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Showing results for tags 'trading rules'.
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If you heard or read any financial news over the past few days, you inevitably found the talking heads rambling about the various implications of a potential U.S. government shutdown. As usual, the media is once again playing on the powerful human emotion of Fear, one of the 4 Most Dangerous Emotions For Traders. This newly-created investor fear over a potential government shutdown has caused the S&P 500 futures to slide about -0.8% lower as of this writing (pre-market on September 30). Understandably, several concerned subscribers to our nightly swing trading newsletter have just e-mailed us to hear our thoughts on how we would handle such news. Similarly, many traders wanted to hear our thoughts when the U.S. was on the brink of attacking Syria three weeks ago (click here to read our thoughts on that potential news at the time). So, if our fearless leaders fail to come to some agreement by midnight tonight, and the U.S. government partially shuts down for the first time in 17 years, you may be wondering… How Will We Handle The News? The answer is pretty simple; we ignore it. Yes, ignore it. During most bull markets, there is typically a “wall of worry” to climb. The details are different in every bull market, but there are usually one or two major “risk factors” that investors worry about when stock markets are trending steadily higher. At such times, traders and investors who focus on doomsday headlines from mainstream financial media sites are more than likely to be shaken out of their long positions…especially those who lack conviction in their trading system. Conversely, we intentionally distance ourselves from Wall Street chatter by focusing on individual price and volume action of leading stocks and ETFs (the only time we pay attention to news is during quarterly earnings reports). Holding through a stock market pullback is never easy, but it is NOT our job to decide when a stock market rally is over. If we approach trading with a clear and objective mindset, the stock market will always tell us what to do, based on the price and volume action of the leading stocks we are holding. If our swing trades are holding up and showing relative strength, great! We will continue seeking the best stocks to buy, while riding the gains of our existing winning positions (just as we are doing now). If, on the other hand, our ETF and stock positions sell off to trigger our protective stops, we will simply be forced into cash. The beauty of such a rule-based market timing system is that it removes all the human emotion and guesswork from trading. This increases our long-term trading profits, while also providing the added benefit of enabling us to be more calm and stress-free, regardless of what’s happening in the stock market. The #1 Habit New Traders Should Pick Up If you are new to momentum swing trading, or have had little success in the past, it is a great idea to get in the habit of planning your trades and trading your plan. You must continually attempt to identify all potential outcomes before taking on a trade. If you do, there should be no surprises once the trade is on because you realize that anything is possible, and you have already accounted for it. The idea is to worry before the trade, so that you can simply focus on executing the plan when you are in the trade. Above all, focus on the price and volume action, rather than the amount of profit or loss a trade is showing. Put another way, trade what you see, not what you think! If you make a habit of always doing the right thing, consistent trading profits will eventually and inevitably follow. -
For the second day in a row, the American broad market sold off across the board on higher volume. Although the percent losses were not as bad as Wednesday, the S&P 500 followed through to the downside for the first time in 2013. With turnover increasing on the both the Nasdaq and NYSE, the S&P 500 and Nasdaq have posted back to back distribution days. Whenever distribution begins to cluster, we take notice. Although we never care whether or not stocks are “overbought,” the increasing presence of institutional selling is indeed one of the most important factors we use when assessing the health of a rally. Given the sudden reversal in market sentiment over the past two days, this is the perfect time to share with momentum swing traders our top 2 tips for managing your trading account in a stock market that may be forming a top: Be sure you know and are on aggressive mental defense against these 4 most dangerous psychological emotions for stock traders (greed, fear, hope, and regret). In particular, given the sharp losses of the past two days, traders absolutely must be on alert for the natural human emotion of paralyzing fear that may prevent you from simply cutting your losses on any losing trades that have already hit your stop prices. To ignore your predetermined stop losses is always tantamount to playing Russian roulette with your trading account. But this is even more so the case right now, as the recent rally is beginning to show valid technical signals of a potential top. In case you missed most or all of the rally of the past two months, perhaps because you didn’t believe in it for whatever reason, you are now probably feeling the pain of regret. If this is the case, you must be very careful to avoid being a “late to the party Charlie” (LTPC) right now (explanation of that term here). While the stock market’s current pullback may indeed turn out to be a low-risk buying opportunity, it is dangerous and way too early to make that determination right now. Continue reading to learn why… As far as the charts of the major averages go, the S&P 500, small-cap Russell 2000, and S&P Midcap 400 appear to be in decent shape. The same can not be said of the Nasdaq Composite, which has taken a beating the past two sessions, and is already closing in on intermediate-term support of its 50-day moving average. The Nasdaq 100 Index, which basically did not budge during the entire rally in the rest of the broad market, is already trading below key support of its 50-day MA. Looking at the daily chart of the S&P 500 below, it appears the price may be headed for an “undercut” of the prior swing low, around the 1,494 area: If and when the S&P attempts to bounce from its current level, the subsequent price and volume action that immediately follows any recovery attempt will be extremely important at determining whether stocks are merely take a breather, or if the rally is dead. Next week’s price action in the S&P is important because there is a cluster of technical price resistance around the 1,515 to 1,520 area (annotated by the black rectangle on the chart above). Four sessions of stalling action last week created overhead supply around 1,520, while the 1,515 level represents resistance of a 50% Fibonacci retracement (based on the range from the February 20 high down to the February 21 low). If the S&P 500 generates another distribution day that follows just a feeble, light volume bounce off the current lows, that could be the nail in the coffin for the current rally. Still, unless leadership stocks suddenly begin breaking down en masse, a pullback to the 50-day moving average of the S&P 500 would be considered normal within the context of the strong rally of the past two months. As we closely monitor price and volume action of the broad market over the next week, we will gain a much better idea as to the likely direction of the stock market’s next major move, which will automatically cause our rule-based stock market timing system (details here) to be adjusted accordingly. But in the meantime, be sure to read the two articles mentioned above so that you will be on guard against the most dangerous emotions that could seriously harm your trading account right now, while also avoiding becoming a member of the “late to the party Charlie” club.
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Have you ever wondered what most traders consider their top trading rule? The one that with all their might they stick to with nothing but stubbornness, discipline and commitment? This is just the question Traders Laboratory (TL) member "RXS005" put to our community and the answers were fascinating. Here's the Top 10 that were provided, and you'll clearly profit more if you put these into place in your trading. Skill level doesn't matter, whether a beginner or experienced, there's some real trading gems here. The Top 10, in no particular order: 1. "RXS005" had this to say: Never Trade before news ( I have been whipsawed several times and it hurts!) I Wait for all the news to be baked in and let the markets show me the direction. 2. "Tikitrader" said: Stick with the plan and trade whats displayed ignore the urge to create before it too late. 3. "AgeKay" had this to offer: NEVER average down. You only learn this the hard way. 4. "METrades" picked up on one we've all done: #1 Rule: Cut your losses quickly. Once a trade turns against you, kill that emotional thread that says, "It'll come back". You may look at cutting losses, as losing money, but actually, it's a strategy. It's proper management, that will "save" you money, and a piece of mind, in the longer run. 5. Pre-Market Routine and Preparation of Thyself and System (both) was pointed out by "Minoo" he went onto state "As per myself, the above is more of a Process or Good Habit. In my book, If my mind knows of a Rule it inadvertently wonders off to break it." (MMS notes: I think this is a good point -- you need to know yourself and if you don't, you're about to find out everything you ever wanted to know - the good, the bad and the ugly when you trade.) "TheDude" likewise felt that following trade rules could be overrated Tying to find a 'rule', 'set-up', whatever to give that elusive edge is a hiding to disaster. The market cycle is always changing and to expect a rule to apply all the time and generate serious coin just ain't going to happen. 6. "Amswak" felt METrades was onto something and agreed that Never rationalize a loss. The moment you say "It'll come back," you've probably already gone too far. 7. "emg" kept it simple: here is my rule #1. control emotion. Simple but very challenging. 8. DO NO PREDICT (a.k.a. having a BIAS not based on what is actually happening) was what "Attila" had to say. 9. The most important thing is to love your money losing trades and your drawdowns as much as your winners and winning periods. If you can achieve that then fear can disappear and all the discipline issues become much much easier says "Kiwi" 10. Gabriel Baryard My number 1 rule is this, when trading never desire a win or a loss, simply desire an outcome. And, there were just so many great gems here's a few more bonus contributions to the #1 Rule to Trade By: wrbtrader: #1 rule for me is to "never ignore key market events" (e.g. international economic calendar, global events, breaking news and closing times of other key markets). tams: There is a lesson in every trade, especially the losing trades. You've got to embrace them to learn them. AgeKay: I've never learning anything from winning trades, it was always the losing trades that taught me a lesson. Siuya: On getting the head around losing trades, a great piece of advice is not to think about them in terms of individual losses but as part of a series of trades. Once you understand and accept that there will be losses, its a matter of reminding yourself with these losses there will be wins, and that is what you are after. Every business has them, from inventory losses, spoilage, drilling mines that dont work until you hit the mother load, reasearch and development. Its all a matter of 'tricking' yourself in how they are perceived. The full thread can be found here: http://www.traderslaboratory.com/for...rule-7891.html
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Inserted into all of my daily charts are 4 basic moving averages; The 10, 30, 50 and 200. We use these as guides for finding trends. If the 10 is above the 30, and the 30 above the 50, and the 50 above the 200 day moving average, we call this “stacked”. If the direction of the moving averages is turned upward, we call that “sloped.” The optimum setup is when the price of any financial instrument is above the “stacked and sloped “4 moving averages. We have back tested this to find that it has great predictability in finding trades that are the most ready to make parabolic moves up. Our Nuggets List specifically scans for that scenario. But what if the market is in a negative phase and there are very few setups where the moving averages are perfectly stacked and sloped? In the last month, I have found several amazing trades that were under the 200 day moving average or in a negative phase, yet first found a level of support, and then gathered some momentum when the 10 day moving average crossed over the 50 day moving average. The slope on the 10 day was positive; the slope on the 50 was neutral to positive. Today, we will look at CSIQ and BTU, which absolutely fit that scenario. Then, we will analyze WY, which is currently trading above the 200 day moving average yet the 10 and the 50 day moving averages are still below the 200. Of interest is the potential follow through once the 10 (sloped up) crosses over the 50 (currently sloped down). CSIQ, after finding support at recent lows (8.99), proceeded to base for a couple of weeks with a $3 range from $9.00 to $12.00. Then, on July 19th, the 10 crossed the 50 day moving average. The 10 had a positive slope, while the 50 remained slightly negative to neutral. On the same day, CSIQ tested 12.00, which turned out to be a low risk point for a long entry. We recommended a buy over the prior day high 12.75, once we saw the moving averages cross. At time of writing this article, CSIQ rallied to over 14.00, we had locked in 1.5 ATRs for miniswing traders. Swing traders would still be long. Target is a run to the 200 day moving average or around $19.00 200 day moving average or $19.00 On July 6th, the 10 day crossed the 50 day moving average in BTU. The slope of the 10 was neutral, the 50 negative. But, since it had established a base under 36, rallied and consolidated in a price range from 38-40, the risk was clear once the moving averages crossed. The high that day was 41.64. On July 7th, we entered a long position over the high of the day prior. Our risk was for a swing trade was under the July 6th low or 39.75, which also corresponded with the 30 day moving average. The risk for a miniswing trade would be under the point where the moving averages converged on July 7th or at around 41.10-less than ½ ATR from entry. On July 22nd, BTU crossed the 200 day moving average. At this point, miniswing traders might have exited, but had a new opportunity to go long. Swing traders with an already $2.50 profit, had an opportunity to add to the position. Next real point of resistance is at $50.00 This setup is also extremely interesting. Notice that on July 12th; it gapped up higher, thereby establishing that the 2 weeks prior were an unbelievable bottom. Unbelievable because it had gapped down on June 28th leaving both a “V “and “Island Bottom” when it gapped up on July 12th-extremely rare and powerful! If anybody reading this caught that-please email me because you’re my hero! Then, on July 22nd, the 10 crossed the 50 day moving average-upward slope on the 10-downward on the 50, and WY traded over the 200 day moving average. A long was established at 15.85 based on an opening range breakout. Risk was to under the 200 day moving average. Again, regardless of your trading timeframe, you have profits. Only caveat for position/swing traders is the earnings report due July 30th. But, we are carefully watching to see what happens when the 10 converges with the 200 day moving average as an indication of how much more this stock can run. The technical term for the type of signal written about here is called “Crossover.” The Crossover is a classic way to identify shifts in momentum and for managing risk. The Nuggets List, The ETF Monitor and the MMM Premium Service are all meant to find trading opportunities with these dynamic setups. Happy Trading! Michele Schneider
