tactical trader

Think about your day trading activities for a moment.

• The profits were exciting, rewarding.

• The losses were awful.

• More winners would be great.

But, fewer losers can truly turn your day trading into the profitable enterprise which you first envisioned when you entered the world of the active day trader.

The often quoted trading axiom, “Let your profits run and cut your losses short”, is as accurate and worthy of your attention as the day it was first written by someone long ago. But now let’s add another concept to this basic idea of trading.

Imagine what your bottom line could look like if you had an accurate method of reducing your number of losses by even 15 – 20%.

One of my purposes is to teach you to significantly increase the number of winning trades executed each trading day. Here is where we start this important process.

Trading only in the direction of the dominant trend for the day can significantly reduce the number of losing trades that are taken during the course of your busy trading day.

The Directional Day Filter is designed to accomplish this exact purpose – define the major trend of the day early enough in the trading day to make this determination useful for the majority of the trading session.

Operating theory

Look at the intraday price chart of any contract or security, concentrating on the early portion of each trading day. Observe the occurrence of the highs and lows that are registered during this early time frame. Regular observation of intraday price charts will soon reveal the fact that, quite often, the high or the low of the day is established early in the trading session, often within the first 60 to 90 minutes of the day. This basic fact of market behaviour is the basis for the operation of the Directional Day Filter.

It is here that market psychology enters into the performance of this trading tool.

For a stock or commodity to trade higher for the rest of the day there obviously must be more buyers than sellers. As the trading public reacts to positive fundamental news concerning the issue in question, interest rate movements, government reports, earnings news, or the myriad of additional factors which make up the fundamental picture which effects the price of a stock, a buying interest develops early in the day. Buying activity in a stock or commodity soon attracts more interest on the buy side as others become aware of the news and either enter new long positions or rush to cover their short interests in the face of a rising market. And, yes, technical traders such as ourselves enter on the buy side due to the technical factors which identify a rising market…