Friday, June 29, 2012

Reason for Failure

On stocktwits everyone makes money which is strange since 80% or more of most traders supposedly fail.  So much is written about how to succeed.  But why do so many fail?  These are my thoughts:

1) Not consistent.  Trading requires a very strict philosophy, if not a set of rules.  Good traders sometimes break their own rules -- but they have a sense when to do so and only under extreme conditions -- and only after years of experience.  If someone is failing, I would guess the first problem is they are switching between different strategies or don't really have a main strategy at all.  Therefore, they don't know what works.  They may use a winning strategy that requires losing 50% of the time but perhaps they hold the losers too long hoping to break even and sell the winners too fast hoping not to lose the small gain.  So they either don't have a clear set of rules or they have a very clear set of rules but their emotions -  mainly fear -- are overriding their results.

Fear is a difficult emotion to overcome.  But there are methods to overcome the natural fear of trading.  First, the non-profitable trader must switch to a paper account.  This is not ideal as paper trading removes the fear of real money trading.  However, the non-profitable trader is on a road to ruin anyway.  The trader must then paper trade according to his plan, and not switch to live trading until he has demonstrated that he is capable of making money consistently.  The confidence of seeing the positive results will hopefully be maintained when switching to live. 

2) Boredom / Addiction

It is my belief trading is addicting.  Trading brings a rush of endorphins into the brain providing a high.  It doesn't matter if the trade is a winner or loser.  So waiting for one's setup can be sabotaged simply by the need for a rush.  And then, the breaking of the rules begins.    Good trading is often quite boring.  It is not for everyone.  My guess is many failed traders are prone to addictions -- and probably are addicted to other substances.  Or maybe trading is their singular addiction. 

The solution is take an honest assessment of your feelings during trading.  If one feels thrilled and electrified when hitting a big trade -- this is a red flag.  Do most people feel a surge of adrenalin when they receive their paycheck in the mail?  I doubt it.  Your job is to make money consistently or you will be out of work. 

Breaking one's rules to make a trade is a loss of willpower and can happen to anyone.  One helpful tip is to watch one's energy level.  Lack of energy often precedes these lapses.  Eating a snack can be surprisingly helpful.  My lapses have often taken place in the afternoon after I've gotten hungry.

3. Look at what consistent traders do:

They usually have very different systems but each sticks to his own plan.  They usually only trade a few select markets over and over.  Some only trade one market.   Focus.  Focus.  Focus.

They usually take losses.  Yes, they take losses.  But they don't dwell on it. Their winners are often much bigger. 

They are confident.  This comes from years of experience.  They don't worry about winning.  They usually don't celebrate big wins.  (But they sometimes do.)

They are consistent.  Making money consistently can seem boring.  You do the same thing over and over again.

They are connected to other traders.  I would think most good traders are always learning and tweaking because the market is probably getting consistently more difficult to trade.  However, the human brain must rule all trading activity and thus -- the market will always be inefficient -- allowing good traders to profit.

This is all for now.  I will add on later.

Wednesday, June 27, 2012

/TF entries on the FIB

Working with fibs to confirm entries. 

Tuesday, June 26, 2012

/cl: Always Testing the Lows:

Test of lows.
Creation of TL - with 3 touches --  run to top of range.

Monday, June 25, 2012

Pivot Entry: All Things Bounce /cl

trend down day market -- but also a gap down.  /cl starts weak and moves toward extreme lows.  Market has not accepted oil under 79 fully.  

So, checking recent support levels -- /cl bounced at 78.08 on Friday.  As /cl approaches this level -- a high volume candle prints -- breaking 78.08 but the candle closes at the top -- this level is rejected.

One could attempt a preliminary long here with stops at the very low -- it would have worked. 

Less than an hour later, the main long signals begin to line up -- as the 99 day MA starts to curve up from the bottom and the moving avgs. fan out bullishly.   An entry long here, 78.40ish with a  10 tick stop would also have worked -- and provided 100 tick upside.  This entry was more in line with my general strategy to go with the flow.

More and more I'm finding  /cl is tougher to trade but definitely provides more volatility than /tf.

Thursday, June 21, 2012

TREND DOWN day /tf

Rules reminder:

Shorting works best when Moving Avgs are fanned out to downside with 99 period on top.

Can manage trades all day by covering on sharp vol. drops extended past MAs.  Then readded on tests of the 99 day MA.

Maintain shorts or add as Market signals  ($uvol-$dvol   and   $advn-$decn) show deterioration.

Check fiblines for places of major support.

/tf never bottomed until it -- not suprisingly -- created a flat 3-touch line -- which did not occur until 3:54.  Market Signals were clear -- there was never going to be a bounce today.

Tuesday, June 19, 2012

/GC - triple top to triple bottom

Must establish moving avgs fanned out.

Better to enter LATE than try to catch tops.   Markets usually don't decline rapidly until significant time/distribution has occurred.

Tuesday, June 12, 2012

Trend Up Day /tf

How it was:

Intraday volatility continues -- this time 10:30ish marks the bottom as internal Market Signals pop.  I've noticed Trend Days usually are clear when all sectors are green.  Nothing to do but buy on the TL as it forms.  /Gc was the strongest from the open and also popped well once it consolidated and built a TL.  

Monday, June 11, 2012

Spanish Narrative:

Question of the day:  How long and how far can $125 billion take the market?

Sunday, June 10, 2012

Focus on Charts:

If you haven't checked out -- you should.   (see the links list).  One thing I like about the daily videos on this site -- is the idea of creating a 'narrative'.

Stocks move based on stories of hope and less often on actual facts.   FB is obscenenly overvalued, but the story -- ah, the story of Facebook with its super dominant control of social media and billions of users is powerful.  Same with Amazon.  Powerful stories explain the price multiples.  And as we've seen -- when the story falls apart  (see NFLX, GMCR) -- the return to Earth moves can be spectacular.

So now the narrative of the global markets is briefly dominated by the Spain bailout.  It's not clear how long $100 billion euros can boost the markets.  The markets had one of the best weeks of the year last week anticipating this news.

So now, more than ever, we must focus on our charts and filter out news/emotions.   The first thing to do with big news and gaps -- I feel -- is to look carefully at your charts especially at the higher timeframes.  The 15m candles and even hourly/daily candle charts will reveal just how far extended we are.  Will buyers on Monday morning support these levels?  

The narrative I believe we are in is one of short term stimulus and hope, followed by brutal recognition that little actual progress has been made.  This tiny bailout, for example, has caused oil prices to jump 2 dollars/barrel overnight -- a global tax that will cost consumers $100s of millions of dollars.

But the idea of following a 'narrative' is interesting.  A Spanish bailout is simply not a story that will last more than a day or two.  Then what?  The narrative will likely shift --- maybe to 'who else needs a bailout?'.  The narrative of oversold conditions will morph into overboughtness.  

Focus on the narrative, but also consider how long the latest story can impact the markets and what stories are coming?  It might help you stay just ahead of the crowd and give you the confidence to make a big trade when the charts confirm what you think the story is going to do next.

Friday, June 8, 2012

/cl 5 min charts -- Trend Lines

Clear line emerges -- and once you know support, every entry is a winner on the line....

Wednesday, June 6, 2012

Market Signals: My Indicators

How do you know when the market is going to Trend Up all day? 

I'm sure most traders maintain a watchlist of leader names like I do.  If I see this list is strong -- names like AAPL, AMZN, PCLN, PKT and whatever else has a super strong chart... then the markets are probably going to do well.  I also watch a list of ETFs like:  iwm, spy, xlf, xhb, iyt, ewg, ewp, ewi, tlt, vxx, uso, and a few others to gauge strength. 

Recently, though, I've found the current set up below additionally has provided more 'to-the-minute' look at internals.  Today was clear pretty early we were going to have a rampaging trend up day.  $uvol-dvol$ essentially went straight up all day.  advn-decn ratio was +1000 all day,  /zb was red all day... and the risk-on market, /tf, was super strong. 

If anyone has other indicators they believe helps them see the market internals well, please leave a comment below.

Tuesday, June 5, 2012

The Best Set-Up for a Bounce

Maybe there's something better, but I don't know of anything better than the classic 3-touch support line -- especially when it occurs spread out over 3 days on a slightly higher timeframe chart.  And especially when the market is clearly oversold with VPOC way overhead.

5-minute candle touched the same area at 8 am this morning but the Market Signals were definitely showing promise.

As usual, moves after a 3rd touch are often spectacular and quick -- less than 3 hours for a bonanza.

These set-ups don't occur quite so often but when they do -- you want to play them every time.

Monday, June 4, 2012

TF - Bounce into VPOC

/tf  hit the overnight lows to the tick with a dragonfly candle -- price hit the lows but there was basically no volume there.

This happened even though bonds were red, euro was strong and quite a few Nasdaq leaders were green. 

Taking the initiative and entering here instead of waiting for internals to shift was the correct strategy.  The correct target was to look for a bounce to  VPOC which is where /tf ran out of strength.

Sometimes -- in  a strong bear market, it's better to initiate at support if there are signs of divergence already in place.  Internals eventually strengthened  causing a surge to VPOC.  This was not an easy trade as it was definitely countertrend.  However, mean reversion always occurs and this trade is merely entering /tf until it returns back up to the dominant trendline.  Often the market gets ahead of itself and the correct trade will always feel slightly contrarian.

Friday, June 1, 2012

On break:

Need to take a break -- but if you really want to learn futures -- learn from this guy.

Best advice I'll ever give .