Futures Trading Mechanics

1. The "Magnet" Concept

Price does not move randomly. It seeks Liquidity.

• Liquidity = Orders.
• Where are the orders? They are sitting at obvious Highs and Lows where retail traders put their Stop Losses.
• The market is a machine designed to go where the money is. If there is a big pile of Stop Losses at 4500, price will feel a magnetic pull toward 4500.

2. The Stop Run (The Trap)

Have you ever bought a support level, got stopped out, and then watched the price immediately reverse and go your way?

• That wasn't bad luck. That was a Stop Run.
• Big institutions need "Liquidity" to fill their massive orders. They push price below support to trigger your sell stops (which are buy orders for them).
• Once they have filled their bags with your cheap contracts, they push the price back up.

3. Fair Value Gaps (FVG)

• Sometimes price moves too fast, leaving a "Gap" where only buyers or only sellers participated.
• The market hates inefficiency. It will often return to this "Gap" to fill it before continuing.
• Think of it like painting a wall—if you miss a spot, you have to go back and fill it in.

1. The Hierarchy (Tide vs. Wave)

You cannot trade off one chart. You need context.

• The Daily/4-Hour Chart: This is the Tide. Is the ocean coming in or going out? (Major Trend).
• The 15-Minute/5-Minute Chart: This is the Wave. These are the small moves you surf.
• Rule: You can surf a wave, but you can't fight the tide.

2. Alignment

• If the Daily Chart is Uptrending (Green), but your 5-minute chart shows a sell signal... Wait.
• You want "Confluence." You want the 1-hour and the 5-minute to agree.
• 💡 Sticky Note: The highest probability trades happen when the big timeframe and small timeframe point the same way.

3. Context vs. Entry

• Context: "I am looking for Buys because the 4-Hour is bullish." (Do this analysis before the market opens).
• Entry: "I am clicking 'Buy' because the 5-minute chart just showed a Break of Structure." (Do this during the session).

1. The "R" Concept

Stop counting dollars. Start counting "R" (Risk Units).

• 1R = The amount you are willing to lose on one trade (e.g., $100).
• If you risk $100 to make $200, you made 2R.
• If you risk $100 to make $300, you made 3R.
• Why this matters: It detaches you from the money. You are just collecting "R"s.

2. Asymmetric Compounding

This is the holy grail.

• If you have a 1:3 Risk-Reward Ratio (Risk $1 to make $3):
• You can lose 7 trades ($700 loss).
• You can win 3 trades ($900 gain).
• Result: You are profitable with a 30% win rate.

You do not need to be a psychic. You need good math.

3. Position Sizing (No Guessing)

• Scenario: Your Stop Loss needs to be 10 points away to be safe. Your risk limit is $500.
• Math: 10 points on ES = $500.
• Size: You can trade 1 Contract.
• Scenario B: Your Stop Loss is only 5 points away.
• Size: You can trade 2 Contracts.
• Rule: Adjust your size to fit the stop, never adjust your stop to fit the size.

1. Taking Partials (Paying the Trader)

• You are up $200. The market starts stalling.
• Amateur: "I'll hold it all until the target!" (Market reverses, they lose).
• Pro: "I will close 50% of my position here."
• This locks in profit. Now, even if the trade reverses, you made money. You have paid yourself for the stress.

2. The Breakeven Stop

• When do you move your Stop Loss to your entry price?
• Premature: Moving it too soon (you get stopped out by noise).
• Correct: Move it only after the market has made a new structural high (BOS) in your direction.
• Once you are at Breakeven, the trade is "Risk-Free." This is a powerful psychological state.

3. The "Runner"

• If you sell 80% of your position at your target, keep 20% open.
• Move the stop to breakeven.
• Let that last 20% run forever. Sometimes, that "Runner" makes more money than the rest of the trade combined.

1. The Opening Range (9:30 AM – 10:00 AM EST)

• This is the "Judas Swing."
• The market often fakes a move in one direction to trap beginners, then reverses hard.
• Advice: If you are new, do not trade the first 15 minutes. Let the dust settle.

2. The Mid-Day Doldrums (12:00 PM – 1:30 PM EST)

• New York goes to lunch. Volume dies. The algorithm simply "chops" back and forth to burn options premiums.
• Advice: Go to the gym. Walk the dog. Do not trade. You will only lose money here.

3. The Power Hour (3:00 PM – 4:00 PM EST)

• The "Smart Money" returns to close their positions or position themselves for the next day.
• Expect explosive moves, but be careful—volatility is high.

1. Data Collection

Your brain lies to you. Your journal tells the truth.

• Track more than just "Profit/Loss."
• Track: "Time of Day," "Long vs Short," "Emotions," "Did I follow the plan?"
• Discovery Example: You might find out that 90% of your losses happen between 12:00 PM and 1:00 PM. Fix: Stop trading at lunch. Instant profitability.

2. The Sunday Ritual

• Do not wake up Monday morning and guess.
• Spend 30 minutes on Sunday looking at the Weekly and Daily charts.
• Mark your zones. Plan your week.
• "If price hits 4500, I will look for a sell."

3. Metrics that Matter

• Win Rate: Vanity. (Who cares if you win 90% of the time if you win pennies and lose dollars?)
• Profit Factor: The only king. (Gross Profit divided by Gross Loss).
• If your Profit Factor is above 1.5, you have a business. If it is below 1.0, you have a hobby.