Now this is a nice way to start the week! Mondays are often one of the slower days of the week on average, but today we had an excellent trending move with some quality trade setups.
The market is still filled with uncertainty, and after last week's gap up and subsequent massive jump to the upside on FOMC Wednesday we've seen things stall out and drop back down. There's still some room to go to fill the gap but it's not our primary target. All that matters to us in the moment is the market structure and the overall momentum situation.
By analysing these and other subtle market factors, we are able to assess opportunity and risk to find high expectancy trading situations in any market condition.
Fight Those Counter-Trend Urges
Markets like we had today are often excellent learning opportunities. At a glance, trends always seem like the simplest market condition to trade, yet this is rarely the case as I discuss in the video below.
Everyone loves to pick a top or a bottom (it feeds the ego, after all) but trying to do this with regularity will usually kill a trader's results.
The reasons are fairly obvious, yet many fall into the trap:
- In strong trends you are likely to get overrun on your counter-trend trades, resulting in loss after loss
- Even if you catch the exact swing high/low on your counter-trend trade, most will not be full-blown reversals but rather just small pullbacks before the prior trend resumes
- Since you are holding a counter-trend trade during these pullbacks and looking for more points on a big reversal, you are unlikely to switch into a trend trade thus missing the continuation profits entirely
This is the sort of approach that so many market newcomers take and it's a big part of the reason why so many traders fail. While an experienced trader knows when and where they can effectively trade against the trend with high expectancy, the same doesn't apply to the novice.
Breaking that desire to "catch a falling knife" and pick the reversal points is one of the first things that new traders need to do.
Maintaining Your Mental Capital
Once this pattern is broken, it opens a trader up to going with the flow of the market rather than fighting against it, which is generally far more sustainable in terms of profitability and long-term mental health as a trader. Don't underestimate the latter point.
As trader's it's important to consider our "mental capital" and how we use it. Fighting the market and trying to be overly clever with our trades is a good way to spend that capital rapidly and burn out as a trader, so keeping things simple and minimizing trading stress is of exceptional value in the long term.
If your goal is to become a professional trader and make this a career, it's best to approach your trading in a sustainable way that you can do for the years ahead.
ES Day Trading Recap Video
If you have trouble viewing this video, you can watch it at YouTube HERE.