Day Trading and Swing Trading Futures with Price Action: Integration for success. | Humberto Malaspina | Skillshare

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Day Trading and Swing Trading Futures with Price Action: Integration for success.

teacher avatar Humberto Malaspina, Emini S&P 500 Trader.

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Taught by industry leaders & working professionals
Topics include illustration, design, photography, and more

Watch this class and thousands more

Get unlimited access to every class
Taught by industry leaders & working professionals
Topics include illustration, design, photography, and more

Lessons in This Class

10 Lessons (37m)
    • 1. Introduction: The swing trading methodology.

    • 2. The Method and Volatility.

    • 3. STEP 1: Preparing for the trading day.

    • 4. STEP 2: Entry. How to place your trade.

    • 5. STEP 3: Risk management on your trade.

    • 6. STEP 4: Detecting valid support and resistance levels.

    • 7. STEP 5: Scaling out your position.

    • 8. STEP 6: The circle of victory.

    • 9. Real Time Trade "Tight Risk Control"

    • 10. Words from Humberto.

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About This Class

Once students finish this class they will be able to integrate all knowledge acquired in a simple step by step guideline that will be used everyday to succeed as a trader.

This class is very important because the integration of knowledge is essential to make correct negotiations in the market. Everything starts with having the discipline and following the instructions step by step in such a way that proper coordination is achieved in all decision-making.

The process of managing risk is a statistical skill that is aided by the computer on a spreadsheet, but recognizing price patterns is an art that is learned through practice and experience. The integration of both skills is what will make you a successful trader.

This class is the final point where everything meshes and will allow you to have a greater chance of success.

Meet Your Teacher

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Humberto Malaspina

Emini S&P 500 Trader.


Hello, my name is Humberto.

Working in the oil exploration industry for many years made me see many ups and downs in this business. Oil prices are a Russian roulette, each time they fall to the red zone of production cost, companies fire employees left and right, leaving a lot of people suffering. As a witness of this situation, I always looked for additional sources of income, and I found one trading the Emini S&P 500. Nowadays, after a lot of work and dedication, I managed to understand price action (the language of the markets) and money management, both important skills to have for anyone interested in trading any financial instrument. In my case, I only trade the Emini S&P 500, nothing else, all my focus is on this particular futures. This has given me the opp... See full profile

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1. Introduction: The swing trading methodology.: Introduction. The goal of this section is to give you a step by step method to serve you as a guide to take action in an orderly manner to improve your odds to succeed day trading any financial instrument you choose. In this section we will integrate all that we have covered so far in a booklet that you will follow to day trade the markets. These steps are very simple and easy to follow. The easier your trading methodology is the more chance you will have to make money. Please download the file called “Trading Methodology.pdf” attached to this lecture as a resource. Open it and read it, we will use it during all this section. Once you have finished please continue with this course. 2. The Method and Volatility.: The Method and Volatility. The mandatory adjustment Remember to download my trading methodology document in this section. It is important that you have it to continue. In this document, you will find the core of my trading method and it can be adapted and modified to fit your psychological risk profile. All the information in this document will lead you to make only the trades with the highest probability of success. It is selective and you must have the patience to execute it. This method must be adjusted according to the volatility of the financial instrument that you trade. This must be done as you should never apply the same trading rules to different market situations. You need to study the volatility and price action of the financial instrument you want to trade to make adjustments for placing the stop loss to reduce risk and protect your profits. I suggest you adapt your method to one market environment of high volatility and another with low volatility. You should use the Average True Range (ATR) to define trading parameters based on the volatility of the financial instrument you trade. In the Emini S&P 500 (ES) I apply the following two tactics. This is not written on stone, but it is an approximation based on my experience. Remember, in the markets, there are no black or white, just shadows of grey. Note that I am using from 5 to 6 hours candle charts to swing trade the Emini S&P 500 but this time frame can change depending on the volatility of the financial product you trade. Tactic # 1: If my 6 hours candle chart (ES) prints an ATR (40) equal or less than 25 then the market is in calm mode and the price swings are not wild the market tends to trend in a non-erratic way with small swings or pullbacks. Here my trading method can use more relaxed stops in critical areas of support and resistance, depending on if I am long or short. Chart Example of Tactic # 1. Pay close attention to the price behavior and the magnitude of the fluctuations, they are not wild. Look how I place stops in this situation. Tactic # 2: If my 6 hours candle chart (ES) prints an ATR (40) greater than 25 then the market is in wild mode and the price swings are wild, you need to take partial profits aggressively and protect your remaining profits with a tight stop (this is what I call tight risk control). Chart Example of Tactic # 2. Now see how the fluctuations are wilder and I must adjust my stops to protect my profits and I also take an aggressive incremental exit strategy. My point is that you must apply different trading tactics to different market stages. This is key for you to understand, 90 % of the retail traders lose money for this fact alone: “they apply the same trading tactics to different market conditions” and there is where they are mistaken. Please don´t be part of the statistics, follow this recommendation as soon as possible. 3. STEP 1: Preparing for the trading day.: Preparing for the trading day. During this lecture we will focus our attention in getting everything ready for the next trading day, from drawing support and resistance levels to money and risk management. Let´s begin. Please check out that you have your charts ready: The ENTRY CHART (For entries and exits) which is 1000 ticks chart and the trend charts for spotting trends, stops placing and trading ideas, the 3000 and 8000 ticks chart. Let's take a look. If you have a big monitor you can have the 3 CHARTS 1000, 3000 and 8000 TICKS in the same display like in this example. In my case I have each chart in a monitor. Like this. Now that you have your charts ready you can draw previous day high and low, plus some intraday resistance and support areas. You also can study the market environment, is the market in an uptrend or in a downtrend? Is the market sideways? The goal is to have a feeling of the market environment so you can have an idea if you are going to play long, short or not trade at all. Here is an example. As you can see in this chart This is the previous trading day We have to draw the resistance and support areas and after we do that we can calmly study the market environment. Is the market going down? Is the market going up?. As you can see here The market was down most of the day. Now we need to wait for the next day open to confirm the downtrend. Remember, Let the market talk to you before you take action. Now before the market opens it is important that you review your day cut off point (3%) and total cutoff point (15%) keeping updated the amount of your trading capital available for the day in your risk and money management plan. Check out this example: We already covered this in the previous sections. It is also important before the trading day begins to find out the price limits for the product you are using to update your risk and money management plan. Here you have them for the Emini S&P 500. Once the market opens, please remember to update the risk points for any particular trade in the spreadsheet (Entry price and stop loss price after entry), at the risk and money management section in order to calculate your trading size for each trade you are about to take. Never risk more than 1.5% of your trading capital on any trade. These are the steps you should take every day before and after the market open. Make a habit of them and you should see an improvement in your trading performance shortly. Please take a rest to continue with this course, there is more ahead. 4. STEP 2: Entry. How to place your trade.: ENTRY. HOW TO PLACE YOUR TRADE. During this lecture, we will cover in a brief what we already learned in the previous lectures about how and when to place a trade. We will just integrate this knowledge into a step by step sequence that you can follow and make a habit it of it in your subconscious mind. Trading should be like driving a car, you learn how to do it and then you just drive naturally following the flow of the traffic. Trading is exactly the same. Here I will explain how to place your trade plain and simple. Let's begin. When the market opens you should always do the following before placing your trade: First, locate the main trend. You have to see where the market is coming from to have an idea what the trend is. Wait for the market to show you where is going. Study past price action to find clues about future price movement. Be patience, you must detect the trend in the 8000 ticks’ charts in order to trade along with it. You must watch the market context in order to trade along with the strongest price flow. Never guess, you have to let things happen, then act. Look what direction the moving averages are heading In all charts 1000, 3000 and 8000 tick charts moving averages must be in synchronization. Wait patiently for the market to set support and resistance areas during the first minutes of trading. You will use these levels as entry clues and for measuring risk and rewards ranges. You can also use previous day support and resistance levels. Wait for the market to show the way long or short, then buy or sell in the first strong pullback when it shows signs of weakness near support or resistance and close to moving averages. Wait for confirmation at candle close, then act. If you are retail trader (like I am) get in the market 100% of position once confirmation is given at the 1000 ticks chart. Entry once the high or the low (depending if you are long or short) of your signal candle is breached. This is called price continuation Let's see an example. During the first minute of trading after the open we need to find new areas of support and resistance, but we can also see how price behave around previous day support and resistance levels. Here in this chart look how previous day level of resistance is touched by price. Resistance level is respected then market punctured support and now we need to wait more. We will find who defines the trend. Market pulls back but can not make a higher high and a bear doji is formed. If market penetrates this doji´s low then it is a signal for entry a short trade. Look how this doji is at the resistance level, this could be a clear price pattern screaming that price might come down again. Also notice that the risk is very low and the reward is high. Always evaluate the risk versus reward using your risk and money management plan before making any trade. Make sure you can afford the trade you are about to take. Eventually the market went our way and we made a winning trade. This is it. There is no more to it. You just need to spot the trend, detect support and resistance areas and find an opportunity to get in, like a pullback, and if the risk is low and the reward is worth the risk then you pull the trigger. Please do not over think it, the simpler the better. Avoid analysis paralysis and take action. 5. STEP 3: Risk management on your trade.: RISK MANAGEMENT ON YOUR TRADE. Now we will use the same trade example from the previous lecture to explain again how to manage risk in a way easy to understand so you can put it into practice right away. Let's dive in. Once you place a trade the first thing you must do is to enter a stop loss for the 100% of your position. The best thing to do is to chain your buy or sell order to your stop loss order. Not matter what happens, as soon as your buy or sell order is triggered your stop loss order will be executed as well. Use market psychology to place your stop loss. Put it away from the most evident price of support and resistance area, you have to place it above or below it depending on if you are long or short. Use 3000 or 8000 ticks chart to find a good price level for your stop. Give it some room to breathe, do not place your stop where everybody is placing them. You must reduce risk as soon as possible, if the trade moves in your favor, relocate your stop to a new level of support or resistance in order to protect profits. Remember, reducing risk is the key factor in this business, do it constantly, take care of the risk and profits will take care of themselves. Here you have an example in the next slide. OK this is a 1000 tick chart, look at the legend PDR stands for "Previous Day Resistance" and PDS stand for "Previous Day Support". As you can see there is a short entry and the stop loss is placed away from the price level where everyone has their stops. Look at the resistant area and then look where I put my 100% stop loss. OK, now as the trade advances in your favor, you need to move your stop to a save area, in this case above PDS1 which now has become resistance because it was broken. As you can see this is now almost a non risk trade. Look, as the trade keeps advancing, you move your stop to a save area again, in this case above PDS3 which now has become resistance because it was broken. The stop is not located just on the price level of PDS3, it is a bit far away above it. Now if the worst happens this will be a winning trade anyway. Risk management on your trade is crucial. Do not take it lightly, it will be the factor that will mark the difference for the better in your trading business. Always take care of your risk first before thinking about your profits. Your trading account and your mental health will benefit from it. Please continue with this course as soon as you can, the coming lectures will provide plenty of information about profitable exit strategies. 6. STEP 4: Detecting valid support and resistance levels.: DETECTING VALID SUPPORT AND RESISTANCE LEVELS. In this lecture I will explain how to use price action interpretation in order to detect real support and resistance levels during the trading day for transforming risk into profits. The correct understanding of this skill will allow you to expand your profit margin to a new level. Please pay close attention. Let’s begin. As the trading day advances you must draw support and resistance levels using price action interpretation. This is a very important topic as they will help you to detect how strong or weak the market is at the present time. These levels also help you to take decisions about profit taking while your position is open. The use of price action interpretation for support and resistance levels detection will provide a trader of one of the most powerful trading skills. Let's see an example. OK, here we have a 8000 tick chart Please remember that each candle contains information about 8000 trades so each candle is very significant when we are talking about price action. OK here we have these levels of support and resistance that were set based on the previous day price action activity. You can use them in the current trading day while you detect the new ones. As the trading day advances we have the opportunity to study all these price candles. All of these candles are providing us of information about the current market environment. It is important to learn how to recognize a valid level of support or resistance. Inside this yellow circle, in this specific case we have a pullback but the pullback presented here is insignificant so we can not define this as a support level. Remember, these are 8000 ticks candles so each signal is very significant. Ok, in this chart The price keeps moving and suddenly inside this yellow circle we can find another pullback but is very short lived, so we can not define this as a valid support level either. Around 1:00 p.m. we can see inside this yellow circle more determination in the in the bull white candle so we can set a new level of support right in this small pullback. 1 hour later like around 2 pm. we use price action interpretation to detect a new support level, look inside the yellow circle, Here we have a clear pullback. Take a look at these two white bull candles. A new support level is drawn. around 30 minutes later we have confirmation of this new support level 2. Look how support level 2 is tested and validated by price action. Look how price is bouncing off support level 2. By now with this information we know that we have a solid support level. You need to dominate the skill of detecting real support and resistance levels using price action interpretation. If you do not know where your valid support and resistance levels are then you are risking too much and maybe losing profit taking opportunities. I cannot stress this enough. You have to invest time to study and learn about price action interpretation. You won´t learn this just reading a book. This is something that is learned by analyzing candle stick charts This skill will let you see opportunities that many traders miss without any consideration losing thousands of dollars in potential gains. Please think about it. Take a rest to continue with this course later. 7. STEP 5: Scaling out your position.: SCALING OUT YOUR POSITION. When closing a position you should master the art of a correct exit. To accomplish this you have to understand the scaled exit approach and price action analysis. In this lecture you will learn how to take profits scaling out your position. A key factor here is time. You are investing time while day trading, so you must cash out as the trade goes in your favor, this will give you the sensation of reward for your efforts. Scaling out exit satisfies your urge to lock in profits, while allowing you to maximize your gains by letting some profits run. This approach is empowering because it reduces the illusive desire to be entirely right on a trade. Let me show you. Scaling out is the process of selling your position in stages. You need to learn how to recognize reversal price patterns and detect valid levels of support and resistance in order to take partial profits while there is still potential in the trade. You must take partial profits in order to justify your time managing the trade. Remember, the market can do anything, so if you do not take partial profits the market can come back and hit your stop leaving you empty handed with a loss or just with a very tiny profit. This approach provides you an emotional and psychological advantage. If after selling part of your position the price drops back into the area where you initially bought, you have still locked in a partial profit. If price rallies past the point where you made a partial sale, you can rest at ease because you still have part of your position. In order to scale out properly, you need to watch carefully price candles context to discover momentum slowing down and to detect valid support and resistance levels. Look for reversal candle patterns and support or resistance levels for scaling out clues. You must scale out once a level of resistance (for longs) or a level of support (for shorts) if re tested. This will give you partial profits to justify your time invested in front of a computer screen. Use price action analysis to detect reversal price patterns so you can cash out your remaining position while there is still a trend in place that will allow you to reach a better price. Use buy or sell limit orders to scale out to remove emotions out of the equation. Let's see an example here. Here we are using the same chart example from previous lectures to have continuation of the full lifespan of this trade. Pay close attention to the scaled exit approach that will be used to close this position. Here we have a short entry after 10 a.m. Immediately. we send in our stop lost with 100 % of our position. As you can see in the chart we already have previous day resistance and support levels which are called PDR 1, PDS 1, PDS2 and PDS3 as you can notice in advance after the entry we sent two buy limit orders just above our targets which are PDS2 and PDS3. We are just taking emotion out of the equation. As you can see these orders are already working over PDS2 and over PDS3. OK. Now the price is moving here in this chart we can see that price reached PDS2 and our buy limit order is executed scaling out part of our position. Our second buy limit order is still pending. The sell limit stop order on the remaining position is still on as well. During the morning the price is moving and again it had reached our second target, price reached PDS3 and our buy limit order is executed scaling out part of our position. Also we moved the sell limit stop order on the remaining position just a little bit below entry. So this means that this trade at this stage is almost zero risk. During the afternoon trading session the price keeps moving in our favor. and suddenly we detect a new support level, a new valid support level, which is S1. Once we did this with sent a buy limit order to scale out again at this price level in case the price retest this area. Eventually minutes later price action retested S1 triggering our buy limit order and we scale out again a portion of our position. As you can see this chart the price keeps moving in our favor. and broke with force S1. and we move over stop on the remaining position to protect our profits. In this chart you can see that there is a clear downtrade in place, the price keeps coming down and suddenly we detected a new valid support level which we called S2. Immediately with sent in a buy limit order to scale out again if price retest this area. Minutes later price retested our S2 level our buy limit order is executed. Price triggered our buy limit order and we scale out again a portion of our position. Now in this chart let's do some price action analysis. Here inside the yellow circle price action shows indecision like distribution, it looks like the market wants to turn to the up side, a double bottom is also detected formed with two hammer candles. The trend also looks very extended for the day. Now let's continue with the price action analysis in this chart. At the top of the chart between PDS2 and PDR1 this price area looks like distribution and the beginning of a trend, then below PDS2 and above just the area of distribution at the bottom, this price area here just in the middle is a clear representation of a downtrend in place. Now at the bottom of the chart we have the price area that looks like the beginning of distribution so we should be aware of this signal. Based on the price action analysis we decided that the down trend might be ending, so we moved our sell limit stop order just above the second hammer that is forming the double bottom to close the position if this price area is penetrated. As you can see here we have the sell limit stop order on the remaining position and the clear double bottom formed by the two hammer candles. As we expected the stop order has been triggered by price action and the position has been closed. While analyzing price action You have to look at the whole context, not just one, two or three candles, no you have to analyze price action during the morning and price action during the afternoon, compare both behaviors so you can notice subtle changes that will tell you or send you clues about what is going on and about what might be happening in the near future. In this chart distribution area is confirmed after the fact. Using price action analysis you can sort of “forecast” future price movement in order to maximize profits. As you can see we have one short entry and five different scale out approaches helping us to minimize the risk and to maximize profits during the whole trade. Scaling out your position with the help of price action analysis is a crucial part of your trading business. Scale out constantly while reducing risk and you will notice how your moral and trading account grow every day. Do not let greed take over, there is always a new trading chance, take your profits as the opportunity arises and never regret it. Remember, you have a psychological advantage using this approach, if price keeps going in your favor you still have a partial position to maximize profits. Take a rest a come back to continue with this course when you feel ready. 8. STEP 6: The circle of victory.: THE CIRCLE OF VICTORY. I call the circle of victory the process of constantly keeping risk management in place, scaling out your position for taking profits until you close it all and having trading records for measuring your performance. In the last lecture about scaling out we covered how to exit in stages. The circle of victory is just a lecture to empower and to engrave this process on your mind to make a habit of it. I think it is so important that I made an additional lecture to insist on this topic alone. Scaling out is a vital part of your success as a trader. You must repeat the process of scaling out and move your stop order for your remaining position to a technical price level until you scale it out completely or you close it because the market hit your stop. Please remember this for the rest of your trading career. After closing your position you must record all the trade details in your trading log. This is necessary to measure the expectancy of your method and to verify if your edge is still profitable. Remember, you need a valid edge to have a trading method with a positive expectancy in order to survive as a trader. Keeping a trading log is one of the most effective ways for detecting any problems with your method that could be draining your trading account. With this log you can spot those glitches to fix them. A log also helps you to visualize the good trades and how you took those trades. Reviewing this information will create a map in your subconscious mind about the price patterns that work best. You will begin to see repeatedly these price patterns on real time trading and will take action with more conviction and without hesitation. A trading log is the best tool to enhance your trading skills that will lead you to more profits, less stress and financial independence. THE CIRCLE OF VICTORY is the last sequence of steps you need to take in order to finalize the life of a trade maximizing profits and minimizing risk. Keep the discipline of taking these steps described in this section and your odds of becoming a successful trader will increase significantly. But the most important step for you, after studying all these sections and lectures in this course is to take action. Without taking action you won’t have any results at all. Don’t delay and take action today. Please take a rest, go out and come back to continue with the last part of this course, we are close to the end. 9. Real Time Trade "Tight Risk Control": TIGHT RISK CONTROL In this real-time trade, I show how tight risk control should be managed following the methodology that I have just presented. Remember, the goal is to always dynamically reduce risk. Never stop doing it. The market presents a structure that gives an entry signal if the required price action parameters are met. I submit a buy order should the opportunity arise. The market triggers my buy order and my long position is opened. I immediately place my stop loss order just to be prepared for the worst. Notice how at the time of opening the long position the ATR value is at the lowest levels. Generally, this helps to avoid sudden price movements. Additionally, I send a sell order for partial profit taking, very close to the next resistance level. If this partial sale is activated it will help me reduce the risk to zero as I will take profits and move my stop loss to the entry level. The price shoots up and my partial sell order is activated, taking profits and placing the stop loss at entry level. Right now the risk is 0. This time I sent a couple of partial sell orders at the next resistance levels in order to gradually liquidate my position. In this way, taking partial profits, I reduce the risk of exposure to the market. The market begins to lose some strength but I continue with my original plan, since the stop loss is at entry level, all I have to do is wait. I have managed risk as strictly as possible. The price suddenly deteriorates and triggers my stop loss and closes my position leaving me a good profit. The market took the opposite direction to my prediction since there was a higher supply level over my position which I was unaware of It is impossible to know for sure when an excess supply may appear in the market as it happened in this case. This is a clear example of why it is necessary to have a tight risk control since these types of situations happen frequently and you must be prepared for everything. 10. Words from Humberto.: hi after finishing this chapter you have learned the importance of integrating strategies the teamwork of all these strategies will give you the final push towards success remember the key points are learning the art of price action reading finding low risk entry also risk control exit strategies like partial exits and protecting your profits now everything depends on you to take action now and make the best effort to practice to learn all these techniques and to master all these skills to guarantee your success trading the markets.