Soultrader

Are you referring to the symbol or definition?

Alot of traders know how to trade. They just dont know how to make money.

Very interesting article. I would have to agree with fading the masses. Opportunity exists only among the few. When the entire world wants a piece of the action, its usually a good time to get out. Similar to the markets. A big volume spike indicates the crowd buying and the professionals selling. Tall green candlesticks are usually an exit sign for professionals. Oil is a vey interesting topic over the past few years. I remember when a Goldman analyst (i could be wrong) stated oil would reach a $100 a barrel and traders like myself laughed it off. Now we have crossed $70 and I am sure traders are starting to get a little nervous. I am no intermarket analysis expert like John Murphy but it will be interesting to study different sectors, global markets, for any signs of a topping oil market. Timing is crucial.

Another quote from the same book: "You don't always have to be in the market. Don't trade if you don't feel like it or if trading just doesn't feel right for whatever reason. To win at the markets you need confidence as well as the desire to trade. I believe the exceptional traders have these two traits most of the time; for the rest of us, they may come together only on an occasional basis."

It really depends on how you use it in combination with your setups. I wouldnt trust the RSI alone. However, I have one setup in which I look for a RSI divergence at a key pivot point. I like seeing price and RSI divergence for confirmation only. This is not a trading signal but just a confirmation of a particular setup I use. I wouldnt consider the RSI to be a stupid indicator. You just need to apply it correctly in your setups. Also have a entry and exit plan for the particular setup.

Yes... I would like to know why also.

When playing gaps it is always important to scale out at half a gap fill and at the actual gap fill. These levels will usually act as a key pivot for price reversal. For example, let's say a stock closes at $59 and opens down the next morning at $54. If you decide to fade the gap, a good target will be $56.50 for half position and the rest at $59. Learn more about gaps here.

For thos of you interested in obtaining a economic calender I have posted a couple sites that provide this information. 1. Briefing Economic Calendar 2. Barron's Economic Calendar

Which market do you trade?

"A losing trader can do little to transform himself into a winning trader. A losing trader is not going to want to transform himself. That's the kind of thing winning traders do." -Ed Seykota- from Market Wizards This is my all-time favorite quote. Simple but very true. Do you have what it takes to become a trader?

I totally understand you problem. I had a similar problem when first starting out in the futures markets. I didnt mind taking losses but what got to me the most was watching what could of been profits. I think that hurt me more than anything. One way I managed to fix this problem was setting new rules for scaling out of trades. I never scale into a trade when day trading but now I always scale out. My current rules are as follows: scale out half at +10, quarter at +20, and last quarter using smart stops. This way I am able to catch a good move using a quarter position. After taking my profits on the first half and quarter, I just place my stop for the last quarter at break even and leave it alone for a while. I think once you get into the habit of ringing the register and leaving no risk, you are able to sit back and relax and watch a trade do its thing.

Trendlines are useful for support and resistance purposes as well as identifying a change in the trend. Different traders have different ways to draw trendlines. For example Victor Sperandeo, author of Trader Vic: Methods Of a Wall Street Master, uses the following rules: - An uptrend line is drawn under prices, joining the lowest low to the highest pullback low which does not pass the line through prices in between. The line is then extended past the date of the highest high. - A downtrend line is drawn above prices, joining the highest high to the lowest rally high which does not pass the line through prices in between. The line is then extended past the date of the lowest low. One particular method I use in playing trendlines is to wait for the retracement once broken. For example, in a downtrend once price breaks the trendline I will wait until the next pullback using the trendline as support. Vice versa for an uptrend. There are other ways to time your entry once a trendline is broken. You can choose to use the TICK hook's or a Fibonacci retracement for an entry. Remember, always use a stop. See attachement for chart picture. The chart shows a broken trendline, price retracement back to the trendline, and a lift for approximately 30 points.

Traders have their own rituals of handling losses. For some traders it may be taking a break after losing a fixed percentage of their capital. For some it may be taking a quick walk after a losing trade. I know most of you have some method to shake off your losses to move on with a clear head. I wanted to start a thread describing our rules on dealing with losses. In my example, I limit myself to 3 losing trades a day. Ever since I started trading, I have always been using a 10 point stop on all my setups. 10 points on the dow is $50 a contract. Basically 30 points is the most I am willing to lose on any given day. After that I am officially done. By having my monitor on I have a tendency to want to trade. Call it the e-heroine of trading. So I shutdown my computer, take the rest of the day off, and reward myself by buying something. This could be a bottle of wine, a pair of jeans, new shoes, etc... Anything that will get my mind of the loss. It's just something Ive learned over the years and have now become a habit. Anyone else have anything unique that they do?

To become successful in any field one must obtain specialized knowledge. If you are able to become an expert in one thing, you will have no problem eating for the rest of your life. Experts are given credibility by the public and are relied on for their knowledge. If you have decided on entering the trading business keep in mind that you are going to be competing with professionals who are experts in what they trade. Text book knowledge is just basics. Experience is the true teacher. When competing with professionals who have over 10 years of market experience your only edge is to specialize. It is crucial to start of with one market and study it intensely. Grab in-depth knowledge of the underlying instrument you are interested in. If its BRCM, study it, understand the stocks behavior, the market makers behind it, the intraday patterns, etc.... This may take months of observation and study but if you are not willing to invest time into yourself, you will never make it as a trader. Time = money Biggest return on your money? = investment in self Always approach the markets with an open mind. Never assume you know everything. The moment you feel like a genius, you have just started to drown in mediocrity. The markets are fascinating because there is always something new to learn every trading day. But you must be actively involved in the markets to diminish your learning curve. Don't expect to be a master trader by spending 1 hour a day after work watching CNBC. Traders including myself watch the markets from 830am - 430pm eastern. On top of that we do our daily homework from anywhere to 2-3 hours. I even dream about trading. Trading should be a passion. Passion will take you far enough to say, "I will do whatever it takes to become successful." Once you specialize in your market, stick with it until you are successful with it. There is no point from moving one market to another because you are not successful. Chances are its not the markets but you that is responsible for the loss. Of course I do not recommend starting off with the big S&P's or penny stocks. Find a liquid and easier market to begin with. One market I recommend is the dow mini futures or the S&P emini futures. I also recommend liquid NYSE stocks for day trading. Learning the mechanics and the tools of the trade may take some time. But remember this is just the basics. Don't expect to be Tiger Woods just because you know everything about golfing equipment. Experience is your true teacher. Trading is 30% mechanical, 170% psychological. 200% is what is required to trade successfully! Good luck and best of trading.

Any form of investment, you must first consider risk. Thinking of only profits in the beginning is an amateur way of thinking. Let's go over a few examples or risk. 1. Inflationary risk: inflation will erode your purchasing power. You need to beat inflation to actually make money. Typical inflation is 3-5%. 2. Business risk: initial investment in a company. This is a high risk = high reward risk but you need to be aware that you may lose your entire investment. Also, if you borrowed money you can find yourself in a tremendous debt. 3. Timing risk: timing is also important in any investment you make. For example, if you bought a house at the peak of a economic cycle you are paying alot more than you can several years down the line. If you sell a stock just before it becomes a 10 bagger, this is a lost opportunity. 4. Market risk: The global economy is vast and unpredictable. Your investment in China can be eliminated due to goverment policies, your 401k plan may disappear due to a bear market. All of these uncertainties are market risks. Always put risk capital aside from living expenses. If you are investing with your kid's college fund, that is a bad idea. If you are investing with your life savings, that is not a good idea. Always have a strategy and never let some financial expert manage your money blindly. Research and do your homework first. I know too many people who know nothing about the financial markets buying stocks because of a phone call from a broker. Avoid these costly mistakes! Sources for mutual funds for those who are interested: 1. Investor's Business Daily 2. www.multex.com 3. Morningstar: Stocks, Mutual Funds, Investing and Personal Finance 4. Value Line Home Page 5. VectorVest - The Intelligent Way to Manage Your Portfolio

If you are seeking a longer term investment on your money there are a couple things you need to keep in mind. One word of Alan Greenspan can cause drastic movements in the markets. The magical word? INFLATION The rise and decline of ineterest rates are directly tied into inflation. Inflation erodes the purchasing power of money. In order to keep inflation stable within 3-5%, you need to adjust the interest rates accordingly. In high inflationary environments. the Fed will raise interest rates making it harder for corporations and individuals to borrow money. This will slow economic growth. In order to promote economic growth, you do the opposite by reducing interest rates. This allows corporations and individuals to borrow money easier fueling economic expansion. Of course just these two elements alone is not going to give you a degree in economics. But as a trader/investor, inflation is probably the biggest economic data you need to be concerned about. If you are looking for a longer term return on your hard-earned money, make sure you are aware of inflation. Cash under your pillow is certain to decline in value as the purchasing power declines with inflation. Therefore any type of investment you make, you must beat inflation. Or else, you are risking money to gain nothing. Typical inflation is estimated to be 3-5% per year. Therefore that is the minimum you need to make on your investment to come out ahead. Real rate of return is a term used to describe the anual return on your money minus inflation. This is how much your money actually grew. Conservative investments that offer 3-5% return may not be actually earning you any money! Your real rate of return may actually be negative. If you are not making over 3-5% on your investment, you should think of switching strategies. Consider this: Low risk = low reward. High risk = high reward. Low risk investments: US Treasure notes Medium risk investments: Blue-chip stocks, bonds High risk investments: short-term trading, growth stocks, etc... Understanding risk..... read more here.

1. TICK - number of NYSE upticking stocks vs downticking stocks. If 1000 stocks are upticking and 600 stocks are downticking you will get a TICK reading of + 400. Extreme readings of -1200 and +1200 are rare and offer fading opportunties. More information can be found here. 2. TRIN - TRIN measures the relative rate at which volume is flowing into advancing or declining stocks on the New York Stock Exchange. The index is based on the underlying assumption that the overall direction of stock prices and the rate of volume are leading, short-term indicators for the stock market. Short tutorial on the TRIN can be found here. 3. Put call ratio - This is a ratio of the put options trades versus the number of call options traded. A high put call ratio indicates alot of shorts. A low put call ratio indicates alot of longs. A good contrary tool to use in trading. When the pc ratio is too high everyone is long and there is no one left to buy. Therefore look for short opportunties. When the pc ratio is too low everyone is short and there is no one left to sell. Therefore look for long opportunities. The basic numbers I use are 0.6 and 1.0. A pc ratio over 1.0 indicates a market that is too bullish. A reading under 0.6 indicates a market that is too bearish. Keep in mind that during options expiration week, the pc ratio becomes distorted and it may not be as effective. Equation: Volume of put option contracts / Volume of call option contracts 4. Premium - The spread between the futures and cash. For example, if the S&P futures is trading at 1500 and the S&P cash is at 1510, the premium is 10. This number is important because it can fall in the range of no programs, buy programs, or sell programs. My favorite site for premium information is Index Arb. 5. Tape: Also known as the Time and Sales. It prints the time, volume, and price of every trade that took place for a certain financial instrument. One of the hardest trading skill to master. The tape is useful in timing entry and exit points. Very useful for short-term trading.

This is a trade setup using the 50% fib line on a downtrend. More information about this setup can be found here.

Notice the opening rally. However, if you take a close look at the TICK's you will see a price and TICK divergence. Price is going up and the TICK is making lower highs. This was clearly a warning signal. If you were long it would of been a good signal to close most of your position. If you were flat it was a good signal to pick a short entry setup. One setup I use is the breakdown of the value low pivot at 11355. I will sell the retracement back to the pivot. Notice the TICK as price broke this pivot. It went from trading in the positive territory to the negative. This was a good confirmation of a shift in market sentiment.

The tools of the trade: TRIN, TICK, prem, pc ratio, and tape are all important tools when understanding market internals. Understanding market internals is like a xray of a patient. Without it you do not fully have a clear picture of the problems. One way to look for market strength or weakness is by looking at the TICK's. The TICK and price move in very similar ways. If the TICK follows price, you have confirmation in that direction. However, if the TICK's are unable to follow price and a divergence exists, look at this as a warning signal. Perhaps the market has lost its steam. The chart posted below from August 23rd, 2006. After a decent morning rally, we met resistance right in the value area. Notice the double top and quick rejection of price which led to a 100 point decline. It is close to impossible to catch the entire ride down. However, by understanding market internals you could have anticiapted a sell-off or even a warning signal. Look at the post below:

It's important to understand the concept behind value area. Whenever price is trading within it, we have a balanced market. However, once price breaks out of value there is market imbalance. Further imbalance is created when the markets extend beyond value and the previous days range. One trading setup in playing these market balance vs imbalance is to use the VAL and VAH as a pivot. In this example, notice the morning breakdown of the value low pivot. I will look to short the retacement back to the VAL. Exit target points are: half position at +10, quarter at previous days low, and a quarter by using smart stops. The chart below is the same chart but zoomed out to include the previous day's action. Notice in the imbalance created by the extension of the previous days range. Once it broke the lows, it acted as a key resistance point.

Listed below is a quick reference to the following indicators. Please visit their official website to learn more about the following reports. 1. German Industrial Production Release time: 11am Continental Time; numbers come out every second week of the month. Data refers to the previous two months of economical activity. Website: Statistisches Bundesamt Deutschland Why is it important? Germany is the world's second largest exporter in the world. The US is the second largest consumer of German goods while Germany is the thirds largetst consumer of US goods. Germany is a dominant player in Europ and worldwide. 2. German IFO Business Survey Release time: 10am Continental Time; report comes out at the 4th week of every month. Website: CESifo Group Munich Why is it important? German top business leaders get together to discuss the current and future economical state. A good indicator to assess the German and European economy. The report is similar to the Industrial Production indicator, however, the data is released the same month the survey is taken making it a leading indicator. 3. German Consumer Price Index Release time: 7am Continental Time, report comes out usually at the 25th of every month Website: www.destatic.de/e_home.html Why is it important? The CPI report affects how the European Central Bank will set interest rates for 12 countries using the euro currency. If German inflation is on the rise, the ECB will likely raise interest rates and vice versa. This can have a global effect. 4. Japan Tankan Survey Release time: 8:50am Tokyo Time; released at the beginning of April, July, October, and in mid-Decemeber. Website: www.boc.or.jp/en/index.htm Why is it important? The world's second largest economy next to the US. The report has gained credibility as it is produced by the Bank of Japan. This report offers extensive information on the current business condition of Japan ranging from small companies to large corporations. 5. Japan Industrial Production Release time: 8:50am Tokyo Time; released in the final week of the next month. A revised official edition is released 2-3 weeks later. Website: www.meti.go.jo/english Why is it important? Japan is the biggest exporter of investment capital. The yen is also considered one of the most important currencies in line with the dollar and euro. Report consists data of industrial production, shipments, inventories and inventory ratios, and a production forecast. 6. France Monthly Business Survey (INSEE) Release time: 8:45am Continental time; released at the end of every month Website: INSEE - National Institute for Statistics and Economic Studies - France Why is it important? Second largest economy in the Eurozone and 4th biggest in the world. Report answer key economical questions: output, demand, inventory of finished goods, change in producer prices, and outlook for French industry as a whole. This offers a economical outlook of France as a whole. 7. Eurozone/Global Purchasing Managers Index Release time: Eurozone PMI at 9am London Time. Global PMI at 11am New York Time. Reports are released the first business day of every month. Website: NTCResearch 8. OECD Composite Leading Indicators (CLI) Release time: 12:00pm Continental Time; released every first Friday Website: www.oecd.org 9. China Industrial Production Release time: 3:30pm - 4:30pm China time, released at the end of the month Website: www.stats.gov.english 10. Brazil Industrial Production Release time: 9:30am local time; 40 days after survey month ends. Website: IBGE - Instituto Brasileiro de Geografia e Estatística Source: The Secrets of Economic Indicators by Bernard Baumohl

Listed in order of importance: 1. German Industrial Production 2. German IFO Business Survey 3. German Consumer Price Index 4. Japan Tankan Survey 5. Japan Industrial Production 6. France Monthly Business Survey (INSEE) 7. Eurozone/Global Purchasing Managers Index 8. OECD Composite Leading Indicators (CLI) 9. China Industrial Production 10. Brazil Industrial Production Further description is listed below. Source: The Secrets of Economic Indicators by Bernard Baumohl

Chart example of playing the break of the opening hour. Notice the range for the first hour was 27 points indicating a very choppy morning session. In this chart we have two trading opportunities. The first one occurs in the morning after the breakout of the high. The second occurs in the afternoon selloff when the low is taken out. Both trades were good for over 30 points.

Rangebound and choppy days are the toughest markets to trade in. Unless youre specialty is scalping, you are probably going to get stopped out a million times. Let me explain one simple strategy I use for the dow mini's. If the opening hour range is less than 30 points, I will trade in the direction of the extension. In other words, play the breakout of the high and low. There isn't much trading opportunity in a choppy market. Best to either stay aside or have enough discpline to limit your trading. Make sure you give price a few ticks to actually break the high or low. On many occasions price will break the high or low by 2-5 ticks just to reverse. I usually like to wait for a pullback. Remember, being flat is also part of trading. Chart example posted below.