Intraday Trading Techniques –

Day Trading with Character –

To Clear the Air – What’s the Difference?

IntraDay Trading Charts

The original definition and practice of Day Trading was specific to the very active trading of Stocks for minuscule gains on multiple trades throughout the day.  With the intensity involved and the unfortunate experiences of the retail trader in the early days when the concept was introduced, Day Trading Stocks soon became the quickest path down the Abyss and was quickly left to the professionals.  For a look at why I feel the full-time nature of the Method doesn’t lend itself to the life of a self-directed wealth builder, read Day Trading Stocks to get some insight into how the process works.

Today, Day Trading loosely refers to any trading system, using any vehicle, that opens and closes positions within the same trading day.  So, the definition has been expanded, rightly or wrongly, causing confusion in its application.  To eliminate that confusion, I like to call any other type of trading during the day using other vehicles Intraday Trading to make the distinction clear for the individual.  Hence, I use the term to describe the more measured approach the individual wealth builder needs to use to be successful with Intraday Trading as part of a larger plan.

 

Intraday Trading Futures and Forex – Make It Your Business

Futures Contracts, including the E-Minis, and Forex Pairs are much better Vehicles for individual traders to use for the Intraday portion of their Wealth Building Plan – by using either of those vehicles, you can achieve far greater results, with much less intensity, than Day Trading Stocks.

If you’d like to review how these markets work, take a look at Delving into the Futures Market – An Alternative Vehicle and Forex – A World of Opportunity.

Intraday Trading shouldn’t be considered until you have the right education and training to start creating and building wealth.  As you’ve seen in Getting Started, Swing Trading Options on Stocks and ETFs is the best place to start and will give you the foundation to be able to add the income generating capability of Intraday Trading Futures and Forex to your plan for great flexibility in managing your growth curve through all market conditions.

I found that trading the Futures markets, especially the E-Mini contracts, gave me the added experience and knowledge I needed to manage my longer-term portfolio more productively.  Intraday Trading is a great complement to the other Styles in your plan, because it keeps you in the market and abreast of ongoing market intelligence, so important to managing your overall portfolio.  As with the other parts of your Wealth Building Plan, education is the key to learning how to create and manage their own wealth, and Intraday Trading can be an important part of that education.

I created The Diversified Trader to give you the platform to create your Wealth Building Plan and choose all of its parts, so you wouldn’t have to search through the confusing maze of alternatives that make up the trading landscape.

If you’re thinking about expanding your Wealth Building Plan, Intraday Trading with Futures and Forex should become an integral part of your trading life to provide the consistent income you’ll need to balance your portfolio as market conditions change – there are always opportunities to trade intraday.

The Advantages

The reason for using the Futures and Forex markets stems from the need of the individual to have control over the process of Intraday Trading without falling prey to market forces beyond their sphere of influence.  The market forces influencing Stocks, as we’ve seen above, makes the process very difficult for the individual.  The retail trader is at a disadvantage as it is, because of limited reaction time, and needs markets where trades have greater life spans to overcome the volatility caused by the professionals.  One to five trades per day, depending on your involvement, is plenty in this arena.  The other benefits of using Futures and Forex are:

Limited Number of Symbols allowing for greater focus on market behavior and knowing the markets you’re trading.  The whole idea is to capture short-term momentum; so, having a shortlist of high volatility, liquid symbols gives you far greater control and a much higher rate of success.  Some people just trade the S&P 500 E-Mini Futures Contract (ES) – now, that’s focus.  Markets have a habit of going through periods of low volatility, though, so I like to have a few more options to be able to always have an active market to trade.

Traders in the Futures and Forex markets, including Your Trading Partners, have their own list of symbols, but, so you can see the extent of what is required, listed below are the Futures and Forex Pairs that I’ve used at various times.  As market conditions change, the lists you’ll be using will be different and follow the criteria used by your trading services.  You really don’t need any more than a group of symbols like these to make Intraday Trading a success.

Trading Hours that are basically around the clock (Futures take a short break every day to reset) for five and a half days a week.  This gives you far better control over your entries and exists, because you’re not constrained by exchange hours, and the continuous market makes analysis more efficient.  Everyone looks to these markets to get a reading on what’s going to happen in other related markets, so, as an intraday trader, you have a leg up going in.  For people outside the market time zones, this helps them to trade on their schedule, especially in the Forex markets that have worldwide coverage.

Lower Margin Requirements to be able to trade with less capital (the Pattern Day Trading Rule doesn’t apply here) and create more leverage that greatly enhances returns.  Leverage also increases risk, so having a good education and gaining experience is paramount before diving into intraday trading.  Forex trading has the higher leverage of the two and has its own risk management parameters.

Lower Commissions on Futures and no commission on Forex Pairs (only the Micro Lot has a commission structure) add to the attraction of these markets.

Tight Bid/Ask Spreads, making Futures and Forex more efficient for Intraday Trading.

Flexible Work Hours, making Intraday Trading Futures and Forex attractive for many different lifestyles.  Besides being able to trade at different times of the day or night, you generally only need two hours or less per day to generate the income you’ll need, so you’re not tied to a computer screen all day.

The Risks

Risk Management is the primary focus in any trading Method.  When you’re dealing with the leverage inherent in the Futures and Forex markets, control of the risk component becomes even more important.

The good news is: Futures and Forex Stop Orders work very well in a continuous market.

An industry saying – Cut your losses short and let your winners run – wraps the concept of risk management in a very nice package.  Trading in general and Intraday Trading in particular is based on probabilities of success and maintaining a positive win/loss ratio.  That’s the essence of risk management and the measure of success.

High volume Futures and Forex markets by their nature are less susceptible to manipulation, making risk management more efficient.  The Forex market is so large that any intentional manipulation is not a problem.  In any event, I always enter a “combination order” where the Stop Order is entered at the same time as the primary order.  This guards against sudden, unexpected market fluctuations and technical problems dealing with power outages and other unforeseen interruptions.

 

Intraday Trading Systems to Make the Methods Work –

As with all trading Methods, Intraday Trading Futures and Forex Pairs include Trading Systems that can be put into the two broad categories – Programmed and Technical.  If you haven’t read about the two basic categories already, Trading Systems – The Difference is Technical will give you a look at the comparison.  Both categories include excellent systems, and the choice of which one is better will depend on your experience level and where you are in your overall Wealth Building Plan.

My recommendation here is in the same vein as when you first started: Work with a well-defined and maintained Programmed trading system to begin with and grow into Technical trading as your knowledge base expands.

Whether your plan includes Intraday Trading long-term or not, the experience with both categories of trading systems will give you greater insight into how the markets work.

Programmed or Technical Trading Systems are both viable alternatives, so picking one or the other or both will depend on your personal needs and how your education and training develop.  With so many Day Trading and Intraday Trading service alternatives available in the marketplace, it’s important to remember that there is no magic system anywhere that’s going to make you a success.

The key to success is in your education and training and having the right tools to take advantage of market fluctuations and stack the probabilities in your favor.

Your dedication to the process will create your success.  The Diversified Trader is here to narrow the search for the right training and to emphasize the importance of having a plan with multiple Styles and Methods to minimize your risk and substantially increase your success rate over time.  Intraday Trading is one piece of the puzzle and should take its place with Swing Trading and Portfolio Management to round out your Wealth Building Plan.

The Alternatives

Programmed Trading intraday is a fun way to start, needs less experience to begin with, and leads you in the learning process as the program does the analysis work and you place the trades – you earn while you learn.  For Intraday Trading, using a program developed by dedicated experts who have a history of creating very workable systems is of paramount importance to your success.

There are platforms you can use to develop your own system, but, for Intraday Trading, the odds of you coming up with the exact right combination of assumptions to be successful and managing them on an on-going basis for changing market conditions is very low.

You’ll have too many variables to deal with on a real-time basis and market conditions change, making any fixed parameters useless in predicting certain events.  I’ve seen a lot of systems that tout success in back-test results that fall apart when applied to current reality.  Again, the retail wealth builder is at a disadvantage at the trading level and should use expertise that exists to make this Style of trading work.

In the Getting Started phase for most of the beginning wealth building journeys, I’ve recommended Swing Trading Stocks and ETFs using a Programmed system.  This is where the learning process is the most productive, because you have the time to work with the system and take smaller positions as you get used to managing the process.  Since the basic systems are very similar, learning to Intraday Trade Futures and Forex Pairs with almost the same programmed trading system then becomes a lot easier, allowing you to concentrate on trading.  Having a system with a custom-built program frees you up to work with the system and learn the markets you’re trading to develop the consistency you need.

Technical Trading builds on the discipline of programmed trading systems by allowing you more flexibility and the ability to customize your approach.  The learning curve is steeper, and, as we’ve seen in the comparison, the trading systems can be as varied as the people creating them.  From that maze of alternatives, I learned some basic concepts from which I was able to put together a framework using multiple interval (fractal) analysis and some very important indicators for guidance.

Your trading partners will be the last word, but to give you an idea of the different chart layouts that can be used for Intraday Trading in the Futures and Forex markets, I’ve put together three chart sets of the S&P 500 Index Futures E-Mini contract (two charts per work-space) that incorporate time-frame comparison, tick volume, and range volatility-based analysis.  Trading Futures and Forex intraday on a technical basis like this requires the multiple views to keep up with market personality changes that occur all the time.  This is the way I look at the markets I’m trading and offer the layouts to show what you can use as your personal base on which to build your unique technique that will come with the experience you gain through your training.

Intraday Trading
S&P 500 Index Futures E-Mini Contract (ES)
5 Minute vs. 2 Minute Chart

S&P 500 Index E-Mini Futures Chart (ES) - 5m and 2m
Time-frame Comparison Analysis

Intraday Trading
S&P 500 Index Futures E-Mini Contract (ES)
2584 Tick Volume and 5 Tick Range Bar

Intraday Trading - S&P 500 E-Mini Futures Contract
Tick Volume and Range Bar Volatility Analysis

Intraday Trading
S&P 500 Index Futures E-Mini Contract (ES)
1600 Tick Volume and 512 Tick Volume

S&P 500 Index Futures E-Mini Contracts (ES)
Shorter-Term Tick Volume Analysis

All of them can be used at the same time to set up trades in various market conditions.  They’re based on a system I developed over the years to trade Futures, and I wanted to show you what Technical Trading might look like from a chart perspective (see my Chart Setup for All Seasons for an explanation of the layout).

The charts are not a trading system in themselves but are great for analysis and timing entries and exists for the trading Method you’re using.

The application of the systems you’ll use will come in the detailed training with your Trading Partners.  My layouts can give you a different perspective and add to the techniques you will develop over time.  Knowing your market is key, and nothing happens in a vacuum.  The more input you have about the market you’re trading, the more control you’ll have over the results.

Learning various Trading Systems early on helped me develop these charts with a lot of help from Trading Partners at each stage of my learning process.

One of my themes here at The Diversified Trader is to not try and find the one answer that will meet all your goals (it doesn’t exist) but to learn from multiple sources to be able to manage the different parts of your Wealth Building Plan.  Even within each Style of trading, multiple views of the same thing give you a leg up in managing that section of your plan.  You learn to manage those skills through putting together different trading cultures for the Methods you’re using, so you can end up with the most productive combination.

Each part of your plan needs different expertise to be successful, and Intraday Trading is no exception.

The only way I arrived at being able to trade the E-Mini Futures contracts, or even knew that they were the best choice, was by studying and trying multiple trading systems and education programs.  There was no one program that had all the answers; so, how was anyone going to know what to do?  By this trial and error method, I learned the all-important lesson of what not to do and how confusing the retail marketplace really is.

How to find the best path to take to control of your financial future, without all the detours, is what I want The Diversified Trader to show you, which includes picking the Trading Partners I like to form the basis for your success.

To make Intraday Trading a part of your business of wealth building, your education and training should come from multiple, independent sources to give you the control over the outcome that comes with having the diverse knowledge that will give you the tools to succeed.  Even though you’re using a Programmed Trading System, the market intelligence and direction you get from independent technical analysis puts you way ahead of the curve in achieving consistent results.

To make all this happen, if you haven’t already, get to know all about Education – The Path to Independent Wealth Management, which will set you on the path to creating your Wealth Building Plan the right way.

 

It Is Your Business

 

Here’s to Building Character,


Ted Bliss
Your Research & Development Coordinator
TheDiversifiedTrader.com

 

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