The #1 Goal using our trading approach is to get your Trade to Delta Neutral.
This article will explain what it is – and why you must use it on every single trade.
The Delta Neutral Stop is a technique we employ after a trade is filled – to effectively manage a trade once it’s open. Delta Neutral means “Breakeven” and once you have achieved Delta Neutral you have no risk of losing money in that trade (excluding commission).
It’s very simple but it is imperative that you understand it – and use it every time.
Here’s a basic overview using the ES as an example:
1) You enter the trade with 2 contracts and place a 2 point Stop
2) When the trade moves 1 point in your favor – you sell 1/2 the position (1 contract)
3) You then move the Stop up 1 point
Now your trade is at “breakeven” or “Delta Neutral” and it’s a no-lose trade.
While the concept seems simple – it forms the basis of our strategy because we want to reduce the risk on every single trade – as quickly as possible. Scaling out 1/2 then moving the Stop up an equal distance creates a “no lose configuration”.
Keep in mind that you can choose to use either a 3-tick or 1-point “initial target” – and when it gets hit – you take half-off the position – and move the stop an equal distance.
The Main Goal of the Alerts in the Power Emini Desktop Software is to give you Precision Entries that will have a high probability of getting you to the Delta Neutral Target.
Once you master the technique of getting to Delta Neutral you will find that on trades that don’t get much follow-through simply turn into “scratch” trades, but you don’t lose money and you don’t take a full stop-out. The Breakout Alerts that do get traction – will follow-through and go on to hit our Macro Target(s) and you can simply trail the stop to stay in for the bigger move.
Notice we use very tight stops – our goal is to Trade Around Breakeven – or score Big. We don’t take large stop-outs – ever.
The Delta Neutral Stop reduces risk on every trade.
The Delta Neutral Stop technique is part of the Trade Management that’s employed after an Entry is filled. Here’s a look at the two phases.
Here’s an easy way to think about it. By setting our first target 1-point over our Entry – then selling half the position there (and sliding the stop up a point) we are eliminating all risk when a trade fizzles and doesn’t get any follow-through. This can happen during dull market conditions and on choppy market days – even when price moves through the Trade Price Barrier.
If you take a couple trades and get stopped-out at breakeven, it’s no harm – no foul, but then the very next trade the price may get traction and go on to be a “runner”. The 4-6-8-10 point Runners are where the money is made.
Since we don’t always know which Alerts that “break through the Trade Price Barrier” will follow-through to become runners, the Delta Neutral Stop gives us the confidence to participate – because it reduces the chance of taking a Full Stop-Out. We get our stop to breakeven quickly and the big winners will take care of themselves – over the series of trades.
When you review the Stats the system produces – keep in mind that every 1-point move (add a tick for entry confirmation) past the Trade Price Barrier is a no-lose trade.
Typical Point of Entry Scenarios
Scenario 1 – Price moves straight to the Delta Target after entry with little or no drawdown
Scenario 2 – Price moves slightly against you before hitting the Delta Target
Scenario 3 – Price is not able to reach the Delta Target and results in a full stop-out
Notice that 3-tick and 1-point Delta Targets are used interchangeably in these examples – as well as 1.5-point and 2-point stops. The reason is that market conditions vary and it makes sense to have flexibility to adapt to different conditions. The concept is exactly the same.
In a fast, high-volume active market the 1-point Delta Target / 2-point Stop configuration will have a high degree of success.
In a slow, dull low-volume market the 3-tick Delta Target / 1.5-point Stop configuration will likely work better.
You’ve seen the image below on our website – and now that you understand the Delta Neutral Stop strategy – it should make perfect sense.
The Delta Neutral Stop Move Strategy is designed to work with the Signal Alerts in our software – and is the Best Trading Tactic to Reduce Risk when Day Trading the Futures Market. It prevents us from letting a winner turn into a loser and “getting to Delta Neutral” is the #1 goal on every single trade.