Ninja Trading

If you are a day trader, one of the most important things you can do at the end of each day is to go back and review your chart and your trades. If you use Ninja Trader or any other popular trading software that allows you to place your trades directly on your chart, be sure to use that option and to spend time studying your charts after you finish trading each day. If you are trying to achieve profitability, or if you are simply interested in taking your trading to the next level, this one daily task will help you to improve your trading exponentially! It will also help you to understand why price action alone is the most important aspect of trading.

It doesn’t matter if you trade stocks, bonds, futures or forex. Regardless of your market of choice, it is important that you study your charts. What I recommend is that you first go through your chart without your trades visible and study the optimal entry locations for that trading day. See if you can figure out why the entry was a good one and why prices moved strongly after that point. Mark all of these entries and spend some time with them to see if you can find a pattern that you can take advantage of the next time you see it in real time. Save these charts and go back and review them on the weekends and at night.

Secondly, note your entry and exit locations on the chart and review all of your results for the day. Determine what went right, and why. Then spend time on the failed trades and see if you can determine why the trade failed and what would or could have prevented your from entering at the wrong place. As an example, did you go short at a strong support area or did you go long at a strong resistance area? Maybe you were counter trend trading in a strong trend? In time you will slowly learn why prices react certain ways at certain times, and why trading price action is so important to profitable trading.

These issues mentioned in the paragraph above are some of the most common trading problems that lead to failed entries. One of the biggest mistakes you can make is to simply walk away from your trading at the end of the day and not know why you failed or what you could have done differently. Trading is one of the hardest professions in the free world, and regardless of how smart you are, or how high your IQ might be, you will not succeed without a lot of hard work.

Peyton Manning, Tom Brady, Tony Romo and Drew Brees are arguably some of the best professional quarterbacks in the NFL, yet each one spends an inordinate amount of time studying the tape on opposing teams. Your adversary is the market you are trading against and the impulses of the other participants. In order to learn the opposing trader’s tendencies and to be better prepared for what the market may throw at you, it is important that you study the tape or charts so that you can choose the best entry points.

If you are not already spending time reviewing and studying your charts at the end of each day, I challenge you to begin doing this today. Commit to it for one full week and see what a difference it will make in your trading. What you will notice is that you will learn to quickly see the best patterns “after the fact” each day. However, with time, you will slowly begin to see these patterns emerge in real time as they develop on your chart. Once you begin to see the patterns printing in real time, directly on your screen, you are well on your way to improving your bottom line in trading. Most importantly, you will get a strong understanding of price action trading and how to use it in your daily trading. Regardless of the trading system you use to trade, daily chart study will be the key to it’s overall success.

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As a price action trader who believes that trading price action is the holy grail of trading, I am often asked to explain what price action trading is all about. While there really is no true definition of price action trading as far as I am aware, I have come up with a nifty way to explain it so that even a non-trader can understand. I will attempt to explain to you exactly why this type of trading works, and why it gives the trader a distinct advantage when it comes to futures trading.

When most new traders first get started trading, they almost immediately become shell-shocked when they look at a trading chart and see all of the undulating bars that make up a trading chart. These charts make little if any sense, and most new comers simply cannot determine anything about where prices are likely to go based on the price bars in front of them. In fact, these random price bars on the chart in front of them can be so confusing that most traders think that there must be some magical indicator that allows any winning trader to make money trading the markets. If new traders don’t feel this way immediately, they inevitably begin to feel this way shortly after they start trading and losing their hard earned money!

Most indicators are derived from the actual price action itself, and this data is old data by the time the indicator tells you anything. So, if you are using an indicator to help you enter trades, you are most likely using past data to give you information on your charts. Rather than use an indicator that is simply crunching or smoothing the price data that is already on your charts, why not learn to read the price action and skip the indicators. It’s not as hard as you think, and once you understand it and remove all of the indicators that are hiding the real price action, trading becomes much more simplified and much less complicated. Now I’m not saying that you can learn price action in a few short days or even a few weeks, but once you do learn to read it, you will forever change your trading results for the better. Best of all, you will no longer be trading with confusing and lagging indicators that are so predictable and so often used that many institutional traders actually fade these signals. You heard that correctly! Many large traders actually fade these indicators because so many losing traders use them every day.

Trading price action is very similar to a big game tracker. Big game trackers follow the footprints and the trails left by the game that they are tracking. As these trackers gain experience, they begin to learn what the tracks are telling them. The big game may be stopping to feed or forage, or they may be looking for water, or maybe even searching for a mate. Based on how the tracks are made, a good tracker can determine these things, and also determine which way the big game is headed.

Trading price action is very closely related to a big game tracker. As you learn to read the price action, you begin to understand what prices are doing, and why they are doing it. There are price action rules, and these rules generally hold true over 90% of the time, so as you learn the rules, and begin to see them as they unfold one bar at a time on a chart, you begin to understand why as well. Once you understand what prices are doing on your chart, you then begin to understand where prices are likely to go next as well. As with anything, you will need to put in the time and effort to learn to read price action, but it is a very teachable and learnable skill.

Hopefully you can see the correlation of trading price action to big game tracking. While I realize that they are completely different processes altogether, they really are very closely related and they have helped me to easily explain what price action trading is all about to many inexperienced traders. Once I use the big game comparison, a light goes off in the student’s head and they suddenly understand. If you would like to learn more about our trading strategy, please follow our link to our website where you can find more information.

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If you are not familiar with traps and how to trade them, then you are missing out on one of the best scalping entries available. Traps occur often and the name is a very good descriptor of what actually takes place. There are multiple reasons why traps occur, and there are several different ways to approach them. What actually occurs with these traps is that multiple traders will enter a trade at the same location, which is usually a tick above or below a previous bar that is located at some strategic location. However, immediately upon entering the trade, the market will instantly reverse, trapping those traders on the wrong side of the trade. When the trapped traders realize that they have been duped, they begin exiting on the break of the previous bar. This mass exodus adds fuel to the move and very quickly, the market will surge forward for a couple of points at minimum in most cases. Traps are an important part of price action trading.

When you see one of these traps setting up, you want to have a market “stop” order in place exactly where the trapped traders will be exiting. As the duped traders all begin to exit, your order will be executed and you will be swept into the trade with the exiting orders and the move will generally be swift and sudden, making it very easy for you to scalp a point or more before the surge starts to lose momentum. My preferred way to trade these traps is to scalp out with four ticks on one or more contracts, and then move my stop to break even on one or more additional contracts, just in case the move continues even further.

It is difficult to easily describe these traps without a picture, but I will do my best to give you a good mental picture of how these traps will look. Most often, these set ups will occur as a failed break above or below some price level by only a tick or two, then quickly reverse. One good example is a failed break by a tick or two of a small congestion area, which is nothing more than several overlapping bars. Be particularly on alert if the failed break is counter trend. If you encounter a small congestion area in an upward trending market, and suddenly prices have a one or two tick failed break lower out of the congestion, then that is very likely to act as a trap, as there are many uneducated traders that will enter the market on these break outs only to become immediately trapped on the wrong side of the market.

Another good trap may occur in a pull back. Assume the market is trending downward and prices suddenly start pulling back. At some point the pull back will stall, and then start moving back with the original trend again, only to quickly stall and start back up a second time. If the second attempt to reverse suddenly fails after prices tick higher than a previous bar, there will be many traders that will be trapped to the long side of a declining market. Most of them will be quick to exit as soon as prices start moving down and take out the low of the former bar. Their exit orders will be within a few ticks of the low of that bar, and that is exactly where we want to have our entry stop order. These trades often move very fast, so you often times need to have your order in place early, anticipating a possible trap. If the trap does not occur, simply cancel the order. By having it in place ahead of time, you assure that you don’t get left behind when prices surge lower.

The two examples just given will produce some of the best traps, but there are other trap set-ups as well. What you must be aware of with markets is that prices usually move in twos or pairs. When trading price action, you will notice that the markets like to attempt things twice before giving up, and that’s why traps work so well. Most everyone is aware of double tops and double bottoms, and what is actually happening at a double top is that prices try twice to go higher but fail. Simply reverse this for a double bottom. The market will try twice to go lower and fail both times at the same price, and then suddenly reverse the trend. Whenever the market tries to do something twice but fails, it will usually succeed in doing the opposite. Traps are very similar to double tops and double bottoms, with the exception of the fact that the tops or bottoms are not equal to the tick. The right side can be a few ticks higher, or a few ticks lower, but the set up will still work much the same as a true double top or double bottom.

When these traps occur counter trend, the sudden reversal back with the original trend is often times swift or very violent as the trapped traders realize that they were tricked and that the original trend is starting back up again. It’s the same principle of everyone heading for the door at once, and the mass exit creates a vortex that drops or rises quickly depending on which way the market is moving. Study some of your charts each day and look for these traps until you can learn to spot them. Once you get a good feel for what they look like, you can start watching for them in real time. If you learn to spot and trade these formations, you will forever change the way you look at a price chart. Most importantly, you can improve your bottom line by only trading a couple of these each day. Find out more about our trading strategy by following our links.

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When it comes to available markets for day trading, there are many options to choose from. I am often asked which market and instrument is the best one for Day Trading. The answer to that question is a difficult one, because many different markets offer many different opportunities for a day trader. Today’s biggest markets are probably stocks, futures and forex, but each has advantages and disadvantages for inexperienced. Some of the largest world wide volume is found in the forex market, but that market is not regulated nearly as well as stocks and futures, and trading them has some real disadvantages in my personal opinion.

I actually like to trade currencies on occasion, but when I do so, I trade them via the futures market and not through the forex market for this very reason. Day trading stocks has some disadvantages in that there are certain rules that you must follow that place the small trader at a disadvantage. There are special requirements when shorting stocks you don’t own, and even more importantly, you need a minimum account of $25,000.00 US in order to meet the day trader account minimums. You also have to watch or scan many different stocks in order to find the best ones to trade each day as well, so this can be complicated and confusing for newer traders.

My market of choice is trading futures, and my favorite is the Mini S&P (ES). You can go long or short with ease when trading futures and you can start with a much smaller trading account. U.S. futures are better regulated too, so you don’t have some of the issues you find when trading forex markets. All of the mini futures indexes are good choices, but there are several reasons I prefer to trade the ES market. When it comes to futures, you can trade several different grains, meats, financial instruments and even commodities such as sugar, cocoa and coffee. There is a multitude of choices that can and will fit any trader’s needs.

As stated previously though, I recommend and suggest the mini index futures for day traders. The Mini S&P or ES is one of the most liquid markets around, so there is virtually no slippage when trading regular market hours. You may find some minor slippage in the after hours trading, but even then, it will be very limited unless you are trading institutional size lots. The lack of slippage alone makes it a very attractive day trading market, but there are also other nice advantages. Each tick in the ES is worth $12.50 US, and with it now being relatively easy for even small traders to get a round turn commission for under $5.00 US, this makes it a great market for scalping. You can actually make money in the ES with only a single tick of profit if you have a good broker who offers these low commission rates. There are not many markets where you can actually scalp a single tick and make money. Just a few short years ago, you had to make several hundred dollars on a single trade just to cover commissions, so the ability for small traders to profit is now better than ever!

You can also trade the ES with very small margins if you are a day trader and exit by the close at 3:15 PM CST each day. There are many brokers that will offer you day trading margins of $400 to $500 US per contract in the ES. Compare that to the amount of margin needed to trade a single stock and you will quickly see that the ES futures offer an excellent opportunity for leveraging your profit opportunities while allowing you to do it with very small commission costs. When you factor in liquidity, margins and commissions costs, the ES is on par with the best markets in the world, and that’s one reason it brings in so many players.

The one disadvantage, which will actually be big advantage if you learn to profitably trade the ES, is that many of the best professional traders in the world trade this market each day. Because of this fact, you are going up against some very smart and very experienced traders that know how to take money from your trading account, and transfer it to their trading account. If you can learn to trade profitably in the ES though, you can transfer that knowledge to almost any other market and do well there.

One of the best things going today is that there are many brokers that will offer you a simulation account that works and trades exactly like a live account, using the very same live streaming chart data that the live traders are using. It’s the closest thing you can get to trading real markets, except you will be using simulated money. Only a few years ago, you had to “paper trade”, which was just writing down where you wanted to enter and exit the markets and assuming it would have all worked the same with live orders. Paper trading was a good way to learn, but it was nothing like real trading. Simulators today are much closer to the real thing, so they are a great training format.

If you are even remotely interested in day trading futures, I would suggest that you begin by contacting one of the many brokers that will offer you a simulator trading option for free. Check out several of them and when you find one you like, open you a simulator account and start trading. The hardest part will be finding a Trading Course that actually works, and then practicing it until you can profit with it. Most traders run out of money before they ever figure out what really works in trading. They simply give up and walk away having donated their trading account to other traders.

Trading price action is my first recommendation for a profitable strategy, so I encourage you to start there. If you start with price action and learn to trade on the simulator without believing in the miracle working indicators, that simply do not exist, before risking your real money, you will automatically improve your opportunity to out last the associated learning curve. Just make sure you don’t risk a single cent of your real money until you can consistently make money every day on the simulator.

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If you are not already familiar with second entry trades, you are missing out on some of the best entry opportunities available in trading. Second entries are an important part of price action trading, and they work in any market and on all time frames. I like trading tick or volume charts, and these entries work on them just as well they do on any time based chart. You should look for second entries on daily, weekly and monthly charts as well, because you can find them there too.

If you do not already know what a second entry is, then you are probably scratching your head and wondering exactly what I am talking about. Before attempting to describe a second entry, I’ll discuss some of the theory behind why they tend to work so well. If you have been trading for any length of time, then you are probably already aware of the fact that the market tends to move in pairs. In other words, prices will make one leg, then have a pull back, and normally make a second leg that is somewhat equal in length as the first leg.

These moves in “two’s” occur over and over all day long and on different time levels. If you need proof, just go study a few charts in depth, and I think you will then agree with me that the market does indeed move in two’s over and over. Now that you know and understand that this is a natural part of any price movements in the markets, the next thing you should understand is that whenever the market tries to do something twice and then fails, it is likely to move strongly in the opposite direction. This is what makes second entry opportunities work so well in my opinion.

Describing a second entry is not easy, but I’m going to try and explain it in very simple terms so that you can grasp this entry technique. When trading second entries, you are looking to take them “with trend,” or at major turning points. There are actually many other clues that you must also watch for when trading turning points in the markets, and that would take far too much room for one article, so for now, we will concentrate on taking only with-trend second entry opportunities. After all, it is the traders that are fishing for tops and bottoms that actually contribute to what makes these entries work so well.

If the market is trending upwards, each time a new high is created, even if only by one tick, then the count must start over. Let’s assume that prices just made a new high, and now they are pulling back with several bars that are making lower highs and lower lows. At some point, the pullback will stall, and you will have a bar that will tick higher than the previous bar, so this is the first attempt for prices to start back with the original upward trend. This is your first entry or the first time that prices moved higher after the start of the pull back. Prices could rocket on from here and continue the original trend, but if they fail to make a new high, and then pull back again and start making lower lows and lower highs, we would then start watching for a second entry, or a second chance for the trend to start moving upwards again.

If the next pull back stalls as well, and prices are able to again tick one tick higher than the previous bar, then that constitutes the second entry, or a second chance to get back on board with the upward trend. This really is all there is to a second entry, but they work extremely well for a couple of reasons. First of all, if you get a second entry long, that means that the market obviously tried to go down twice and failed, so the odds are in your favor that prices will now succeed in going in the other direction. You are probably very familiar with double bottoms and double tops, and that is why they tend to work so well, and this is a similar type entry, with the exception that the two pull backs do not have to necessarily form a double bottom or double top. Secondly, when the market starts a second pull back, many traders are assuming that the upward trend is ending, and they are adding shorts, expecting to try and catch a top. When their short entries quickly fail, and the market starts back with the up trend, then these traders are trapped on the wrong side of the trade, and they quickly start buying to cover their shorts and limit their losses, and this short covering gives the market extra fuel and pushes it even further to the long side.

Most trends will go further than you will ever expect, so attempting to pick tops and bottoms is a very risky trade, and that is why second entries work so well. Too many gamblers are trying to pick a top or bottom, justifying it with the fact that they can get out with only a small loss if they are wrong. By staying with the trend, you will be taking their free gifts and adding them to your trading account. One of the best places to find second entries is on a pull back that stalls near a 21 bar EMA. I normally trade a 2000 tick chart, and one of the few things you will find on my chart is a 21 bar EMA, and that is where most of the best second entries usually form on my trading chart.

The most important part of the count when looking for second entries is to remember that you start the count over on every new high in an up trend, and every new low in a down trend. You must always start the count over, even if the new high was simply by a tick or two. If you are trading a downtrend, just reverse the process as I described it above for second entry longs. I normally place an entry stop order one tick above or below each bar once I start looking for a second entry. If the trend is up, I prefer to see a completed bullish bar before placing my entry order as well. If prices don’t tick up and stop me in by the completion of the next bar, I just move the stop down above it and I keep doing this until I am stopped into the market, or until I feel the market may have gone too far.

Get out your favorite trading charts and study them closely. Note the second entries and learn to spot them on your charts. Once you get an eye for what they look like after-the-fact, then you can start to watch for them in real time. By adding second entries to your trading, you will give yourself a slight edge over most other traders. I actually talk to many long-term traders that often do not know or understand what a second entry is and why they tend to work so well. Go study some charts today and learn this entry strategy so that you can add it to your trading arsenal.

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