This article is really about high and low probability e-mini trading. Failure to distinguish between these two types of trades is often the cause of overtrading. Overtrading tends to chew up profits because it incurs an inordinately high level of commissions. I will say this; Your broker will love it as they pay you by receiving a portion of the commission charges into your futures trading account. One of the keys to being consistently profitable is to differentiate between trades that have a high probability of success and letting the trade run versus taking lower probability trades that have a higher probability of resulting in a trade loss.
It takes experience, education and perseverance to correctly identify high probability trades. I think it’s important to understand that you don’t always have to be in a trade. It is not unusual for traders to exit a trade and immediately start looking for another trade. Many times, there is no other good to start with and the correct course of action is to sit on your hands. In my opinion, this is one of the most difficult skills to learn: discretion when conducting electronic transactions. For some people, it’s troublesome to wait for the right settings to arrive, so they end up going in and out of settings too often.
On the other hand, low probability trades always appear and it can be an exercise in mental discipline to avoid the temptation to enter a trade that has little chance of success. Some typical situations to avoid are:
Countertrend Trades
Operations in a degrading channel
Trying to trade with the idea that the market is going to change
Trading in a busy market
Trading in an extremely low volume market
Taking trades from the highs or lows of the day, this is often called a bounce trade.
There are many types of problem settings to take too long to list, but these settings can cause a great deal of trouble for most merchants and should be avoided. One of the problems I often see is entering a trade that is less likely to win than most and does, in fact, win. This encourages the individual to continue taking risky setups rather than patiently waiting for a better setup to form. Once a bad habit is positively reinforced by winning, many people will try more setups that they don’t have a good chance of winning. The cycle can easily deplete a good part of the futures trading account.
We’ve been talking about taking setups that have a good chance to win and taking fewer setups. If you are willing to make trades that do not have a great chance of winning, you will find that you have accumulated too many trades during your trading session. Focus on the good and leave the bad. Easier said than done.