Trend trend trade
*Play in which long term trend and short term trend
*Catalyst
*Need clear reason to sell / stock must show you your wrong
*Trade it bigger
*** Reasons to sell ***
Clear break of intraday trend
Negative catalyst released
Stock hits exit
Major support / resistance
Market reverses
+/- 3% in premarket
High R vol in premarket
Technique to get bigger----
A+ setup
Have to get bigger
Trades work best go over them to get bigger
Add 1 lot above each level / take 2 off if level fails
30% of intraday stop loss must be risked
Second day trade
Day following trade with catalyst (earnings or changing fundamentals) tend to be best that closes HOD OR LOD
Hit stock out where stop is!
Have rules to get back in!!
*Big picture (SPY) - 80% move w market
*Intraday fundamentals - Catalyst for the day / Raising guidance / Lower Guidance / Increased / Decreased Margins / Ended Dividend - Something unexpected that changes outlook of stock going forward.
*Technical analysis (Long and Short Term)
Stocks strong get long, stock weak get short
*Trade management
*Trade review
*Trade idea for tomorrow
Build a play trade PowerPoint for FF5280
Find chat room and webinar software
Tick chart is time / sales
Atr:
Beta:
Float:
Short float:
Avg daily volume
Today's volume
Monday, May 30, 2016
8 Intraday Trades to Develop
Trend Trend Trade
- Long Term and Short Term Trend Align (Daily / Intraday)
- News catalyst in direction of trend
- Can also be a subset of trend trend trade
- News release that changed long term fundamentals
- 50% + volume done pre market if part of earnings release
- In play stock day 1
- Closed in top or bottom 20% of daily range
- Can take as swing from first day with half size
- Trade off day 1 key levels
Support and resistance
- Align with key levels in market
- Consolidation periods are best
- Level should be 7 or higher
- 1st test of key MA or VWAP
Fade plays
- Countertrend trade
- Market should be near key level
- Multiple days 3+ in same direction
- Key level on stock chart
- Low probability trade
High Beta Plays
- High beta stock like AMZN, TSLA, GOOG, HLF, SBUX +
- Key technical level
- News Catalyst
- Key market technical level
- Increased volume
Gap and go
- Stock holding above gap level at 10:15am
Gap and fade
- Gap into resistance or support area
- Gap fails to hold after 10:15am
8 Intraday Trades to Develop
Trend Trend Trade
- Long Term and Short Term Trend Align (Daily / Intraday)
- News catalyst in direction of trend
- Can also be a subset of trend trend trade
- News release that changed long term fundamentals
- 50% + volume done pre market if part of earnings release
- In play stock day 1
- Closed in top or bottom 20% of daily range
- Can take as swing from first day with half size
- Trade off day 1 key levels
Support and resistance
- Align with key levels in market
- Consolidation periods are best
- Level should be 7 or higher
- 1st test of key MA or VWAP
Fade plays
- Countertrend trade
- Market should be near key level
- Multiple days 3+ in same direction
- Key level on stock chart
- Low probability trade
High Beta Plays
- High beta stock like AMZN, TSLA, GOOG, HLF, SBUX +
- Key technical level
- News Catalyst
- Key market technical level
- Increased volume
Gap and go
- Stock holding above gap level at 10:15am
Gap and fade
- Gap into resistance or support area
- Gap fails to hold after 10:15am
8 Intraday Trades to Develop
Trend Trend Trade
- Long Term and Short Term Trend Align (Daily / Intraday)
- News catalyst in direction of trend
- Can also be a subset of trend trend trade
- News release that changed long term fundamentals
- 50% + volume done pre market if part of earnings release
- In play stock day 1
- Closed in top or bottom 20% of daily range
- Can take as swing from first day with half size
- Trade off day 1 key levels
Support and resistance
- Align with key levels in market
- Consolidation periods are best
- Level should be 7 or higher
- 1st test of key MA or VWAP
Fade plays
- Countertrend trade
- Market should be near key level
- Multiple days 3+ in same direction
- Key level on stock chart
- Low probability trade
High Beta Plays
- High beta stock like AMZN, TSLA, GOOG, HLF, SBUX +
- Key technical level
- News Catalyst
- Key market technical level
- Increased volume
Gap and go
- Stock holding above gap level at 10:15am
Gap and fade
- Gap into resistance or support area
- Gap fails to hold after 10:15am
8 Intraday Trades to Develop
Trend Trend Trade
- Long Term and Short Term Trend Align (Daily / Intraday)
- News catalyst in direction of trend
- Can also be a subset of trend trend trade
- News release that changed long term fundamentals
- 50% + volume done pre market if part of earnings release
- In play stock day 1
- Closed in top or bottom 20% of daily range
- Can take as swing from first day with half size
- Trade off day 1 key levels
Support and resistance
- Align with key levels in market
- Consolidation periods are best
- Level should be 7 or higher
- 1st test of key MA or VWAP
Fade plays
- Countertrend trade
- Market should be near key level
- Multiple days 3+ in same direction
- Key level on stock chart
- Low probability trade
High Beta Plays
- High beta stock like AMZN, TSLA, GOOG, HLF, SBUX +
- Key technical level
- News Catalyst
- Key market technical level
- Increased volume
Gap and go
- Stock holding above gap level at 10:15am
Gap and fade
- Gap into resistance or support area
- Gap fails to hold after 10:15am
Trading Tools for Retail Traders
Must Haves
Live quotes / Charts - potential capital requirements
Tradervue - Free
Ability to access to community of traders (Stocktwits, Twitter, Prop Firm, Chatroom)
Back testing software for options
Nice to have
Trade Ideas or Intraday scanner
FINVIZ elite
Tradervue - paid version 1
Great tools for a price
Tradervue - Paid version 2
Trade ideas
Back testing software
Screen Recording or On Demand Software. Some platforms like TOS offer it
Ability to animate trades - tradestation offers it.Benzinga pro or other live news feed
Live quotes / Charts - potential capital requirements
Tradervue - Free
Ability to access to community of traders (Stocktwits, Twitter, Prop Firm, Chatroom)
Back testing software for options
Nice to have
Trade Ideas or Intraday scanner
FINVIZ elite
Tradervue - paid version 1
Great tools for a price
Tradervue - Paid version 2
Trade ideas
Back testing software
Screen Recording or On Demand Software. Some platforms like TOS offer it
Ability to animate trades - tradestation offers it.Benzinga pro or other live news feed
Watchlist 5/27/16
Big Picture 27-May-2016
market flattish. Yellen talks at 1:00PM
| stock | support | resistance | inflexion | notes | trading plan |
| gme | 26.80-27 | 29, 30 | earnings fine. down but starting to bounce | ||
| vrx | 28 | 29.4, 30 | rejected takover offer in april | ||
| big | 48-48.50 | 50.50-51 | raised guidance. low end stores not hurt by amazon | ||
| tex | 16, 18 | ?? | 20 | takeover cancelled | |
| panw | 129, 130, 131 | 136, 138 | mixed reaction to earnings. |
| stock | support | resistance | inflexion | notes | trading plan |
| nerv | 9-9.20, 10 | 12.3, 13 | sold heavy open but held 9 before afternoon pop | ||
| dltr | 86, 86.80 | 89 | new all time high | ||
| csc | 48 | 48.5, 48.85-49 | sold all the way back to 48 breakout area | ||
| wsm | 51, 51.30 | 52.50 | very weak in morning. bounce & fail 52.50 | ||
| cost | 149.70-150 | 152, 154 | bought on open but then tested 150 a few times |
Intraday Trading Fundamentals to Focus On
Stocks in Play
- 50% or more of daily volume in premarket
- Pre market levels become very KEY
Short percentage of float
- Anything over 10% of the float should juice a move.
- Over 25% can get very wippy.
- Great than 1.
- Can far exceed ATR if an in play stock.
- General risk parameter is 20% of daily (20 day) ATR.
- Are traders or investors trapped against a move in opposite direction.
- Will they be buying or selling aggressively above / below this level.
Goals / Review
- 1-2 things each week to work on.
- At end of week review how you did. If you improve add new goals if you didn't key the same goals until you improve.
The Things You Can Control in The Market
Decisions
-entries
-exits
-position size
Emotions
-fear
-greed
-tilt
-fomo
-revenge / doubling down
How hard you work
-chart review / watch lists
-playbook trades
-weekend review
-back testing / TOS Ondemand
Everything else related to the market is out of your control. Focus on what you can control!!!
-entries
-exits
-position size
Emotions
-fear
-greed
-tilt
-fomo
-revenge / doubling down
How hard you work
-chart review / watch lists
-playbook trades
-weekend review
-back testing / TOS Ondemand
Everything else related to the market is out of your control. Focus on what you can control!!!
Sunday, May 29, 2016
10 Trader Lessons
#1 Market Lesson - You can be better tomorrow than you are today. You may stink now but tomorrow you can be better.
Equanimity - Being able to talk any trades without wanting to predict what's going to happen. Not coloring the data. Don't care about being right or wrong.
Scalable - Must manage your risk. Stay inside of risk parameters. Must make a lot of money to be valuable to a prop firm. System where you make a lot more than you lose.
Technical Trader - Scoring system for technical trades that are really good for current market conditions. Only best of best set ups for that market. Patients.
Live to play another day - You must have trade parameters for opening range, individual trade, and daily stop losses.
Bionic Trader - Technology to enhance trading. Filters and automate trading.
Successful trader late career change - Embrace the growth mindset in trading
The Great Automated Trader was a failed discretionary Trader - Focus on being a bionic trader. Find edge with back testing skills.
Monthly Goals - Detailed, process orientated, Specific, These traders do their absolute best. Language is process oriented and is more optimistic.
Mr Aggressive - when he's sees his set up he sizes up. When he sees his edge there's no fear in his sizing! Capture the meat of the move not the whole move.
Trader Preparation
You want to be a trader.
Maybe you’re just starting out in the working world or maybe you’re considering a career shift. Nonetheless, you know one thing will all of your being—you want to make it as a trader.
There could be a host of potential reasons, all of which make sense. You want to swing around huge positions and make tons of money. You want to compete with the best and vanquish them. You want the excitement that comes with the market constantly moving. You want the intellectual challenge of figuring out the global economy and wagering on macroeconomic trends.
The primary goal of being a trader is to be profitable. Obviously, no one ever says, “I want to be a trader so that I can lose tons of money”. In fact, it is an absolute requirement if you want to have a career as a trader. After all, trading is about taking controlled financial risks with the goal of making money. Ideally, you won’t be just barely profitable and scraping by—you’ll be making a large and satisfying sum of money. The prerequi-sites for this are the same for every trader. In this sense, the best preparation is to be familiar with these basics.
Beyond being profitable, the reasons that you give for becoming a trader actually have little to do trading. Words like “intellectual challenge” or “competition” are less about the markets themselves and more about what they do for you. You like them because they fulfill certain needs and desires that you have. These statements speak volumes about what’s important to you—and find their reflections in the markets. The markets are a mirror into our own personalities. In order to prepare better to be a trader, you need to understand your own unique personality and what it gets out of the markets.
The Universal Principles
As we said before, trading is about taking controlled financial risks in the markets in order to generate a profit. The timeframe can vary—it could be a five minute scalp, or a one year fundamentally driven position in a stock. That is the only difference between trading and investing.
The four most important things to prepare:
1. A knowledge of markets
In order to trade, you have to know something about the markets. Mostly basically, you have to know that markets exist and which are the big ones—stocks, bonds, commodities, futures, etc. Since you’ll be trading some slice of these, you need to know which instruments there are and how they work. When is your market open and closed? What are the margin requirements? What is the smallest size you can trade?
For instance, if you want to trade the FX markets, then it’s crucial to know that they operate 24 hours a day. This is a key difference from other major markets. Maybe it will be reassuring to know that margin requirements are small and that there is no centralized exchange. Knowing all of this mundane information is critical to becoming a successful trader.
Some parts of markets are universal and you also need to know these. They are basic concepts like bid and offer; order types like market and limit orders; commissions; clearing; margin. These are like the plumbing of the markets—not very glamorous but absolutely essentially to their proper functioning. Make sure to have a good understanding of how all of this works so that it doesn’t trip you up.
Beyond that, you have to know what drives the different markets. In each market, there are a few key news items or data points that can make or break the market. The US government bond market cares about economic growth, inflation and the Federal Reserve. It is less interested in the weather and in corporate profitability. The stock market, on the other hand, is moved dramatically by perceptions of corporate profits and business conditions. Smaller markets like agricultural futures have their own drivers and nuances. You need to be familiar with those if you intend to trade them, so that you will understand what is and what isn’t important.
Bottom Line: Learn even the smallest detail about your market
2. Numerical literacy and probability
Trading absolutely requires math skills. You need to be comfortable with numbers and able to do all of the basic operations (multiplication, subtraction, division, addition) quickly and correctly. There is no way around this. Your life will forever consist of buying 1500 shares @ 16.54, selling them at @ 17.01, then subtracting a commission of $7.99 and trying to figure out your profit. Leaving orders, figuring out trade executions, calculating P&L—every area needs math abilities. Be comfortable with math. Basic numerical literacy is a bare minimum requirement.
In trading, you also need to know probability. You are not trying to predict the future , you are trying to make smart probabilistic bets where the risk/reward is in your favor. Trading well is really about continually making good risk/reward decisions, which is not the same as “trying to make money”. The money comes as a function of good decision-making as the odds compound in your favor. As Phil Hellmuth says about poker, “[It’s] 100% skill and 50% luck”.
You need to understand probability well enough to reason probabilistically. You want to have a decent idea of what could happen in a market scenario and what the probability is of each outcome. Then you want to figure out what odds the market is giving you—i.e. how much you could make or lose according to those various outcomes. Then you compare those two and see if it is a positive expectation bet. For instance, suppose that a position in gold futures has a 50% chance of winning or losing—but if it becomes a winner, can be expected to make $40 or lose $10. You are getting 4:1 payout structure on a 1:1 (or even money) bet, thus you have hugely positive statistical expectation. In this one case, the trade may turn into a loser—but if you put on enough trades with these risk/reward characteristics, then the odds will work in your favor over the long run and you will become hugely profitable.
Let’s look at how different trading styles fit into this logic. Scalping has a 90% rate of winning or breaking even, averaging less than half a tick on the winners and scratches. But because those 10% losers will only lose three ticks, you can end up being a massive winner. On the flip side, a long-term trend follower may have 8 out of 10 trades as scratches or losers for a relatively small percentage loss, but those two winning trades will turn into big winners of 25% or more. Each winning style has its own characteristics, but what unites them is a probabilistic approach to risk-reward.
Bottom Line: Learn and understand mathematics and probability
3. Following financial news
Following the news demonstrates, at the very least, a strong interest in the markets. If you’re interested in a topic, you will generally want to keep up on it and learn more. After all, people who are interested in Hollywood read celebrity gossip; actuaries will read trade journals for insurance professionals; and sports fan will watch Sportscenter.
The benefits are clear: you’ll know what’s going on, know who some of the big players are and the main things moving the markets. There are things that everyone is paying attention to, like major political events and monetary policy and you must at least be familiar with them. For the biggest markets, e.g. government bonds, crude oil, stock indices, etc, and also for the market(s) that you specifically are trading, you will also need to know what items and events move the market.
There are other silver linings to this. Sometimes, the public can become overly optimistic and pessimistic and you will see this reflected in the press. Articles will appear with titles like “The End of the Stock Market” or “The New Era for Bonds: Why This Time Is Different” that reflect sentiment extremes amongst market players. Oftentimes, some of the biggest moves happen when sentiment is one-way, because everyone is already in one side of the trade and there is no one left to drive it higher. As market players, it is very useful to observe this cycle as it plays out, as you will develop an intuitive feel for when things are overdone.
Bottom Line: Follow the news
4. Personal finance
If you’re preparing to become a trader, you need to understand the basics of personal finance. Because trading involves risk and reward, you need to make sure that you’re not risking too much and have a cushion against any potential downside risks. There is a saying “Never risk what you can’t afford to lose” which contains a great deal of wisdom.
If you are starting out trading your own money, either part-time or full-time, then the biggest concern is to make sure you’re trading only with money that you can afford to lose. Taking a small chunk of your savings and putting them into a trading account is fine. At the minimum, make sure you have left over an emergency that can cover several months worth of living expenses. Furthermore, as the odds are high that you will meet with difficulties when you first start out, this argues even more for taking smaller risks and using a small amount of capital to start. On the opposite end of the spectrum, borrowing massively against your house to trade is super risky and also stupid, because if trading doesn’t work out, then you will literally lose everything.
Bottom Line: Don’t risk what you can’t afford to lose. Leave a cushion.
Different strokes for different folks
We’ve just covered the basics that are applicable to any budding trader. Now, the key is to figure out what preparation is unique to you. The easiest way to prepare is to figure out what trading means for you on a personal level and what you want to get out of it, beyond just profits. In order to have a satisfying and fulfilling career, you need to have a motivation that goes beyond the financial, otherwise you’ll never sustain the effort needed to be successful. Furthermore, your specific interest in the markets must reflect what’s important to you.
For every trader, there is something that draws them to the markets. It’s not something about the market itself. Flashing quotes and fast-paced are features of the markets, but by themselves do not draw traders to the market. Rather, there is something about the whole feeling of trading that hooks them, causing them to get intrigued. In other words, they “get something” emotional out of the whole experience of being in the market.
For instance, a high-level college athlete may want to continue competing and views trading as a way to satisfy that urge. For someone else who is very academic, trading may be an enjoyable and very stimulating intellectual challenge. Lastly, a poker player may view trading as another way to play the odds and win. For each would-be trader, there is a unique angle about the market that captivates them.
You need to get to know yourself. In order to become successful at trading, a would-be trader needs to understand what their “hook” is and build their trading style and market choice around it. Ask yourself a few questions, all of which will determine the best market fit for you.
– Do you like adrenaline and the rush of competition? Or do you prefer more measured decision-making?
– Are you very academic and research-driven? Or are you more comfortable betting on your intuition and instincts?
– Are you very mathematical and calculating, or do you prefer a more qualitative bent to your decision-making?
– Are you interested in international affairs? In the intricacies of individual companies? Or in theoretical economics?
– What do you want out of trading—to be the next George Soros? The freedom to work from home? An additional source of income?
Answering these questions will easily help you to determine what motivates you in the markets—what emotions and experiences you want out of your trading. But that is only the start—once you know what motivates you, you can start to figure out the kind of markets you should trade; what trading style you adopt; and which additional preparation for trading you do beyond the basics. This is the best preparation for being a successful trader—understanding which markets, strategy and approach fit you best and will maximize your profitability. Once you get a handle on your motivations and what you’re good at, then you can connect with the approach that will maximize your motivation and the best style fit for you.
There are some personality traits and interests that obviously match up better with certain trading styles. Some examples would include:
Desire for competition, high-pressure decision-making: day trading and short-term position trading
Research-driven who wants intellectual challenge: Longer-term position taking based on intensive research; it could be either systematic or qualitative
Interested in the functioning of politics or macroeconomics: you should trade more macro products like FX, government bonds, etc. You would work best with a fundamental approach.
Wanting to learn more about individual companies because of fascination: trade individual stocks with a fundamentally oriented approach. There is a wide spectrum of fundamentally oriented strategies, anywhere from Ben Graham’s deep value investing to William J. O’Neill’s CANSLIM, so there is plenty of flexibility within this framework.
Compulsive, addictive gambler who just wants “action”: You have a problem and you should not be trading.
This list is not exhaustive, but it should give you a good idea of where this is going. Once you know yourself, you can identify your strengths and interests as a trader. Knowing those, you can prepare to trade the markets and strategy that will suit you the best.
Maybe you’re just starting out in the working world or maybe you’re considering a career shift. Nonetheless, you know one thing will all of your being—you want to make it as a trader.
There could be a host of potential reasons, all of which make sense. You want to swing around huge positions and make tons of money. You want to compete with the best and vanquish them. You want the excitement that comes with the market constantly moving. You want the intellectual challenge of figuring out the global economy and wagering on macroeconomic trends.
The primary goal of being a trader is to be profitable. Obviously, no one ever says, “I want to be a trader so that I can lose tons of money”. In fact, it is an absolute requirement if you want to have a career as a trader. After all, trading is about taking controlled financial risks with the goal of making money. Ideally, you won’t be just barely profitable and scraping by—you’ll be making a large and satisfying sum of money. The prerequi-sites for this are the same for every trader. In this sense, the best preparation is to be familiar with these basics.
Beyond being profitable, the reasons that you give for becoming a trader actually have little to do trading. Words like “intellectual challenge” or “competition” are less about the markets themselves and more about what they do for you. You like them because they fulfill certain needs and desires that you have. These statements speak volumes about what’s important to you—and find their reflections in the markets. The markets are a mirror into our own personalities. In order to prepare better to be a trader, you need to understand your own unique personality and what it gets out of the markets.
The Universal Principles
As we said before, trading is about taking controlled financial risks in the markets in order to generate a profit. The timeframe can vary—it could be a five minute scalp, or a one year fundamentally driven position in a stock. That is the only difference between trading and investing.
The four most important things to prepare:
1. A knowledge of markets
In order to trade, you have to know something about the markets. Mostly basically, you have to know that markets exist and which are the big ones—stocks, bonds, commodities, futures, etc. Since you’ll be trading some slice of these, you need to know which instruments there are and how they work. When is your market open and closed? What are the margin requirements? What is the smallest size you can trade?
For instance, if you want to trade the FX markets, then it’s crucial to know that they operate 24 hours a day. This is a key difference from other major markets. Maybe it will be reassuring to know that margin requirements are small and that there is no centralized exchange. Knowing all of this mundane information is critical to becoming a successful trader.
Some parts of markets are universal and you also need to know these. They are basic concepts like bid and offer; order types like market and limit orders; commissions; clearing; margin. These are like the plumbing of the markets—not very glamorous but absolutely essentially to their proper functioning. Make sure to have a good understanding of how all of this works so that it doesn’t trip you up.
Beyond that, you have to know what drives the different markets. In each market, there are a few key news items or data points that can make or break the market. The US government bond market cares about economic growth, inflation and the Federal Reserve. It is less interested in the weather and in corporate profitability. The stock market, on the other hand, is moved dramatically by perceptions of corporate profits and business conditions. Smaller markets like agricultural futures have their own drivers and nuances. You need to be familiar with those if you intend to trade them, so that you will understand what is and what isn’t important.
Bottom Line: Learn even the smallest detail about your market
2. Numerical literacy and probability
Trading absolutely requires math skills. You need to be comfortable with numbers and able to do all of the basic operations (multiplication, subtraction, division, addition) quickly and correctly. There is no way around this. Your life will forever consist of buying 1500 shares @ 16.54, selling them at @ 17.01, then subtracting a commission of $7.99 and trying to figure out your profit. Leaving orders, figuring out trade executions, calculating P&L—every area needs math abilities. Be comfortable with math. Basic numerical literacy is a bare minimum requirement.
In trading, you also need to know probability. You are not trying to predict the future , you are trying to make smart probabilistic bets where the risk/reward is in your favor. Trading well is really about continually making good risk/reward decisions, which is not the same as “trying to make money”. The money comes as a function of good decision-making as the odds compound in your favor. As Phil Hellmuth says about poker, “[It’s] 100% skill and 50% luck”.
You need to understand probability well enough to reason probabilistically. You want to have a decent idea of what could happen in a market scenario and what the probability is of each outcome. Then you want to figure out what odds the market is giving you—i.e. how much you could make or lose according to those various outcomes. Then you compare those two and see if it is a positive expectation bet. For instance, suppose that a position in gold futures has a 50% chance of winning or losing—but if it becomes a winner, can be expected to make $40 or lose $10. You are getting 4:1 payout structure on a 1:1 (or even money) bet, thus you have hugely positive statistical expectation. In this one case, the trade may turn into a loser—but if you put on enough trades with these risk/reward characteristics, then the odds will work in your favor over the long run and you will become hugely profitable.
Let’s look at how different trading styles fit into this logic. Scalping has a 90% rate of winning or breaking even, averaging less than half a tick on the winners and scratches. But because those 10% losers will only lose three ticks, you can end up being a massive winner. On the flip side, a long-term trend follower may have 8 out of 10 trades as scratches or losers for a relatively small percentage loss, but those two winning trades will turn into big winners of 25% or more. Each winning style has its own characteristics, but what unites them is a probabilistic approach to risk-reward.
Bottom Line: Learn and understand mathematics and probability
3. Following financial news
Following the news demonstrates, at the very least, a strong interest in the markets. If you’re interested in a topic, you will generally want to keep up on it and learn more. After all, people who are interested in Hollywood read celebrity gossip; actuaries will read trade journals for insurance professionals; and sports fan will watch Sportscenter.
The benefits are clear: you’ll know what’s going on, know who some of the big players are and the main things moving the markets. There are things that everyone is paying attention to, like major political events and monetary policy and you must at least be familiar with them. For the biggest markets, e.g. government bonds, crude oil, stock indices, etc, and also for the market(s) that you specifically are trading, you will also need to know what items and events move the market.
There are other silver linings to this. Sometimes, the public can become overly optimistic and pessimistic and you will see this reflected in the press. Articles will appear with titles like “The End of the Stock Market” or “The New Era for Bonds: Why This Time Is Different” that reflect sentiment extremes amongst market players. Oftentimes, some of the biggest moves happen when sentiment is one-way, because everyone is already in one side of the trade and there is no one left to drive it higher. As market players, it is very useful to observe this cycle as it plays out, as you will develop an intuitive feel for when things are overdone.
Bottom Line: Follow the news
4. Personal finance
If you’re preparing to become a trader, you need to understand the basics of personal finance. Because trading involves risk and reward, you need to make sure that you’re not risking too much and have a cushion against any potential downside risks. There is a saying “Never risk what you can’t afford to lose” which contains a great deal of wisdom.
If you are starting out trading your own money, either part-time or full-time, then the biggest concern is to make sure you’re trading only with money that you can afford to lose. Taking a small chunk of your savings and putting them into a trading account is fine. At the minimum, make sure you have left over an emergency that can cover several months worth of living expenses. Furthermore, as the odds are high that you will meet with difficulties when you first start out, this argues even more for taking smaller risks and using a small amount of capital to start. On the opposite end of the spectrum, borrowing massively against your house to trade is super risky and also stupid, because if trading doesn’t work out, then you will literally lose everything.
Bottom Line: Don’t risk what you can’t afford to lose. Leave a cushion.
Different strokes for different folks
We’ve just covered the basics that are applicable to any budding trader. Now, the key is to figure out what preparation is unique to you. The easiest way to prepare is to figure out what trading means for you on a personal level and what you want to get out of it, beyond just profits. In order to have a satisfying and fulfilling career, you need to have a motivation that goes beyond the financial, otherwise you’ll never sustain the effort needed to be successful. Furthermore, your specific interest in the markets must reflect what’s important to you.
For every trader, there is something that draws them to the markets. It’s not something about the market itself. Flashing quotes and fast-paced are features of the markets, but by themselves do not draw traders to the market. Rather, there is something about the whole feeling of trading that hooks them, causing them to get intrigued. In other words, they “get something” emotional out of the whole experience of being in the market.
For instance, a high-level college athlete may want to continue competing and views trading as a way to satisfy that urge. For someone else who is very academic, trading may be an enjoyable and very stimulating intellectual challenge. Lastly, a poker player may view trading as another way to play the odds and win. For each would-be trader, there is a unique angle about the market that captivates them.
You need to get to know yourself. In order to become successful at trading, a would-be trader needs to understand what their “hook” is and build their trading style and market choice around it. Ask yourself a few questions, all of which will determine the best market fit for you.
– Do you like adrenaline and the rush of competition? Or do you prefer more measured decision-making?
– Are you very academic and research-driven? Or are you more comfortable betting on your intuition and instincts?
– Are you very mathematical and calculating, or do you prefer a more qualitative bent to your decision-making?
– Are you interested in international affairs? In the intricacies of individual companies? Or in theoretical economics?
– What do you want out of trading—to be the next George Soros? The freedom to work from home? An additional source of income?
Answering these questions will easily help you to determine what motivates you in the markets—what emotions and experiences you want out of your trading. But that is only the start—once you know what motivates you, you can start to figure out the kind of markets you should trade; what trading style you adopt; and which additional preparation for trading you do beyond the basics. This is the best preparation for being a successful trader—understanding which markets, strategy and approach fit you best and will maximize your profitability. Once you get a handle on your motivations and what you’re good at, then you can connect with the approach that will maximize your motivation and the best style fit for you.
There are some personality traits and interests that obviously match up better with certain trading styles. Some examples would include:
Desire for competition, high-pressure decision-making: day trading and short-term position trading
Research-driven who wants intellectual challenge: Longer-term position taking based on intensive research; it could be either systematic or qualitative
Interested in the functioning of politics or macroeconomics: you should trade more macro products like FX, government bonds, etc. You would work best with a fundamental approach.
Wanting to learn more about individual companies because of fascination: trade individual stocks with a fundamentally oriented approach. There is a wide spectrum of fundamentally oriented strategies, anywhere from Ben Graham’s deep value investing to William J. O’Neill’s CANSLIM, so there is plenty of flexibility within this framework.
Compulsive, addictive gambler who just wants “action”: You have a problem and you should not be trading.
This list is not exhaustive, but it should give you a good idea of where this is going. Once you know yourself, you can identify your strengths and interests as a trader. Knowing those, you can prepare to trade the markets and strategy that will suit you the best.
If/Then Statements
Trading is about having a series of if/then statements and not about making predictions. In practical terms this means that traders are game planning for every stock on their watch list. They are making decisions on how to trade each name based on price action, market conditions and news catalysts. For every stock I look at each day I have an understanding of what conditions would lead me to make a long trade, short trade or no trade. By developing these ideas in advance it makes it easier to execute in real time as additional data is being presented.
Let’s take a look at EXPE from today. This is a stock in a longer term uptrend that has had a series of news catalysts that led to large gaps since April. A few things stand out to me on the longer-term chart. The first is that this stock has failed two times to breakout above 60. The second is that on two prior large gaps the stock sold off significantly from its intraday high. I use these observations to help formulate my if/then statements for how to handle potential trades.
Then I look at the lower time frame chart that includes price action after the earnings number is released and also look at the price action from today’s pre-market to give me additional clues for potential entry points. I notice that it is consolidating in the pre-market above the after hours high which is evidence of a possible breakout above 60. I also understand that some longs may become antsy on a failed drive above 60 on the Open so that if there is a strong down move below 59 and then sellers emerge holding the 59 level I may see a down move to the next support area at 57.
Watch this short clip from today’s AM Meeting where I explained my thought process for entering a short trade below 59.
EXPE was holding below 59 this morning for about 30 minutes before sellers became more aggressive pushing it below the opening low of 58.22. This price action would lead me to create a series of if/then statements to assist me in executing a short trade. As an experienced trader I formulate these statements at a subconscious level but easily can state them if a trader were to ask me how I would manage the trade. It is important for younger traders to spend time writing these out until they become second nature.
Here are a few examples:
IF sellers hold the 59 offer for more than 10 minutes THEN I will get short;
IF sellers push EXPE below 58.22 Then I will add a momentum lot;
IF EXPE fails to hold below 58 within 10 minutes THEN I will cover 50% of my position;
IF EXPE trades below 58 and I can identify sellers at this level THEN I will add one lot to this position;
IF after shorting EXPE below 58 it THEN trades above 58.22 I will reduce my position size
For every trade you are involved in you can have literally dozens of if/then statements from your pre-trade plan all the way through your exiting of a position. This may be part of the reason why trading on the lowest time frame requires the greatest amount of discipline and is the most difficult to achieve consistent profitability.
Let’s take a look at EXPE from today. This is a stock in a longer term uptrend that has had a series of news catalysts that led to large gaps since April. A few things stand out to me on the longer-term chart. The first is that this stock has failed two times to breakout above 60. The second is that on two prior large gaps the stock sold off significantly from its intraday high. I use these observations to help formulate my if/then statements for how to handle potential trades.
Then I look at the lower time frame chart that includes price action after the earnings number is released and also look at the price action from today’s pre-market to give me additional clues for potential entry points. I notice that it is consolidating in the pre-market above the after hours high which is evidence of a possible breakout above 60. I also understand that some longs may become antsy on a failed drive above 60 on the Open so that if there is a strong down move below 59 and then sellers emerge holding the 59 level I may see a down move to the next support area at 57.
Watch this short clip from today’s AM Meeting where I explained my thought process for entering a short trade below 59.
EXPE was holding below 59 this morning for about 30 minutes before sellers became more aggressive pushing it below the opening low of 58.22. This price action would lead me to create a series of if/then statements to assist me in executing a short trade. As an experienced trader I formulate these statements at a subconscious level but easily can state them if a trader were to ask me how I would manage the trade. It is important for younger traders to spend time writing these out until they become second nature.
Here are a few examples:
IF sellers hold the 59 offer for more than 10 minutes THEN I will get short;
IF sellers push EXPE below 58.22 Then I will add a momentum lot;
IF EXPE fails to hold below 58 within 10 minutes THEN I will cover 50% of my position;
IF EXPE trades below 58 and I can identify sellers at this level THEN I will add one lot to this position;
IF after shorting EXPE below 58 it THEN trades above 58.22 I will reduce my position size
For every trade you are involved in you can have literally dozens of if/then statements from your pre-trade plan all the way through your exiting of a position. This may be part of the reason why trading on the lowest time frame requires the greatest amount of discipline and is the most difficult to achieve consistent profitability.
Priciples of Elite Traders
Charles Garfield, the author of the 1984 classic, Peak Performance: Mental Training Techniques of the World’s Greatest Athletes, lists eight physical and psychological principles inherent in athletes’ peak performance. Although specifically applied to athletes, these principles are just as applicable to stock traders.
Peak performers (and elite stock traders) are:
1. Mentally Relaxed: the athletes’ ability to concentrate was unusually sharp, allowing for calmness and focus in the heat of competition. Stock traders who are edgy, agitated, anxious, and impatient, are usually suffering from a lack of concentration thus leading to any number of trading errors such as overtrading, overexposure to risks, fear-based trading, etc.
2. Physically Relaxed: the athletes reported feeling loose and limber, not tight and awkward. Believe it or not, having a loose, relaxed physical state allows for a relaxed state of mind and vice versa. It is unusual to have one without the other. Stock traders who report aches and pains in the shoulders, neck, and lower back, not to mention the head, are most likely suffering from mental distress.
3. Confident and Optimistic: the athletes believed beforehand that they would perform well. Because the athletes spent numerous years training for a few hours of performance their confidence and optimism had grown. They had no reason to doubt that their past performance could not be repeated in the future; hence, their optimism. Stock traders who have not developed specific strategic skills will not be confident in an uncertain future. By not planning and sticking with a tried-and-true game plan uncertainty and pessimism will take over, sabotaging effective trading.
4. Focused on the Present: the athletes were “process”-oriented as opposed to “product”-oriented. In other words, the athletes were totally focused on the task at hand, not the last one or the next one. In golfing terms the last shot and the next shot does not matter, only the present one. Stock traders have the tendency to fret over the last trade and worry about the next one when all that really matters is the current one.
5. Highly Energized: the athletes were pumped up and ready for action. In other words, peak-performance athletes welcome a challenge and embrace it. The challenge is what the training is for! If you dread the possible outcome of a trade, or if you find yourself too frightened to look at a chart, then it may be time to take a break. As that famous trader Jesse Livermore once said, “every once in a while you must go to cash, take a break, take a vacation. Don’t try to play the market all the time. It can’t be done, it is too tough on the emotions.”
6. Extraordinary Awareness: the athletes reported being very much in tune with their mind, body, and environment. There was no disconnect among any of the three. This is much like Sun Tzu, who said that he who knows himself and the enemy (the environment) has no reason to fear a hundred battles. If there is fear of either then the battle will be fought in vain. Know your charts and know how you respond to them. If they are not in sync with one another, if there is no peace, then do not enter the battle. Bottom line: know yourself.
7. In Control: the athletes were always in control of their environment, not vice versa. Instead of making things happen by force they allow things to happen when it is time. They were prepared and ready when the right opportunity came knocking. Stock traders have a tendency to force a trade instead of allowing the market to come to them. When they force, the market takes; when they accept, the market gives.
8. In a “Cocoon”: the athletes reported being “in the zone.” This has been described in various ways as simply a time when an athlete is playing “out of his mind.” It is not something you train for; it is a state of mind that your training can prepare you for. If your mind is not right you cannot be ready to receive what “the zone” is willing to give. If, as a stock trader, you are impatient, anxious, fearful, greedy, stubborn, hopeful, etc., you will not be ready for “the zone.” Being “in the zone” means you are ready to accept what the market is willing to give when it is willing to do so. If you are not “in the zone” you will miss it.
Athletes and the markets have much to teach us if only we would prepare ourselves like athletes. The above principles can help us with our preparation and eventual success.
Peak performers (and elite stock traders) are:
1. Mentally Relaxed: the athletes’ ability to concentrate was unusually sharp, allowing for calmness and focus in the heat of competition. Stock traders who are edgy, agitated, anxious, and impatient, are usually suffering from a lack of concentration thus leading to any number of trading errors such as overtrading, overexposure to risks, fear-based trading, etc.
2. Physically Relaxed: the athletes reported feeling loose and limber, not tight and awkward. Believe it or not, having a loose, relaxed physical state allows for a relaxed state of mind and vice versa. It is unusual to have one without the other. Stock traders who report aches and pains in the shoulders, neck, and lower back, not to mention the head, are most likely suffering from mental distress.
3. Confident and Optimistic: the athletes believed beforehand that they would perform well. Because the athletes spent numerous years training for a few hours of performance their confidence and optimism had grown. They had no reason to doubt that their past performance could not be repeated in the future; hence, their optimism. Stock traders who have not developed specific strategic skills will not be confident in an uncertain future. By not planning and sticking with a tried-and-true game plan uncertainty and pessimism will take over, sabotaging effective trading.
4. Focused on the Present: the athletes were “process”-oriented as opposed to “product”-oriented. In other words, the athletes were totally focused on the task at hand, not the last one or the next one. In golfing terms the last shot and the next shot does not matter, only the present one. Stock traders have the tendency to fret over the last trade and worry about the next one when all that really matters is the current one.
5. Highly Energized: the athletes were pumped up and ready for action. In other words, peak-performance athletes welcome a challenge and embrace it. The challenge is what the training is for! If you dread the possible outcome of a trade, or if you find yourself too frightened to look at a chart, then it may be time to take a break. As that famous trader Jesse Livermore once said, “every once in a while you must go to cash, take a break, take a vacation. Don’t try to play the market all the time. It can’t be done, it is too tough on the emotions.”
6. Extraordinary Awareness: the athletes reported being very much in tune with their mind, body, and environment. There was no disconnect among any of the three. This is much like Sun Tzu, who said that he who knows himself and the enemy (the environment) has no reason to fear a hundred battles. If there is fear of either then the battle will be fought in vain. Know your charts and know how you respond to them. If they are not in sync with one another, if there is no peace, then do not enter the battle. Bottom line: know yourself.
7. In Control: the athletes were always in control of their environment, not vice versa. Instead of making things happen by force they allow things to happen when it is time. They were prepared and ready when the right opportunity came knocking. Stock traders have a tendency to force a trade instead of allowing the market to come to them. When they force, the market takes; when they accept, the market gives.
8. In a “Cocoon”: the athletes reported being “in the zone.” This has been described in various ways as simply a time when an athlete is playing “out of his mind.” It is not something you train for; it is a state of mind that your training can prepare you for. If your mind is not right you cannot be ready to receive what “the zone” is willing to give. If, as a stock trader, you are impatient, anxious, fearful, greedy, stubborn, hopeful, etc., you will not be ready for “the zone.” Being “in the zone” means you are ready to accept what the market is willing to give when it is willing to do so. If you are not “in the zone” you will miss it.
Athletes and the markets have much to teach us if only we would prepare ourselves like athletes. The above principles can help us with our preparation and eventual success.
Thursday, May 26, 2016
Trade Review KS
Every successful trader has a routine that works for them...
Trading is all about finding systems and processes that work for you..
Morning
Check Futures / Indices / News
Think about how your going to handle the day
Read on way to work / Trading Psychology
Journal - 1st thing
Write goals
Get game plan going
Look at what's moving
Game plan for open
Middle of day journal / How are you doing against goal / What to trade into close
Trade the close
Daily review
Evernote is good way to organize journal
Loook at all trades after close - Focus on bubbles
Are you buying at top of range / selling at bottom of range - Chasing
Bubbles cover stock whole way - Possibly overtrading
More size / Less Size
Motives behind trades / Knowing your self / emotional intelligence
Watch tape of the open / after the close
Same process on best and worst days
Written statement for each trade
What affected my decisions / Focus on that the most!
Anti Playbook Trade / Playbook Trade / Trade I could have made money on - Good Risk to Reward. Maybe you didn't even trade it or could have traded it bigger!
Trading is all about finding systems and processes that work for you..
Morning
Check Futures / Indices / News
Think about how your going to handle the day
Read on way to work / Trading Psychology
Journal - 1st thing
Write goals
Get game plan going
Look at what's moving
Game plan for open
Middle of day journal / How are you doing against goal / What to trade into close
Trade the close
Daily review
Evernote is good way to organize journal
Loook at all trades after close - Focus on bubbles
Are you buying at top of range / selling at bottom of range - Chasing
Bubbles cover stock whole way - Possibly overtrading
More size / Less Size
Motives behind trades / Knowing your self / emotional intelligence
Watch tape of the open / after the close
Same process on best and worst days
Written statement for each trade
What affected my decisions / Focus on that the most!
Anti Playbook Trade / Playbook Trade / Trade I could have made money on - Good Risk to Reward. Maybe you didn't even trade it or could have traded it bigger!
Trading Journal JT
Keep data of everything you do
What your trading?
How your trading?
Thoughts of that time?
Bought xyz on the bid?
Ask your self a lot of of questions
Keep track of your P&L
Journal Breakdown
Date - Mornings meeting
Split page in half
SPY on left
QQQ
IWM
Morning ideas
Symbol / Key Levels
Synopsis of each day
Was market strong?
Was market weak?
How'd I trade?
Goal for the Day - Never Monetary (Never be negative)(Phrase it positive)
- Aggressive when I see my set up
- Aggressively put bids in on trending stock
- Keep emotions in tact
Review at end of every week
At end of month Journal
What thought about market?
What thought about trading?
What did I learn?
Concerns / Feelings?
Keep track of separate nuggets or tidbits you learned
Establish trading rules for the day
Figure out economic numbers that's coming out today.
Have a game plan / Build if than statements
What your trading?
How your trading?
Thoughts of that time?
Bought xyz on the bid?
Ask your self a lot of of questions
Keep track of your P&L
Journal Breakdown
Date - Mornings meeting
Split page in half
SPY on left
QQQ
IWM
Morning ideas
Symbol / Key Levels
Synopsis of each day
Was market strong?
Was market weak?
How'd I trade?
Goal for the Day - Never Monetary (Never be negative)(Phrase it positive)
- Aggressive when I see my set up
- Aggressively put bids in on trending stock
- Keep emotions in tact
Review at end of every week
At end of month Journal
What thought about market?
What thought about trading?
What did I learn?
Concerns / Feelings?
Keep track of separate nuggets or tidbits you learned
Establish trading rules for the day
Figure out economic numbers that's coming out today.
Have a game plan / Build if than statements
Watchlist 5/26/16
Big Picture 26-May-2016
market set to open flattish this morning following huge run past few days.
| stock | support | resistance | inflexion | notes | trading plan |
| lgf | 20-20.30 | 22.80-23, 24.50 | guides in line. popping because had been beaten down | ||
| dltr | 83 | none | in line guidance but up big. go figure... | ||
| nflx | 103.5 | 104.3, 106. 106.50 | aapl could acquire rumor. close to gap fill. | ||
| wsm | 52.2, 53.5 | 54, 56 | beats solid guidance. | ||
| cost | 146, 147 | 150, 154 | eps good but missed on rev. initial pos reaction |
| stock | support | resistance | inflexion | notes | trading plan |
| csc | 49, 50 | 51 | very strong. closed at high. | ||
| aapl | 98.6, 99.2 | 99.75-100 | started to fill earnings gap | ||
| srpt | 20, 21 | 23.5, 24 | accumulated at 21 |
Watchlist 5/25/16
Big Picture 25-May-2016
market gapping higher following yesterday's large rally. approaching failure area from a few weeks ago.
| stock | support | resistance | inflexion | notes | trading plan |
| csc | 44.5, 45.50 | none | merging w/ HPE division. seems up too much... | ||
| hpe | 17.50-17.6 | 18.50 | earnings + merger announcement | ||
| tif | 60, 61.50 | 63 | bad #s and guide down. approaching 2016 low | ||
| expr | 12.70-13 | 14, 15 | lowered guidance around 10% | ||
| srpt | 20, 21 | 22.50-23, 24 | FDA delay has some thinking they will approve | ||
| nvax | 5, 5.2 | 6 | fda news. had runup ahead of news... |
| stock | support | resistance | inflexion | notes | trading plan |
| bby | 30 | 30.80, 31 | weak morning. bounce. weak end of day. | ||
| dsw | 18.6, 19 | 19.60-19.80 | weak morning. solid bounce. watch 19. | ||
| tol | 29, 29.30 | 30, 31.2 | strong all day. closed at high. | ||
| aapl | 96, 97 | 98.60 | at earnings day gap down high 98.60 |
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