29 One Liner Trading Rules

  • 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.
  • 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. (more…)

Swope and Howell, Trading by Numbers

The title of this book by Rick Swope and W. Shawn Howell is somewhat misleading. It’s not intuitively obvious, or at least it wasn’t to me, that Trading by Numbers: Scoring Strategies for Every Market (Wiley, 2012) is primarily about options.

But let’s start, as the authors do, with their trend and volatility scoring methods. The trend score has four components: market sentiment (the relationship between a long-term moving average and a short-term moving average and the position of price in relation to each moving average), stock sentiment (the same parameters as market sentiment), single candle structure (body length relative to closing price), and volume (OBV trend). The range is -10 to +10. Volatility scoring has three legs: historical market volatility, historical stock volatility, and expected market volatility. The range is 0 to +10.

Before moving on to the standard option strategies, the authors address risk management, which they wisely describe as nonnegotiable. Risk management again has three legs: risk/reward, concentration check, and position sizing. 

And, with chapter five (of sixteen), we’ve reached covered calls. The reader who has no experience with options will be lost. Even though the authors push all the right buttons (ITM, ATM, OTM strategies; the Greeks; position adjustments), they push the buttons almost as if they were playing a video game. Very fast.

Assuming that the reader is not new to the option market, what can he/she learn from this book? Let’s look very briefly at three strategies and see how they reflect three different market or individual stock conditions: a long call, a straddle/strangle, and an iron condor. Traditionally described, in the simplest of terms, the first is looking for a significant bullish directional move, the second anticipates a surge in volatility, and the third expects a rangebound market. (more…)

The “BUZZ WORDS” for 2013

In this global “LOW-GROWTH” macro-economic environment, I would use the following “BUZZ WORDS” to define World Central Bank and global market activity for 2013, as I see it at present.

*(I may update this list as the year progresses, as various scenarios become clearer, and as new events unfold.)


  • the Fed (and other Central Bankers around the world) provides low interest-rate loans to Banks
  • Banks are supposed to make this money available to companies and individuals at low rates that they deem appropriate (however, as demand for loans picks up, no doubt the Banks will raise interest rates, even though the Fed may not…a risk that will have to be factored into a company’s costs)
  • the Fed’s goal is to produce a “WEALTH EFFECT” (precisely who will benefit remains to be seen)
  • wholesale and retail prices of goods and services
  • price of stocks, commodities, etc.
  • taxes (more…)

Sentiment Cycle

On the upside, the area where churning takes place is in between the Returning Confidence phase and the Subtle Warning phase, after a significant advance has already taken place. This often appears in the form of a head and shoulders top on weekly or monthly charts. By the time confidence returns, the market has already been going up for ages while the retracement patterns become ever larger, each one scarier than the last.
To technical traders, this type of price action tells us that the market is getting tired. Perceived bull market volatility excites investors. They waited forever on the sidelines for fundamentals to confirm that the move up was ‘real’. The coast is finally clear and they jump in with both feet. This phase typically ends with a failure on test of top, and the big, super scary ‘buy the dip’ pullback begins.
The public continues to pour money in, lured by glowing good news and economic data. After the long move up, finding attractive stocks becomes difficult for technical traders and market veterans. Traders chase momentum where they find it. Investors believe that the game is back on, and they are willing to take big risk and buy big dips. This Big Dip usually comes after a failed test of top in the Returning Confidence phase. The Big Dip typically takes price below the 50-day simple moving average and quite often, to the 200-day moving average. This is where ABC Corrections are typically found.
Once it is widely accepted that economic and corporate fundamentals are supporting higher prices, a bell goes off. The bull survived The Big Dip. Those who had previously been afraid now have plenty of reasons – and proof – that it is safe to go back into the market and buy again.  (more…)

Market Volatility

Many, many times traders are quite conscientious and self-controlled in most areas of their lives, but experience lapses of discipline specific to trading. When this happens, it’s often the case that the trading itself–*how* they’re trading–is artificially creating the failure to follow trading rules. A key culprit in all this is market volatility. Volatility changes from day to day and week to week. It also varies as a function of time of day. Frequently, traders trade a fixed size and set fixed targets and stops, heedless of the underlying market volatility. In a low volatility environment, they fail to hit their targets and get stopped out, criticizing themselves for leaving money on the table. In an environment of enhanced volatility, the market will blow through their stops or exceed their targets, leaving them feeling that they did not trade well. This is especially true when traders find themselves unable to take what is normal heat in an environment of raised volatility. In such cases, it really isn’t a lapse of discipline causing the problem. Rather, the trader is not adapting to market conditions. Adhering to fixed rules in a variable environment is not necessarily a virtue. Changing markets can prevent us from enacting those fixed rules.

The Two Trading Problems

The old saying indicates that fear and greed are the emotions that dominate markets.

Eliminating emotion from trading is both impossible and undesirable. The “feel” for markets possessed by the best traders is a form of emotion; Antonio Damasio’s writings on this subject are must reading.

When we become very anxious or frustrated, however, our assessments of risk and reward are impaired: that is the enduring message of behavioral finance research. Regional cerebral blood flows no longer activate those executive parts of the brain responsible for planning, judgment, and decision-making. Rather, we regulate our motor activity as part of “flight or fight”. In the flight mode, we flee from risk and inhibit trading decisions. This leads to immediate safety, but also missed opportunity. In the fight mode, we confront risk and activate trading decisions. This leads to the relief of taking decisive action, but also poses increased possibilities of loss.

With market volatility at record levels, it’s not unusual to experience outsized losses when trades are wrong. These losses place a figurative magnifying glass on our flight or fight responses, activating stress modes at exactly the times we want to be most deliberate and planful. (more…)

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