Steps for 9/20 Trading

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There are several different setups within the overall 9/20 strategy: conservative, aggressive, more aggressive and the double cross.

 9 MA must cross over to the upside of the 20 SMA. After the 9 crosses over the 20 to the upside, we are going to wait for the first green candle to close. Once that first candle closes above both the 9 and 20, we put on the play. We will pay close attention to what the candles are doing relative to the 9 and 20. The levels that we have set in premarket become targets.  The 9 is used for support on the way to the targets.  If we get to our initial target with relative ease, and a candle closes above our target, we use that level as support until the 9 catches up to the price action.  Once the 9 breaches that level to the upside, we once again use that as support up to our next level.  If we fail to make it to the next level, and once the first red candle closes below the 9, it’s time to cut the play and take profits. 

 The strategy for opening a position is the same as with the conservative strategy. The only difference is that you don’t close the trade when the first red candle closes below the 9 for calls. Instead, you wait until the 9 crosses over the 20 in the opposite direction of your play.  

 The strategy for opening a position differs from the conservative strategy in that you open the trade when a candle closes above the 9 but below the 20.  Closing the trade with this strategy is the same as it is with the aggressive strategy (see above for details). 

 The double cross, as long as you’re following the trend, is a super high probability setup. A double cross happens when a candle opens below the 9 and closes above the 20. The highest probability double crosses happen when there is less than $.25 between the open and close of the candle.  

9 SMA must cross over to the downside of the 20 SMA. After the 9 crosses over the 20 to the downside, we are going to wait for the first red candle to close. We will pay close attention to what the candles are doing relative to the 9 and 20. The levels that we have set in premarket become targets.  The 9 is used for resistance on the way to the targets.  If we get to our initial target with relative ease, and a candle closes below our target, we use that level as resistance until the 9 catches up to the price action.  Once the 9 breaches that level to the downside, we once again use that as resistance down to our next level.  If we fail to make it to the next level, and once the first green candle closes above the 9, it’s time to cut the play and take profits. 

The strategy for opening a position is the same as with the conservative strategy. The only difference is that you don’t close the trade when the first green candle closes above the 9 for puts. Instead, you wait until the 9 crosses over the 20 in the opposite direction of your play.  

Enter Puts after the first red candle closes below the 9 but still above the 20. For this strategy, pay very close attention to where you are relative to the 20, as the 20 will oftentimes act as support and the play can reverse very quickly. IF you’re following the trend, your profit potential on this play is the greatest. You can use the above strategies to close, or validate out, of your position. 

The double cross, as long as you’re following the trend, is a super high probability setup. A double cross happens when a candle opens above the 9 and closes below the 20. The highest probability double crosses happen when there is less than $.25 between the open and close of the candle.  

The purpose of any trading plan is to get into and out of your trades at the precise times according to your own specific strategy and trading rules. This can be accomplished if, and only if, you have a well-defined plan and rules. If you follow both of those things, you can be successful.  

It is very important to keep position size small while in the learning stages of trading. My recommendation is to trade a single contract/share until you are able to execute your trades without trading errors. Trading errors can be anything from poor entries, poor exits, chasing plays, etc. It is only after you are able to properly execute your trades that you should move up your position size. This is a marathon and not a sprint. If your purpose for trading is to get rich quick, you are in the wrong business.   

Once in your trade, it is imperative that you only watch price action and not the value of your play. This will keep you from getting too emotional during the trade. As the candlesticks get closer to your target (crossing over in the opposite direction) then, and only then, should you look at the value of your trade.  

While we execute on the 1 minute, we can also look at higher time frames (2,3, and 5 minute) to keep us in the trade longer than normal. When trading with this tactic, always be aware of where your support and resistance areas are located. Old support and resistance are excellent targets for your trades. Because the market has a memory, assume that those areas are strong levels at which to take profits.  

Anxiety while in a trade is common for all traders. I recommend a heart rate monitor to see exactly what your heart rate is doing before, during, and after the trade. If you find yourself getting too anxious while in a trade, take a few deliberate deep breaths. This tends to lower both your heart rate and anxiety.  

In order to understand your specific strategy, you must back test it. Back testing over a long period of time and in different market conditions gives you the best opportunity to know what to expect. Look at different time frames when performing your back testing.  

The only way to truly know how you are performing is to use a trade journal. Commercial trade journals are available, but you can also make your own with an excel spreadsheet. The items needed for this are: Date, time, trade#, position size, pre trade thoughts, thoughts during the trade, post trade thoughts, emotions during, emotions after, heart rate BDA (before, during, after) trade, enter rules? Exit rules? P&L. Notice that P&L is at the end of the list. This is specifically at the end of the list because it is the least important. IF you perfectly execute your trades without fear, hesitation, or trading errors, the P&L will take care of itself. Trade execution is truly the only thing that matters.   

Now that we’ve gone through the easy part of trading, and trust me, this is the easy part, you must also deal with the mental approach to trading. The mental side of trading is why the vast majority of retail traders fail. They don’t fail because they don’t have a good trading strategy. They fail because they fail to execute according to their trading plan. 66% of all retail trades are profitable trades, but only 5% of retail traders can make a living trading. Read that again. The reason why most retail trades are profitable yet most fail is because of two emotions: Hope and fear. See trading Law # 5 for a deeper understanding of this. 

Like any other pursuit, trading takes a tremendous amount of time, commitment, persistence, and discipline. There are no shortcuts to success; you must follow your process to the letter of the law. It can be mine or your own. The purpose of mine is to outline a proven strategy and set of rules. Commit to a single strategy and stick to it. Commit to a single tactic (setup) within your strategy before moving onto the next. 

Dream so big that it scares you. Don’t let the negativity of other people to deter you from your goals; trading or otherwise. 

Aim to get marginally better every day. Small daily positive changes lead to massive changes over time. Commit to the process of both trading and getting better. 

I am a firm believer in the works of Mark Douglas and Tom Hougaard. Both of these men are, in my opinion, some of the best when it comes to trading psychology. Both of their works are available in both print and video form. 

In order to become the trader you know you can be, you must believe in yourself to your very core. You must believe that you are worthy of the financial wealth that the market can provide for you. Self-limiting beliefs can hurt your future trading prospects. 

Trust, believe, and know you can do this. Trading is the most difficult easy money you will ever earn in your life.