Categorical Trading

Introduction

Strategy name: Categorical Trading
Developed through pure experimentation
Works across various time frames (e.g., 20-second, 5-minute, weekly)
Main idea: All price action exists on a spectrum between consolidation and direction
Goal: Use categories of price action (consolidation vs. direction) to find high probability trades

Consolidation: Price is likely to stay where it has been
- High probability win: Profit targets inside, stop losses outside
- High probability loss: Long at the top, short at the bottom
Direction (Directional Movement): Price is likely to move to a new area
- High probability win: Target new areas, stop losses inside
- High probability loss: Going against direction for pullback
Conditions: Adapt trades based on whether the market is consolidating or directional

Expect current price action to continue
Adjust strategies based on changing conditions (consolidation to direction and vice versa)
Importance of stop loss and profit target placement
- Keep profit targets small, stop loss outside recent price action
- Adjust targets and stop losses based on recent candle sizes
Use ATR (Average True Range) to quantify volatility and adjust trading conditions

Trade within the structure of recent candles, adjusting for direction or consolidation
Directional Trades: Target new areas with stop loss inside recent price action
Consolidation Trades: Expect price to stay within a defined range
- Example: Target 4 points in a consolidation trade with a high probabilty of remaining within range
Consistent adjustment of time frames and bracket sizes based on candle size and ATR data
Importance of recognizing and adapting to volatility during different times of the trading day

ATR: Adjust period to 1 for exact size of recent candles
Charts: Change time frames to match preferred candle size
Price Intervals: Use horizontal lines for context and perspective on bracket sizes
Check consistent behavior of candles against intervals to set trade expectations

Emotion and Psychology: Be aware of psychological issues (FOMO, discipline, hesitation)
Journaling: Record trading sessions to analyze mistakes and improve
- Use recordings to evaluate whether trades were taken according to rules
- Address and rectify recurring mistakes (e.g., high volatility candle issue, avoiding extreme points)

Reverse high probability losses to find profitable trades
Focus on high probability setups and avoid taking trades in chaotic conditions
Streamline reminders and checklists for discipline
- Example: Sound reminder every 3 minutes to refocus

Implement a structured trading routine (check economic news, update journal, review setup)
Start with a 1:1 risk-reward ratio
Wait for favorable conditions, avoid trading every moment
Identify price action categories and react accordingly

Evaluate trades for adherence to rules and probability conditions
Use prop firm evaluations as a transition tool
Build a reminder document to avoid common pitfalls (e.g., chaotic price action, high volatility regions)

Adapting trading strategy to specific strengths
Avoid trading in conditions where probability of success is low
Consistent review and improvement based on detailed trade journaling and recordings

Visit IManTrading for more resources and details on the strategy.