The Trader Talk Think Tank

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!

$SPY in a tough trading area

Trading the $SPY for the last 7  days long has been relatively easy. Technically speaking it is text book. Large range days with good volume on rallies. Significantly lighter volume on days with small price ranges.

We rallied into the 200SMA on the daily chart last week @$111.78 and paused, with everyone looking at the same charts this created a lot of indecision. (again, perfect technical structure)

Keystone traders went home Friday with a game plan with two scenarios; what do I trade if the 200SMA holds as resistance and what do I trade if buyers some back strong and this significant level gets taken out?

Based on the light volume pause for the better part of 3 days (after the violent momentum rally) we expected a bullish day (this was not a guess it is technical analysis 101). However if we did get the bullish stampede there was an even bigger level to be aware of in the SPY at just over $113.

This $113 is the level that excites the sellers to come off the sidelines, it has been the trigger since just after the flash crash in May.

Now here is the situation you are faced with as a trader: long (being a buyer) is the correct trade, but there is limited upside potential to the trade taking into consideration this mornings gap to the upside.

What do you do? This is the zone where a lot of money is lost. The buying ideas are still valid but have less profit potential but there are not that many solid short sale scenarios.

I will ask again, what do you do?

Most inexperienced traders who feel the longs are not following through will put out short sale probes or actually in allocate capital to a full short sale position (because longs seem to have used up all their energy).

The correct play here is to be patient on the longs for new levels or better risk reward (from lower levels, which would be a flag on a daily chart) or do nothing. Doing nothing is the hardest thing to do.

Remember, not wanting to be long is not necessarily a reason to be a short seller.

Making an Appointment

As I have discussed numerous times on this blog planning is one of if not the most important thing in trading.  You must plan out what you are going to do in every single scenario, so as to not hesitate if and when a trading opportunity presents itself.  Sometimes these plans take a little more time to develop so you must set alerts and be ready at all times like today in Hewlett-Packard (HPQ). 

HPQ has been weak on the charts ever since their CEO got himself in a little bit of trouble and resigned.  This downmove has been met with a lot of volume as funds have been liquidating their positions based on the uncertainty this company now faces.  On Tuesday I was looking to get involved in this stock if it continued to show weakness on the tape.  The levels we were watching were 42.40, 42.30, and 41.94.  I got short a few times on Tuesday anticipating a break only to watch the stock basically trade flat save for the last 5 minutes of the day. 

This last 5 minutes of the day was so important because it basically told the story of what to expect coming into today.  We traded through the first two levels I was watching like they were nothing and with increased volume.  Also we closed below these levels so I had a good idea that HPQ would be in play today on the open.  If you weren’t paying much attention to HPQ on the close Tuesday you probably weren’t ready for it today.  We opened down today and basically broke the flash crash lows of 41.94 in the first 10 minutes and trended lower for the entire day. 

This was a very simple trade as long as you were ready for it today.  The setup is one that everybody can understand.  A stock sells off, consolidates, then makes another leg down.  The key was to not get frustrated the previous day and keep this stock on your radar.  Put your alerts in at the price you need to see the stock trade at, then when it breaks get involved.  Have a good night and best of luck tomorrow. 

Kyle

Scenario Building

As I posted a while back planning for all scenarios in this market is a must.  If you aren’t ready for the unexpected, when it happens you won’t know what to do and will be prone to making a mistake.  But to take this concept a little further, are you planning for all scenarios in each individual trade you take. 

When you put on a trade are you the type of trader who when executed just puts in a stop and hopes for the best?  If you get stopped do you get discouraged and get mad when the stock reverses back into the direction you thought?  The reason that most people don’t make money isn’t for a lack of ideas, it is the planning of these ideas where most traders go wrong.  Most traders have no problem planning for what they are going to do when the stock trades in their favor and think they are planning for their downside by just putting a stop in the system.  What you need to be doing is coming up with a detailed game plan for what you are going to do if the stock trades against you.  Yes you should have a price where if the stock trades there you are exiting the trade, but you should have a detailed plan for how you are going to exit.  Are you going to bid/offer to get out or are you going to just hit out of the trade?  Are you going to scale out or take everything off at once?  If you are bidding/offering, are you prepared for the trade to keep going against you and where do you hit out?  If the stock pauses after you get out and trades back in the direction you thought are you reentering?  If the stock trades to your stop price but doesn’t print are you still exiting.  These are all things that need to be figured out before you even execute a trade. 

As I was reading the great new book by Mike Bellafiore, One Good Trade-Inside the Highly Competitive World of Proprietary Trading, I was reading one particular section where I realized I wasn’t planning my exits well enough.  Now I’m not the type of trader who uses stops, I generally am disciplined enough to bang out of a stock when it hits my price.  Also I know with the algos these days that I need to see volume around my stop price and to make sure it stays there in order to exit the trade.  But when I was reading this great book I realized I am not planning enough.  Mike has one section where he presents an example of the if/then statements that his traders have for each trade.  There was about 30 if/then statements ranging for what he needs to see to hold on to the trade, to what he is going to do if the stock blows through his stop price. 

I know one of my weaknesses is when a stock I am trading or the markets reverse their direction and explode.  This happened to me Friday in Las Vegas Sands(LVS) and to our firm Friday afternoon in the markets.  I paused when LVS hit the high of the and reversed because I was only thinking about my profit target.  I didn’t plan for the stock ripping against me so when it happened I was unprepared.  I think the main reason that we are sometimes caught off guard is that we aren’t planning for every single scenario.  If you know what you are going to do then you will just react instead of wondering what is happening.  Best of luck in the coming week and have a great weekend. 

Kyle

how a professional stock trader earns money

Do you want the secret to consistently going to the bank? The all powerful golden rule that will unlock stock trading profits and financial freedom for you?

The first part of the secret is keeping a detailed journal during the trading day of what definitely does not work. I am not talking about a long bunch of paragraphs, I am talking about maybe ten 7 word bullet points of observations.

As you build up more screen time you MUST build your personal list of  low probability ideas. In other words “Don’t do this, and this and this.” The sooner you can minimize mistakes the more crystal clear your trading plan will become and you will have a list of do this and this more often.

This leads us to the second part of the secret. New traders lose money on every idea they have, they allocate capital to every idea without deep consideration for the probability of that idea making money.

Consistently profitable traders lose money on good ideas. They don’t execute a trade if after giving it some thought the expectation for follow through is low. In other words newbies execute a lot of trades that they can manage risk on, but has little potential to actually earn money. They feel safe but they also won’t earn a living.

Everyone will lose money trading, maybe even 50% of the time, it is a given. Make sure you make the list of what definitely does not work, then commit capital great ideas only.

You will still lose money on some good ideas but you will come out positive at the end of each month.