Money management is crucial to your success in the highly-leveraged Futures market.
Monday, February 24th, 2020 the market gapped-down significantly. This kicked-off a period of extreme volatility and range expansion in the markets, which continues as we speak.
The market is experiencing extremely rare conditions at this time so it’s imperative that you adapt your trading until things settle down.
Important Note: The Momentum Target System uses pre-market data, ranges and market profile to calculate the Targets. On any day the market is “halted limit-down” going into the cash open, the Momentum Target System may remain offline that session.
Here Are Some Tips For Dealing With The Current Market Environment:
1) Trade the Micro Contracts.
The Micro contracts are 1/10th the size of the regular Futures contracts and with these wild gyrations and huge ranges, it only makes sense to stick with the micros (if you are going to trade live). This is highly recommended for both the Momentum System and the Scalper until conditions settle down.
2) Trade 1 Micro Contract on the Momentum Target System – Shoot for Target 1.
If you’re trading the Micros you aren’t going to get hurt too bad trading 1 contract no matter what happens. You might not make a fortune either but you also won’t blow up your account.
When you’re trading the Momentum Target System, take your profits at the 1st Target. Trading in this environment involves a high degree of risk – however there are also huge opportunities for BIG PROFITS if you play it right and keep a level head. When you catch a big move and have a profit – stop trading for the day.
If you’re trading the Momentum Target System, here’s a good strategy.
1) Trade 1 Micro Contract
2) Shoot for Target 1
3) Use the System Trailing Stop – but use some discretion and consider using a tighter stop at times
4) When Target 1 gets hit the trade is over
Using the System Trailing Stop is still reasonable on most Alerts, but at other times it might be more appropriate to set the Stop at the mid-point of the Range. The key is to give the trade enough wiggle room so you don’t get knocked out.
In these conditions, Target 1 is frequently the distance that T3 would be under more normal conditions.
If Target 1 gets hit it’s a winning trade – then just wait for the next Alert.
3) If You’re Trading the Scalper – Trade on Sim or Reduce Your Activity.
You don’t go sailing in a hurricane. You don’t go mountain climbing in a blizzard. You don’t go golfing in a lightening storm.
We are witnessing once in a lifetime volatility and ranges – the S&P has been trading in a 3%-4% daily average daily range recently. As you know Futures are extremely leveraged and it’s very difficult to effectively manage risk under these conditions. Best thing to do is to get to breakeven as quickly as possible using an ATM strategy.
Just check out the ATR on the daily ES or S&P chart to see where we are.
When the Fed announced their “Emergency Rate Cut” on 3/3/20 the ES moved +70 points in 1-minute. We’ve been experiencing 10-20-30-40 point moves in 5-minute bars, which should be viewed as “severe storm conditions”.
Take a day off here and there. Take a trade or two and then call it a day. Just don’t overtrade.
The good news is that this “storm” won’t last and at some point the ranges and volatility will contract. Periods of large “range expansion” like this happen on “news” and the market becomes subject to wild swings based on “breaking news”. Over time things settle down and the ranges contract and the trading environment gets better – and more normal. This storm won’t last forever and the market will still be here when it’s over.
4) Use Stops that make sense – and get your stop to breakeven quickly.
Be aware that trading platforms and data feeds can “lock up” with this excessive volume and you never want to have a trade on without a hard stop. (market not limit). Use an ATM strategy that sets your stop as soon as you are filled on a trade.
Furthermore, since the system is based on the current ranges in the market – it’s going to be computing everything based on these extraordinarily large ranges (see below).
Expect to take stop-outs on a regular basis, so the idea is to minimize damage until things settle down. Managing risk and and preserving your capital for when things normalize should be your #1 priority. The way to do this is to get your stop to breakeven as quickly as possible.
If you’re trading the scalper you want to set an ATM that moves your stop to breakeven quickly. You may get stopped-out at breakeven frequently, but you will also hook into some big moves. Take profits quickly when they are there or trail the stop up to catch some big moves. Don’t let a profit turn into a loss.
5) The system uses the current ranges and structure in the market to determine entries, stops and targets.
It self-adjusts to current market conditions, but that simply means the range expansion can be your best friend or worst enemy. If the opening range is 50 points you can still easily get stopped-out on a whipsaw. Then maybe the next trade you see the 1st Target at 26 points and the second target at 46 points. Those can get hit too.
6) Set a Max Drawdown for the day and if it gets hit – shut it down and walk away.
Overtrading in this type of environment can result in catastrophic losses – if you manage to get a couple good trades off and are profitable – walk away and call it a day.
7) Only trade with Risk Capital.
Watch the video here to see How To Trade Off of Risk Capital and Not Destroy Your Account