant, and you will find it difficult to try this approach again.
The key is to focus on swing highs and lows for possible reversal entries and to avoid trading in the middle of the range. On small sideways days, only enter on false breakouts near the high and low of the day and never enter or reverse in the middle of the range.
Also, use common sense. If the market gaps down, say, eight points on the open and doesn't touch the EMA for two hours, you are in a strong bear trend and you should rarely consider long entries. Instead, look for a strong bull trend bar that pokes above the EMA and is followed by a small bar. Place an order to go short at one tick below the small bar. When there is a strong trend, most traders should only look to enter the countertrend if a strong countertrend leg first breaks the downtrend line and pulls back. …