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A Trader’s 5 Best Teachers

  
  Education
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Trading Losses: There are two types of losses, one loss is caused by the market simply not being conducive for the profitability of your system. The other loss is due to your lack of discipline causing your system not to work. If you followed your trading plan and had a loss that is to be expected. If you are trading a proven and tested method then you have simply learned that taking a loss is simply part of trading. However if your breach of discipline caused your loss, whether not taking a stop, over riding your plan, not taking an entry, trading too big, etc. then it is time to learn why you had the loss. Ego? Fear? Greed? Overconfidence? Laziness? and many other things cause losses. It is crucial that you learn why you broke your trading plan so you do not repeat the mistake again.

Charts: Studying the past price action of charts is very educational. It will show you how prices have reacted at  support/resistance levels in the past along with moving averages and any other indicators that you may choose. It is important that you understand how your market has historically traded whether it is currencies, commodities, stocks, or bonds. It is crucial that you learn how to identify a trend, a swing trade, and a range bound market. (more…)

Market Gravitates or We Spot those LEVELS…. Mystery !!

  
Analysis, Education
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BANK NIFTY

Here in this very space we have written Y’day and updated today intra-day too: @ 9106 wrote to Sell CNX Bank INDEX on any Rise. It would tumble to 8719 level very shortly.  Bang on… just in 48 hrs it collapsed to exactly our level, precisely 8715, a whooping fall of 400 points. 

 In the same breathe you were forewarned that for NF not crossing 5165-68 would weaken it to 4994 – 4970 levels. Exactly from 5168 of y’day it has nosedived uptill 5017.

 

These are indices: Non-manipulatable, Non-influential. How did it happen, who did it, can there be any attributes at all !!!!  Its our ever dependable charts, Analytical skills and wisdom of Insight. Collectively Technical Analysis. Just Pure Intelligence.

Yesterday  I written about Bank stocks…Just click here

Read Yesterday’s Guesstimates

Many Traders had asked about MTNL…..and they say I don’t about failure calls.First of all about MTNL….Technically was /still looking hot …But I had written many times never act blindly in market and always consider price as Father of stock/Commodity.

-Now click here and see…the reason ..Why MTNL had crashed in yesterday’s trade.

Now about Failure calls.If I recommend any stock or do analysis then I always write Support/Resistance levels. (more…)

Ten Laws of Technical Trading

  
  Education
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1. Map the Trends

Study long-term charts. Begin a chart analysis with monthly and weekly charts spanning several years. A larger scale map of the market provides more visibility and a better long-term perspective on a market. Once the long-term has been established, then consult daily and intra-day charts. A short-term market view alone can often be deceptive. Even if you only trade the very short term, you will do better if you’re trading in the same direction as the intermediate and longer term trends.

2. Spot the Trend and Go With It

Determine the trend and follow it. Market trends come in many sizes – long-term, intermediate-term and short-term. First, determine which one you’re going to trade and use the appropriate chart. Make sure you trade in the direction of that trend. Buy dips if the trend is up. Sell rallies if the trend is down. If you’re trading the intermediate trend, use daily and weekly charts. If you’re day trading, use daily and intra-day charts. But in each case, let the longer range chart determine the trend, and then use the shorter term chart for timing.

3. Find the Low and High of It

Find support and resistance levels. The best place to buy a market is near support levels. That support is usually a previous reaction low. The best place to sell a market is near resistance levels. Resistance is usually a previous peak. After a resistance peak has been broken, it will usually provide support on subsequent pullbacks. In other words, the old “high” becomes the new low. In the same way, when a support level has been broken, it will usually produce selling on subsequent rallies – the old “low” can become the new “high.”

4. Know How Far to Backtrack

Measure percentage retracements. Market corrections up or down usually retrace a significant portion of the previous trend. You can measure the corrections in an existing trend in simple percentages. A fifty percent retracement of a prior trend is most common. A minimum retracement is usually one-third of the prior trend. The maximum retracement is usually two-thirds. Fibonacci retracements of 38% and 62% are also worth watching. During a pullback in an uptrend, therefore, initial buy points are in the 33-38% retracement area.

5. Draw the Line

Draw trend lines. Trend lines are one of the simplest and most effective charting tools. All you need is a straight edge and two points on the chart. Up trend lines are drawn along two successive lows. Down trend lines are drawn along two successive peaks. Prices will often pull back to trend lines before resuming their trend. The breaking of trend lines usually signals a change in trend. A valid trend line should be touched at least three times. The longer a trend line has been in effect, and the more times it has been tested, the more important it becomes. (more…)

John Murphy’s Ten Laws of Technical Trading

  
  Education
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Which way is the market moving? How far up or down will it go? And when will it go the other way? These are the basic concerns of the technical analyst. Behind the charts and graphs and mathematical formulas used to analyze market trends are some basic concepts that apply to most of the theories employed by today’s technical analysts.”

The following are John’s ten most important rules of technical trading:

• Map the Trends
• Spot the Trend and Go With It
• Find the Low and High of It
• Know How Far to Backtrack
• Draw the Line
• Follow That Average
• Learn the Turns
• Know the Warning Signs
• Trend or Not a Trend?
• Know the Confirming Signs

Note: All of the following is the work of John Murphy (not me) (more…)

The Universal Principles of Successful Trading

  
  Education
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A book review for Brent Penfold’s book “The Universal Principles of Successful Trading: Essential Knowledge for All Traders in All Markets”

This book is excellent for traders that are ready to accept its lessons. You need a foundation in trading to understand the importance of what the book is advising and take the principles seriously with an open mind. Once you are through the rainbow and butterfly phase of trading and realize that you will not be a millionaire in a year, this book will help you get focused and get serious about your trading and what really works.

Here are the six universal principles of successful traders:

1). Preparation

Author Brent Penfold is in the minority believing risk management is the #1 priority in trading. Brent believes that once you get your trading system and position size in place you must use the amount you will risk on each trade to determine your risk of ruin. The book shows exactly how to figure this out using Excel. His point is that if your risk of ruin is not zero then you will eventually blow out your account. Risking 1% to 2% of your capital in any one trade usually gives you a zero percent risk of ruin but it also depends on your systems win/loss ratio. But the point is to test any system with a minimum of 30 trades first then determine your risk of ruin. I would advise a larger sample size in multiple market environments a trend following system that looks brilliant in a trending market may result in a 50% draw down in a choppy or range bound market. (more…)

Gann's trading rules

  
  Education
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  • Never risk more than 10% of your trading capital in a single trade.
  • Always use stop-loss orders.
  • Never overtrade.
  • Never let a profit run into a loss.
  • Don ‘t enter a trade if you are unsure of the trend. Never buck the trend.
  • When in doubt, get out, and don’t get in when in doubt.
  • Only trade active markets.
  • Distribute your risk equally among different markets.
  • Never limit your orders. Trade at the market.
  • Don’t close trades without a good reason.
  • Extra monies from successful trades should be placed in a separate account.
  • Never trade to scalp a profit.
  • Never average a loss.
  • Never get out of the market because you have lost patience or get in because you are anxious from waiting.
  • Avoid taking small profits and large losses.
  • Never cancel a stop loss after you have placed the trade.
  • Avoid getting in and out of the market too often.
  • Be willing to make money from both sides of the market.
  • Never buy or sell just because the price is low or high.
  • Pyramiding should be accomplished once it has crossed resistance levels and broken zones of distribution.
  • Pyramid issues that have a strong trend.
  • Never hedge a losing position.
  • Never change your position without a good reason.
  • Avoid trading after long periods of success or failure.
  • Don’t try to guess tops or bottoms.
  • Don’t follow a blind man’s advice.
  • Reduce trading after the first loss; never increase.
  • Avoid getting in wrong and out wrong; or getting in right and out wrong. This is making a double mistake.

Reacting versus Predicting in Trading

  
  Education
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Most of the best traders I have read about and know of personally do not predict what will happen they trade what is happening. New traders always want to predict, they want to argue about their beliefs and why something must happen or will happen. Most rich traders are rich because they are flexible, they have no strong opinions and are just looking at possibilities and ready to take a set up, buy a break out or short a break down. A new trader believes that ‘conviction’ about a trade is important, holding through an adverse move is usually a bad idea, especially if a key level is reached that is showing the trader that they are wrong. A rich trader is waiting for some price level to trigger their entry then another price level to trigger their exit. A new trader is trading off a belief and has no real exit plan most the time because they are sure that they are right.

The money I have pulled out of the market over the past 10 years has come from trading price action not predicting. I have entered at high probability moments on break outs above resistance levels. I have trailed my winning trend trades with a stop and sold when the trend reversed through key short term support. When I was wrong I stopped out for a small loss, when I was right I let the winner run up for a very big win. I am always trend hunting, always taking my high probability trades, always cutting losses short, and when not seeing a great trade doing nothing and waiting.

John Murphy’s Ten Laws of Technical Trading

  
  Education
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1. Map the Trends

Study long-term charts. Begin a chart analysis with monthly and weekly charts spanning several years. A larger scale map of the market provides more visibility and a better long-term perspective on a market. Once the long-term has been established, then consult daily and intra-day charts. A short-term market view alone can often be deceptive. Even if you only trade the very short term, you will do better if you’re trading in the same direction as the intermediate and longer term trends.

2. Spot the Trend and Go With It

Determine the trend and follow it. Market trends come in many sizes – long-term, intermediate-term and short-term. First, determine which one you’re going to trade and use the appropriate chart. Make sure you trade in the direction of that trend. Buy dips if the trend is up. Sell rallies if the trend is down. If you’re trading the intermediate trend, use daily and weekly charts. If you’re day trading, use daily and intra-day charts. But in each case, let the longer range chart determine the trend, and then use the shorter term chart for timing.

3. Find the Low and High of It

Find support and resistance levels. The best place to buy a market is near support levels. That support is usually a previous reaction low. The best place to sell a market is near resistance levels. Resistance is usually a previous peak. After a resistance peak has been broken, it will usually provide support on subsequent pullbacks. In other words, the old “high” becomes the new low. In the same way, when a support level has been broken, it will usually produce selling on subsequent rallies – the old “low” can become the new “high.”

4. Know How Far to Backtrack (more…)

Technical Confirmations Explained

  
  Education
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Confirmation is necessary to validate a break of important support and resistance levels such as price patterns, moving averages and trend lines. Technicians and traders define Confirmation in various ways. While market situations vary, below is a guideline of three forms of Confirmation:

  • Percentage Confirmation: Confirmation is present when there is a 3% or greater break of a support or resistance level. Volume attached to the break, while not necessary, lends confidence to the confirmation. The 3% rule is commonly used by long term traders and investors. Short term traders use a lesser requirement to complement trading objectives, keeping risk/reward in line.
  • Time Confirmation: If there are at least three closes above or below a resistance or support level, then confirmation exists. A close varies based on ones trading time frame. Again, volume attached to the break adds significance to the confirmation. (We always write Three Consecutive close +Weekly close must for major upmove or down move )
  • Heavy Volume Confirmation: Volume confirmation presents when there is a substantial surge in volume relative to recent volume, combined with one close above or below a resistance or support level.
  • Combination: If percentage and time confirmations fall short of the minimum requirement, yet are accompanied by substantial volume (e.g. 1.5% close above resistance with substantial volume), that could be accepted as confirmation.

Traders can use this guideline to develop their own requirements for confirmation as individual investment objectives and time frames vary.

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