TradeStation recently held their trading workshop at the CME Group’s offices in London on 14th March. The event, ‘Is Volatility Back? Opportunities in the Futures Markets’ had many active traders in attendance. The four guest speakers covered a number of key themes, including: the Chinese economy and upcoming trends in energy markets, currencies and fixed income; creating strategies in the futures and equities markets based on biases and seasonality; trading breakouts on an intraday time frame; and using market volatility to create trading strategies for futures.
After a brief introduction and overview from Rustam Lam, CEO of TradeStation International, he then invited Rakesh Shah, a day trader and founder of Ten Point Trading, with over 25 years in technical systematic strategies, to speak about his methods for approaching a trade and effectively utilising popular trading signals such as Bollinger Bands.
How to approach a trade
Rakesh Shah started by highlighting the importance of having a concise set of rules to follow. “The most important thing I've learnt is that if you have a concise set of rules that you follow yourself, that's pretty much the only way you find success in the industry.” Frequently jumping between many different strategies is where most traders tend to fall apart. He added that trying to trade more than about seven key markets “can become a real handful”.
In many ways, successful trading is about the ability to measure risk. “I'm not really in the business of trading; I'm in the business of calculating and measuring my risk at every moment that I'm in the market. If that isn't measured and calculated, and if I'm not on the right side of those measurements and calculations, nothing else matters,” said Rakesh Shah.
Every trade starts by asking the following questions, “What is it, exactly, that I'm trading? What am I trying to do? I'm trying to do a couple of things; I'm looking for swing changes.” He then outlined the five phases of his trading strategy: Please can Rakesh confirm that these are indeed the five phases?
Timing - Looking at moving averages to determine what is happening in the market at this moment.
Understanding where the market is relative to where its been in the last day / week / year - “You need the wind behind your sails.”
Treat long and short trades differently - Please can Rakesh briefly expand on this point? (It wasn’t completely clear from the audio; he was asked a question by an audience member)
Operate like a machine, repeat, look at how the market works; operate on autopilot. Don't be emotional and don't get carried up. “If the market's gone down three times it will go down four. Every time you look at the market it's absolutely fresh.”
Sometimes the market provides really good clues. “There are two types of changes in trend. There's a change in trend which is accompanied with a lot of volume and there's also a change in trend which is accompanied with very skinny, or very low volume.”
Focus on the popular trading signals
“I'll look for every technical trading signal that is popular in the market. It has to be popular.” These signals include Fibonnaci, Swing Trading and Trend Lines, avoiding those that are less popular and more obscure, such as Renko charts. Rakesh Shah also looks at Bollinger Bands in three standard deviations. “The standard number for Bollinger is two standard deviations. When the market breaks through two standard deviations, if there's no obvious place on the chart, what's the next target? Three standard deviations,” said Rakesh Shah.
Markets have changed. “You have to understand that the support and resistance levels that are created are driven by almost ninety-nine percent electronic trading. There may be some trading that is not. Of that, maybe seventy to ninety percent, depending on the market, is automated.” Questions to ask include: Where are they going? What price do they want to get out at? At what price do they feel uncomfortable? At what price would they start measuring their models at?” Rakesh Shah stressed that this presents an opportunity for traders, and that the answers to these questions are “very obvious”.
When building systematic trading models every day, “if the market goes more than one standard deviation, it's ninety-five percent, another standard deviation level set is ninety-eight percent”. The probability that the market will move more than that is very slim, so “I’ll exit there, ” said Rakesh Shah. So people will start to use standard deviations - which are the same as Bollinger Bands - “to help them to know that they're in a safe zone, a very safe zone, or they're getting to the extremes of a move. And should they hold on to that position and cash that profit in or let it go?”
Rakesh then started to show the audience how his approach works by analysing charts and carrying out live trades on the TradeStation platform.
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“These are educational workshops designed to demonstrate what we believe are the valuable benefits of using TradeStation platform. No investment or trading advice, recommendation or strategy regarding any security, group of securities, market segment or market is intended or shall be given. The speakers are independent entities and are not affiliated to TradeStation International.
TradeStation International Ltd, authorised and regulated by the Financial Conduct Authority (FCA) in the United Kingdom, acts as an introducing broker to TradeStation Group's affiliates and non-affiliates, such as Interactive Brokers (U.K) Limited.”
Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
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