The Art of Execution

Walnut Levels User Guide: Chapter 3

In the last chapter, I spoke in detail about entries and exits, today we go into a more detailed look at this process and consider things beyond just taking the position.

We all know that scalping is a short-term trading strategy, more often than not, I am in and out of a trade within 10 minutes, perhaps with some runners staying in longer. Using the walnut levels as part of a multi-indicator approach is how we ensure an ideal entry and plan for an exit.

Last night, I did a poll on what topics fintwit wanted me to cover, the most popular choice being the execution of trades which of course is an important part of day trading, and it can make a big difference in the profitability and consistency of your strategy.

In the book Trading For A Living, Alexander Elder sums it up perfectly when he says "A good trade can be ruined by poor execution." So let us take a deep dive into execution, the elements that make it up and the success criteria for each element.

The Execution of Trades

The execution of trades in day trading includes three key phases for me, typically these are: Entry, Position Management and Exit.

Below I outline three questions that you need to be asking yourself in each phase of the execution:

Entry Phase:

The first key thing to consider about your entry is this:

Is this trade within your playbook? What does this mean? If you ready my reviews on Tuesdays and Thursdays you will see that on those days I review the different types of setups that present themselves in a day. Typically each day gives no more than one to two A grade setups and then a scattering of B or C grade setups. Have you evaluated the setup you are about to take? Do you know your own success rate at taking these setups?

The second to consider is:

Where am I setting the limit order? In my method, there are very few occasions where we are aggressively buying at market, thereby getting a worse price. What you should be doing instead is trying to identify at which point does your setup begin to break down. This is where you add your limit order, of course leaving enough room to not get flushed should that happen. I cover a lot of this is chapter 2.

The last thing to consider is:

What is the ideal position size here? Let’s imagine you are one the eval phase of a prop account for $150k account. Your max position size should ideally be no bigger than 4 ES given your account side. For those of you that have passed the evaluation phase and have multiple accounts under a trade copier (the holy grail) I know your position size will be distributed over several accounts. But for those of you still trying to get there, if 4 is your max position, then your position for any trade should reflect the setup grade. I don’t trade anything lower than a B grade and if it is a B then I am not allocating more than 2 contracts. For an A grade setup, I might add two lots of two once the trade plays out as I thought.

Position Management Phase

This is when you monitor the trade and makes adjustments as needed. This may involve adjusting the stop loss or profit target, or closing the trade early if the market moves against the trader. I have some basic rules here rather than questions:

Rule 1: Don’t move your fucking stop. Ever. Just leave it alone. Whether it is 4

ticks (oof but I know it works for some of you hyper scalpers) or larger, leave it where it is as you have defined it previously and you must stick to your plan fuck face, don’t get fomo and move it lower.

Rule 2: Be greedy at the bottom not at the top. How many times have you seen a play begin to work out and decided to move your targets out further? How many more times will you do this until you learn? Have a clear idea of where you are headed towards and stick with it.

Rule 3: Know when the move is going against you. You don’t to wait for your stop to get hit or your target. Sometimes (and I stress - sometimes) you can see that the gains you’ve got are vulnerable. Perhaps the delta turned very -ve on the footprint, maybe the heiken ashi candles turned red, maybe there’s an ugly candle on the higher timeframe forming or maybe the ema clouds are indicating a bearish momentum switch. Don’t be afraid to admit the plan is weakening and take what you take.

Exiting Phase

If you have not watched the German series called Dark on Netflix then you don’t know what you’re missing. In that, there’s a saying “The end is the beginning and the beginning is the end”. I hope all my readers are using bracket orders. In doing so, not only do you minimise risk but you also lend yourself to having clear exit goals.

I have explained this before but once the move begins to go in my direction my first exit is quick. It might be four ticks or eight, depending on the position size but I am taking that small gain and moving my stop up, sometimes to break even, other times a little higher than its starting point. That is target 1 sorted, after that target 2 is the main money maker, this is placed at the first area of resistance above target 1. Target 3 is my runner, some people prefer to let this do it’s thing whilst manually trailing the stop upwards, others like to have a set target either way. You should have entered with your targets preset, your end should have been at the beginning, if it wasn’t then you aren’t planning and it will lead to sloppy trades, no one wants sloppy anything!

Conclusion

Mark Douglas says in Trading In The Zone, "The most important skill for a day trader is the ability to execute trades quickly and efficiently.". He couldn’t be more right. Just like a boxer who develops muscle memory to slip and slide away from punches after having punches thrown at him thousands of times a day, a trader must practise and be consistent in their method in order to master their trade execution.

Whether you’re a seasoned professional trader or simply a guy starting out on the journey, knowing the phases of execution, planning and being prepared for the market is an all encompassing strategy that will define your success.

Let me know if you have any questions on anything I wrote and as always, stay safe.

Much love,

PW

Apex Prop Trading

I found my consistency using Apex Prop Trading. I wrote about it in detail here.

Click here to find out more and get a 50% lifetime discount.

Walnut Footprints

I explain how to read my footprints here. You can download and use it for free.

I wrote a detailed breakdown of how to sign up for a 14 day free trial of Sierra here.