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How close are you to perfect?

  
  Education
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Becoming the perfect trader is no easy task, and I daresay that nobody has been able to achieve this great feat. The perfect trader buys at the absolute low of the day and sells at the absolute high. And depending on whether the high happens first or the low happens first determines if he is long or short for the day. It’s really easy to calculate this metric. It is simply the absolute value of the daily range or the high minus the low.

To get an accurate handle on the concept, we first ask what time frame we will be using. For end-of-day traders or swing traders, the daily bar is your competition. If you day-trade off the five-minute bar, well then use the five-minute bar to gauge your performance.

This concept is used in system trading and because vast amounts of data are typically used, we system traders need to resort to our super-duper calculators, also referred to as our programming language. This is an example of what code looks like for our daily perfect trader. The language is TradersStudio’s version of Visual Basic, but you can get the idea and use it with any program you wish. It’s the basic loop function.

For i = FirstBar to LastBar step 1

Next

PerfectProfit = PerfectProfit + Range [i]

You’ll need to dimension your PerfectProfit variable as an array if you want it to tally up daily ranges. (more…)

Let profits ride until price action dictates otherwise.

  
  Education
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jessePerhaps the most famous quote attributed to Livermore is, “It never was my thinking that made the big money for me. It always was my sitting.” Traders are wired to be “doing something,” and this can cause churning, over-trading, getting out of positions too soon, and making your broker the wealthy one. The famous Turtle Traders were trend traders who made few trades and had learned the importance of staying in a winning trade.

For today’s traders, there are multiple variations to keep you in a trade. It’s not so important which method you implement, but that you do recognize when to hold a winner for maximum potential, and when a trend has changed character and it’s time to ring the register.

One method that satisfies the desire for profit and subdues the fear of a losing trade is to take one half of your profit off at a predetermined level, put a stop at breakeven on the rest, and let it play out without micromanaging the position. Even day and swing traders will benefit from letting a partial position play out when all indicators hint that more upside might be in the cards. Always remember this rule is letting a profitable position run, but it’s not a license to bury one’s head on a losing position

Market changes mind like a girl changes clothes

  
  Education
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changingcloth

The current market is unique. It has never been so volatile; therefore the danger and the opportunities have never been so plentiful. No one has ever traded in such market, so past knowledge and experience may only be a hinder to adopt faster in the new environment. No system is profitable all the time and traders with 20+ years of profitable track record are in the process of realizing that. In time of extreme changes survives the one, who is more flexible, not the stronger one.

Conventional wisdom will bring you only losses. You have to learn to think out of the box. Conventional wisdom says that in bear markets you should be only short or neutral. In case you absolutely have to have long positions in your portfolio, you should choose among the stocks with highest relative strength – the ones that somehow managed to weather the storm. Wrong.

Market is so volatile that it takes stops out on a regular basis, shaking out both long and short swing traders. Percentage stop losses don’t work in this environment. If you are going to survive and thrive, you need to decrease your trading horizon and the size of your trading. I remember that about a year ago, I found out that many, who were swing traders at the beginning of their careers at some point switched to day trading. I wondered why and started asking questions.

Markets are made from people. In theory everyone could be profitable if there is a continuous flow of fresh money into the market. Recently this has not been the case. Someone has to lose. In order to be profitable you need to follow a very simple rule – to buy only what you could sell later at higher price and to sell short only what you could buy later at lower price. Like the owner of a small shop, you should not buy inventory that you personally like, but stuff that could easily be sold this season. Yes, stock traders are in the retail business and their products are called stocks. I realize how unscrupulous such way of thinking may sound and that it contradicts the initial purpose the market were created, but this is the reality.
Initially markets were created:

  • To offer an alternative exit strategy (therefore motivation) for entrepreneurs;
  • To provide new means of cheaper financing for business’ expansion;
  • To allow ordinary citizens, who don’t have the idea, the will or the necessary capital to start their own business, with the opportunity to participate effectively in the economic growth of the country/the world.

All those things don’t matter anymore. Markets have long turned into a speculation arena, where everyone tries to outsmart the other.

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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