Archives of “uptrend” tag

rss

Livermores Seven Trading Lessons

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

Lesson Number One: Cut your losses quickly.

As soon as a trade is contemplated, a trader must know at what point in time he’ll be proven wrong and exit a position. If a trader doesn’t know his exit before he takes the entry, he might as well go to the racetrack or casino where at least the odds can be quantified.

Lesson Number Two: Confirm your judgment before going all in.

Livermore was famous for throwing out a small position and waiting for his thesis to be confirmed. Once the stock was traveling in the direction he desired, Livermore would pile on rapidly to maximize the returns.

There are several ways to buy more in a winning position — pyramiding up, buying in thirds at predetermined prices, being 100% in no more than 5% above the initial entry — but the take home is to buy in the direction of your winning trade –  never when it goes against you.

Lesson Number Three: Watch leading stocks for the best action.

Livermore knew that trending issues were where the big money would be made, and to fight this reality was a loser’s game.

Lesson Number Four: Let profits ride until price action dictates otherwise. (more…)

True False Questions

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

True or False

  1. The big money in trading is made when one can get long at lows after a big downtrend.
  2. It’s good to average down when buying.
  3. After a long trend, the market requires more consolidation before another trend starts.
  4. It’s important to know what to do if trading in commodities doesn’t succeed.
  5. It is not helpful to watch every quote in the markets one trades.
  6. It is a good idea to put on or take off a position all at once.
  7. Diversification is better than always being in 1 or 2 markets.
  8. If a day’s profit or loss makes a significant difference to your net worth, you are overtrading.
  9. A trader learns more from his losses than his profits.
  10. Except for commission and brokerage fees, execution costs for entering orders are minimal over the course of a year.
  11. It’s easier to trade well than to trade poorly.
  12. It’s important to know what success in trading will do for you later in life.
  13. Uptrends end when everyone gets bearish.
  14. The more bullish news you hear the less likely a market is to break out on the upside.
  15. For an off-floor trader, a long-term trade ought to last 3 or 4 weeks or less.
  16. Other’s opinions of the market are good to follow.
  17. Volume and open interest are as important as price action.
  18. Daily strength and weakness is a good guide for liquidating long term positions with big profits.
  19. Off-floor traders should spread different markets of different market groups.
  20. The more people are going long the less likely an uptrend is to continue in the beginning of a trend.
  21. Off-floor traders should not spread different delivery months of the same commodity.
  22. Buying dips and selling rallies is a good strategy.
  23. It’s important to take a profit most of the time.
  24. Of 3 types of orders (market, stop, and resting), market orders cost the least skid.
  25. 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.
  26. The majority of traders are always wrong.
  27. Trading bigger is an overall handicap to one’s trading performance.
  28. Larger traders can muscle markets to their advantage.
  29. Vacations are important for traders to keep the proper perspective.
  30. Undertrading is almost never a problem.
  31. Ideally, average profits should be about 3 or 4 times average losses.
  32. A trader should be willing to let profits turn into losses.
  33. A very high percentage of trades should be profits.
  34. A trader should like to take losses.
  35. It is especially relevant when the market is higher than it’s been in 4 and 13 weeks.
  36. Needing and wanting money are good motivators to good trading.
  37. One’s natural inclinations are good guides to decision making in trading.
  38. Luck is an ingredient in successful trading over the long run.
  39. When you’re long, limit up is a good place to take a profit.
  40. It takes money to make money.
  41. It’s good to follow hunches in trading.
  42. There are players in each market one should not trade against.
  43. All speculators die broke
  44. The market can be understood better through social psychology than through economics.
  45. Taking a loss should be a difficult decision for traders.
  46. After a big profit, the next trend following trade is more likely to be a loss.
  47. Trends are not likely to persist.
  48. Almost all information about a market is at least a little useful in helping make decisions.
  49. It’s better to be an expert in 1-2 markets rather than try to trade 10 or more markets.
  50. In a winning streak, total risk should rise dramatically.
  51. Trading stocks is similar to trading commodities.
  52. It’s a good idea to know how much you are ahead or behind during a trading session.
  53. A losing month is an indication of doing something wrong.
  54. A losing week is an indication of doing something wrong.
  55. One should favor being long or being short – whichever one is comfortable with.
  56. On initiation one should know precisely at what price to liquidate if a profit occurs.
  57. One should trade the same number of contracts in all markets.
  58. If one has $10000 to risk, one ought to risk $2500 on every trade.
  59. On initiation one should know precisely where to liquidate if a loss occurs.
  60. You can never go broke taking profits.
  61. It helps to have the fundamentals in your favor before you initiate.
  62. A gap up is a good place to initiate if an uptrend has started.
  63. If you anticipate buy stops in the market, wait until they are finished and buy a little higher than that.

When should traders be in or out of the market?

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

There are times when traders should NOT be in the market. There are other times when the market is rocking and traders should get aggressive. How can you tell the difference? Here are 5 helpful tips.

1) Accumulation and Distribution Days: When should traders go to cash? Follow the big boys! The big institutions control the market, so pay attention to their actions by tracking accumulation anddistribution days. When institutional selling builds up over a short period of time (2-4 weeks) AND leading stocks start to break down, that is a great sign to start raising cash. Why? Because 4 out of 5 stocks move in the general direction of the market. I don’t care how good the company is, when the market’s in a downtrend, you don’t want to fight it.

2) Uptrends and Downtrends: Don’t get caught up with the terms Bull and Bear market. Just recognize if we are in an uptrend or a downtrend. For example, use the 50-day moving average on the NASDAQ Composite as a general indicator to be in or out of the market. Above the line usually means we’re in an uptrend and it’s a green light to be in stocks…below the line, downtrend and red light.

3) Scale In: When conditions start to improve, SLOWLY scale back in. There’s no reason to rush. Take a few positions and test the waters. If the rally is for real, there will be PLENTY OF TIME to make money. If you are wrong, at least you can get out quick with minimal damage and protect your portfolio. Think Defense First!

4) Buy the Strongest Earnings & Sales Growth: When markets are in a confirmed uptrend, what stocks should you buy? Be in the best! Don’t settle for low rate stocks. Look for companies that have strong earnings and sales growth. Why be in dead-money stocks with little growth potential? We’re in this to make money, right? So be in stocks that have a higher probability of moving up!

5) Fundamentals AND Technicals: Why does it only have to be one or the other? Why not USE BOTH! We want as many factors as possible in our favor when trading the market. Therefore, start with strong fundamental companies AND combine the proper technical timing to identify ideal entry points to effect your best risk vs reward trades. (more…)

Go to top