Page 21 - Trading #101 Course – Part One: Trading Basics

TRADING #101 COURSE – PART ONE: TRADING BASICS /2017-10-06

“Rules of Engagement” for overnight trades:

• Trade must currently be profitable.
• 15-minute chart must indicate a solid trend in place.
• You must set a new stop loss based on the daily chart.
• Be sure to reduce trade size so that risk remains no more than 2 percent of your
trading account (based on the new adjusted stop from the daily chart).
• You must monitor the trade at the opening bell the next morning

These same rules apply when going from a 5-minute chart to a 15-minute chart. Trade
size must be adjusted. The key is to be sure to adjust all your money management
parameters to allow for the added risk of holding a trade overnight. And then you need
to be ready to monitor the trade immediately at the opening bell.

Knowing about Fundamentals

As a rule of thumb, the lower (or faster) a time frame you choose to trade, the less you
need to know about the company in terms of fundamentals and news.

If you’re a long-term investor, you should know a lot about the company you are about
to buy, such as management’s track record, earnings, debts, P/E (price-to-earnings
ratio), and multiples for that sector or group. Basically, you need to know the
fundamentals of the company. If you are a day trader or a market “scalper,” you will
have little interest in fundamentals. You’ll focus only on short-term technical charts and
momentum.

Caution When Day Trading Short Time Frames

The shorter the time frame, the more trading skill is required to be consistently
profitable.

Short 1-minute to 5-minute time frames are especially influenced by traders of higher
time frames such as the daily, weekly, and so on. Trading systems can experience
difficulties due to trading activity outside their chosen time frame, which the trading
system cannot see or measure. You may experience drawdown when the realities of
higher time frames affect the realities of the time frame you have chosen to trade.

While your system may accurately indicate the realities of the time frame you are
trading, you may still experience a loss from stronger realities of another time frame.

This is an argument for trading in alignment with the Higher Time Frame Filter which is
covered in the next section.

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