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HOW WE TRADE
PRICE ACTION: A QUICK PRIMER
Determining High Probability Trade (HPT) Setups:
A Quick Primer to Trade TGTE (Top Gun Traders Edge) Analysis
If you have visited our other website, TopGunTradeZones.com then it is likely you may have already read this key concept regarding price action, which bears duplicating for our trade signal room as well! Experienced traders understand that price action follows patterns such as 'W' or 'M' waves, rather than moving in a straight line. This continuous movement, known as "price discovery," involves the market testing supply/demand zones and support/resistance levels to determine value.
Not all support/resistance zones hold equal importance. Considerations include the timeframe of the zone, the number of tests it has undergone, and the presence of other key market levels that contribute to its significance. These factors help us anticipate the market reaction when a zone is tested.
The speed and price action leading into the zone, along with the time of day, market tone, and context, influence our approach and order placement within that zone. Our strategic methodology ensures that we make informed decisions based on the unique characteristics of each situation. We incorporate our Market Reaction Zones (MRZs™) into a majority of the trades we take here in our LIVE Top Gun Traders Edge room. For that reason, we are providing a short overview of MRZs™ and how we use them in our daily trading. In Top Gun Traders Edge we often 'lean' on MRZs™ and other critical price (and structure) levels to select fortified directional, as well as, high probability 'fade' trades. Because of the strength of our entries in Top Gun Traders Edge, we can often use tighter initial stops then trading just the MRZ™ method alone (whose trades typically hold for larger targets and therefore require larger initial stops that allow the trade more room to 'work' properly). Read on to see how the various entries, stops, and targets come into play.
TRADE ENTRY
Identifying the Strongest Trends AND High Probability Trade Entries:
How Top Gun Traders Edge Creates Your Distinct Advantage in the Market
Top Gun Traders Edge revolutionizes trading by offering multiple customizable approaches that cater to individual trader preferences, risk tolerance, and trading goals. With the flexibility of our superior trade entries and the advent of funded trading accounts, every trader can harness the power of our signals and methodology, regardless of their trading style, approach, or risk profile.
First, it is important to understand, that within the trade cycle, several key aspects contribute to achieving trade mastery. Let's explore these essential components: Entry, Initial Stop Placement, Trade Management, and Exit. Each step plays a vital role in maximizing potential gains and minimizing risks.
While we provide a brief overview of each aspect, it's important to note that these explanations are not exhaustive. As Top Gun Traders Edge members gain experience observing our signals and understanding our cohesive methodology, they will tend to make small adjustments within their own trade cycle (entry, stop, management) that aligns best with their personal trading goals. We encourage this, as it prioritizes ongoing growth and development, ensuring our members stay ahead of the game.
Examples of this may be: one trader wants to trade 2 contracts and take both off at a fixed target. Another trader may want to trade 2 contracts but take a 1st target and then trail the 2nd contract stop. Yet, a third member may choose to trade 3 contracts, all in, all out for 8 pts and maybe only trade NQ trade calls. Because our setups have a high win ratio, another member may be trading 5 linked PA accounts and want to take all 5 off at 5 NQ pts. There are innumerable management options - and ALL can work well - AND all are correct if you are trading in accordance to your own individual trade plan and goals! For that reason, our trade entries have 'some' execution 'wiggle' room for personal execution choice. Exits and management are a bit more flexible. When you have the EDGE of superior trade entries that our software produces, it gives traders a LOT of choices to manage their trade effectively. Regardless of your exit preference, we are continually assessing the market and guiding traders toward larger targets if the market warrants, smaller targets or quick exits if market conditions rapidly change, or, simply, to sit aside when the odds are not in our favor when we will let other traders hand over their hard earned money and lose their accounts by attempting to outguess market "noise".
With our superior guidance, you'll soon begin to gain the confidence and knowledge to navigate the dynamic world of trading and unlock your potential for developing into an effective, knowledgeable trader!
TRADE SETUP #1: TREND TRADE
A Methodical Approach to Trend Trades:
Determining Trend Strength and Areas of Confluence
In the world of trading, it's an oft-quoted fact that markets tend to follow a trend only roughly 25% of the time. The other 75%? Well, that's when they're either consolidating or stuck in a trading range. But here's the kicker: those rare trending periods in daily and weekly charts are where the real magic happens, where fortunes are made by skilled position traders. For the day trader, we'll humbly shoot for "personal bests" and hopefully end the day with giant smiles on our faces. With the advent of linked/copied accounts, small fortunes for day traders are not unrealistic!
Think of it like this: Picture a seasoned surfer, someone who's mastered the art of riding the waves. They don't just jump on any wave that comes their way. No, they patiently wait, watching for those one or two perfect waves. You see, the ocean doesn't just throw waves at random; it moves in sets, series of waves that are bigger and more powerful for a certain period.
Our experienced surfer knows that riding the smaller, weaker waves is a waste of time and energy. And worse, it might cause them to miss out on the big, exhilarating waves when they roll in. Trading, is no different. The best traders understand the ebb and flow of the market, the patterns, the critical price levels, and the optimal times to strike.
Just like the ocean's waves, prices in the market move in waves too. Understanding this rhythm is the key to success. Our secret weapon? Cutting-edge software that identifies those golden moments when multiple timeframes align perfectly. That's when we have permission to be aggressive, taking larger (but risk-appropriate) positions and aiming for longer holds to capture more points.
Of course, we do trade other strong setups and opportunities (see next section), but there's a reason we focus on trend trades and call ourselves "Top Gun Traders Edge." We're not afraid to seize the moment with aggressive entries, sensible stop-losses, and the capacity to hold on for those bigger targets. Or, take even larger positions for smaller targets as long as the mathematical risk makes sense. We take advantage of all the components of skilled trading, and implement them trade after trade to create a distinct Edge for traders in the market. So, if you're ready to be a surfing "sniper" and ride the market's waves and soar to new heights, you've come to the right place!
Strengths of Trend Trading:
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Trade Potential: Trend trading offers significant upside potential during extended trending periods. Traders can ride the trend to capture substantial gains. Due to the nature of trailing stop losses, we often ride the momentum portion of the trend move and then look for re-entry opportunity; but in the right places we will target HTF (Higher-Timeframe) areas or MRZs™ (our proprietary Market Reaction Zones) for larger targets.
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Clear Direction: Trading in the direction of the prevailing trend provides a clear market bias, simplifying trading decisions.
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Longer Holding Periods: Trend traders often hold positions for more extended periods, reducing the need for constant monitoring and allowing for a more relaxed trading approach. These entries, when identified earlier in the day, can often be held much longer and target 5, 10, or 20 Day ADR (Average Daily Range) zones.
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Tighter Stops/Less Risk: Our approach and the types of charts used, allow us to keep tight stops and manage risk aggressively as these are predominately momentum/trend trades and should move quickly out of retracement move.
Weaknesses of Trend Trading:
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Choppy Markets: Trend trading can be challenging during choppy or range-bound market conditions, leading to whipsaw trades and losses. Our software identifies these periods allowing us to avoid choppy periods. Alternatively, it tells us to either SOH (Sit On Our Hands), or, to switch to a method of support/resistance trading into areas of confluence with smaller targets.
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Late Entries: Identifying a trend early can be difficult, and traders may enter positions after a significant portion of the trend has already occurred. We address this by using a proprietary trade bar that identifies the momentum "turn" in price action, allowing us to place stops below the immediate swing and/or nearest key market level to minimize risk.
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Risk Management: Holding positions for extended periods (targeting larger moves) requires effective risk management to avoid getting stopped out prematurely when targeting further exit zones.
Key Factors in Trend Trading and How to Manage It:
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Identify Trend Strength: Use technical analysis tools to identify the strength of a trend. This can involve analyzing moving averages, trendlines, and momentum indicators to gauge the trend's robustness. We use multiple tools, but rely heavily on our indicators that were two years in development and based on 20+ years of actual trading experience.
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Confirm Areas of Confluence: Seek areas of confluence where multiple technical factors align, increasing the probability of a successful trade. This may include support and resistance levels, MRZs™, Fib levels, chart patterns, and trendline confluence.
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Entry and Stop-Loss: Set clear entry points and place stop-loss orders to manage risk. Stop-loss levels should be based on key technical levels and should align with your risk tolerance. We place stop losses and targets where we expect the market to either hold, or to reach; we do not place stops where we feel "comfortable" with the risk. The market structure determines the risk and whether the trade is warranted taking.
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Profit-Taking Strategy: Determine your profit-taking strategy, whether it involves trailing stops, predefined profit targets, or a combination of both.
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Continuous Analysis: Regularly monitor the trend's strength and adjust your trade management as necessary. Be prepared to exit positions if the trend weakens or reverses.
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Review and Adapt: At the end of a trading session, for each trade, we review our decisions and outcomes to refine our trend trading strategy continually. Learning from both successful and unsuccessful trades improves our (and your) skills.
By following a systematic approach to trend trading, traders can take advantage of the market's momentum during trending periods while mitigating the associated risks.
TRADE SETUP #2: FADE (Support/Resistance/Structure)
Understanding Fade Trades: An Overview of Counter-Trend Trading, It's Risks and Rewards
Fade trades are a trading strategy that involves taking a counter-trend position. Traders executing a fade trade are essentially anticipating the current trend will stall, with the expectation that the market will reverse direction from a key support or resistance level. The term "fade" implies fading or going against the prevailing trend. This entry method relies on the market to be rejected by demand or supply into that major area. To determine this we look at technicals such as: MRZ™ zones, trend lines, opening range analysis, volume profile, average daily range, and more. Often these trades are short in duration but can be powerful reactions to the levels, especially the first one or two times price moves into these areas.
Fade trades, like all trades, have strengths and weaknesses. Here are a few of each:
Strengths of Fade Trading:
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Trade Potential: Fade trades can offer significant upside potential when executed correctly, as they capture price reversals that can lead to rapid and substantial price movements. Often trades in the first five to ten minutes of trading can be extremely lucrative – and more dangerous.
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Risk Management: By entering near established support or resistance levels and in confluence with multiple technicals, we can often place tight stop-loss orders, which helps in managing risk effectively.
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Quick Turnaround: Fade trades are typically short in duration, providing the opportunity for quick scalps if the market reacts as anticipated. We typically target either NQ or ES for these type of setups.
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Contrarian Approach: This strategy is appealing because it is a contrarian trade that often feeds on the inexperience of retail traders who pile on at the end of a move. It is a classic algo-driven move that institutions often use.
Weaknesses of Fade Trading:
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Higher Risk: Trading against the prevailing trend carries inherent risk, as the trend can persist longer than expected. It's possible for a fade trade to result in losses. NQ, in particular can make periodic "rips" in the market and sometimes move 50+ points with no pullback whatsoever. We do our best to mitigate that by only taking smaller positions and at extremely confluent technical areas on the first or second touches.
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Market Noise: False reversals and market noise can sometimes lead to premature entries, resulting in losing trades. We attempt to manage this by aggressively moving stops to capture the quick move. This can result in premature stop outs, but not losing money actually sits higher on the 'trader echelon' than making money. So, we honor that mindset.
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Timing Challenges: Identifying the precise moment of reversal can be challenging, and traders may enter too early or too late. Often it is necessary to add to a position if the market pushes to the next level of support or resistance. For most of these trades, we do not take reversals, we enter AT the level we want and we typically layer (reverse pyramid - i.e. 2-4-8 Micros (for a total of 1.4 contracts) or 5-10 (for a total of 1.5 contracts). The reverse layering raises our average entry price making it easier to manage trades.
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Emotional Discipline: Effective fade trading requires strong emotional discipline to adhere to stop-loss levels and not be swayed by fear or greed.
A couple of ways Top Gun Traders Edge counters this risk is to only use major areas of technical confluence for fade trades. We also tend to only attempt these trades the first one or two times price tests these areas. Typically, we like to ‘layer’ in resting orders in these areas in a reverse pyramid fashion in order to improve our average fill price if the market was to move further than expected. Lastly, we normally use micro futures (especially for NQ trades) to reduce risk and give the market time to react if the move is unusually powerful (or weak) into these areas. Fade trades can quickly produce substantial reward if one knows what they are doing; but, as always, it is imperative to properly manage the associated risk to reduce the impact of losing trades.
TRADE SETUP #3: DIVERGENCE
Unlocking the Power of Conservative Entries: Enhancing Precision and Reducing Risk
Divergence in trading is a crucial concept used by traders to identify potential trend reversals or trend continuation points in financial markets. It occurs when the price of an asset and a technical indicator, such as the Relative Strength Index (RSI), Moving Average Convergence Divergence (MACD), or Stochastic Oscillator, move in opposite directions. Divergence can be either bullish (positive) or bearish (negative) and serves as a powerful tool for traders to make informed decisions. In this case, divergence trades are really a subset of our "Fade" trade above. Essentially, a divergence is a reversal trade - and we typically will see those after a major market run into key support or resistance. We take these selectively as they can pull our mindset away from our trend trading focus.
Strengths of Divergence:
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Early Warning Signal: Divergence often provides traders with early warnings of potential trend reversals, enabling them to enter trades ahead of major price movements.
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Confirmation of Trends: Divergence can act as a confirmation tool, supporting the prevailing trend when price and indicator align, increasing confidence in the current market direction.
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Objective Analysis: Divergence is based on objective technical analysis, making it a reliable tool for traders to incorporate into their strategies.
Weaknesses of Divergence:
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False Signals: Divergence, like any technical tool, is not infallible. False signals can occur, leading to premature or incorrect trading decisions. The smaller the timeframe being traded, the more likely you are to have false divergences. When you are trying to trade divergences, it is not uncommon for their to be 2 or 3 in a row in a trend. You must trade all the signals or you are likely to miss the 'big' move. Most traders will take loses on the first one or two, get frustrated, and then miss the big move sulking or complaining while it starts to rapidly move without them in it.
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Complexity: Identifying divergence correctly requires experience and a deep understanding of technical indicators. Novice traders may struggle with its interpretation. I have traded divergences for over 20 years and learned to trade them in person using the MACD from Gerald Appel, the creator of the MACD. They can be very lucrative, but they are not as simple as they appear (see #4 below).
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Market Conditions: Divergence works better in some market conditions than others. In highly volatile or sideways markets, it may produce unreliable signals. The stronger the trend, the more false signals. We avoid them unless there are confirming signals.
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Missed Opportunity (Opportunity Cost): This is probably the one aspect most traders do not grasp. When you are trying to trade divergences, it is not uncommon for their to be 2 or 3 in a row in a trend. Often, you will take losses on the first one or two and if you had only taken the TREND entry, you'd be much further ahead. Also, typically divergences form an A-B-C or 'W' (bottom) or 'M' (top) if they form. You can easily miss a big trend continuation trade because you are in a COUNTER move trade and adjusting your stop according to that position. Guess what? Your exit/stop, is typically the ENTRY price for the trend continuation move (which often is a much better trade); I see traders struggle to make (maybe) 8 pts in a NQ divergence only to miss a trend continuation trade rocket 30 pts in a matter of minutes without them in it. Most traders would do well to resist the "Siren" call of the Divergence.
STOP AND TARGET PLACEMENT
Overview: Stop and Target Placement
At Top Gun Traders Edge our stops and targets are not fixed. They are determined by price structure, key market levels, trend lines, MRZs™ (Market Reaction Zones), and other factors. Additionally, we place stops based on where they need to be, not where we'd like them to be. Stops are placed where our trade set up is invalidated - it's not based on how much we want to risk. Also, we are looking for a minimum 1.75R (a logical minimum target 1.75 times the value of our stop) price move. If our stop will not give us that ratio then we will skip the trade. For target placement, we are often targeting - once again - support or resistance in the form of technical levels, including our own MRZs™ (Market Reaction Zones).
Important Note: For stops, most subscribers should be using the same stops as given in the room since they are based on key technical levels and price structure. However, for targets, the appearance of prop funding firms on the scene (Apex, LeeLoo, etc.) and the common use of trade copiers, has resulted in traders developing various methods of trading those accounts - and many of them targeting smaller 'safer' targets that play well to trading multiple accounts. The advent of the funded companies "trailing stop loss" has warranted this type of trading approach. Our trading setups - particularly the trend trades - lend themselves very well to this type of "quick strike" type of trading (i.e., High Probability Trades (HPT) with smaller targets. Since we cannot give ten different types of targets - this is one area where you, as a member and trader in the room, for each trade must decide between:
1. Following our trade targets
2. Following your own targets (i.e., All-in, All-out, partial with trailer, etc.) based on your personal trading goals
Regardless of which you follow, we will give real-time analysis during trades for adjusting targets and stops based on live price action.
Trend Trades: Stop and Target Placement
If you have visited our other website, TopGunTradeZones.com, that provides algorithmic-driven support/resistance and demand/supply zones, you will know that our methodology for determining Market Reaction Zones (MRZs™) is comprehensive, incorporating multiple critical factors. This ensures that our Top Gun Trade Zones consistently represent significant levels of support and resistance throughout the trading day, resulting in actionable trade reactions when these zones are tested. Understanding this process highlights the importance of our initial stop placement, which for that service is always positioned above (short trades) or below (long trades) the MRZ™, regardless of where you enter within the zone. The underlying assumption is that once the zone is tested and holds, one of two outcomes can occur. For Top Gun Traders Edge, our stops are placed (as covered elsewhere on this site) above or below the nearest swing pivot and often in conjunction of the nearest key technical level.
For trend trade targets, our targets are typically momentum based and taken into key levels of support or resistance. However, depending on varying factors, we will hold for larger targets. Since members trading goals vary widely along with the use of funded trader programs and trade copiers, we often give "guidelines" and smaller conservative targets along with larger 'runner' type targets. Please also see this section on how/why many of our members determine their own targets/goals for trades.
Fade Trades (Market Structure Trades): Stop and Target Placement
A crucial aspect of our approach is determining the placement of our stop FIRST and THEN establishing a logical target based on price action and chart context. Unfortunately, many traders overlook this step or do it in reverse order. They enter a trade, place a stop where they "feel safe" or that is "all I want to risk", and then they wait to see where the market will go, without considering the Risk:Reward (R) ratio of the trade. That is not how stops work. The market could care less where you "feel safe" or what you want to risk on a trade. The market moves according to market structure. As with the other trades, targets for fade trades are going to be into technical levels. Since many of these trades occur in the first 20 minutes we tend to be aggressive with stop placement/movement, and conservative with our targets.
Divergence Trades: Stop and Target Placement
A crucial aspect of our approach is determining the placement of our stop FIRST and THEN establishing a logical target based on price action and chart context. Unfortunately, many traders overlook this step or do it in reverse order. They enter a trade, place a stop where they "feel safe" or that is "all I want to risk", and then they wait to see where the market will go, without considering the Risk:Reward (R) ratio of the trade. That is not how stops work. The market could care less where you "feel safe" or what you want to risk on a trade. The market moves according to market structure. Like most trades, stops for divergences will go above/below the recent major price swing (price structure) and, preferably, on the other side of a key technical level or zone. Depending on the strength of the divergence and other contributing factors, divergence targets can be a quick "strike'' type of trade, or if the market has exhausted itself, may be a hold for a MRZ™ (Market Reaction Zone) a fair distance away.
TREND TRADE STOPS
Stops for fade and divergence trades stops are the same. Initial stops (1) are above (for sells) or below (for buys) the nearest MRZ zone and/or major levels based on price action and technical indicators. Once the trade is 1.5R then a partial target is taken and the stop is moved to breakeven (2).
FADE AND DIVERGENCE TRADE STOPS
Stops for fade and divergence trades stops are the same. Initial stops (1) are above (for sells) or below (for buys) the nearest MRZ zone and/or major levels based on price action and technical indicators. Once the trade is 1.5R then a partial target is taken and the stop is moved to breakeven (2).
TRADING CONSIDERATIONS
Finding Your Trading Style: Choosing the Right Methodology
When venturing into trading as a profession or avocation, it's crucial to align your approach with your individual trading personality and risk tolerance. Recognizing your trading style and preferences is a fundamental aspect of achieving effectiveness as a trader. Understanding this about yourself and the strengths and weakness of various trading methods will help you identify the one that suits you best.
Leveraging Resting Orders and Reversal Entries: Enhancing Your Trading Arsenal
As you gain experience with our Top Gun Traders Edge methodology, indicators, and MRZ™ zones, you'll have the option to utilize resting orders for specific trades or explore reversal entries in others. While not mandatory, understanding the strength of confirmation and confluence for entries can significantly impact your trading decisions. Improving your knowledge of our market calls and leveraging our Market Reaction Zones (MRZs™) in conjunction with market analysis and confluence assessment, you can capitalize on the strongest setups, increase your position size, and set higher targets when appropriate.
Professional Bet Sizing: Emulating Success in Blackjack and Trading
Successful traders draw parallels to professional blackjack players who adjust their bet sizes based on the card count. Similarly, traders can vary their position size and targets based on the strength of the trend, market technicals, market price action, and indicator confluence. This methodical approach allows traders to exploit favorable conditions and maximize their advantage. We'll discuss the concept of professional bet sizing and guide you on how to apply it effectively in your trades. However, simply understanding to trade small (ex. one "unit") during lesser setups versus when to trade larger (ex. three to five "units") during "fully aligned markets" trends, will set you up for a major step up in your trading results and knowledge.
Micro Contracts: Accessing Opportunities for All Traders
With the availability of micro contracts, traders now have even greater accessibility to varying position sizes. We provide guidance on how to take advantage of micro contracts and leverage them in conjunction with our trading strategies. This inclusive approach ensures that traders of all levels can benefit from the power of our trading room, software, and custom indicators. Micro contracts are especially beneficial when "layering" orders for fade trades.
TRADE ORDER TYPES USED BY
TOP GUN TRADERS EDGE
Top Gun Traders Edge Execution: Order Types
Trend Trades: For trend trades, we typically do one of several entry types:
1. Market Order - During times of strong aligned trends to ensure we are filled
2. Buy Bid or Sell Ask - When market is a bit slow we try to get a slightly better fill
3. Limit Order - When we expect a pullback and do not want to chase a fast reversal
Fade Trades: For fade trades we almost always use one or both of the following:
1. Limit Order- We use resting limit orders with an ATM. We position the order directly against the technical support or resistance.
2. Layered Reverse Pyramid Order - When markets (especially NQ) are volatile and often price often penetrates a support or resistance area to the next area, we want to be sure to "average" into that move so our average fill price improves. Therefore, we divide our order into 2 or 3 segments and "layer" into the expected exhaustion point of the price movement. See "Timing Challenges" above for more on "Reverse Pyramiding" of orders.
Divergences: Divergences will almost always use Limit Orders as the market can take a while for the momentum shift to change and there is no need to "panic" into a trade. Therefore, we will often 'work' an order to get the best fill possible. Occasionally, we may add using a market order once the market starts to reverse in our expected direction.
Unlocking the Power of Top Gun Trader's Edge
There are multiple pathways to scalping effectively, which align powerfully with trading funded trader accounts. Having our Top Gun Trade Zones displayed on your screen will undoubtedly enhance your trading, regardless of the methodology you employ when trading on your own. Observing their effectiveness in real-time, day after day, week after week, will astonish you as you witness the diverse ways in which they can be traded, significantly elevating your trading skills! Having our Top Gun Trade Zones on your charts provides a reliable framework for scalpers to identify key levels, assess market reactions, and execute trades with precision - and can immensely help in trading while in the Top Gun Traders Edge trading room.
PATIENT.
PROFESSIONAL.
PRECISE.
"in this business if you’re good, you’re right six times out of ten. You’re never going to be right nine times out of ten."
~ Peter Lynch
