- Never, NEVER cancel a stop loss. I know, I know, every time you have a stop loss in the market, the market moves just enough to stop you out, right? Well it might mean that you should evaluate where you place your stops (this is where good trading journals come in handy), but once you’ve done your analysis and placed the trade, you need to be committed to the trade and your plan. The only adjusting you should do is to lock in your profits.
. - Always have your broker or your trading desk number handy, even if you trade electronically. This is really important for the day trader who is trading leveraged markets. It is easy to get a little too comfortable when your trading platform and internet connection are running smoothly, but once you drop your guard that inevitable lost connection will happen…a lost minute, even seconds could be an expensive lesson!
. - Always check your open orders. This can be done a few different ways depending on your trading platform, but if your intention is to be flat in the market, always double check! (more…)
Archives of “open interest” tag
rssWhere Most Of Your Time Should Be Spent
Selecting the one or two super trades should consume most of your time. There’s a great deal of work and thinking to be done in comparing markets, finding the best Open Interest play and carefully reviewing the premiums. The average tendency is to rush over this section of trading simply because it seems more productive to look at all the technical wiggle-waggles.
In actuality, as I’ve said so many times, unless you are fundamentally right in your initial selection decisions, all the technical tools will do is get you in trouble. Please devote all your concentration and energies to the selection of your commodities before you give the technical data any consideration at all. Technical data is secondary to screening out the potential big winning trades.
The only technical tool to look at during this screening is the ten week moving average trend line. For a bullish situation it should be slanting up; for a bearish market, it should be slanting down.
by Larry Williams, excerpt from his book, How I Made $1,000,000 Trading Commodities Last Year.
THE BEST TRADERS ARE HUMBLE
When an ordinary man attains knowledge, he is a sage; when a sage attains understanding, he is an ordinary man.
– Anonymous
With some technical trading knowledge and experience, you become a trader.
But when you become consistent and profitable, you feel ordinary again. This is because you’ve grown aware of the great uncertainty you face in the markets.
You’ve gained a strong appreciation of risk. In fact, your respect for risk is so deep that you would feel humble. And in that sense, you will feel ordinary.
Spotting the Best Trades
Let me begin by telling you of my system for isolating trades with odds 10 to 1 in my favor. Those are million dollar odds. Unfortunately, I still haven’t developed a method for calling all the big moves all the time. What I have done is develop a set of criteria that will, when they coincide, tell you the odds are heavily in favor of either an up or down move.
This method seldom speaks, but when it does, you have as close to a sure thing as you’ll ever get. As you will see, this method will not call all the swings, but that’s not its purpose. Its function is to segregate the super trades from trades that are questionable.
Trading in this manner is much easier because it allows you to take a longer term view of the market. I have found there is no need to monitor the market on a trade-by-trade basis, or, at times, even a daily basis. The signals are so strong that you don’t need to concern yourself with a microscopic view.
I use two major tools for selecting “bankable trades”. They are: 1) premium relationships, and 2) open interest. When these two click, the odds are 75% in your favor. To further substantiate the 75% probability, I also check contrary opinion, the market’s reaction to news, trend direction, and a few chart formations.
by Larry Williams, excerpt from his book, How I Made $1,000,000 Trading Commodities Last Year.
True False Questions
True or False
- The big money in trading is made when one can get long at lows after a big downtrend.
- It’s good to average down when buying.
- After a long trend, the market requires more consolidation before another trend starts.
- It’s important to know what to do if trading in commodities doesn’t succeed.
- It is not helpful to watch every quote in the markets one trades.
- It is a good idea to put on or take off a position all at once.
- Diversification is better than always being in 1 or 2 markets.
- If a day’s profit or loss makes a significant difference to your net worth, you are overtrading.
- A trader learns more from his losses than his profits.
- Except for commission and brokerage fees, execution costs for entering orders are minimal over the course of a year.
- It’s easier to trade well than to trade poorly.
- It’s important to know what success in trading will do for you later in life.
- Uptrends end when everyone gets bearish.
- The more bullish news you hear the less likely a market is to break out on the upside.
- For an off-floor trader, a long-term trade ought to last 3 or 4 weeks or less.
- Other’s opinions of the market are good to follow.
- Volume and open interest are as important as price action.
- Daily strength and weakness is a good guide for liquidating long term positions with big profits.
- Off-floor traders should spread different markets of different market groups.
- The more people are going long the less likely an uptrend is to continue in the beginning of a trend.
- Off-floor traders should not spread different delivery months of the same commodity.
- Buying dips and selling rallies is a good strategy.
- It’s important to take a profit most of the time.
- Of 3 types of orders (market, stop, and resting), market orders cost the least skid.
- The more bullish news you hear and the more people are going long the less likely the uptrend is to continue after a substantial uptrend.
- The majority of traders are always wrong.
- Trading bigger is an overall handicap to one’s trading performance.
- Larger traders can muscle markets to their advantage.
- Vacations are important for traders to keep the proper perspective.
- Undertrading is almost never a problem.
- Ideally, average profits should be about 3 or 4 times average losses.
- A trader should be willing to let profits turn into losses.
- A very high percentage of trades should be profits.
- A trader should like to take losses.
- It is especially relevant when the market is higher than it’s been in 4 and 13 weeks.
- Needing and wanting money are good motivators to good trading.
- One’s natural inclinations are good guides to decision making in trading.
- Luck is an ingredient in successful trading over the long run.
- When you’re long, limit up is a good place to take a profit.
- It takes money to make money.
- It’s good to follow hunches in trading.
- There are players in each market one should not trade against.
- All speculators die broke
- The market can be understood better through social psychology than through economics.
- Taking a loss should be a difficult decision for traders.
- After a big profit, the next trend following trade is more likely to be a loss.
- Trends are not likely to persist.
- Almost all information about a market is at least a little useful in helping make decisions.
- It’s better to be an expert in 1-2 markets rather than try to trade 10 or more markets.
- In a winning streak, total risk should rise dramatically.
- Trading stocks is similar to trading commodities.
- It’s a good idea to know how much you are ahead or behind during a trading session.
- A losing month is an indication of doing something wrong.
- A losing week is an indication of doing something wrong.
- One should favor being long or being short – whichever one is comfortable with.
- On initiation one should know precisely at what price to liquidate if a profit occurs.
- One should trade the same number of contracts in all markets.
- If one has $10000 to risk, one ought to risk $2500 on every trade.
- On initiation one should know precisely where to liquidate if a loss occurs.
- You can never go broke taking profits.
- It helps to have the fundamentals in your favor before you initiate.
- A gap up is a good place to initiate if an uptrend has started.
- If you anticipate buy stops in the market, wait until they are finished and buy a little higher than that.
Four Basic Points on Technical Analysis
The true trader, the consistent winner, is not concerned with any price or where prices started from. He or she is concerned with what it takes for people to believe strong enough, and with enough commitment, that they will place their capital at risk.” So, with that in mind, the four basics:
1. A price chart is simply “a pictorial representation of the sum total of all the market’s belief structures.” No matter what we believe the chart does not lie.
2. “Because every potential trader in every market is seeing it differently, every printed price will mean something different to everyone.” Our entry may be someone else’s opportunity to exit and vice versa. We should always remember this the next time we believe we have a sure thing.
3. Prices eventually have to stop their forward progress, in either direction. “When every potential trader has executed for an entry, in any time frame, the market is vulnerable. When no one is doing anything, and what’s been done is done, prices must stop.”
4. No matter what indicator we use “every technical indicator designed is based solely on combining or dividing prices in some way.” Volume and open interest, however, “chronicles the true state of what is happening inside the minds of the market participants.”