Sunday, December 24, 2006
2. Have perspective: Always keep the risk-reward in the back of your head before entering. If your stop is 50 cents, and your goal is 50 cents most likely all you’ll ever do is churn your account. Try not to enter until your reward outweighs your risk by a minimum margin of 2. It is very important in this career to be able to step-back and take things in with a bit of distance.
3. Don’t be stingy: sacrifice the dime for the point. If resistance is 50 on a great break-out with a beautiful daily chart, and heavy volume, don’t take profits at 50.11 to lock in the dime, wait at least for a point (if you're a daytrader that is). Risk the dime for the point.
4. Accept the consequences of your actions: don’t blame anyone else but yourself for your mistakes, not the market-makers, not the specialists, not the plunge protection team, not your mother, just the person who actually pulled the trigger.
5. Be the Turtle and not the Hare: find a system that works (of course this is easier said that done), and then be patient and wait for your pitch. Don’t hop around from one methodology to another trying to make money every single day. Sometimes you just have to sit aside and let others have their turn.
6. Don’t be judgmental: there are literally thousands of ways to make money in the market. Choose yours, and respect others.
7. Don’t be greedy: one of the most common mistakes of newbies is buying the vertical spike up – they watch a stock move up a point in seconds, and they join the momentum so that they, too, can get an easy point in seconds. Most of the time, the only easy thing is the immediate reversal as experienced traders sell into the spike.
8. Focus on your goal and work hard: Try not to get distracted by chatrooms, noise, phone calls, and CNBC (not to mention all the traders we know who have porn on in the background). During the trading hours, focus on the objective and nothing else.
9. Don’t be an idiot: as we have often said in our newsletter; losing is an integral part of this business, but if you’re going to lose money, then at least lose it on a great set-up that just didn’t work out instead of some lame trade that you normally would have never pulled the trigger on. Let’s say stock HCPG breaks-out on the daily charts at 50 with excellent volume and a great intraday set-up. You take a position at 50.06 and later on in the day are stopped out at 49.8. Now that’s a normal loss and one is that completely part of the business and in the long run, unavoidable. However, buying a penny-stock because of something you read/overheard in a message board/blog/party is a stupid loss and something that is completely avoidable. Remember how easy it is to lose, and how hard it is to consistently win.
10. Be Good: events are more interconnected than you think. Have some karmic fear: Try not to live a life which will lead you to be reborn into a toad. Be kind, work hard, help others, be smart, and eventually, everything else will fall into place.
Tuesday, December 19, 2006
If you're going to be trading throughout the week, use extra caution since the volume should slow down to a crawl as we approach the holidays. Stay well, and be smart.
Wednesday, December 13, 2006
Wednesday, December 06, 2006
We use several time-frames: 1 minute, 3 minutes, 10 minutes, and--usually after market close--30 minutes, 60 minutes, and daily and weekly. The longer time-frames are used to identify candidates to trade on the following next day. Once the market opens we usually stick to the 3-minute time-frame. In all our years of trading, we had not met -- until very recently-- people who daytrade from a 30-minute chart. Hats off to all you traders who use the 30 min timeframe for day-trading: It is an incredible feat.
We probably would miss out on at least 90% of our selections if we used anything longer than a 5-minute time-frame. Take a look at the following two charts. The first, a 3 minute showing a "base and explode" pattern, is our bread and butter set-up. The second chart, using a 30 min time frame, gives us no information.
It's true that 30-minute frames cut out a lot of noise, but they also delete critical data (for our kind of trading). Let's use an analogy:
3-minute time-frame: Two lovers talking on the phone with, naturally, a lot of phatic communication and meaningless information including sighs, giggles, pauses, baby sounds, more adult signals, and so on. Think of how much information is conveyed when the man asks, "so how is out working out with that new guy at the office," and there is a slight pause, just an instant too long or too short, before the woman responds, in a slightly too hurried voice, "good, good, and how was your day ". So much can be read into that pause, and so much of our understanding of what someone is trying to communicate comes from the "noise" or what is not said in between the words.
30-minute time-frame: Two lovers communicating by telegraph. One writes, "How is new guy at office," and the other responds "Good". The message is received and the noise is filtered out, but along with that, so is a ton of data.
We're not writing this to change anyone's style from longer time-frames to shorter time-frames, not at all: Each style of trading requires its own means and methodology, and judging by what we have seen these last six months in various blogs, there are many traders who day-trade from a 30-minute chart, and do so successfully. We respect these traders very much and are always amazed at how many ways there are to make a living from mother market.
For our style of momentum-trading however, we have yet to come across anybody that has used a 30-minute chart. Ugly is doing something very unique, and so far quite successful, by combining daily charts with 30-minute time-frames. It's something that intrigues us very much. We have faith he will develop his system enough that it will work consistenly over time (and if not, the ATS will take over).
So, to conclude, hats off to you 30-min traders! This is a difficult business and anyone who can come up with a system to consistently pay the bills has our respect.
Saturday, November 25, 2006
However, let's start with the positive. Over this period of time we’ve been very impressed by the breadth of knowledge of many blogwriters, but even more so by the camaraderie and generosity shown by our colleagues. Let us give you an example. We started up this little business 6 months ago called Highchartpatterns.com. Now as you also very likely know, there’s a lot of competition out there in the newsletter business, and for the most part the commercial sector of advisory services, such as the one we partake in, is not one in which people try to help each other; in fact, one of the main goals is to take customers away from each other in order to achieve supremacy. Anyway, this weekend we received an email from a very cool fellow called Declan Fallon who runs Fallond Picks, a swing-trade service. Declan wrote to us about how he visited our website and how he had a few recommendations (for example, he said that we might think about changing the font/color of our text as it blended in too much with the background – something we changed the day after thanks to his advice). He basically introduced himself and wished us the best and great success. Now to repeat, this guy is our competition! Where in the world do you find such class and genorisity in the corporate world? We highly respect this; we are not only superstitious (like many traders) but we are also believers of karma -- and to the best of our admitted limited capacity, we also try to emulate these noble traits. The blogosphere seems to exhibit many positive features, and appears to be still more grass-roots oriented. To a certain extent it still shuns that world that most likely will ultimately envelop it, as the cannibalization of capitalism leaves few stones unturned.
This brings us to the subject of ads. Recently we have read in several sites people commenting in a negative way on blogs that have ads with the implication that if these blog-writers were "better traders" then they would not need revenue from ads. To us, this is completely ridiculous. Why in the world would people expect something for free? One can only guess at the amount of hours Charles Kirk dedicates to his website (even though he doesn’t have ads, he asks for donations in order to enter his Member area), or the time and labor necessary to provide the incredible education you can find on TraderMike’s blog. The amount of work that Mike has put into his blog over the years is unbelievable, and yet we read a derogatory comment a few weeks ago on the ads on his site. Come on. Did Mike go through some religious experience at a young age in which he promised his God that he would serve the people with hours of his time for absolutely no reward?
Richard has come up with his own unique scan formula that spits out great trading candidates every day; and now he even generously allows others to post on his site, would you begrudge him the bit of lunch money that he makes through his ads? Why can’t he get himself a nice steak dinner from his AdSense money, or even better, get himself a couple massages once in a while? Doesn’t he deserve it?
Our friend at Knight Trader, who has a style of trading very similar to ours, offers a great blog (and we have no idea how he has the time for it during the trading day) in which he lists, in real-time, stocks that are showing momentum. His blog has ads. Good for you, and we hope you make a mint. Ugly’s blog improves on a daily basis – the humor and education one finds in his blog makes it addictive. We can’t go a day without reading Ugly. He’s innovative and smart and obviously spends a lot of time making his blog one of the best out there. And we hope your ads buy you many many boxes of wine, buddy.
Dave at StockTickr offers a fantastic service, mostly for free, and if you want the full features, you sign-up for the Pro version for a nominal fee. Shame on you, Dave, for wanting to charge $10 a month per subscriber for the hundreds of hours you put into your business every month! Yes, of course, we’re kidding and we think his business plan is great. While we’re on that note, of course, Trade Ideas should be free too…
If you choose not to place ads on your site, great. We ourselves don’t have any ads, but we have absolutely no ethical issue against it, the only reason we don’t is, well, we can’t really be bothered, and two, we don’t have the traffic to really pull in any decent money (remember everything is divided into three here at HCPG HQ). But if we had the traffic that would pull in a couple G each every month, for doing no extra work, would we? Of course! Why in the world would we give that up? That money could go towards the future education of our children, it could go to our favorite charities, or it could go towards a vacation – what is the moral issue against not being paid for your work? Is there an unwritten rule that one should not be compensated for one’s work on the Internet?
The same applies to membership fees. We charge $37.50 a month for our newsletter that comes out five times a week. Undoubtedly, this means that all three of us are close to blowing our accounts, being lousy traders who can’t make a decent living off our collective two decades of professional trading and thus have been reduced to selling newsletters. Of course the same logic would apply to Steven Cohen, who runs one of the best hedge funds of our time and who also incidentally charges one of the highest fees of all hedge funds. He should really do it for free. Come on Stevie.
Again we digress. Where were we? Oh yes, charging membership fees appears to signify lousy non-profitable trading over the years on our part. Or maybe, it could mean that we wanted to start up something that would inspire us to become better and at the same time would help others evolve into more profitable traders. Why not do it for free? Why in the world would we do it for free? What is free in life? After you finish work do you go vacuum your neighbor’s house? Our time is precious and we spend an inordinate amount of it trying to make our newsletter the best newsletter possible. Why shouldn’t we be compensated for this? The modern world thrives on division of labor. The amount of time we save our subscribers in terms of scanning for stock picks makes it their worthwhile to pay the $1.87 each weekday. Let's say we save them 45 minutes each day. How much are those 45 minutes worth? Besides, if we did do it for free (we could imagine doing the blog for free, without the newsletter), we would never feel the same motivation and responsibility in regard to the quality of our work. For all those blogs providing content ad-free, fantastic, and thank you. And for all those blogs providing content with ads, fantastic, and thank you.
Tuesday, November 21, 2006
There are some topics that are omnipresent in our business. Poker and Trading, Chess and Trading, Gambling versus Trading, Day Trading versus Swing Trading, .....
Here is a great post by Downtown Trader called Who is the House?. Enjoy.
Friday, November 17, 2006
One of the most interesting aspects of writing our newsletter is that we now notice connections, or a lack thereof, that we had never caught sight of before. Because we now keep meticulous statistics on all of our picks, we discern patterns that are new to us. For example, in our case anyway, the correlation between the indices and break-out trading is much more random than we had previously thought. June and October were our best months: yet in June the market did very little whereas it rallied in October. However, we are having a difficult time finding interesting new break-outs in November; in fact this month we have had the least amount of selections that we have ever had -- all the while the Nasdaq has rallied strongly into new highs. So far in November we have had 8 selections trigger -- at this time in October that number was 30. Is it us? We doubt it -- we are pretty automatic in our chart selections with very little subjectivity: we go through hundreds of charts independently every night and almost always come up with the exact same picks. The set-ups are either there or they are not there. And right now, the charts that we seek are simply not there.
The only explanation we can come up with is that when the market becomes this overbought, the best moves are continuation moves (like in RIMM which just keeps going up) instead of actual new break-outs. What is the best time for us? A market coming off the bottom or a market that has consolidated for several weeks. This market refuses to consolidate and keeps going up every day. All good things will end, of course, and nothing would please us more than a couple nice big juicy red days. Why? Because ironically, that would set-up many more patterns than the current environment. Until then though, we will keep our cool, surf the net, watch Ugly's kung-fu videos, and wait for our turn.
Wednesday, November 08, 2006
RIMM is without a doubt the leader of the momentum group and could not act any better. 115 was the recent breakout and look how well she held that number, even through recent market weakness.
BIDU has recovered nicely and can potentially set-up very well for a swing-trade if she can consolidate a bit more under this 100 area.
GOOG is looking good and looks set to break into new highs.
Look how well AKAM resurrected herself. Only last week she looked uber-bearish, hugging the bottom of her pennant and closing under her 50dma. However, she never broke down and bounced off her support like a champ.
This next little while should take us out of this recent range and hopefully set-up some great chart patterns. And one more thing to add: as bullish as these charts look, we're also aware that often these kind of posts from traders showing the "great leader action" can also mark the absolute top of a market. Let's see which one it turns out to be: as always, we'll react and not anticipate.
Monday, October 30, 2006
We are also very consistent when it comes to the kind of charts we seek -- this does not change month over month. The only variable is how benevolent the market feels, i.e., how many charts fulfill our conditions and whether the break-out works or fails. We have kept public records of all our selections now for 5 months. Our best months, in terms of win-loss, have been June and October, and our weakest were August and September. Now did we pat ourselves in the back at the end of October, and kick ourselves at the end of August? No. Just as we felt we did nothing special to have a good October, we felt that we did nothing wrong to have a less-than stellar August.
This is something that traders have to become accustomed to -- your trading technique, whatever it may be, will rarely achive the same level of success every month. The market will favor your methodology on one occasion, and then leave you behind in the dust on another. The key is to add size when the market is treating you well, and conversely, protect your capital and try to grind together a small amount of profit when the going gets tough. That is not the time to be aggressive; rather, use smaller size and stay patient until it's your turn again. Theoretically, it may be possible to constantly adapt one's style of trading to ensure that it is always favored by the market; however, we are neither that ambitious nor that smart (nor do we know of anyone who can do that successfully).
We know we are consistent. But we also know that the market is not. Remember that for your own trading, and it will be a source of strength to draw upon, in good times and in bad. When the going gets rough, stay calm and collected, and above all, do not lose your control and discipline. In our career, losing one's discipline even for a day can make or break one's whole quarter. And just as importantly, when things are good, be aggressive, and strike with that hot iron in order to save up for when the draught begins. But do know that the good times also will end. And thus continues the cycle.
Sunday, October 29, 2006
A: Novice Traders who need to learn a system of how to trade, and more specifically, how to spot and interpret daily and intraday patterns.
B: Intermediate Traders who need a refresher course or want a confirmation of their own readings on the market.
C: Advanced Traders who want another pair of eyes looking for possible set-ups.
Today, we'd like to expand on this by concentrating on the beginners. For newbie traders, our system--like any other closed system that provides background, analysis, and advice for a specific area--holds a certain fascination. We tell them what stocks to watch, when to enter, when to take profits, and when to cut your losses. If you're new you can learn a lot from this: you can familiarize yourself with a successful system, you can recognize what kind of charts work, and what kind of charts do not, you can learn how professional traders interpret patterns.
However, there comes a time when you must start applying our teachings to your own data. We recommend that after several months of successful trading you start running your own scans or looking through your own list of stocks.
Set alerts on charts that you like -- if they coincide with ours, great, if not, trade them anyway.
Why do we say this? We're 3 traders who send you a newsletter for basically the price of a buck a day. All we should do for you if you are new is to teach you what kind of charts to look at, and to understand what kind of intraday conditions are of importance when you plan to enter a position. After a while, you will enter the ranks of the majority of our subscribers who use us to supplement their own readings and watch-lists. Ultimately, this is where we want you to go. Why do we say this? Well, for one, you should never rely on anyone but yourself. What if we decide to close our doors, retire young, or run into unforeseen circumstances? (We're only saying this rhetorically, of course -- we'd like to be around for a long time since writing this newsletter has been one of the best decisions we have ever made). Second, you will never be able to gain the required confidence if you do not at some time stand on your own and trade your own selections. And without confidence, you will never be able to evolve into a strong enough swimmer to tackle the shark-infested, murky waters of the world of finance.
Thursday, October 05, 2006
No trading system functions every day, in every type of market. We are break-out, momentum traders who use a system with a very tight stop (1%): in choppy markets we will get hit. This has always been the case and always will be. Today was the first day within our service that we had 3 triggers and 3 losses but it will most likely not be the last. All 3 stocks triggered, all reversed with the market to hit the stop loss, and then all 3 reversed yet again and at one time or another went above our alert prices. It's a perfect example of what happens in a choppy market.
What do we do? We pull back, regroup, become more cautious, and ultimately sit things out until things improve.
Now, if our trading system were brand-new to us then we might be concerned, but the years of successful experience that we carry with us give us confidence, faith, and vision. The current trading environment (which alternatively might be great for other types of traders) that is very challenging for us, will also pass. One thing we have learnt over the years is to always have perspective and take the bad, and the good, in stride.
Friday, September 29, 2006
We mentioned in our last blog that we felt that we made a mistake this month in being too conservative. Unfortunately, this is a consequence of choppy markets. On one hand, you should become more selective since the failure rate in such market environments are higher than usual. However, one has to walk a fine line between being smart and selective, and not becoming too scared and gun-shy, since in the long-run becoming too fearful of the markets can be just as damaging as being overly aggressive. We've often said that there's nothing easy in this profession, and finding this fine line of being selective and yet involved, is something that can be difficult to capture.
This is how we do it: as our readers know, we only trade from a predefined list from the night before. Therefore, when a stock hits our alert, we already know that it has a solid daily. In benign markets we sometimes take a trade with a solid daily but a questionable intraday pattern, or with mediocre volume. In these types of markets we don't do that -- we wait for the ducks to line up. The daily we already know is solid, now we wait for the intraday and the volume to confirm. If there is any element lacking -- i.e. the volume is mediocre, or the intraday is too much of a chase, then we pass.
This means we sometimes miss good moves, but it also means that we stay away from a signficant amount of failures. This is not only good for one's account, but very important for one's confidence. Stay involved, don't get scared, take your cue from the market and when things just aren't working, then know it's ok to pass. But jump back in the game the next day and start fresh. And whatever you do, don't freeze like a scared monkey.
Saturday, September 16, 2006
As soon as we saw the market gap-up Friday morning, we were relieved that we did not have any stocks on any of our trading lists for our subscribers. Why? Because this exhausted market needed a gap-up as much as Larry King needs new suspenders. A gap-up in an extended market near resistance almost always only invites selling. It's a perfect scenario if you are already in positions and want an exit, but very much a must-avoid situation if you are a break-out trader looking for new positions. Not all gap-ups are negative though: for example, a gap-up in a market that has recently bottomed can become a very powerful trend day.
What this market now desperately needs is a shallow pull-back or some horizontal basing. As we mentioned last week, the more extended the market, the higher the chance of break-outs failing.
When novice traders talk about trading they talk about the excitement and thrill of the job. However they soon realize that the professional traders who are consistently profitable year over year are not thrill-seekers, but disciplined traders who have conquered the desire to always be in a trade. The reality of trading is that it requires an inordinate amount of discipline and patience. A lot of what we do is simply just sitting and waiting (which actually is one of the reasons we started this service-- it gave us something constructive to do while we were sitting around!)
There are times in the market when the best thing is to just sit aside. Then there are other times when you are so busy that you realize by the closing bell that your stomach feels hollow as you haven't eaten anything all day, that your eyes are burning from staring at your screens all day, and that your back is killing you from sitting tensely in one position all day. Take your cue from the market. Do not force trades -- if the set-ups emerge, take them as they come -- be that 10 trades in one day. If they do not emerge, then sit back and just watch --be that 1 trade in ten days. This is the exact same reason why some days we have 10 stocks on our lists and other times we have none. You cannot conjure up set-ups-- the opportunity has to arise or else you will do nothing but chop up your account.
Print out this sign and put it on your wall: Every Trade is a Business Transaction. What does that mean? It means that there should be a reason for every single trade -- why you enter and why you exit. Every single trade is an important business transaction that has to be thought out and given great importance. The hungry beast that devours accounts of new traders, without a doubt, is the demon called over-trading. When your trading resembles less a person playing a video game and more a person playing chess, is when you will start to be on your way to becoming a profitable professional trader.
Saturday, September 09, 2006
In the NYSE the commodities had held the throne for most of the year, especially the energy and metal sectors. Both are currently languishing, with most of the related stocks even below their 50dma. In the Nasdaq, we started out the year with leaders such as GOOG HANS GRMN AAPL SNDK BIDU NTRI AAPL SHLD RIMM. More than half of the latter now are below the 50dma (and many of these are on our short list). An acephalous market cannot make any kind of meaningful long-term move; what is necessary is that either a new crop of leaders emerges or that there is a sector rotation, something that we still have not seen this year (and no, NVEC does not count as a new leader :-)
Tuesday, August 22, 2006
1) First you need exposure to determine what kind of trading interests you. As you will soon find out, there are many ways to earn a living in the market. Do you want to trade hundreds of times a day, exchanging thousands of shares, chasing pennies? Or would you prefer to become a swing or position trader based on daily and weekly chart patterns? Maybe possibly just a day trader looking for intraday gap break-outs? Or somewhere in between, like us, trading off of daily but mostly for day holds, on average trading 1-3 times a day. How do you get this exposure? Read different books, check out websites and blogs of active traders.
2) Find a system that you feel suits your personality. For example, we are methodological traders who like the calmness of trading from a pre-defined list every day. On average there might be only 10 stocks on our Main list to trade from, and those only at exact prices. If these prices are not reached, then no trade. Other traders, for example, live for the chase and the thrill and may only trade stocks which have released news or earnings.
3) Alright now you have honed in on an area of trading that interests you. For the sake of argument, you, like us, prefer to trade only a few times a day, based on daily charts. So now what? Now you read some books related to this type of trading, find specific websites that practice the type of trading you are interested in, and if possible, come into contact with actual traders who practice the type of trading that interests you. What books did we read and do we recommend? Well, they're a mixed bunch but we think that all of them should be read:
How to Make Money in Stocks by William O'Neill
How I made $2,000,000 in the Stock Market by Nicolas Darvas
High Probability Trading by Marcel Link
Encyclopedia of Chart Patterns by Thomas Bulkowski
4) Now you need to get your feet wet. You can start out by paper-trading but probably the best way to really gain experience is to actually jump into the market with real money. However, start small. For example, you have decided to become a break-out trader and have noticed that stock HCPG is close to breaking the downtrend line at 50. The next day HCPG breaks through 50 and you buy it. Start with 100 share trades but treat it as if it were a 1000 share lot. Now write down, be it in a written journal, or an Excel Program, every possible relevant factor. For example some categories are:
Ideal entry price, real entry price, ideal stop, where you actually were filled at for the stop, what your exit strategy is in terms of profit-taking, how far the stock pulled back before returning to the trend (great way to find out if your stop is too tight), what the maximum potential profit of the trade would have been, what time did you enter, what time did you exit, the average volume (use 30 day or 90 day), the relative volume at the time your stock triggered your buy price, et cetera.
Next either with your charting software or simply your OS, take snapshots of the following:
a) the daily chart
b) the intraday chart at time of entry
c) the intraday chart at time of exit -- be it stop or profit
d) the intraday chart at the end of the day
e) the intraday chart at the end of the day in one different time frame (for example if you use 3 minute, take a snapshot of the intraday at 5 minute also)
f) the intraday chart at the end of the day of the market in which the stock trades (so for us, it would be taking a snapshot of the intraday moves of the Nasdaq).
This last part is very important and something that a lot of traders do not do. As the cliche runs, a picture is worth a thousand words, and this could not be more true when it comes to trading. After as few as a dozen trades you will see patterns emerge. For example, you will see that you are correct in finding the trend of a stock but keep getting shaken out because your stops are too tight. Maybe you will realize that the stocks you want to trade have the same intraday pattern as the greater general market, and you realize that it would be more profitable to find a pattern with greater relative strength (or weakness if short) than the general pattern. Most likely you will realize that in the long run it would be more profitable if you were more patient. The review of actual snapshots of your trades coupled with written statistics of the trades offer endless lessons.
Most likely at this point you will feel that the kind of trading that you have chosen might not be the best one for you and you want to experiment with other systems. Repeat steps 1-4.
Don't try to reinvent the wheel. Step on the shoulders of the giants, but do find your own system. Learn from the professionals, tweak their systems, let it evolve, until you find your own way. If you work hard enough, study your mistakes, are constantly self-reflexive and in pursuit of evolving, you too will be able to become a successful, professional trader.
Thursday, August 17, 2006
Opening up this newsletter has helped us also to become better traders. For example, we used to set alerts on many different stocks, including minor buy points and somewhat questionable set-ups. However, once we started writing the newsletter we decided to include only the cleanest, best selections for our readers. We realized after a month or so that our own performance improved by focussing on those same stocks and disregarding the "minor" buy/sell points which were distracting us from the best moves of the day.
Another way the newsletter has helped us is that we now only trade from the lists provided to our subscribers. Most days there will be at least a few good opportunities in the provided selections. The advantage is that you are prepared for the day and you are familiar with the stock, as compared to scanning intraday for a possible set-up and often taking third-rate set-ups just because you were rushed to make a decision. We don't like feeling rushed into entering a position, so trading only from a pre-defined list from the night before is very appealing.
The only stocks we look at during the day are the stocks mentioned in the lists given to our subscribers every night. This might seem "limiting" to some of you but upon closer introspection the numbers will surprise you. For example, if you had ONLY watched our stocks this week (last 4 trading days) and entered a position in each stock that triggered from the trading lists and the watch-list, without regard to volume, intraday set-up, market conditions, et cetera, these would be your day-trade results:
ILMN short, PWEI, TRMB
Losses maximum 1%:
Profits minimum 1% to maximum 8%:
GPRO short , CRDN short, RIMM, OXPS,
DIGE, DRIV, FWLT, GROW, PWEI, TZOO
The results are 10 wins ranging from minimum 1% to 8% maximum daytrade profit (depending on where you took profits) versus 2 losses of 1% maximum. We're happy with these results and feel that if you are patient enough to wait for quality set-ups (which means that some days you only trade once or none at all), you can achieve a very respectful win-loss ratio. The more experienced we become in this career (and in life), the more we realize how critical controlling greed and fear is to becoming successful.
Wednesday, August 09, 2006
What is the most likely scenario? A continuation move to the downside towards the symbolic 2000 number for starters. What would negate this pattern? A move over the 50dma and over 2120 would be a great step in the right direction. But as we have always said, opinions, beliefs, and prophecies should all be left at the doorstep before you enter your office every morning. Within the realm of trading, hope indeed never escaped from Pandora's box. As always, trade the set-ups, and trade with the trend.
Monday, August 07, 2006
Today, NIHD opened green and proceeded to rally somewhat before reversing hard on heavy volume. She came rushing down from over 51 to hit our alert at 50 and confirm the trade at 49.88. However, this was not the easiest trade to take since, as we have written here numerous times, chasing vertical moves is not a great trading strategy. Let's take a look at the actual trade:
Here comes the vertical move with very heavy volume.
Vertical spikes are rarely worth chasing. If the volume is heavy and the pivot point on the daily very attractive, then watch for a base right above (or below if short) the pivot point. This way you do not have to chase, and you are supplied with a nice entry with a risk defined natural stop.
NIHD is a perfect example of this as she bases right under the pivot point of 50. From there you could easily put on a position short at 49.8 with a 20-25 cent stop (right above 50).
As you see she based there only for a little while before dropping exactly one point for a nice and quick 1 point target daytrade.
At which time you bow your head, say thank you, and take at least a good portion of the daytrade profit. Of course you could argue -- well I chased it short at 50, got in at a better entry than you, and profited just the same, so what is the advantage of letting it base? Remember, trading is a number's game and we have too often seen vertical spikes quickly reverse for a large loss, to ever be interested in chasing a trade. It might work for you once in a while, but in the long run, it pays off to be patient, and wait for the intraday base to give you a defined stop. Wait for the set-up = waiting for the trade to come to you.
Saturday, August 05, 2006
On the bottom right-hand side of our blog you will find a section called "Blogs we Like". These include blogs that have excellent real-time information about what is happening in the market, such as Knight Trader, The Kirk Report, Maoxian and Trader Mike; blog writers who share their daily journeys (and which include some great wacky personalities)such as Ugly Chart, Trader X, Move the Markets, and Newb Trading ; and others who trade in a similar fashion to us like Bull Trader,
The Wall St. Warrior, and
Downtown Trader. We also have added a great new little service called
Instant Bull which allows you, among other things, to quickly look up relevant information about your stock (information that we like to check, such as earnings date, float information, historical data information), check out news, and peruse 30 excellent blogs in one screen. Check out our links; you'll find them to be useful shortcuts in the dizzying world of online financial information.
Wednesday, August 02, 2006
A: The first and most common way is to simply wait for the set-up, check to see if the intraday conditions are fulfilled, and if affirmative, enter through the confirmation number.
B: The second way, is to do a reverse trade IF the intraday conditions are NOT fulfilled. For example, we list stock HCPG as having formidable resistance at 100. The stock approximates our number in a sloppy way with very light volume and for these reasons you know that there is no way you will buy the stock as there is a high chance of failure. The best trade here would be to short the stock, close to resistance, with a stop right above.
C: The third way is one that is slightly trickier but that often works well. However, we would recommend this only be used for more experienced traders. As you know we often have written that the most successful way to trade is to wait for the daily and intraday charts to coincide. What does this mean? This means that the intraday chart also bases near the listed entry price, thereby also printing a nice pattern. Now, the third way to use our entry prices is as price targets. Sometimes what occurs is that a stock fulfills all the intraday conditions (great volume, relative strength, and basing nicely), BUT is doing all this a few percent away from our listed entry price. The stock then proceeds to break this nice base with good volume. We often are buyers of these breaks, and ride the stocks up in their subsequent vertical moves until the stock actually reaches our own entry price. Usually that is the time to sell most of the position (we keep a little just in case it has enough momentum to go through, however this usually does not happen). Why sell? Because a stock that has just ran a point usually is very low on steam and is not in a position to break resistance. This is the reason we repeatedly tell our readers to never buy on top of a vertical move. Let's use two examples. The first one you will recognize from a UARM trade from a couple weeks ago that we had listed as a buy through 43.5. She based very nicely at 42.6 and then broke the base with volume and ran EXACTLY to 43.5. The second example was from HANS today. We had listed 47 HANS two days ago.
42.6 was an absolute beautiful base in UARM, with a positive break coming with a volume spike. The trade was from the break of the base to resistance at 43.5.
The second example, HANS, based today very nicely at 45.4 with heavy volume and excellent relative strength. The second possible entry was 45.8. The target? Our own listed price of 47 (which was resistance).
Sometimes, especially in low-volume summer trading, momentum trading does not function very well. In these occasions, one can resort to methods B and C more often. However, we should add that if you find all this confusing, no worries, be extra patient, and stick to method A, which is sufficient to earn a good living in the long run.
Saturday, July 29, 2006
What Sun Tzu meant was that several conditions have to be in place before you engage the enemy: make sure that you choose the battleground; arrive before the enemy does; occupy the high ground; do not reveal the strength of your forces; have the right troops at your disposal; do everything to boost your army’s moral and undermine that of your enemy; and choose when and where to attack. All conditions that have to be fulfilled before the battle has begun. (read our Just Trade the Setups Dammit , The sitting
on conditions that have to be met before you enter a position).
All this requires meticulous preparation. Even our emphasis on knowing your stock's behavior fits within this philosophy. If you have worked out everything in advance, victory is more likely. Never trust a general who is surprised by his victory; never trust a trader who is lucky enough to pocket a gain without knowing why.
Like officers who start to improvise on the battlefield, many traders run constant scans during the trading day in order to find trading opportunities, while others hover around in chat rooms waiting/hoping for someone to find a stock with potential. We prefer to prepare our lists the night before and ONLY trade from those particular stocks in our list (the same list that is given to our subscribers every night). Unlike Sun Tzu, however, we do not believe that our method is superior; on-the-spot methods are successfully used by many traders.
However, our method fits very well with our personality. We feel that stress is considerably reduced as we are staring at a limited number of stocks (categorized by how close they are to our possible entry prices) and are not in a need to constantly run scans. We try to avoid a position which forces you to rapidly bring up the daily chart, the 60 minute chart, and try to figure out whether a trade is worth a shot or not, all the while hoping that it does not run away as you are in the decision-making process. Stress-reduction, we feel, is a factor that is critical to a trader's career. At the age of retirement we do not want to feel like we have won a Pyrrhic victory, i.e. having made a good salary at the cost of our health and relationships.
We like to be relaxed during the trading day (think the anti-Cramer: no keyboard throwing, no bruised knuckles, no crashed monitors), if the market acts lackluster and as such our picks are far away from triggering, we can let our guard down, grab a drink, and relax. Well you argue, don’t you miss the big opportunities? Possibly. However, for us, trading is a numbers game. We are not looking for the occasional home-run but rather consistency. We have been traders for 7 years; and fate willing, we shall be doing it for many more years to come. We are not seeking the exhilaration of a Vegas-like environment. Or, to stick to the military domain, we're not trying to come up with sudden ingenious battlefield moves; but rather, to be more like Eisenhower: organize, organize, and organize before you move.
We are seeking the quotidian: Day in, day out, being true to one’s rules of engagement, putting aside our opinions, and trusting our set-ups. In the long run, everything else will fall into place.
Wednesday, July 19, 2006
This is the reason that we also place stocks whose patterns are not completely formed or are too far away, in the "secondary list" of our newsletter; so that subscribers can start watching them days before and familiarize themselves with the stock's behavior. It is also the reason we like to stick to a core group of stocks, around 200 of them, instead of scanning each night through a 1500 stocks looking for patterns. As a rule we never trade a stock that we are not familiar with. If there is a new stock that is gaining attention from momentum traders, we immediately add it to our core group of stocks so that it too can become our friend.
Sunday, July 16, 2006
This is the reason why we say that BIDU should be on your lists every day. Every year there are a new crop of winners --for example in the last two years there was great action in stocks such as TASR TZOO GOOG AAPL SNDK. All these stocks, with possibly the exception of GOOG, are completely broken now (even though TZOO has found some renewed momentum these last few weeks). Often great winners of last year who could do no wrong, like AAPL SNDK, now could not possibly act any worse. The torch has been passed this year to the new crop of momentum winners, stocks like BIDU GRMN HANS; even though we cannot forget this is bear market action in which we find ourselves, and thus upside momentum has been somewhat absent recently.
Always watch the winners and have a place for them on your list every day. Watch how they act relative to the market. And never get married to previous winners. We are great believers in loyalty -- loyalty to our families, friends, and to our nations; but this great quality in life has absolutely no place in trading. By next year we will have new winner stocks to watch every day and most likely have short positions on this year's winners. The only loyalty we have in trading are to chart patterns and to our own rules of engagement. Everything else is just a ticker -- 4 letters that can represent a profit or a loss.
Wednesday, July 12, 2006
If you do not have a volume percent tool you might want to check out some of the more popular trading programs. We recommend
QuoteTracker as it is will give you a very good idea of how to use this tool, and to top it off, it's free.
Saturday, July 08, 2006
We decided to charge just so much as to be motivated to keep doing such a service (if it were for free we are sure we would not feel pressured enough to update it on a daily basis) but not so much that it becomes too expensive for traders who are starting out, or for people who subscribe to multiple services who do not want to add another $150 a month to their bills. $30 a pop sounded just right. Having it so inexpensive also means that trading will always be the main source of income for us, since as soon as you stop trading and become an observer, you lose the trader's edge: that instinct of looking at a stock's price action and seeing it set up even before the pattern has emerged on the daily chart.
As for the altruistic reasons there is only one -- we were helped by others when we started; now it's our turn to give back.
Friday, July 07, 2006
Last night, we went through the charts of our favorite momentum stocks and saw absolutely nothing we liked, thus we did not post a single stock in our Main list. Now this happens only 1-2 times a month, hence it is not a common occurrence. Today the market hurt a lot of bulls and a lot of bears and most likely it would have resulted in losses for any positions that we would have entered with our particular system. So was it a coincidence? We doubt it, since we have seen it happen too often. When you are doing your preparation work for the next day and nothing jumps out – be it longs or shorts– know that most likely the next day will be a very difficult one.
Let's look at another example: Every day, we have a main list of stocks with specific entry prices that we watch. Sometimes we find ourselves in a situation where none of these stocks on our list are close the triggering but the market suddenly spikes and looks like it’s going to rally 50 points. We get nervous and think – what shall we do – the market is going to rally and we have nothing in our list to trade (we only trade stocks from our list prepared the night before, and shared with our subscribers). More often than not, that initial move is nothing but a bull trap and the market reverses. In our experience, we have found that if a market move is for real, i.e. lasting, then you will already have setups prepared from the night before that will trigger once the market makes a move. Chart patterns are nothing but footprints of the greenbacks, and they will rarely let you down. Trust the set ups, trust yourself, obey your rules of risk management and profit taking, and in the long run everything else will fall into place.
Thursday, June 29, 2006
We do not open our newsletters with charts of the Nasdaq, S&P, VIX, discussion of Stochastics, etc., not because we are too lazy but rather because we think it is counterproductive to analyze such matters for the type of trading that we practice.* The more you study the indices and attempt to interpret the stream of information that the plethora of indicators offer, the more you will form an opinion before the market even opens. We follow the leaders of the market and the leaders of the market are usually on the avante-garde of market moves. The leaders will signal when a bottom has formed or when a correction is due. In addition to the leader stocks we watch a host of momentum stocks which are often also great early tells for market moves.
There is a very important reason that we have told our clients in our newsletters-- leave your opinions and emotions at the door before entering your office in the morning. Emotions are the enemy of the trader. Most traders will have heard of the story that if a man sits in front of a great trader and watches him all day, he will not know at the end of the day whether the man made a million dollars or lost a million dollars.
The best traders just simply react to the circumstances. For example -- stock HCPG is approaching the price at which you would like to buy it based on a break of a 2 month consolidation.
Above Average Volume? Check
Is the Trend with you? Check
Is the stock showing greater relative strength than the market? Check
Is the intraday nice and tight without big volatile spikes up and down? Check
Is the breakout coming off of an intraday base instead of a chase of a vertical move which is to be avoided? Check
Trade entered. After that you obey your risk management and profit taking rules for the remainder of the trade. Many traders miss out on great opportunities because they think that the market is too overbought or oversold. Just trade the setups. That's it. When the market finally does decide to turn there will be ample signs and new setups will emerge in the correct direction.
* Usually we aim for 1-3% profits on daytrades and occasionally hold positions 1-2 days. We trade on average probably 1-3x a day, all depending on available setups.
Jesse Livermore said it well in the now much-quoted, “It never was my thinking that made the big money for me. It always was my sitting.” He was referring to entering a position, and then sitting on it for possibly months at a time. We as short term traders like to decontextualize the quote and place it within our own reality : It’s the sitting, the waiting for that perfect setup, that makes us the consistent money. Waiting for a setup that meets all your conditions is the most important and the most difficult thing we have learnt from our years of trading.
Saturday, June 24, 2006
Everything else we believe is secondary.
What we would recommend for a person who is just beginning to enter the trading world is to read and research these systems and see what approach they feel most drawn to. The next step unfortunately is the most painful one, and that is the trial and error stage. To form a system for oneself can only come from some hardship. However as time progresses, and if the individual is sufficiently self-reflexive, then a manangable system emerges that not only functions well as a career but that fits the personality of the trader.
As for the thousands of ways to make a living in this business -- they all seem to have several things in common. One has to be self-critical and to constantly try to learn from one's trades -- the winners and the losers. We would recommend a trading journal to aid in this effort. Second, one has to control one's emotions and never ever lose one's discipline. Discipline is the thin blue line between becoming a great trader or washing out, as do the overwhelming majority of people who enter this career.
Trading is like any other job -- you need to work hard, do your homework, and at all times, act like a disciplined professional.
2. Do not overthink or get spooked – stay as close to neutral as possible. Don’t predecide anything, just look for your conditions to be met. Calmness is everything in this profession – in the technical setup system itself and in your own emotions.
3.Remember many big losses have come after innocent small initial losses, and then from attempts to make up that loss and frustration – that is when one forces trades -- lousy setups with no volume, chasing spikes or even worse, following other people’s trades.
4. If you get stopped out and are feeling frustrated then market most likely is in a no win mode – step aside and start fresh next day. Emotion is key. There are some days where it is very difficult to make money.
5. Remind yourself how difficult it is to make money and how incredibly easy it is to lose money. There has to be a reason for every trade.
6. Have Vision -- many times stocks sit there for HOURS ABOVE the entry point– remain in the trade as long as the breakout point is held and then hold for the angle change (as buyers pile in) into real profits.
7. Be on your toes with opens in which you miss several quick trades. Do not go tilt. Many tilt days come from opens that one has missed. Just regroup and try again. If stocks are going up or down in a hyberpolic fashion, there is high chance of reversal. If the move indeed is for real then there will be plenty of opportunities later in the day. Remember that. Just wait for the pitch.
8. On a deeper note -- be at peace with yourself. If you feel like you do not deserve to do well, then most likely you will not do well. Do good, treat your body well, work hard, and everything else will fall into place