John Paul Shares 3 Ways to Manage Day Trading Risk

Successful trading is all about managing risk and reward. In this hour plus webinar, John Paul shows multiple ways to check if a trade is riskier than normal. If you use the Atlas Line, once such way is to check if the distance of the plotting, dashed line is far from where price has plotted. In the included live training, the distance calculation is explained in detail. Another way is to watch for news events. An economic news calendar, such as the one offered on the Day Trade to Win website or Bloomberg, will tell you when to expect financial news that may cause significant volatility. If a news event has occurred, expect to wait about 15 minutes until activity returns to normal.

Another way to control risk is to use multiple stop losses. NinjaTrader allows for only one stop loss. How do you do it? Close out the trade under certain conditions. For the Atlas Line, one such condition is if price closes on the opposite side of the Atlas Line. For example, if you're going short based on a Double Bar Short trade, and one candle closes above the line, then close out the trade. Another strategy is the time-based stop. If after four bars on a 5-min chart (20 min.) profit is not made, then close out the trade. This will result in a small profit, breakeven, or a loss that is smaller than the catastrophic stop. The catastrophic stop is there as a safety net in case of sudden volatility. At maximum, this stop is five points. Normally, it's double the ATR value, rounded down to the nearest whole tick. There's some great info here about trailing stops and working with multiple contracts / order quantity.

Trading Risk and Reward

A common mistake among traders is thinking the markets are a quick way to get rich. This is false. Trading is very risky. If you're not careful, you can easily lose thousands or more (depending on your account size and broker setup). Even if you spend a significant amount of time practicing in a live simulated environment, live trading can be different. Each trader is different. The psychological impact of knowing real money is at stake can cause panic and unwise decisions.

For these reasons, traders should be well-funded and capable of absorbing significant financial loss. A common term among traders is, "Only trade with money you can afford to lose." This is true, as trading with money normally used for buying groceries can result in a problematic situation for the trader and his or her family. If a person has had past issues with gambling or impulse control, trading should be approached with even more caution.

There are thousands of websites that sell day trading products and services. These websites can be very convincing, either directly promising or alluding to increased performance. Remember that nearly anyone can create a website. Also, consider that there is a tendency for traders to always be on the hunt for what works. As such, trading businesses can be lucrative and prey on unsuspecting traders. Traders should perform thorough research on a company before doing business. This includes, but is not limited to, the number of years they've been in business, the analysis of any performance records, consultation with other users of the trading system, requesting a trial (if offered).

Of course, not every trading business will be able to provide all of the information to make an informed decision. Even if a trading business does provide satisfactory evidence of performance, there is still substantial risk. Why? No one can truly predict the direction of the market. Even if a trading system has been over 80% accurate historically, the next second may be the start of a year-long downward spiral in which traders lose consistently. For this reason, a trader must only use "loss-capital" he or she can part with.

Day Trade to Win helps traders realize the risks in trading. As an educational service, traders are taught how to avoid some common, costly mistakes. Traders are taught to have a plan and how to operate trading software to potentially mitigate some risk. 

John Paul's Trading Tips and Tricks - Phantom Orders, Overbought Markets, and ATR

The E-mini S&P is John Paul's favorite market. Why? It's more predictable than other markets. Oil prices are globally manipulated - far more than the U.S. companies that make up the ES. Even with the E-mini, you can expect some crazy volatility with the upcoming, controversial U.S. election. You need to be able to quickly gauge market speed. The Average True Range (ATR) provides just that. With a period value of four, the last four candles are used to plot the green line you see on the bottom of the chart. Reading the ATR on multiple markets is not the same - you will need to move the decimal point if on the Euro FX. Generally, you want to trade between 1 and 4 points. Anything below or above is either too slow or too volatile. Avoid those constant losses and chop.

News events - almost every day, a news event has an impact on the markets. By using Bloomberg's news event calendar, you can know ahead of time whether an event will take place. Red star events are the big market-movers. Stay out of the market until the volatility subsides. Also, Fed Chair Janet Yellen's announcements can be just as influential. About five to fifteen minutes is what you will have to wait before things return to normal.

Another important concept - do not trust the buy and sell orders you see on the DOM, price ladder, or matrix. These numbers are manipulated by big firms and algorithms to make money off of each other and small, retail traders like yourself. John Paul calls these Phantom Orders. At one time, when this data could be trusted, traders employed a technique called tape reading to predict areas of support and resistance. Now, the numbers might as well be random. Let price action on the chart dictate your traders - not order info from the grid.

Finally, you must be able to assess whether a market is overbought or oversold. To do this, John Paul measures the distance between numbers, and candle closing price and wicks. With the Atlas Line, you can figure this out by looking at the space between the candles and the dashed line. Overbought/sold markets may appear they are volatile, but in reality, they are too exhausted to continue. During these periods, you are better off waiting until the market resumes normal volatility.