Chris Dunn: Full-Time Trading the E-Mini In 90 Minutes Per Day

TraderInterviews.com: Hey everybody and welcome back to TraderInterviews.com. Thanks for joining me for another show this week with a successful trader. As usual every interview you should be able to pick up one or two things you can use immediately in your own trading, and get a feel for how another trader approaches the markets because there are lots of different ways to do this, lots of different traders make their money in a lot of different ways. So the idea of course of your membership with Trader Interviews is to give you an idea about how somebody else is doing it so you can maybe improve your own trading skills. And our guest today is Chris Dunn of EminiAcademy.com, and we're going to talk to him about how he approaches the markets and find good trades. So Chris, thanks very much for joining me on the phone today.

Chris: Absolutely Tim glad to do it.

TraderInterviews.com: Well, if you could describe your overall trading philosophy in terms of are you a day trader, a swing trader in the markets that you trade, we'll start with that.

Chris: All right. Well, I am pretty much a day trader, that's what I do everyday. I trade the E-Mini markets and primarily I focus on the S&P E-Mini and typically I trade about 90 minutes a day on average no more than usually about two hours.

TraderInterviews.com: OK. So 90 minutes a day, is that typically the first 90 minutes?

Chris: Yeah. Well, usually right at market open up to about 11 or 11:30, sometimes I'll take a trade a little bit pre-market, but yeah most of the stuff is right after market open, that's about 11 o'clock.

TraderInterviews.com: Yeah. I've heard that's really a big advantage of trading the ES contracts is that you can do it in a short amount of time and most of the movement happens in that first 60 minutes, is that kind of why you're in that market?

Chris: Yeah. Absolutely and it's funny I actually used to trade all day for market open for about 4 o'clock and what I did is I went back and I broke up my profitability by hour. Where is the money being made? And what I found was well over 80% of the money was being made in the first hour or an hour and half of the day. So I said you know let's kind of put the 80/20 principle in effect and cut out half of the day and go do something else than just focus on where the good chunk of the money is and really focus in on that time period and the nice thing with the E-Mini is it's so liquid and it's so volatile, those two things are a traders best friend and just gives a lot of opportunity.

TraderInterviews.com: How do you decide? We'll talk about where you decide to get in just a second, but in terms of size, let's go right there to what your typical number of contracts that you're trading.

Chris: Sure. I typically trade in between 10 and 20 on the S&P E-Mini.

TraderInterviews.com: OK. And are you scaling into that or you're pretty much all in?

Chris: No. Typically, actually I'm always all in and then about half of the time I scale out and half of time I'm all out depending the setup and kind of what the market is doing, but always all in and then kind of scale out.

TraderInterviews.com: OK. So maybe describe for us if you had the ideal trade on a chart, what would that look like to you at least what are you looking for each day when you're looking for opportunities?

Chris: Sure. Well, first of all I trade charts, which if you're familiar with tick charts it's basically a transaction not time. So if you're on a highly active market with a lot of volume that the bars are going plot quicker, if it's slow it's going plot slower. But what I typically do is I like to trade with what I call momentum with the strength and direction of my main time frame, my main tick chart. I'm not really a countertrend trader where I try and pick highs or lows and usually I'll look to get in on a pivot as prices retracing to kind of continue in the original direction in that trend and really look for a high probability area and get in as close to that edge as possible. And what that does is it allows me to really minimize the risk and to maximize the potential reward on the trade.

TraderInterviews.com: All right. So these pivot points is that typically high low close from previous day or some people have been using different pivot points that have to do with last week's close and that sort of thing. What is it for you?

Chris: Right. Yeah, whenever I'm talking about pivot points I'm not really talking trader pivots or high lows from previous days anything like that. A pivot point for me is a very, very short term pivot in the market. I'm looking at what's happening right now and I use a couple of different indicators and Fibonacci to find or anticipate pivot points that are going to kind of continue with the original direction or the strength of my main trading timeframe.

TraderInterviews.com: So what kind of charts are you typically putting up, a standard chart that you'd have on your screen in the morning?

Chris: Well, typically I use high low close bars, which are similar to candlesticks. Basically, you're looking at the high low and then the close, not really the open. And with tick charts I'm trading such small time frames that it really doesn't matter, you don't have a whole lot of gaps in between the bar. So the high low close really works well for what I'm doing, and typically I use about two time frames. A main trading chart actually, look at the trade setups, gauge the potential profit, look for the entry area, and then I use a smaller time frame to actually help me pinpoint that entry and really minimize that risk and maximize that reward.

TraderInterviews.com: All right. What are those time frames? You mentioned there are two?

Chris: Sure. The main trading chart that I'm using right now is the 610 tick chart, and then this time frame for our entry time frame is a 233 chart.

TraderInterviews.com: 233 ticks?

Chris: Right.

TraderInterviews.com: And how did you come up with those? What about those attractive to you?

Chris: Well, I trusted a bunch of different timeframes and fixed in 233 or Fibonacci numbers. Nothing really special, there's no magic to the actual number of ticks, but what I did in my back testing is just look for the setups and we tested about a half dozen different timeframes and we we're looking for the ones that were really the most consistent. I was looking for what areas hit the best, where could I really minimize that risk, and the 610 just consistently time after time just continues to work for those areas. And then the 233 it's a little faster timeframe, it's not too fast but it does give me very accurate entry points for the trades.

TraderInterviews.com: Are you setting limit orders for those entries? I mean do you want an exact price or you kind of just looking for a general price?

Chris: Yes. For the entries, I always do limits on the entries. I kind of have this poster that says, "Discipline entries and confident exits." When I get into the trade I have such a small stop-loss, I use a maximum stop-loss, I have a point and a quarter which on the ES if you notice is $62.50, which is small compared to what a lot of other traders use, but because my entries are so refined and so disciplined I have to use limit orders and I have the techniques for kind of dragging and dropping and getting fills and then for the exits I'm doing market orders, when I went out I just went out.

TraderInterviews.com: All right. Can you talk about a good trade you had recently and what led you to take it and then get out and what led you to get out? Can you kind of lead us through a typical good trade that you had recently?

Chris: Sure. Actually, this morning we had a really nice four and a quarter points trade that setup as a nice short. Basically, what happened on the 610 chart we got some indications that the momentum was shifting to the downside, started looking for a short gauge day, a couple of different potential price entry areas and then using the indicators and some Fibonacci areas pinpointed about a point where I could have gotten in. And once we reached to that area all of my indicator kind of confirm that that was the right area and went to the smaller timeframe, pinpointed the entry, and execute it, managed down, had a couple of different profit targets and what I do once I'm in a trade, how I manage it, I have kind of a four-step process that I go through. I have my initial stop-loss and once that reaches a certain area or a certain point or if the market shows me something then I'll either adjust the stop or get out or close part of the position. And on the trade today, my rule is if I'm never up more than four points, I go ahead and close at least half of the position. If I'm at a target area, sometimes it will just slash right through it and run for more than that, but most of the trades are kind of in between that three and five point range. So I closed half of the position of the first target and if the market returns a little bit, showed us some weakness at kind of the same area once it kind of did a little bit of a double bottom and went ahead and close the rest of it.

TraderInterviews.com: All right. So, I was going to ask you, well you said that when something goes toward your stop it will show something different, and then you just mentioned just now that it showed you a little bit of weakness. What does that look like to you on the chart?

Chris: Typically, divergence on a momentum indicator, and I what I do is kind of correlate what price is doing with the oscillator that I use on the bottom and also have a couple of studies on the price. So once we break it, but I think most traders would understand that if you're looking for shorts and you break up above a certain moving average and then you pull back, it can turn from an area of resistance into an area of support and then you got a momentum indicator also showing you that the down moves are potentially starting to shift and there's a little bit of weakness at that if you're at a price support area and you've got say a moving average of support with weakness on your momentum it's kind of lining up on you, "Hey, the potential here is to get a nice pop off at this area and potential downside is kind of limited at that point."

TraderInterviews.com: All right. So a stock or in this case the ES would come down, hit a point of support and then you see maybe the MACD or MAC or some kind of a momentum turns slightly downward.

Chris: Right.

TraderInterviews.com: Is that about right?

Chris: Yes.

TraderInterviews.com: And then do you watch volume as well while you're doing this?

Chris: Well, tick charts and volume is actually represented in those tick charts, so I don't use like a typical volume indicator. Sometimes I'll glance at like a 5- or 15-minute chart just to look at areas, but it usually doesn't affect my trading decisions. And if I use the 5- or 15-minute chart I'm kind of looking at the volume because it correlates with that bar, but on tick charts the volume is really represented in what I'm seeing. And I gauge the volume by the kind of the pace of how those hours apply.

TraderInterviews.com: Now, on a day like today, the day after we had a non-farm payrolls announcement. How do you trade around the announcements like that? How does it affect your decision-making?

Chris: Well, one thing I do before I open up the charts I just kind of glance at the news calendar and mark the news points in the morning and look for the ones that are potential market movers and I make sure that if I'm in a trade and a big news piece is coming out, I'm either very profitable and have eliminated the risk by pulling a stop to break even or a little bit ahead of that, or if I'm in a position and I'm not more than two or three points then I'll usually just close out before that news piece comes out. And if I see a setup kind of pulling into an area where I'm looking for an entry as news is coming out then usually I'll just let it pass and wait for that news. So I don't trade based on a bias of pay this and this is going to be good or bad. I'm just looking for those times and want to make sure that I kind of steer clear of them.

TraderInterviews.com: How about this volatility, I just saw an article I was reading right before we started recording here that says, "It is at low, low lows." I think were it like 12. I mean if we come down at 12 or like 18 I mean it's really ridiculously low, does it make it harder for you to trade the ES during those times?

Chris: Well, I mean obviously more volatility and liquidity means more opportunity and one thing we've noticed is over the past couple weeks our average trades per day have gone down a little bit. So yeah, I mean back in 2008 when the market was just crazy and we had unprecedented volume and volatility, I mean we were just killing it and days like today in the past few weeks even with low volatility I mean we still have the opportunity to make money, but we're not getting quite as many head ups as we used to.

TraderInterviews.com: How many trades are you typically taking in a day?

Chris: In the morning session, the stats for last month were about four-and-a-half in the morning. So, on the low side two or three, on the high side maybe five to eight, but usually around four to five in the morning session.

TraderInterviews.com: Now, you've mentioned you trade mostly in the open, there are more and more opportunities that seems to trade after hours in some pre-market stuff. Are you seeing your ability to kind of find good trades after hours, is that improving at all with more liquidity, more traders?

Chris: I don't trade after hours. I mean I've watched it. It's just too thin for me and too slow I just don't have the patience for it to be honest with you. Pre-market, if there's a nice movement in the morning maybe an hour or 30 minutes before the regular market open, I'll take trade but post market really isn't for me. I like to sit down. I like to be focused for an hour or two a day and just give it all I've got and then be done with it.

TraderInterviews.com: What kind of software are you using to do your charts? I've been getting a lot more questions about those. I've been asking people, so I'm starting to do that.

Chris: Sure. I use both TradeStation and NinjaTrader and I've got kind of reasons why I like both of them. For execution, I usually use NinjaTrader.

TraderInterviews.com: Yeah. Lot of people that's certainly a popular, a lot of people are using NinjaTrader these days. It's not an endorsement, but just to comment I see a lot of people using those or using that software.

Chris: Yes. It's really user-friendly and has a lot of benefits.

TraderInterviews.com: How long you've been trading full time?

Chris: About eight years.

TraderInterviews.com: Wow, OK. Has your trading strategy changed over those eight years?

Chris: Yeah. You could say that. The first few years in my training career was not that glamorous. I opened my first account back in 2002, I think it was a $5,000 account and blew that out in about two weeks. Basically, trading delayed charts and looking at some sort of matrix and just trying to guess what the market was going to do and learn, "Hey, trading is not that easy," and spent the next few years basically buying up all courses and training that I could. And it took a few years to finally figure out something that kind of works and I've been trading the strategy and the methodology that I'm using for a little over three years now.

TraderInterviews.com: Now I did a video recently wherein I talked about the 20 habits of wealthy traders and one of them was that, "Good traders are OK feeling uncomfortable while they're trading." So my question to you is, when did you make that transition I guess is the question between guessing like you mentioned on the trades and then having it more of a statistical thing or just feeling like everything is lining up and you're putting odds in your favor rather than guessing. Was there kind of a time that you remember that transition?

Chris: Yeah. It's funny before I mean I was basically trading completely discretionary looking at standard indicators and just reading books and kind of using a lot of the theory that I was using in books or reading in books, but there was really no consistency with it. I knew a lot of information and I knew what all the indicators were and what they measure and how they work. But it wasn't until I really sat down and said, "OK. Let me write out some very specific rules for not only the setups, but when do I pull the trigger and how do I manage that trade once I'm in that trade?" And it seems like the more I kind of wrote out that plan and define that edge over the market, the more confident I became. And since I learned about back testing and how to go back and actually say, "OK. This setup it has a 65% or 70% win ratio and here's how I can work out the win-loss and the average in that trade and that type of thing," and once I knew I had a positive expectancy in the market then the emotion and kind of the psychological part just kind of fell in place. I think if you're confident in what you're doing it handles a lot of that insecurity and kind of fearfulness that you can feel.

TraderInterviews.com: Yeah. We also talked about that recently with another trader that there's a point at which the trade is so small, you're not worried about losing that money and that he was doing really well because he didn't care if he lost it and by very nature of not caring, he actually made money on that and I guess the trick is to keep that feeling even when you're increasing your size. Does that make sense?

Chris: Yeah. Absolutely and if you know that you're winning more than you're losing and you know that your winners are bigger than your losers, then if by default you know you're going to be profitable. So at that point once you just get over the need to be right all the time and you're comfortable with having loses, then it kind of falls in place as long as you're confident that you know that the ratio has worked out in your favor.

TraderInterviews.com: All right. Let's go back to a little bit more on the strategy side and I didn't ask you specifically about where you set those stop-losses, how far away from resistance that sort of thing. Can you kind of guide us through how you do that?

Chris: Yeah. Absolutely, I have an automatic stop maximum of one in a quarter points and based on the entry sometimes I can pull that in a little bit at my average loss depending on the month it varies. It's either right under the point or just a little over the point, so on average about a point loss and once you get into a trade, once it goes in my favor by a certain amount or once we reach a certain area then I'll usually adjust that either behind the technical area or break even.

TraderInterviews.com: And are you pretty strict with that, I mean does that stop-loss go in the moment your trade is executed or is it a mental stop-loss?

Chris: No, absolutely. I mean it's such a short time frame and it's such small stop-loss that it has to be automatic. Yeah. I mean it goes in right away and I mean I haven't had a loss; well I've had one loss that was bigger than a point of quarter these past few years, but that was because of slippage. But every single trade I have has that that max loss on there.

TraderInterviews.com: So even when those periods of high volatility I'm surprised you're still able to get with that that one point stop-loss and you're still able to knock it, washed and rinsed as they say and stopped out?

Chris: Absolutely, and the only way that I'm able to do that is by having very, very precise rules for entry, looking from very, very high probability pivot points. It didn't happen overnight, I mean it took me a few years to get that down and certainly in highly volatile markets sometimes you get popped out, but if you know that you're at a high probability area and you get that entry kind of right on the edge, then yeah I mean it doesn't matter if it's highly volatile or kind of slow, we know those areas are going to work.

TraderInterviews.com: There are two kinds of schools of thoughts about stop-losses and profit targets. Some people have set them very arbitrarily, well not arbitrarily in that, it's one point for you on the downside and probably four points on the upside where you start to take off. Other people it's they say, "Look, I can't set that the market is going to tell me where that stop-loss is going to be and where the profit target is going to be." Have you investigated the other way where you say, "Well, here's resistance two points away, maybe I'll set it just below that rather than just a straight one point or one in a quarter."

Chris: Sure. And actually I used to trade that way and I know a lot of traders that are comfortable with that and that is for them, but one thing I found out about my personality and my risk tolerance is I needed something set in stone that I could go back and really test that data and not justify. One of the things that I found out about myself and I think a lot of other traders experiences too is kind of setting your stop based on technical areas is sometimes, at least I've done this, kind of justify and say, "Well, maybe I'll pull it a couple more ticks back here or." For me, if I know that's the number and I know my average win ratio and I know my average win size, that's just gives that much more confidence. But if I'm just putting my trades in odd areas and I don't really know what my average risk is, sometimes that could throw me off. So that's what I do , but I do know traders that that work very well for them.

TraderInterviews.com: So for you, it's just a measure of confidence in knowing that you never have to decide what that stop or the profit is going to be. It's a specific number that keeps you disciplined, it sounds like what it is for you.

Chris: Yeah. Absolutely, and again the only way I could really get to a point where I was comfortable with that is by having that shorter time frame and those very specific rules for entries. I have three different entry patterns based on what my indicators are showing me that will tell me if I can get in right away at an area or if I have to wait for weakness or a reversal or confirmation. So, it's not just that kind of a guessing thing where, "Hey, I'm kind of at the area and let me just pull the trigger here." No, I'm looking at entry price action. I'm looking at where the market should not break that high and that's really the only way I can get in so close to the pivot high.

TraderInterviews.com: So it sounds like you have maybe three or four setups that are your meat and potatoes, your tradable setups you look everyday?

Chris: Yeah. I have basically three different setups that have very specific rules tied into them.

TraderInterviews.com: OK. Can you give us one and kind of break it down for us?

Chris: Sure. I'll give you one. It's called my BT trade or breakthrough trade.

TraderInterviews.com: Hold on just you cut that just a little bit there. Repeat the title of the trade again.

Chris: OK. It's breakthrough trade.

TraderInterviews.com: OK.

Chris: Basically, it's the closest thing if I had to kind of explain it, it's the closest thing that I do is countertrend trade. It's still with the strength and the direction of my main time frame tick chart, but it's after a really nice move in the opposite direction and usually we get a lot of those in highly volatile markets. Sometimes in the slower markets or that kind of a trendy slow grinding market, I won't see a lot of those. But in highly volatile markets, I can have four, five, six in a couple of hours.

TraderInterviews.com: All right. So you've got something that's been trending up, for example, it starts to reverse and goes down, talk about what the trade is right there then if that's an example or just give me an example give me a garden variety example.

Chris: Sure. Basically let's say the market is kind of going up and all of a sudden we got a huge sell-off and just a really strong push to the downside. Usually in kind of the name of the trade breakthrough trade, we usually breakthrough a whole bunch of areas that shows a very strong shift in momentum and direction and what I usually look for is a pullback to an area that statistically when it hits that usually just sends the market shooting to the downside. And that one is just a really nice trade because my average stop-loss on that is less than five ticks, and the win ratio kind of varies depending on the market conditions, but on the low side it's from 65 the high 60s and in some months we've been up in the high 80s on that.

TraderInterviews.com: And so is this kind of trade that you've worked out through back testing on TradeStation?

Chris: Absolutely yeah. It's actually something that kind of developed through my discretionary style and I said, "Man, what am I doing, I'm taking these trades." If I had to set rules on this, what would it be and then we figured it out where the entry point was and just what made the trade real, what criteria did we have to have for it to be solid.

TraderInterviews.com: So with five ticks being on the stop-loss you said, you're right or wrong immediately within seconds I guess on that kind of trade?

Chris: Correct. Yeah. Usually, I have about 20, on the low side five - to ten-second window; on the higher side 20- to 30-second window to actually pinpoint that entry and I'm usually stopped out in 30 seconds to a minute and on that BT trade when it pulls back and it hits that area, usually it takes off immediately. So if it's around for too long I usually know that if it's going to work out.

TraderInterviews.com: If you do have one of these trades or any of your setups that happen at the end of the day, if it hasn't reached your target yet and you haven't been stopped out it's kind of been doing nothing, will you close it out before the market closes?

Chris: Yeah. I mean, if it's coming right up on market closing and I usually don't trade the last 30 to 15 minutes of the day, if I do happen to trade in the afternoon which is kind of rare. But, yeah, if the market is coming 15 minutes into the close and it's just kind of hovering there, absolutely I'll just get out of it.

TraderInterviews.com: Let's talk about goals as we finish up here in terms of how much money you want to make trading and setting goals for yourself. Do you have a daily amount of money that you want to make or is it weekly or how do you judge success for yourself?

Chris: Well, I used to do it by day and I found that was kind of stressful because if I ever had a day that I was either kind of flat or down a couple of points that would really get to me. So I either do it in blocks of trades of 20 or 30 trades and look at the stats there, or do it on weekly basis. As far as kind of daily goal, I shoot for generally three to seven points. Do I always get that? No. I mean sometimes I'm one or two points; sometimes I'm a little bit negative. I'm absolutely obsessed with risk management, so I'll never lose more than a few points in a day. If I have three losing trades in the morning something is going on and again kind of that three- to seven-point range is my sweet spot.

TraderInterviews.com: So do you pay yourself a salary or how do you decide what to take out because you're doing this full time I mean do you kind of treat it like a job in that sense?

Chris: Yeah. I have a budget and a salary that I have an automatic check that cuts me every month and then takes some funds and invest them in other things and then just continue to stack those contracts and I use a relatively conservative margin on the ES. I know a lot of guys can get margins down in the $500,000 range. My personal margin is in between 3000 and 5000 per contract.

TraderInterviews.com: All right, Chris, so if you had to give advice to somebody who's one year into this, two years into this, is there anything you did that really made a difference that really took your trading to the next level that you said that you can point to and say, "If I had to do this over again I would have done it in week two rather than in year two." Does that make sense?

Chris: Yeah. Absolutely. I would not have focused so much time on learning every kind of indicator that I could and focusing on all those general theory because there's just a lot of information out there and it can be really confusing what to look at. I would look for strategy or system that has this statistical edge over the market and learn that specific strategy and just get help, get somebody to coach me and help me develop that skill and maybe kind of work through a lot of the common pitfalls that traders can go through on their own.

TraderInterviews.com: All right. Well, of course, listeners Chris have a website, eminiacademy.com. We'll link to that in the show notes. Chris thanks for your time today. I really appreciate it you spending some time talking about your strategies and your philosophy for trading. Thanks a lot.

Chris: Absolutely Tim, glad to do it.