Daniel Gramza - Building Your E-mini Trading Strategy
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IntesaTrade
and
PRESENT
Building Your E-mini Trading Strategy
Prepared and Presented by Daniel Gramza
1
Materials in this presentation are covered under current United States and international copyright laws. NO PORTION OF THIS PRESENTATION MAY BE REPRODUCED WITHOUT THE WRITTEN PERMISSION OF THE AUTHOR.
Daniel Gramza is currently completing two books: Trading in the Eye of the Storm The Handbook of Japanese Candle Trading Strategies You can be notified when these books are available by contacting Daniel Gramza. Daniel M. Gramza
All Charts Created on
President
Aspen Graphics Software
Gramza Capital Management, Inc.
Contact
2227 Forestview Road
MIKE BRODROGI
Evanston, Illinois 60201-2009
1 800 359 1121
Tel.
(847) 475-4760
[email protected]
Fax
(847) 475-4780
e-mail
[email protected]
CME, the globe logo and E-mini are trademarks of Chicago Mercantile Exchange, Inc. All other marks are the property of their respective owners.
2
Building Your E-mini Trading Strategy • Identify market you're going to trade • Determine your trading time frame • Select trading approach • Create trading strategy • Establish trading strategy parameters • Measure performance of trading strategy • Implement new trading strategy
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Section 1: IDENTIFY MARKET YOU'RE GOING TO TRADE CME E-mini™ Futures OPTIONS on CME E-mini™ Futures CME eFX FUTURES
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N o v -9 7 F e b -9 8 M a y -9 8 A u g -9 8 N o v -9 8 F e b -9 9 M a y -9 9 A u g -9 9 N o v -9 9 F e b -0 0 M a y -0 0 A u g -0 0 N o v -0 0 F e b -0 1 M a y -0 1 A u g -0 1 N o v -0 1 F e b -0 2 M a y -0 2 A u g -0 2 N o v -0 2 F e b -0 3 M a y -0 3 A u g -0 3 N o v -0 3 F e b -0 4 M a y -0 4 A u g -0 4 N o v -0 4 F e b -0 5
CME E-mini™ S&P 500® Futures Average Daily Volume
Increasing Volume = Increasing Product Acceptance
1,000,000
900,000
800,000
700,000
600,000
500,000
400,000
300,000
200,000
100,000
0
5
- 99 Oc t 99 Dec -9 9 Fe b -0 0 A pr -00 Jun -00 Aug - 00 Oc t 00 Dec -0 0 Fe b -0 1 A pr -01 Jun -01 Aug - 01 Oc t 01 Dec -0 1 Fe b -0 2 A pr -02 Jun -02 Aug - 02 Oc t 02 Dec -0 2 Fe b -0 3 A pr -03 Jun -03 Aug - 03 Oc t 03 Dec -0 3 Fe b -0 4 A pr -04 Jun -04 Aug - 04 Oc t 04 Dec -0 4 Fe b -0 5 A pr -05
Aug
CME E-mini NASDAQ-100® Futures Average Daily Volume Increasing Volume = Increasing Product Acceptance
400,000
350,000
300,000
250,000
200,000
150,000
100,000
50,000
0
6
OPTIONS on CME E-mini™ S&P 500® Futures Average Daily Volume
Increasing Volume = Increasing Product Acceptance 14000 12000 10000 8000 6000 4000
4/30/2005
Feb-05
Dec-04
Oct-04
Aug-04
Jun-04
Apr-04
Feb-04
Dec-03
Oct-03
Aug-03
Jun-03
Feb-03
0
Apr-03
2000
7
4 /3 0 /2 0 0 5
3 /3 1 /2 0 0 5
Fe b -0 5
Ja n -0 5
D e c-0 4
N o v-0 4
Oct-0 4
Se p -0 4
Au g -0 4
Ju l-0 4
Ju n -0 4
M a y-0 4
Ap r-0 4
M a r-0 4
Fe b -0 4
Ja n -0 4
D e c-0 3
N o v-0 3
Oct-0 3
Se p -0 3
Au g -0 3
Ju l-0 3
Ju n -0 3
M a y-0 3
Ap r-0 3
M a r-0 3
Fe b -0 3
Ja n -0 3
OPTIONS on CME E-mini™ S&P 500® Futures Month End Open Interest:
Increasing Open Interest = Increasing Product Commitment 160000
140000
120000
100000
80000
60000
40000
20000
0
8
CME and Growth of Electronic Trading Increasing Volume = Increasing Product Acceptance Average Daily Volume by Year 1,500,000 1,400,000 1,300,000 1,200,000 1,100,000 1,000,000 900,000 800,000 700,000 600,000 500,000 400,000 300,000 200,000
2004
2003
2002
2001
2000
1999
1998
1997
1996
1995
1994
1993
0
1992
100,000
9
Why Trade CME E-mini™ Futures? • Easy access • Virtually 24-hour trading • One central marketplace • Highly liquid • Tight bid/ask spreads • Leverage • No Margin Interest Charged • No Inventory Required for Short Position • No Short Position Interest Charged Gramza Capital Management, Inc.
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Why Trade CME E-mini™ Futures? KEY BENCHMARK INDEXES CME E-mini S&P 500® futures Tracks large-capitalization U.S. stocks CME E-mini NASDAQ-100® futures Tracks technology, telecom and biotechnology issues CME E-mini S&P MidCap 400™ futures Tracks mid-size U.S. companies CME E-mini Russell 2000® futures Tracks small-capitalization U.S. stocks CME E-mini Russell 1000® futures Tracks 1000 largest cap companies in the U.S. based on total market capitalization. Gramza Capital Management, Inc.
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CME E-mini™ FUTURES Contract Specifications CME E-mini™ ®
Ticker Symbol Contract Size*
Minimum Price Fluctuation (Tick) Trading Hours Contract Months** Last Day of Trading Performance Bond Margin***
CME E-mini
CME E-mini ®
S&P 500 ES $50 x E-mini S&P 500 $55,000 .25 futures index points = $12.50
NASDAQ-100 NQ $20 x E-mini NASDAQ-100 $30,000 .50 futures index points = $10.00 Nearly 24 hours,
$4,000
$3,750
CME E-mini ®
Russell 2000 S&P MidCap 400™ ER2 EMD $100 x E-mini $100 x E-mini Russell 2000 S&P MidCap 400 $56,000 $58,000 .10 futures index .10 futures index points = $10.00 points = $10.00 Sunday afternoon through Friday afternoon H, M, U, Z 8:30 a.m. third Friday of contract month $3,500
$3,500
CME E-mini Russell 1000® RS1 $100 x E-mini Russell 1000 $64,000 .10 futures index points = $10.00
$3,625
* Contract value fluctuates daily with market ** H = March M = June U = September Z = December *** ALL PERFORMANCE BONDS SUBJECT TO CHANGE AND BROKERS MAY REQUIRE HIGHER MARGINS
Expiration Dates
March 18, 2005 June 17, 2005 September 16, 2005 December 16, 2005
Trading may occur up to 8:30 a.m. Chicago time on these dates.
12
How are E-Mini S&P 500 profits and losses calculated? The CME E-Mini S&P 500 futures contract is traded in .25 increments = a tick = $12.50 per contract or 1 full point = $50 1301.00 $12.50 1300.75 $12.50 1300.50
$50.00 $12.50
1300.25 $12.50 1300.00 Gramza Capital Management, Inc.
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How are CME E-Mini NASDAQ-100 profits and losses calculated? The CME E-Mini NASDAQ-100 futures contract is traded in .50 increments = a tick = $10.00 per contract or 1 full point = $20
1401.00 $10.00 1400.50
$20.00 $10.00
1400.00
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E-mini FUTURES COMPARED TO SPDRS VALUE OF INVESTMENT
$55,000
(Assume S&P 500 Index value = 1100, CME E-mini S&P 500 multiplier value = $50 Value of 1 E-mini S&P 500 futures contract = 1100 X $50 = $55,000)
SPDRs
CME E-mini S&P 500
Current Level $110 per share Quantity
1100.00 per contract
$55,000/$110 per share = 500 shares
1 contract
Min. Tick Size $0.01 per share
$12.50 per contract
Tick Value
$12.50 per contract
500 SHARES *.01= $5.00
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E-mini FUTURES COMPARED TO SPDRS (Cont'd) COST TO ACQUIRE $55,000 S&P INVESTMENT SPDRs Margin
If Short
CME E-mini S&P 500
50% = $27,500
7.3% = $4,000
Plus Margin Interest
0
Plus Short Interest
0
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4
r- 0
5
5
t- 0 4 n -0 Ap
Ja
Oc
4 4 l- 0
r- 0 Ju
3 t- 0 3 n -0
Ap
Ja
Oc
3
3
l- 0
r- 0
Ju
2
t- 0 2
n -0
Ap
Ja
Oc
2
2
l- 0
r- 0
Ju
1
t- 0 1
n -0
Ap
Ja
Oc
1
1
l- 0
r- 0
Ju
0
t- 0 0
n -0
Ap
Ja
Oc
0
l- 0
r- 0
Ju
Ap
A V E R A G E D A IL Y V O L U M E
CME eFX Futures Average Daily Volume
Increasing Volume = Increasing Product Acceptance 300,000
250,000
200,000
150,000
100,000
50,000
0
17
TRADING CME FX FUTURES Easy access FX Futures offers portfolio diversification. • Changes in exchange rates typically have low correlations to the stock and interest rates markets.
Tight bid/ask spreads Highly liquid Virtually 24-hour trading One central marketplace CME exchange environment, offers open and transparent FX pricing. CME is largest regulated FX market in the world Segregated accounts
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TRADING CME FX FUTURES Most liquid financial market in the world, representing more than $1.88 trillion worth of transactions each day. Foreign Exchange = forex = FX = Currency Market = the exchange of one country’s currency for another countries currency.
Currencies are traded in pairs, such as U.S. dollar/Japanese yen (USD/JPY) or Euro/U.S. dollar (EUR/USD), or via currency indexes, such as the CME$INDEX(TM). Currency trading is simultaneous purchase of a currency in terms of another currency.
EUR/USD = Value of 1 Euro expressed in US Dollar terms.
EUR/USD = 1.3300 = 1 Euro = US$1.3300
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How are Euro Currency profits and losses calculated? The CME Euro Currency futures contract size is 125,000 Euro and is traded in .0001 increments = a tick = $12.50 per contract or 1 full point = $1,250.00 1.3400 $12.50 1.3399
1.3302
$1,250.00 $12.50
1.3301 $12.50 1.3300 Gramza Capital Management, Inc.
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How are E-Mini Currency profits and losses calculated? The CME E-Mini Euro Currency futures contract is 62,500 Euro and is traded in .0001 increments = a tick = $6.25 per contract or 1 full point = $625.00 1.3400 $6.25 1.3399
1.3302
$625.00 $6.25
1.3301 $6.25 1.3300 Gramza Capital Management, Inc.
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Section 2: DETERMINE YOUR TRADING TIME FRAME •
Scalping
•
Micro day trading
•
Macro day trading
•
Swing trading
•
Position trading
Your trading time frame creates demands on: Available
to trade
Trading approach Trading technology
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Section 3: SELECT TRADING APPROACH • Fundamental Fundamental traders trade on the that other traders will react to the fundamental information in the same way as the fundamental trader.
• Technical Technical traders trade the fundamentals.
reaction to
Technical analysis categories:
− Direct analysis of price movement − Indirect analysis of price movement − Combination of direct and indirect analysis of price movement
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Section 4: CREATE YOUR TRADING STRATEGY Identify the tools that will create the foundation of your trading strategy.
• Trend Analysis • Japanese Candle Charts
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TREND ANALYSIS
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TREND ANALYSIS
Higher Highs and Higher Lows = Uptrend
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TREND ANALYSIS
Lower Lows and Lower Highs = Downtrend
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TREND ANALYSIS
swing high
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TREND ANALYSIS
swing low
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TREND ANALYSIS
Close above previous swing high = continuation of trend = Uptrend
Close
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TREND ANALYSIS Failed to Close above previous swing high = Potential Change in trend
Close
Buy
IF Close below previous swing low = Downtrend
Buy
swing low
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TREND ANALYSIS
Close below prev swing low = Dntrend
Close
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TREND ANALYSIS
swing high
swing low
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TREND ANALYSIS Close below previous low = continuation of trend = Downtrend
Close
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TREND ANALYSIS
swing high
Sell
Close above prev swing high = Uptrend
Sell
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TREND ANALYSIS
Close
Failed to Close below previous swing low = Potential Change in trend Gramza Capital Management, Inc.
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TREND ANALYSIS
Close above prev swing high = Uptrend
Close
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TREND ANALYSIS
Buy
swing low Gramza Capital Management, Inc.
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JAPANESE CANDLE CHARTS Japanese Candle Foundation Shape Close
High
Open
Buying Body
Selling Body
Open
Low
Close
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Japanese Candle Construction High Selling Shadow Open
Close Buying Body Selling Body
Close
Open Buying Shadow Low
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Japanese Candle Shadow Development 45 min Candle High Selling Shadow Close Buying Body
Open Buying Shadow Low Gramza Capital Management, Inc.
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Japanese Candle Shadow Development (Cont’d)
45 min Candle
High
15 min Candle
Open
High
Selling Body
Last
Low
Last
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Japanese Candle Shadow Development (Cont’d)
45 min Candle High
15 min Candle Open
High
Selling Body Last
Last Buying Shadow
Buying Body
Low
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Japanese Candle Shadow Development (Cont’d)
45 min Candle High Last
15 min Candle Open
Selling Body
High Last Buying Body
Buying Shadow
Low
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Japanese Candle Shadow Development (Cont’d)
45 min Candle Last
15 min Candle High
Last
Open Selling Body
Buying Body
Buying Shadow Low
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Japanese Candle Shadow Development (Cont’d)
45 min Candle Last
15 min Candle High
Last
Open Buying Body
Selling Body Buying Shadow Low
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Japanese Candle Shadow Development (Cont’d) 45 min Candle
15 min Candle High
Selling Shadow
Selling Body
Last & Close
Last & Close
Open Selling Body Buying Shadow
Buying Body
Low Gramza Capital Management, Inc.
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Candle Pattern Development The identification and analysis of the price relationships that create a reversal pattern
5. Confirmation 1. Lead up
4. Follow Through 3. Trigger Price 2. Set Up
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Candle Characteristics
1) Range
HIGH TO LOW = MEASURE OF__________
2) Body Color
GREEN =__________ RED =__________
3) Body Size
___________________ ___________________
4) Shadow Location BOTTOM =_________ TOP =_________
5) Shadow Size
_________OF BUYING OR SELLING Gramza Capital Management, Inc.
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Candle Global Environment 1. What is the current market condition? Is it day basis?
on a yearly, monthly, weekly, daily or intra-
Is it magnitude?
over what period of time and what is it's
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Candle Global Environment (Cont'd) 2.
Through the analysis of long-term charts what is
the •
Overvalued,
of the current market? At value,
Undervalued
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Candle Global Environment (Cont'd) 3. How does the market compare to: • •
both domestically and internationally Other sectors
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Candle Global Environment (Cont'd) 3. How does the market compare (Cont’d)
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Candle Global Environment (Cont'd) 4.
What is the market
?
What is a relationship of the current market levels to ___________________________________candles?
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Candle Global Environment (Cont'd) 5. What is the
of the trade?
• Are you trading
the trend?
• Are you going patterns?
Buy (not rec.)
current bearish or bullish candle Sell (better)
Buy (best option)
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Candle Global Environment (Cont'd) 6. What are price_________and price___________ at major highs and lows?
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Candle Global Environment (Cont'd) 7. What is the
of major highs and lows?
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Candle Global Environment (Cont'd) 8. Is the trade clean?
•
Does it hit you between the eyes and scream at you to the trade?
•
Does current information trade?
•
Be patient and let the you.
the come to
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POTENTIAL OUTCOMES OF A TREND REVERSAL PATTERN
Be prepared for any outcome!
Could result in
or
or
or
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Essential Considerations When Combining Technical Trading Techniques 1. What are distinctive CHARACTERISTICS of each study? 2. What is the IDEAL market environment for each study? 3. What LEAD UP each study?
creates the most profitable signals for
4. What are STRENGTHS AND WEAKNESSES of each study? 5. What are the SIMILARITIES AND DIFFERENCES between studies?
6. What does each study
ADD
7. Do studies trigger the SAME
to your trading decision? buy and sell signals?
8. If one study leads another study, what is the IDEAL LEAD TIME ?
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Essential Considerations When Combining Technical Trading Techniques (Cont'd) 9. What is the impact of an individual study and the combined studies on the FREQUENCY of buying and selling signals? 10. What is the impact of an individual study and the combined studies on the MAGNITUDE of profits? 11. What is the impact of an individual study and the combined studies on the MAGNITUDE of profits when the mathematical study FAILS ? 12. What is the impact of an individual study and the of time periods combined studies on the NUMBER to complete a trading cycle from beginning to end? 13. What is the impact of an individual study and the combined studies on the HEAT INDEX for your trades? Gramza Capital Management, Inc.
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Section 5: ESTABLISH YOUR TRADING STRATEGY PARAMETERS Trading strategy parameters are the identification and analysis of the price relationships that create a reversal pattern and it's profit potential and heat index characteristics
5. Confirmation 1. Lead up
4. Follow Through 3. Trigger Price 2. Set Up
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ESTABLISH YOUR TRADING STRATEGY PARAMETERS (Cont'd) 1. The LEAD UP phase is the candles and stochastic behavior making up the that proceeds the set up candle. What are the characteristics of the lead up phase for profitable trades?
of lead up magnitude (minimum to maximum) The of periods that create the lead up phase.
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ESTABLISH YOUR TRADING STRATEGY PARAMETERS (Cont'd) 2.
SETUP is the candle or candles and stochastic the reversal pattern. behavior that What are the characteristics of the set up candle and the stochastic signal?
(set up candle's body within / below / surrounding previous candle's body and or shadows etc. and stochastics is in a 0 oversold or overbought condition.) (setup candle's body size and shadow location and size and stochastics signal lines have crossed over (magnitude of setup candle's high to low range) characteristics of setup candle Gramza Capital Management, Inc.
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ESTABLISH YOUR TRADING STRATEGY PARAMETERS (Cont'd)
3. to
The TRIGGER PRICE is the price level used the trade. For example:
Buy higher highs
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ESTABLISH YOUR TRADING STRATEGY PARAMETERS (Cont'd) 4.
FOLLOW THROUGH is the type of price action that should occur after the trade is entered. should follow through occur? through?
5.
is typical magnitude of follow
CONFIRMATION is the price action that verifies the completion of most reversal patterns. should confirmation occur? is typical magnitude of confirmation? Gramza Capital Management, Inc.
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Section 6: MEASURE THE PERFORMANCE OF YOUR TRADING STRATEGY
1. Trading Strategy Evaluation
(The following Trading Strategy Evaluation techniques apply to all trading techniques. Japanese candles are being used for illustrative purposes.)
Trading Strategy being created and evaluated: A. Trade entry Buy new high of Japanese candle rejection pattern
B. Trade exit
B. Sell 1st Lower Low greater than 2 ticks
Sell first lower low greater than 2 ticks A. Buy higher highs
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MEASURE THE PERFORMANCE OF YOUR TRADING STRATEGY (Cont'd) 2. For each trade what is the MAGNITUDE RANGE
of profits?
The magnitude range is used to determine PROFIT EXPECTATIONS for the trade.
Sell 1214.00
Buy 1206.00
Profit = 8.00
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MEASURE THE PERFORMANCE OF YOUR TRADING STRATEGY (Cont'd) 2.
For example: Lowest value to the highest value of profit is 4.25 to 10.00 of those profits?
What is the frequency ?
Are there distribution
4.25
4.50
4.75
5.00
5.25…………………………..10.00
IIIII
IIIII
IIIII
IIIII
IIIII
IIIII
IIIII
IIIII
IIIII
III
IIIII
IIIII
IIIII
IIIII
III
IIIII
IIIII
II
IIIII
IIIII
II
IIII
I
II
I
I
II
Possible trading strategy to PRESERVE PROFITS on a profitable trade is to Sell ½ position at 4.00 points of profit and move stop to breakeven incl. brokerage.
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MEASURE THE PERFORMANCE OF YOUR TRADING STRATEGY (Cont'd) 3. What is the heat index range? The heat index range is used to determine point of trading ,magnitude of strategy and placement of risk management ___ orders. There are two different types of profitable trades: Type one is a profitable trade where the market does trade below the entry price. Type two is a profitable trade where the market trade below the entry price.
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MEASURE THE PERFORMANCE OF YOUR TRADING STRATEGY (Heat Index Range Cont'd) Type One Trade
Type Two Trade
Exit Trade = 1289.00 Profit = 5.00 Enter Trade = 12 84.00
No Heat
Exit Trade = 1289.00 Profit = 5.00 Enter Trade = 12 84.00 Heat = 1.50 Heat Level = 1282.50
Stop Loss = 2.00
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MEASURE THE PERFORMANCE OF YOUR TRADING STRATEGY (Heat Index Range Cont'd)
Sell 1214.00
Profit = 8.00 Buy 1206.00
Heat .50 Heat Level 1182.25
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Sell 1179.50
Profit = 7.25
Buy 1172.75
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Sell 1205.25
Profit = 4.25
Buy 1201.00
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Sell 1188.75
Profit = 8.00
Buy 1183.00
Heat .50 Heat Level 1182.25
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MEASURE THE PERFORMANCE OF YOUR TRADING STRATEGY (Heat Index Range Cont'd) Type One Trade
Type Two Trade
Exit Trade = 1289.00
Exit Trade = 1289.00
Profit = 5.00
Profit = 5.00
Enter Trade = 12 84.00
Enter Trade = 12 84.00 Heat = 1.50
No Heat
Heat Level = 1282.50
Stop Loss = 2.00
For example: Lowest value to the highest value of heat is 0.25 to 1.75. of the heat values?
What is the frequency ?
Are there distribution .25
.50
.75
1.00
1.25 1.50 1.75
IIIII
IIIII
IIIII
IIIII
IIIII
IIIII
IIIII
IIIII
IIIII
III
IIIII
IIIII
IIIII
IIIII
I
II
IIIII Potential sell stop is 2.00
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MEASURE THE PERFORMANCE OF YOUR TRADING STRATEGY (Cont'd) 4. What is the probability of the trade working? The probability of a profitable trade is used in the of having a determination the profitable trade and risk reward relationship of the trading strategy. Divide the profitable trades by the total number of trades = % probability of a profitable trade. Profitable Trades Total Number of Trades
=
40 60
66% chance of
= a profitable trades
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MEASURE THE PERFORMANCE OF YOUR TRADING STRATEGY (Cont'd) 5. How many periods between the beginning of a trade to the end of a trade? The number of periods is used to determine to allow the trade to work. It provides a guide to increase the trader's level of by allowing the trade enough time to mature. to let the trader It can also be used as a know, when the trade has not been productive in a timely fashion and the trader may be overstaying his welcome in a trade. 6. What is the 7. Are the profits stable in
of the trade? markets?
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Section 7: IMPLEMENT YOUR TRADING STRATEGY
• The essential steps in the trading process • Trading in the Eye of the Storm
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THE ESSENTIAL STEPS IN THE TRADING PROCESS. 1.
Trade
2.
Trade
3.
Trade
4.
Trade
• •
5.
Profit and Loss Yourself Monitor above categories: Where am I the
?
Where am I the
?
6.
What am I going to do to change this?
7.
When and how will I implement those changes?
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Identify and Evaluate the Trade •
What is your perspective?
•
What market information is candle analysis (Candle Characteristics, Pattern Development and Global Environment) providing for the long, intermediate, and short term?
•
Is the market imbalanced to the buy or sell side?
•
What are major support and resistance areas? Gramza Capital Management, Inc.
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Identify and Evaluate the Trade (Cont'd) •
What information is being revealed by mathematical studies?
•
Does the current accumulated market information support or contradict new or existing market positions?
•
What are the challenges to your trade?
•
Is trade location favorable?
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Trade Execution and Management Before the trade is entered and after the trade is executed, consider the following:
•
What is your mental state?
•
Is this a full or partial position?
•
What is considered positive or negative market activity?
•
How, when, and where will the trade be entered, added to, reduced and exited?
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Evaluate and Monitor the Trading Decision Process • What is the profit per trade production? • Is this on target? • What is the loss per trade production? • Is this on target? • What is your frequency of trades per day, week, month?
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Evaluate and Monitor the Trading Decision Process (Cont’d) • Is this within expected parameters? • Is there a time of day, week, month or year when you trade your best?
• Is there a time of day, week, month or year when you trade your worst?
• Are you trading to trade or are you patiently selecting high quality trades?
• Do you typically trade with or against the trend? Gramza Capital Management, Inc.
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Evaluate and Monitor the Trading Decision Process (Cont’d) • Do you review your profitable and unprofitable trades at a minimum on a monthly basis?
• Is one more profitable than the other?
• Do you review your profitable and unprofitable trades at a minimum on a monthly basis?
• What have you learned from your unprofitable trades?
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Evaluate and Monitor the Trading Decision Process (Cont’d) • Are there distinctive characteristics between profitable and unprofitable trades?
• If yes, how and when will you implement this into your trading?
• How do you feel during and after profitable or unprofitable trades?
• Does your trading time frame match your ability to execute the trade?
• Are you asking something from the market that the market cannot give?
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Evaluate and Monitor the Trading Decision Process (Cont’d) • Does your trading strategy match the market and your trading time frame?
• What type of trade were you doing when you felt the “best” trading?
• What type of trade were you doing when you felt the “worst” trading?
• What aspect of trading do you enjoy the most? • What aspect of trading do you enjoy the least? • What aspect of trading concerns you the most?
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Evaluate and Monitor the Trading Decision Process (Cont’d) • What are you doing about these concerns? • Have you done your homework before you execute the trade?
• Are you in good physical condition? • Does your physical trading environment support your trading business or is it a distraction?
• Would you give money to yourself to manage with your trading approach?
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TRADING IN THE EYE OF THE STORM • High performance trading occurs in the Eye of the Storm.
• What storm? Storm = Markets = Trading = Others = Yourself A trader's objective is to stay in the eye of the storm, free from the distractions of the storm's movement Gramza Capital Management, Inc.
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How does a trader stay in the eye of storm?
The trader must recognize and accept that trading is a physical business that requires a synergy of thoughts and physical response in a relaxed, yet totally aware state.
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THOUGHTS • Create the trader’s reality • Direct the body • Basic elements of the thought process are: Thought Choice Thought Energy
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THOUGHT CHOICE • The thoughts the trader allows himself to have are his thought choices.
• A trader makes a thought choice, therefore, the trader is responsible for that thought choice.
• These thought choices determine how he reacts to trading and life.
• He can choose a positive thought or a negative
one, but whichever the choice, it will impact the thoughts that follow.
• What is the payoff for keeping and maintaining a thought choice? - Power - Weakness - Self-sabotage Gramza Capital Management, Inc.
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THOUGHT ENERGY • The trader's thought choices have an impact on his life.
• The amount of impact is determined by the
amount of thought energy the trader gives each thought.
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IDENTIFYING YOUR NEGATIVE THOUGHT DEMONS
Thought Demons are negative thoughts that hold you back and prevent you from accomplishing your life and trading goals.
What are your first or typical thoughts when faced with challenges in your life?
How you react to these challenges is usually how you will react to the challenges of trading.
In life or trading, do you choose and energize negative thoughts? Gramza Capital Management, Inc.
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IDENTIFYING YOUR NEGATIVE THOUGHT DEMONS
The Negative Thought Demons Journal will help you:
examine your thought choices identify your negative thought demons increase your awareness of these thoughts develop a specific target for your energy and efforts to make a change.
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NEGATIVE THOUGHT DEMONS JOURNAL Identify your negative thought demons by answering the following questions:
• When and what was happening before you had negative thoughts?
• What were those negative thoughts?
• What type of inward and/or outward reaction did you have from these negative thoughts?
• How did you feel when you had these negative thoughts?
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NEGATIVE THOUGHT DEMONS JOURNAL (Cont’d) • What are these negative thoughts taking away from you?
• How are these negative thoughts holding you back?
• What payoff did you get by keeping this negative thought?
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NEGATIVE THOUGHT DEMONS JOURNAL (Cont’d) • Do you accept that you created this negative thought?
If not, why not?
• Which thought management technique from the following section are you going to use to help you de-energize this negative thought and reach your ideal thought reaction?
• When are you going to implement this thought reaction?
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THOUGHT MANAGEMENT TECHNIQUES • Thought management techniques are used to conquer your thought demons.
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The Consultant Technique • When a problem arises, consultants are often
used to provide an objective approach to finding a solution. Imagine that you are a consultant. You have been retained to provide consulting services to a person with a situation exactly like yours. The key to being a good consultant is asking the right questions, so objectively review the questions found in the Negative Thought Demons Journal as if you were questioning another person as a consultant. An objective review of the responses may provide just the point of view needed to implement positive solutions.
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The Consultant Technique (Cont’d)
Albert Einstein said
“You cannot solve a problem with the same mind that created it.”
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Situation Control Recognition Technique • This technique allows you to control your negative
thoughts by recognizing those situations you control and those you do not.
You begin to have negative thoughts relating to a situation over which you have no control.
You consciously recognize that you have done all you can, and it is now up to the situation to complete itself.
You choose not to energize the negative thoughts or allow them to overwhelm you.
The situation is not under your control and you are not going to waste your energy on unproductive thoughts. Gramza Capital Management, Inc.
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Situation Control Recognition Technique (Cont'd) For example: You have identified a trade, executed your order to enter the trade, and placed your risk management stop order according to your strategy.
You then allow yourself to become more and more emotionally involved with each back-and-forth market movement. The reality is that the market is in control, and you have no control over the market. Recognize this, relax, and let your trade work. You will either make money or lose money, and what you do control is how you react to the outcome. Gramza Capital Management, Inc.
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Remember, it is always within your power to change.
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PHYSICAL RESPONSE • Effortless action is confident physical response without hesitation.
• The trader's goal is to achieve effortless action when trading.
• When he trades with effortless action, he stands a side and allows his trading strategy to work
• Examples of effortless action in your daily life:
tying your shoe combing your hair raising a fork, spoon or cup to your mouth and driving your car
When trading, executing a properly evaluated trade should feel the same way!
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PHYSICAL RESPONSE (Cont'd) Effortless action is the result of: • Taking time to "practice" a strategy through properly conducted research.
• Having complete confidence in the strategy.
• Total focus on implementing the trading strategy when trading and not on issues that should have been resolved during non-trading hours.
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HOW TO BECOME AND STAY CALM AND FOCUSED • Choose and energize thoughts that support your trading objectives.
• Create and maintain a relaxed state and stay in the present moment through: Proper breathing Relaxation exercises Visualization exercises.
• Develop and consistently apply a well researched trading strategy.
• Be prepared for all trading outcomes.
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IntesaTrade
and
PRESENT
Building Your E-mini Trading Strategy
Prepared and Presented by Daniel Gramza
121
and
PRESENT
Building Your E-mini Trading Strategy
Prepared and Presented by Daniel Gramza
1
Materials in this presentation are covered under current United States and international copyright laws. NO PORTION OF THIS PRESENTATION MAY BE REPRODUCED WITHOUT THE WRITTEN PERMISSION OF THE AUTHOR.
Daniel Gramza is currently completing two books: Trading in the Eye of the Storm The Handbook of Japanese Candle Trading Strategies You can be notified when these books are available by contacting Daniel Gramza. Daniel M. Gramza
All Charts Created on
President
Aspen Graphics Software
Gramza Capital Management, Inc.
Contact
2227 Forestview Road
MIKE BRODROGI
Evanston, Illinois 60201-2009
1 800 359 1121
Tel.
(847) 475-4760
[email protected]
Fax
(847) 475-4780
[email protected]
CME, the globe logo and E-mini are trademarks of Chicago Mercantile Exchange, Inc. All other marks are the property of their respective owners.
2
Building Your E-mini Trading Strategy • Identify market you're going to trade • Determine your trading time frame • Select trading approach • Create trading strategy • Establish trading strategy parameters • Measure performance of trading strategy • Implement new trading strategy
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Section 1: IDENTIFY MARKET YOU'RE GOING TO TRADE CME E-mini™ Futures OPTIONS on CME E-mini™ Futures CME eFX FUTURES
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N o v -9 7 F e b -9 8 M a y -9 8 A u g -9 8 N o v -9 8 F e b -9 9 M a y -9 9 A u g -9 9 N o v -9 9 F e b -0 0 M a y -0 0 A u g -0 0 N o v -0 0 F e b -0 1 M a y -0 1 A u g -0 1 N o v -0 1 F e b -0 2 M a y -0 2 A u g -0 2 N o v -0 2 F e b -0 3 M a y -0 3 A u g -0 3 N o v -0 3 F e b -0 4 M a y -0 4 A u g -0 4 N o v -0 4 F e b -0 5
CME E-mini™ S&P 500® Futures Average Daily Volume
Increasing Volume = Increasing Product Acceptance
1,000,000
900,000
800,000
700,000
600,000
500,000
400,000
300,000
200,000
100,000
0
5
- 99 Oc t 99 Dec -9 9 Fe b -0 0 A pr -00 Jun -00 Aug - 00 Oc t 00 Dec -0 0 Fe b -0 1 A pr -01 Jun -01 Aug - 01 Oc t 01 Dec -0 1 Fe b -0 2 A pr -02 Jun -02 Aug - 02 Oc t 02 Dec -0 2 Fe b -0 3 A pr -03 Jun -03 Aug - 03 Oc t 03 Dec -0 3 Fe b -0 4 A pr -04 Jun -04 Aug - 04 Oc t 04 Dec -0 4 Fe b -0 5 A pr -05
Aug
CME E-mini NASDAQ-100® Futures Average Daily Volume Increasing Volume = Increasing Product Acceptance
400,000
350,000
300,000
250,000
200,000
150,000
100,000
50,000
0
6
OPTIONS on CME E-mini™ S&P 500® Futures Average Daily Volume
Increasing Volume = Increasing Product Acceptance 14000 12000 10000 8000 6000 4000
4/30/2005
Feb-05
Dec-04
Oct-04
Aug-04
Jun-04
Apr-04
Feb-04
Dec-03
Oct-03
Aug-03
Jun-03
Feb-03
0
Apr-03
2000
7
4 /3 0 /2 0 0 5
3 /3 1 /2 0 0 5
Fe b -0 5
Ja n -0 5
D e c-0 4
N o v-0 4
Oct-0 4
Se p -0 4
Au g -0 4
Ju l-0 4
Ju n -0 4
M a y-0 4
Ap r-0 4
M a r-0 4
Fe b -0 4
Ja n -0 4
D e c-0 3
N o v-0 3
Oct-0 3
Se p -0 3
Au g -0 3
Ju l-0 3
Ju n -0 3
M a y-0 3
Ap r-0 3
M a r-0 3
Fe b -0 3
Ja n -0 3
OPTIONS on CME E-mini™ S&P 500® Futures Month End Open Interest:
Increasing Open Interest = Increasing Product Commitment 160000
140000
120000
100000
80000
60000
40000
20000
0
8
CME and Growth of Electronic Trading Increasing Volume = Increasing Product Acceptance Average Daily Volume by Year 1,500,000 1,400,000 1,300,000 1,200,000 1,100,000 1,000,000 900,000 800,000 700,000 600,000 500,000 400,000 300,000 200,000
2004
2003
2002
2001
2000
1999
1998
1997
1996
1995
1994
1993
0
1992
100,000
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Why Trade CME E-mini™ Futures? • Easy access • Virtually 24-hour trading • One central marketplace • Highly liquid • Tight bid/ask spreads • Leverage • No Margin Interest Charged • No Inventory Required for Short Position • No Short Position Interest Charged Gramza Capital Management, Inc.
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Why Trade CME E-mini™ Futures? KEY BENCHMARK INDEXES CME E-mini S&P 500® futures Tracks large-capitalization U.S. stocks CME E-mini NASDAQ-100® futures Tracks technology, telecom and biotechnology issues CME E-mini S&P MidCap 400™ futures Tracks mid-size U.S. companies CME E-mini Russell 2000® futures Tracks small-capitalization U.S. stocks CME E-mini Russell 1000® futures Tracks 1000 largest cap companies in the U.S. based on total market capitalization. Gramza Capital Management, Inc.
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CME E-mini™ FUTURES Contract Specifications CME E-mini™ ®
Ticker Symbol Contract Size*
Minimum Price Fluctuation (Tick) Trading Hours Contract Months** Last Day of Trading Performance Bond Margin***
CME E-mini
CME E-mini ®
S&P 500 ES $50 x E-mini S&P 500 $55,000 .25 futures index points = $12.50
NASDAQ-100 NQ $20 x E-mini NASDAQ-100 $30,000 .50 futures index points = $10.00 Nearly 24 hours,
$4,000
$3,750
CME E-mini ®
Russell 2000 S&P MidCap 400™ ER2 EMD $100 x E-mini $100 x E-mini Russell 2000 S&P MidCap 400 $56,000 $58,000 .10 futures index .10 futures index points = $10.00 points = $10.00 Sunday afternoon through Friday afternoon H, M, U, Z 8:30 a.m. third Friday of contract month $3,500
$3,500
CME E-mini Russell 1000® RS1 $100 x E-mini Russell 1000 $64,000 .10 futures index points = $10.00
$3,625
* Contract value fluctuates daily with market ** H = March M = June U = September Z = December *** ALL PERFORMANCE BONDS SUBJECT TO CHANGE AND BROKERS MAY REQUIRE HIGHER MARGINS
Expiration Dates
March 18, 2005 June 17, 2005 September 16, 2005 December 16, 2005
Trading may occur up to 8:30 a.m. Chicago time on these dates.
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How are E-Mini S&P 500 profits and losses calculated? The CME E-Mini S&P 500 futures contract is traded in .25 increments = a tick = $12.50 per contract or 1 full point = $50 1301.00 $12.50 1300.75 $12.50 1300.50
$50.00 $12.50
1300.25 $12.50 1300.00 Gramza Capital Management, Inc.
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How are CME E-Mini NASDAQ-100 profits and losses calculated? The CME E-Mini NASDAQ-100 futures contract is traded in .50 increments = a tick = $10.00 per contract or 1 full point = $20
1401.00 $10.00 1400.50
$20.00 $10.00
1400.00
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E-mini FUTURES COMPARED TO SPDRS VALUE OF INVESTMENT
$55,000
(Assume S&P 500 Index value = 1100, CME E-mini S&P 500 multiplier value = $50 Value of 1 E-mini S&P 500 futures contract = 1100 X $50 = $55,000)
SPDRs
CME E-mini S&P 500
Current Level $110 per share Quantity
1100.00 per contract
$55,000/$110 per share = 500 shares
1 contract
Min. Tick Size $0.01 per share
$12.50 per contract
Tick Value
$12.50 per contract
500 SHARES *.01= $5.00
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E-mini FUTURES COMPARED TO SPDRS (Cont'd) COST TO ACQUIRE $55,000 S&P INVESTMENT SPDRs Margin
If Short
CME E-mini S&P 500
50% = $27,500
7.3% = $4,000
Plus Margin Interest
0
Plus Short Interest
0
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4
r- 0
5
5
t- 0 4 n -0 Ap
Ja
Oc
4 4 l- 0
r- 0 Ju
3 t- 0 3 n -0
Ap
Ja
Oc
3
3
l- 0
r- 0
Ju
2
t- 0 2
n -0
Ap
Ja
Oc
2
2
l- 0
r- 0
Ju
1
t- 0 1
n -0
Ap
Ja
Oc
1
1
l- 0
r- 0
Ju
0
t- 0 0
n -0
Ap
Ja
Oc
0
l- 0
r- 0
Ju
Ap
A V E R A G E D A IL Y V O L U M E
CME eFX Futures Average Daily Volume
Increasing Volume = Increasing Product Acceptance 300,000
250,000
200,000
150,000
100,000
50,000
0
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TRADING CME FX FUTURES Easy access FX Futures offers portfolio diversification. • Changes in exchange rates typically have low correlations to the stock and interest rates markets.
Tight bid/ask spreads Highly liquid Virtually 24-hour trading One central marketplace CME exchange environment, offers open and transparent FX pricing. CME is largest regulated FX market in the world Segregated accounts
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TRADING CME FX FUTURES Most liquid financial market in the world, representing more than $1.88 trillion worth of transactions each day. Foreign Exchange = forex = FX = Currency Market = the exchange of one country’s currency for another countries currency.
Currencies are traded in pairs, such as U.S. dollar/Japanese yen (USD/JPY) or Euro/U.S. dollar (EUR/USD), or via currency indexes, such as the CME$INDEX(TM). Currency trading is simultaneous purchase of a currency in terms of another currency.
EUR/USD = Value of 1 Euro expressed in US Dollar terms.
EUR/USD = 1.3300 = 1 Euro = US$1.3300
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How are Euro Currency profits and losses calculated? The CME Euro Currency futures contract size is 125,000 Euro and is traded in .0001 increments = a tick = $12.50 per contract or 1 full point = $1,250.00 1.3400 $12.50 1.3399
1.3302
$1,250.00 $12.50
1.3301 $12.50 1.3300 Gramza Capital Management, Inc.
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How are E-Mini Currency profits and losses calculated? The CME E-Mini Euro Currency futures contract is 62,500 Euro and is traded in .0001 increments = a tick = $6.25 per contract or 1 full point = $625.00 1.3400 $6.25 1.3399
1.3302
$625.00 $6.25
1.3301 $6.25 1.3300 Gramza Capital Management, Inc.
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Section 2: DETERMINE YOUR TRADING TIME FRAME •
Scalping
•
Micro day trading
•
Macro day trading
•
Swing trading
•
Position trading
Your trading time frame creates demands on: Available
to trade
Trading approach Trading technology
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Section 3: SELECT TRADING APPROACH • Fundamental Fundamental traders trade on the that other traders will react to the fundamental information in the same way as the fundamental trader.
• Technical Technical traders trade the fundamentals.
reaction to
Technical analysis categories:
− Direct analysis of price movement − Indirect analysis of price movement − Combination of direct and indirect analysis of price movement
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Section 4: CREATE YOUR TRADING STRATEGY Identify the tools that will create the foundation of your trading strategy.
• Trend Analysis • Japanese Candle Charts
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TREND ANALYSIS
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TREND ANALYSIS
Higher Highs and Higher Lows = Uptrend
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TREND ANALYSIS
Lower Lows and Lower Highs = Downtrend
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TREND ANALYSIS
swing high
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TREND ANALYSIS
swing low
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TREND ANALYSIS
Close above previous swing high = continuation of trend = Uptrend
Close
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TREND ANALYSIS Failed to Close above previous swing high = Potential Change in trend
Close
Buy
IF Close below previous swing low = Downtrend
Buy
swing low
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TREND ANALYSIS
Close below prev swing low = Dntrend
Close
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TREND ANALYSIS
swing high
swing low
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TREND ANALYSIS Close below previous low = continuation of trend = Downtrend
Close
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TREND ANALYSIS
swing high
Sell
Close above prev swing high = Uptrend
Sell
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TREND ANALYSIS
Close
Failed to Close below previous swing low = Potential Change in trend Gramza Capital Management, Inc.
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TREND ANALYSIS
Close above prev swing high = Uptrend
Close
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TREND ANALYSIS
Buy
swing low Gramza Capital Management, Inc.
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JAPANESE CANDLE CHARTS Japanese Candle Foundation Shape Close
High
Open
Buying Body
Selling Body
Open
Low
Close
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Japanese Candle Construction High Selling Shadow Open
Close Buying Body Selling Body
Close
Open Buying Shadow Low
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Japanese Candle Shadow Development 45 min Candle High Selling Shadow Close Buying Body
Open Buying Shadow Low Gramza Capital Management, Inc.
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Japanese Candle Shadow Development (Cont’d)
45 min Candle
High
15 min Candle
Open
High
Selling Body
Last
Low
Last
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Japanese Candle Shadow Development (Cont’d)
45 min Candle High
15 min Candle Open
High
Selling Body Last
Last Buying Shadow
Buying Body
Low
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Japanese Candle Shadow Development (Cont’d)
45 min Candle High Last
15 min Candle Open
Selling Body
High Last Buying Body
Buying Shadow
Low
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Japanese Candle Shadow Development (Cont’d)
45 min Candle Last
15 min Candle High
Last
Open Selling Body
Buying Body
Buying Shadow Low
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Japanese Candle Shadow Development (Cont’d)
45 min Candle Last
15 min Candle High
Last
Open Buying Body
Selling Body Buying Shadow Low
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Japanese Candle Shadow Development (Cont’d) 45 min Candle
15 min Candle High
Selling Shadow
Selling Body
Last & Close
Last & Close
Open Selling Body Buying Shadow
Buying Body
Low Gramza Capital Management, Inc.
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Candle Pattern Development The identification and analysis of the price relationships that create a reversal pattern
5. Confirmation 1. Lead up
4. Follow Through 3. Trigger Price 2. Set Up
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Candle Characteristics
1) Range
HIGH TO LOW = MEASURE OF__________
2) Body Color
GREEN =__________ RED =__________
3) Body Size
___________________ ___________________
4) Shadow Location BOTTOM =_________ TOP =_________
5) Shadow Size
_________OF BUYING OR SELLING Gramza Capital Management, Inc.
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Candle Global Environment 1. What is the current market condition? Is it day basis?
on a yearly, monthly, weekly, daily or intra-
Is it magnitude?
over what period of time and what is it's
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Candle Global Environment (Cont'd) 2.
Through the analysis of long-term charts what is
the •
Overvalued,
of the current market? At value,
Undervalued
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Candle Global Environment (Cont'd) 3. How does the market compare to: • •
both domestically and internationally Other sectors
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Candle Global Environment (Cont'd) 3. How does the market compare (Cont’d)
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Candle Global Environment (Cont'd) 4.
What is the market
?
What is a relationship of the current market levels to ___________________________________candles?
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Candle Global Environment (Cont'd) 5. What is the
of the trade?
• Are you trading
the trend?
• Are you going patterns?
Buy (not rec.)
current bearish or bullish candle Sell (better)
Buy (best option)
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Candle Global Environment (Cont'd) 6. What are price_________and price___________ at major highs and lows?
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Candle Global Environment (Cont'd) 7. What is the
of major highs and lows?
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Candle Global Environment (Cont'd) 8. Is the trade clean?
•
Does it hit you between the eyes and scream at you to the trade?
•
Does current information trade?
•
Be patient and let the you.
the come to
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POTENTIAL OUTCOMES OF A TREND REVERSAL PATTERN
Be prepared for any outcome!
Could result in
or
or
or
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Essential Considerations When Combining Technical Trading Techniques 1. What are distinctive CHARACTERISTICS of each study? 2. What is the IDEAL market environment for each study? 3. What LEAD UP each study?
creates the most profitable signals for
4. What are STRENGTHS AND WEAKNESSES of each study? 5. What are the SIMILARITIES AND DIFFERENCES between studies?
6. What does each study
ADD
7. Do studies trigger the SAME
to your trading decision? buy and sell signals?
8. If one study leads another study, what is the IDEAL LEAD TIME ?
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Essential Considerations When Combining Technical Trading Techniques (Cont'd) 9. What is the impact of an individual study and the combined studies on the FREQUENCY of buying and selling signals? 10. What is the impact of an individual study and the combined studies on the MAGNITUDE of profits? 11. What is the impact of an individual study and the combined studies on the MAGNITUDE of profits when the mathematical study FAILS ? 12. What is the impact of an individual study and the of time periods combined studies on the NUMBER to complete a trading cycle from beginning to end? 13. What is the impact of an individual study and the combined studies on the HEAT INDEX for your trades? Gramza Capital Management, Inc.
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Section 5: ESTABLISH YOUR TRADING STRATEGY PARAMETERS Trading strategy parameters are the identification and analysis of the price relationships that create a reversal pattern and it's profit potential and heat index characteristics
5. Confirmation 1. Lead up
4. Follow Through 3. Trigger Price 2. Set Up
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ESTABLISH YOUR TRADING STRATEGY PARAMETERS (Cont'd) 1. The LEAD UP phase is the candles and stochastic behavior making up the that proceeds the set up candle. What are the characteristics of the lead up phase for profitable trades?
of lead up magnitude (minimum to maximum) The of periods that create the lead up phase.
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ESTABLISH YOUR TRADING STRATEGY PARAMETERS (Cont'd) 2.
SETUP is the candle or candles and stochastic the reversal pattern. behavior that What are the characteristics of the set up candle and the stochastic signal?
(set up candle's body within / below / surrounding previous candle's body and or shadows etc. and stochastics is in a 0 oversold or overbought condition.) (setup candle's body size and shadow location and size and stochastics signal lines have crossed over (magnitude of setup candle's high to low range) characteristics of setup candle Gramza Capital Management, Inc.
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ESTABLISH YOUR TRADING STRATEGY PARAMETERS (Cont'd)
3. to
The TRIGGER PRICE is the price level used the trade. For example:
Buy higher highs
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ESTABLISH YOUR TRADING STRATEGY PARAMETERS (Cont'd) 4.
FOLLOW THROUGH is the type of price action that should occur after the trade is entered. should follow through occur? through?
5.
is typical magnitude of follow
CONFIRMATION is the price action that verifies the completion of most reversal patterns. should confirmation occur? is typical magnitude of confirmation? Gramza Capital Management, Inc.
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Section 6: MEASURE THE PERFORMANCE OF YOUR TRADING STRATEGY
1. Trading Strategy Evaluation
(The following Trading Strategy Evaluation techniques apply to all trading techniques. Japanese candles are being used for illustrative purposes.)
Trading Strategy being created and evaluated: A. Trade entry Buy new high of Japanese candle rejection pattern
B. Trade exit
B. Sell 1st Lower Low greater than 2 ticks
Sell first lower low greater than 2 ticks A. Buy higher highs
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MEASURE THE PERFORMANCE OF YOUR TRADING STRATEGY (Cont'd) 2. For each trade what is the MAGNITUDE RANGE
of profits?
The magnitude range is used to determine PROFIT EXPECTATIONS for the trade.
Sell 1214.00
Buy 1206.00
Profit = 8.00
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MEASURE THE PERFORMANCE OF YOUR TRADING STRATEGY (Cont'd) 2.
For example: Lowest value to the highest value of profit is 4.25 to 10.00 of those profits?
What is the frequency ?
Are there distribution
4.25
4.50
4.75
5.00
5.25…………………………..10.00
IIIII
IIIII
IIIII
IIIII
IIIII
IIIII
IIIII
IIIII
IIIII
III
IIIII
IIIII
IIIII
IIIII
III
IIIII
IIIII
II
IIIII
IIIII
II
IIII
I
II
I
I
II
Possible trading strategy to PRESERVE PROFITS on a profitable trade is to Sell ½ position at 4.00 points of profit and move stop to breakeven incl. brokerage.
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MEASURE THE PERFORMANCE OF YOUR TRADING STRATEGY (Cont'd) 3. What is the heat index range? The heat index range is used to determine point of trading ,magnitude of strategy and placement of risk management ___ orders. There are two different types of profitable trades: Type one is a profitable trade where the market does trade below the entry price. Type two is a profitable trade where the market trade below the entry price.
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MEASURE THE PERFORMANCE OF YOUR TRADING STRATEGY (Heat Index Range Cont'd) Type One Trade
Type Two Trade
Exit Trade = 1289.00 Profit = 5.00 Enter Trade = 12 84.00
No Heat
Exit Trade = 1289.00 Profit = 5.00 Enter Trade = 12 84.00 Heat = 1.50 Heat Level = 1282.50
Stop Loss = 2.00
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MEASURE THE PERFORMANCE OF YOUR TRADING STRATEGY (Heat Index Range Cont'd)
Sell 1214.00
Profit = 8.00 Buy 1206.00
Heat .50 Heat Level 1182.25
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Sell 1179.50
Profit = 7.25
Buy 1172.75
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Sell 1205.25
Profit = 4.25
Buy 1201.00
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Sell 1188.75
Profit = 8.00
Buy 1183.00
Heat .50 Heat Level 1182.25
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MEASURE THE PERFORMANCE OF YOUR TRADING STRATEGY (Heat Index Range Cont'd) Type One Trade
Type Two Trade
Exit Trade = 1289.00
Exit Trade = 1289.00
Profit = 5.00
Profit = 5.00
Enter Trade = 12 84.00
Enter Trade = 12 84.00 Heat = 1.50
No Heat
Heat Level = 1282.50
Stop Loss = 2.00
For example: Lowest value to the highest value of heat is 0.25 to 1.75. of the heat values?
What is the frequency ?
Are there distribution .25
.50
.75
1.00
1.25 1.50 1.75
IIIII
IIIII
IIIII
IIIII
IIIII
IIIII
IIIII
IIIII
IIIII
III
IIIII
IIIII
IIIII
IIIII
I
II
IIIII Potential sell stop is 2.00
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MEASURE THE PERFORMANCE OF YOUR TRADING STRATEGY (Cont'd) 4. What is the probability of the trade working? The probability of a profitable trade is used in the of having a determination the profitable trade and risk reward relationship of the trading strategy. Divide the profitable trades by the total number of trades = % probability of a profitable trade. Profitable Trades Total Number of Trades
=
40 60
66% chance of
= a profitable trades
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MEASURE THE PERFORMANCE OF YOUR TRADING STRATEGY (Cont'd) 5. How many periods between the beginning of a trade to the end of a trade? The number of periods is used to determine to allow the trade to work. It provides a guide to increase the trader's level of by allowing the trade enough time to mature. to let the trader It can also be used as a know, when the trade has not been productive in a timely fashion and the trader may be overstaying his welcome in a trade. 6. What is the 7. Are the profits stable in
of the trade? markets?
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Section 7: IMPLEMENT YOUR TRADING STRATEGY
• The essential steps in the trading process • Trading in the Eye of the Storm
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THE ESSENTIAL STEPS IN THE TRADING PROCESS. 1.
Trade
2.
Trade
3.
Trade
4.
Trade
• •
5.
Profit and Loss Yourself Monitor above categories: Where am I the
?
Where am I the
?
6.
What am I going to do to change this?
7.
When and how will I implement those changes?
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Identify and Evaluate the Trade •
What is your perspective?
•
What market information is candle analysis (Candle Characteristics, Pattern Development and Global Environment) providing for the long, intermediate, and short term?
•
Is the market imbalanced to the buy or sell side?
•
What are major support and resistance areas? Gramza Capital Management, Inc.
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Identify and Evaluate the Trade (Cont'd) •
What information is being revealed by mathematical studies?
•
Does the current accumulated market information support or contradict new or existing market positions?
•
What are the challenges to your trade?
•
Is trade location favorable?
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Trade Execution and Management Before the trade is entered and after the trade is executed, consider the following:
•
What is your mental state?
•
Is this a full or partial position?
•
What is considered positive or negative market activity?
•
How, when, and where will the trade be entered, added to, reduced and exited?
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Evaluate and Monitor the Trading Decision Process • What is the profit per trade production? • Is this on target? • What is the loss per trade production? • Is this on target? • What is your frequency of trades per day, week, month?
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Evaluate and Monitor the Trading Decision Process (Cont’d) • Is this within expected parameters? • Is there a time of day, week, month or year when you trade your best?
• Is there a time of day, week, month or year when you trade your worst?
• Are you trading to trade or are you patiently selecting high quality trades?
• Do you typically trade with or against the trend? Gramza Capital Management, Inc.
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Evaluate and Monitor the Trading Decision Process (Cont’d) • Do you review your profitable and unprofitable trades at a minimum on a monthly basis?
• Is one more profitable than the other?
• Do you review your profitable and unprofitable trades at a minimum on a monthly basis?
• What have you learned from your unprofitable trades?
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Evaluate and Monitor the Trading Decision Process (Cont’d) • Are there distinctive characteristics between profitable and unprofitable trades?
• If yes, how and when will you implement this into your trading?
• How do you feel during and after profitable or unprofitable trades?
• Does your trading time frame match your ability to execute the trade?
• Are you asking something from the market that the market cannot give?
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Evaluate and Monitor the Trading Decision Process (Cont’d) • Does your trading strategy match the market and your trading time frame?
• What type of trade were you doing when you felt the “best” trading?
• What type of trade were you doing when you felt the “worst” trading?
• What aspect of trading do you enjoy the most? • What aspect of trading do you enjoy the least? • What aspect of trading concerns you the most?
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Evaluate and Monitor the Trading Decision Process (Cont’d) • What are you doing about these concerns? • Have you done your homework before you execute the trade?
• Are you in good physical condition? • Does your physical trading environment support your trading business or is it a distraction?
• Would you give money to yourself to manage with your trading approach?
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TRADING IN THE EYE OF THE STORM • High performance trading occurs in the Eye of the Storm.
• What storm? Storm = Markets = Trading = Others = Yourself A trader's objective is to stay in the eye of the storm, free from the distractions of the storm's movement Gramza Capital Management, Inc.
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How does a trader stay in the eye of storm?
The trader must recognize and accept that trading is a physical business that requires a synergy of thoughts and physical response in a relaxed, yet totally aware state.
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THOUGHTS • Create the trader’s reality • Direct the body • Basic elements of the thought process are: Thought Choice Thought Energy
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THOUGHT CHOICE • The thoughts the trader allows himself to have are his thought choices.
• A trader makes a thought choice, therefore, the trader is responsible for that thought choice.
• These thought choices determine how he reacts to trading and life.
• He can choose a positive thought or a negative
one, but whichever the choice, it will impact the thoughts that follow.
• What is the payoff for keeping and maintaining a thought choice? - Power - Weakness - Self-sabotage Gramza Capital Management, Inc.
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THOUGHT ENERGY • The trader's thought choices have an impact on his life.
• The amount of impact is determined by the
amount of thought energy the trader gives each thought.
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IDENTIFYING YOUR NEGATIVE THOUGHT DEMONS
Thought Demons are negative thoughts that hold you back and prevent you from accomplishing your life and trading goals.
What are your first or typical thoughts when faced with challenges in your life?
How you react to these challenges is usually how you will react to the challenges of trading.
In life or trading, do you choose and energize negative thoughts? Gramza Capital Management, Inc.
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IDENTIFYING YOUR NEGATIVE THOUGHT DEMONS
The Negative Thought Demons Journal will help you:
examine your thought choices identify your negative thought demons increase your awareness of these thoughts develop a specific target for your energy and efforts to make a change.
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NEGATIVE THOUGHT DEMONS JOURNAL Identify your negative thought demons by answering the following questions:
• When and what was happening before you had negative thoughts?
• What were those negative thoughts?
• What type of inward and/or outward reaction did you have from these negative thoughts?
• How did you feel when you had these negative thoughts?
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NEGATIVE THOUGHT DEMONS JOURNAL (Cont’d) • What are these negative thoughts taking away from you?
• How are these negative thoughts holding you back?
• What payoff did you get by keeping this negative thought?
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NEGATIVE THOUGHT DEMONS JOURNAL (Cont’d) • Do you accept that you created this negative thought?
If not, why not?
• Which thought management technique from the following section are you going to use to help you de-energize this negative thought and reach your ideal thought reaction?
• When are you going to implement this thought reaction?
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THOUGHT MANAGEMENT TECHNIQUES • Thought management techniques are used to conquer your thought demons.
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The Consultant Technique • When a problem arises, consultants are often
used to provide an objective approach to finding a solution. Imagine that you are a consultant. You have been retained to provide consulting services to a person with a situation exactly like yours. The key to being a good consultant is asking the right questions, so objectively review the questions found in the Negative Thought Demons Journal as if you were questioning another person as a consultant. An objective review of the responses may provide just the point of view needed to implement positive solutions.
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The Consultant Technique (Cont’d)
Albert Einstein said
“You cannot solve a problem with the same mind that created it.”
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Situation Control Recognition Technique • This technique allows you to control your negative
thoughts by recognizing those situations you control and those you do not.
You begin to have negative thoughts relating to a situation over which you have no control.
You consciously recognize that you have done all you can, and it is now up to the situation to complete itself.
You choose not to energize the negative thoughts or allow them to overwhelm you.
The situation is not under your control and you are not going to waste your energy on unproductive thoughts. Gramza Capital Management, Inc.
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Situation Control Recognition Technique (Cont'd) For example: You have identified a trade, executed your order to enter the trade, and placed your risk management stop order according to your strategy.
You then allow yourself to become more and more emotionally involved with each back-and-forth market movement. The reality is that the market is in control, and you have no control over the market. Recognize this, relax, and let your trade work. You will either make money or lose money, and what you do control is how you react to the outcome. Gramza Capital Management, Inc.
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Remember, it is always within your power to change.
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PHYSICAL RESPONSE • Effortless action is confident physical response without hesitation.
• The trader's goal is to achieve effortless action when trading.
• When he trades with effortless action, he stands a side and allows his trading strategy to work
• Examples of effortless action in your daily life:
tying your shoe combing your hair raising a fork, spoon or cup to your mouth and driving your car
When trading, executing a properly evaluated trade should feel the same way!
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PHYSICAL RESPONSE (Cont'd) Effortless action is the result of: • Taking time to "practice" a strategy through properly conducted research.
• Having complete confidence in the strategy.
• Total focus on implementing the trading strategy when trading and not on issues that should have been resolved during non-trading hours.
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HOW TO BECOME AND STAY CALM AND FOCUSED • Choose and energize thoughts that support your trading objectives.
• Create and maintain a relaxed state and stay in the present moment through: Proper breathing Relaxation exercises Visualization exercises.
• Develop and consistently apply a well researched trading strategy.
• Be prepared for all trading outcomes.
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IntesaTrade
and
PRESENT
Building Your E-mini Trading Strategy
Prepared and Presented by Daniel Gramza
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