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Archive for October, 2010

Thinking in Probabilities

October 31, 2010 Leave a comment

One of the challenges to becoming a consistently profitable trader is developing the mindset and understanding of how and why a consistently profitable trader can repeat their success. One of the obstacles that stand in the way or prohibit a trader from developing a profitable mindset is emotions. Destructive trading emotion can come from a string of losing trades as well as string of wining trades.

One way to keep these emotions at bay is to think in probabilities. Focusing your mind on the probabilities of your edge following through will relieve the pressure of try to predict what is going to happen next.

One way to understand how thinking in probabilities work is by looking at a casino or the gambling industry. A casino makes money because they understand that they have an edge over the games they offer and if they can maintain the odds if their favor with a large enough sample sizes (hands played) they will come out net profitable. This is the exact mindset a trader should take into trading on a daily basis.

By looking at the casino example we answer the question, how can a random outcome produce a consistent result? If you get the odds in your favor and second if you have enough chances to exploit those odds (sample size). Professional consistently profitable traders treat trading like casinos treat their business, simply a numbers game.

To consistently think in probabilities you have to understand that each individual event (trade outcome) is random and unpredictable but independent of each other. On the other hand over a large enough sample size these independent events can create patterns that can produce consistent and predictable results.

With unforeseen market events being the random and unpredictable variables, a trade relies on the patterns that emerge of the market price action which are base on fixed constant variables (rules/guidelines of your trading plan) that are design to give you an edge in the market.

A profession trader does not know which trades will be winner or losers but understands that if enough trades are executed he/she will come out net profitable. So now consistent profitability is not a function of the market but is a function of how strong you edge is.

 

 

Getting Your Edge

October 29, 2010 Leave a comment

Today’s market action created an environment that could have blown up your p/l if you were not careful and expected more than what was available in the markets. My trading plan coming into the day was skewed to the long side as most of my stocks showed good buying overflow. I expected the buying to continue in today’s open with the price action closing near it highs at the end of yesterday’s trading.

The market opened gaping higher slightly above yesterday’s highs which was good for my long ideas such as Broadcom (BRCM) and United Airlines (UAL). BRCM was especially looked attractive as it traded above and held yesterday’s highs for the first 45 minutes of trading. But as we know the SPY could not break above pre-market highs and subsequently sold off which put a stop on the longs. Following my trading plan I planned on trading the first 15 min swing low that formed in my strong stocks. But as the day went on that didn’t produce much as the SPY continued to sell off for the rest of the morning session.

At this point I had to realize that my plan was not unfolding and I needed to step back and adjust my trading to fit the current market conditions, which was to not trade. There is no point in putting on trades if my plan was not unfolding in a way that gave me an edge. Often time’s traders can get upset when markets dint unfold in their favor or their trades don’t follow through, when in fact this should be an acceptable part of the business. If you find yourself anger or irritated while trying to execute your plan you should step back and re-evaluate the markets conditions and determine if they provide the best probabilities for your trading.

The Trader Talk Think Tank

October 27, 2010 Leave a comment

Announcing an unprecedented opportunity to learn…

We are visiting Chicago and Philadelphia!

Keystone Trading Concepts presents the

Trader Talk Think Tank

Each month in our NYC office Keystone Trading hosts and moderates a two hour networking event that empowers our attendees to:

· Discover how to assess market conditions like a professional for the upcoming quarter

· Gain insight into which sectors have the lowest risk opportunities

· Discuss ideas you have previously traded and new ideas you are considering

· Review of previous Game Plans and how Keystone’s proprietary traders and students executed those ideas with real money

· Get a glimpse into the Keystone Trading Plan and how we plan to attack the markets in the coming week

Additional topics on the schedule include:

· The most common and (most costly) stock trading mistake and how to avoid it

· How to eliminate the anxiety caused by reading your brokerage statement

· The difference between a risk only trade versus a trade with a high probability to earn money

· How to qualify to trade firm capital for Keystone (remotely)

On Wednesday October 27th at 7:00pm EDT Keystone Trading Concepts will be hosting a preview webinar for the next Trader Talk Think Tank to be held in Chicago at the Sofitel hotel on Monday, November 8th 2010.

During the Preview Webinar we will be discussing the top 5 reasons why attending the Chicago

Trader Talk Think Tank on November 8th will stimulate new ideas for you, learn how a professional trading firm allocates capital to scenarios and most likely develop some great new friendships.

Think Tank attendance has no fee with pre-registration however we normally have standing room only so there is a $75 fee at the door for those without an entrance ticket.

We strongly encourage registering with a friend or spouse!

Once again the preview webinar for the Chicago Think Tank is this Wednesday , October 27th at 7:00pm EDT, (6pm in Chicago) .

Please call 212-594-8900 to Reserve your spot Today!

LVS Long

October 27, 2010 Leave a comment

Today’s markets action provided some good opportunity during the morning trading, but as always you had to be ready and focus to take advantage. In has been tough trading from a market stand point as the indexes have not cultivated an environment of confidence in one direction intra-day.

Today I want to talk about long trade setup, that provide good risk/reward and show how developing trade ideas on the higher time frames and sticking with thoughts ideas will provide conviction and allow your p/l to light up green.

The trade is LVS, as we can see on the daily charts that the trade is undeniably a long, but prior to today’s price action over the past weeks the longs have been a tough trade(as we can see on the hourly chart). So being the best trader we can we had to be patient and let the price action establish itself to the long side before we could trade this stock with more confidence.

Well today we got the price action once we were able to breakout above 39.50, which was a strong resistance during previous weeks trading. We can see on the 15 min chart that once the price action was able to hold above the resistance and close above yesterdays high the stock exploded higher for about a one dollar profit.

 

Breakout Trade $RIMM $$

October 26, 2010 Leave a comment

Day after day we as traders are in search of opportunity.  I have many conversations with traders who complain at the end of the day that this market is void of good trades.  They complain that there is only 30 minutes to an hours worth of good trading a day.  The problem these traders are having is that they are not in the right stocks.  The majority of our time should be spent looking for stocks that are going to move plus be readable. 

Today was a perfect example of being in the right stock.  The market as a whole was flat and basically trendless on the day.  Even though this was the case I ended the day thinking it was an easy day.  Why? Because I was in the right stock. 

On the open today there was one stock on my radar, Research in Motion (RIMM).  The previous day RIMM traded very well, with volume, and closed strong.  I was watching the stock trade in the pre-market and right around 915-920 RIMM started to show some strength on the tape.  My game plan was to get long around the previous days high.  This entry triggered at 933 and I got long.  This was the definition of a breakout trade as I was booking half of my trade for a point within 6 minutes.  The reason I booked is the market lately has been retracing opening moves only to resume them later on in the day.  The correct way to trade this breakout was to book some of the trade in order to manage risk.  RIMM ended up pulling back a bit but was still exhibiting strength on the tape so I added back in around the 53 level.  As you can see from the chart this was a good idea as I got another point out of the trade before exiting most of the trade during the consolidation of the move around 1030-11.  I reentered the trade when volume picked up at the 55 level and the bid held after the break.  I got a quick .90 on this trade before I recognized exhaustion coming and exited.  The tape started to get erratic and I knew this was the time to get out as something was changing about the way RIMM was trading. 

The key to this trade was that I was ready for it.  I had a game plan and the plan executed.  Many traders spend their time complaining about moves they missed or trades they mismanaged.  The reason for this is that they don’t have a good plan about what they are going to do.  Spend your time developing trade scenarios and spend the market hours executing your plan.  Best of luck in your trading. 

Kyle

UAL Breakout

October 20, 2010 Leave a comment

Today UAL created a great breakout opportunity if you were prepared for it. Looking how the trade sets up we can see the daily chart that order flow is clearly to the long side as price action is above all moving average. As we also can see price action forming a bull flag followed by melted candles (which indicates some momentum is coming in either direction, but because of the order flow to only look for longs). Because the melted candles made the risk point very tight the risk/reward for this trade was very attractive.

The open today also set up perfectly for the long idea. Gaping higher on the open followed by a sideways pause was good time to enter the long with a reasonable stop or waited for the 15 open range break to initiate the trade. Either way the price action produced good momentum outside the break, which coincided with the SPY breaking out of its 15 min open range.

So always be mindful of the significant intra-day market events to initiate your trade to dramatic increase your probability for follow through.

Categories: Uncategorized

Consistency

October 18, 2010 Leave a comment

Consistency Consistency Consistency… This is a goal that every person who takes on trading as a career wants to achieve. And this is one of the most difficult trait to obtain, but is the only thing that keeps you viable in this business over the long run. So what are some of the obstacles that holds traders back of achieving the ultimate goal.

The first obstacles traders have on the road to consistency are developing a trading plan with guidelines that can identify trade opportunities on a consistent bases. The second obstacle which is more subtle but equally destructive to your trading is truly accepting the risk of trading. Many traders believe than because they are in this business that they are risk takers and by buying and selling stock that they are accepting the risk of their trading, which can be far from the truth.

Truly excepting the risk means you are able to execute trade ideas with out expecting the market to produce results for you.  Understanding that trading is a zero sum game and that all outcomes are the responsibility of the trader.  With accepting the risk unfavorable markets information/outcomes should not dramatically affect a trader’s performance.  Having this understanding will produce an attitude and mindset that will be a trader best tool for consistency.