Someone sent this question to me over the weekend. They have been trading Nadex on a daily basis and but cannot seem to “get more wins than losses”. I responded by asking the following:
Are you trading with a plan or guessing at the trade?
The person responded by saying they use things like RSI, MACD, Stochastics, Moving Averages and “just good old fashion price action”. Then they asked if I taught a course on which strategy seems to work better than others.
As most of you may know, I pretty much use the same indicators but have altered them to be easier to read and more reactive to price changes. So I asked the following questions:
- Are you using the underlying chart or the binary chart?
- Have you outlined your entries?
- What’s your average risk to reward ratio?
- When do you use ATM vs OTM binaries?
- When do you exit early versus using a profit target?
In other words, if you want to become more consistent with this trading business then you need a trading plan.
A trading plan may seem like a simple solution — it’s actually one of the hardest for new traders. It should outline their charts, timeframes, indicators and settings, entry and exit strategies, stop strategies, business hours, and the markets to trade during those hours. Then comes the hardest part, following the plan (which means they are holding themselves accountable for entering and exiting correctly) and monitoring results.
Of course, a lot of times when traders set about developing a plan, they also realize how much they don’t know. For example, let’s presume the trader has identified trading from 10 am – Noon New York time and they will trade the indices futures. Then they need to answer the following questions:
- What is the price increment on the YM (mini Dow)? On the ES? On the NQ? On the RTY?
- What are the advantages of trading one over the other?
- What market reports will affect these instruments?
- What timeframes should they use and why?
- What would be an acceptable stop (maximum risk)?
- If using binaries, should they do ATM or OTM? How far OTM, if applicable?
- How should they determine profit targets?
Answering those questions is not reliant on any indicator — it’s really just about the instrument. The next step is to outline their use of indicators. The chart below has all the standard indicators mentioned above. Now the trader must review and outline their entry criteria.
The red vertical line represents the 10:00 am bar on the 15-minute chart. Here’s the important question – where would the trader have entered and why? While it is easy to tell in hindsight (all the information is available), on the live edge the trade would have presented itself much differently. Which of the charts below would have been the entry?
Success in the trading business, not only will distinguish the entry that makes the most sense to the trader but also the entry that can be duplicated and distinguished from a whipsaw entry (where the market is going sideways). That means the trader needs to review their potential entries, during the timeframe they are trading, using market replay. For example, most traders will be looking for long positions when the RSI or Stochastics is oversold (below 20). Yet on the 2nd entry on the chart, both are below 20, so would you have been able to take the trade? Do you wait for the moving averages to flow in your direction (down for shorts or up for longs)? Does the 10 need to be below the 20 or vice versa? And what does the MACD need to be doing?
A trading plan outlines the protocols for the trading business and identifies what action the trader should take, the tools that they need to identify the action, and identifies what to do in case the trade doesn’t work out.
The all-inclusive trading package includes the TradersHelpDesk indicators but more importantly, it includes live coaching and mentoring for the full year. This allows you to learn how to develop your trading business on the live edge of the market using technical analysis techniques that professional traders have used for years.