Archives of “breakouts” tag

rss

4 Pillars of Trading

  
  Education
#  #  #  #  #  #  #  #  #  #  #  #  #  #  #

4 Pillars

I “see” the market through the lens of four primary metrics: fundamentals, technical, structural and psychology.

When viewed in isolation, each of those approaches has inherent flaws.

1. Fundamentals are best at the top and worst near a low.

2. Technical indicators often trigger buy signals higher, on breakouts, and sell signals lower, after a stock has broken down.

3. Structural factors — debt, derivatives and currency effects — can self-sustain in a cumulative manner until such time they overwhelm the system.

4. Psychology, such social mood and risk appetites, can gain momentum until they snap under the weight of the herd mentality.

Ten Destructive Trading Thoughts

  
  Education
#  #  #  #  #  #  #  #  #
  1. That resistance is way too close, I really shouldn’t have taken that signal. 
  2. I should definitely trade that breakout. My method doesn’t trade breakouts,but that’s areally good-looking trade.
  3. I’m long, this is a downtrend.  What the heck was I thinking?
  4. This going to be a loser, for sure.
  5. Price has ripped so far away from me – please don’t turn into a signal.
  6. This is clearly in a congestion range.  I’m going to ignore that signal and wait for a breakout.
  7. Buying spikes – this short is doomed.  See ya, money.
  8. Yippeee! It’s not turning into a signal!
  9. Ooh, nice profit – I should take that while it’s still there.
  10. Take the profit. TAKE THE PROFIT.  TAKE THE DAMN PROFIT!!!!!

Brooks, Trading Price Action Reversals

  
  Education
#  #  #  #  #  #  #  #  #  #  #  #  #  #  #  #  #

The third and final volume of Al Brooks’s series is Trading Price Action Reversals: Technical Analysis of Price Charts Bar by Bar for the Serious Trader (Wiley, 2012). A trader does indeed have to be serious to read all three volumes because, according to the author himself, the task is daunting: some 570,000 words.
Only half of the final volume is about trend reversals. The rest deals with day trading, the first hour (the opening range), and putting it all together, including 78 trading guidelines, some of which you may not have encountered elsewhere.
This volume is the most accessible of the three, but then my very tired eyes did a lot of work before getting here. It would be difficult to skip the first two volumes and expect to understand the third.
Brooks himself is not primarily a reversal trader. As he writes, “I prefer high-percentage trades, and my most common trades are pullback entries and trading range fades. I especially like breakouts because when they are strong the probability of follow-through is often more than 70 percent. I look less often for reversal trades, because most reversal attempts fail, but I will take a strong reversal setup.” (p. 463) (more…)

Diary of a Professional Commodity Trader -Book Review

  
  Education
#  #  #  #  #  #  #  #  #  #  #  #  #  #  #  #  #  #  #

Brandt uses high/low/close bar charts as his primary trading (not, he stresses, forecasting) tools. He is for the most part a longer-term discretionary pattern trader who enters on breakouts that meet his stringent requirements. Since he knows that only 30 to 35% of his trades will be profitable over an extended period of time and up to 80% will be unprofitable over a shorter time frame, he is exceedingly cautious about leverage. For instance, his trading assets committed to margin requirements rarely exceed 15%.

In the first two parts of the book Brandt offers the reader a thorough course in identifying and categorizing trading signals, placing initial protective stops and subsequent trailing stops, pyramiding, and taking profits. The course addresses traders at all skill levels. For instance, he describes his own trading plan as simple, but some of its elements require a degree of judgment and sophistication that can only come with extensive practice. One example: “time phasing is a hurdle all traders must clear in order to be consistently successful.” (p. 88)

The third part of the book is Brandt’s five-month trading diary, and it’s a fascinating read. Not only does it describe individual trades but it shows how good traders evolve. Take month four, where the author is in a drawdown period. He writes that he has always known that there were flaws in his trading plan but that “good times provide cover for the deficiencies of a trading plan.” During tough times “markets have a way of exploiting flaws in a trading plan. … The challenge is to find the fundamental flaws, not just to make changes that would have optimized trading during the drawdown phase. … Almost always the changes [the author has made to his own plan] have dealt with trade and risk management, not with trade identification.” (p. 189) (more…)

Ten Destructive Trading Thoughts

  
  Education
#  #  #  #  #  #  #  #  #
 

  1. That resistance is way too close, I really shouldn’t have taken that signal. 
  2. I should definitely trade that breakout. My method doesn’t trade breakouts,but that’s areally good-looking trade.
  3. I’m long, this is a downtrend.  What the heck was I thinking?
  4. This going to be a loser, for sure.
  5. Price has ripped so far away from me – please don’t turn into a signal.
  6. This is clearly in a congestion range.  I’m going to ignore that signal and wait for a breakout.
  7. Buying spikes – this short is doomed.  See ya, money.
  8. Yippeee! It’s not turning into a signal!
  9. Ooh, nice profit – I should take that while it’s still there.
  10. Take the profit. TAKE THE PROFIT.  TAKE THE DAMN PROFIT!!!!!

There is a Difference Between What People Say and What They Think

  
  Education
#  #  #  #  #  #  #  #  #  #  #  #  #  #  #  #  #

For many, there is a difference between how you think you will act in certain conditions and how you actually act when the time comes. The term used to describe this condition is called empathy gap.

There are two basic scenarios in which empathy gap can impact your performance as a trader/investor:

– you don’t cut your losses when they hit your pre-established exit level. This is the single biggest reason, so many people struggle in the capital markets. One solution to the issue is to enter exit orders, immediately after you initiate an opening order (caution: it does not work with illiquid names, where market makers can easily shake you out);
– you don’t take the signals from your watchlist when they are triggered. Some stocks can really move fast after they pass their tipping point. When that happens, many traders feel like a deer in headlights and are not willing to pay the market price. They’ll put a limit order, hoping that the desired stock will come back and their order will be filled. The best stocks don’t come back. Don’t be afraid to pay the market price for proper breakouts.

In today’s information overloaded world, evidence suggests that 95 per cent of our decisions are made without rational thought. So consciously asking people how they will behave unconsciously is at best naïve and, at worst, can be disastrous for a business. (more…)

Dalton, Jones, & Dalton, Mind Over Markets

  
  Education
#  #  #  #  #  #  #  #  #  #  #  #  #  #  #  #  #  #

Mind Over Markets, the book that popularized (and expanded on) Peter Steidlmayer’s Market Profile, was first published in 1990. Anyone who bought the book expecting a self-help manual would have been sorely disappointed because what they got instead was a pretty complicated alphabetic model for organizing the distribution of market data along price and time axes. Twenty-three years later James F. Dalton, Eric T. Jones, and Robert B. Dalton are back with an updated edition of their text, Mind Over Markets: Power Trading with Market Generated Information (Wiley, 2013).

The book itself is organized according to the Market Profile trader’s achievement level—novice, advanced beginner, competent, proficient, and expert—with the greatest time spent on the competent level. The expert trader gets a mere two pages. (more…)

Robert Meier's Eleven Rules

  
  Education
#  #  #  #  #  #  #  #  #  #  #  #  #  #  #  #  #  #  #

1. Ask yourself what you really want. Many traders lose money because subconsciously their goal is entertainment, not profits.

2. Assume personal trade responsibility for all actions. A defining trait of top performing traders is their willingness to assume personal responsibility for all trading decisions.

3. Keep it simple and consistent. Most speculators follow too many indicators and listen to so many different opinions that they are overwhelmed into action. Few people realize that many of the greatest traders of all time never rely on more than two or three core indicators and never listen to the opinions of others.

4. Have realistic expectations. When expectations are too high, it results in overtrading underfinanced positions, and very high levels of greed and fear – making objective decision-making impossible.

5. Learn to wait. Most of the time for most speculators, it is best to be out of the markets, unless you are in an option selling (writing) program. Generally, the part-time speculator will only encounter six to ten clear-cut major opportunities a year. These are the type of trades that savvy professionals train themselves to wait for.

6. Clearly understand the risk / reward ratio. The consensus is that trades with a one to three or one to four risk / reward ration are sufficient.

7. Always check the big picture. Before making any trade, check it against weekly and monthly as well as daily range charts. Frequently, this extra step will identify major longer-term zones of support and resistance that are not apparent on daily charts and that substantially change the perceived risk / reward ratio. Point & figure charts are particularly valuable in identifying breakouts from big congestion / accumulation formations. (more…)

The Market Never Lies, Never Fails

  
  Education
#  #  #  #  #  #

Notions like ‘false breakouts‘ are generally harmful to traders, because they presuppose that the market can try to do something. A move reverses and they say the breakout is ‘false’ or it ‘failed’ or whatever. Reality check…

The market does not fail to do anything. Ever! You were the one that thought it was breaking out and you were wrong. It happens, get over it. And get in the right mindset: you are trying to predict the natural evolution of price, and you won’t always get it right. Getting it right more often is a good idea if you want better returns. Telling the market it was the one that ‘failed’ is just pissing in the wind.

Go to top