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Today’s interview features veteran trader Chris Cathey, a market practitioner known for turning complex ideas into simple, repeatable processes. He breaks down how he approaches entries and exits, treats risk as a first-class citizen, and keeps emotions out of the way with clear rules. If you’re new to markets or rebuilding your playbook, Cathey’s plain-spoken approach is a breath of fresh air—and a practical roadmap you can actually use.
In this piece, you’ll learn the pillars of Cathey’s trader strategy: how to stack confluence without clutter, size positions with intent, and manage downside so the upside can compound. We’ll cover his views on timeframes that fit real life, the difference between a plan and a prediction, why journaling beats “gut feel,” and how to adapt when the market regime shifts—all distilled into beginner-friendly, step-by-step takeaways you can put to work right away.
Chris Cathey Playbook & Strategy: How He Actually Trades
Core Philosophy & Edge
Before entries and indicators, Chris Cathey’s edge lies in picking the right ideas and managing risk with boring consistency. He focuses on asymmetric setups where downside is predefined and upside can compound, then lets time work instead of forcing action every day.
- Define your edge in one sentence (e.g., “swing-trading liquid majors/equities using fundamentals for idea selection and technicals for timing”).
- Only trade when you can state the thesis, the trigger, the invalidation, and the target—out loud—in 30 seconds.
- If the idea can’t produce at least 2R realistically, pass and keep cash optionality.
- One market regime at a time: trend, range, or transition—label it on your chart header before you trade.
Market Selection & Timeframe
He chooses markets where liquidity, structure, and catalysts line up, then trades a consistent timeframe so execution stays repeatable. Think weeks-to-months swing holds with intraday precision only for entries.
- Trade 5–12 liquid symbols you truly understand; archive the rest.
- Top-down each week: Weekly → Daily → 4H. Only take trades aligned with at least two of those three.
- If the Daily conflicts with the Weekly trend, reduce the size by 50% or skip.
- Avoid trading minutes-based noise unless it confirms a daily plan.
Setup Criteria (Confluence)
Cathey stacks a few clean signals instead of a dozen overlapping indicators. Confluence filters weak ideas and keeps you patient.
- Require 3 of these 5 to be true before any entry:
- Higher timeframe trend in your trade direction
- Fresh break/retest of a key level (prior swing, weekly open/close, or well-tested trendline)
- Momentum confirmation (e.g., higher highs + higher lows on 4H)
- Catalyst or flow tailwind (earnings, macro print, positioning shift)
- Volatility “fit” (ATR supports your stop/target distances)
- Cap indicators at two. If you add a third, delete one.
Entry Triggers & Execution
Entries are simple: let price prove your idea, then participate with predefined risk. No “hope entries,” no chasing.
- Use stop orders at the trigger, not market clicks: buy stop above breakout; sell stop below breakdown.
- Breakout rule: enter on a close above/below the level plus 0.25–0.5×ATR(14) buffer.
- Pullback rule: enter on retest that holds with a clear rejection wick and a higher low/lower high on 4H.
- If price tags your level but fails to close beyond it, stand down and re-queue the order.
Position Sizing & Risk
Sizing is where survival lives. Cathey keeps risk small per trade and lets multiple winners stack.
- Risk 0.25–0.75% of equity per trade; max 1% only when Weekly and Daily both align and volatility is moderate.
- Position size = (Account × %Risk) ÷ (Entry–Stop distance).
- If stop distance > 1.25×ATR(14), halve the size or skip the trade.
- Hard stop goes at structural invalidation (last swing or level); never at a random round number.
Trade Management (Exits)
He exits with rules, not vibes. Partial profits bank psychology, while trailing lets trends pay.
- Set two targets at open: T1 = 1.5–2R; T2 = structure target (prior swing/level or measured move).
- On reaching 1R, move stop to breakeven only if the structure supports it (higher low/lower high formed).
- Trail below/above swing structure on the 4H or use a 2×ATR(14) trailing stop—pick one and stick with it.
- If thesis breaks (e.g., failed retest; momentum flips), exit—even if stop hasn’t hit.
Shorting Rules
Shorts are not “inverse longs.” Cathey waits for momentum to be traveling his way instead of top-ticking.
- Only short after a lower high prints below a broken support or after a failed breakout (bull trap).
- No countertrend shorts against an intact Weekly uptrend; drop size to 0.25–0.5% if you must take it.
- Cover partial at 1.5R and trail above lower highs; never widen stops on a squeeze.
- If a short requires perfect timing to work, skip it.
Portfolio Construction
He concentrates on the best ideas and controls correlation so one theme can’t sink the boat.
- Max 5–7 concurrent positions; 2–3 in the same theme/sector/pair group.
- If two trades share >0.7 correlation (similar drivers/structure), treat them as one risk unit.
- Cap aggregate open risk at 2% of equity across the book.
- When a new A+ idea appears and you’re full, cut the weakest position to fund the upgrade.
Volatility & Event Playbook
He respects macro prints and earnings. Volatility is either a friend you prepare for—or a wrecking ball.
- If a high-impact event is due within 24–48 hours, halve the size or wait for the post-event structure.
- For event holds, widen the stop to 1.5× normal and cut size proportionally, or stay flat.
- No entries in the final 2 hours before the event; reassess on the first clean 4H close afterward.
- If spread/slippage increases beyond your modeled risk, cancel pending orders immediately.
Daily/Weekly Process
Routine beats talent. Cathey’s prep locks in clarity, and his review locks in learning.
- Weekly (Sun): mark HTF trend, key levels, and A+/A setups; archive anything B-grade.
- Daily: update levels, scan for triggers, place conditional orders, and write the plan in 3 bullets max.
- Post-market: screenshot each open/closed trade with entry/stop/targets and 2 lines of why/what next.
- Zero-discretion rule after entry: you can only act according to the plan’s predefined conditions.
Journaling & Metrics
He tracks what actually drives P&L and prunes the rest. Data keeps the edge honest.
- Log for every trade: setup type, R planned, R realized, time-in-trade, reason for exit, regime tag.
- Review monthly: cut the bottom 20% of setups by expectancy; double down on the top 20%.
- Track slippage and spread; if >15% of R on average, switch venues/hours or drop that market.
- Maintain a “kill switch” metric: if three trades in a row break plan, trade 0 size for 48 hours and review.
Psychology & Discipline
Consistency is a system choice, not a mood. Cathey builds rules that make good behavior the default.
- Two strikes per day: after two plan violations, close the platform for the session.
- Use checklists before orders: thesis, trigger, invalidation, size, news window—five boxes, all ticked.
- Never move a stop away from risk; reduce it to half-size instead if you must give structure more room.
- If you feel urgency to “make it back,” your next trade size defaults to 0.25% risk—no exceptions.
Upgrades & Continuous Improvement
He improves by controlled experiments, not wholesale overhauls. One tweak at a time avoids chaos.
- Change one variable per month (e.g., entry buffer from 0.25×ATR to 0.35×ATR) and measure expectancy.
- Promote a tweak to the core playbook only after 30 trades and a positive expectancy delta.
- Sunset any rule that adds complexity without improving win rate, average R, or time efficiency.
- Keep a “Not Doing” list (no news scalps, no revenge trades, no third indicator) and reread it before sessions.
Size Risk First: Position Sizing Rules That Protect Your Account
Chris Cathey starts with risk, not predictions, because survival funds every future trade. He frames each idea by asking what he’s willing to lose first, then backs into size mathematically. That flips the usual “how much can I make?” mindset into “how much can I afford to risk?” and instantly removes the urge to over-size. When you hear Cathey talk about consistency, this is what he means—repeatable sizing that makes one bad day just a scratch, not a crater.
In practice, Cathey risks a small, fixed slice of equity per trade and lets the chart define the stop, not a round number. He’ll widen stops only when structure or ATR demands it—and then he cuts size proportionally so the dollars at risk stay constant. If volatility spikes or higher timeframes disagree, he dials risk down again, prioritizing longevity over excitement. The result is a calm playbook where entries can be wrong without wrecking the account, and winners are free to compound.
Let Volatility Lead: Adjust Trade Size and Targets to Range
Chris Cathey treats volatility as the steering wheel, not background noise. When the ATR expands, he widens stops and trims position size so the dollar risk stays constant; when the ATR contracts, he tightens stops and can size a touch larger. This keeps each trade’s risk steady even as markets breathe, so you’re not accidentally betting double on wild days and half on quiet ones.
Cathey also lets volatility set expectations for targets and holding time. In high-vol regimes, he aims for fatter R multiples but expects messier paths and faster partials; in low-vol regimes, he accepts modest targets and slower plays. If volatility regime shifts mid-trade, he updates the plan—reduce size, trail loser, or take profits and re-enter when structure is clean again. The simple rule: Chris Cathey follows the range, and the range decides the rules.
Diversify Smart: Mix Assets, Strategies, and Holding Durations
Chris Cathey spreads his edge across uncorrelated buckets so one theme can’t nuke the month. He thinks in layers: different underlyings (indices, FX majors, top equities), different strategy types (trend‐follow, breakout/pullback, mean reversion), and different holding durations (4H swings, daily swings, weekly position trades). By staggering these, Cathey avoids doubling up on the same driver—no three trades that all live or die on a single macro headline. The goal isn’t maximum positions; it’s maximum independence between them.
In practice, Chris Cathey caps correlated exposure and treats similar trades as one risk unit. If two ideas ride the same catalyst or sector beta, he sizes them collectively, not separately. He’ll pair a slower, weekly trend trade with a quicker 4H pullback in a different market so cash flow is balanced. When volatility clusters, he rotates toward the cleaner, less-crowded bucket instead of forcing duplicates. That way, Cathey builds a portfolio that’s sturdy first—and only then fast.
Rules Over Predictions: Trade Mechanics, Triggers, and Invalidation Every Time
Chris Cathey doesn’t try to outguess the market; he out-processes it. He writes a one-line thesis, then defines the exact trigger that proves the idea deserves capital—close above/below a level, retest that holds, or a momentum shift on a chosen timeframe. Before placing an order, he marks the invalidation point where the thesis is objectively wrong, not just uncomfortable. If the trigger doesn’t print or the invalidation hits, he stands down without negotiation.
Execution for Chris Cathey is a checklist, not a vibe. Orders are staged ahead of time, risk is sized from the invalidation, and only after the trigger fires does he participate. If structure degrades mid-trade—lower highs on a long, failed retest on a breakout—he exits according to plan rather than “giving it room.” The goal isn’t to be right; it’s to be rule-consistent so expectancy can do the heavy lifting.
Define Risk, Not Hope: Exit Plans, Kill-Switches, and Discipline
Chris Cathey builds exits first, so emotions never get the wheel. He sets a structural stop at the point where the idea is objectively wrong, pre-plans partials at 1.5–2R, and chooses one trailing method—swing lows/highs or ATR—then sticks to it. When price hesitates at a target, he scales, not prays, and resets with fresh structure if the trend continues. This makes every decision executable before the stress hits.
Discipline for Chris Cathey is enforced by rules, not willpower. He runs a kill-switch: three plan violations or two outsized losses in a row, and risk drops to near zero for 24–48 hours while he audits execution. He forbids widening stops, bans revenge trades, and caps total book risk so a bad day can’t become a bad month. By defining risk in advance and automating the “no,” Cathey frees himself to let the “yes” compound.
In the end, Chris Cathey’s message is disarmingly simple: protect the downside, standardize the process, and let time and compounding do the heavy lifting. He starts every idea with risk—size is derived from the invalidation, not the other way around—and he keeps that dollar risk steady as volatility shifts. When the range expands, he widens the stop and shrinks the size; when the market calms down, he tightens up and can lean a touch more. He doesn’t guess; he waits for structure to confirm—breaks, retests, momentum shifts—then executes with pre-staged orders and a written plan.
Cathey’s playbook scales because it’s built on repeatable mechanics: align higher timeframes, demand clean confluence, cap correlated exposure, and manage winners with partials and a single, chosen trailing method. If conditions change, he updates the plan or steps aside; if his rules get violated, a kill-switch cuts risk and forces a review. The takeaway for traders is clear: treat ideas like hypotheses, exits like contracts, and discipline like a system you design in advance. Do that, and you permit yourself to be wrong often—while still stacking a right-skewed P&L over time.
