The New England Patriots win again only this time in historic fashion. By now, you probably know how good the team is and all the records they now hold. How does a team with very few super stars win so often for so many years? The players change, the opposing teams get stronger, the few Patriot stars get older and yet, they still win.
What sets them apart from everyone else is a culture/strategy that delivers consistency. Everyone on the team has a very specific job to do, they check their egos at the door, and focus on working hard. The result is very consistent performance from a strategy that doesn’t change. Whether they win or lose typically depends on how many mistakes the opposing team makes. Brady, the quarterback, is amazing, but what makes him amazing is his consistency.
The goal for traders is consistent profits, life-long income from speculating in markets. The key word in that sentence is “consistent”. Anyone can have profitable trades here and there but do they produce consistent income and profits from trading? I met a student recently who day trades the NASDAQ Futures and has a winning percentage of around 80%. The problem is, he doesn’t make consistent income from trading. Sounds crazy I know, but one loss for him tends to wipe out all the profits. Imagine if your trading results could be as consistent as the Patriots. Like them, you will lose some games, that’s guaranteed. However, in the end, you will win and enjoy success.
In our classes at Online Trading Academy, one of the “Odds Enhancers” we focus on for every trading opportunity is Profit Zone. Without a clear and ideal risk/reward opportunity on the chart, there is no trading opportunity no matter how good your supply and demand zones look. We focus on this one so much because it is at the heart of what delivers consistent profits to the trader. What we are looking for are supply and demand levels that are far apart from each other and VERY open and clear profit zones.
There are many supply and demand levels on a chart. Often, there is a very quality supply and demand level on a chart, the problem is they are too close to each other which means no trade due to a lack of “profit zone”. Typically, we are looking for opportunities on the chart that offer us at least 3:1 reward to risk to the first target. I like to look for more but this is a safe minimum to make a trade acceptable to take.
S&P Feb 1: Shorting Opportunity
Let me explain through a trade I took that we found in our live trading rooms, the Extended Learning Track (XLT). This was a trade in the S&P futures market (ES). Notice the supply level (yellow box) and profit zone (circled areas) on the chart, both shaded in yellow. The supply level is the origin of a strong decline in price as seen on the chart. The trade was to sell short at point (A) as price rallied back into the supply level for a move down. To measure risk to reward, we need to do two things. First, we need to compare the distance from entry to protective stop against the distance from entry to the available profit zone. This opportunity offered a little more than 3:1 according to the chart. Second, we have to adjust position size to make sure we are never risking more than we are willing to lose. If I stopped writing about this trade here, most readers this would think to sell short at the supply level like I did and take profits at the demand level. This last part on profit taking is something I never do and is a key edge building consistency tool.
Two Specific Profit Zone Strategies:
If you are looking for trading opportunities that offer you 3:1, make sure the chart is offering you at least 4:1. If you want a 4:1 setup with a much easier time of attaining consistent profitable trades, make sure the chart is offering you at least 5:1 and so on… I think you get the point but said another way, when the chart offers you 3:1, actually getting 2:1 is much easier than if that opportunity offered 2:1 on the chart.
When taking profits at demand from a short position, don’t wait for price to come all the way down to demand to take profit; make sure you take your profit with your buy order just before demand. The reason is that there is competition to buy at demand, that’s why it’s demand. When we are taking profits on a short position, we are buying so why would we want to buy at a price level where there is competition to buy? Why not buy when there is competition to sell, which is right before the demand level, as price is falling? The same but opposite holds true for exiting longs just before supply levels.
Consistent profits for a trader are much easier to attain if you take profits at 4:1 when the chart is offering you 5:1. They are also much easier to attain when you exit positions for profits right before demand levels for shorts and supply levels for longs.
One other item not in this article that also helps me with consistency are limit orders. Like the Patriots, it’s all about following a very specific and proper set of logical rules and executing them proficiently. My hope is that this little nugget of information helps you achieve the consistency you’re looking for whether you’re a short-term trader or longer term investor.
Have a great day.