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Day Trading Methodology

  
  Education
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I have been reading the latest book from Van Tharp, Super Trader and I want to highlight this passage about daytrading methodologies:

“For example, if you are a daytrader, open up a position and either take a small loss or get out at the end of the day. When you do that, you are not tied to the market all day, and you may find that you take small losses and get huge profits. Simplify your entry technique and concentrate on exits”

Now, lets cross this with Jesse Livermore remarks on the speculative line of least resistance:

“It sounds very easy to say that all you have to do is to watch the tape, establish your resistance points and be ready to trade along the line of least resistance as soon as you have determined it.”

So, we have a powerful daytrading methodology in these two market generalizations. But JL added, “But in actual practice a man has to guard against many things, and most of all against himself – that is, against human nature.”

Rings a bell? Maybe we should all print this post and have it by the trading desk.

RESISTANCE, DROP

  
  Education
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Resistance is a powerful word, but in the market it can mean the end of a long climb up the latter of a successful bullish run. Points of resistance aren’t necessarily concrete, think of them more as a tightened rubber band that if you push into it to hard, it can send you plummeting very quickly.

Resistance is what it implies, a possible push against current price action. There are two correct responses you can have at a resistance, turn back (with a proper candlestick confirmation), or wait to see if the resistance is overcome, You never want to go head on into resistance because chances are you will get your butt handed to you. The other thing you don’t want to do is automatically turn back without a little push. YOU DON’T ALWAYS WANT OR HAVE TO BE IN THE MARKET. There are times when you need to be on the sidelines in observation mode; at a point near resistance is one of those times. Trying to break resistance is like trying to run over a locomotive on a bicycle. You can’t do it!! Your best option at resistance is to rest to see either the strength or weakness of your price action. Whether price is successful at demolishing or chipping away resistance or does a turnabout, wait until it makes a concrete decision before following. NOTE: wherever price leads, follow until you get a signal that it is no longer safe to do so, or until you have had your fill of a nice fat profit.

Let other traders jump in front of the locomotive to slow it down; DON’T YOU DO IT! Save yourself and wait until it is safe. Resistance points can either be safety zones put in place to help you protect your profits or the force and authority to crush you if you try to cross the line. When you come to a resistance point it means STOP!!!!, DO NOT PROCEED WITH CAUTION it is a RED LIGHT, when it is green, proceed with caution because there are times when price will break resistance only to fall back limp under the weight of the break through triumph.

A Trade or a Gamble?

  
  Education
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I love to trade a lot – which is of course a euphemistic way of saying I love to gamble. Although I have been to Vegas more than a dozen times I never laid down so much as a dollar bet in any casino. I have absolutely no interest in backjack, craps, slot machines or any other games of chance and I look down with disdain at the excited masses crowding the cavernous Vegas gambling halls. But deep down, if I am honest with myself, I have to admit that whenever I trade a lot I am just as much of a sucker as every hopeless loser that gives up his hard earned money to Steve Wynn or Sheldon Adelson

If you are constantly trading just for the sake of trading, just for the rush of being “in the game”, just for the momentarily thrill of being right you are gambling. You are trading without an edge, without any solid information and are therefore completely vulnerable to the random vagaries of price. (more…)

TRADING MANTRA'S

  
  Education
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trading-mantrasEven the best traders in the market have trading sessions that are less than optimal.  Human nature dictates that we make mistakes, and trading the stock market is no exception.  Subsequently, there is always room for improvement, whether you are a novice trader or a seasoned veteran. 

  1. Stick to Your Guns – Don’t try to run from the market.  The only way to boost trading profits is to stay in the game and keep trading.  Running from the trades and the action will keep you out of the market, whether it is hot or cold.  Sticking to your trading plan and enacting trading discipline are the keys to producing profits.

 

  1. Set Stop Losses and Take Profits – “Set and forget” trading is generally profitable.  When you place each trade, remember to place your exit and stop loss, and then let the market be your guide.  Have a preset limit of how much you’re willing to win and how much you can lose.  Technical analysis will tell you the best price for selling (near resistance) and the best place for buying (near support).  Support and resistance points are the best places to put limit orders. (more…)
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