We cannot emphasize enough the importance of volume in trading stocks based on chart patterns. Most trading programs have a volume percentage tool which tells you at any given moment what percentage of volume a stock is trading in relation to its average volume (usually based on 30 day and 90 day averages). For example, let's say stock HCPG has been trading 1 million shares on average for the last 3 months. That means by the end of the day, the volume % indicator will most likely be near 100%. Now imagine HCPG is forming a very nice base under her trendline that triggers through a break of 50. The market opens and you notice that your stock is getting very close to 50 and that the volume indicator is reading 25% at 9:45 AM. That means that she has traded 25% of her entire day's volume already in the first 15 minutes of trading. Be interested. Be very interested.
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.
Wednesday, July 12, 2006
Saturday, July 08, 2006
Why did we create the Highchartpatterns Group?
There are many reasons but all belong to the categories of self-interested and altruistic. Let's start with self-interest. First, the act of writing lends clarity and coherence to one's thoughts as it forces you to think over what you are doing. This is something we have come to realize even more strongly since we started this service. We have consistently strived to trade in an orderly, clear and disciplined manner. Articulating and putting down our rules, printing out charts, and commenting on patterns for the next day has made us into more focussed traders. In a way, parts of it are like an enhanced trading journal (which, by the way, we recommend to all).
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.
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
Trust Yourself
One of the most important and difficult things to learn as a trader is simply to trust yourself. By this we do not mean that you should be stubborn when a position goes against you, or heaven forbid, average down, Once you enter a trade then all opinions, feelings, instincts, et cetera, must defer to simple risk management and profit-taking rules. What we mean by "trust yourself" is something that is critical BEFORE you enter a trade.
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.
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
Just trade the setups, Dammit!
Caution: This advice only pertains to short-term trading and not longer-term investing, swing trading, position trading, etc.
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.
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.
The sitting
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
Chart Patterns and Indicators
There are hundreds of indicators that one can use to interpret stock behavior. We stick to price, volume, and action. We also like to know where the 9, 20,50, 100, and 200DMA are within a chart pattern, as they often are useful as levels of support and resistance.
Everything else we believe is secondary.
Everything else we believe is secondary.
Finding a System
It takes approximately five minutes of perusing trading forums and doing simple searches in Google to realize that there are literally thousands of ways that traders make money in the market. Many systems appear to work as there are many traders who make a good living.
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.
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.
The Psychology of Trading: Rules which we live by
1. When you feel most frustrated at missing moves, you are most vulnerable to losing money and trading in a self-destructive manner (hereon called "trading on tilt" to quote Charles Kirk from The Kirk Report). Do not let it play with your head. Every trade is fresh.
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
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
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