When the market accommodates, trend trading can be highly lucrative. The trick, of course, is to divine the market’s often fickle moods. Tina Logan sets out to help the trader identify and exploit the “good times” in Profiting from Market Trends: Simple Tools and Techniques for Mastering Trend Analysis(Wiley, 2014).
The book is divided into two parts. The first, trend development, has chapters on trend direction, trend duration, trend interruptions, early trend reversal warnings, and later trend reversal warnings. The second part, putting trend analysis to work, deals with the broad market, bull markets, bear markets, and monitoring the market trends; it also includes a case study of the current bull market. Throughout, the text is illustrated with TC2000 (Worden Brothers) charts.
Let’s look at the chapter on early trend reversal warnings to get a sense of the book as a whole. Logan summarizes the warnings in a table. In an uptrend they are: a bearish climax move such as a key reversal or an exhaustion gap, bearish divergence, failure to break a prior peak, change of slope—rising trendline, break of tight rising trendline, approaching a strong ceiling, and bearish candlestick reversal pattern. The warnings in a downtrend are the reverse. (more…)
Archives of “market trend” tag
rssJesse Livermore with Edwin Lefevre, dated circa 1922
What follows is a never before published “interview” with Jesse Livermore.
Conducted by Edwin Lefevre, dated circa 1922, this “interview” reveals great insights into the mind of the famous trader. As we will see, the wisdom imparted here could change our entire perspective on the speculative game we love and enjoy. It might even change our lives. I took the liberty of editing it due to its length.
Lefevre: Hello Mr Livermore. Thank you for taking the time to conduct this series of interviews with me. It is my understanding that you do not grant many interviews, so I am honored.
Livermore: You are very welcome. I appreciate the respect but you do not have to address me as Mr. Jesse, or my nickname, the boy plunger, will suffice.
Lefevre: And where did you get the name boy plunger?
Livermore: It was during the early days when I was trading small lots in the bucket shops, where the man who traded in twenty shares at a clip was suspected of being J.P. Morgan traveling incognito. I didn’t have a following. I kept my business to myself. As it was, it did not take long for the bucket shops to get sore on me for beating them. I’d walk in and plank down my margin, but they’d look at it without making a move to grab it. They’d say nothing doing. That is when they started calling me the boy plunger. I had to move from shop to shop, even to the point of changing my name. I couldn’t put trades on without getting cheated on the quotes. This was in Boston, so I then moved to where the real action was, to New York. I was 21 at the time.
Lefevre: Were you making money? (more…)
10+1 Rules If You USE Charts
Rule 1 – If you cannot see trends and patterns almost instantly when you look at a chart then they are not there. The longer you stare, the more your brain will try to apply order where there is none.
If you have to justify exceptions, stray data points and conflicting evidence then it is safe to say the market is not showing you what you think it is.
Rule 2 – If you cannot figure out if something is bullish or bearish after three indicators then move on. The more studies you apply to any chart the more likely one of them will say “something.” That something is probably not correct.
When I look at a chart and cannot form an opinion after applying three or four different types of indicators – volume, momentum, trend, even Fibonacci – I must conclude that the market has not decided what it wants to do at that time. Who am I to tell it what it thinks?
Rule 3 – You can torture a chart to say anything you want. Don’t do it.
This is very similar to Rule 2 but it there is an important point to drive home. You can cherry pick indicators to justify whatever biases you bring to the table and that attempts to impose your will on the market. You cannot tell the market what to do – ever. (more…)
Amos Hostetter :Invaluable Trading Principles
Try to find a long term trend and ride it up. Stay with the trend and don’t be tempted to grab a quick profit. Patience is one of the most important traits of a trend follower.- Be careful not to be shaken out by market fluctuations. Instead try to sit tight as long as there are no warnings showing up. Prices that come back so that your initial gain halves are not necessarily a reason to sell.
- Big wins can only be achieved with major trends. Find them and don’t hesitate to buy at high prices when you may think it is too late. A market is never too high to buy or too low to sell.
- Necessary is of course a stop loss near the entry point. A stop is the easiest way to put your capital at work on a trend, because otherwise you are too often and too long stuck in a trading market which goes nowhere or worse in a falling market.
- Absolutely forbidden is averaging down or fighting the market trend.
- To think that a market is cheaper now after prices came down and therefore must offer a better chance than it did when prices were higher, will put you in the wrong stocks at the wrong times.
- Never try to sell at the top. The trend may continue. Sell after a reaction if there is no rally.
- On the other hand don’t expect the market to end in a blaze of glory. Look out for warnings.
- Tape reading can tell you only that something is wrong. Don’t try to analyze the flow of transactions as the tape shows them in too much detail.
- Don’t look for breaks. Look out for warnings.
- Pyramid stocks only if the initial investment shows a gain.
- Look out for normal market behavior. If a market doesn’t act right, don’t touch it.
- If in a bear market a complete demoralization develops suddenly it may be a sign for a starting bull market.
- Observation of the market gives the best tips of all. Follow your experience to exploit them, while sticking to facts only.
Try to find a long term trend and ride it up. Stay with the trend and don’t be tempted to grab a quick profit. Patience is one of the most important traits of a trend follower.Trading Thought For Traders
“When a market is going straight up, the natural inclination of many traders is to try calling a top. Active market players have strong desire to be the market-timing genius that nails the precise moment that a trend has come to an end. The attempt is understandable — but is it smart? In theory, you should be able to make a ton of money if you can do this with some precision, but the reality is that this is usually more of an exercise in ego than
anything else — and it doesn’t tend to produce a big profit, either. What happens when people engage in this game is that they rack up a series of losses as their trades are stopped out and they try again. The tendency is to justify the behavior by saying, “I was just a little early, but this time I’m going to nail it.” If you try long enough, you will eventually be right, but what we never hear about is how much money has been lost in the process. Would you have better off simply staying with the trend and only selling once you saw some weakness? In addition to the cost of losses on premature short positions, there is another hefty price: the profit you have lost by failing to stick with the trends. It is hard enough to keep pace with the market trend when you are long. It is just plain impossible when you are obsessed with trying to call a market turn. The combination of being on the wrong side of the
market, along with the opportunity cost of premature shorts, should give pause to anyone who is trying to time market turns.” –
Bruce Lee on Stock Trading
If Bruce Lee was a trader I believe this would be his advice:
If you let the market show you the way you will win.
Do not trade your opinions about what the market will do next, instead always ask the questions:
What is the chart saying? Where is support and resistance?
Is the market trending or range bound? At what price level will I know that it has changed?
Where is all the capital flowing? What keeps going up day after day?
If I enter a trade at what price level will I know I was wrong?
Can I quickly admit I am wrong about a trade and move on to the next one?
Water is so versatile it can be ice in the winter and steam in extreme heat. Traders do well to be a bull in a bull market and a bear in a bear market.
Water can wear through a rock if it is a strong river. You can win in the markets if you keep trading the right method over and over again.
Water takes the form of whatever you put water into. Traders should trade for the market conditions that they find themselves in.
Water can only be reduced to its core elements hydrogen and oxygen but it can not be truly destroyed. If you only risk 1% per trade your account can experience a draw down in capital but it to can not be destroyed.
Larry Hite-Trend Following Legend Who Respects the Risks
Larry Hite was featured in Market Wizards. Market Wizards is a must read for all trend followers. On one level you will learn various trading tips however on the other hand, do not be think that your trading will be so easy. Trend following as easy as it is, is very difficult.
Try to internalize some of Larry Hite’s trading tips for trend followers:
I have noticed that everyone who has ever told me that the markets are efficient is poor.
People develop systems and people will make mistakes. Some will alter their system or jump from system to system as each one has a losing period. Others will be unable to resist second-guessing the trading signals. People don’t change.
The very first rule we live by at Mint is: Never risk more than 1% of total equity on any trade. Secondly, we always follow the trends and we never deviate from our methods. In fact, we have a written agreement that none of us can ever countermand our system. Thirdly, diversify in two ways. A. we trade more markets worldwide than any other money manager. B. we use lots of different systems ranging from short term to long term.
Over-rated indicators: Overbought/oversold indicators.
Two basic rules: (1) if you don’t bet, you can’t win. (2) If you lose all your chips, you can’t bet.
Never trade counter to the market trend.
Reminiscences of Marty Zweig: What I Learned From a Market Great
The early years
After degrees from Wharton, University of Miami and Michigan State, Marty started his career in academia but ultimately became one of the most respected stock market “gurus” in the modern era. I have years’ worth of memories of Marty, and hope readers will indulge me as I reminisce and share some of the most important market lessons I learned from one of the greats.
But first, the personal stuff. Marty was brilliant, there’s no doubt; but he was also quirky, goofy and affable. He was the consummate worrier… but he was also the ultimate warrior. He lived, ate and breathed the markets and perpetually (and tirelessly) strived to “figure it out.”
One of my greatest memories is getting to see first-hand his now-famous memorabilia collection—to which there are no comparables. Among them, there was the dress Marilyn Monroe wore while singing Happy Birthday to John F. Kennedy in 1962; the suits worn by the Beatles on the Ed Sullivan Show in 1964; the 1992 Olympics’ US “Dream Team” basketball jerseys; the booking sheet from one of Al Capone’s arrests; a letter from Madonna to Michigan State declining acceptance so she could pursue a music career; guitars of many rock stars, including Bruce Springsteen and Jimi Hendrix; the fedora worn by Humphrey Bogart in Casablanca; the original Terminator costume worn by Arnold Schwarzenegger; and multiple boxing championship belts, Super Bowl rings and Heisman Trophies. (more…)
10 Habits of Successful Traders
1. Follow the Rule of Three. The rule of three simply states that a trade will not be made unless you can carefully articulate three reasons for doing so. This eliminates trading from an indicator alone.
2. Keep Losses Small. It is vitally important to keep losses small as most all of large losses began as small ones, and large losses can put an end to your trading career.
3. Adjust Stops. When a trade is working move your stop loss up in order to lock in gains.
4. Keep Commissions Low. There is a cost to trading but there is no reason to overpay brokerage fees. A discount brokerage is just as good as a premium brand name one.
5. Amateurs at the Open, Pros at the Close. The best time to enter trades are after lunch when the professionals are looking to get in at a better price than one provided in the morning.
6. Know the General Market Trend. When trading individual stocks make sure you trade with the general market trend or condition, not against it.
7. Write Down Every Trade. Doing this will allow you to learn what is working and what is not. It will also help you determine what types of trades work best for your personality.
8. Never Average Down a Losing Position. It is a loser’s game when you add to a loser. You add to winning positions because they are winners and are proving themselves to be such.
9. Never Overtrade. Overtrading is a direct result of not following a well thought out plan, deciding it is best to trade off emotion instead. This will do nothing but cause frustration and a loss of money.
10. Give 10 Percent Away. Money works the fastest when it is divided. When we share we prime the economic pump of the universe.
Trading is a game of rules. We either make the decision to abide by them or we break them. We do the latter at our own peril.
Trading Wisdom – Gary Bielfeldt
The most important thing is to have a method for staying with your winners and getting rid of your losers. By having thought out your objective and having a strategy for getting out in case the market trend changes, you greatly increase the potential for staying in your winning positions. The traits of a successful trader: The most important is discipline – I am sure everyone says that. Second, you have to have patience; if you have a good trade on, you have to be able to stay with it. Third, you need courage to go into the market, and courage comes from adequate capitalization. Fourth, you must have a willingness to lose; that is also related to adequate capitalization. Fifth, you need a strong desire to win. You have to have the attitude that if a trade loses, you can handle it without any problem and come back to do the next trade. You can’t let a losing trade get to you emotionally. If a trade doesn’t look right, I get out and take a small loss.