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Hypothesis of the day

Hypothesis I thought of the other day daydreaming:

A test of lows or highs is similar to how when you break up with a lover you always go back for a second try to probe to see if you made the right decision. Both parties are usually willing (bulls/bears and man/woman or etc/etc. If test falls short, low/high rejection a new trend is formed or new high/low is formed and trend is resumed. If two partners give it a second try either their relationship moves to new deeper levels of intimacy or they split up and look for new partners.

Of course break out failures and failed failures happen, but at least the scenarios can be confined to a limited set of outcomes.

Doubt and Disappointment-Two Friends of Traders

We all want certainty both in and outside the charts. Problem is certainty is nothing more than hope wrapped in expectation.  Life is uncertain. A successful trade is uncertain.  If certainty is what we want then certainty we will get.  However, be prepared to meet certainty’s friends, doubt and disappointment.  Doubt and disappointment are, shall we say, in “cahoots” with certainty.  You can’t have one without the other.  This is a blessing really that we all too often turn into a curse.  A blessing because we have two new friends who can help keep us balanced, honest, and above all, human.  A curse because we choose to ignore their advice when we should be embracing it.  Embrace it you say?  Yes.  Because doubt and disappointment can lead to new discoveries and a deeper appreciation for what life has to offer.  Maybe, just maybe, what we believe to be certain, you know, that which we wrap up in hope and expectation, is not so certain after all.  Maybe, just maybe, our friends doubt and disappointment can lead us down a better path and a better life.  Maybe, just maybe, doubt and disappointment can teach us a new understanding about the markets and the charts, wherein we pin so many of our hopes and expectations. (more…)

Ten Times When A Trader Should do Nothing

Ten Times When A Trader Should do Nothing

  1. When you are confused and don’t know what to do, do nothing.
  2. There are no set ups on your watch list, then don’t trade.
  3. You are a trend trader and there is no trend to trade.
  4. The market is extremely volatile due to headline risk.
  5. You want to make an option trade but the options are illiquid with a huge bid ask spread.
  6. If you are trying to trade supply and demand but the government keeps interfering with your market, pick a different market.
  7. Your stock reports earnings the next day and you expect a powerful move but it could easily go either way, wait until after earnings to trade.
  8. You are a momentum trader but their is not momentum, then wait.
  9. You play the long side only and the market is in a correction or a bear market, wait for a new trend to the upside.
  10. If you are not at your best mentally and emotionally then don’t trade until you are.

Doubt and Disappointment

We all want certainty both in and outside the charts. Problem is certainty is nothing more than hope wrapped in expectation.  Life is uncertain. A successful trade is uncertain.  If certainty is what we want then certainty we will get.  However, be prepared to meet certainty’s friends, doubt and disappointment.  Doubt and disappointment are, shall we say, in “cahoots” with certainty.  You can’t have one without the other.  This is a blessing really that we all too often turn into a curse.  A blessing because we have two new friends who can help keep us balanced, honest, and above all, human.  A curse because we choose to ignore their advice when we should be embracing it.  Embrace it you say?  Yes.  Because doubt and disappointment can lead to new discoveries and a deeper appreciation for what life has to offer.  Maybe, just maybe, what we believe to be certain, you know, that which we wrap up in hope and expectation, is not so certain after all.  Maybe, just maybe, our friends doubt and disappointment can lead us down a better path and a better life.  Maybe, just maybe, doubt and disappointment can teach us a new understanding about the markets and the charts, wherein we pin so many of our hopes and expectations.

What a ride this market has been on!  No roller coaster can compare. And the ride is far from over and triple digit days will continue for some time.  Today could easily be a triple digit day to the upside or downside or both!  Who knows? We have no certainty about where this consolidation will end and in what direction.  All I know is when a certain trend begins we will still be faced with doubt and disappointment, either because we doubt the new trend or are disappointed that the direction is not quite what we expected, when we expected it.  Then again, nothing in the market is quite what we expect.  Don’t be surprised if the market does exactly the opposite of what you want or expect.  If you are certain of its direction…I have two friends to introduce you to.

MARKET WISDOM

A list of golden sayings and rules I have gleaned from many sources:
wisdom-thought

  • Plan your trades, trade your plan.
  • Trade Quality, Not Quantity.
  • Keep it simple.
  • Don’t look for a reason to enter the market, look for a reason NOT to enter.
  • Don’t act due to “Newbie Nerves”
  • Don’t make up a trade. If you have to look, it isn’t there.
  • Never play with scared money.
  • You are not the market.
  • Buy dips in an uptrend, sell rallies in a downtrend.
  • Do not try to pick tops and bottoms.
  • It is only divergence if it came off a retracement – not a sideways market.
  • Indicators warn, price action confirms.
  • Divergence is early, cross-overs are late.
  • You cannot expect your positions to go immediately into the money.
  • Divergence means a detour, but not necessarily a new trend.
  • No-one knows what will happen in the markets.
  • Standing aside is a position.
  • Subordinate your will to the will of the market.
  • Large ranges beget small ranges, small ranges beget large ranges.
  • Once a thing is set in motion, it tends to stay in motion.
  • Sniper-rifle, not a shotgun.
  • Cut your losses short, let your profits run.
  • Only move stops in the direction of your position.
  • Do not let a winner turn into a loser.
  • Never add to a losing position.
  • Forget losses quickly. Forget profits even quicker.
  • Consistent behavior equals consistent results.

There are probably more, send ’em in…

4 Types of Trades

4type

Stock trading consists of 4 major types of trades.

The range-bound trade: the stock is tied in a range and will remain there until there is a significant change in the supply/demand dynamics. For this trade you fade any move to the boundaries of the range with a tight stop a little bit below/above the range. If the range is broken, you will lose small amount. It is good for scalpers with shorter trading horizon.

The breakout trade: in order to break from a range, a stock needs to experience a major shift in supply/demand. A dramatic occurrence. News or expectation of news. The news doesn’t have to be connected with the individual stock. It might be something that impacts the whole industry or market. Sudden change in participants’ confidence. Not every breakout will be caused by clear news. Often it will happen at no news at all. In any case, volume should be your tell how genuine the move is. Buy several cents above the range with a stop several cents into the range. (more…)

Ten Times When A Trader Should do Nothing

  1. When you are confused and don’t know what to do, do nothing.
  2. There are no set ups on your watch list, then don’t trade.
  3. You are a trend trader and there is no trend to trade.
  4. The market is extremely volatile due to headline risk.
  5. You want to make an option trade but the options are illiquid with a huge bid ask spread.
  6. If you are trying to trade supply and demand but the government keeps interfering with your market, pick a different market.
  7. Your stock reports earnings the next day and you expect a powerful move but it could easily go either way, wait until after earnings to trade.
  8. You are a momentum trader but their is not momentum, then wait.
  9. You play the long side only and the market is in a correction or a bear market, wait for a new trend to the upside.
  10. If you are not at your best mentally and emotionally then don’t trade until you are.