New Trader

So lately I’ve been more active on StockTwits and a few forums – Something, admittedly, I don’t like to do because of the nonsense and trolls. However, there seem to be traders/people who are new to markets. Just this week I had an associate refer someone to me to help with trading and I think this is as good as time as any to discuss a few things. 

First, like everyone else you come to the market to make money, a lot of it. When I asked him what his goals were, what did he consider good money monthly his answer was what I expected. He wanted to go after home run stocks, the big hit. Heres a tip: If anyone tells you you’re going to make a ton of money when you first start or show you beaches/yachts ( think Tim Sykes) the chances are it’s not going to work. – Trading takes a TON of work, probably as much as going to Med school or similar. What ends up happening is traders come in, catch a hot hand then think they have it figured out, only to lose it all a short while later. You’ll go through stages of different strategies/systems books etc. until you finally convince yourself that this is the one that works for you. – Not to be harsh, I am just attempting to lay out realities so you don’t go through this costly learning curve and hopefully get to making money.

So going back to the first question I asked him. How much do you want to make every month/week. This and how much are you starting with are probably the two most important questions you can ask yourself. Why? Because this should dictate which product(s) you should and should not be trading to reach your goal. Again, I come from a traders mindset not an investor – someone who is here to trade to build wealth/income quickly not wait 15 years for a payout.

Second, he asked me what books he should read to start. The answer also depends on question one. If you’re here to trade then read books on technical analysis – Support/resistance/wedges/triangles etc. – The rest you just don’t need. Sure, there are some good market history books ( Reminisces of a Stock Operator, Market Wizards etc.) but those books won’t teach you to make money. If you can learn to trade a wedge or a double top off the start and just stick to that I don’t care what stock or futures product you trade you should be able to make money. Make this easier, not harder.

Last, he asked how long he should expect before he started making money. This was hard to answer. Everyones journey as a trader is different and what works for me may not work for you so the question can’t really be answered. However, I do believe that the fastest way to learn is to trade on simulator for a while and trade like it’s real money. Put real effort into it, not a half assed attempt and be deadly serious about it because that focus will carry over to trading with real money. Putting in the screen time to watching price action (how patterns react to patterns – support/supply levels) is going to give you a feel for the market, something that cannot really be taught, in my opinion. A traders feel for the market is a big deal and that really comes from seeing a certain situation (pattern recognition) play out over and over. 

Again, not saying I am right or wrong nor that I am a guru of sorts, just sharing what I know and what’s helped me.

Priceline Trend Continuation

The weekly chart on Priceline has a trend continuation pattern set up. The potential for $1315 is there provided we can get a close above $1195 on the weekly time frame.  We are at an inflection point in price where the trade set up has the potential to be highly profitable in the coming 1-2 months.

What if we do not close above $1195?

If price action should fail against that level – meaning we do not see a strong push of buyers through that level and we reject and fail the wedge. I will then be looking to short against $1135-$1140 with a price target of $1019-$1021

Priceling TC trade

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Peter Lynch on Investing

What he says at 18:40 is great. No rush. This is a marathon, not a sprint. If anything, especially if you trade futures, you really can afford to take 3-5 trades a week and do very well.

At 25:00 – What he says about when Kaiser (sp?) sells from $16 to $3 and how there ‘is a company behind the stock’ – Buying on no reason is dangerous. I would say that would be relatable to creating an investing framework. For me, I use certain levels before a stock trade is entered with a pre-determined exit for partial position with limit orders. This keeps the actual trade structured ahead of time – There is no emotion at this point, purely math.

Lessons From The Chart: The Double Top

So this will be something new I will try to start to post more often. Admittedly, my chart work has become really bad, when I first started it was in depth but as you see the same patterns and price over and over your eye becomes trained to it so the less work (hey, this may be a bad habit so don’t follow) you can do. The double top is a really powerful pattern and it works on anything, any chart but I’ll cover it on the S&P 500 mini since I know many new futures traders start on that market.

The larger the time frame the more powerful the correction/wave (whatever you want to call it) becomes. So that being said I look for them on daily time frames for a few reasons. One, they give you a 30,000 ft view of the market sentiment – Why does this matter. If you’re trading intraday and you know you’re coming off the double top resistance you should then know that the wind is against your back and you have momentum on on your side: Stay short in other words. To where? That’s too subjective to cover here but I will try to cover that when and if we get to the next daily time frame double top. Second, if I know I have a double top in play off a daily time frame I am more prone to starting a larger sized short at or near that level. Why? Because if in fact this becomes a double top, and it plays out to its full wave extension lower I will find myself in a pretty nice swing short trade.

One of the pieces of trading successfully, or at least what has helped me to get larger P&L’s, is to put myself in a position to do so. There is nothing worse than missing out on a larger short trade and there is nothing better than nailing it at or toward the start of the momentum shift. And after all professional traders understand that true trading is about managing risk but it is also about speculation where an assets price may or may not trade to. If I can start a decent sized short from a double top high I can scale out accordingly. Now I am not saying that it all has to be with S&P minis (I’ll leave it to your creativeness) – but there are many ways to go about this.

ES example 1

So starting with the example above. The red boxes are noted for double top areas. Typically ( and this is true for the daily time frame as well as smaller) price may bounce in/at/around the second top high a few times before sellers/price finally makes its mover lower. I would call this mover lower the D wave or 3 drive leg, whatever works for you. Taking the recent high of 2011: If price fails to reach 50% of the prior move higher the odds that we could then see a double top are in our favor. If price reaches that area I would then start to anticipate that we may see a measured move on the way back up and not a double top.

Chart II

Now in this example lets assume that we never saw the hard right edge of 4/4/14 and we only saw where its marker ‘yes, here!’ – Since price never reached a 50% retracement or the D wave measurement I would then be anticipating a double top. Now on 4/4/14 we not only retraced to 50% of the prior leg up but also reached our D wave retracement level for the double top. At that point where sellers are panicking (most would be looking to sell stocks or the S&P) we would then see that as an area of price exhaustion, or value, depending on how you would like to perceive it. Typically, and this is not always the case, if traders are net short (there is a difference between net short and unwinding a long position) and buyers step up off one of these patterns then the move out of that area becomes HIGHLY impulsive.

Chart 3

Ok so let’s play devils advocate here for a second. Now I mentioned why I prefer this pattern on the daily and why in the beginning of the post but sometimes when you see it on smaller time frames it has the tendency to fail. You will rarely see it fail on larger time frames and for good reason. If price fails and the double top is broken then typically the break of that price ceiling is met with high volume and conviction. Buyers have failed already twice to take price values higher so on the third try the attempt must be met with more force (buying power) to make that push against the bears. When and if you are caught on this being short ( It’s happened to me before) I have found it easier to A) cut the loss quickly and or B) wait for price to retrace to the prior resistance. Prior resistance will now become support. This idea is true for all supply/demand levels – support/resistance levels etc. etc. (test for yourself). As a buyer if you were not in the move higher making the impulse buy will get you burned, so allowing for profit taking back to resistance level is now your shot to join the wild bulls.

Thats it for Lessons From The Chart Vol. 1

I hope this helps and if you have suggestions feel free to email.

Trading Wrap: 1000+ Tick Day

 

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July 28, 2014 trading re-cap. Just a monster day on shorting the Russell 2000 and a 50+ tick Crude oil long. All of these levels were set up pre market. It’s the trade management process that makes the difference in making $500 on trade set ups like these and $2,000. We only get the chance so often where price sets up and the ‘stars align’ so trading the move properly is the real secret. Video below. 

 

 

Dumb Luck Capital

So strange title to this post but I promise it will start to make sense. The title is really tied toward being lucky in trading and then being a good trader. There is a huge difference between the trader who boasts on a win every once in a while who then thinks because of some random event that he/she has the skill to trade at a professional level. I’ve been victim to it myself when I first started but it’s the understanding that if you want to be right more than you are wrong and actually trade as a business, which is how I see trading, that there has to be a real edge.

This week was rough for me. I missed a few entries, really the long breakout on the Russell 2000 and as I look back at my trade review to see where my levels/entries were I am not upset. Sure, I lost a few trades but they came at levels where there was confidence in the trade, they just didn’t work and I was stopped. Its trading, that happens. But what cannot happen is taking trades where there is no pre-formed plan and either A) have it actually be profitable B) lose on that trade entirely. What you call a trader who is clueless and wins is ‘Dumb Luck Capital’ – We never want to be those type of traders, that is, if we are serious about making it in this business.

This really all ties back to understanding the market/business you are in and not just treating it as a hobby, which most traders do. There is a ton of money to be made in these markets but it takes a TON of patience and persistence, seriously. So thats it, short post but wanted to get this on the blog.

Until next week.

Crude EIA & Russell 2000 Wedge

Updates into EIA

Crude

Sloppy trading this morning but price action, as always, picked up into the European close and yesterdays S1 was the trigger for the long INTO the targets and gap we just filled. We are now outside this wedge. The plan is to wait for the pullback to occur then look for the long if we get support into EIA and to gaps above.

Crude fills

Mini Russell 2000 

Like we talked about yesterday the move lower started in Globex so we gap filled then RIGHT back down. The $1128.50 is a strong resistance so test that with shorts. We are now in a wedge: Between strong support below and resistance above which means trading is going to be choppy so quick profits and inside days/light size is the plan.

TF wedge