income generating strategies essential trading …...i also like to see the patterns and formations...

© Trading Concepts, Inc.

Income Generating Strategies Essential Trading Tips and Market Insight

© Trading Concepts, Inc. 2

Income Generating Strategies

Essential Trading Tips and Market Insight

By Todd Mitchell

© Copyright 2014 by Trading Concepts, Inc.

All Rights Reserved

This training program, or parts thereof, may not be reproduced in any

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No claim is made by Trading Concepts, Inc. that the E-Mini futures trading strategies

shown here will result in profits and will not result in losses. E-Mini futures trading

may not be suitable for all recipients of this Training Program. All comments, trading strategies, techniques, concepts and methods shown within our Course are not and

should not be construed as an offer to buy or sell futures contracts – they are opinions

based on market observation and years of experience. Therefore, the thoughts

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Table of Contents

Time Frames ................................................................................ 4

Fibonacci Retracements ................................................................. 10

Probability for Market to TREND All Day............................................. 14

Trend Change Criteria ................................................................... 15

Trend Entries - Placing Orders ......................................................... 19

Helpful Hints for Placing Orders ....................................................... 20

Trend Entries – Questions and Answers .............................................. 21

Fibonacci Retracements ........................................................ 21

Retracements to Key Moving Averages ...................................... 23

Choosing a Key Moving Average ............................................... 25

Missing a Trade .................................................................... 26

When to Cancel an Entry Order ............................................... 28

Interpreting Bars & Candlesticks .............................................. 32

Trade Management - Volatility ................................................ 33


Time Frames – GLOBEX 24 Hour Charts

Q: Do you utilize the GLOBEX 24 Hour Chart in your trading? If yes,

how? Also, what Time Frames do you typically use? A: Yes, I generally take note of the GLOBEX 24 Hour overnight HIGH and LOW first

thing in the morning. I want to know where the market traded overnight to give me

some idea of what the market is going to do in the first hour or so of trading. If

you think about it, the markets trade almost 24 hours a day now, so you can’t completely ignore what happened overnight.

If the market opens up and rallies up through the GLOBEX overnight HIGH, that’s an indication that the market at least will continue in that direction for a while. The

opposite is true if the market penetrates down through the GLOBEX overnight LOW.

I also like to see the patterns and formations from the overnight trading session. Obviously, the market isn’t as liquid as it is during normal trading hours (9:30am ET to

4:15pm ET), but there are times where good trade set-ups occur overnight.

Modules for Reference:


Time Frames – Primary Time Frame for Day-Trading Purposes

Q: What’s the main Time Frame I should be watching during the trading day? What Time Frame should I use to execute most of my trades?

A: The three (3) minute chart is the primary chart you should be watching for day-trading purposes. You not only should execute most of your trades off of this chart,

but also almost all of your intra-day trade set-ups should occur on this chart.

The 30 minute, 60 minute, and Daily charts are only used for the bigger picture coming into the new trading day. Figure out the Fibonacci Retracements off of these

bigger charts – according to the MFAM on that time frame – coming into the day for

potential SUPPORT and RESISTANCE.

Those are all of the reasons you should be using these bigger time frames. Refer back

to the Starting the Trading Day module where I go into more detail regarding the bigger time frames and exactly how they are used.




Figure out the Fibonacci Retracements off of the 30 Minute, 60 Minute, and

Daily Charts – according to the MFAM – for the “bigger picture” potential SUPPORT and RESISTANCE.




The three (3) minute chart is the primary chart you should be watching for day-

trading purposes. Almost all of your intra-day trade set-ups occur on this chart, so execute your trades off of this chart.

Modules for reference:


Time Frames – Keep It Simple

Q: The more time frames I look at during the trading day, the more

confused I get. What do I do? A: Keep it simple. I personally use the three (3) minute chart for day-trading

only. I use larger time-frames (i.e. 30 minute, 60 minute, and Daily charts) for the

bigger picture. The more time frames you choose to look at simultaneously, the

more confused you could get.

I recommend using the 3 minute chart during the trading day. Only look at the

bigger time frames before the market opens to know where longer-term SUPPORT and RESISTANCE are.

Remember, keep it simple, and don’t make it any more complicated than it is.



Time Frames – Keep It Simple

Keep it simple. I recommend using the 3 minute chart for day-trading only.

Only look at the bigger time frames before the market opens to know where longer-term SUPPORT and RESISTANCE are.

The more time frames you choose to look at simultaneously, the more

confused you could get.



Fibonacci Retracements – Coming into a New Day

Q: Should I use yesterday’s price action for today’s retracements? If

so, how far do I go back in time to look at the bigger picture? When do I use just today’s range?

A: Yes, I suggest using yesterday’s price action coming into a new trading day for the bigger SUPPORT and RESISTANCE levels. On average, I would say to use the

prior day’s range for the first one to one and a half hours of trading (first 1 to 1 1/2

hours), or until the range of the current day is large enough to trade based on today’s range alone.

Look back as far as you need to in order to get the bigger Fibonacci Retracement

levels. This may mean looking at a 30 minute, 60 minute, or Daily Chart to get the

bigger picture. Remember, Fibonacci Retracements do not mean much unless the

swing you are measuring is large enough. I would say that market swings must be a minimum of eight (8) to ten (10) points to make the Fibonacci Retracement levels

valid. Please remember, market volatility is cyclical and changes over time

(volatility is not 100% constant).



Fibonacci Retracements – Coming into a New Day Use yesterday’s price action coming into a new trading day for the bigger

SUPPORT and RESISTANCE levels. Use the prior day’s range for the first one to

one and a half hours of trading, or until the range of the current day is large

enough to trade based on today’s range alone.



A High Probability the Market is Likely to TREND All Day

Q: Is there any way to know beforehand (in the morning) if the market is going to TREND all day?

A: There is really only one scenario that tips my hat off to a potential TREND for the day.

For example, look for a TREND in the direction of the gap to occur if the market gaps above the previous day’s High or below the previous day’s Low and continues

to move in the direction of the gap, then turns around and is NOT able to fill the

gap by returning to the previous day’s Close, and then once again turns around and continues in the direction of the gap and takes out the intra-day High or Low.

Also, if the market does not make any sort of Counter-Trend move by 10:30 ET and

just continues in the direction of the first hour’s TREND, then the market will most likely TREND for the rest of the day.

Remember, the market TRENDs strongly only about one to three days a month – if that, but keep your eye open for these types of trade set-ups. They are generally

very reliable when they do occur.



A High Probability the Market is Likely to TREND All Day The market most likely will TREND for the rest of the day if the market GAPs

above the previous day HIGH or below the previous day LOW, does not make

any sort of Counter-Trend move and/or is not able to fill the GAP, and then

continues to move in the direction of the GAP and takes out the intra-day HIGH or LOW.



Trend Change – Two (2) of Three (3) Criteria MUST Be Met

Q: In the MFAM, how much of a penetration down through an Active

Low (AL) or up through an Active High (AH) must occur before considering the TREND to change? A: You need to see an AH or AL penetrated by only one tick in normal circumstances.

The exception is if the AH or AL is at the 79/89 Key Moving Averages. You then

would need to see the market penetrate up or down through the moving averages before considering entering a trade in that direction.

Remember, two of three criteria must be met for the TREND to change:

UPTREND Changing into a DOWNTREND (2 of the Following 3 Criteria Must Be Met:

The MRAL (i.e. the highest AL in the UPTREND) MUST be taken out to the

DOWNSIDE,

The Mid-Keltner MUST penetrate DOWN through both the 79 SMA and 89

EMA (or 3 consecutive price bars MUST be trading COMPLETELY BELOW the Lower Moving Average), and

The market MUST penetrate DOWN through 62% Fibonacci Retracement of

the ENTIRE DAY.

DOWNTREND Changing into an UPTREND (2 of the Following 3 Criteria Must Be Met):

The MRAH (i.e. the lowest AH in the DOWNTREND) MUST be taken out to the

UPSIDE,

The Mid-Keltner MUST penetrate UP through both the 79 SMA and 89 EMA

(or 3 consecutive price bars MUST be trading COMPLETELY ABOVE the Upper Moving Average), and

The market MUST penetrate UP through 62% Fibonacci Retracement of the ENTIRE DAY.



Trend Change – Two of Three Criteria MUST Be Met Two of three criteria must be met for the TREND to change.



Trend Entries - Types of Orders

Q: When entering the market on a retracement, what Type of Order should I use?

A: LIMIT and MIT (“Market If Touched”) orders are used most often (90% of the time)

when entering on a pullback (retracement) trade. Use of a LIMIT order allows you to

eliminate slippage completely on entry, while one-tick slippage is likely when using a MIT order.

Module for reference:


Trend Entries – Placing Orders

Q: When should I actually place an order to enter the market on a

pullback?

A: Look to place your order approximately 1.00 ES point before the market

actually gets to your entry price.

For example, if you’re BUYING at 1386.75, place your order when the market pulls

down to 1387.75. If you’re SHORTING at 1394.75, place your order when the market pulls up to 1393.75.

Avoid placing your order too far in advance as things may change to the point where

you don’t want to enter the market at the same price anymore. If you place the order too far in advance, you may find yourself constantly canceling and replacing

your orders.




If you’re BUYING at 1386.75, place your order when the market pulls down to

1387.75




If you’re SHORTING at 1394.75, place your order when the market pulls up to

1393.75



Helpful Hints When Placing Orders

Halves (.50’s) and Round (.00’s) numbers are very important. Traders tend to take

the market to these areas; thus, you must make sure to place your stops above

these numbers when SHORT and below these numbers when LONG. The market

generally will bounce off of these numbers when coming up from a LOW and react down off these numbers from a HIGH.

These numbers, believe it or not, are very important. I even suggest using these numbers (whole and half numbers) for all market ENTRIES. In a nutshell, you

NEVER want to place your Initial Stop Loss or Stops on a half or whole number. If

you enter on BREAKOUTS, you never want to place your Buy Stop or Sell Stop (entry

order) on a .00 (whole) or .50 (half) number. You definitely want to be a tick above (.25) or below (.75) these crucial numbers. Take a look below to see what I mean:

Realize that floor traders tend to take prices to these levels (i.e. .00's and .50's) intentionally to stop traders out of the market. Notice how many times the HIGH or

LOW of a day, or any significant High or Low throughout the trading day, ends up on

these half and whole numbers (i.e. 1475.00 or 1476.50) – probably a good 70% of the time.

If you were going to place your Initial Stop Loss below a lower logical level of

SUPPORT in an UP Trend or above a higher logical level of RESISTANCE in a DOWN Trend (Fibonacci Retracement, Key Moving Average, Floor Trader Pivot, etc.), you

simply would place it on .25’s or .75’s. Quite simply, you do not want to place your

Initial Stop Loss on rounds (.00’s) or halves (.50’s).

If you were going to BUY the market on a breakout at 1475.00, you simply would move

your Buy Stop up to 1475.25. If you were going to SELL the market on a breakdown at 1474.00, you simply would move your Sell Stop down to 1473.75. Quite simply,

entering on a BREAKOUT, you want to be on .25’s or .75’s.



Trend Entries - Fibonacci Retracements

Q: How do you know which Fibonacci Retracement level (the 38%,

50%, or 62%) to choose to enter the market?

A: When entering LONG (Buying) on an Initial Trend Entry (1st pullback) in the

MFAM, I look to BUY on the Fibonacci Retracement that is closest to the Mid to Lower Keltner Channel Bands. On Successive Trend Entries (2nd pullbacks) when

entering LONG (Buying), I look to BUY at Mid to Lower Keltner Channel Bands AND

look to BUY at Fibonacci Retracement Confluence from the Lowest Low to the Highest High and from the Most Recent Active Low to the Highest High.

When entering SHORT (Selling) on an Initial Trend Entry (1st pullback) in the MFAM, I

look SELL on the Fibonacci Retracement that is closest to Mid to Upper Keltner Channel Bands. On Successive Trend Entries (2nd pullbacks) when entering SHORT

(Selling), I look to SELL at Mid to Upper Keltner Channel Bands AND look to SELL at

Fibonacci Retracement Confluence from the Highest High to the Lowest Low and from the Most Recent Active High to the Lowest Low.

I generally do not look to enter on the 3rd, 4th, or 5th pullbacks (retracements) in the same MFAM direction – except for the exceptions to the rules mentioned in the

Successive Trend Entries module.



Trend Entries - Fibonacci Retracements



Trend Entries – Retracements to the Key Moving Averages

Q: When do you automatically Buy or Sell on a pullback to the 79/89 Key Moving Averages? When do you wait for a Powerful Price Pattern before Buying or Selling on a pullback to the 79/89 Key Moving Averages?

A: You may look to BUY or SELL the market automatically on the very 1st pullback

to the 79/89 Key Moving Averages in an established UP Trend (BUY) or in an

established DOWN Trend (SELL) as long as you can identify another logical level of SUPPORT or RESISTANCE at or near the Key Moving Averages (such as a Fibonacci

Retracement level of the entire day, Fibonacci Retracement Confluence, and/or a

Floor Trader Pivot level). In an UP Trend, place your Initial Stop Loss below the

Lower Moving Average or other significant logical level of SUPPORT, whichever is Lower. In a DOWN Trend, place your Initial Stop Loss above the Upper Moving

Average or other significant logical level of RESISTANCE, whichever is Higher.

On the 2nd or 3rd pullback to the 79/89 Key Moving Averages in an established

TREND, you should wait for one of the Powerful Price Patterns to form before

entering the market.



Trend Entries – Retracements to the Key Moving Averages

You may look to BUY or SELL the market automatically on the very 1st pullback

to the 79/89 Key Moving Averages in an established TREND as long as you can identify another logical level of SUPPORT / RESISTANCE at or near the Key

Moving Averages. Wait for a Powerful Price Pattern to form before entering the

market on the 2nd or 3rd pullback to the 79/89 Key Moving Averages.



Trend Entries – Which Key Moving Average

Q: How should I know at which Key Moving Average to take a trade,

the 79 SMA or the 89 EMA?

A: That’s a good question; actually there are two things you will look at to help tell

where to enter a trade around these two Key Moving Averages.

First, look at the Fibonacci Retracements in relation to where the Key Moving

Averages are to see which retracement is closest to or sitting on the Key Moving

Averages. For example, if the 38% retracement is at or near the 79 SMA and the 50% retracement is beyond the 89 EMA, I then would choose to enter the market at the

38% retracement since the 50% retracement is beyond the 89 EMA – assuming the

second factor also meets my criteria.

The second factor I look for when determining where to enter the market in relation

to the Key Moving Averages is where your Initial Stop Loss should be placed

according to what you’ve been taught in the Trade Management module. As long as you’re able to stick with your Initial Stop Loss beyond the Key Moving Averages

when entering at or near them, the entry should work fine, and that would meet

my criteria.

You don’t ever want to place your Initial Stop Loss within the Key Moving Averages

because they act as longer-term SUPPORT in an UP Trend and longer-term

RESISTANCE in a DOWN Trend. Therefore, if you are LONG, you want to make sure that your Initial Stop Loss is below the Lower Moving Average. If you are SHORT,

then you want to make sure that your Initial Stop Loss is above the Upper Moving

Average. It’s that simple.



Trend Entries – Missing a Trade

Q: When you place an order and the market does not quite get to the

entry price you placed in the market, how do you avoid missing the trade? Do you just enter at the market?

A: There is no way to avoid missing a trade when entering into a TREND on a

pullback. Since you’re picking a pre-determined price to enter the market and then

placing a LIMIT order or Market-If-Touched order before the market reaches that

price, there is no real way to avoid missing a trade if the market is unable to reach

your entry price. I know it can be frustrating, but that’s part of the game. I don’t believe in chasing the market either.

Remember, you really don’t know you missed a trade until after the fact. In hindsight, it’s easy to say that you should have “jumped in” with a MARKET order,

but in real time trading, it’s a lot harder to see when it’s actually happening.

Again, there is NO WAY TO AVOID MISSING TRADES (at least the way we trade)

unless, of course, you choose to enter with a MARKET order every time you want into the market. I do not suggest trading that way. If you choose to do that you’ll find

yourself always chasing the market; therefore, you’ll find yourself getting

whipsawed all the time.



Trend Entries – Missing a Trade

If the market gets close – say within 0.25 to 1.00 ES points from your entry price – and then turns and continues in the direction of the TREND and moves past

where you normally would have taken profits, cancel your entry order.



Trend Entries – Cancel Entry Order (Missed Trade)

Q: When would you cancel your entry order to enter into a trade? What I mean is, if the market does not quite get to your entry price and then turns and continues in the direction of the TREND, when do you cancel your order because you missed a trade?

A: If the market gets close – say within 0.25 to 1.00 ES points from your entry

price – and then turns and continues in the direction of the TREND and moves past

where you normally would have taken profits, cancel your entry order.

Chances are, if the market turns from where you would have taken profits and

continues to pull back through the price level at which your entry order is placed,

the market may continue moving in that direction beyond logical SUPPORT/RESISTANCE to the point where you would not want to enter at or near

that price level anymore.

You may want to re-evaluate the market then when it gets back to your original

entry price to see if you still want to enter the trade at the same price.



Trend Entries – Capturing Big Market Moves

Q: I hate missing out; is there a way that I never will miss a big move

in the market?

A: There are times you’re going to miss the big moves when you are looking to

BUY or SELL on a pullback in an established TREND. Since we’re using Fibonacci

Retracements and pullbacks to enter the market, there are going to be those times where the market takes off without ever looking back (i.e. no retracements until

after a huge move is made). Everybody hates missing trades – let alone big market

moves.

There are a few trade set-ups that allow you to capture a big market move. The

only way I know never to miss a trade is simply to have a Buy Stop order placed one

tick above the MRAH in a DOWN Trend and to have a Sell Stop one tick below the MRAL in an UP Trend. By doing this, you never will miss a big market move. The

Aggressive Entry to the EURP and the EDRP is another high probability break-out

type of trading strategy that gets you in the market as it’s moving without waiting for a pullback.

When entering a trade on a pullback, you usually will place a LIMIT or MIT order waiting for the market to fill you; of course, there will be times the market will miss

your entry price by a tick or two (or a little more), and you won’t get filled. There

is simply no way to avoid this type of scenario. If you think about it, you will not

know the trade is gone until it’s too late. You also do not want to get into the habit of chasing the market. So, simply cancel any existing order and wait for the next

trade set-up.




The only way I know never to miss a trade is simply to have a BUY STOP order

placed one tick above the MRAH in a DOWN Trend and to have a SELL STOP one tick below the MRAL in an UP Trend.




The Aggressive Entry to the EURP and to the EDRP is another high probability

break-out type of trading strategy that gets you in the market as it’s moving without waiting for a pullback.



Interpreting Each and Every Bar or Candlestick

Q: Do I have to sit and interpret each and every 3 minute bar or

candlestick?

A: Absolutely Not. Remember, you are only looking for Powerful Price Patterns at

logical levels of SUPPORT and RESISTANCE in established TRENDS, for Counter-Trend Trade Set-Ups (discussed in The Master Trader level of the pyramid), for

deeper pullbacks/retracements to the Key Moving Averages, and when Managing a

Trade. The only time you want to watch every 3 minute bar is when you’re actually in a trade. Think of individual price action analysis as the micro-view of

the market, whereas the MFAM is the macro-view of the market. The MFAM is what

you want to watch and observe during the trading day for your trading signals.



Trade Management – Volatility

Q: How do you know when the market is more volatile than normal –

requiring you to trade with above average STOPs?

A: There are two ways to tell if the market’s volatility is above average.

1) If the market is trading in .50+ increments, and

2) if the average three minute bar’s range is over 3.00+ ES points.

If you are trading the E-Mini S&P 500 (ES) when one or both of these occur, you

may need to risk anywhere from five to six full points ($250 to $300). However, if

this exceeds your max risk per contract, there are three ways you can get a handle on trading volatile markets:

1) Utilize a Smaller Time Frame Chart (consider a 2 minute and/or a 1 minute chart),

2) Utilize a Tick Chart (consider a 55, 89, 144, 233, 377, 610, 987, or 1597 tick

chart), or 3) Utilize a Range Bar Chart (consider a 1.50 Range Bar Chart)

Generally, if your max risk is $150 per contract (3.00 ES Points), then you are

looking to trade off of a chart where each individual bar or candlestick’s range does not exceed 1.50 ES Points (approximately one-half of your max risk per

contract). Refer to the Trade Management module for more details on defining and

managing volatility.

A General “Rule of Thumb” with respect to Trends and the Volatility of the

Market:

When a market is Trending UP, the market tends to be a lot less volatile than when

a market is Trending DOWN. Therefore, a market that is Trending DOWN is much

more volatile than a market that is trending UP. A market falls roughly three times as quickly as it rises.

Module for reference:

income generating strategies essential trading …...i also like to see the patterns and formations...

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