November 1 2009

Ok, I just got burned by getting stopped out 10 pips from my entry. (Ignore the current buy limit order and stop and target lines - those are for a pending trade.)

1.6427 is where I was in at 1.

SL @ 1.6478 - market got to 1.6476 bid and I was taken out.

The market then continued down.

So where did I go wrong?

Did I do anything wrong?

I just happened to get stopped out. The question is, where should I have re-entered?

Should I have re-entered? Should I have had a wider stop?

My thought was that I should have had an entry to go short at the closest resistance level 3 - with a SL maybe 30 pips away (H1 ATR?). Because if that’s where I would have placed it, the market would have come up, got me into the trade and continued down to the current price - approx 78 pips.

The risk is I miss the trade all together - so then does averaging in become key?

That’s why the current buy order is placed at the support level, with a stop 75 pips away (H4 ATR) - with the goal of catching a move back up.

Of course the continued question is - how do we determine directional bias?

So we should matrix:

Average in vs All in.

Tight stop + re-enter vs wide stop

Check this out - I just overlayed a fib retracement (actually approximate - as I use 37.5 and 62.5 - as I use the fib tool to break everything into eighths - but close enough).

We have confluence of the 37.5 and the resistance level at 1. This is exactly where the market came up and turned around (after hitting my stop.)

Is there validity in the fib and resistance level confluence?

Will have to take a closer look into.

 

 

Ok, crazy lines here…

Here’s the thought…

Instead of drawing fib levels from extremes, draw them from congestion midpoints. Doing that actually gets the 100% fib expansion to coincide with the support at 1.

Since it is only about 50pips risk at the current price to above the last reistance level at 2. To potentially make 150 pips if we hit the 100% expansion at 1, I’m going short here. We’ll see how that plays out.

As an aside, after redrawing the fib retracement to the new low at 2, the 50% retracement hits the former 37.5% retracement almost dead on.

So the question is, what is the value?

Is it in using fibs to find s/r levels that are potentially "stronger"?

Is it using s/r to calibrate the fibs to? In other words, use the s/r levels to line up fib retracement levels, then use those levels to do your fib projections?

And then not worrying so much about using price extremes for the fibs, but using price areas "of reason" to generate your fib levels.

Hmmmm…. interesting… we’ll see how this develops.

November 3rd 2009

So from yesterday (around 1) we made our way towards the target, and fell short about 13 pips… so the question is, do we continue to hold, and wait for the market to hit our target, potentially allowing it to retrace even more… or do we take partial profits lowering our risk/reward ratio… or do we close out the trade and just bank profits.

Instincts tell me to bank some and let the rest ride… so that’s what I’ll do. Of course we were up about 88 pips before I started writing and as of now we are up about 78 pips…

I think we’ve entered into a consolidation/range - so I’ll keep an eye on it and bank profits as we move back to the center of the range.

On further analysis, at 2 we see the market had reached a support level - although we were not putting as much value on this level as it did not coincide with a fib level… so maybe we reached the target???

So how do we know which level to enter and exit at? Maybe the key is found at a higher timeframe… let’s take a look.

Anything to see on the 4hour chart?

The support level we were initially targeting (1) still looks good on the 4hr.

The support level we reached looks minor on the 4H.

So maybe we just need a retracement to gain enough steam to reach the 1.6243 level.

Although if it retraces to do that, I’d think it would potentially break through going to the next level of 1.6125

Otherwise another option would be for it to range - then tag the 1.6243 level as it ranged… allowing us to close out our short, and then enter a long. I’d probably lean towards this based on the move we had.

There is an FOMC meeting tomorrow, so we could see ranging all of today, with a lot of volitility tomorrow…

On the daily chart, as per TRT it looks as though we’ve entered into a range… so on this timeframe I’d expect the maket to make its way to the lower side of the range at 1.

So it may be a good idea to even remove our short term target in an attempts to capture larger profits. Or to close out 1/2 the trade and let the remainder ride.

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I am not personally familiar with all the courses, nor do I necessarily recommend them… I’m just sharing what was submitted as part of the survey.

Continued Success!
Ray

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people don’t make money trading, today I’ll highlight one of them… quite simply I consider it,

Not internalizing the basic rules

First off, let me tell you what the basic rules are:

1. Let your profits run.
2. Cut your losses short.

You may have heard of these rules before… you may even be tired of hearing them. But it’s one thing to intellectually know these rules, it’s another thing to understand them at a gut level.

For me, day trading really put these rules into focus because I found that by trading short-term every day I had at least a couple dozen trading opportunities and I quickly learned that if one wasn’t good I should get out of that trade immediately and start looking for a better one. This fast paced environment forced me to never fall in love with a trade.

When you are position trading, or possibly even swing trading, you may not have as many opportunities compressed into such a short time frame.

That’s why I usually advise new traders to really get their feet wet by paper trading on a very short-term basis. Because even though you may not intend to trade short term what you really are trying to do is internalize the importance of letting your profits run and cutting your losses, and nothing does that as well as actually experiencing it for yourself.

A lot of people are missing the point in paper trading. I think most people focus on the mechanics of trading, specifically how their entries are triggered, how their exits are triggered, and figure that paper trading is solely for the reason of insuring the strategy works, and insuring that they can trade the strategy.

While do I agree that is important I believe it’s even more important to use that avenue to develop a gut grasp of letting your profits run and cutting your losses short, because once you truly absorb that point, then your trading will follow from that principle and your strategy will be a secondary factor.

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This is a common question that I get and it’s a very tough one to answer because in my personal experience, just about any trading system has something to glean from it.

That’s right… I truly believe you can learn something from both good and bad trading systems…

I know that might sound a little bit strange but if you really think about it, a good trading system will give you ideas you can use and a bad trading system will give you ideas of what not to do… and taking it a step further many times you may actually be able to turn it around and transform a “bad idea” into a good one by looking at it from the opposite side.

But what makes a good or bad idea?

I think a trading strategy is really a personalized concept… a strategy that person A can apply, may be a strategy that person B cannot apply. And person B will look at the strategy and say it’s a bad one, whereas person A will look at it and say it’s a good one.

That’s one of the filters you have to overcome, Strategies are not inherently good or bad. (Unless by design they cannot be profitable in the long run.)

The key is to either:

Match your trading strategy to your personal makeup.
Or
Massage your personal makeup to match your strategy.

Both approaches take time - but the effort is worth it.

Continued Success!
Ray

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(This is the second part of the previous article on trading & discipline…)

When I started trading the concept of discipline was always a key element in many of the books and courses that I came across.

What strikes me about discipline is the fact that its often referred to as something that has to be forced or its something unnatural. I consider that quite interesting because, if you really think about it there’s a reason why getting yourself to do something that is unnatural is uncomfortable…

You’re trying to protect yourself

That’s the long and short of it. Your subconscious is alerting you to a potential danger via your feelings.

That’s why I don’t believe you should try and force yourself do things that feel unnatural, but instead look into how to resolve that unnatural feeling… and that’s really the secret.

Trying to overcome your subconscious with sheer willpower is next to impossible. That’s why if you’ve ever been on a diet or know someone who’s been on a diet, you’d know that trying to force yourself to do something often ends up in failure.

In other words if your strategy is designed to take quick small losses, but you can’t seem to get yourself to actually execute it, you have to get into the reason behind why you aren’t able to execute as per your plan. Only by getting behind the source of your actions will you be able to “reprogram” your responses, and naturally do what you want to do.

While there are many psychological tools and techniques available, one of the best I’ve found and personally continue to use is called Cybernetic Transposition. The amazing thing is its not even geared to trading but is an overall technique for achieving just about anything.

Click here if you’d like to learn more about it.

Ray

P.S. When you get to the website, don’t be turned off by the title of the book… its VERY over the top, but the content is top notch.

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Do you trade with a specific daily plan or do you emotionally trade? Traders that experience the most success have specific fundamental disciplines that they follow each and every day. If you want to achieve results that are comparable to the best traders out there, follow these specific steps:

Trade with a Plan not on Emotion

A classic trading mistake is to make trading decisions based on emotion, causing you to buy or sell at the wrong times. Trading is considered an aggressive investment strategy but to mitigate some of this risk, outline your ideal trading choices and then implement those choices consistently to achieve the best overall results.

Use Trading Tools

To become a superior trader, you will need to leverage trading tools. With technology constantly expanding, there are a variety of tools that will help you achieve revenues within your daily trading. Some ideas to help you trade are:

• Gaining access to your investment company’s trading.
• Review financial daily news with both online and print subscriptions.
• Use trading software for technical analysis of securities. Trading software can also help you to manage trends in the market and trends within your portfolio.

Use Stop Losses

In trading, stop losses can be a powerful trading discipline to leverage. The concept uses trading tools to limit your loses either on a specific day or with a specific security. If you are trading on margin, stop losses are even more important to leverage to help manage your trading risks. Overall, this is another tool in your arsenal of tools designed to help you experience more trading success.

Top traders leverage a variety of tools to achieve their successes, treating trading as if it is a full time job. No matter which combination of trading tools you personally leverage, the most important thing is to establish a discipline that you consistently implement in order to achieve your overall desired results.

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A majority of stock markets operate between pre-defined trading hours. For instance, a certain market may open at 9:00 am and close at 5:00 pm. If on the opening of the market the price of a particular counter is different from the one than was there at the close of the previous trading session, then that’s when it is said that the market has experienced a gap.

It is rendered a “gap” because on the trading chart, there will be a blank space (gap) between opening and closing prices. The lack of the opening and closing prices is due to events that took place while the market was closed, such as press releases, profit warnings, takeover bids and other news stories. Market gaps might also be caused by traders placing bids after the market closes that will take effect as soon as the market re-opens. Gapping up happens when the market opens at a price that is higher than the previous day’s high. If the previous day high was 100 and the market opens at 120, there would be a 20 point full gap up.

Gaping down occurs when the market opens at a price that is lower than the previous day’s low. Gapping up and down in the market can be a great trading strategy, depending on where you are positioned. The causes for these gap movements are simply supply and demand. If the market is inundated with numerous buy orders before the start of trading, the prices will move up to ensure that there will be enough sellers to balance the market. Likewise, if there are many orders to sell, the price will be lowered so as to find enough securities buyers.

Trading on these gaps is potentially lucrative for traders, but this strategy is one that requires time as the trading landscape can change in a vey short amount of time. Perhaps the best way to go about trading during gaps would be to paper trade first, and see whether targets are being met, before leveraging the trading strategy online.

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A lot of people imagine that forex trading is complicated, requiring a high entrance investment, though the reality does not support these two widely held assumptions. With forex transactions being carried out online 24 hours per day, the door is open to anyone with the risk tolerance and the flair to trade daily online. Only a few hundred dollars are required to begin trading on the forex market.

Once you have decided to trade on the forex market, you will need to open an account with an online brokerage firm that offers direct access to the forex markets. The amount that you may trade in will depend on your deposit, but it is usually about 200 times the initial deposit when you are offered the ability to trade on margin. Margin trading leverages your investment assets to borrow additional trading capital. While margin trading on the forex market is considered to be an aggressive strategy, it can offer the potential to build wealth quicker than when trading on personal assets alone. Like any trading strategy, leverage may work for or against you depending on your skill in choosing trades. If you trade daily and treat your research and focus as a full time job, it is possible to make a living from forex trading. As the largest growing market in the world, many traders have learned how to leverage forex trades to build a strong personal financial foundation.

Forex exchange has a different dynamic than traditional trading as the markets never close. All you need to get started is an online account and access to the internet. Generating profits on the forex market can be generated in a short amount of time in a day, although the research time required to trade effectively will encompass the rest of your allotted daily time.

A recommended way of trading is to study the price action on a chart so that you can leverage the chart patterns in your trading decisions. While past trends are not indications of future performance, they certainly are helpful when compared against news of the time when trading in foreign currencies.

Generating profits on a daily basis is not guaranteed in the forex market, but when leverage time, capital and research, it’s possible to generate substantial, consistent forex profits. If you are new to forex trading, start small and learn the market. As you begin to experience successes, continue to add time to focus and investment capital to build a business out of forex trading.

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As the forex market is different than traditional trading, it is crucial to understand how the returns are generated and how interest is calculated. Trades by clients in the forex market are settled within two days and if there are open positions held at the time of a time rollover, they are automatically rolled into the next settlement date by the clearing house. In other words, the open position is swapped for a new one that will expire in the following settlement date. These two positions are usually priced differently, based on the difference in the overnight bank interest rates of the two currencies being traded.

The forex trader who is long the currency bearing the higher interest rate, may receive a small credit in their account overnight. On the other hand, if the forex trader is short the currency bearing the higher interest rate, then they will have their account deducted over night. Whether the account is debited or credited is reflected on the price of the latest position assigned during the time rollover.

The term “Wednesday rollover” is used by some traders to make up for Saturday’s and Sunday’s interest that was not accounted for during those two days that the market is closed. If there is any open spot position held on Wednesday, then the trader will have three days worth of debit and credit in their respective trading accounts.

Here is the formula for calculating rollover interest:

Contract notional value x (base currency interest rate - quote currency interest rate) / 365 days per year x current base currency rate = daily rollover interest debit/credit.

The rollover fee in this instance is calculated while considering the trader’s full position, not their actual traded amount. This makes the effect of a rollover fee magnified. Note that there will be increased rollover fee for trades on Wednesday, as they are settled after 4 days on Monday instead of the standard 2 day settlement. Though a rollover fee is not always a decisive factor, when it does occur, it can significantly affect profits or losses for a forex trader.

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Scalp trading involves the buying of stock with the goal to sell it on the same day to take. Traders using this technique are looking to take advantage of short term price differentials. Traders consult daily charts for information to use when selecting their securities positions. In scalp trading, the expected profits and losses per trade are not designed to be substantial, but the trader is searching for small gains per transaction over a large volume of daily transactions. The trick to scalp trading is to position one’s self to take advantage of bid-ask spreads among individual securities.

The following are the two key concerns for a trader engaged in scalp trading:

The first one would be to realize that the specialists are the ones that largely drive the price differentials for individual securities, as they trade in such high daily volumes for institutions, thereby assisting in forming the market for scalpers. Specialists are geared to assist in maintaining an orderly market for a particular stock. The specialists trade in a much higher volume than an average trader, but they are under strict exchange rules designed to maintain the market presence of an individual security.

The second concern relates to the increasing usage of decimalizations in market pricing which work against scalp traders. Before decimalizations became the standard, fractions were the standard and were more beneficial for traders leveraging scalping techniques. Traders used to aim for at least a sixteenth of a point in profit (known as a teenie), or otherwise equal to 6.25 cents per share; thus a purchase of 1000 shares bought at $10 and sold at $10 1/16 would make a scalp trader up to $62.50 before commissions. However, decimalizations have narrowed the difference between the bid and ask prices for scalp prices, thereby placing additional pressured on price differentials and generated profits; similarly, a 1000 share trade buying at $10 and selling at 10.01 would only generate a $10 profit using decimals.

The narrowing of profit margins shouldn’t discourage a prospective scalp trader from venturing into the trading market. There is money to be made from scalp trading; the key is trading in high daily volumes.

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