Friday’s Blog Results: The suggested buy level and the subsequent breakout lower both failed. What you didn’t see were two other immediate losers that our team experienced. Losing streaks and drawdowns happen. In tomorrow’s blog we’ll propose some risk management rules to help you weather these storms.
Quick Tip: Trade Plan Part 5
You’ve made four decisions so far, time devotion, style, capital investment, and asset class. It’s time to think about your strategies.
Dozens of different methods of trading can be profitable. If you doubt this statement read any of Jack Schwager’s “Market Wizards” books. In fact, you should read his books before you finish your trade plan. You’ll get plenty of ideas.
In each book he interviews top traders from around the world. Dozens of them. What you’ll find is that almost every trader has a different take on how to trade.
Thursday’s Blog Results: The suggested short pegged the top of the day session and ran for 20 points to the next level. Aggressive traders saw this trade run for 70 points and close the day with 50!
Quick Tip: Trade Plan Part 4
You’ve made three decisions so far, time devotion, style, and capital investment. It’s time to pick your primary asset class.
Position Traders (six figure account, several hours available every month): Stocks, Options, Bonds, Forex. The stock market is the familiar to most and there are plenty of research resources available at modest cost to help pick and manage your portfolio.
Dividends are a great benefit. Using options to buy (cash-secured puts) and sell (covered calls) your positions will add to your ROI with no added risk.
Most stocks move with the overall market. The adage “a rising tide floats all boats” applies. This means you may be diversified within the stock market owning different sectors, but you’re...
Wednesday’s Blog Results: Neither suggested level triggered.
Quick Tip: Trade Plan Part 3
You’ve made two decisions so far, time devotion and style. You’ll treat this like a business so let’s be professional and examine the startup capital required.
Technology: Computer, printer, cell phone, back-up power supply, reliable high-speed internet access, WIFI hotspot (backup internet access). If you’re day trading you’ll need multiple monitors, the fastest available internet access, and a hard wire connection, not WIFI. You probably have this technology already but if not, go shopping. The software you’ll use will probably be provided for free by your broker. If not, consider Ninja, eSignal, or MetaStock.
Education: Learning trading is not like riding a bike. You’ll need continuing education, coaching, and support. This investment is worth it at almost any price. Why? Because without it you’ll likely lose far more making mistakes you...
Tuesday’s Blog Results: Both suggested entries stopped out within minutes of each other. That was a good test to see if your risk number is appropriate! Read the January 21, 2022 blog on how to find your risk number.
Quick Tip: Style
How much time are you able to devote to your trading? That was your homework from yesterday. The answer guides you to the next step in refreshing your trading plan: Style.
Your broad choices are day, swing, or position trader.
If you have a modest amount of time available, 6 – 8+ hours a month, position trading could be your choice. These are trades you will usually keep open for months, maybe years. You’re looking to catch a long-term trend and in many cases dividend income.
If you have more time, 6 – 8+ hours a week, swing trading could be your choice. These are trades you will usually keep open for days, maybe weeks. You’re looking for short-term movement attempting to catch the “swings” of price up and down....
Monday’s Blog Results: The suggested short was only good for a 5.50-point scalp. The breakout upon failure was a bit better at 9.50 points. Two small winners.
Quick Tip: Time comes first
You have a rules-based trade plan (if you don’t, quit trading and create one). It might be time to refresh it.
One way is to simply read it and consider your current situation (goals, capital, etc.) then update what needs to be changed.
A better way is to start fresh, as if you don’t have a trade plan yet. This will get you thinking more creatively and likely produce a much better plan. You’ll have to do some research and learn the trade plan process and components all over again. As Jim Kwik wrote in his best-seller Limitless, approach reading (learning) as if you know nothing about the subject. Bring no baggage or limiting beliefs.
Let’s do this together over the next few days.
Time comes first. That is, how much time can you devote to trading? What time...
Friday’s Blog Results: The suggested short stopped out for a 4.25-point loss (per contract). The long didn’t trigger.
Quick Tip: Contrary is good.
The Wall Street definition of a correction in the market is a 10% drop from the high. All indexes but the Dow did that last week. A possible short-covering rally late in the week repaired the situation.
What’s next is anyone’s guess but looking at evidence from past performance can be useful. Here are some interesting S&P statistics that may help you with your long-term portfolio plans (day traders don’t care about this).
In the past 33 corrections the S&P went on to Bear territory 7 times. The other 79% of the time it reversed to new highs.
The average correction was -15%. We hit that last week. The average Bear market was -36%.
Moving over to the Dow, in the past 29 events of global crisis (think wars, terrorism, Covid, Ukraine), the average drop was 11.6%. After 3 months it was up 11.3%, 6 months...
Thursday’s Blog Results: The long level never triggered and the short level at 4222.00 was only good for a 4.75-point scalp before stopping out.
Quick Tip: Wonder beats Belief
Here’s a quote I love from superstar attorney Gerry Spence: “I would rather have a mind that is opened by wonder than one closed by belief.”
At first this quote seems to simply say “Have an open mind.” But it goes deeper than that. It’s more than merely having a positive attitude or not being fixed by your own opinion.
The word “wonder” is key. You can have an open mind that is limited. There are degrees of openness. It is almost like an oscillator that pegs in both directions. You have a self-imposed limit on how much you’ll be open to. And that limit is your belief. Because when the openness closes it does so from your limiting belief. Thus, no one is completely “open minded.”
In trading there are many strategies that have edge....
Wednesday’s Blog Results: Neither of the suggested levels triggered.
Quick Tip: Journal more.
Review is an important process to improve your performance (at anything). In trading the dedicated few who review every day start with their charts. The really dedicated trader will keep and review a “thought journal.”
How did you feel that day? What was going through you mind when you were entering trades, exiting trades, winning, losing, making mistakes, being perfect? The list goes on.
Here’s an example, albeit highly personal and not intended as advice, about trading during extreme adversity. You know, like the day after Russia invades Ukraine? War. I thought that kind of thing was over. We grew up. Got educated. Found wisdom. I guess not all of us.
Excuse the digression. In my thought journal I notice that during extreme market moves I get loose with my rules. Feels like greed, thrill, and fear all at once. Knowing this and reviewing these sessions this...
Tuesday’s Blog Results: The suggested long level at 4285.50 bounced for 10.50 points.
Quick Tip: Scale in.
Consider the entry on the trade above. Price reversed right on the entry. No down money. If you were trying to reduce your risk by moving the entry deeper in the price level you would have missed the winner.
For our Volume Profile strategy, price penetrates the level by a maximum of 1 point 31% of the time before it continues in your desired direction. Think about it. If you’re not entering early you’re giving up 31% of your winning/breakeven trades! It’s way better to move your STOP in from the other side.
Another way to address this is scaling into the trade as it goes against you. Let’s say you’re a 6-contract trader. Entering 3 at the level and the remaining 3 as price moves against you little you’re reducing your risk and increasing your reward. The downside is when price does rocket in your direction you’ll have less size in...
Friday’s Blog Results: The suggested buy @ 4360.00 ran for 30.25 points with only two ticks of adverse move.
Quick Tip: Optimizing stops.
Remember this from last issue? “Stops are so easy. Pick your risk number. That gives you position size. Hit enter.”
True enough but there is still the decision as to WHERE the stop should be placed. There are plenty of popular methods that the books, Google or YouTube can teach you. This blog is about OPTIMIZING the stop method you’re already using.
Let’s say your preferred stop method is a fixed number you’re willing to lose. Here’s how to optimize it: Log the MAE (Maximum Adverse Excursion) for every trade setup, whether you took the trade or not. This is simply how far against your entry it went before stopping out or hitting your first profit target.
Obviously, the maximum MAE you’ll have is the stop itself. But on all those winning and breakeven trades there is a number it went against but...