Home Blog Page 89

Making a Killing, or Getting Killed in the Markets?

10

I hear the same story over and over …

“I was making money, slowly and gradually increasing my trading account, and then I lost all my winnings on one or two trades.”

Ever heard that?

Ever done that?

There are ways to protect yourself from this common trading problem. Some are simple disciplinary issues, some are money management techniques, but when it comes to Swing Trading the use of options can be your best tool.

Some traders think that they protect themselves against big losses, and their corresponding huge draw downs, by putting in “hard stops.” These are stop orders actually placed with your broker so if the market goes down to a certain level, you are automatically taken out.

This approach does protect you most of the time.

But what about when the market GAPS against your position overnight?

If you use a stop order, the price at which you placed your stop, which you thought limited your risk, is never executed. Instead you get filled at a much, much worse price.

For this reason some people use a stop limit order. This way if the market gaps far away from their stop, they do not end up selling at the terrible price. However this doesn’t remedy the situation because they are still in the position at the terrible price … which can get even worse.

Don’t think it will happen to you? Below are just 3 examples that all happened TODAY as I write this.

Gap

Swing Trading

Options for Risk Managment

The best way to protect yourself against these types of dramatic gaps against your position is with option strategies.

If you’re interested in really learning about options, you can take the same options course I took. [disclosure: I’m a compensated affiliate for this program. On the other hand I only recommend things I feel will be of great value]

I will also be giving 3 “gap insurance” techniques in my upcoming Swing Trading Course, due to be released next week.

Whatever approach you decide to employ – make sure you take this issue seriously and have a strategy in your trading plan regarding how you protect yourself against these types of devastating moves against you.

Please leave your comments or questions by clicking on the green “Comments” link at the very bottom of this entry.

.

Head and Shoulders Patterns – Advanced Technical Analysis

8

A couple of my articles were recently accepted and published by eSignal Learning.

These articles have to do with some advanced techniques for trading the famous Head and Shoulders pattern.

A lot has been written about this chart pattern, but there are some things I have learned from professional traders that I’ve never seen in any book. I’ve gathered several of these lessons and put them in a 2-part article series entitled:

How Pros Make Profits Head and Shoulders above the Amateurs…and You Can Too.

Both parts are now published and live at the eSignal Learning Site and you can access them here:

Advanced Head and Shoulders Trading Part 1

and here:

Advanced Head and Shoulders Trading Part 2

These principles for technical analysis apply to the pattern found in stocks, forex or futures.

After reading the articles please leave your comments or questions by clicking on the green “Comments” link at the very bottom of this entry.

Finding the Best Markets for Swing Trading and Investing

7

A common question I receive is, “How do I find the best markets to trade?”

The inquiry comes mostly from stock traders, but it’s applicable to futures and forex traders as well.

There are several approaches that can be taken. Here are the ones that I use:

  1. Use a scanner to find stocks that are currently qualifying for a certain technical setup. This requires the use of a computer program that can search the entire universe of stocks based on meeting the parameters you set for various technical indicators and/or price patterns. You can do this with fundamental data as well if you like.
  2. Establish a set “watch list” of markets that you continually monitor for trades. This is typically done with a smaller number of markets – ones that are not highly correlated to each other.
  3. Measure the relative strength of various markets in relation to each other. In contrast to approach #2 above, this is conducted with markets that are correlated to each other. This approach can be used to find the best stock in the best sector in the best industry … or it can be used to find undervalued securities. This is also a great approach for find the best forex pair or futures market to trade.

Exchange Traded Funds (ETFs) are a wonderful way to take advantage of many opportunities that were not formerly available to retail traders. There are now ETFs for everything from agricultural commodities, various countries, currencies, metals, bonds, energy, and all the different sectors and industries of the stock market.

This is a huge advantage because it provides more opportunities beyond just traditional stock trading.

When the stock market is down, there will be another non-correlated market that is up. There are always opportunities. The key, as is always the case in trading, is to be flexible.

This is one of the most critical aspects of trading.

During the tech rally of the late 1990s  you didn’t need to be a genius to be a successful trader. All you had to do was buy into the Nasdaq! Raging bull markets will forgive a lot of amateur trading mistakes. You just have to be in.

Here’s the key:

There’s always a great market which can make it easy for you. Finding that market, and trading it, is a huge part of becoming a profitable trader.

In my upcoming course on Swing Trading, I’ll be going into great detail on exactly how I find these opportunities in my own trading and investing:

  • Which scanner I use.
  • Which markets are in my watchlist.
  • How I easily determine the strongest markets, and the most undervalued markets that are primed for a major, sometimes multi-year, reversal of fortune.
  • How to get out before the raging bull markets crash.
  • How to protect yourself from dramatic overnight gaps against your position.

Please leave your comments or questions by clicking on the green “Comments” link at the very bottom of this entry.

Volume in Futures and the Stock Market

10

My approach to trading is based on the objective evaluation of the “Energies” in the markets.These energies are often measured by technical analysis indicators.

In my first 2 trading courses I share the first 5 energies which are:

  1. Trend
  2. Momentum
  3. Cycles
  4. Fractals
  5. Support/Resistance (blockage to the first 4 energies).

One of the most common questions I’m asked is why I didn’t include volume in the first 5 energies.

The answer is quite simple.

The first 5 energies are ones that I use in consideration of every trade I make. Therefore they are the most important. Volume is not used in every trade – for example, you can’t use volume to trade the spot Forex market since it doesn’t trade through a centralized exchange.

Many teachers say that volume is more important than any indicator because volume, like price, is a reality unto itself. In other words, volume IS what it is. It isn’t an “indicator.”

Most indicators are based on price and/or volume (and sometimes also “time”).

That distinction is important, but doesn’t mean that their “raw data” is easier to read for trading purposes than excellent indicators that can pull “meaning” from that raw data.

In my method, price, volume or any single indicator is essentially meaningless.

Where we find “meaning” (a probability scenario worthy of risking our money) is when many or all of these “Energies” align saying the same thing at the same TIME. This, like in a court of law, gives us a preponderance of the evidence that puts the odds on our side. It doesn’t mean that we’ll be right every time, but we will be more times than not.

Volume is a SIXTH ENERGY that I add to my charts. I use both the standard volume histogram (that plots the raw data of volume) and also a volume indicator that makes it easy to interpret that data at a glance.

Exactly how I use volume in my trading will be revealed later this month when I launch my Swing Trading Course, which is the first Intermediate Level Course I’m making available in electronic format for home study (previously only taught in my live seminars).

Please leave your comments or questions by clicking on the green “Comments” link at the very bottom of this entry.