Swing Trading Risk Management and Strategies

Welcome back folks. This is Lesson 6, February 2017 ICT Mentorship. Swing trading is our topic for this month. This teaching is going to be focused on reducing risk and maximizing potential reward swing setups. Okay, reducing risk. This begins with knowing your maximum risk purchase setup or trade. You should not allow high risk percent per trade. This equates to gambling, obviously. And professionals, when they're trading, they look to frame setups with low risk and high reward. Now with swing trades, we're only focusing on framing the monthly and weekly levels ideally. So when we look at monthly and weekly levels, that means the PD arrays for a premium. We're looking to sell those levels. That means we're looking for bearish order blocks, bearish liquidity voids to trade up into to sell short, optimal trade entries, bearish fair value gaps. We're looking for old highs to short, a false break above. We're looking for rejection blocks, candles that have real long wicks. We're going to look to try to sell above the bodies of those candles. We're going to be looking to sell at old lows and old highs, either or. That same thing is seen as a premium. Or, obviously, everything in reverse. We're looking for mitigation blocks, breakers, bullish order blocks, voids below us, old lows and old highs, and rejection blocks with candles that have long wicks. We'll look for sell stocks below the bodies of those candles before a rejection block. And by only framing trades along those monthly and weekly levels. Now, again, I like to use. order blocks in these teachings because to make the videos with every possible scenario it would be ridiculous in terms of length but you're looking for in terms of the pd array matrix everything above you you go in the order that that matrix shows you and again there may not be a void there may not be a fair value gap but as you progress through that list from the bottom up for premium pd arrays and from that list top-down for the discount PDA raise, that's the order in which you hunt the current range you're trading in. By using those levels or those arrays on the monthly and weekly charts, it will give you the context of what you're going to be trading off of. If we see the market is going to give us a monthly and weekly level for bearishness, we're going to be looking for monthly discount arrays to reach into. And we're going to be looking for the very first one in the list. That may be a mitigation block. It may be a bullish breaker. It may be a liquidity void that's below us. Again, anything in terms of the discount PDRAs, that would be our objective on the monthly chart. So you're framing the trade on the monthly and you're framing the objective on the monthly. So you're looking for massive amounts of range. So even though... These ranges are huge. Many times, traders, if they are trying to trade big moves like this, they still maximize their leverage and they still maximize their risk. And there's no reason to do that. Don't try to put too much risk on your trade and try to get rich in a handful of trades. It doesn't work. Don't try to double your account every single month. It's not necessary. And especially for some of you that are in this mentorship that are aspiring to be fund managers, you simply don't want to do that. You want to keep your risk really, really small. Because that sells your business model to potential clients when they see how very low your risk is and how consistently you're pulling in returns. And as we're going to outline in this teaching, how we're going to get those returns to be really big in relationship to the risk that's used. Again, looking at higher time frame PDA raise and using four hour entries. This is going to permit your setups to have tighter stops. Now, obviously, if we go into later teachings in this mentorship, you'll be able to reduce the risk even more than we're going to outline in here. But for the average Joe that's operating a business or working a job, a desk jockey, someone that has no real free time to be in here day training every day, you don't need anything less than a four hour. If you can't check your phone a couple times throughout the day, and you don't need a whole lot of time checking it, but you just need to be able to have access to a four-hour chart. And many times, you're going to see that the setups actually are around the close of the day. You'll be able to do a lot of these trades framed the day before or the night before. So it's not like you have to be in here every five-minute basis and checking it all the time. But by using the higher time frame PDRAs, as we discussed a moment ago. reference to the monthly and weekly levels, if we are looking for that to frame our trade, think about the massive range that could potentially be there. And then we're going to reduce down to a four-hour time frame to frame the entry. By doing so, we remove all the necessity to have a big, huge stop. As we discussed in the position trading method in January, we were framing it entirely on a daily chart. Now, I'm not going to rehash the entry techniques that was taught in January. I'm going to refer to you back to that same limit order and buying on a stop and selling on a stop. Those entry patterns or those entry techniques, they're going to be applicable to your swing trading. OK, so just go refer back to those previous lessons that we don't have to do a lot of rehash. But those same entry patterns used with your swing trades on a four hour basis. Those patterns for entry can help you reduce your risk. Now, if we are focusing on these maximum timeframes, monthly and weekly, and that's giving us the context for our trade. Again, the range is being very large. Monthly ranges can be several hundred pips. Weekly range could be a couple hundred pips. Daily, a hundred pips or so. By having a four hour, it reduces the ranges to a smaller, more conservative. number in terms of what we can frame our risk around. Use nothing less than three to one reward to risk ratios. Now, I say this as just a reminder, but you're going to absolutely have a difficult time having trades with just three to one using this criteria. Many times it's going to be five to one, ten to one is not unheard of. And we'll show an example in this teaching and actually give you a homework to go in and look for other ones. But 3 to 1 is easy. And when you trade with reward to risk ratio conditions, you only need to be accurate 30% of the time to be profitable. Now think about it. You can lose 70% of the time if you're trading with 3 to 1 reward to risk. Imagine being wrong 70% of the time and only right 30% of the time and still being net positive. Being profitable, being wrong that many times. Now, if you compound that with the fact that you can get with five to one, ten to one reward to risk, how many times can you afford to be wrong in those conditions? You can be wrong a lot and still be extremely profitable. Now, leverage is your holy grail in swing trading. OK, you're going to look to control. your leverage, and you're not trying to maximize it. Just because your broker's trying to give you 50 to 1 in the States, and who knows where you're at in the globe, where they're trying to give you 100% or more. I don't know. I don't keep up with it anymore in terms of who allows what brokerage firm to give that type of unheard of leveraging. But I'm going to be frank with you. You don't need that much. In futures, it's about 10 to 1. Generally, it's about the leverage you get when you're trading commodities. Forex and states, we have a maximum leverage benchmark at 50 to 1, and you don't need that to get wealthy. You certainly don't need that to get wealthy in a very short period of time. And I'm not trying to define that in terms of weeks or months, but you can certainly get there before your 401k would get you there. All right, so maximizing the reward. Okay, this is obviously what everybody does when they're trying to trade, they're trying to get the most bang for their buck. Well, the key is only trade on higher timeframe monthly and weekly levels. We already said this, but I have to keep beating it in your head because you're so interested in these lower timeframes. Not so much now because we've been spending such a long time on the higher timeframes and you've seen the importance of it, but these higher timeframe levels, they are exactly... what you're looking for in relationship to smart money plays. Smart money can't see the five-minute order block. Okay, the algorithm is just allowing the price to get down to those levels, and then you're getting responsiveness off based on limit orders. But those responses are really patterned off of a higher timeframe price level. That means a daily, a weekly, or a monthly. And they layer their orders just above or just below these levels. They don't all have the set entry order at the same price. So when we have these... daily levels or four-hour levels, there's going to be a specific level in mind. For instance, it could be the big figure. It could be a 20 level. It could be a 80 level or 50 level. But just above it would be, for instance, if we're looking at the mid-figure level and we're expecting some bullishness, it could be a bullish order block that forms at the 60 level, which is just 10 pips above the mid-figure. But overall, they're averaging around at 50 as a whole. But you can see orders start building in with the lower timeframes, as we'll talk about when we get into short-term trading and day trading and scalping. But we don't necessarily need any of that to get involved with these types of trades using a four-hour. So timing a four-hour entry on higher timeframe levels, that offers the maximum R multiples. Now, what's an R multiple? That's your reward on the risk that you're associating to that trade. So if you're trying to get a multiple of, say, five or get five R on your trade, you're trying to get five dollars for one dollar risk. So if we're framing our trades with nothing less than three to one. And again, it's very, very hard to find a three to one trade on these types of setups. Many times it's like I said, five or higher, sometimes 10, 12, even 15 to one. In some instances, if you look hard and you wait for the setups to come. Believe me, they are there. But having these R multiples, that's what professionals do. We put very little money at risk to get huge price moves, massive price moves in relationship to the overall risk that we put to our account. Now, higher time frame levels that offer ranges of 200 to 500 pips, they can yield up to 10 R wins. That means imagine you put a dollar up. $10 back for that win. How many times do you need to do that over the course of a year if you're managing funds to return a return of, I don't know, 20%, 30% where everybody goes as static as the industry standard? If you can hit that mean, you're killing it. You don't have to do very much to do that. And that's why I'm trying to stress that if you think you have to trade a lot to do very well in this business, you are mistaken because you can manage other people's money. and get a great deal of money doing that and do very little trading. The public, to the uninformed money that place funds in your hands, they're basically uneducated. They assume for general principle that you're in here every day like a day trader, basically like you've been doing before you joined this mentorship, every single day scouring over intraday charts, working your rear end off to get very little. So if... Your clients think that you have that work ethic and you're working very, very hard when you're really not working all that hard. That's why these fund managers live the lifestyle they have because they do very little to get what returns they have. They put very little risk in there because they don't want to scare the clients away with a lot of drawdown. But if they take big, massive moves out of the marketplace with very small risk, it looks amazing on paper and it compounds the bottom line. And it's a very handsome reward over the year. Now, granted, some of you are probably thinking, I don't want 30%, Michael. That's just simply not enough. I need more than that per year. Let me tell you something. When you have $10 million in your management and you show a 30% return, believe me, you don't just keep $10 million. People will start knocking on your door, beating your door down, ringing your phone off the hook. Please take my money. Large, big buyers, large investors will be beating your door down to get a hold of you. So you can manage their money. And remember, there's typically one to two swing trades every four to six weeks. So about a month and a half or so, about a month, month and a half. Generally, you're going to get one, maybe two swing trades. The second one is just basically usually beginning around that time. But the frequency is about one every four to six weeks. And that's a pretty safe assumption. And if you look at the time frame on the daily chart, you'll see that that's pretty much the average. So that means you're. presented a lot of time to prepare for these trades. You're not over the charge every five minutes. You don't have to be there every single day either. You can miss a day if you have to. You have a life. You have a business. You got to do a business trip or whatever. You can still swing trade. You don't need to do a whole lot to do this. By removing high leverage and coupling higher timeframe setups with high R's, this is key. So if you can remove the high leverage, in other words, we're not trading with 50 to 1. We're not trading with 100 to 1, 200 to 1, or 400 to 1, if they even still allow that anymore. By removing that high leverage, you can actually trade with just 3 to 1 leverage. That means if you have a $10,000 account, you're only trading with three minis. And I know that probably just blew your mind. What? I didn't come here to learn that. Sure you did. You came here to learn to be profitable and have risk. managed. Low risk, high reward. The way you answer that equation is number one, you have to remove your leverage. Your leverage is going to kill you. When you build your positions up to the point where you can eventually trade at a larger size and say you get into two million dollar mark, you can start considering going into, and you really should consider going into prime brokerage. Prime brokerage will not allow you to leverage. You're deleveraged. So that means whatever you have on deposit, that's the maximum you're going to do. And then frankly, you're not even going to trade with that leverage either. You're going to actually be under leveraged. In other words, if you have a million dollars on deposit, you're not trading with a million dollars leverage. Many times you're trading with a half a million dollars. And it probably sounds counterproductive, but you're actually doing very well when you have those seven digits and you don't need very much return. to keep doing very well. And again, at that point, you don't want to risk anything. You want to keep your risk very small and still allow your big profits in terms of reward to pan out. Now, if you consider that leverage of three to one, okay, and you're looking for setups that pay out as high as 10R, it can yield up to 15%. So if you're risking one and a half percent on your equity per trade, and you get a reward of... 10 for $1, you're making upwards of 15% on that one transaction or that one trade. How many of those do you need per year? Now, do the math. Say you're getting an average of six really choice swing trades per year. And I already know some of you thinking, man, this is not active enough. I need to be doing something more. No, you don't. No, you don't. Well, who says you have to do more? You're here. to learn how to be profitable. So if you can have a life, do other things outside of trading and still do exceptionally well, think about it, 15%. If you manage funds, okay, and you're risking 1.5% risk and you're using three to one leverage and you're using an average of 50 pips per stop, okay, when you do that, focusing on just six swings per year alone and that setup, offering of 10 reward to risk for $1, you get back 10. If you do that, you're more than doubling that equity. Now think about that for a second, folks. If you can look for setups that yield 10 to 1, and believe me, when you go through the homework that I'm going to give you in this teaching, you're going to see just how easy 10 to 1 multiples are defined in swing trading. If you just take six of them per year, six trades, that's it. Six trades, risking 1.5%, using 3-1 leverage, and about a 50 pip stop. You're more than doubling your equity every single year. Now, that's not doubling your money every single month. It's not getting 25% every week. It's not getting... 15% on your day trades. It's being very, very conservative, very low frequency. The opportunity for drawdown is very, very low because your frequency is low and your risk is already predefined at 1.5%. You know what you're looking for. There's a frequency of about one trade every four to six weeks and you're looking for ideal setups around a monthly and or. a weekly level. By framing these ideas and hunting setups that offer 10 to 1, This will give you the context and framework to double your equity or your managed fund equity in the course of just six trades per year. You don't have to rush. You don't have to take every single swing trade. If it doesn't look right, just wait. There's something setting up something every four to six weeks. There's some kind of trade that offers you an opportunity to do something in the marketplace. But if you're framing the setups on a monthly and or weekly level, These can offer huge multiples of reward to risk. All right, we're going to take a look at an example here and start giving you some ideas how you can flesh this out about maximizing reward and reducing risk. In this example, we're going to be looking at the euro dollar. And I want to take a look at this high here. The high was formed in 2011 in April. And we're using an old monthly high. So we're high in the range. So we're deep, deep, deep in terms of the premium in relationship to an old high back in 2009 in October. We've defined the bearish order block, which is the last up candle in October. And we've defined the mean threshold of that last up candle as well. We extended that out in time. And we got to April and March of 2011. where we hit those levels. And we're going to now take that idea and reduce it down to a lower time frame, executable time frame of four hours. I want you to take a look at this down candle here. Okay, so now we're actually going to start looking at the monthly PD arrays. So we're trading off of a level of premium of a bearish order block and focusing on the mean threshold. And below that level would be this old high. That will be the very first discount PD array. Remember, it's an old high. That could be a potential discount PD array. So we have a down candle here, which is an old high. That's left or to the left of the entry technique or pattern that we're looking to trade short at. And that's this level here. So all we're looking for is the range between. that down candle's high and entering up at that mean threshold from the order block from October 2009. And we're going to say that that level is $142.80. Drop down into a four-hour time frame at that same level. Going into May, we can see price trades up into that level. And we have the mean threshold and bearish order block noted here. And we have... 148.65 is the mean threshold and I want you to look very closely. We can see here we have a bare shoulder block last up candle right before the down move and it's highlighted with the arrow above and below it delineating that and we split the candle in half at the mean threshold as well and we delineated the low on that for the bare shoulder block. We're going to assume that We're going to use the four hour for our entry. We're looking to go short. And we're using the mean threshold on the monthly candle. And it's also the opening of that bullish candle that makes the high. And we're going to risk a stop one pip above the highest high of that candle. So we have a 70 pip stop loss. The blue shaded area. is our potential reward. Horizontal line that's delineating 142.80, that's that old monthly high. This comes to a reward range of 585 pips. So we're risking 70 pips. I know some of you are cringing by now. 70 pips? I can't handle 70 pips. 70 pips risk to make 585 pips. And you can see that that monthly old high, that again, is the first discount PDA rate that we would come to from that high at 149.20 or so. So basically, what we have there is an 8 to 1 reward to risk. So for every $1 we're risking, we're getting a potential of $8 back. as a reward. So in essence, what we can see here is just in this trade framework, we have the potential in just one trade to make as high as 12.5% return. Now, that's an amazing amount of money in the amount of percentage for one trade. And the amount of risk is minute compared to the reward. It's framed on a monthly level, and the objective to take profit is framed on a monthly level. So by framing the PD arrays and using the PD array matrix properly, we can frame trades to have an enormous amount of reward to risk potential. Okay, I'm going to give you another scenario. This is going to be homework. Okay, now we're going to focus on this high here or last bullish candle right before the down move. And we're going to be looking at that candle here as a potential short. And this is for homework. And I want you to look at the bullish order block, the last up candle. that opening price that comes in, we're going to round it to a level of 141.55. I want you to go into your charts on the Eurodollar and use a four-hour time frame and use the entry techniques that I taught in the position trading concepts for January's content. Go into that four-hour time frame as price hit that 141.55 level. Study that on a four-hour and use. the entry techniques that I taught you in January for position trading. Where would you look to take profits at? The first one you're going to be looking for, the mean threshold of that last down candle in 2010. We've already traded there once, but I want you to consider that as your first objective. And then you'd consider the down candle in October, that same candle's low. It has equal lows with the green candle to the right of it. seen here, that would be your objective looking for an opportunity for a low-end swing trade. So again, we're looking for the opportunities to be short at that 141.55 level using the entry technique that I taught you for position trading in January. And I want to see the homework shared on the form. You can do it in one chart. Just post your four-hour chart and put it in. our February questions and answers section on our forum. And I'd like to see some real interaction this time. So I know there's a lot of people doing the homework. Don't copy everybody's answer. Don't read through the forum first to see what everybody else is doing. There's no wrong answer. Just, again, it's for interactive purposes and for study and also for feedback for me so I can get a collective view of what you're all doing with the content. I believe that you'll find that there's a setup there as well. And the reward, again, here is, well, if you consider it's 135 as a potential area, as a downside objective. I mean, 141.55, if that's the price you get, and it's probably going to be higher than that, that you would use to get entry for short. That is over 650 pips for one setup. So if you can frame your trade with... a 60 pip stop loss, you can find a 10 to 1 reward to risk scenario on this trade here. Premium PDRAs and then using the monthly discount PDRAs, as we noted here, with the mean threshold of the last down candle in October 2010, or that'll be November actually probably. The downside objective is again, several hundred pips. So suddenly when you start doing these things and you start applying it, don't stop here with this example. For the remainder of the weekend, go through and try to find five examples somewhere else in another pair. It doesn't matter where at. It doesn't matter what time of year. Go in and look for a scenario just using a monthly and or weekly scenario and frame out a couple trades. Try to find five that yield at least five to one reward to risk scenario. So you have really two homeworks. You have the one that I'm giving you here, and then you have a secondary where you have to look for five scenarios using only a monthly or weekly PD array for premium or discount. And try to find actually, let's do it like this. Try to find four, two buys and two sells using this criteria to frame out swing trades and look for five-to-one payouts or potential to payout. And obviously, you have the benefit of hindsight, and that goes without saying. But this is how you study it, and this is how you get in there, and you get excited about seeing how powerful it is and how infrequent you need to worry about trading. You don't have to worry about trading all the time. You can get a massive amount of return on your equity doing very little work, putting very little risk exposure to your account. So hopefully you found this insightful. Until next lesson, I wish you good luck and good trading.

Welcome back folks. This is Lesson 6, February 2017 ICT Mentorship. Swing trading is our topic for this month.

This teaching is going to be focused on reducing risk and maximizing potential reward swing setups. Okay, reducing risk. This begins with knowing your maximum risk purchase setup or trade. You should not allow high risk percent per trade.

This equates to gambling, obviously. And professionals, when they're trading, they look to frame setups with low risk and high reward. Now with swing trades, we're only focusing on framing the monthly and weekly levels ideally.

So when we look at monthly and weekly levels, that means the PD arrays for a premium. We're looking to sell those levels. That means we're looking for bearish order blocks, bearish liquidity voids to trade up into to sell short, optimal trade entries, bearish fair value gaps. We're looking for old highs to short, a false break above.

We're looking for rejection blocks, candles that have real long wicks. We're going to look to try to sell above the bodies of those candles. We're going to be looking to sell at old lows and old highs, either or.

That same thing is seen as a premium. Or, obviously, everything in reverse. We're looking for mitigation blocks, breakers, bullish order blocks, voids below us, old lows and old highs, and rejection blocks with candles that have long wicks.

We'll look for sell stocks below the bodies of those candles before a rejection block. And by only framing trades along those monthly and weekly levels. Now, again, I like to use. order blocks in these teachings because to make the videos with every possible scenario it would be ridiculous in terms of length but you're looking for in terms of the pd array matrix everything above you you go in the order that that matrix shows you and again there may not be a void there may not be a fair value gap but as you progress through that list from the bottom up for premium pd arrays and from that list top-down for the discount PDA raise, that's the order in which you hunt the current range you're trading in. By using those levels or those arrays on the monthly and weekly charts, it will give you the context of what you're going to be trading off of.

If we see the market is going to give us a monthly and weekly level for bearishness, we're going to be looking for monthly discount arrays to reach into. And we're going to be looking for the very first one in the list. That may be a mitigation block.

It may be a bullish breaker. It may be a liquidity void that's below us. Again, anything in terms of the discount PDRAs, that would be our objective on the monthly chart.

So you're framing the trade on the monthly and you're framing the objective on the monthly. So you're looking for massive amounts of range. So even though...

These ranges are huge. Many times, traders, if they are trying to trade big moves like this, they still maximize their leverage and they still maximize their risk. And there's no reason to do that. Don't try to put too much risk on your trade and try to get rich in a handful of trades. It doesn't work.

Don't try to double your account every single month. It's not necessary. And especially for some of you that are in this mentorship that are aspiring to be fund managers, you simply don't want to do that. You want to keep your risk really, really small.

Because that sells your business model to potential clients when they see how very low your risk is and how consistently you're pulling in returns. And as we're going to outline in this teaching, how we're going to get those returns to be really big in relationship to the risk that's used. Again, looking at higher time frame PDA raise and using four hour entries. This is going to permit your setups to have tighter stops. Now, obviously, if we go into later teachings in this mentorship, you'll be able to reduce the risk even more than we're going to outline in here.

But for the average Joe that's operating a business or working a job, a desk jockey, someone that has no real free time to be in here day training every day, you don't need anything less than a four hour. If you can't check your phone a couple times throughout the day, and you don't need a whole lot of time checking it, but you just need to be able to have access to a four-hour chart. And many times, you're going to see that the setups actually are around the close of the day.

You'll be able to do a lot of these trades framed the day before or the night before. So it's not like you have to be in here every five-minute basis and checking it all the time. But by using the higher time frame PDRAs, as we discussed a moment ago. reference to the monthly and weekly levels, if we are looking for that to frame our trade, think about the massive range that could potentially be there. And then we're going to reduce down to a four-hour time frame to frame the entry.

By doing so, we remove all the necessity to have a big, huge stop. As we discussed in the position trading method in January, we were framing it entirely on a daily chart. Now, I'm not going to rehash the entry techniques that was taught in January. I'm going to refer to you back to that same limit order and buying on a stop and selling on a stop.

Those entry patterns or those entry techniques, they're going to be applicable to your swing trading. OK, so just go refer back to those previous lessons that we don't have to do a lot of rehash. But those same entry patterns used with your swing trades on a four hour basis. Those patterns for entry can help you reduce your risk.

Now, if we are focusing on these maximum timeframes, monthly and weekly, and that's giving us the context for our trade. Again, the range is being very large. Monthly ranges can be several hundred pips. Weekly range could be a couple hundred pips. Daily, a hundred pips or so.

By having a four hour, it reduces the ranges to a smaller, more conservative. number in terms of what we can frame our risk around. Use nothing less than three to one reward to risk ratios.

Now, I say this as just a reminder, but you're going to absolutely have a difficult time having trades with just three to one using this criteria. Many times it's going to be five to one, ten to one is not unheard of. And we'll show an example in this teaching and actually give you a homework to go in and look for other ones. But 3 to 1 is easy.

And when you trade with reward to risk ratio conditions, you only need to be accurate 30% of the time to be profitable. Now think about it. You can lose 70% of the time if you're trading with 3 to 1 reward to risk. Imagine being wrong 70% of the time and only right 30% of the time and still being net positive.

Being profitable, being wrong that many times. Now, if you compound that with the fact that you can get with five to one, ten to one reward to risk, how many times can you afford to be wrong in those conditions? You can be wrong a lot and still be extremely profitable. Now, leverage is your holy grail in swing trading. OK, you're going to look to control.

your leverage, and you're not trying to maximize it. Just because your broker's trying to give you 50 to 1 in the States, and who knows where you're at in the globe, where they're trying to give you 100% or more. I don't know.

I don't keep up with it anymore in terms of who allows what brokerage firm to give that type of unheard of leveraging. But I'm going to be frank with you. You don't need that much. In futures, it's about 10 to 1. Generally, it's about the leverage you get when you're trading commodities. Forex and states, we have a maximum leverage benchmark at 50 to 1, and you don't need that to get wealthy.

You certainly don't need that to get wealthy in a very short period of time. And I'm not trying to define that in terms of weeks or months, but you can certainly get there before your 401k would get you there. All right, so maximizing the reward.

Okay, this is obviously what everybody does when they're trying to trade, they're trying to get the most bang for their buck. Well, the key is only trade on higher timeframe monthly and weekly levels. We already said this, but I have to keep beating it in your head because you're so interested in these lower timeframes.

Not so much now because we've been spending such a long time on the higher timeframes and you've seen the importance of it, but these higher timeframe levels, they are exactly... what you're looking for in relationship to smart money plays. Smart money can't see the five-minute order block. Okay, the algorithm is just allowing the price to get down to those levels, and then you're getting responsiveness off based on limit orders.

But those responses are really patterned off of a higher timeframe price level. That means a daily, a weekly, or a monthly. And they layer their orders just above or just below these levels.

They don't all have the set entry order at the same price. So when we have these... daily levels or four-hour levels, there's going to be a specific level in mind. For instance, it could be the big figure. It could be a 20 level.

It could be a 80 level or 50 level. But just above it would be, for instance, if we're looking at the mid-figure level and we're expecting some bullishness, it could be a bullish order block that forms at the 60 level, which is just 10 pips above the mid-figure. But overall, they're averaging around at 50 as a whole.

But you can see orders start building in with the lower timeframes, as we'll talk about when we get into short-term trading and day trading and scalping. But we don't necessarily need any of that to get involved with these types of trades using a four-hour. So timing a four-hour entry on higher timeframe levels, that offers the maximum R multiples. Now, what's an R multiple?

That's your reward on the risk that you're associating to that trade. So if you're trying to get a multiple of, say, five or get five R on your trade, you're trying to get five dollars for one dollar risk. So if we're framing our trades with nothing less than three to one. And again, it's very, very hard to find a three to one trade on these types of setups.

Many times it's like I said, five or higher, sometimes 10, 12, even 15 to one. In some instances, if you look hard and you wait for the setups to come. Believe me, they are there. But having these R multiples, that's what professionals do.

We put very little money at risk to get huge price moves, massive price moves in relationship to the overall risk that we put to our account. Now, higher time frame levels that offer ranges of 200 to 500 pips, they can yield up to 10 R wins. That means imagine you put a dollar up. $10 back for that win. How many times do you need to do that over the course of a year if you're managing funds to return a return of, I don't know, 20%, 30% where everybody goes as static as the industry standard?

If you can hit that mean, you're killing it. You don't have to do very much to do that. And that's why I'm trying to stress that if you think you have to trade a lot to do very well in this business, you are mistaken because you can manage other people's money.

and get a great deal of money doing that and do very little trading. The public, to the uninformed money that place funds in your hands, they're basically uneducated. They assume for general principle that you're in here every day like a day trader, basically like you've been doing before you joined this mentorship, every single day scouring over intraday charts, working your rear end off to get very little. So if... Your clients think that you have that work ethic and you're working very, very hard when you're really not working all that hard.

That's why these fund managers live the lifestyle they have because they do very little to get what returns they have. They put very little risk in there because they don't want to scare the clients away with a lot of drawdown. But if they take big, massive moves out of the marketplace with very small risk, it looks amazing on paper and it compounds the bottom line. And it's a very handsome reward over the year. Now, granted, some of you are probably thinking, I don't want 30%, Michael.

That's just simply not enough. I need more than that per year. Let me tell you something. When you have $10 million in your management and you show a 30% return, believe me, you don't just keep $10 million.

People will start knocking on your door, beating your door down, ringing your phone off the hook. Please take my money. Large, big buyers, large investors will be beating your door down to get a hold of you. So you can manage their money.

And remember, there's typically one to two swing trades every four to six weeks. So about a month and a half or so, about a month, month and a half. Generally, you're going to get one, maybe two swing trades. The second one is just basically usually beginning around that time.

But the frequency is about one every four to six weeks. And that's a pretty safe assumption. And if you look at the time frame on the daily chart, you'll see that that's pretty much the average. So that means you're.

presented a lot of time to prepare for these trades. You're not over the charge every five minutes. You don't have to be there every single day either.

You can miss a day if you have to. You have a life. You have a business.

You got to do a business trip or whatever. You can still swing trade. You don't need to do a whole lot to do this.

By removing high leverage and coupling higher timeframe setups with high R's, this is key. So if you can remove the high leverage, in other words, we're not trading with 50 to 1. We're not trading with 100 to 1, 200 to 1, or 400 to 1, if they even still allow that anymore. By removing that high leverage, you can actually trade with just 3 to 1 leverage. That means if you have a $10,000 account, you're only trading with three minis. And I know that probably just blew your mind.

What? I didn't come here to learn that. Sure you did. You came here to learn to be profitable and have risk.

managed. Low risk, high reward. The way you answer that equation is number one, you have to remove your leverage.

Your leverage is going to kill you. When you build your positions up to the point where you can eventually trade at a larger size and say you get into two million dollar mark, you can start considering going into, and you really should consider going into prime brokerage. Prime brokerage will not allow you to leverage.

You're deleveraged. So that means whatever you have on deposit, that's the maximum you're going to do. And then frankly, you're not even going to trade with that leverage either. You're going to actually be under leveraged.

In other words, if you have a million dollars on deposit, you're not trading with a million dollars leverage. Many times you're trading with a half a million dollars. And it probably sounds counterproductive, but you're actually doing very well when you have those seven digits and you don't need very much return.

to keep doing very well. And again, at that point, you don't want to risk anything. You want to keep your risk very small and still allow your big profits in terms of reward to pan out.

Now, if you consider that leverage of three to one, okay, and you're looking for setups that pay out as high as 10R, it can yield up to 15%. So if you're risking one and a half percent on your equity per trade, and you get a reward of... 10 for $1, you're making upwards of 15% on that one transaction or that one trade. How many of those do you need per year? Now, do the math.

Say you're getting an average of six really choice swing trades per year. And I already know some of you thinking, man, this is not active enough. I need to be doing something more. No, you don't. No, you don't.

Well, who says you have to do more? You're here. to learn how to be profitable.

So if you can have a life, do other things outside of trading and still do exceptionally well, think about it, 15%. If you manage funds, okay, and you're risking 1.5% risk and you're using three to one leverage and you're using an average of 50 pips per stop, okay, when you do that, focusing on just six swings per year alone and that setup, offering of 10 reward to risk for $1, you get back 10. If you do that, you're more than doubling that equity. Now think about that for a second, folks. If you can look for setups that yield 10 to 1, and believe me, when you go through the homework that I'm going to give you in this teaching, you're going to see just how easy 10 to 1 multiples are defined in swing trading.

If you just take six of them per year, six trades, that's it. Six trades, risking 1.5%, using 3-1 leverage, and about a 50 pip stop. You're more than doubling your equity every single year. Now, that's not doubling your money every single month. It's not getting 25% every week.

It's not getting... 15% on your day trades. It's being very, very conservative, very low frequency. The opportunity for drawdown is very, very low because your frequency is low and your risk is already predefined at 1.5%. You know what you're looking for.

There's a frequency of about one trade every four to six weeks and you're looking for ideal setups around a monthly and or. a weekly level. By framing these ideas and hunting setups that offer 10 to 1, This will give you the context and framework to double your equity or your managed fund equity in the course of just six trades per year.

You don't have to rush. You don't have to take every single swing trade. If it doesn't look right, just wait.

There's something setting up something every four to six weeks. There's some kind of trade that offers you an opportunity to do something in the marketplace. But if you're framing the setups on a monthly and or weekly level, These can offer huge multiples of reward to risk. All right, we're going to take a look at an example here and start giving you some ideas how you can flesh this out about maximizing reward and reducing risk.

In this example, we're going to be looking at the euro dollar. And I want to take a look at this high here. The high was formed in 2011 in April.

And we're using an old monthly high. So we're high in the range. So we're deep, deep, deep in terms of the premium in relationship to an old high back in 2009 in October.

We've defined the bearish order block, which is the last up candle in October. And we've defined the mean threshold of that last up candle as well. We extended that out in time.

And we got to April and March of 2011. where we hit those levels. And we're going to now take that idea and reduce it down to a lower time frame, executable time frame of four hours. I want you to take a look at this down candle here. Okay, so now we're actually going to start looking at the monthly PD arrays. So we're trading off of a level of premium of a bearish order block and focusing on the mean threshold.

And below that level would be this old high. That will be the very first discount PD array. Remember, it's an old high.

That could be a potential discount PD array. So we have a down candle here, which is an old high. That's left or to the left of the entry technique or pattern that we're looking to trade short at. And that's this level here.

So all we're looking for is the range between. that down candle's high and entering up at that mean threshold from the order block from October 2009. And we're going to say that that level is $142.80. Drop down into a four-hour time frame at that same level. Going into May, we can see price trades up into that level.

And we have the mean threshold and bearish order block noted here. And we have... 148.65 is the mean threshold and I want you to look very closely. We can see here we have a bare shoulder block last up candle right before the down move and it's highlighted with the arrow above and below it delineating that and we split the candle in half at the mean threshold as well and we delineated the low on that for the bare shoulder block. We're going to assume that We're going to use the four hour for our entry.

We're looking to go short. And we're using the mean threshold on the monthly candle. And it's also the opening of that bullish candle that makes the high.

And we're going to risk a stop one pip above the highest high of that candle. So we have a 70 pip stop loss. The blue shaded area.

is our potential reward. Horizontal line that's delineating 142.80, that's that old monthly high. This comes to a reward range of 585 pips.

So we're risking 70 pips. I know some of you are cringing by now. 70 pips? I can't handle 70 pips.

70 pips risk to make 585 pips. And you can see that that monthly old high, that again, is the first discount PDA rate that we would come to from that high at 149.20 or so. So basically, what we have there is an 8 to 1 reward to risk.

So for every $1 we're risking, we're getting a potential of $8 back. as a reward. So in essence, what we can see here is just in this trade framework, we have the potential in just one trade to make as high as 12.5% return.

Now, that's an amazing amount of money in the amount of percentage for one trade. And the amount of risk is minute compared to the reward. It's framed on a monthly level, and the objective to take profit is framed on a monthly level. So by framing the PD arrays and using the PD array matrix properly, we can frame trades to have an enormous amount of reward to risk potential.

Okay, I'm going to give you another scenario. This is going to be homework. Okay, now we're going to focus on this high here or last bullish candle right before the down move. And we're going to be looking at that candle here as a potential short.

And this is for homework. And I want you to look at the bullish order block, the last up candle. that opening price that comes in, we're going to round it to a level of 141.55. I want you to go into your charts on the Eurodollar and use a four-hour time frame and use the entry techniques that I taught in the position trading concepts for January's content.

Go into that four-hour time frame as price hit that 141.55 level. Study that on a four-hour and use. the entry techniques that I taught you in January for position trading. Where would you look to take profits at? The first one you're going to be looking for, the mean threshold of that last down candle in 2010. We've already traded there once, but I want you to consider that as your first objective.

And then you'd consider the down candle in October, that same candle's low. It has equal lows with the green candle to the right of it. seen here, that would be your objective looking for an opportunity for a low-end swing trade.

So again, we're looking for the opportunities to be short at that 141.55 level using the entry technique that I taught you for position trading in January. And I want to see the homework shared on the form. You can do it in one chart.

Just post your four-hour chart and put it in. our February questions and answers section on our forum. And I'd like to see some real interaction this time. So I know there's a lot of people doing the homework. Don't copy everybody's answer.

Don't read through the forum first to see what everybody else is doing. There's no wrong answer. Just, again, it's for interactive purposes and for study and also for feedback for me so I can get a collective view of what you're all doing with the content.

I believe that you'll find that there's a setup there as well. And the reward, again, here is, well, if you consider it's 135 as a potential area, as a downside objective. I mean, 141.55, if that's the price you get, and it's probably going to be higher than that, that you would use to get entry for short.

That is over 650 pips for one setup. So if you can frame your trade with... a 60 pip stop loss, you can find a 10 to 1 reward to risk scenario on this trade here.

Premium PDRAs and then using the monthly discount PDRAs, as we noted here, with the mean threshold of the last down candle in October 2010, or that'll be November actually probably. The downside objective is again, several hundred pips. So suddenly when you start doing these things and you start applying it, don't stop here with this example. For the remainder of the weekend, go through and try to find five examples somewhere else in another pair.

It doesn't matter where at. It doesn't matter what time of year. Go in and look for a scenario just using a monthly and or weekly scenario and frame out a couple trades. Try to find five that yield at least five to one reward to risk scenario.

So you have really two homeworks. You have the one that I'm giving you here, and then you have a secondary where you have to look for five scenarios using only a monthly or weekly PD array for premium or discount. And try to find actually, let's do it like this.

Try to find four, two buys and two sells using this criteria to frame out swing trades and look for five-to-one payouts or potential to payout. And obviously, you have the benefit of hindsight, and that goes without saying. But this is how you study it, and this is how you get in there, and you get excited about seeing how powerful it is and how infrequent you need to worry about trading. You don't have to worry about trading all the time. You can get a massive amount of return on your equity doing very little work, putting very little risk exposure to your account.

So hopefully you found this insightful. Until next lesson, I wish you good luck and good trading.

Transcript for:Swing Trading Risk Management and Strategies

Transcript for:
Swing Trading Risk Management and Strategies