Archive for category: Trading Plan

10 Things Traders Must Quantify

25 Nov
November 25, 2014

 

Subjective: Based on or influenced by personal feelings, tastes, or opinions. Proceeding from or taking place in a person’s mind rather than the external world.

Subjective traders are intertwined with their trades. They generally enter out of greed and exit based on fear. They believe in their opinions more than the actual price action. They base trades off how they feel about a particular market. A subjective trade idea comes out of the imagination of the trader, from their own beliefs, opinions, and what they think should happen. Many times, reality is not even cross-checked as a reference. It is the subjective traders who see what they want to see instead of what is really going on. Their compass is their emotions, and they often have conflicting goals.

Objective: (Of a person or their judgment) not influenced by personal feelings or opinions in considering and representing facts. Having actual existence or reality.

Objective traders have a quantified method, a system, rules, and principles they trade by. They know where they will get in a trade based on facts, and where they will get out based on price action. Objective traders have a written trading plan to guide them. The guides of the objective trader are historical price action, charts, probabilities, risk management, and their edge. They react to what is happening in quantifiable terms that can be measured. They go with the flow of price action, not the flow of internal emotions.

  1. What exactly is your entry signal going to be? What technical indicators will trigger you to enter a trade?
  2. What will the perceived edge for your entries be based on? Will you quantify your entries edge with back testing of through trading principles?
  3. Will you wait for an initial move in the direction of your trade entry or will you enter based on a technical indicator trigger?
  4. How will you trade in different market environments and trends? Will you have better odds of success buying dips in bull markets and shorting strength in down trends?
  5. What is the risk/reward ratio for the trade you want to take? How much are you willing to risk if the trade is a loser? How much could you make if you are right? Is it worth it?
  6. What are the probabilities that this entry will be a winning trade based on past historical price data and charts? With the winning percentage in mind how big do the winners have to be and how small do you have to keep the losers for the trading system to be profitable?
  7. Where should your stop loss be? At what price level will your entry be wrong and signal you to exit the trade with a loss?
  8. How big of a position size should you take based on your stop level and total capital you are willing to risk on this one trade?
  9. Is your position size small enough to enable you to hold the trade without emotions effecting your ability to follow your trading plan?
  10. When you open this trade in addition to your other positions, how much of your total trading capital is now exposed to loss if all trades went against you at the same time?

Don’t succumb to the emotions of a trade, and don’t attach your ego to it. Be the trader that witnesses the trade from an emotional distance with curiosity. If you can find that space between yourself and the trade, you will become more accurate and more profitable. When you can approach the results of your trades with equanimity, then you are at the next level.

Capital Preservation: 10 Trading Tips

21 Nov
November 21, 2014

 

As a trader, your #1 goal is to keep your current trading capital safe and secure. Your goal as a a trader is to make money and not lose money. Many new traders lose their trading capital in the first year, but these ten tips will help you keep your capital intact so you can make it grow.

  1. Do not start trading until you have fully educated yourself. Trading tuition is expensive when you trade first and learn later.
  2. Do not trade an account so small that commissions will end up being a big drag on your returns.
  3. Do not trade until you have a well developed trading plan.
  4. Trade a position size that does not cause your emotions to become so loud you can’t hear your trading plan.
  5. Only trade in markets you fully understand.
  6. Only take valid entry signals and do not chase. Let your entry point trigger first.
  7. Only trade in liquid markets so bid/ask spreads do not devour your account.
  8. Never risk losing more than 1% of your total trading capital on any one trade through proper position sizing, and by placing stop losses at the correct price levels.
  9. Never expose your total trading account to more than a 3% loss of total trading capital at any one time, on one day.
  10. Never move a stop loss. Take the exit the first time it is triggered.

The NewTraderU Newsletter Signup

20 Nov
November 20, 2014

 

Introducing the Monthly New Trader University Newsletter!

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  • A trade example step-by-step of my best trade of the month.
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3 Trades Explained $DIA $IWM $SPY

17 Nov
November 17, 2014

 

Trade #1

  1. I shorted $IWM three days ago by buying $TZA at $13.02 when $IWM was near the 70 RSI on the daily chart.
  2. My stop loss was to exit if $IWM closed above the 72 RSI.
  3. My trailing stop is to stay short unless $IWM closes above the previous day’s high.
  4. There is a potential that the 5 day ema acts as intra-day resistance.
  5. It is possible that $IWM goes to the 50 RSI or the 200 day moving average.
  6. I am currently up 6% on the capital at risk in this trade.

Trade #2

  1. I went short $DIA today by purchasing $SDOW at $21.67 as the $DIA chart was near a 72 RSI.
  2. My stop is a close above all time highs.
  3. If $DIA begins to pull back and the trade goes in my favor, I will use an end of day stop of a close above the 5 day ema.
  4. $174 is my potential first target.

Trade #3

  1. I sold $204 $SPY weekly calls for $1.20 and bought $207 weekly $SPY calls for .10 cents to create a $1.10 bearish credit spread when $SPY was near its 70 RSI. 
  2. If $SPY closes below $204 on Friday I will make $550.00 with the five contracts. This is a small trade for my account sizes.
  3. My stop loss to exit this trade is if $SPY closes over the 72 RSI on any day before expiration.

$SPY Chart With 10 Facts 11/16/14

16 Nov
November 16, 2014
 chart courtesy of stockcharts.com
  1. The long term up trend is still in place.
  2. All indexes are with-in striking distance of all time highs which remains bullish. $SPY $QQQ $IWM $DIA
  3. With all stock indexes pushing against the 70 RSI on the daily chart the potential upside is very limited putting the odds on limited momentum taking us to higher prices from here.
  4. $SPY has been in a $203 support $205 resistance price range for the past 5 days.
  5. In the past five days the 5 day ema has stopped being the intra-day support.
  6. The next line of support on the $SPY chart is the 10 day sma then the $200 price level.
  7. The risk/reward ratio here has skewed in favor of short selling  plays and call option sellers.
  8. All Time New Highs
  9. Chart Your Trade Weekly Report
  10. All-Time Highs Possible In Bear Markets
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