Trader's Thread 01 (May 08 - Dec 08)

[winston]

Beh Ki jiu Lou.

My Hokkien better now: If cannot go up, then it must come down. Applies to trading and other things as well

But if one can indentify a trade with a high probablity of hitting more than 30% based on investment amount yet the risk is just 5% and with discipline and a strict strategy in only investing when this kind of trade happens. .

This is equivalent to my Rule 33 above:-
33) Look for good odds, where the loss potential is small in relation to the profit potential
The author advocates of Risk to Reward of ratio of 1:3

To me trading is a waiting game.

Read somewhere that we must trade like a tiger. Wait & Wait and when the time is right, then only pounce.

A lot of people invest like the chicken with it's head cut off, running aimlessly..

[winston]

Do Stops Hurt Your Trading Performance?
By Eddie Kwong | TradingMarkets.com

If you’re like most traders, you’ve been taught that you should place a stop on every stock trade you do. And possibly you do. But, is it helping you make money? Or are you constantly getting stopped out only to see the stock rise sharply right after you were stopped out of the position. Frustrating isn’t it?

There may be a good reason why this is happening. It appears (and you may already know this from your trading) that stops hurt, not help your performance. Here’s why.

Larry Connors, author of How Markets Really Work and Street Smarts, and editor of the TradingMarkets Daily Battle Plan for Stocks, ran a study in which he looked at over 1.5 million trades on stocks that made 10-day lows (pullbacks) and were trending higher, trading above their 200-day moving average. He then tested putting in stops 3%, 5%, 7%, 10%, 20%, and 50% below the entry price.

Did these stops help further improve the performance of these good pullbacks? Absolutely not! In fact they hurt them.

Larry looked at every liquid stock that was trading above its 200-day moving average and closed at a 10-day low (a pullback in an uptrend) for more than a decade’s period of time. The exit was above the 10-period moving average. The first test used no stops. The other tests used stops of 3% up to 50%.

As you can see, using stops, no matter where they were placed, hurt the performance of these pullbacks. Interesting the 7% stop, the level most used by traders, performed the worse. The bottom line is no matter where the stop was placed, the performance was lessened by the stops.

And it may be why traders get stopped out so often only to see the stock then rise to higher levels.

Here's one of many thousands of examples of an uptrending stock that got stopped out and then reversed higher.

What’s the solution? Adjusting your position size, not concentrating too much of your capital in one sector, and knowing where the specialists and market makers are placing their orders all provide opportunities to increase your trading returns.

[winston]

Trailing Stops and Profit Targets for Stock Traders
By Billy Fisher | TradingMarkets.com

New Swing Trading Strategies!

Investor psychology is an integral part of trading. The importance of taking profits after a big score or of cutting your losses before they really get out of hand cannot be understated. It is almost inevitable that traders will obtain some degree of emotional attachment to their investments.

The problem with this reality is that it can lead to a trader holding onto a stock when a technical or fundamental analysis no longer warrants holding it. Fortunately there are various strategies that traders can utilize as safety nets to avoid falling into one of these traps. Three such strategies that traders can consider are percentage profit targets, trailing stop orders and swing rule type targets.

Percentage Profit Targets

A percentage profit target is a straightforward way for a trader to set a price target at which their position will automatically be closed. The benefit to this strategy is that it sets forward a rational approach to locking in profits as opposed to letting irrational speculation takeover when things end up going better than expected.

For instance, suppose a trader was to buy shares of Apache (APA | news | PowerRating | PR Charts ) and was of the mindset that the prices of natural gas stocks were going higher. Let us further assume that the trader purchased shares at $100 and held the belief that shares had 20% of upside before a sharp correction might occur. To carryout this strategy, the trader would enter a sell limit order for $120 after the shares were purchased at $100. Now if shares were to rise to $120, the order would automatically execute and the trader would lock in a 20% gain.

Trailing Stops

Although it is a little bit more complex than a percentage profit target, a trailing stop order is an effective way for a trader to exit a position that is heading in the wrong direction. It can also help to lock in profits. It is a stop order in which the stop price is set at a fixed percentage or dollar amount above or below the market price of a stock. If the stock price rises, the stop price rises proportionately, but if the stock price falls, the stop loss price does not change.

A trailing stop is set at an amount below the market price for a long position. It is set at an amount above the current market price in the instance of a short position. The amount is automatically adjusted as the price of the stock changes. It allows traders to remain in a long position that continues to appreciate, but exit the position when the price drops a set amount. In the case of a short position, it is utilized to allow a trader to remain in a short position where a stock continues to decrease in price, but the position is closed once the stock rises above a set amount.

An example of a trailing stop order would be a trader entering a trailing stop of 15% after purchasing shares of Apple (AAPL | news | PowerRating | PR Charts ) at $150. In a worst case scenario if shares of Apple were to go straight down, the order would cause shares to be sold at $127.50, or a 15% loss.

However, let us assume that share were to rise to $200. The trailing stop would now adjust to cause shares to sell only if the price of Apple shares were to subsequently drop to $170, or a 15% decrease from $200. Because the order automatically executes, a trailing stop eliminates the emotional aspect to trading. And because it adjusts automatically, it protects traders from giving back all of their profits in times of a pullback following a sharp rise in the price of a stock.

Swing Rule Targets

A third type of strategy that I will touch on briefly is the utilization of swing rule type targets. Swing rule type targets encompass targeting used by traders with movements in stocks such as double bottoms and head and shoulders tops.

A head and shoulders top is a pattern that forms as a stock encounters three consecutive rallies which form sharp peaks that result in a chart which resembles a human head at the highest point and shoulders on each side. The formation of or a drop below the final shoulder in this pattern can signify that it is time to sell the stock or take a short position in the stock. If such a pattern is suspected, a trader can set a sell limit order where the right shoulder is to form in order to exit one's position.

The double bottom is a reversal of a downward trend in a stock's price. It can be a prime buying opportunity for traders as the double bottom often marks the beginning of a stock's newly found uptrend. If you look at a one year chart of the iShares Dow Jones U.S. Aerospace & Defense ETF (ITA | news | PowerRating | PR Charts ), you would see the double bottom pattern that forms as the stock rapidly declines in January and then subsequently completes the double bottom around March 10.

An advantage to swing rule type targets is that they visually depict reliable patterns that can help a trader decide when to buy or sell a stock as opposed to relying on raw emotion.

There are many strategies that traders can employ to guard against becoming emotionally attached to one's holdings. Percentage profit targets, trailing stop orders and swing rule type targets are just three of these strategies that traders can use to help lock in profits. Under the right circumstances, these strategies can be extremely effective for traders to unleash from their arsenal.

[kennynah]

sp500 reaching 1418... if it breaks...we may have a rally going forward...of cos, if it doesnt, then we will retreat once again...

but somehow, i've been looking at oil...and it's now supported resisted at 125pbl...if it drops...it will go to 120 then 112...around there...and when and if that happens...equities will rally...

gold has been showing weakness ...again a sense that the economy is not that bad...the flight to safety is not as rampant as shown in the weakened gold price...now at about 870/ounce...despite oil being at 125pbl...illogical...

dba (agri ETF) again showing weakness...ags falling out of favour...maybe signalling money getting into other non-recession sectors...and people are returning back to "normal" stock picks again...

so..in the end...i have begun to Long... (which include, shipping, banks, IT)...and i was also considering Airlines bcos of an anticipated falling Oil..

but remember, this is TRADING.....

what do you think?

wish me luck

[kennynah]

ladies n gentlemen....

sp500 at 1418....now... 0115am 15may08 +8 gmt

[blid2def]

ladies n gentlemen....

sp500 at 1418....now... 0115am 15may08 +8 gmt

Poh bei!! BAN!!! Hahahaha j/k.

[kennynah]

horse 1419....cheonging ...lampar 1 going into last lap ....cheong ah... hahahaha


now....1420....takes the lead...with some 3/4 lap to go...

[millionairemind]

Trading for a Living
Michael Covel (February 17, 2005)
Can I Make a Living Trading?
Everyone who is trading, but not for a living, has probably asked themselves this question. When they ask us, we ask: what is a living? For one person, it is $50,000 a year, for another it is $500,000 a year. We don't know how much money you have or how much you want to make. One trader might risk more and make 100% on his money, but another might risk less and make 30% a year. Some traders may have a losing year -- it happens to the best. The real crux of the matter amounts to what is a living for you, and whether you are able to follow a system to make your goals happen. The answer ultimately depends on your self-discipline and whether you have that needed deep desire to win at all costs.

Most of us don't have the discipline to stay focused on a single goal for five, ten, or twenty years, giving up everything to bring it off, but that's what's necessary to become an Olympic champion, a world class surgeon, or a Kirov ballerina. Even then, of course, it may be all in vain. You may make a single mistake that wipes out all the work. It may ruin the sweet, lovable self you were at seventeen. That old adage is true: You can do anything in life, you just can't do everything. That's what Bacon meant when said a wife and children were hostages to fortune. If you put them first, you probably won't run the three-and-a-half-minute-mile, make your first $10 million, write the great American novel, or go around the world on a motorcycle. Such goals take complete dedication.
Jim Rogers
Investment Biker

How Much Time is Needed?
Not much if you follow a Trend Following system. Trading signals can be generated manually via a simple PC spreadsheet in a few minutes per day. Just keep careful records and a trading log. You can also automate trading signals with products as discussed here.

Orders can be placed before the market opens and do not need hourly monitoring. Most top traders don't spend all day trading. If the markets are not moving there is nothing to do! What do they do? They manage their trades in 10 to 60 minutes per day. Richard Donchian offered the wisdom decades ago:

If you trade on a definite trend following loss limiting-method, you can [trade] without taking a great deal of time from your regular business day. Since action is taken only when certain evidence is registered, you can spend a minute or two per [market] in the evening checking up on whether action-taking evidence is apparent, and then in one telephone call in the morning place or change any orders in accord with what is indicated. [Furthermore] a definite method, which at all times includes precise criteria for closing out one's losing trades promptly, avoids...emotionally unnerving indecision.
Richard Donchian

[millionairemind]

Commodity and Stock Trading with Trend Following and Turtle Trading Systems
Michael Covel (February 16, 2005)
Trend trading is reactive and systematic by nature. It does not forecast or predict markets or price levels. Prediction is impossible! Trend trading demands that you have strong self-discipline to follow precise rules. It involves a risk management system that uses current market price, equity level in an account and current market volatility. Trend traders use an initial risk rule that determines your position size at the time of entry. This means you know exactly how much to buy or sell based on how much money you have. Changes in price may lead to a gradual reduction or increase of your initial trade. On the other hand, adverse price movements may lead to an exit for your entire trade. Historically, A trend trader's average profit per trade is significantly higher than the average loss per trade.

Trendtrading is not a Holy Grail. It is not some passing fad or hyped-up secret black box either. Beyond the mere rules, the human element is core to the strategy. It takes discipline and emotional control to stick with trend trading through the inevitable market ups and downs. Keep in mind though, Trend Followers expect ups and downs. They are planned for in advance. What must all trend followers consider?

Price: One of the first rules of trend following is that price is the main concern. If a market is at 60 and goes to 58, 57, 53 - the market is in a down trend. Despite what every technical indicator might predict, if the trend is down, stay with the trend. Indicators showing where price will go next or what it should be doing are useless. A trader need only be concerned with what the market is doing, not what the market might do. The price tells you what the market is doing.

Money Management: The most critical factor of trend following is not the timing of the trade or the indicator, but rather the determination of how much to trade over the course of the trend.

Risk Control: Trend following is grounded in a system of risk control and money management. The math is straightforward and easy to learn. During periods of higher market volatility, your trading size is reduced. During losing periods, positions are reduced and trade size is cut back. The main objective is to preserve capital until more favorable price trends reappear. Cutting losses is the way to stay in the game.

Rules Rule: Trend following should be systematic. Price and time are pivotal at all times. Trend Following is not based on an analysis of fundamental supply or demand factors. Trend Following does NOT involve seasonals, point and figure, Market Profile, triangles or day trading.

Trend Following answers these critical questions:

How and when to enter the market.
How many contracts or shares to trade at any time.
How much money to risk on each trade.
How to exit the trade if it becomes unprofitable.
How to exit the trade if it becomes profitable.
Conclusions
If you want in-and-out day trading, we can't help. Good trend following systems average five or six trades per market per year. What do you need to get started?

An active mind, willingness to learn and passion to win.
No knowledge of what an Italian bond is worth or what companies comprise the S&P or FTSE index. The key is the price on the chart.
Discipline and common sense to do the right thing per all rules.
About an hour each day at the end of the day to check trades.
A PC and telephone line (or internet connection).
Trading is a zero-sum game. For every winner, there is a loser. What's the difference between winners and losers? Smarts and strategy. For every loser in the NASDAQ implosion there was a winner. Does this mean that there are traders with neither strategy nor smarts actively losing, effectively shifting their funds to the winners, armed with strategy and smarts? Yes, absolutely.

[winston]

Learn the Best Times of the Day for the Best Trades
By Kunal Vakil

Developing a trading methodology and rigidly following your money management rules represent only part of the struggle in becoming a successful day trader. Equally important as the question of "how" is "when." You may have very proficient trading systems and be able to follow your rules, but understanding when to place trades can take your game to the next level. As an active trader, you need to be aware of these different time zones as some of them may be more prone to generating legitimate breakouts and breakdowns while others may be more conducive to range-bound trading.

I want to cover the market dynamics that occur during the different segments of the trading session. Remember, make the game come to you; do not chase the game. Most trading systems will work better in either trending or range-bound markets, but not both.

The Opening Bell - 9:30am to 9:50am

Exercise caution during this time frame; it is the most volatile trading period of the day. Unless you are an extremely talented day trader, it is best to stay out of the market and wait for the imbalances created from overnight news or earnings releases to settle down. The extreme nature of the volatility renders many technical indicators useless. In most cases, volume will also be the highest of the day during this time, and price swings will make it very difficult to set appropriate stop-loss orders.

The Morning Reversal- 9:50am to 10:10am

The first reversal zone of the day begins at around 9:50am and lasts for about 20 minutes. Day traders need to pay close attention to this time frame; many traders will put on continuation trades, or buy stocks which set new 30-minute highs and short stocks setting new 30-minute lows. Other traders may look to buy stocks that have had small retracements after a large morning gap and short stocks that have had minor retracements off strong gaps to the downside.

Once the dust has settled from the opening bell, you will be able to more clearly see what the traders in this security will want to do. Volume will drop off a little bit compared with the opening 20 minutes but will still be very high during this time. This time period is my favorite for trading as the price stability returns to the market but volatility is still present for profitable trading. In strongly trending markets, reversals may be small or non-existent. This can especially be the case when an index gaps higher on the open and continues to break to new highs during this time period.

Low Risk Trading - 10:10am to 10:25am

During this day-trading time zone, volatility shrinks again and you want to look for clues in the Dow, S&P, and Nasdaq as to the direction that the market wants to take. This is an opportune time for bigger traders to move the market the way they choose. Keep a close eye on the time and sales window of the stocks you are tracking and look for an indication of strong buying or selling to help you gauge the direction of the next move.

Which Way Will You Go? - 10:25am to 10:30am

By this time, the markets will be settled for the most part and most of the day's volatility will have passed. There may have been a few reversals in the first hour, but during this small zone many traders will cash out of profitable positions and finish the day while others will position themselves for the next move in the market. Consolidation and preparation for the next move describe this time period. This can last until lunchtime.

Final Move of the Morning - 10:30am to 11:15am

This time zone will be the final major time zone as far as morning trading is concerned. This time zone is safer in relation to the other zones in that technical indicators such as the slow stochastic or RSI will have a more pronounced effect than in some of the earlier time zones. Be careful near the end of this range as it leads right into the lunch hour, which can start early or start late. A general rule of thumb is that the more volatile the preceding day-trading time zones are, the greater the chance that this move will extend further into the 11 o'clock hour.

Take a Break & Take Lunch - 11:15am - 2:15pm

Lunchtime trading can be a tough trading environment. False breakouts and choppy sideways moves characterize this time period. If you must trade, tread lightly in this time zone until you develop consistency. Also, please let me know how you do it! The risk-to-reward ratio is very high here. Volume will fall out of the market as floor traders and other institutional traders will take their lunches. Don't let this time zone turn profitable morning trading into a loss.

Back to Work - 2:15pm - 3:00pm

Traders will work their way back into the market during this timeframe. For the most part, trends have been established and trading during this timeframe will provide you with opportunities where the use of technical indicators is applicable. Remember, the CME closes at 3:00pm so you will see a pickup in volume due to some of the bond traders coming into the equity and futures markets. Keep in mind, a low volatility morning session usually portends low volatility during the afternoon. Stay cautious in this situation.

It's GO Time - 3:00pm - 3:10pm

Bond market closes and bond traders will flood the equities markets; watch for sharp moves in either direction. Moves can be fast and large.

Use Caution & Stay with the Trend - 3:10pm - 3:25pm

During this day-trading time zone, use caution as you are approaching the 3:30pm timeframe, which tends to produce a reversal or a stall of the prior trend. During this zone, you want to stay with the trend that has been established from the 2:15pm and even 3:00pm timeframe but don't get attached to the positions.

Portfolio Re-balancing - 3:30pm - 4:00pm

I tend to recommend traders not trade during the last half-hour of the day. There are many funds and institutions rebalancing their portfolios, and it can get a bit tricky. If you're day trading, you only have 30 minutes max to get out of your trade and I don't like working under that type of pressure. If your an action junkie or like putting on very short term trades, the volatility is there for you do so.

Conclusion

As you can see, the chart setup or systems that you look at are not the only factors in putting a day trade on. Remember, day trading is not absolute; it is a game of odds. Your job is to put the odds in your favor and by using the different day trading time zones, your trading will become more consistent and profitable.