Breaking Day Trading Rules Using Price Action

Classic books on day trading often advise conservative approaches. If your profit target and stop loss have a ratio of 1:1, then it’s quite possible regular market fluctuations will trigger a premature exit. If your stop loss is considerably less than your profit target, an early exit, even if a small loss, may be increased. Multiple stop losses for small amounts do add up. In addition, you will have to pay brokerage fees per contract, per trade. It may be better break those “day trading rules” and go with a strategy that’s more flexible for today’s markets, such as the Atlas Line, Trade Scalper, or ATO 2.

You should test the rules that you plan to trade by. One way to accomplish this is to use Market Replay. Market Replay lets you play back market data as though it’s occurring real-time. It is ideal for people who are occupied at ideal trading times. NinjaTrader 8’s Playback Connection lets you pause, rewind, and fast-forward playback. You can download data for specific days. Playback begins at midnight. Drag the slider to the time you want to start practicing. Note that you will have to wait for all of the price history to plot on the chart, which can take several minutes in some cases based on the speed of your computer.

See if you’re following trading rules and keep track of your performance with the Playback101 account and the Trade Performance area of NinjaTrader 8. You’ll want to see greater overall profits than losses. Test for multiple weeks and months. Markets and price action can by cyclical; some days and weeks will perform better than others. NinjaTrader provides $100,000 of “play money” by default. You can reset the Playback101 or Sim101 account whenever desired. Also, the $100,000 can be reduced to an amount such as $4,000, which is far more realistic for futures trading.