lrushing

In theory, swing trading provides bigger reward opportunities but also requires accepting bigger risk as well. Scalp trading can provide small to moderate rewards if you are disciplined and have a clear set of strategies that have a high winning ratio. One simple and very effective trading strategy is often referred to as the "opening range strategy". In this strategy, you predetermine a specific time frame that you will wait for the market and price action to illustrate whether it can breakout of the range upwards or downwards. There are several sources that can provide you with more details and examples.

Ok, my misunderstanding. The SPY is a ETF fund (referred to as a tracking stock by some). It is a great trading vehicle that mirrors the S&P500 and trades like a stock. This allows great diversification and if you look at the last 3+ years has increased from 80+ to now 140+. There have been some nice pullback, but it has trended upwards nicely and is retesting the 1999 and 2000 highs (the internet boom)! So for a buy and hold strategy, that would have been a great return on your investment.

Not necessarily, Any and every trading style warrants the risk and money management of the trades. With that be said, for those individuals who may not scalp, day-trade, or aggressively swing trade, they still have to have all the same trading components (i.e., signals, entries, stops, targets). A lot of traders who have not had enough exposure to the markets, will initially start with some of the components and after several painful lessons, realize the other ones are needed also.

One of the most important and overlooked aspects of position management is whether or not the initial trade taken was a low odds, medium, odds or high odds trade. No matter what style you trade and position management techniques you use, if its a low odds trade, you will lose more money in the long run. Medium odds trades can either make or break your trading profitability. And high odds trades are usually the trades that are the emotionally scariest to take. However, if entered properly will provide the easiest and most rewarding profits. Scaling-in has pros and cons and so does scaling-out. One of the overwhelming advantages of scaling-in is that if you have a low batting average with picking winners then this technique will help build your stamina and improve your entries. Similarly for scaling-out, if you take a lot of big loses, then learning to take some profits off the table helps more traders psychologically build their confidence and reduce P&L draw downs and pullbacks. Remember, your high odds trade set-ups are in congruency with the overall market trend, hence you can scale-in and scale-out, or most any position management techniques and still look forward to great performance of those trades.

Hi Al, The only way to preserve ones capital from devastation is to not risk the capital at all. There are lots of speculative reasons why your friends seem to intuitively buy stocks guided by some fundamental analysis. The primary reason they buy is that they have a pre-conceived idea that the fundamentals provided by the company or outsiders is adequate enough information for the market place to see that the value of the stock is not sufficient and that it should be priced higher. However, because of supply and demand in the market place, usually when the price of a stock starts to decline, its a good indication of there being more supply available for sale than there is demand. Probably one of the more conservative ways for your friends to preserve their capital is to use a diversified portfolio approach that minimizes the overall risk of total lose. Another approach might be to consider buying the S&P500 index spiders (SPY). This has shown great returns over a substantially long period of time for constant returns.

When you enter the trading environment, you’ll find that you are in a whole new world. If you haven’t figured it out already, it is volatile, fast-paced, unforgiving, demanding, maybe even nonsensical. It is also exhilarating, addictive, challenging, stimulating, and definitely - at times - rewarding. What other work environment offers such a chaotic dynamic every 5 minutes? For the average trader, this environment is very conducive to doing things you never thought you would do; to questioning every single decision you made before, during and even after the decision was made; and to being more reactive than proactive with your decisions and actions. That’s why it takes a certain type of person, personality, character to be able to “tame the beastâ€Â, if you will. If you don’t, the beast will get the best of you which is exactly what we don’t want to happen. How many of us have sat in the middle of a trade, done the unthinkable (e.g., continue to buy and add to a losing position); then turn around and ask yourself “Why did I do that?!†I think we all have. For some reason, there are times when all logic goes out the window when it comes to trading, but only if you allow it to. Keeping your emotions in check is one of several crucial components to successful trading. Other crucial components include creating a trading plan and developing a trading strategy. The most crucial component, though, might be having the discipline and focus to follow the plan as well as the control and calm to not only apply the strategy but to stick to it. I was reading in a business publication several months ago about one of the most successful individuals trading today, I’ll call him John. What I remember most about the article was John’s control and calm in executing his strategy. Without getting into the minor details, he had been mentioning to colleagues that based on the information and data he had, a “certain something†was going to happen to Company A’s stock. Sure enough, it happened. If John had managed the trade “properlyâ€Â, his colleagues knew that he was in for a windfall, so they asked him how much money he made. “Noneâ€Â, he responded. None? Nothing? Nada? How can that be? He explained that handling the trade that would have made him a large sum of money was simply not part of his strategy. He chose logic over emotion, was sufficiently disciplined to follow his plan, and very much in control to stick to his strategy. This is a person who probably does not ask himself very often, “Why did I do that?!†In order to get to this level of control and calm, you have to be confident in yourself and secure in the knowledge that you control and own your trading – not the other way around. You have to believe in and commit to your trading plan and trading strategy because if you don’t, you will be asking yourself that dreaded question more often than you would like. I know it is easier said than done, but I believe that with the investment of ample time, effort, and energy, we can all aspire to be as successful a trader as is John.

TradingHumble, When conducting chart analysis, it is sometimes more effective to start with you’re trading strategy (signal, set-up, entry, stops, targets....) and validate each component to see the effectiveness and efficiency of how well the strategy was able to identify and successfully execute the necessary trading actions. By trying this approach, you are then more able to know where to begin looking to focus on refining the strategy based on the components that are deteriorating or need to be adjusted according. Some traders will be able to give you feedback and comments on your charts, but until you share the details of how you execute to enter and exit, the comments may not assist you in improving your trading plan or trading strategy.

New Traders, I have using TS for several years going back to when they were known as Omega Research. I have test several data providers and trading platforms such as CyberTrader, RealTick, and others over the years. When you began pursuing trading, I am assuming your focus was on “learning to tradeâ€Â. With that being said, you might want to focus a lot less on commissions and more importantly on the quality of data from the provider, their downtime, execution capabilities (such as Order Cancel Order, Order Sends Order,…), their risk management tools for preserving your capital (dollar-based and percentage-based stop-loss capabilities, trailing stops,…) and the ease of using these tools. Experienced traders know that commissions and fees are just the cost of doing business. It is more important to be able to enter, exit, and get filled with your trades according to your trading plan that really matters most. These are the more important trading components you must and will need to hone your trading craft. The lack there of or ineffective execution of these tools will more than offset the savings of commissions any day. Commissions are usually important for scalp traders who conduct 100’s of trades per day.

Hi Rich, The style of trading you are referencing is known as "Swing Trading". A swing trade can be characterized as a trade initiated to be a short to intermediate-term trade, typically based on a daily timeframe that has the objective of capturing stock or market swings lasting between 2 to 5+ days. Most traders define swing trades as a trade position that is intended to be held overnight, and commonly appeal to traders seeking to capitalize on multi-day moves without having to monitor their trades during intraday movements. There are several types of trading techniques traders use with in swing trading. These techniques can be based on technical analysis which uses price action and volume as the primary inputs. Other techniques can be based on fundamentals analysis of the underlying instrument (stocks, options, futures,…). Once you determine which technique you feel best fits your personality then you can begin incorporating this and other key ingredients into your trading plan as Soultrader has commented on.

When you are developing an automated strategy, you’re building a set of conditions that are referred to as signals for market entries and exits. You then combined these conditions (trade entry, risk management and money management,) together to create a system. In addition, you can build filters to determine when the system should run vs. not run according to market conditions. You then begin back testing your strategy you built on one timeframe to see how it has performed from a historical perspective. Some traders also run their newly developed strategies going forward in a test mode (but don't take the trades) to see how it performs in real-time (sort of like a prototype). This is referred to as test trading and then they eventually move the system to live trading. So you want to have some experience with your system either in test mode and/or historical (back tested) to see if it has a positive expectancy. Traders who try to build a strategy that accommodates multiple market conditions (bullish, bearish, and neutral) have a difficult time integrating this with the conditions of the security! You have to ask yourself which is more important, the market conditions or the conditions of the security I am trading? This is a tricky question. That's why some traders will voice an opinion of systems not working. You have to learn to build filters to assist the strategy on the security to address the market conditions separately. For example, when the e-mini's (proxy for overall market) are all trending upward, and your strategy gives a signal to short, do you want your system to take that trade? You might say, probably not, since the odds are not as good and in your favor. It still might be a great trade, but are you trying to trade with the market or against it! Even if your back testing suggest otherwise, you have to determine is the trend your friend or trade against the trend.

Janus If your questions is how do "I build a strategy for entering a trade in this stock", then you have to focus on developing a clear set of rules and criteria (i.e., trading plan) that meets your trading style and satisfies your trading objectives (scalping, day trading, swing trading, ...) and has a high odds of returning a profit on a consistent basis. You don't want to build that "strategy" based on only one set timeframe and market conditions until you have gained some experience with how your trades will perform.

Automated Trading With a Purpose Having a clear set of rules and criteria that are executed on a consistent basis is a good tool to have as a compliment to discretionary trading. Quite often, traders develop automated strategies with the expectation that the strategy alone is all that is needed to accommodate and take advantage of emotional and psychological behaviors of everyday traders. This leads to false hope and disappointment of many traders. Experienced traders rely more on learning to master fewer techniques and focus more on efficiency. This is where automated trading is at its best. Automated strategies are more effective at evaluated 100’s or 1,000 of charts and price action on stocks, futures, etc…for set-ups, market conditions, and pattern failures. These are the opportunities traders rely on for their next trade. So to say that automated strategies don’t work may be an overstatement of their intentions and how the developer has set expectations of them. The simplest strategies usually are the better ones long term. No strategy or technique works well all the time, hence it is important to understand how to filter out those occurrences when the strategy weakens. Trading strategies that are risk tolerance based with reasonable expectations usually do well and have a positive expectancy. That’s all a good trader could expect from a consistent set of rules and criteria, right!

When we think of addictions we usually think of alcohol, drugs or gambling. We don’t normally think about people who are addicted to risk, adrenaline and money. The truth of the matter is that more and more day traders are becoming addicted to daily trading on the stock market in pursuit of the adrenaline rush they feel when they take big trading risks. Many of these people quickly find themselves addicted. There are many people with addictive personalities and the majority of addicted day traders fall into this category. This type of personality puts them at risk for becoming emotionally and psychologically, in some cases even physically, addicted to certain things that have a certain level of risk associated with them. An addictive personality is defined, as a person who has a compulsion to behave in a manner that is detrimental to their best interest. In most cases this addiction not only affects them personally, but those people around them such as their family and friends. These addictions don’t have to be related to chemicals such as drugs and alcohol, but they can be addicted to their work and risk taking as well. The addiction of the day trader was discussed in a story by CNN in July 1999. If you remember, this was a time when the Internet was very much a focus in society as more and more users were finding out the various opportunities that were available on the web. One of those opportunities was day trading online. The Internet made it convenient and accessible anywhere you had access to a computer. Many day traders were soon finding financial adventures and high risk taking was available on the web and so the addiction began. The act of day trading can very much be an action packed, adrenaline rush event. You have the opportunity to make a lot of money or lose a lot of money and the prospects of both really get the adrenaline pumping for addicted individuals. Day traders with addictive personalities were quickly finding themselves hooked on day trading. In fact, gambling addiction hotlines were receiving more calls from addicted day traders than casino or sports gamblers. Agencies also began offering counseling services to these individuals and equated their compulsive trading to that of a compulsive gambler. The main problem was that many traders found the Internet access to trading so convenient that they could do it without even really understanding what they were doing. This is still a common problem today. Traders are finding that these individuals are not able to detach themselves emotionally from trading. They become highly addicted to the Internet, they make bad or mediocre trades just for the “fix†of daily trading. Their day just isn’t complete without making their daily trade. They become addicted to the risks and adrenaline rushes of day trading and they have to get it on a daily basis. This leads many traders into spending more money than they have just so they can get that daily trading “fix.†According to psychologist Marvin Steinberg, director of the Connecticut Council on Problem Gambling states that the stock market “gives gamblers the quick fix and constant action they crave.†This leads to a wide range of problems for both the trader and their family. Several firms reported to CNN that two-thirds of all day trades were losing their investments within one month. They also found that nine out of ten were going broke in as little as ninety days. This can be financially devastating for the trader and their family, especially when traders would begin to resort to spending savings, college funds and even home equity. They destroy their family’s financial future just so they can make trades on a daily basis. These are the signs of a true addiction. This addiction to risk has affected many people. They find themselves sitting in their homes, watching CNBC, and staring at their computers. Some addicted traders have even admitted that they had dabbled in drugs but nothing compares to the rush they feel when make trades on a daily basis. The adrenaline rushes cause extreme euphoria that causes them feel like they are on top of the world. Everything they make with their primary jobs, however, they tend to lose very quickly in the stock market. There are two types of addicted traders. There is the problem trader and the compulsive trader. The problem trader will lose large sums of money but stop when the loss is too much or they are confronted by their spouse or family. The compulsive trader won’t stop there. The compulsive trader disregards the complaints by family members and continues looking for additional sources of income to keep their trading active. The Council on Compulsive Gambling of New Jersey states that approximately 10% of investors are problem traders, while 5% are compulsive traders. Both conditions are progressive and many people do not realize they have a problem until they are too late and in too deep. When addicted day traders find themselves in too deep they are often ashamed of what they have done to themselves and their family. Many realize that they have destroyed their lives and they begin to look for ways out of it. Many investors will eat their losses and file for bankruptcy. Others will begin to contemplate suicide. These investors feel that they have no money left, no family and suicide is the last play they have. It is a downhill road for these individuals. Irresponsible trading and addictive personalities are the main causes for these addicted traders. They don’t use the knowledge they may have learned from reading books or attending trading seminars. They don’t use the money management skills that they have. In fact, many traders are financial geniuses with Master’s degrees and Ph.D.s in finance. They have the knowledge to be successful day traders but they allow themselves to make bad decisions, poor choices and wager money beyond their means. The risk is greater and the adrenaline rush is higher. They find themselves too deep because they don’t get a rush off of a $1000 trade when they have already made $10,000 trades. The more they wager irresponsibly the more they lose and the quicker they find themselves losing in the day trading profession. Thus, the life of the addicted trader begins and it is only a losing battle between them and the stock market.

Traders emotions. Experienced traders realize that without discipline to really follow a detailed trading plan, there are too many emotional distractions that can lead to account liquidation or blowup. The psychological behaviors of jumping back in after a loss, revenge, the misuse of leverage, the absence of money management techniques, and lax risk management procedures, and many other ills hinder most traders.

Will post several charts for Friday Chat.

Trading Psychology - Introduction Emotions and behaviors must be owned and controlled by a disciplined trader. Otherwise, trading may very well take on a life of its own. Trading taking on a life of its own is not necessarily a good thing, primarily due to the highly likely outcomes of financial disaster for the trader. At its best, each trade should be methodical, systematic, organized, and strategic per the trader’s carefully planned execution of the trade. In addition, the trader should know and be comfortable with the potential outcomes of each and every trade. Successful trading requires the individual to have more than a certain amount of control over emotions and behaviors. Emotions may include, but not be limited to, the following items: 1. Anger, anxiety, confusion, depression, disappointment, exhilaration, frustration, insecurity, passion, satisfaction, etc. Behaviors may include, but not be limited to, the following items: 2. Arrogant, consistent, controlling, denial, following through, [im]patient, [ir]rational, letting go, perseverance, stubbornness, tenacity, etc. Having control over these and other emotions and behaviors will allow for the trader to execute trades objectively, and more importantly, according to a strategic plan. Sounds easy enough, does it not? “Execute trades objectively, and more importantly, according to a strategic plan.†Being that traders are human, it is not such an easy task to accomplish. It is not easy to be objective and diligent about sticking to a strategic plan day after day after day – especially with the constant volatility and erratic dynamics of the market tempting and enticing you at every turn to take actions that are NOT necessarily objective and NOT necessarily part of the strategic plan. In the coming weeks, the ways in which various emotions and behaviors may help or hinder your trading success will be discussed. While there is a plethora of information available to address this topic, Trading Everyday will address it from the perspective of basic, fundamental, human nature relevant to attitudes (emotions) and habits (behaviors). The question to be mindful of throughout your trading days is, “Do I own the trade or does the trade own me?†Good vs. Bad Behaviors Let’s start with behaviors. Obviously, there are both good behaviors that add value and bad ones that don’t. Who among us has identified good habits that already exist in your life? For example, do you have the perseverance to finish everything you start (e.g., a book, a garden, a DIY home project, etc.), or do you start something and get bored after a few days or weeks and move on to something else? It is important to recognize that you have good habits that are already in place, but it is just as important to know that you can always improve on them. Initially, Trading EveryDay will focus on bad habits that need to be identified and then addressed. Who among us does not have bad habits that need changing? For example, do you focus on the past and/or hang on to things in your life for too long, things that you should let go of (e.g., bad relationship, an addiction, unsatisfying job, etc.) and impact your ability to move forward? Analogy - Letting Go and Moving On A great tennis player doesn’t become great without training and practicing to develop the technical skills and fitness (both physically and mentally) necessary to play at the world class level. Additionally, the player must make sure that his tools and equipment (rackets, strings, towels, extra shirts, water, tape, etc.) are available and in good working order to be in the best possible position to win. As soon as the ball is in play, the player will focus and strategize on only that rally, one point at a time. Sometimes he will win the point, other times he will lose it. Whatever the case, as soon as the next rally is in play, the player has to let go and move on to focus on the next point. He cannot dwell on what just happened, good or bad, because that is in the past and the point at hand – the present - is what is important. The opponent is hitting the balls back, moving the player all over the court. The player remains in the moment, strategizing each return shot. The tennis player is using all the experience, knowledge, and tools to hit it back or – even better – hit a winner and win the point, and perhaps the game, set, and match. Applying Analogy to Trading The same is true in trading. The trader must train and practice to develop the technical skills and physical and mental fitness to perform well. He will also need to make sure that the necessary tools and equipment are available and in proper working order to be in the best possible position to perform well and win. No matter what the circumstances – good, bad, profit, loss, – a great trader will adopt the behavior of letting go and moving on to the next trade. A good trader will not allow himself to hold on to the lingering effects of any trade knowing that once it’s done, it’s done. The intention and desirable behavior should always be to move on and do better next time, even if it was a good, profitable trade because the game is never really over for a trader. By establishing and sticking to a strategy, making the trade, letting it go, and moving on to the next trade, the trader remains in control of his behavior and owns the trade rather than the trade owning him.

Hello gr8pcman, I am not in the Houston area, however, as you review potential candidates, I would be willing to discuss coaching and mentoring using virtual technology if you are interested. I live in San jose CA. I am a fulltime professional daytrader and former Risk Managment executive with 12+ years experience in Fortune 500 companies. Email me at rushingleroy@comcast.net if you are interested in discussing further.