It's Monday, there's money to be made, so let's now begin to put the finishing touches to the system before we begin to identify the daily set ups.
There's a lot more to trading to just a good system. You must also consider your psychology and also you must manage your account well.
It's great making a couple of percent on your winners, but if you're losing five percent on your losers you will quite probably blow your bank up in a short period of time.
The way I like to look at things is the same as tossing a coin. Even with all the indicators giving you a better than 50% chance of success, the markets can still be a minefield and the most trivial little snippet of news from elsewhere in the world can often throw your perfect trade into the sewer.
So I insist on having a bigger target than my potential loss. If I get it right 50% of the time, over the long run I should always make money.
I like to use a trailing stop, so that my risk will become smaller as the trade develops.
This money management strategy I call the Crocodillion!
It's called the Crocodillion in reference to the Crocodile. If you're a wild buffalo taking a nice drink of water beside the Zambezi river and you're confronted by a 15ft Nile crocodile you need to be on your toes (or hoofs) rather rapidly. The more chance you give the croc to get you in his jaws the less likely you are of appreciating that nice cold water ever again.
This works in a very similar fashion to the crocs jaws. The further the price goes in your desired direction, the closer your stop becomes in relation to the price.
Take a look
So the risk is 10 ticks and the target is 25 ticks. This represents approximately 1% risk to 3% reward. Some prefer 1% risk to 2% reward, some even less but the way I have constructed this, with the trailing stop, sometimes we will only achieve 1% gain or 2% gain.
The left column shows how much the price will move during a small trend, the middle column shows my potential loss or gain, the right column shows how much gap is maintained between my stop and the price itself.
A stop too tight will get taken out all the time, a stop too big and you're in the market too long anything can happen.
So, I have what I consider to be a happy medium. For every 4 ticks the price moves in my desired direction, I move my stop 5 ticks. This decreases the gap over time, locking the jaws around the buffalo and securing as much meat as possibly.
Only when the price gets to 20 ticks in my favour does the tightness of the stop become 5 ticks so always some breathing space.
So, to explain........
I begin any trade at -10 ticks, once the move goes 4 ticks in my favour I move the stop by 5 ticks, moves 8 in my favour I move another 5 ticks to breakeven and so on.
As you can see I need any given move to go 8 ticks in my favour before I breakeven. It's not perfect, no, but it does ensure a fair share of trade achieving 2% or 3%
As far as bankrolling the whole thing. I haven't tried playing 2% risk or with a bank below $10,000, but 10 ticks playing with one contract as a stake loses you $125 if it goes badly wrong, so 1.25% only. With a $5,000 account you would be risking 2.5% and with a $1,000 account you'd be risking 12.5% so far from ideal.
Most of these charting packages have mini markets or micro markets. However, the volume traded is weak, so in my opinion start with $10,000
If you can manage to pull 10% profit per month or more, then you've paid yourself back in under a year and from next year you're trading for free!
PS...the Crocodillion can aslo be put on auto pilot. No need to move manually. If you have a life and things to do, wait a couple of hours for a trade opportunity, hit the button and let nature do the rest for you. Nice stress-free way to trade with zero emotion!
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