Apr 7, 2010 | Uncategorized
The market has been in a tight trading range for two weeks.
When the market is in a tight range most stocks do not move much
if they hit their trigger points so as noted in previous Letters,
tight ranges like this are best left alone. Trying to force trades
when the market is in a tight range will generally just churn the
account. These tight ranges do not last long, and are often followed
by nice tradable moves. When the market moves out of the range, I
will be actively trading in the direction of the break.
When the market is resting in a narrow trading range, instead of
swing trading I spend some time reviewing lessons I have learned
during the last twenty years. Some of the important ones are:
• There is no magic to trading. It is about putting the odds on
your side and not trading unless they are. This sounds simple,
but it takes a few years to get good at it. And like most things,
while you are learning it is best to work with someone. The
learning time is long because traders have to see how things
behave in different markets, and learn to trade the odds and
not their feelings. Read this paragraph again.
• The market will not adapt to us, we must adapt to it. Swing
trading in a trading range environment presents higher than
average risk. Traders can compensate for higher risk market
conditions by trading fewer positions and using smaller position
sizes. Failure to do this can be costly.
* Successful traders adjust their trading style, trading system,
holding Period, and exit strategies based on the current market
conditions. This is a process I refer to as market adaptive
trading. It is better to Learn how to adapt to the market rather
than running from one trading idea to the next looking for the
next super system. Being frustrated that the market is not doing
not what you want often leads to losses. The market does what
it wants, we just need to adapt to it. This will take time to learn,
be patient. Read this paragraph again.
* As a trader I do not care which way the market moves, I can
make money either way. It is important to be able to quickly
react to whatever the market does and not be emotionally
attached to any particular choice.
* I cannot control what the market does, so I have a plan for
whichever path it picks and then trade the plan.
* Successful trading is not about predicting what the market is
going to do. It is about knowing how to react to whatever it
actually does.
* Always be thinking about taking and protecting profits.
* If you are not sure what to do, exit the position. There will be
other good setups.
* You do not need to trade every day. Let the setups come to you
and take the best ones. When the market is moving there lots
of good setups to trade. If there are few setups, or most are
failing, then listen to the message of the market.
* Do not rush in, there is plenty of time to get into a
tradable move when the market changes. If a trend
is worth trading, then by definition you do not have
to be in on the first day.
* Never enter a position without a plan for exiting.
* Do not count your chickens before they hatch. You do not
have a profit until you are back in cash.
* Never trade with money you cannot afford to lose.
* Trading is not a team sport. Stay away from chat rooms and
financial TV. Seek the truth, not support from others with
your point of view.
Steve Palmquist a full time trader who invests his own money in the market every day. He has shared trading techniques and systems at seminars across the country; presented at the Traders Expo, and published articles in Stocks & Commodities, Traders-Journal, The Opening Bell, and Working Money. Steve is the author of, “Money-Making Candlestick Patterns, Backtested for Proven Results’, in which he shares backtesting research on popular candlestick patterns and shows what actually works, and what does not. Steve is the publisher of the, ‘Timely Trades Letter’ in which he shares his market analysis and specific trading setups for stocks and ETFs. To receive a sample of the ‘Timely Trades Letter’ send an email to sample@daisydogger.com. Steve’s website:www.daisydogger.com provides additional trading information and market adaptive trading techniques. Steve teaches a weekly web seminar on specific trading techniques and market analysis through Power Trader Tools.
Terms of Use & Disclaimer:
This newsletter is a publication for the education of short term stock traders. The newsletter is an educational and information service only, and not intended to offer investment advice. The information provided herein is not to be construed as an offer or recommendation to buy or sell stocks of any kind. The newsletter selections are not to be a recommendation to buy or sell any stock, but to aid the investor in making an informed decision based on technical analysis. Readers should always check with their licensed financial advisor and their tax advisor to determine the suitability of any investment or trade. Trading stocks involves risk and you may lose part or all of your investment. Do not trade with money you cannot afford to lose. All readers should consult their registered investment advisor concerning the risks inherent in the stock market prior to investing in or trading any securities.
Mar 22, 2010 | Uncategorized
An Excerpt from the Timely Trades Letter.
Horizontal support and resistance levels should always be considered when selecting potential trades. Since stocks often consolidate, or bounce near support and resistance the distance between the entry point and support (for shorts) or resistance (for longs) is an important consideration when deciding whether or not to take a particular trade. I want to find trades with ‘room to run’ as the stock pulls back and approaches support.
Trading is based on being positioned to profit if the stock, or the market, does the usual thing in a given situation. Since stocks often bounce from support, candidates with a larger distance to support from the entry are more attractive because they have more ‘room to run. When a trading pattern occurs near support it may just drop to support and bounce, thereby limiting potential profits.
I also apply the same concepts of support, resistance, and accumulation to the market itself to determine if trading is appropriate. If I am trading shorts and the market is approaching support I become cautious. The reason is that the market often bounces or bases near support and thus shorts would be less attractive. When the market is clearly trending and well away from support I will use larger position sizes in my trades than when the market is approaching a support level. I cannot influence what the market does, but I can react to it and reduce my risks by taking smaller position sizes when the market is approaching a support level.
Someone usually asks the question, ‘yes, but what if the market had broken below support, would it not have been better to hold onto the short positions’?
I trade based on what the market usually does, not what I hope may
happen, or what sometimes happens. Since the market often bounces when retesting important lows I will stop taking new shorts and take profits on existing ones when the market approaches support. The market has two choices when it approaches support. It can bounce or it can break bellow. If the market bounces I will not incur potential losses from new shorts and will have the profits from the positions I closed. If the market breaks below support I will have the profits from the positions I closed and can easily take new positions to get back in the game. There is less risk in taking the profits when the market approaches support. It is tough to go broke taking profits. It is easy to go broke by holding on too long.
Things to do each evening:
Look at the price and volume action on the NASDAQ. Where are support and resistance levels? How is the volume on recent up and down days. Given the recent daily range, how many days would it take to reach support or resistance?
Look at each of your positions for the same information listed above. Where are your stops, and do they need to be adjusted? Do you have any stocks that are extended (consider profit taking) or ones that are breaking trend lines or support (consider exiting)?
Review your watch list of interesting patterns and make a list of the best set ups to take a look at tomorrow. Review the watch list for patterns that are no longer valid and delete those stocks from the
watch list.
Learning to trade with the Market is a key part of taking investment results to the next level. It’s harder than it sounds, and takes some experience. I haven’t met many traders who got the experience by paper trading, the pain of losing is what causes people to spend thetime and effort to review their trades and learn from the mistakes.Don’t just write off losses, learn from them, they are part of the tuition you pay to learn how to trade.
Learning to sell as the Market approaches resistance takes some practice, since after a nice run most people want to put more money in.
I generally place a protective stop immediately after entering the trade. The stop is normally under the previous day’s low, or the low of the pattern. Remember that the protective stop is just to keep you from having a bad loss. If you leave the stop at its initial protective value and use it as your only exit you will lose money. Generally set the initial protective stop at the point where the trade set up would be invalidated, then watch the behavior of the stock and the market to determine when to get out. I also make sure the stop is not at a round number, or something that ends in 5 since this is where most people place the stop. Instead of 23.00, I would place the stop at 22.95. Instead of 18.95, I would use 18.84.
Steve Palmquist a full time trader who invests his own
money in the market every day. He has shared trading
techniques and systems at seminars across the country;
presented at the Traders Expo, and published articles in
Stocks & Commodities, Traders-Journal, The Opening Bell,
and Working Money. Steve is the author of, “Money-Making Candlestick Patterns, Backtested for Proven Results’, in which he shares backtesting research on popular candlestick patterns and shows what actually works, and what does not. Steve is the publisher of the, ‘Timely Trades Letter’ in which he shares his market analysis and specific trading setups for stocks and ETFs. To receive a sample of the ‘Timely Trades Letter’ send an email to sample@daisydogger.com. Steve’s website:www.daisydogger.com provides additional trading information and market adaptive trading techniques. Steve teaches a weekly web seminar on specific trading techniques and market analysis through Power Trader Tools.
Terms of Use & Disclaimer:
This newsletter is a publication for the education of short
term stock traders. The newsletter is an educational and
information service only, and not intended to offer investment advice. The information provided herein is not to be construed as an offer or recommendation to buy or sell stocks of any kind. The newsletter selections are not to be a recommendation to buy or sell any stock, but to aid the investor in making an informed decision based on technical analysis. Readers should always check with their licensed financial advisor and their tax advisor to determine the suitability of any investment or trade. Trading stocks involves risk and you may lose part or all of your investment. Do not trade with money you cannot afford to lose. All readers should consult their registered investment advisor concerning the risks inherent in the stock market prior to
investing in or trading any securities.
Mar 17, 2010 | Uncategorized
In this hour long session Steve Hill of AIQ Systems will cover the importance of using a systematic approach to testing a trading strategy. Too many back tested trading systems look fantastic on paper but fail to take into account real-life situations. Steve will highlight the step by step methodology required to effectively evaluate a trading strategy.
Register at https://admin.na5.acrobat.com/_a787702240/tradingtest/event/event_info.html
Mar 9, 2010 | Uncategorized
In bull markets everyone suddenly becomes an expert when their investments appreciate. What a marvelous turn of events. It is however that small segment of traders who have traded both sides of the divide using an informed trading procedure that will appreciate the irony of having the Midas touch.
The kind of protégés the bull market produces are deluded into believing in their rapidly acquired expertise, while engaging in the rampant growth investing demanded by Efficient Markets Theory. They are deprived of any opportunity to undertake any fundamental analysis to speak of, and a rarely called upon to exercise any discipline. Their clearly profitable trading process will most likely avoid review.
Security of property and resources is fundamental to Maslow’s Hierarchy of Needs, and in the pursuit of self interest, a human being will rarely find anything remotely attractive about a loss. Still, the inability to appreciate something ought not to be determinant of its existence, and a small loss will most definitely endure to be preferred over a large one.
Ultimately, no one participant is bigger than the market however, some individuals such as Warren Buffet standout with alarmingly consistent success. In response to how he became so wealthy A.J. Rockefeller merely replied ‘I guess I took my profits too soon’. The premise that traders such as these are simply lucky is ludicrous.
Integral to a trader’s systemic process is self realization. Unless traders can identify Maslow’s Hierarchy at work in themselves, they will be at continual risk of the inherent emotion that the Market feeds upon. For this reason, a non-reflective person will provide an easy target in the routine short covering rally, or the institutional sell-off that triggers all but the Governor’s stop loss order. Greed will cause such a person to watch a profitable position dissolve and crystallize into a loss; a traumatizing experience. Similarly, when looking into the abyss of capital loss, rather than finding character, such a person finds the fortitude to demand their preferred exit price. In the face of a disastrous inflation figure or even a war, this is the kind of stuff that nightmares are made off.
When a trader knows themselves, and caters for their idiosyncratic limitations within a considered trading process, they will find that taking responsibility for that process and the decisions therein, actually sets one free – free to trade again with undivided attention.
When taking a loss, take it all at once, it only hurts for a little while.
Mar 9, 2010 | Uncategorized
In bull markets everyone suddenly becomes an expert when their investments appreciate. What a marvelous turn of events. It is however that small segment of traders who have traded both sides of the divide using an informed trading procedure that will appreciate the irony of having the Midas touch.
The kind of protégés the bull market produces are deluded into believing in their rapidly acquired expertise, while engaging in the rampant growth investing demanded by Efficient Markets Theory. They are deprived of any opportunity to undertake any fundamental analysis to speak of, and a rarely called upon to exercise any discipline. Their clearly profitable trading process will most likely avoid review.
Security of property and resources is fundamental to Maslow’s Hierarchy of Needs, and in the pursuit of self interest, a human being will rarely find anything remotely attractive about a loss. Still, the inability to appreciate something ought not to be determinant of its existence, and a small loss will most definitely endure to be preferred over a large one.
Ultimately, no one participant is bigger than the market however, some individuals such as Warren Buffet standout with alarmingly consistent success. In response to how he became so wealthy A.J. Rockefeller merely replied ‘I guess I took my profits too soon’. The premise that traders such as these are simply lucky is ludicrous.
Integral to a trader’s systemic process is self realization. Unless traders can identify Maslow’s Hierarchy at work in themselves, they will be at continual risk of the inherent emotion that the Market feeds upon. For this reason, a non-reflective person will provide an easy target in the routine short covering rally, or the institutional sell-off that triggers all but the Governor’s stop loss order. Greed will cause such a person to watch a profitable position dissolve and crystallize into a loss; a traumatizing experience. Similarly, when looking into the abyss of capital loss, rather than finding character, such a person finds the fortitude to demand their preferred exit price. In the face of a disastrous inflation figure or even a war, this is the kind of stuff that nightmares are made off.
When a trader knows themselves, and caters for their idiosyncratic limitations within a considered trading process, they will find that taking responsibility for that process and the decisions therein, actually sets one free – free to trade again with undivided attention.
When taking a loss, take it all at once, it only hurts for a little while.
Mar 8, 2010 | Uncategorized
During the market move last week we saw nice moves in many of our setups from last weekend’s Letter. PCLN moved up sixteen dollars, CMG was up five dollars, NEWP moved up 4.5%, OIIM up 4.8%, PIR up 6.7%, CPO up 3.7%, JLL up 3.8%, CMI up 5% and LZB up 13%. We also saw new moves in the setups from the mid week Letter including AF, EQR, TCO, MYL, BEBE, and CVG.
Now that the market has reached the horizontal resistance area from the January highs the trading plan is fairly straight foreword. The normal actions for the market when reaching horizontal resistance are to either break above resistance, base for a bit just under resistance, or retrace. The latter two scenarios occur more often that just breaking through resistance on the first try; but experienced traders have a plan for either outcome, and just trade the plan.
If the market sets up a tight base just under horizontal resistance I will stand aside while the market rests, and then trade in the direction of the break out of the base when it comes. If the market breaks above horizontal resistance, I will add new long trading positions. On a small volume break above horizontal resistance I will pick up a few ‘feeler positions’. The price pattern tells me which way to trade, and the volume pattern tells me how aggressive to be. Light volume indicates light interest in a move so I trade lightly. If the market breaks above horizontal resistance on strong volume I will take more long positions. If instead of breaking above resistance, the market pulls back, I will close most remaining long positions. If the pullback comes on clearly above average volume I will pick up a couple of short positions. A light volume pullback is best left alone until it finds support and bounces.
There are no risk free trades. I want to manage risk by looking at each setup and asking, ‘what is the lowest risk way to enter this trade?’ I then want to compare that risk to what my other choices are. I am not focused on one stock, I am looking to manage units of risk by looking at all available trades, the various entry techniques, and the potential risk to reward that each trade yields. I then take the best of what is available, within the constraints of the trading plan. I do not focus on watching for triggers to within the penny. I am looking at all the potential trades and then picking the ones that are best. All trading involves risk, there are no sure bets.
Steve Palmquist a full time trader who invests his own money in the market every day. He has shared trading techniques and systems at seminars across the country; presented at the Traders Expo, and published articles in Stocks & Commodities, Traders-Journal, The Opening Bell, and Working Money. Steve is the author of, “Money-Making Candlestick Patterns, Backtested for Proven Results’, in which he shares backtesting research on popular candlestick patterns and shows what actually works, and what does not. Steve is the publisher of the, ‘Timely Trades Letter’ in which he shares his market analysis and specific trading setups for stocks and ETFs. To receive a sample of the ‘Timely Trades Letter’ send an email to sample@daisydogger.com. Steve’s website:www.daisydogger.com provides additional trading information and market adaptive trading techniques. Steve teaches a weekly web seminar on specific trading techniques and market analysis through Power Trader Tools.
Terms of Use & Disclaimer:
This newsletter is a publication for the education of short term stock traders. The newsletter is an educational and information service only, and not intended to offer investment advice. The information provided herein is not to be construed as an offer or recommendation to buy or sell stocks of any kind. The newsletter selections are not to be a recommendation to buy or sell any stock, but to aid the investor in making an informed decision based on technical analysis. Readers should always check with their licensed financial advisor and their tax advisor to determine the suitability of any investment or trade. Trading stocks involves risk and you may lose part or all of your investment. Do not trade with money you cannot afford to lose. All readers should consult their registered investment advisor concerning the risks inherent in the stock market prior to investing in or trading any securities.
English