6 Key Components of Winning Trading Strategies

Today's Guest Blogger is Chris Dunn of Emini Academy. Chris and the Academy specialize in identifying high probability trade setups in the fast-paced e-mini S&P futures market. Today Chris is going to share with us his key components in a winning trading strategy.

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Over the past 8 years, my team and I have been able to test over 200 different trading strategies and systems in the e-mini, currency, and equity markets.  We've used and abused everything from standard indicators, to fully-automated trading systems.  As a result, we found 6 key components that would repeat themselves in most of the winning strategies.

The purpose of this article is not meant to give you an all-inclusive list of what you need to have in a winging strategy; however, it’s meant to show you the 6 key components we require of any strategy we choose to trade. Our required components are as follows: price pivot areas, momentum, multiple time frames, profit targets, entry strategy and high probability trade setups.

1.  Price Pivot Areas - When we talk about "price pivot areas", we're not referring to floor trader pivots or any single way of pre-plotting potential pivot areas.  Rather, we're looking at what the market is doing now to determine current areas where the market has a high probability of changing direction.  There are thousands of ways to find pivot areas.  For example, you can use basic price support and resistance.  Also, there are many indicators and oscillators that, when used properly, can accurately predict when price should pivot.


2.  Momentum - It can be extremely valuable to add an extra level of perspective through "momentum" indicators.  And since not all price moves are created equal, it's important to have the ability to measure the strength (or weakness) behind a move in price.  Furthermore, gauging momentum into potential pivot areas can help you anticipate if an area should hold or break.


3.  Multiple Time Frames - This has been an area of confusion for a lot of traders.  I've seen people use everything from a single time-frame, up to a dozen time frames on a single market.  We typically use two time-frames when trading a single market.  This gives us different "zoom levels", which can help with pin-pointing our entries and managing our exits.  We use our "main chart" where we look for our setups to line up.  Then, we use a smaller chart as our "entry chart" to help us pin-point the entry and gauge short-term momentum.

4.  Profit Targets - We've seen a wide range of opinions when it comes to using profit targets.  On one side of the fence, you've got traders who use automatic profit targets based on pre-determine dollar values.  For example, Trader A might use an automatic target of 4 points ($200 per contract) on the S&P 500 e-mini futures contract.  The other school of thought says that you don't need to use any targets, and only close the trade once the market shows conditions favorable to exiting the market.  We use "dynamic profit targets", which give us a way to gauge the initial profit potential on a trade, but also leave us open to take profit prior to or beyond our initial target based on what the market is showing us in real-time.

5.  Entry Strategy - Have you ever known that you were looking to go long or short, but didn't know exactly when to pull the trigger?  If you answered yes, then what you are lacking is a structured entry strategy.  An entry strategy is simply a set of rules that tells you when to pull the trigger and where to place your entry and stop.  This is a vital piece of the puzzle that, if handled properly, can take a lot of the emotions and guessing out of trading.  We typically have 3 entry strategies to any system.  Basically, we look for entry characteristics that help us to execute a low risk entry and maximize the potential reward.

6.  High Probability Trade Setups - When we bring all of the previous 5 components together, we look to structure what we call "high probability trade setups".  Essentially, we're looking for repeatable, defined patterns that give us a distinct "edge" over the market.  We want to know that every time we pull the trigger, we're going to win more than we lose, and our winners are going to be bigger than our losers.  Some traders use fully-automated trading systems to take all the guessing out of their trade setups, while other traders use discretionary methodologies which rely highly on human intuition.  At the Emini Academy, we use rules based, structured strategies that take the guessing out of what trades to take, but also allow our traders to trade the markets in a way that fits their personality and risk tolerance.

The most important thing is consistency.  When you find something that works, stick with it.  All too often, traders spend a lot of time and money "system hopping", or constantly changing their approach to the markets.  The key is to find a strategy that you are 110% confident can pull consistent profits from the market, and then stick to that system.

Best of luck in the markets,

Chris Dunn
Emini Academy

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Chris Dunn is a professional e-mini day trader and the founder of the Emini Academy.  The Emini Academy developed the proprietary MAP Trading Strategy for identifying high probability trade setups in the fast-paced e-mini S&P futures market. Chris will be doing a Free Live Webinar on Tuesday, March 16th in which he will be offering Trader's Blog readers a special bonus. For more information and to enroll click here.

28 thoughts on “6 Key Components of Winning Trading Strategies

  1. Thank you for sharing it helps me lot to come up with great ideas.
    Reading in your site helps me learn a lot with a new ideas.
    I'm glad to come across in this valuable site.

  2. EXACTLY Maria!

    I'm bothered by the fact Market Club even let you "share your advise with us." I agree with Maria, your marketing is great! Just from the article alone, it's evident you're a good marketer because your teaser "advise" is nothing more than a hidden advertisement.

    I'm very open minded and against my better judgement I decided to visit your site and attend a webinar. However, every time I clicked on something.... nothing happened. I re-read this entire thread and apparently I'm not the only one who experienced this problem. No offense but this makes it difficult to take anything you say seriously.

    I know there are a lot of people pitching their proprietary trading systems all over the internet these days. I ignore them and I'd ignore you too but somehow, but like a snake you slithered your way into Market Clubs education center and started preyed on the weak. That is what concerns me.

    Just understand this, and I hope people reading (especially Market Club staff) will weight in on my central point. You state "We want to know that every time we pull the trigger, we're going to win more than we lose, and our winners are going to be bigger than our losers." Now this sounds terrific but If you developed a system that could win more than it loses, and on those rare times when you did lose, only lose a little than you'd be a genus with a net worth well over a billion dollars and probably even own an island or two.

    Here's my point, if you were honest and the statement you made was true, the last thing in the world you want to do is give away your system. Once you do that and everyone starts using it, it no longer generates profits. So cut the crap. Market Club readers, I suggest reading the book "Way of the Turtle," it will help you see right through these scams and actually develop your own unique customized trading system.

    MarketClub, I'd really like to know why this guy was allowed to solicite your customers? People pay a lot in membership fees and most of the outsiders you invite to share their investment advice are sincere and credible. I've learned a lot from them but something weird happened here. Did you just drop the ball on this one?

    Again, that book is called "Way of the Turtle." It's kinda old but probably one of the best investment books ever written.

    - Justin Miller

  3. Chris What are you telling us here has little to no value I do not get it. You have not been around too long it seems. Seems you are very good with social media and marketing from what I see. But a valuable educator I doubt it..(By the way the only proof that I know from the above comment bu Justin is showing that your Map process generates REAL results nothing else and if so please show us the results by all means)

  4. NO one talks about stocks or trading the ETFS. Its all about futures and forex. Want to lose you money even faster listen to these clowns.

  5. Justin, come to one of our live webinars and I will prove it!

    Stay profitable,

    Chris Dunn

  6. Chris,

    A scam can be many things but in this case, it's your unrealistic investment strategy and the expectations people here have for your "system." Specifically it is this statement that bothers me.

    "Essentially, we're looking for repeatable, defined patterns that give us a distinct "edge" over the market. We want to know that every time we pull the trigger, we're going to win more than we lose, and our winners are going to be bigger than our losers."

    Now as great as that sounds, an experienced investor can see right through this and I'm sure an newby will jump right on board thinking they can take a ride on your ride to riches system.

    All I have to say is this. PROVE IT!

  7. Interesting... It's also important to have a somewhat objective exit strategy. I find people can figure out when to enter a position... but it is often emotion that drives them to hang on too long or not exit when the need arises.

  8. Trade2bfree, the website seems to be working properly. Please shoot me an email if you are still having issues: [email protected].

    Ray, just curious... how is this article telling you to reinvent the wheel?

    Justin, this article isn't about a single system. It's about components that can help you develop a winning system. And since when is proper risk management and an edge over the market "a scam"?

    Best of luck,

    Chris

  9. Well I wasted my time too, so you're not alone. Amazing how almost everyone here actually thinks this system will make them money.

    According to this guy, he has more winning trades than losing trades and he has far less losing trades to begin with. This seems like a scam.

    MarketClub, you usually have people come here and share useful and practical investing advice. So what happened here?

  10. Great just what I needed another article telling me to go and reinvent the wheel. If I knew how to do that I wouldn't be wasting my time reading this article.

  11. Hi Chris,

    Your home page is not allowing sign-up.
    Name and e-mail fields are not active.

    Please have it corrected, so we can sign-up

    Thanks.

  12. Chris, I just watched all of your videos on your blog. Very impressive indeed. Your entries are amazing. I will see you at the webinar.

    Sharon

  13. Very good points Chris. I have seen some of your work and am looking forward to attending the online training next week.

    My best,

    Leon

  14. Joe, the analysis we use is geared toward short-term trading for daily income, not "16 year cycles". I could care less what the market is going to do years, months, or even days from now. And yes, we make money AND keep it.

    Best wishes,

    Chris Dunn

  15. When you say you have researched these strategies, what exactly do you mean?

    You're comments on the utility of each strategy contain little in the way of the sort of language conventionally used by researchers in financial statistics.

    Indeed, you provide absolutely no proof of the efficacy of particular tools, or more accurately, that is the variable efficacy of these tools. Because - as all researchersin finance know - very little works, and nothing works all the time!

    John P. Cuthbert

  16. I yet to see somebody who made money in the market and KEPT IT, other than who played the cycles. The longer the cycle {the older you get} the more money you make.
    The cycle is now on, in the energy and natural resources. It started in 1999 july 18 with gold at $252 London second fix. The average in gold cycle is 16 years. How do you know at this time whether it is going to be 14 or 18 or anything in between?
    WHEN EVERYBODY IS IN IT, when there will be nobody left to buy anymoore, that is THAT IS THE END OF THE CYCLE.
    Joe

  17. Michael, I look for an average 3/1 R:R ratio. The minimum initial potential I'll ever take on a trade is 2/1, but typically it comes out closer to 3/1.

    For example, my maximum loss is 1.25 points on the ES, but the average loss comes out to about 1 point ($50 per contract). My average win is right around 3 points.

    I have three different trade setups, and the average win ratio is in between 60% and 85%.

    Last month my average trade time was around 8.5 minutes. This is pretty typical...

    Thanks for the questions and feedback.

    - Chris Dunn

  18. In your consistent set up pattern that you look for what is your expected ratio of risk to reward? what is your average length of time in the trade and what is your average percent gain?

  19. Rob, I agree with you about what you said about risk management. Technical analysis without a pre-defined risk management plan is worthless. However, if you're just managing risk with no consistency in your analysis, then you have no chance of seeing consistent profits.

    For example, I have a maximum stop loss of 1.25 points on the S&P 500 emini (Symbol ES), but I also have pre-defined setups that make sure I'm executing the same way every day. Simply stated, if you can win more than you lose, and have winners bigger than your losers, then you're going to be profitable.

    - Chris

    1. Agreed with emphasis that consistent risk and money management, including position sizing, is the most important factor in becoming a consistent trader. Key is taking small losses and outsized gains (I also look for the 3:1R as noted by Chris). In this way, even if a trader is losing on more trades than winning, s/he can make money in the long run. All the other techniques, and there are many including those promulgated by Chris which are good ones, add incrementally to becoming a consistent trader.

    2. You can also lose more trades than you win and still be profitable if the average loss on your losing trades is small and the average gain on your winning trades is much greater.

      If you have a system where you win more trades than you lose and the wins per trade are greater than the losses per trade than you've stumbled on a miracle.

  20. Money management and consistance are the two keys that I use. The rest and the most important is psicology...how to control your psicology.

  21. Anyone who has traded for a while knows that the most important thing in trading, and the only thing a trader really has control of, is risk management/money management (different sides of the same coin including position sizing). Markets go up and down, but unless you know when to get out of trade or investment, and know this before you get into a position, you are gambling not investing. In fact, knowing your exit point and therefore how much risk you are willing to assume before you enter a position is much more important than picking an entry point or any other factor. Nothing else really matters since if you are gambling you will eventually lose all (and possibly more due to leverage) of your money and no longer be in the game.

    Period. End of discussion.

  22. Absolutely William... That's no easy feat, but fairly "simple". It took us 2000+ hours to find something that works consistently... Was well worth the effort!

    - Chris

  23. The last paragraph is the key and summed it all up.......

    """""""The most important thing is consistency. When you find something that works, stick with it. All too often, traders spend a lot of time and money "system hopping", or constantly changing their approach to the markets. The key is to find a strategy that you are 110% confident can pull consistent profits from the market, and then stick to that system."""""""

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