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In Part VI of the Manual I go into tactics and strategies for trading. I also go into stop placement.
There is a lot of experience and wisdom in Part VI. Also I go through an entire years trading of a futures portfolio.
I know that many traders will trade only the large volume, large open interest contracts. That is not true for me. I will trade anywhere and any time I feel the opportunity is good for making such a trade.
Also in Part VI, I discuss trading as a business, and why I am in it as a business and not a game. There are a great many other things discussed in Part VI, too numerous to mention here.
Im sure that Part VI of the manual will make excellent profits for anyone interested enough to study it and put into practice the things that I have shown.
The hardest thing for me to do was to develop the faith needed to trade what I saw occurring before my very eyes time, after time, after time.
These concepts were hard to believe, it all seemed too simple. How could anything be so easy? And yet, it is that easy to trade by the book.
Strategy and Considerations
What follows is an accumulation of thoughts and ideas that have been involved in my trading. 1 have tried to group them by related items. Some, however, will fit into a number of categories. In the last part of this section, I show how I traded a portfolio of markets for an entire year.
Statistical and Dollar Advantages
Trading the concept using the oscillator combination gives a high probability of winning dollars over losing dollars. Not that you need the oscillators to do it, but the concept of major trend, intermediate counter trend, and short term entry via the intraday breakout is what gives the high percentage of winning dollars over losing dollars.
My studies show that trading the breakout of a range or congestion area, in the way shown in Part 1 of the manual, has an excellent amount of dollars won over dollars lost, Even though this doesnt occur as often as the other trades, when it does occur i want to be a part of it. Now why is that important to me?
i would much rather load up on contracts in an infrequent high-dollar win situation than to trade more often with fewer contracts in a low-dollar win situation. Wisdom dictates that I dont have to work that hard. Why trade every day? Why be glued to your charts, or computer screen, when you can make good profits trading less frequently? I like to have time to spend, and enjoy the money I make in the markets.
Another high percentage of dollar-win trades comes from the trading of 1-2-3 low; In fact, it runs a very close second to trading the breakout of a range. It occurs much more frequently, and again the same strategy applies. Instead of trading more frequently as in daytrading, I just add more contracts.
Trading by entering established trends is also a high-dollar win trade. All 1 want out of any trade is a piece of the middle. By carefully selecting established trends, I can get that piece. Here again, if I think I am fairly early in the trend, I can load up on contracts.
Trading from a ledge is about equal in success to entering established trends, but has much fewer dollars won. This is because the trades have a short life. Trading from ledge gives a great many more trades. These are strictly short term trades. Sometimes, by pure chance, they will result in going more than 2-3 days.
Trading from l-ll-lll highs is quite a bit more risky than the first four methods. This is because markets move down roughly three times faster than they move up. The breakout from the number II point Is apt to occur when a major part of the move is already over. Its value lies in that I can get fast profits and then get out. Markets usual! fall much faster than they rise. What may take months to reach on the way up can ofte; be retraced in only a few days. 1-111 highs at market tops are trickier to trade than 1-2-3 lows, and caution is in order at every step.
The easiest trades to take are the hooks. This is because they are so easy to see. All that is required is a correction occurring during a trend. Trade them in trending markets. Look for a minimum objective of 2-3 days of profit. Once that is secured, bail out only when you are convinced the trend is coming to an end.
A wonderful combination covered in my book Trading the Ross Hook, is to wait for a 1-2-3 (l-ll-lll) breakout followed by a Ross hook. Ignoring the #2 (11) point and taking an early entry ahead of the hook. An excellent way to do this is to use the Slaughterbeck entry technique, or the Traders Trick entry techniques described in the above book.
Trading in congestion gives a slightly lower win percentage than trading in a trend. There is usually a market somewhere that is either breaking out of congestion, in an established trend, making a 1-2-3 low, or making a I-IMII high. If you must trade in congestion, and we all do sooner or later, I suggest you purchase my book Trading in Congestion.
Although I would love to give you exact statistical percentiles for success in each type of trade, I have found that they vary according to the amount of margin available, and the person doing the trading. The less the margin, the more often you will be stopped out because you have to keep your stops ciose. Throughout the manual 1 have tried to show how to keep tight stops. For the trader with a small account, trading with tight stops on the mini contracts is a way to build an account to where the full size contracts can be traded.
Another way to trade with a small account is to purchase options where you would have bought or sold futures. That way, you can completely control the risk to your account.
Trading with any of my techniques gives a greater dollar won to dollar lost ratio trading a $40,000 trading account, than it does when trading a $10,000 account. It enables one to gain greater diversification in the markets. Everything is not riding on a single position. I have found that when scalping, it is much easier to take a few ticks and run with a larger lot size, than with a single contract.
1 have never traded fewer than three contracts, one or two to cover costs as soon as possible, and either one or two to let run for profits beyond costs.
it has been argued that a larger account allows for placing stops further away. In my opinion, this is false reasoning. Stops should be placed the same whether trading a one lot or a fifty lot. The risk is proportionate for each contract. Trading single lots places one at great disadvantage. The single lot position must do double duty work. It has to cover costs and remain in place to take profits.
It is important to remember that when trading a breakout, either from congestion or a number two point, to be especially careful trading the breakout into a prior congestion. This is especially true when prices are near a major top or bottom. Even though you may successfully trade that breakout, you will not normally get any mileage out of the trade if it immediately runs into prior support or resistance. To ascertain if this is the case, sometimes its necessary to look to a chart showing a larger time-frame.
When I trade the daily charts, I look to the weekly and even monthly charts to see where prices are in relation to where they have been in the past.
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