ON MY JOURNEY to becoming a more disciplined and successful trader, I have observed what I will call “The Strangest Trading Secret”.

Have you ever noticed how at the end of the day the charts always look perfect?  The indicators you use or package you purchased now makes perfect sense. In an exact way, we see where we should have got in and out of the trade, where our stops should have been placed, and where we would have taken profits. We also see where the trade we were going take but did not, worked in our favor and the market went exactly where we thought it would…

The allure and challenge of “Trading your way to Financial Freedom” and “Trading for A Living”  as a few well known author’s put it so succinctly , seems easy enough, but we all know as the charts are unfolding in real time the reality sets in. Real money is on the line, emotions come into play, and most of all,  the bars unfolding in real time do not look the same as the “perfect chart” at the end of the day.

While trading seems “easy enough” when one looks at the chart at the session close, we all know that it’s not quite that simple and that most traders do not make money.  Success in trading is indeed elusive to many. Why this happens can be attributed to a number of  reasons, this author is by no means perfect, and has experienced the exhilaration of winning and the pain of losing.

So what can we do to put this all in perspective and bring us closer to our trading goals, whether it is to be a better trader or to achieve financial success? I will pose this question as a favorite mentor and teacher said to me: How do you eat an elephant? The answer is “one bite at a time…”

As this applies to trading, let us examine a simple observation that may come as a surprise. I will use the Emini S&P market as an example because of its popularity and liquidity.  What follows could be applied to any market.  

The value of one point in the Emini SP is fifty dollars per contract. There are 20 trading days in a month. In this example I will begin by trading 2 contracts with a goal of clearing one point per day. We start with the minimum margin for two SP Emini contracts, and we increase 1 contract every two weeks for 3 months and then 1 contract per week there after. The idea here is to give a realistic scenario of how one might actually do this. If the trader can consistently earn one point, then his skill and confidence will increase over time. It is not unrealistic in the author’s view to be trading 5 contracts after 12 weeks and increase 1 per week from there.

 
As you can see earning only one point per day starting with two contracts as outlined above, your trading account grows $47,500 in six months, and $213,500 in one year. Remember that we are talking about one point per day, not swinging for the fences, picking tops or bottoms. The Emini SP market moves 1 point literally all the time. Too often, we as traders believe we have to “let the market” take us out of the trade, or make as many points as possible, or go for the home run trade, perhaps all we need to do is focus on a discipline and a method and lower our expectations.

“The Strangest Trading Secret” is that only a fraction of the daily range can provide success. The question remains, Can this really be done?

I’ll leave the answer to you.

Good trading,

Randy M. Sarrow

Blue Wave Trading  Research and Development