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Ten Principles of Short-Term Trading

  
  Education
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1) Strength Begets Strength – A market rise that expands the number of stocks making new highs and that finds more stocks trading with strong upside momentum tends to persist in the short run.

2) Weak Rises Tend to Reverse – When markets move higher with fewer stocks making new highs and with fewer stocks showing strong momentum, the rise tends to reverse in the short run, often entering a trading range prior to making an extended decline.

3) Broadly Weak Markets Tend to Reverse – When the market is very weak (many stocks making new lows and many stocks displaying strong downside momentum), it is common to see the market make marginal new lows in the short run, but reverse after that.
4) Weak Tests of Prior Market Highs or Lows Tend to Reverse – When we get a market trading above or below its value area on low volume, few stocks making fresh new highs/lows, and weak momentum, we tend to get a “mean reversion”–a trade back into the value area. That’s basically what this week’s action has been about.

5) Strong Tests of Prior Market Highs or Lows Tend to Persist – When we see expanding volume and expanding new highs or lows on a move above or below the value area, such a breakout move tends to becoming a short-term trend. The longer the prior consolidation period (the heavier the volume within the value area), the more extended the subsequent trend tends to be.

6) Weak Pullbacks Following a Strong Move Will Reverse – When we have a strong market move that expands new highs/lows and momentum, a pullback on weak volume and with relatively few stocks participating will lead to at least a test of the impulse highs or lows and often to a resumption of the strong move.
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Trading Rules & A Trading Plan

  
  Education
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There is a saying if you do not know where you are going…how will you get anywhere. There is some what of an analogy with trading and having rules and a trading plan. When you follow trading rules which match your personality along with your trading plan, you are on a path to just let the probabilities occur. Every facet of your trading needs to be thought out. It is not easy developing a trading plan with rules…however once you have it in place & accept the fact that any trade is 50/50 & does not have to work…your edge over time could possibly provide you a rising equity curve.

When you have trading rules & you follow it……you reduce the anxiety and stress levels. You know you need to follow your plan because the only certainty when trading is complete uncertainty. If you think you know where any market is going and do not put on a protective stop…Good luck and would bet you will encounter a huge shock one day.

Part of your trading rules are what to buy or sell

How much to buy or sell

When to get out with a profit or loss… (more…)

Reasons why traders lose money

  
  Education
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  • Reason
    Over trading
  • Lack of knowledge & lack of experience
  • Trading without a plan
  • Not having enough capital
  • Over confidence
  • Lack of confidence
  • Emotional trading
  • Afraid to lose money
  • Trading with complex system
  • Relying on others
  • Not willing to take it as a business
  • No giving enough time to be a trader
  • Trying to be successful overnight
  • Running Losses

Conquering Your Negative Trading Emotions

  
  Education
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The trader has two emotions that must be controlled in order to become successful. I call them ‘the two sides of a coin’ and they are commonly known as FEAR & GREED.

The beginning or new trader will first encounter FEAR. There are two types of FEAR. The fear of losing money and the fear of being wrong.
The fear of losing money usually derives from a trader risking money that should be used for the rent, food, children’s education etc. ‘Scared money’ will render one incapable of pulling the trigger when a trade setup comes along. The only way to overcome this paralysis is to be well capitalized with funds that you can risk.
The fear of being wrong is simply that part of all of us that feels that to make a wrong decision is reflective on our personal competency. The cure for this is to simply realize and accept that losses are part of this game. Think about this? A baseball player needs to hit the ball once for every three times at the plate and this will get him into the Hall Of Fame. Whenever you feel the fear of being wrong, just remind yourself that… “My approach for trading has both historically and real-time produced over (number)% winning trades.” This will give you the confidence to step up to the plate and keep swinging. Also tell yourself that the only way to earn the big money is to get into the game. Have confidence in your trading system that when properly executed, it will make much more money than it loses.
So, why is GREED the flip side of fear?
Greed is caused by the fear of not making enough money. Traders who are greedy are often the exact opposite of the ones who are fearful. They have no fear and usually are very aggressive traders, which can get them into big trouble fast. Greed will usually lead to overtrading, failure to follow the trading rules, and not applying the system consistently. One of the biggest problems when greed sets in is the inability to know when to take profits. These traders are so bent on making a killing that they are never satisfied. If they have significant profits they don’t even think about cashing out, as they want more. This often leads to the inability to see the trade turning against them and they will allow winning trades to turn into big losing ones. (more…)

MSCI goes beyond BRICs

  
Analysis, Education
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MSCI has launched the MSCI EM Beyond BRIC Index, a new subset of the MSCI Emerging Markets Index.

The new index comprises seventeen countries and excludes the ‘BRIC’ economies of Brazil, Russia, India and China, which currently represent around 40% of the wider emerging markets index. MSCI said the new index offered a way to ‘track and evaluate the emerging markets opportunity set for those wishing to invest in countries outside the BRIC region’.

The index is market cap weighted, but the weighting towards the larger markets of Korea, South Africa and Taiwan is capped on a quarterly basis at 15% to ensure greater diversification. This gives greater prominence to smaller emerging market countries.

As it stands, after Korea, South Africa and Taiwan, the largest weightings in the index will be towards Thailand, Malaysia and Indonesia. Chile, Columbia, the Philippines, Turkey and Poland all have a weighting in excess of 2%.

Performance comparison (more…)

Trading rules – something new to think about

  
  Education
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NEW TRADING RULESTrading hours and decision making
You should make your overall (long or intermediate term) decisions before the trading hours and you should not change your general overview of the market during trading hours. Look at the bigger picture.

Breaks & presents
Take breaks from trading, don’t trade every day – after couple of weeks, make presents to yourself if you have been successful, go abroad or something like that. If you haven’t made profit, just take a couple of days off.

Crowd is wrong
Don’t follow the crowd, historically the public tends to be wrong. If everyone are buying, it might be good idea to start thinking of going short. If 85% of the market analysts are bullish, the market is most likely overbought, if less than 25% are bullish, it’s probably oversold.

Bets are bad
Don’t make bets. You don’t have to make trades multiple times a day or even every
day. Make trades only when you have a good reason to go into the trade. Wait for
an opportunity. If in doubt about the trade you have done, reduce the size or get out
of the trade.

DAVID TEPPER: If You Invested $1 Million In My Hedge Fund In 1993 You Would Have $149 Million Today

  
Analysis, Education
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David Tepper, who has been running distressed debt hedge fund Appaloosa Management for the past twenty years, is crushing it this year. 

 Meanwhile, the S&P is up about 19.7% this year. 

Tepper was up 5.5% in July net of fees. 

He’s still bullish on stocks.

He told Wapner that he finds them “reasonable” and that he’s still long.   (more…)

Resolutions For 2012

  
Education, Life
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Resolutions On Trading & Investing:

  • Define my trading plan and stay with it.
  • Take no trades without establishing a complete and precise trading plan before the initial trigger.
  • Keep an open mind for new market scenarios based on what the price action and pattern setups provide.
  • Always trade with the trend.
  • The less trading I do, the better my results so for 2012 I’m adoping weekly/monthly time frames
  • Once I am in a trade, stick with the original plan for target and stop-loss – Don’t panic!
  • Make every trade meet the strategy requirements and what happens from there is up to the market.
  • I need to exercise greater patience in both buying and selling.
  • Be more willing to take a position, even if it is very small. It is tough though to gain the confidence to do so as the market has been tough.
  • I am NOT going to overtrade. I will only make “A” trades.
  • Don’t ever force a trade, stay in cash when unsure.
  • I resolve not to violate my stops.
  • Wait for opportunities instead of looking for trades.
  • Do not make a move until your indicators say so.
  • Follow this important Gartman rule: “Do more of what is working and less of what is not.”
  • To clarify my trading approach in my mind and in writing.
  • Be dispassionate and thoroughly objective when evaluating positions.
  • Do not be afraid to cut a loss, even if the trade is later re-entered at a higher price / better set-up
  • Never trade on impulse.
  • To memorize and practice the cardinal rules of trading.
  • Only trade when you can pay very close attention or exclusive attention to the market.
  • Dedicate more time during non-market hours to prepare for trading.
  • Take emotion out of my trading. Follow price action.
  • I need to overcome my unreasonable fear of the market.
  • Try to avoid personal bias in making decisions.
  • Wait for pattern to work out – do not jump the gun.
  • Don’t be in such a damn hurry. Wait out the times when the setup is just not there.
  • Avoid buy and hold in times of high market volatility.
  • Actually ignore the news and trade the charts! It’s harder than it sounds.
  • Don’t force the trade. The market will open again tomorrow and there will be new opportunities.
  • Don’t turn a trade into an investment. Continue to focus on price action.
  • Approach each trading day well-rested, of clear mind, and with a positive, opportunistic attitude just like Kirk

 
Resolutions On Learning:

  • Learn to do 1-2 things very well and focus.
  • Write the plan for the year ahead. Specify initial position, goals, entrance and exit strategies for action, identify risks to take and manage.
  • Study more on the weekends to prepare for the upcoming week.
  • I will be more diligent in keeping a journal of EVERY trade made in the year.
  • Quit searching for the holy grail of trading – there is none.
  • Turn off CNBC and all other distractions in the way of my success
  • I will keep good records and document all of my research, trades, and outcomes.
  • Use the right side of my brain and be careful of the left.
  • Do not blindly follow anyone else.
  • Accept failure and move on.
  • Methodically analyze what went right and wrong on each trade.
  • Spend more time nightly looking at charts.
  • Learn 10 new chart patterns this year and trade only setups identified by those patterns.
  • Apply a consistent decision tree toward every single trade.
  • Tune out the noise. No calls during the day. No more “experts”, no more TV and definitely, absolutely and without a smidge of doubt no more twitter.
  • Transition from paper trading to live trading.
  • Need to read more charts and read less newspapers.
  • Assess my strengths and what is working well for me and determine how I can improve. Also, assess what does not add value and eliminate it.
  • Stay with low risk, probability based methods.
  • Every trade I take requires a one page description of why, how, and at what levels I intend to take action.
  • Paper trade new ideas before putting real money at risk.
  • Study and read more, establish a trading plan, follow the plan, experiment, re-evaluate and keep learning.
  • I resolve to improve myself by: managing my emotions better, become more patient and understanding, define my goals more completely, and constantly review my efforts to these accords.
  • My resolution would be to trade/invest during all market conditions. Emotion still has some control over my investments.
  • Work on consistency!! (more…)

Method-Pyschology-Risk Management for Traders

  
  Education
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METHOD:

  1. I am a trend hunter I want a stock that has the potential to move 10-20  points in my favor.
  2. My top pivot points for trades is the 5 day EMA  (3 & 7DEMA for NF )
  3. I play the long side in bull markets primarily and the short side in bear markets primarily.
  4. I go long the top monster stocks in up trending markets.
  5. I never short a monster stock above the 50 day moving average.
  6. I short the biggest  junk stocks in down trends, the ones that are unprofitable and made major missteps with customers and investors.
  7. I like to trade with all time highs or all time lows in stocks with in striking distance.
  8. Moving averages are my best indicators.
  9. I never have targets, I let a trend run until it reverses.
  10. My watch list for longs is the Investor’s Business Daily IBD50.
  11. I use Darvas Boxes at times to trade stocks.

PSYCHOLOGY:

  1. I am not trying to prove anything about myself I am only trying to make money.
  2. I will quickly admit when I am wrong when a stock moves against me enough to show me I am wrong.
  3. I trade my own method, I do not trade others advice.
  4. If I am losing and very unconformable with a trade I get out of it.
  5. I trade position sizes I am mentally comfortable with.
  6. I do not try to predict the future I look for what the chart is telling me.
  7. I trade the chart not my personal opinions.
  8. I am not afraid to chase a trending stock.
  9. I understand that I chose my entries, exits, risk, and position size and the market chooses when I am profitable.
  10. I do not worry about losing money I worry about losing my trading discipline.
  11. I have faith in myself and my method.
  12. I do not blame myself for losses.
  13. I do not blame myself for losses where I followed my rules.

RISK MANAGEMENT:

  1. I attempt to never lose more than X % of my total capital on any one trade.
  2. I NEVER add to a losing trade.
  3. I use trailing stops to get out of winning trades.
  4. I use mental stop losses to get out of losing trades.
  5. I use position size to limit my risk.
  6. I use stock options to limit my risk.
  7. I know my biggest advantage in trading is small losses and big profits.
  8. I never expose more than X % of my capital to risk at any one time.
  9. I understand the market environment I am trading in.
  10. I understand the volatility of the stock I am trading.

Negative Trading Behaviors

  
  Education
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*Over Trading in Size *Jumping the Gun *Hesitating *Skipping Trades *Being in A Hurry * Trading without Proper Preparation *Getting Stuck in A Losing Trade *Whipsawing *Breaking Your Trading Rules *Shooting From the Hip * Over Interpreting *Discounting *Trading A  Scenario without Reference to Price *Trading Heedlessly *Trading Wildly *Abandoning Your Trading Plan *Not having A Trading Plan *Switching Strategies Frequently *Not having  A Proven Strategy *Not Pulling the Trigger *Not Believing the Evidence the Market Provides *Blindly Believing   A story you tell yourself *Blindly Believing A story somebody else tells you *Becoming Impulsive.*Not Verifying A System Or Method Before you trade it.*Over Researching *Using Trading as a Spectator Sport *Jumping in before you think *Trading too Big *Grabbing Profits too soon.*Getting Careless *Being too Careful *Not adding to A Winning Trade.*Trading Heavier when losing *Forcing  trades *Getting Trigger Happy *Gulping Profits too soon *Adding to A losing Trade.*Overtrading  in terms of Frequency *Sticking with A Losing system *Sticking with A Broker that gives you bad Fills.*Not Making Trading A Priority*Worrying what others will think.*Trading with borrowed Money.*Trading with Money you need to live on*Holding Unrealistic Expectations.*Engaging in Negative and Destructive Self talk*Becoming Despondent about your trading results.*Wanting certainty before you trade.*Disregarding Probabilities*Fooling Yourself about your Trading.*Not keeping Proper Records*Not Acknowledging Mistakes.*Not Learning from Mistakes.*Repeating Mistakes*Engaging in Self Pity* Blaming Others *Getting Envious of other traders *Giving Up periodically *Resisting loss* Feeling shame for loss *Lying and Covering up results *Becoming pessimistic about the future of your trading * Being Unrealistic about your present trading &Tying self worth to trading * Bragging about Trading * Being Unduly Secretive  about trading * Using  trading to inflate your ego *Letting trading interfere with A full and Balanced life *Letting life interfere with A Full  and Balanced trading *Using trading to avoid living *Doing anything Unethical regarding your trading *Doing what Doesn’t work *Not continuing to do what does work *Getting Reckless & Getting Overcautious * Letting others put your down Re your trading * Waiting to Respect yourself untill you succeed with trading*Being Unorganized in your efforts * Trading for the sake of trading *Letting Distractions take your attention away from trading * Not Specializing *Not executing with precision *Forgetting to cancel stops after a trade is off*Fighting Yourself *Fighting the Market *Fighting Your Methods *Making careless errors & Personifying the Market *Projecting your own feelings on the market.

-Other

Go over each of the Behaviors you have checked and scale them from 1 to 10 as to severity.Let 10 represent the most harmful to your trading.

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