Archive for the ‘Uncategorized’ Category

PostHeaderIcon Ten Things To Consider When Placing Stops

  1. A stop loss level should be planned when you enter a trade. This is the price level that if it is reached that you will know that your entry was wrong.

  2. You should position size with a share count and dollar amount where if your stop is hit you will not lose more than 1% of your total trading capital.

  3. If you have a profit target then that is where you will stop the trade with an exit to take profits.

  4. A trailing stop is where you raise your stop behind a winning trade and take profits at the first reversal back to your trailing stop.

  5. Many stops are placed a certain percentage under key support levels or above resistance levels because if broken by too much the trade may be wrong.

  6. It is important to not set actual stop loss orders at the most obvious levels, these will almost always be triggered on the first volatility and then reverse back. Give your trade some room to breath and a chance to be right in your time frame.

  7. End of day stops are what a lot of longer term traders use and base their stop losses on either the same day close and trade the last 30 minutes or so or they execute their stops the next morning based on the previous days close. This frees up a lot of time not spent trying to trade the intra-day price noise and focus instead on how the market closes.

  8. If you use option trades in small of enough position sizes they could have a built in stop if the total contract size is less than 1% of your trading capital. You are not exposed to more than 1% of risk but keep the upside if your trade goes in your favor. Your total potential loss is capped at your total contract size but still be leveraged in the direction of your trade.

  9. Tight stops will enable you to keep all losses small but usually drive up your losing percentage if too tight. Wide stops gives your trade the time and more opportunity to work out and usually increases your winning percentage  but leads to larger losses when wrong.

  10. Stops are tools to keep losses small and preserve emotional capital and a traders nerves. Big losses are what break the vast majority of both new traders and professional traders. Stops enable the trader to control the one thing that they can in the markets: the size of their losses when the trade goes against them.

PostHeaderIcon’s Top 25 Blog Posts of All Time

Top 25

#1Van Tharp On Risk ManagementWith 235 likes how to manage risk seems to have gone viral.

#2 The Magic of Compounding Your Returns 170 likes

#3 The Top 25 Trading Books That Helped Readers Make Money 163 likes

#4 The Four Dangerous Internal Emotional Indicators for Traders 127 likes

#5 A Trader’s Most Important Question 126 likes

#6 10 Things A Trader Needs to Give Up if They Want to Make Money With 105 likes it seems that traders love to learn what to leave out as much as what to put into their trading.

#7 22 Things I learned From the Paul Tudor Jones Interview “The Trader” 79 likes

#8 The Ten Reasons I Sold My Stock Positions Friday 65 likes

#9 10 Things A Trader Needs to START DOING if They Want to Make Money 62 likes were generated when traders learned things that they needed to start doing.

#10 My Recent $SPY Trade Step by Step 58 likes

#11 Cast your vote for the Most Helpful Trader on Twitter in 2013 here–> 55 likes

#12 20 Golden Rules for Traders 55 likes

#13 40 steps in the Traders Journey While the traders journey is a difficult one 53 people liked learning about the path to take.

#14 What is Quadruple Witching Friday? I was surprised that 101 people liked learning about what exactly quadruple witching day was. I thought it may have been boring for readers, I was wrong.

#15 Break Outs: When To Buy & When Not To Buy-> 7 Tips 56 likes for these tips

#16 7 Things Each Trader Has To Accept If They Want to Trade A lot of progress is made when we accept certain things about the markets and 48 were ready to accept that with a like.

#17 My Interview With Two Market Wizards: Mark Minervini & David Ryan  46 likes for this original interview 

#18 13 Things Successful Traders do Differently There are very clear differences between what winning traders do versus losing traders and 46 people liked learning the difference.

 #19 Ten Wrong Thoughts New Traders Have 45 likes for pointing out these needed course corrections.

#20 Top Ten Reasons I am Short Facebook At one point this year my facebook put options took me to my equity peak of a 75.3% return. Unfortunately the reversal was fast and furious and I was stopped out coughing up huge paper profits. 45 readers liked this short play.

#21 How To Survive That First Year Trading 43 likes for tips on how new traders can survive

#22 The 4 Horsemen of the Failed Trader 42 people liked learning what to avoid in their trading.

#23 A Dozen Great Chess Quotes For Traders 41 traders liked these quotes that applied to chess and trading.

#24 Get My Option Book On Kindle for $2.99 Today Only & With a Chance to Win an Amazon Kindle  39 likes for my first book promotion

#25 Top 7 Traders On Twitter 39 people liked hearing who my picks were for the top 7 traders on twitter. This was very popular and I followed up with several follow Friday suggestions.

PostHeaderIcon The Blind Traders and the Market


There is an old parable known as “the blind men and the elephant.”  In this story, there are four blind men who are asked to determine what an elephant looks like.  The first blind man feels the leg of the elephant and says, “The elephant is like a tree because it is large and round like a pillar.”  The second man feels the tail and says, “The elephant is like a rope because it is small and coarse.”  The third man feels the ear and says, “The elephant is like a fan because it is flat and thin.”  The fourth man feels the trunk and says, “The elephant is like a snake because it is long and curves.” 

A king comes to the four blind men and says, “all of you are correct.”  The king goes on to explain that each one had drastically different descriptions of the elephant because they are all feeling different parts.  So, they are all correct.  The elephant has all the features described by the four blind men.

This parable is a good analogy describing different types of profitable traders. Many of the arguments that erupt between traders on social media are due to not understanding the others  time frames or not understanding the other trader’s position sizing, stop loss level, or expected winning percentage. Also too many cult members of Elliot Wave, Trend Following, Market Profile, Day Traders, and option traders etc. think their way of trading price action is the only way when their way is only one of many paths to profitability. There are as many ways to trade price action to be profitable as there are profitable traders.

The elephant in the room is that profitable traders do a few things in common:

  1. They manage their losses to keep them small regardless of their winning percentage.

  2. They trade position sizes that bring their potential risk of ruin through a string of losses to virtually zero.

  3. They are an expert in their own profitable strategy.

  4. Their emotions are not used in trading decisions.

  5. Their ego does not pick position sizing, entries, or exits.

  6. They go with the flow of what is actually happening not what they want to happen.

  7. They trade a robust methodology.

  8. They do the work required to be successful.

  9. They are comfortable with what they are doing.

  10. Their trading fits their risk tolerance and personality.

Many profitable traders only see the aspects of the markets that make them profitable. Seeing the full dynamics of the markets and all the opportunities to make money is a step toward enlightenment.

PostHeaderIcon Momentum Trading Vs. Trend Following

Momentum trading is generally used to capture strong moves in short time frames usually for not more than a few hours or a few days. Generally momentum traders are very focused on only a few trades at a time at most and scan a large watch list for a few signals. Trend followers by contrast manage portfolios for entries and exits across diversified assets (usually future contracts) reacting to signals that allow them to capture the profits in long term trends and be on the right side of rare outlier events that lead to large profits through huge parabolic moves in one direction over a longer time period. 

Momentum is the  acceleration in a stock’s price that can be due to earnings, sentiment, news, greed, or fear. Momentum traders will  take a long or short position in the stock in the hope that its momentum will continue in either an upward or downward direction in the time frame they are trading. This strategy relies on short-term movements in a stock’s price rather than long term fundamental valuations. Momentum traders are trying to capture a strong move based on aggressive buyers or sellers bidding a price up or down by overwhelming one side of the bid/ask spread and setting off a strong move in one direction usually temporarily for hours or days.

“Trend following trading is reactive by nature. It does not forecast or predict markets or price levels. Prediction is impossible. Trend trading demands self-discipline to follow precise rules (no guessing or wild emotions). It involves a risk management system that uses current market price, the equity level in your account and current market volatility. Trend traders use an initial risk rule that determines 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.”

“Trend trading is not a Holy Grail. It is not a passing fad or hyped-up secret black box either. Beyond mere rules, the human element is core. It takes discipline and emotional control to stick with trend trading through inevitable market ups and downs. Trend following seeks to capture the majority of a market trend, up or down, for profit. It aims for huge profits in all major asset classes — stocks, ETFs, LEAPS® options, bonds, currencies, futures and commodities.”

“Think of it this way: trend following is the only strategy that you could trade on a desert island. As long as you have market data each day, everything else is useless (i.e. CNBC, news, fundamentals, broker opinions, talking heads, etc.) for making the big money.” – Michael Covel

Above excerpt from

For more information on momentum trading.

PostHeaderIcon 10 Fast Facts About The Current Stock Market Environment $SPY $QQQ $IWM

  1. The long term uptrend stays in track as momentum slows and small pullbacks take  hold.

  2. Currently this market environment currently still favors buy and hold investors, trend followers of the long term uptrend, and swing traders from the long side during pullbacks. Buying strength or momentum on the indexes has just not worked for most of this year with all the fades and choppiness day by day.

  3. The short term support for the $SPY is the 21 day ema after that the 50 day sma is the next place buyers are probably waiting to buy the dip.

  4. The $QQQ bounced off the 10 day sma a loss of that level and the 21 day ema is the next level of support.

  5. The $IWM next level of support is the 200 day sma then the 30 RSI on the daily chart. Both very high probability entries.

  6. 100 Top Performing Stocks

  7. All Time Highs

  8. Stocks that bounced off their 50 day moving averages

  9. Stock Options Explain Doji Candles

  10. Stock Universe as of 07/26/2014