Archive

Archive for June, 2007

Day trading lessons: FOMC trading

As a professional stock trader it is important to learn when the conditions suit trading aggressively.  To profit consistently at day trading or even swing trading, you need to “wait for money to be lying in the corner” as Jim Rogers said in Market Wizards. This roughly translates into being patient for your set ups to form.

Today I was mentoring trader who has been in our Keystone Premierprogram for two weeks. Although after only two weeks in the program she is already gross positive in her trading, she was getting a little frustrated with her progress the last week so we did a one on one session for the morning.

After sitting together for only half hour it became clear to me she was not letting the set ups form completely and was making too many mediocre trades. We were able to put our finger on one little tweak and she couldn’t wait to get back to her seat to trade again.

This brings me back to my title of this article, trading FOMC policy statements. Many newer traders will say they “need” to trade those days because there is great volatility. Yes thats usually true, but is it price action that fits into your trading model?

Remember we are not here to make money by the hour, we are trading to make money by the month. Go over previous P&L statements you have and see what your trading looks like pre FOMC and especially the day of the announcement.

If it looks good, congrats, you are one of the few traders who can trade the confusion. If you spot a trend of sloppy results and or bigger losses, take a guilt free day and a half off and go improve your golf game. Your account equity will thank you.

Come back on Friday after the dust settles, a good trend kicks in and you can climb on board.

http://www.keystonetradinggroup.com/

Day Trading and tape reading

Day trading or full time online stock trading is a business of waiting for the probabilities to be in sync. Today so far is a day to be sitting on your hands. New stock traders have a hard time grasping the fact that some days there is very little to do. They are in the dollars per hour mentality. These are the days that you want to keep your money in your pocket because most trades do not follow through.

Today there is the Blackstone IPO, Russel re-balancing and a summer Friday. In order to truly run your trading as a business and not a hobby, you need to have a plan. Included in that plan must be the scenarios that the market and your stock must posses in order for you to be committing capital to a trade.

A part of the plan must also include volume recognition. Is volume easy or difficult to get a grip on? Is price action doing what it is supposed to do based on reading the tape for significant prints? For example; if most of the buying urgency as seen on the tape is prinitng at the ask, does price follow through with light volume pull backs? Or is it a day like today where you would swear price is floating around like a balloon on a windy day with no rhyme or reason.

Good trading conditions are effortless, there should be no doubt which side you should be trading from. If this is not the case and you are constantly switching sides, go for a walk or play a round of golf. The market will be around tomorrow. Our instructors are telling everyone to sit on their hands today until there is easy money lying in the corner. It is there, just need some patience.

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Newsletter Volume 1 Issue 4

   Keystone Trading Group Newsletter  

Volume 1 Issue 4

Short Term Stock Trading Education 

In this issue:

·         Identifying Significant Reference Points

·         Order Entry Techniques

  Identifying Significant Reference Points 

When trading stock for a living, you obviously want to know what you are going to do next in a given price action scenario. The key to maximizing profits and minimizing risk lies in being able to anticipate where other traders are probably going to take action.

Using charts in your day trading, your objective is to locate areas where you believe traders will initiate a position or exit a position. Once you have identified those areas, you MUST begin to form if-then scenarios about how other stock traders will react if the expectations they had about the trade are met, or just as important, if they are not met.

What I mean by this is simple, while you are trading, you should always be prepared for any scenario, meaning what needs to happen for me to initiate a trade or exit a trade. Most traders are looking at the same intra day information, once you understand fully what you will do under any circumstance, you will have a much better idea how the majority will react.

If you are in an uptrend and get long, what does price action and volume need to look like in order for you to no longer to want to be in the trade any more? Now here is something I hear very often from traders who are disciplined, “I am getting stop loss to death. I am correct on most of my trades and make no money.”

How do you solve this dilemma? The first technique is asking yourself two simple but very important questions. Did the circumstances for my trade scenario change or is this move just noise? How do you know the difference? The answer is simple, pay attention to the tape, the volume printing in time and sales. Did significant volume hit the tape that would tell you large traders have an urgency to buy or sell shares? Or did price move without many shares trading hands? If price moved but few shares traded, your original idea is still probably valid! Stick with the trade.

     

The second method to earning “what you should” when your call on the trade scenario is correct is utilizing time tested order entry techniques.

 Order Entry Techniques 

Understanding how to manage share size is crucial to your success as a trader. Money management is how much capital you will allocate to a particular trade; risk management is how you will manage that capital. Risk scenarios will include stop los parameters and share size allocated to the trade based on stop loss points and risk per trade as defined by money management.

Too many traders make the mistake of trading the same share size all the time, regardless of conditions or risk points. I often hear “My share lot is 1,000 shares per trade.” Wow this is a huge mistake. To be a consistent stock trader you need a predefined plan for how you will acquire the shares for a trade. Simply put, if you want to get to 1,000 shares for a trade scenario, how are you going to get them?

We recommend two strategies. One is building a position in a strong trend the second is entering a small portion of your intended total position and adding to it only when the position has moved in your favor.

In order to build a position you must have confidence in the strength of the trend. If your goal for example is to have 1,000 shares of a stock, you would buy the 1,000 shares in pieces as the stock pulls back or pauses in the trend. You may do it in two or three pieces, for example 400, 300, 300 for a 1,000 share total for the position.

I can hear what you are thinking, why is he telling me to average down? Averaging down means you wanted 1,000 shares, got 1,000 shares, the trade moves against you and you go get another 1,000 shares. That is like marrying the same woman you got divorced from, getting more of what is not working. To build a position like this you will need to identify a window where you would expect the pullback to stop, we teach in our Equity Trader 101 course to use the 20SMA as the area we anticipate the pull back to stop. Stop loss will be based on the full size position.

              

The second method is price confirmation. Using this method you will enter one third to half of your total position. When and only when the position moves in your favor you will add to it. Using this method it is common to scratch a few trades, take a few small losses and small profits until you finally feel comfortable that you have a good head start on the trade in your intended direction.

Obviously re entry is a big part of this method. Think carefully about what this method is allowing you to you to do, you are wrong on the fewest shares and correct on the most shares. It is terrific money and risk management. It will prevent you from being in a position where you will need to be perfect on your entry, you will gain valuable information based on how “easy” or difficult it was to get filled.

If you would like some help with any of the topics covered in this newsletter, please feel free to send me an email and we can work on it together. prenzulli@keystonetradinggroup.com

If you are trading remote and not taking advantage of the leverage and competitive fee structure available from Keystone Trading Group, please send an email to info@keystonetradinggroup.comto inquire about rates or extra intra day buying power. Please be sure to put in the headline the subject for the email so that it can be directed to the proper department.

Once again thank you for deciding to receive our educational newsletter on your path to becoming a complete trader.

http://keystonetradinggroup.com/ 

  

Categories: Newsletter

Day Trading lesson: perspective on price action

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Stock trading to many new traders can seem like there is no rhyme or reason to price fluctuations during the day. Online stock traders do not have the same information of order flow that a NYSE specialist or a NASDAQ market maker has. “Screen” traders need to interpret action in a different way.

To do this properly with some consistency you need to give price action structure. No matter what style of trading you employ, scalping, charting, momentum, you need to be able to identify an opportunity that fits your method.  That opportunity will be based on how you view the market. 

Here is my point, no matter your style, your stock can only do one of three things. Test a previous high or low, consolidate or trend. All price action is a function of one of these scenarios. Make your trading have a structure and price fluctuations will never feel random!

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Categories: Chart Talk

Swing trade of the week

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A part of successful stock trading is being disciplined. It is much easier to be consistent when you have structure to what you are trying to do. Having the discipline to do your homework every day at the same time without fail is a must for any aspiring trader.

Every night I scan roughly 400-500 stocks for swing trades, if something really lines up, I may trade it intra day. When I tell this to new traders, many of them react by saying that sounds like alot of work to do every night. Well I think that depends on what perspective you are viewing the work from. I feel when I sit down an begin my scans that I am on a treasure hunt. I am looking for money. If that doesn’t excite you, go find a job. I am not interested in a job, a trader is an entrepreneur. A trader is someone who is willing to take a calculated risk for the rewards available.

If you are a trader who only thinks about trading during market hours you don’t have a shot to do this long term. However, if you are willing to spend some time at home after hours working on your business, you have what it takes. I once read a great quote that is always pushing me to improve, “how you spend your spare time will dictate how you spend your future.”

On to this swing trade, this is not technically a test book downtrend. The part that caught my eye doing my scan was the huge volume spike on the large range candle last week. The stock (IBM) has consolidated since that move. I am going to take a swing trade short @$102.15 with a trailing stop just over $104. If the most recent support level of this consolidation is broken with some volume, the next area of support is $97, just around where it gapped up.

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Trading Stock and market analysis

Whether you are day trading or swing trading, pay close attention to volume this week. The stock market is going to give us a big clue for things to come.  When I say the market, I am referring collectively to the Dow Industrials, The S&P 500 and the NASDAQ composite.

All three sold of last week on heavy volume, otherwise known as “distribution days.” The price action to monitor this week will be a “test” of the previous highs. If the market  retests the previous highs on light volume, we should finally be starting the pull back that is very overdue.

I am not predicting anything, just paying attention. I am  telling any of my friends who ask, lighten up on the long side.

http://keystonetradinggroup.com/

Categories: Market Set Up

Day trading for a living

Stock trading for a living takes discipline. There it is, I said the dirty word most day traders don’t want to hear. It is similar to the guy in Harry Potter, “he who cannot be named.”

I bring this up because yesterday the market pretty much did nothing for the entire day, yet we had traders on the floor who were trading as if volatility was rampant. Part of making consistent money as a stock trader is knowing how to not lose money. We had a meeting during lunch yesterday to slow the traders down who were wasting money because they had to justify coming to work today.

As a professional trader, you do not get paid by the hour, you get paid by the month. If it is busy, use more leverage and trade more actively, if it is not, keep your bullets in your gun and wait patiently for the next trade.

http://keystonetradinggroup.com/