Soultrader

A new trader enters the markets and will usually blow out in a few months. He takes wild risks, huge losses, and trades emotionally just to get his money back. But trading recklessly after a loss is a sure way to lose. Here's why: If you lose 10% of your capital you must gain 11% to break even. If you lose 20% of your capital you must gain 25% to break even. If you lose 40% of your capital you must gain 67% to break even. If you lose 50% of your capital you must gain 100% to break even. Get the picture? If you risk 2% on a $10,000 account you need to lose 50 times in a row to wipe out your account. If you risk 10% on a $10,000 account, you are done after 10 losses. Taking a Loss A new trader in a losing position has the hardest time taking the loss and admitting he is wrong. Are you in the markets to be right? Or are you in the markets to make money? When new traders can no longer take the pain and close their position, the markets will usually reverse on them. This leads to more frustration and emotions which leads to suicidal trading. Do not let a small loss turn into a disaster. Live to fight another day. The more trades you take and build experience, you will have a chance developing into a successful trader. It is estimated that 1000 trades is needed in order to gain a grasp of what you are doing. (for day traders) Control your emotions and trade with patience. All you need is to pull the trigger in 2-3 good opportunities. Spend the rest of the time watching a movie or analyzing the markets.

Two popular e-mini contracts: E-mini S&P 500 Symbol: ES Exchange: Chicago Mercantile Exchange (CME) Value of 1 Tick: 0.25 = $12.50 Value of contract: $50 x S&P price = Value Trading Hours: 5:30 pm Sunday to 3:15pm Friday (Central Time) Contract Months: March, June, September, December Last Trading Day: Up to 8:30 am on the 3rd Friday of contract month E-mini NASDAQ 100 Symbol: NQ Exchange: Chicago Mercantile Exchange (CME) Value of 1 Tick: 0.50 = $10.00 Value of contract: $20 x NASDAQ price = Value Trading Hours: 5:30 pm Sunday to 3:15pm Friday (Central Time) Contract Months: March, June, September, December Last Trading Day: Up to 8:30 am on the 3rd Friday of contract month While the big S&P 500 contracts are traded in the pit using an open outcry auction system, the emini futures are traded in an electronic marketplace. This allows minimum slippage attracting smaller investors. Futures, unlike stocks, do not have a short selling rule on a uptick. This is a benefit for traders as well as the nice leverage one can get trading the emini's. What are stock index futures? A stock index represents a portfolio of stocks grouped accordingly. For example, the NASDAQ 100 index represents 100 companies while the S&P 500 index represents 500 large capitalization companies. The S&P 500 is also a benchmark used by money managers to measure their portfolio performance. On the other hand, the mini-sized Dow futures contract represents only 30 stocks. Also known as the mini Dow, it is traded on the Chicago Board of Trade. Ticker symbol: YM. Futures Contract Month Symbols: Emini futures settle and expire on a quarterly cycle. The contract month, also known as the delivery month is the month in which the contract expires. Most traders switch contracts at the roll over date. This can easily be identified by looking at the liquidity. When traders migrate from one contract to the next, liquidity drops. Contract Month Symbols March: H June: M September: U December: Z What is a TICK? A tick is the minimum price movement in the futures contract. One tick in the S&P 500 emini is equivalent to 0.25 points or $12.50. One tick in the mini Dow is equivalent to 1 point or $5. How much do I need to start trading? Depending on your broker, you can start trading eminis anywhere from $2000 - $5000. However, I do not recommend this. Playing the futures markets is a risky game unless you understand what you are doing. For any new traders looking to trade the emini's, I recommend a minimum of $20,000 and trade 2 contract at most only. Always test your setups and paper trade if you are not ready. Also, when picking your broker, make sure you are getting good fills without any slippage. Slippage and commision can cost heavily. Choose a reliable broker who will connect you to the trading desk if your computer crashes or internet connection dies. Good luck & best of trading, Soultrader

Interesting... I thought I had read most books. Never read Support and Resistance Simplified, by Thomsett. I am actually looking for some advanced trading materials. How would you rate this book?

There are a couple books out on playing the gaps. One book I do recommend is John Carter's, Mastering The Trade. I stole alot of good ideas and transformed them into my own. The chapter on playing the opening gap alone is worth the $20 or so you pay for the book.

It does have some good information worth knowing. If you are a stock trader it may be helpful. I read this book a few years ago and found it relevant back then. I would say if you have at least 1-2 years in the markets you may crave for some more advanced material. He does go over key market makers and some interesting day trading strategies. However, since I trade the index futures I did not find alot of materials useful. Its a real basic book.... alot of the material have been mentioned repetitively through different authors. I have yet to read a book that can beat Mind Over Markets. Just my two cents.

I agree, the opening gap happens to be one of my favorite setups. They can only go two ways: In the direction of the gap or back for a gap fill. I rarely see markets that consolidate or stall at the open. There is so much emotion and excitement among traderrs that prices do tend to move. One way I determine whether a gap is going to fill or not is by looking at the TICK's. If the market gaps up and the TICK's remain below zero, there is a high probability that the markets will fill the gap within the opening hour.

1. Pinpointing my entries 2. Looking for high probability setups 3. Do not overtrade 4. Scale out to hold on to winners 5. Always honor your stops 6. Don't be a cowboy. Be a grinder 7. When in doubt, stay flat 8. Stay humble And on and on and on...... Who's next?

"I have two basic rules about winning in trading as well as in life: 1. If you don't bet, you can't win. 2. If you lose all your chips, you can't bet." - Larry Hite - Remember, as traders who are in the business of risk. You can't win what you don't put on the table. Capital is king.

The previous session's high and low act as a short term resistance and support pivot. If price opens in the previous days range, we have a market in balance. Understand human psyschology. Those who missed shorting yesterdays high are in regret and they will likely short if prices do come to those levels. Those who missed buying the yesterdays low will also step in to buy if prices do reach those levels. Thus we have support and resistance. If price opens outside of the previous days range, we have a market imbalance. Once price breaks out of the previous days range, stops are usually placed above the highs and below the lows fueling momentum. This will usually carry price further as new market participants will join the action. Floor traders prefer to be on the short side. Why? Money is made faster during a panic than a uptrend. Here is a quick note: Trade from the long side when price is above the previous days high and trade from the short side when price is below the previous days low. Also look for price acceptance vs rejection at these new levels. If prices pop out of the previous days high just to be rejected and pushed back into the range, it is usually a good sign to short.

Let's say you are willing to risk 2% of your capital per trade. First thing you need to know is your exit stop loss point. In this example, let's say you are trading a stock XYZ currently priced at $100 even. Keep this in mind, a 1 point movement in a $100 stock (1%) represents a small percentage compared to a 1 point movement in a $10 stock (10%). Use a wider stop for a high priced stock and a tighter stop for a lower priced stock. Let's say you are willing to risk $5 on this trade. Thus your stop loss point per trade = $5. If you have a trading capital of $100,000; 2% risk is equivalent to $2000. To calculate your maximium position size: (2% Risk / Stop Loss Point Per Trade ) = Maximum position size $2000 / $5 = 400 Shares This is an appropiate position size. You should always know how much money you may lose before looking at the profit side.

"When you learn what not to do in order not to lose, only then can you begin to learn what to do in order to win." - Edwin Lefevre, Reminiscences of a Stock Operator In the book, The Art of War, Sun Tzu mentioned that defense was another form of offense. This is true in trading. A trader must be able to determine whether to act or stay aside depending on market conditions. Being flat is as good as being long or short. Conservation of capital is king. Many traders feel the need to be involved in the markets all the time. While they sit in front of the monitor, they will wonder "Should I buy? Or should I short?". They automatically assume that if they are not long a position, they must be short and vice versa. Staying aside and not trading, however, is also an option. If you keep this in mind, you will be able to spot out better opportunities with more patience and discipline. Boredom: One of our biggest enemies in trading. Our minds our programmed to avoid boredom hence forcing unnecessary trades. If you ever played minimum $10/$20 blinds limit holdem in a casino, you would know the meaning of boredom. The discipline to play a couple hands an hour is a technique of a true grinder. Knowing when to press hard when the time is right is also a technique one must learn to maximize profits. There is no need to make 10+ round trips a day trading. In her book Street Smart, Linda Raschke mentioned how she knew traders who made a living off one setup. 2-3 trades a day can provide a comfortable living; only if you know what you are doing. Trying to be right instead of trying to make money: Trend trading is alot easier then counter trend trading. Yet, I am surprised to see the numerous amount of counter trend traders. They may catch the dead low or highs but only after being stopped out a trillion times. There is no need to fight the market and try to catch the entire move. Leave the buns to bottom fishers, work on catching the meat. Are you trying to be right? Or are you trying to make money? Once you understand that your ego is not going to help you in trading, you will learn to obey the markets. Averaging Down, Letting Losses Run: How many times have we disobeyed our stops? Holding onto a loss hoping that the markets may come back to your entry point is a bad idea. The moment you hope, it is usually a good sign to close your position. Always honor your stops. Your mission is to make money. Without any chips on the table you have no ammo. Forget the tiny loss, live to fight another day. Averaging down is a bad habit that one must avoid. You want to be long when its moving in your direction, not against you. Averaging down is a similar to calling with your 6-8 off suit out of frustration. DO NOT PLAY ON A TILT. I played poker professionally for quite some time prior to trading. The best opportunity was when the other player was on a tilt. Do not be that sucker. Learn to think in probabilities: Trading like poker is a game of probabilities. There is always a chance your pocket Ace's will not hold up. This is the same in trading. You may get rivered. Who cares! Understand that losses are a part of the game. If the odds favor your proven strategies and setups, you will come out ahead. People lie. Numbers don't lie. Swing like Ichiro, no need to aim for the fences: In day trading, survival is based on hitting singles and doubles. Not home runs. New traders are so full of greed that they can not ring the register with a tiny profit. Leaving money on the table hurts them more than losing money. Focus on perfecting your skill. The money will flow with it. "When it rains, it pours!" Position Size: Do not double your position after a losing trade. This is a stupid way to lose more money than intended. This is something idiots do in a casino. Risk tolerance will develop over time through enough trading experience. Until then, focus on your goals. There is no need to compare yourself with the trader next to you who is making $10k daily. Greed is your enemy. Trade the markets, not your P&L. If you hate losing $5 that you will regret it for one week, stop trading. You are better off switching careers. Revenge Trading: What is the point of yelling at your monitor? Do you think the markets owe you an apology. Forget it! Revenge trading is the same as playing on a tilt. Find ways to cure this. For example: limit your daily loss to 3 trades and walk away. Or take a 10 minute walk after every losing trade. It is absolutely necessary to shake of your losses and reenter the game with a clear mind. Trading is 30% mechanical, 170% psychological. Regards, Soultrader

Amateurs control the open. Professionals control the close. In order to understand the reason why professionals and insitutional traders control the close, you must first understand the VWAP or volume weighted average price. VWAP is defined as the average price of the stock traded for the day when volume is weighted. Insitutional traders are compensated when they are able to beat the VWAP. They will usually hold onto inventory until the end of the day so they can improve their VWAP. This is not always the case, but because they trade in massive volume there is a good chance that they are able to get fills that will improve their average price. It is common to see a light pullback during the doldrums after a morning rally, then a continuation of the trend into the close. If an institutional trader has buy orders stacked but is unable to get a fill during the morning rally, he will be forced to buy pushing prices higher into the close. Source: The Market Maker's Edge by Josh Lukeman

Here is how I interpret it. The market gaps down below single print support. This also indicates a gap below value implying a shift in market sentiment. Therefore, the gap fill or single print support should act as resistance. Gaps are invisible prints. It is important to watch what exactly happened overnight in terms of price action. If the overnight session broke the single print support and used it as resistance, there is a high chance that the same pivot level will act as resistance for the trading day.

I am no expert in trading stocks because I trade the index futures primarily... here's a couple things I know. When watching level 2, you need to identify the key market makers. They are the big boys who play the particular stocks in and out on a daily basis. The two biggest and market makers are probably Morgan and Goldman. These two names come up often in the pit as well. Market makers usually play the spread. If they are bullish on a stock they will load up and vice versa on shorts. Their objective is to unload their inventory by the close at a profit, which is usually the average spread. The Ax, is the big daddy for the particular stock. A short term technique you can use is to lean on the ax. The ax, whether it be Goldman or Morgan, trade in huge volume. If you see the ax holding the bid and buying shares creating short-term support, you can step in front of him to buy. In case you are wrong, you can dump it back to the ax who is standing firm on the bid. Here's a brief list of market makers: MSCO, GCSO, NITE, MASH, HRZG, SLKC, BEST, PWJC, SBSH, MLCO, etc... Head fake: A head fake occurs when the market maker is holding the bid or ask strongly and all of a sudden pulls out. For example, suppose Goldman is holding the bid of stock XYZ at $50.00 x $50.25 and all of a sudden drops his bid down to $49.50. This will create a short term panic and traders will start dumping their shares. Goldman on the other hand may have had decent size volume of shares to buy, and will accumulate cheaper shares as prices fall. Market makers head fake to create a short-term panic situation faking out the weak hands and leading to a price reversal. Let's say the ax needs to accumulate decent size shares. However, everytime he steps up on the bid with size all the other market makers and traders jump in front of him making it hard for the ax to buy cheap shares. This creates a problem for the ax. Usually what the ax will do is to disguise himself using an ECN such as INCA to show huge size on the ask. This will intimidate buyers as they see significant size on the ask comparable to the ax. This prevents prices from lifting and possibly sellers dumping their shares to the ax. The ax may even show greater size on the ask using INCA and accumulate shares as sellers dump it to him. As soon as the ax is done accumulating, he will step off the ask through INCA causing another buying rush. Thus, he will sell the shares back to the buyers for a profit. Spotting the ax: Its relatively easy to spot the ax. Just observe your Level 2 screen for the market makers jumping around the bid and ask. In a downtrend, look for the market maker holding the bid. In an uptrend, look for the market maker holding the ask. He is probably the ax. Identifying a short term price move: Observe the ax. If he starts widening his spread on the bid and ask be alert. The moment he steps off the current bid to a lower bid, this can cause the stock to go lower. If he steps off the current ask to a higher ask, this can cause the stock to go higher. This was just a brief explanation of market makers and the games they play. This topic is a popular topic among traders and I am sure there are plenty of books around on this. Make sure to check them as well. Best of trading, Soultrader

Thanks for the link luke24.5. I will need to check that vendor out. I never knew data vendors came out with market profile this advanced. I love playing with new software and tech related stuff. The problem in trading is that I get too caught up trying to build new strategies using new indicators. I guess I am old fashioned in a way that I like keeping things very simple and do not really like changing things once I find something that works. I always end up going back to my own trading methodology that I feel comfortable with. Just by looking at the features and functions of the data vendor is pretty overwhelming.

This is my first time hearing about volume delta.... but from my understanding a positive delta means more market participants on the bid? And negative delta indicates participants on the ask? I did grasp a picture of the concept and it sounds very interesting in order to pinpoint exact price levels of support and resistance. I will need to look into the software vendors for this. I rely on tape reading alot on my pivot point trading so I am able to time my entries alot better than most traders. But this type of volume analyis can definitely help identify key levels.

Here you go amz. http://www.cisco-futures.com/mpintro.html

Interesting.... I am actually not familiar with it. Would you mind explaining this? Thank you

Anytime you have pivots lining up with each other, they create a high probability trading opportunity. Some key levels I will pay attention to are: value high, value low, daily pivots, previous day high/low, and open gaps. On Sept. 1st 2006, the Dow mini gapped up above a critical resistance level and above value. This indicated a positive shift in market sentiment. As you can see, the value high pivot and the open gap is pretty in line with each other. This level offered a great trading opportunity and the dead low for the day. Anytime the markets gap up above value, I will use the value high pivot as support to establish a long position. This is usually a high probability trading level.

We had a very interesting trading session yesterday on Sept 1st, 2006. The dow futures (YM) managed to push through significant resistance at the 11418 level. We also saw a good continuation of the trend towards the upside. On a daily chart, my next level of resistance is the May high set in 2006. Technical anaylsis on the dow mini's had provided good clues for this breakout move. It was appoximately a 2 week battle between the bulls and bears to break this critical level. Next week will be another interesting trading week.

Markets broke out on Friday Sept. 1st, 2006.

It really depends on the persons passion for the markets. One year is definitely not the norm. Your friend has done an amazing job in just one year. It took me 2 years of intense studying and trading to get to where I am. I was quite a journey. I would say on average it takes 2-3 years before one can start trading for a living. This is just my opinion, I am sure some may find me a slow learner.

I put Private Derivatives Trader.

Its gained popularity here in Tokyo as well. The rooms often come with individual trading desks with 2-3 monitors. Also packed with couple large screens for major indexes. Some offer a pool table, restuarant, etc... Usually they are packed with Forex traders out here in Tokyo. Not sure what the price is for rental space. I would assume it to be fairly reasonable. I would use the trading rooms if I could.... it's just that I trade during the night since I trade the Dow futures. These rooms don't run 24/7, but would be nice if they did. If I do run across a pamphlet on one of these rooms, Ill make sure to post a link.

Most traders fail because they do not have a trading plan. As a trader, you need to spend some time analyzing the market and doing your daily homework. From the previous days action you can develop a trading plan for the day. Of course market action is unexpected and you may have to adjust according as the trading day progresses. But having a basic idea of price levels is important to guide you in your trading day. This is a short video on my daily analysis technique for Sept 1st, 2006. CLICK HERE TO VIEW VIDEO Charts created by Tradestation Presented by Traders Laboratory