VLO knocked on our number (54) several times before breaking it and going up exactly 1 point. Recall this weekend we spoke about exit profits, and how we like to take off profits at 1 point intervals. We weren't crazy about VLO intraday as the number kept being hit, something that increases the risk of sudden reversal. Nevertheless it worked well for a nice and easy point.
As we have written in the past, our preferred time-frame is the 3 minute chart. We like using the 3 minute time-frame because we feel that it’s easier to spot volume spikes and base and break patterns than in longer time-frames. However, what is sometimes quite difficult, even after you have traded for years, is to see beyond the next tick, and having such a fast time-frame can sometimes make one too focussed on the immediate future. This is the reason we like having the 10day / 30 minute chart and a 3 month daily chart synched with the main 3 minute chart. Therefore, every time we switch the 3 minute chart to another stock, all charts change over. Nothing beats the 3 min chart for entry, but having the daily chart beside you reminds you of the bigger picture.
Sometimes, for specific reasons, you believe a stock will go in a certain direction. However, you can find no decent entry point (i.e. there is no base or any familiar pattern). What do you do? Have vision. Find a spot, enter fewer shares (due to wider stop), set a reasonable stop, and just leave the trade alone. More often than not, these are the most successful, most satisfying trades of them all. First, it’s a very good feeling having a plan and seeing it through. And second, it keeps you from overtrading.
One of the most important stages of the evolution of the trader is from the gung-ho newbie who just shoots and blasts away constantly during the day, and the more contemplative experienced trader who sits on the trade and lets the trade unfold towards the target.
There are days we can’t find absolutely anything to trade. No set-ups, no opportunities, just nothing. Other traders like us (break-out traders) usually find themselves in a similar situation. But then on that same day there are thousands of traders who find lots of opportunities, many who have great days and even some who have their best day ever. We’ve always said – there are literally thousands of different ways to make money in the stock market, pick one, and respect others. We love break-out trading; for us, it’s perfect, stress level is low (since the numbers come from the night before there’s no real-time pressure to find candidates), there are strict rules to function within (thus less emotional and small draw-downs) and circumscribed risk parameters (to avoid blow-ups). However, we know that some people find it too boring and prefer to find dozens or hundreds of intraday opportunities (scalpers) and who make a very good living from it. Others make their living swing-trading. Others swear by futures. In the end all that counts is whether you can earn a living from trading, that is, whether you can make consistent money from trading.
So how do you find a system that will make you consistent money? The only real answer is trial and error. Start small (give yourself a lot of room for error) and ask yourself what attracts you. Do you prefer to trade actively and make consistent scalps, taking fast money? (And yes, scalpers can make a hell of a lot of money: like anything else, profits add up very fast if you’re a good). If so, then just start reading about the subject, go to blogs where successful scalpers share their techniques: Richard and his host of writers have excellent information and videos at Move the Market.
Do you prefer to do your homework from the night (via daily charts) before or at least combine that with intraday scans? Then go read about how Jamie, Ugly, Tyro, TraderMike, Dave at StockTickr, and Bubs trade.
Do you prefer swing-trading? Spend some time with Chris Perruna, Kirk Report, Market Speculator, Taz Trader, Knight Trader, DownTown Trader, Stock Bee, Pinoy Trader, and Bull Trader.
Most likely none of these sites will give you exactly what you are looking for but they will give you different ideas about the different kinds of trading systems out there. See what attracts you (for example, you might love to add a bunch of technical indicators to your charts, or you might love to trade with paint bars) and then research it some more via books and forums. Should you join a service or subscribe to a newsletter? Possibly, as long as it is inexpensive, it might be a good way to expose you to different systems (for example if you want to do futures, then signing up for a service for a few months to learn from the moderators wouldn’t be a bad idea, as long as they charge a reasonable fee, which to us is anything under $100 a month). But do not sign up for the $5000 options course, or pay $800 a month for a service, or $2000 for a set of CDs. That money could be much better spent learning in the market itself.
Then slowly get your feet wet by starting with very small positions while at the same time keeping meticulous notes on your trades (StockTickr would come in very handy at this point). You will start to learn very fast at this point, (while still possibly losing money – that’s normal. Very few people start making money right from the start). You’ll learn what you can handle, and most importantly, what you can’t. From there it’s a slow learning curve ahead and with the right amount of discipline and work, in our opinion, trading is just like any other job, and most people can make a living out of it if they put in the hours, the sweat, and the blood (with the exception of people who just don’t have the temperament for it, be it lack of discipline, or no control over their emotions, even though we would argue that even these people could change if they wanted to enough).
You might blow through your initial account but slowly your consistency will improve and maybe a year after that you'll start eeking out some profits and be on your way to becoming a professional trader (and if you don't want to call yourself a trader, just call yourself a market liquidity provider). Within the first years there will be times when you feel depressed, unlucky, when you will question yourself, that's all normal and part of the process. Stay grounded, man up, and good luck.
There are literally thousands of ways to make money in the market and in this post, we will be covering only four methods. However, that being said, these four methods do count for a good percentage of trading methodologies currently in practice. Our apologies in advance if we have mis-labeled a blogger or if we have made an error of omission.
We personally partake in #1 and once in a while in #2. We do not trade in methods #3 or #4.
1. Scan charts at night looking for bullish/bearish patterns on the daily chart. Make a list, set your alerts, and the next day enter according to these alerts. This is simple break-out trading and this is what we do day in and day out. To summarize this in one line: trading based on support and resistance on the daily chart. The nuanced part comes in whether you take the trade or pass—and this is based on the intraday pattern, volume, market mood, et cetera. As far as we know, we practice this method, as well as Wall St. Warrior, Richard, DownTown Trader, Ugly, PinoyTrader, Tyro, Phileo, Bubs, Market Speculator, KnightTrader, and many others.
2. Repeat step #1 but also have a list of momentum stocks that are close to important spots, or which are trending in a clear direction. Use longer intraday time-frame for entry (for example, we use 10 day, 30 min or 10 day, 60 min while others prefer 5 day, 30 minute, et cetera). In terms of blog participants, basically same list as in #1.
3. Use a scanner to look for gap-ups/gap-downs with high volume and trade these stocks based purely on intraday patterns. This can be a successful method if one can come up with a sophisticated system for entry spots. In our opinion, this is the most difficult method to master as the decision process is more subtle, with more nuances and subjectivity than method #1 and #2. Candle-stick knowledge is a plus. Some successful participants of this method are Maoxian, Trader-X, Trader Mike, Estocastica, Trader Gav, Zoomie, Prospectus , Dave, and the promiscuous Ugly and Wall St Warrior who seem to partake in all three methods.
4. The last trading approximation really isn’t a method but it’s worth mentioning since probably most new traders enter trading via this methodology. No usage of daily charts, no usage of scanners, no real system: these traders often have a list of volatile stocks and look for intraday patterns to trade. These traders often hang out in large chat rooms, with hundreds of traders making different calls on anything that moves. They often buy/sell for very small moves, with a 1-1 risk/reward ratio. This isn’t really a system and this kind of scalping, in our opinion, has the lowest-win rate, and the highest burn-out rate. We know of no bloggers who would belong to this section.
Conclusion? As said, there are literally thousands of ways to make money in the market and what each individual has to do is to find their edge. However, in order to achieve the latter, one will require a disciplined system that can only come after a lot of pure, hard work. If you're lazy by nature, then trading might not be for you, and it might be best if you looked for a profession in the civil service (yes, yes, we're kidding, please no hate mail).
