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PostHeaderIcon 10 Good Things That Are Bad For New Traders


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This blog post came from a suggestion from  Andre Du Preez and many ideas were added by my facebook traders group. Thanks to all that added value to this post, Simon Goodchild, Brian Chang, Scott Gibbons, Harry Lamborn, Lisa Wareham, Stephen Doubell, Luis Pereira, Matthew Smith, and Joey Gueits.

10 Good Things That Are Bad For New Traders

  1. Making money too quickly when first starting out as a trader leading to an inflated ego and not really learning how to trade. Usually just benefiting from a market environment that rewarded the new traders specific trading behavior.

  2. Moving a stop loss then the  market turns around and the new trader makes a bag load of money and bad behavior is reinforced. Counter trend trading in the long run by lowering stops is a formula for eventual disaster no matter how many times it is rewarded in the short term.

  3. Making a big win on an untested and not clearly defined trading method. Their wins can not be replicated and were possibly just luck.

  4. A big lucky win, or worse, two big lucky wins. This encourages taking big risks in the future which will likely lead to big losses that give back those winning profits.

  5.  100% profit in UVXY and think its a long term investment.

  6. They’re trading in the direction of a bubble and think they’re geniuses. When the bubble pops they will have no idea what to do.

  7. Successfully trading a paper account and not understanding the problems and obstacles of emotions and ego when real money was at stake in a real trading account.

  8. Money comes too quick and easy so they are set up for failure when the market changes and it becomes difficult to be profitable. Quick and easy success sets up most new traders to quit when the going gets rough becasue they are not use to losing at all.

  9. Averaging down in a losing trade and it rebounds and rewards the new trader, this teaches the new trader a terrible habit that will eventually blow up their account when a trend is in place that does not revert to the  mean until it is too late for the traders account.

  10. Using an untested strategy that has a high win percentage and confusing it with positive expectancy. Due to the confusion, scaling the risk sizing to “oh crap, that loss is half my account”.

  11. Having a huge profit in a growth stock or a bubble but not knowing how or when to exit and lock them in.

  12. Confusing a bull market for brains.


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PostHeaderIcon 10 Things A New Trader Must Have If They Are Going To Survive


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  1. A decision on what specific markets to trade.

  2. A developed robust trading system to trade that fits the traders personality and risk tolerance.

  3. An understanding of the expected winning percentage of trades in the system and maximum expected draw down of your trading system.

  4. Defined entries that tell the trader the price level to enter that has the best probabilities of success.

  5. A defined price level that the trader will exit because it will show the trader they are wrong.

  6. A position size based on the stop loss exit level to limit the risk exposure in any one trade.

  7. An understanding of the total risk involved in having mulitple positions on at the same time due to correlation and volatility.

  8. A trader must be in touch with what different types of trading does to their emotions and ego whether it is the time frame or position sizing.

  9. A realistic expectation of returns is crucial to keep your resilience up as a trader and persevere and avoid trading too big in a search for riches or too much.

  10. An understanding of how your system performs in different market environments does a lot to help get through mentally trying times or losing streaks.


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PostHeaderIcon 10 TOP TRADING SKILLS


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  1. Admitting that you are wrong the moment price action tells you that you are and getting out of a bad trade.

  2. Being patient and waiting for your entry signal and the patience to let a winning trade go as far aw it wants to before you exit.

  3. The discipline to trade the same regardless of how you feel at the moment.

  4. Following a trading plan instead of your ego.

  5. Trading in the direction of the trend in your time frame.

  6. The work ethic to do the homework on what works in trading before you put any money at risk.

  7. The passion to love the game enough to do what you have to do to break through to success.

  8. To accept your financial losses as tuition and the price of doing business not a blow to your abilities as a trader.

  9. Listen to those that are far more advanced as traders than you are.

  10. The perseverance to keep trading until you are successful at it not when you just want to quit.


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PostHeaderIcon 10 Fast Facts About the $SPX Chart


 

 

  1. While the long term up trend is still in place we are entering into a small normal correction here so far.

  2. With the 100 day ema being lost the next long term support level is the 150 day ema from the last bounce.

  3. The best oscillator I have seen to watch for index swing trades on daily time frames is the 14 period RSI. Over the past four years after a cross below the 30 RSI of the $SPX on the daily chart has been a winning trade on the bull side with a long bias in short term time frames. This is a key area for shorts to cover, swing traders to go long, and dip buyers to buy.

  4. Next week the probabilities are that at some point the $SPX touches the 5 day ema as it is currently very overextended and the ‘rubberband’ of price only stretches so far  on equity indexes.

  5. Down trends in equity indexes are not as smooth as they are in individual equities or commodities because as a whole down moves in equities as an asset class is fighting against the historical consistent uptrend. Down trends and even bear markets are interrupted a lot by rallies back to key resistance levels and reversions to the near term means like key short term moving averages.

  6. Short covering  is a big driver of rallies after a sell off so momentum back up and gap ups at the open can trigger shorts buying back and covering. Short covering rallies generally have a lot of surprising momentum.

  7. Seasonally April is a strong month for stocks before the old “Sell in May and go away” begins.

  8. If the 150 day ema is breached and we have an outlying plunge outside of the norm then 1780 and 1740 have pockets of support.

  9. I am looking to trade much smaller here than usual with the increase in volatility and the changing nature of this market.

  10. I am looking to tighten my time frames to lock in nice profits that are given on the short or long side.

  11. The 5 day ema and the 50 day sma are areas to watch for to see if they are now resistance levels if we are in a down trend these levels will likely be sold into.

  12. Momentum stocks are out of favor and $XLP and $XLU are new hiding place for money managers that are holding equities.

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PostHeaderIcon High Probability Areas To Buy the Dip in $QQQ $IWM


Disclaimer: The below examples are for illustrative purpose only, this is not trading advice, follow your own trading plan and trade your own system. Trade at your own risk.

For those that really want to go long here on $QQQ and attempt to buy the dip in what is still an uptrend on the long term time frame the high probability bounce zone is lining up to be between $82-$83. This lines up with the 200 day moving average and the 30 RSI which are both potential areas  for dip buyers to be waiting. While this is not trying to call a bottom it is an  area where the odds are that we have a nice initial bounce here that could last multiple days. Great risk/reward and convergence of oversold RSI and the 200 day last line in the sand for bulls which usually bounces initially anyway. It would be better odds to trade the bounce with a smaller than usual position size and wait for it to bounce first back over the 30 RSI or the 200 day before buying into a falling knife. Also be aware that equities as an asset class could end up in a deeper correction and go lower from here directly or after a multi-day reversal. This is also referring to the 14day RSI on the daily chart only and this does give an edge with indexes but the RSI is not as useful with most individual stocks. I will be trading with a much smaller size than usual if I take these entries and also taking a stop loss if I am wrong.

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 The 30 RSI and 200 day are also close by under the $IWM chart and we could see a volatile bounce here as well.

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 Below is the historical chart of the $QQQ during the post dot-com bubble. Even with what ended up being a 50% decline in the ETF the 30 RSI held up by end of day all but a very few times as bounces ensued before the next sell off to even lower prices. Rallies and short covering can lead to sharp and fast recoveries even in bear markets which makes shorting trends in equities a little more difficult that playing the long side up in bull markets that are more smooth with less corrections.

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 Even in the 2008 market meltdown on the below chart the 30 RSI provided some great buying opportunities for big bounces.

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PostHeaderIcon Top Trading Tweets of the Week


Top-Tweets-2011


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PostHeaderIcon 10 Things I Focus On As A Trader


 

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One of the best things a trader can have is a filter that allows them to see what matters and what does not. Knowing where to focus our effort and time at to be a profitable trader is crucial. Some things will make us money and some things will cost us a lot of money and divert our attention from what does matter. Here are the 10 things I focus my time, energy, and attention to primarily:

  1. I focus on what the current price action in the markets may be telling me based on support, resistance, gaps, moving averages, and a few technical indicators.

  2. I study how price action played out on historical charts of the stock market in relation to my above indicators.

  3. I spend a lot of time back testing trading systems that I have a theory about to see how they would have worked.

  4. I develop entry signals off my studies so I have a good risk/reward ratio and a good probability of a profitable trade.

  5. I focus on what my stop loss level will be before I get into a trade so I know how big to trade without losing too much trading capital.

  6. I develop ways to exit my trades to lock in maximum profits and limit potential losses if wrong.

  7. I find and read the best trading books I can buy based on others recommendations and Amazon reviews. I want books written by real traders not just writers or people with theories.

  8. I hang out with some really good traders in a few facebook trading groups that have more experience than I do and I learn a lot from them.

  9. I focus on following my trading system with discipline and not letting my emotions or ego interfere with making the right decisions.

  10. I use the internet and social media to learn by finding the best information based on facts not opinions.


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PostHeaderIcon Psychology of Trading


 

Psychology of Trading

The 10 Keys to Winning the Mental Game of Trading:

How Winning Traders Rebound, make a Come Back, and Never Quit

Where Trader’s Emotions Come From and What to Do About it

Do You Trade Like Captain Kirk or Mr. Spock?

Why Trading & Life have the Same Winning Principles

Top 15 Ways to Manage Trader Stress

The 7 Psychological Mistakes Traders make That Blow up Their Accounts

The Four Dangerous Internal Emotional Indicators for Traders

The 15 Elements Of A Traders Mental Down Spiral to Destruction

Disciplined Trader… Emotional Trader… Which are you?

The Ten Mental Errors That New Traders Make

A Trader’s Most Important Question

How To Stop Trading With Hindsight & Regret

How A Trader can Comeback from a Setback

A Trader’s Real Opponent

Overcoming 10 of the Pains in Trading

Trader: If It Feels Good Don’t Do It! (Ten Things)

Five Ways to Build the Right Trading Mindset

10 Reasons I Do Not Regret Any One Trade

The Good Trader Survey: Ten Questions To Ask Ourselves

 


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PostHeaderIcon A Rare Market Wizard Documentary


 

 


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PostHeaderIcon ‘The Trillion Dollar Bet’- a documentary about the demise of Long Term Capital Management


 

 


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