ES System

My trading results have always been quite personal, but after much reflection, I think it would be interesting to post - on a continuous basis - the results of my one of my systems on the E-Mini SP500 Futures Contract (ES).

There are several reasons I have decided to do this, the most important of which is simply to keep my own head in check. I believe in the power of telling others about one's goals as a way of staying accountable. Anyone who trades the markets on a regular basis understands the significance of this last point.

Performance results can be viewed here.

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METHODOLOGY

A few points about the system:

1.- OVERALL APPROACH

The general gist of the system is to identify oversold or overbought situations via RSI(9) and execute contra trend trades. A black box system like this utterly useless as any experienced trader will probably tell you.

So, for confirmation I look for things like positive/negative divergences in the RSI, bottoming or topping candle patterns and support/resistance trend lines. It's really that simple.

I hope by way of example, the methodology becomes more clear. I plan on annotating my daily charts with text to explain the rationale behind every trade.

2.- MONEY MANAGEMENT

No system, no matter how robust, can survive without a solid money management system.

Any on any given trade I risk no more than 3 ES points (i.e. $150/contract). This number changes based on the previous trading day and pre-market volatility. On slow, non-volatile, low volume days this number is usually around 2 points.

Profits are usually taken either:

- When I am stopped out
- On a 9-point cover

To those of you wondering 'Why 9 points?': It's been my observation that intraday impulse waves are usually in the vicinity of 9 points.

Stops are placed below certain simple moving averages or pivot points, and will also vary depending on how volatile the trading session is.

3.- TRADING PSYCHOLOGY

The topic of trading psychology has been written on extensively, but the investment education industry (for the most part) usually leaves this until the very end of their curriculum. Only through the school of hard knocks do most traders/investors finally realize that their results have nothing to do with the market. In fact, 100% of your results is an internal, self awareness of who you are as an investor/trader.

Trading is a business of probabilities - it's not about being right or wrong (it took me far too long to learn this). The more you trade, the more you allow the probabilities of your system to work in your favor. To this end, I never take a trade that does not give me a significant edge. If there is no set up, there is NO trade.

The trading world really opens up the possibility to endless riches if you can develop the proper mentality when trading. So that means, no messing around with stops, taking EVERY trade that your system identifies and NO over leveraging.

4.- NOT MECHANICAL

Admittedly, there is an element of discretion involved. This discretion is really the art of trading. It's what most traders refer to as a 'feeling about the market' and it comes with experience.

The discretion will apply to things like how far trailing stops should be placed from the current price action and whether to trade at all. There are days, such as options expiration, where even if a signal is triggered, I will sit out.

5.- Trading decisions are made based on intraday 3min-bar charts.

6.- The only indicators I use are an RSI(9) and a few simple/exponential moving averages.

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Lastly, the purpose of going through this process is not just to benefit the author of this blog, but to help those who are struggling in their trading endeavors. I am more than happy to answer further questions. You can contact me at a.grant@ambgtrading.com