Simplified Guide and Reminder Document for Categorical Trading

You will need to adjust this over time as you learn, but this is a good starter for this strategy. You’ll need to watch the video at the top of this page to get a true understanding of what each point is truly talking about. These are supposed to be extreme simplifications of more complex ideas and lessons, which only the video covers. The video also covers everything on how and why these reminders exist, how they’ll change, and much more.

• Categorize

• If price action is consolidating

• Expect it to stay where it has been rather than going to new areas

• Trade mean reversion

• Following it back and forth in the consolidation zone

• Shorting at the top, going long at the bottom

• The high probability loss would be to try and time breaks to the upside or downside 

• If price action is directional

• Expect it to continue moving in that direction until proven otherwise

• The high probability loss would be to go against it

• If price action can’t be categorized because it’s too chaotic

• Don’t trade

• Adapt

• Focus on when conditions change

• If directions starts consolidating, don’t forget to switch the way you trade

• If consolidation turns to direction, don’t go against the direction expecting it to come back

• Timeframe and ATR (set ATR’s period to 1)

• Adjust the chart’s timeframe to get your desired trading conditions

• Lower the timeframes in high volatility

• High timeframes in low volatility

• Is ATR itself volatile? Is it all over the place?

• Be very cautious, because inconsistent volatility makes it hard to categorize price action

• Choose the right bracket size (your target and stop loss)

• If you’re trading a 1:1 risk:reward ratio, make sure the target and stop loss looks good based on the current structure of the recent candles

• Know your strengths and weaknesses

• Are you good at this price action?

• Go for it

• Are you bad at this price action?

• Sit it out

• Have pictures of bad and good price action on your reminder document so that you quickly determine whether you should trade or not

• This can only be determined after many trading sessions, and setting rules like this too early could ruin any chance of success. Don’t put yourself in a box too early.

• Trade

• It’s either consolidating, directional, or too chaotic to trade

• Only get stopped out due to a change in structure and/or price action category

• After the trade is over, was it a:

• Good trade that won = nice job

• Good trade that lost = nice job

• Bad trade that won = bad job

• Bad trade that lost = bad job