Archives of “trend trading” tag

rss

Donchian's 20 Trading Guides

  
  Education
#  #  #  #  #  #  #  #  #  #  #  #  #  #  #  #  #  #  #

richard-donchian
Richard Donchian is best known for developing the Donchian Channel Indicator. This is a simple trend following tool that detects and alerts you to breakouts by plotting the highest high and the lowest low over the last period time interval which the user specifies.
Through his many years of trading and writing weekly newsletters (Commodity Trend Timing), Richard Donchian shares with us some very valuable trend trading wisdom.

  1. Beware of acting immediately on a widespread public opinion. Even if correct, it will usually delay the move.
  2. From a period of dullness and inactivity, watch for and prepare to follow a move in the direction in which volume increases.
  3. Limit losses and ride profits, irrespective of all other rules.
  4. Light commitments are advisable when market position is not certain. Clearly defined moves are signaled frequently enough to make life interesting and concentration on these moves will prevent unprofitable whip-sawing. (more…)

Stay humble

  
  Education
#  #  #  #  #  #  #  #  #  #  #

More great lessons and trend following trading wisdom from Michael Covel’s book: ‘Trend Following – Learn to make millions in up or down markets’. I am quoting from page 282-283:

Fortune Favors the bold

Trend following, like any entrepreneurial endeavor, demands you be responsible for yourself. Charles Faulkner emphasized the point:

‘Trend trading and even trading in general isn’t for everyone. As too few people check out what the day-to-day life of a trader is like, and trend trading specifically, I strongly recommend they find out before making a life-changing commitment.’

What does ‘life-changing commitment’ involve? You commit to not wanting to be right all of the time. Most people, let’s face it, must be right. They live to have other people know they’re right. They don’t even want success. They don’t even want to win. They don’t want money. They just want to be right. The winners, on the other hand, just want to win.

What else can you do? You commit to patience and faith in a trading system that is not structured on quarterly performance or some artificial measure of the ‘mass’. You work hard to gain experience. Great experience leads to great intuition. You commit to thinking for the long term and not feeling insecure if you don’t have a steady earnings stream of 1-2 percent a month. You might have one year where you are down 10 percent. The following year you might be down 15 percent. The next year you might be up 115 percent. If you quit at the end of the second year, you will never get to the third year. That’s reality.

Universal Principles of Successful Trading Review

  
  Education
#  #  #  #  #  #  #  #  #  #  #  #  #  #  #  #  #  #  #  #

This book is excellent for traders that are ready for it. You need a foundation in trading to understand its importance and take the principles seriously. 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 30 trades first then determine your risk of ruin.

2). Enlightenment

Your most important goal is to lower your risk ruin to zero. In trading, the trader with the best ability to cut losses short wins. Simple trading strategies work the best based on traditional support and resistance while trading with the trend on either retracements of break outs. The 10% of winners in the market win by treading where others fear, buying on break outs when they first occur and going short when a new low is made, or buying into the abyss when a security finds support or resistance and reverses at the end of a monster trend.

3). Developing a trading style

You must choose your own personal style of trading, swing trading or trend trading. You must also trade based on your chosen time frame: intraday, short term, medium term, or long term.

4). Selecting Markets

Ideal markets to trade have volume and price transparency, liquidity, 24 hour coverage, zero counter party risk, low transaction costs, and are honest and efficient. They also must  have the necessary trading attributes of volatility, research, simplicity, ease of short selling, specialization, opportunities, growth, and leverage. These are the markets that afford you the greatest chances of money trading. (more…)

Best eBook s of 2011

  
  Education
#  #  #  #  #  #  #  #  #  #  #  #  #  #  #  #

All of these titles can be found on Traderslibrary.com or Amazon Kindle, each only $9.99.

  1. Trend Trading Indicators: Secrets to Predicting Market Direction–John Person
  2. Simple Profits from Swing Trading: The Underground Trader Swing Trading System Explained–Jea Yu
  3. The Three Secrets to Trading Momentum Indicators–David Penn
  4. Volatility Indicators: Techniques for Profiting from the Market’s Moves–Jean Folger & Lee Leibfarth
  5. The Modern Trader: Wall Street Traders Reveal Their Formula for Success–T3 Live
  6. Iron Condor: Neutral Strategy for Uncommon Profit–Ernier Zerenner & Michael Phillips
  7. 21 Candlesticks Every Trader Should Know–Melvin Pasternak
  8. Simple Steps to Trading Discipline: Increasing Profits with Habits You Already Have–Toni Hansen
  9. Traders’ Guide to Increasing Retirement Income with Options–Ernie Zerenner
  10. Winning Methods of the Market Wizards–Jack Schwager

Don't be tempted

  
  Education
#  #  #  #  #  #

One of the easiest things to do is to over think. There are so many possible outcomes and our little minds love to run through all of those that it encounters or can dream up and try to assign likelihoods to each of them. I agree the human mind is an amazing thing but seriously, what’s the odds that you are going to 1) identify all the variables and 2) assign proper weighting to their probable outcomes and 3) realize the implications of the interactions between them all. It just isn’t going to happen so don’t be tempted.

Sure, you can think you have it figured out and if it goes your way you’ll pat yourself on the back and reinforce the thought that you have got the answer when all you have is a tiger by the tail. It will turn on you before you know it.

All you can do is map out what you believe will happen based on qualified trends and trend trading set-ups, put your stops in and let it rip. Of course you monitor and adjust as needed but you can only control risk and once you realize that the tiger’s tail seems a lot less frightful.

4 Types of Trades

  
  Education
#  #  #  #  #  #  #  #  #  #  #  #  #  #  #  #  #  #  #  #

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…)

Quotes from The Little Book of Trading

  
  Education
#  #  #  #  #  #  #  #  #  #  #  #  #  #  #  #  #  #  #  #

The Little book of trading is a must read for trend followers. Michael Covel brings down to all of us what is needed in order to succeed in trend following:

Some of the quotes need to be internalized by investors of trend following strategies..

David Druz

Trend traders are trying to capture risk premium from the hedgers. […]
Hedgers hope to minimize their exposure to unwanted risk. Speculators (i.e. trend followers assume risk for hedgers. […]
Hedgers are net losers in futures markets over the long run, and Druz’s trend trading approach is based on capturing this risk premium.

The more robust a system, the more volatile it tends to be!
There are whole families of trend trading ideas that seem to work forever on any market. The down side is they are very volatile because they are not curve-fitted.

Larry Hite

Hite has two basic rules about trading and life:
1) If you don’t bet, you can’t win.
2) If you lose all your chips, you can’t bet

Justin Vandergrift

While entry and exit is an overwhelming focus for new traders, it is only a small part of the recipe for winning in the trend follower’s cookbook. Money management is far more imperative to your success than worrying about a perfect entry.

Vandergrift, like many of the trend following traders, found through intense research that the only systems that really worked over time were long term trend following in nature. However, his real Aha! moment came when he put money managementinto his trading system equation. […] If you have a portfolio of markets, […] you want t risk an equal amount on every trade.

Michael Clarke

You want to look for trend following models that remain robust over long time periods and you want to include models that have flat to negative performance for periods of up to two years. The principles that allow a good model to work successfully may fall out of favour and stop working for a period of time, but if the model has validity, the long-term principles will reassert themselves over time. Don’t jump the gun in throwing away your models.

In order for a model to be accepted, you want it to trade all markets using the same rules and parameters. Your results should yield good performance across 90-plus percent of all markets tested. Also, no model should be accepted unless it shows stability of performance during tests involved with shifting parameters and altering rules. This is the definition of robust.

David Harding

Don’t get caught up constantly trying to lower your risks. Think of yourself as running a risk targeting business where you go find risk. No risk, no reward!

I think the efficient market hypothesis is quite useful too. One prediction it makes is that it is difficult to beat the markets. It’s just saying that the markets know better than you do. So the assumption that the markets know better than you do is quite a sensible and useful assumption. It certainly would lead you to approach [beating the markets] with humility and modesty.

Determination is the same as having wings. If at first you don’t succeed, try, try, and try again. Madonna always says, ‘I’m like a cockroach.’

Quotes from The Little Book of Trading

  
  Education
#  #  #  #  #  #  #  #  #  #  #  #  #  #  #  #  #

The Little book of trading is a must read for trend followers. Michael Covel brings down to all of us what is needed in order to succeed in trend following:

Some of the quotes need to be internalized by investors of trend following strategies..

David Druz

Trend traders are trying to capture risk premium from the hedgers. […]
Hedgers hope to minimize their exposure to unwanted risk. Speculators (i.e. trend followers assume risk for hedgers. […]
Hedgers are net losers in futures markets over the long run, and Druz’s trend trading approach is based on capturing this risk premium.

The more robust a system, the more volatile it tends to be!
There are whole families of trend trading ideas that seem to work forever on any market. The down side is they are very volatile because they are not curve-fitted.

Larry Hite (more…)

Go to top