Howdy y’all! It has been quite some time since my last blog post. In between restarting my trading company, Price Level Trading, I worked on passing the TopstepTrader™ $50k combine for the second time.
To give you an idea of my trading background so you can relate to yourself, I have been day trading futures since February 2018. I was fortunate enough to have two mentors to learn how to be successful at trading: one mentor taught me how to nail down entries through sound technical analysis, and one mentor taught me the importance of mindset, patience, discipline and vigilance. Truly the best of both worlds! Now I give back to the community through PLT to share what I know to help others become profitable day traders as well.
I strongly recommend TopstepTrader to all traders that I speak with ranging from different experience levels. Even if you’re not planning on becoming a funded trader, I strongly advise you to take (and pass) a Trading Combine before risking your own capital. There is just no better way to build discipline and focus on the number one thing as a trader: preserve your capital.
If you are new to trading futures, checkout this blog post on A Beginner's Guide to Start Trading Futures.
Here are the three things I focused on to pass my latest Trading Combine in less than a month.
Capital Defense Management
In our PLT trading community, Kristin and I stress that in order to be successful at trading you need to have a probability mindset with a focus on protecting your capital at all costs.
There is a lot of money to be made in trading, but you can also lose a lot of money if you don’t stick to a capital defense management plan based on the size of your trading account, personality and strategy.
TopstepTrader’s Combine Choices and $50k Scaling Plan
For the $50k combine, TopstepTrader sets the following rules:
Maximum Position Size: 5 contracts
Daily Loss Limit: $1,000
We obviously can see the Weekly Loss Limit at $1,000 and Trailing Max Drawdown at $2,000. However, max position size and daily loss limit are the most important because they can prevent you from hitting the other two.
For both step 1 and step 2 I decided to follow the scaling plan, and cut my daily loss limit allowed in half to $500. Unfortunately if you’re using Tradeovate there is no way that I know of to implement hard limits on the number of contracts you enter, and the daily loss limit other than when you break a rule (too late at that point). This would be a nice feature for TST to add to their platform.
I personally use Sierra Chart with my Amp account since their Global Profit/Loss Management feature handles this for me. An option for you once you move to trading your own capital.
Calculating Risk based on a High Level Plan
Price Level Trading’s Capital Defense Calculator
The above photo is a screenshot of PLT’s Capital Defense Calculator that will automatically calculate your risk parameters based on:
Account balance at start of day
Max % loss per day
Number of losers per day (in a row)
The output provides you the max risk you can take per trade. Also if you know your entry and your stop loss, the table on the lower right will tell you quickly how many contracts you can use.
The main instrument I traded was NQ and the max stop loss I used was 5 points based on the calculator’s output.
The types of trades I would look for aligned with daily pivots, fibonacci retracements and trendlines. I would use the larger timeframes (30min to 1H) to get the bigger levels then drill down on the 5min and 512 tick charts to identify my entries based on my allowed risk once price reached those levels.
How I Avoided a Reset and “Stayed in the Game”
Each trade had a potential profit target of 2R or more, i.e. I risk $100 to make $200+.
My average win rate ranged from 65-70% so I expected to lose on some trades. But overall I would come out on top.
I would not look to increase position size from 1 lot to 2 lots until I had at least $100-$150 in profits so that any loss would bring me to breakeven or a very small loss.
I would decrease my position size back to 1 lot after losing on a 2 lot trade.
When the market volatility increased, the risk also increased so I waited for price action to settle down back within my risk parameters.
Everyone’s approach to trading is different so it’s important to adjust your risk parameters based on what your comfortable with!
Get Paid Often while Adding to Winners
I do believe that you should maximize your winning trades, but it’s also extremely important that you remember to get paid first.
Once you get paid a little and build a nice cushion for the day, you can end up trading risk free with more contracts. This will allow you to have a runner to hit that triple or home run. No one knows for certain whether or not price will hit your big profit target so focus on singles and doubles. Trust me they add up!
You should also focus on only adding to winners. This is such a beautiful habit to work on building so you can maximize the trade when it’s working in your favor without increasing risk.
For example on a trending day, or when I recognized the market could move significantly in my favor, I would trim my position (get paid first) then re-enter on the pull backs then add on the retests after each leg up while trimming again to keep getting paid.
By the time you are fully out of the trade, you look at your P&L to see that you just made $1,000 by scaling in and out with only 1-2 lots!
Quit Trading When I Was Ahead or Not Trading Well
The market provides us with an abundance of opportunities! However one of the biggest challenges for new and experienced traders is the fear of missing out, otherwise known as FOMO. We have all felt it when making $200 is not enough so we keep trading trying to make $400 only to be down $200 (could potentially spiral out of control too towards your max loss).
If you want to be consistently profitable at trading, you have to know yourself well enough when your mind and body are telling you to stop trading for the day.
There were days when I made $200-$300 in the first 10 minutes and instantly closed TST’s platform (of course after cancelling all orders LOL). And some days that I ended the day slightly down (nothing was working). There were two days where I almost broke the max daily loss rule because my emotions got the best of me.
Psychologically it’s tough to come back after a day like that, but it’s part of trading. You have to constantly work on improving and getting to know yourself.
Trust me it’s worth it!
PS: Take 20% off your trading combine purchase using this link: http://bit.ly/become-funded