Our Stock Trading Rules.
* Every trader must have a profit and loss plan - a blueprint, if you will. Without a plan, you will lack the discipline to control your emotions, which is your biggest enemy.
* Always determine up-front the maximum loss you can take on any trade. Losses should be limited to 7% to 10% maximum. This is one of the most difficult rules to follow and requires tremendous discipline.
* 3 out of 4 of your stocks must be sold if they show a profit of 25-30%. Sometimes, an outstanding winner comes along, and it is time to be a pig. You need to milk these winners to the max, as explained below.
* Do not take profits in the first 8 weeks. If the stock has raced up 20% in a few weeks, it is time to be a pig.
* Holding onto winners requires courage and patience. Raise your stop loss based on support and resistance points, or any other timing mechanism you prefer. After a strong uptrend, most stocks WILL flash sell signals that WILL get you out before the peak. Recognizing these signals is the key. Remember Lefevre in Reminiscences of a Stock Operator, "It was never my thinking that made big money. It was always my sitting." It takes courage to be a pig.
* Losing is part of the game. Good traders always know they will come back to win, and do not worry about looking stupid because they have lost in some trades. In fact, you will probably have more losers than winners. However, your losses must be kept small and you should allow your winners to run.
* Manage your portfolio risk correctly. Initially, do not invest more than 5% of your portfolio into any single stock. Aim to hold 10 to 20 stocks in your portfolio. This will minimize the negative effects a single name will have on your portfolio.
* Learn effective money management. Pyramid up (buy more shares) when the stock moves in your favor. Always channel your money into profitable positions. Pyramid down, only if you absolutley know what you are doing. In other words, don't.
* There's always the Wall Street fool who must trade all the time. If you find that most of your last trades have gone against you, scale back and rest awhile.
* Do not day trade.
* There's more to life than trading.
Friday, January 8, 2010
Stock Trading with Trend Following Trading Systems
What is trend following? Trend trading is reactive and systematic by nature. It does not forecast or predict markets or price levels. Prediction is impossible! Trend trading demands that you have strong self-discipline to follow precise rules (no guessing or wild emotions). It involves a risk management system that uses current market price, the equity level in your account and current market volatility. Trend traders use an initial risk rule that determines your position size at the time of entry. This means you know exactly how much to buy or sell based on how much money you have. Changes in price may lead to a gradual reduction or increase of your initial trade. On the other hand, adverse price movements may lead to an exit for your entire trade. Historically, A trend trader's average profit per trade is significantly higher than the average loss per trade.
Trendtrading is not a Holy Grail. It is not some passing fad or hyped-up secret black box either. Beyond the mere rules, the human element is core to the strategy. It takes discipline and emotional control to stick with trend trading through the inevitable market ups and downs. Keep in mind though, Trend Followers expect ups and downs. They are planned for in advance. What must all trend followers consider?
Price: One of the first rules of trend following is that price is the main concern. If a market is at 60 and goes to 58, 57, 53 - the market is in a down trend. Despite what every news show might predict, if the trend is down, stay with the trend. A trader need only be concerned with what the market is doing, not what the market might do. The price tells you what the market is doing. Think about Bear Stearns, Lehman Brothers, WaMu, IndyMac, AIG, Fannie Mae, Goldman Sachs - didn't their down trends tell you all you needed to know? Did you fall for the nonsense that they would all bounce back?
Money Management: The most critical factor of trend following is not the timing of the trade or the indicator, but rather the determination of how much to trade over the course of the trend.
Risk Control: Trend following is grounded in a system of risk control and money management. The math is straightforward and easy to learn. During periods of higher market volatility, your trading size is reduced. During losing periods, positions are reduced and trade size is cut back. The main objective is to preserve capital until more favorable price trends reappear. Cutting losses is the way to stay in the game.
Rules Rule: Trend following should be systematic. Price and time are pivotal at all times. Trend Following is not based on an analysis of fundamental supply or demand factors. Trend Following does NOT involve seasonals, point and figure, Market Profile, triangles or day trading.
Trend Following answers these critical questions:
1. How and when to enter the market.
2. How many contracts or shares to trade at any time.
3. How much money to risk on each trade.
4. How to exit the trade if it becomes unprofitable.
5. How to exit the trade if it becomes profitable.
Conclusions
If you want in-and-out day trading, we can't help. Good trend following systems average five or six trades per market per year. Good trend following systems ride big winners and cut short small losses. What do you need to get started?
* An active mind, willingness to learn and passion to win.
* No knowledge of what an Italian bond is worth or what companies comprise the S&P or FTSE index. The key to trend trading is the price on the chart.
* Discipline and common sense to do the right thing per all rules.
* About an hour each day at the end of the day to check trades.
* A PC and telephone line (or internet connection).
Trading is a zero-sum game. For every winner, there is a loser. What's the difference between winners and losers? Smarts and strategy. For every loser in the NASDAQ implosion or the real estate/credit meltdown there was a winner. Does this mean that there are traders with neither strategy nor smarts actively losing, effectively shifting their funds to the winners, armed with strategy and smarts? Yes, absolutely.
Trendtrading is not a Holy Grail. It is not some passing fad or hyped-up secret black box either. Beyond the mere rules, the human element is core to the strategy. It takes discipline and emotional control to stick with trend trading through the inevitable market ups and downs. Keep in mind though, Trend Followers expect ups and downs. They are planned for in advance. What must all trend followers consider?
Price: One of the first rules of trend following is that price is the main concern. If a market is at 60 and goes to 58, 57, 53 - the market is in a down trend. Despite what every news show might predict, if the trend is down, stay with the trend. A trader need only be concerned with what the market is doing, not what the market might do. The price tells you what the market is doing. Think about Bear Stearns, Lehman Brothers, WaMu, IndyMac, AIG, Fannie Mae, Goldman Sachs - didn't their down trends tell you all you needed to know? Did you fall for the nonsense that they would all bounce back?
Money Management: The most critical factor of trend following is not the timing of the trade or the indicator, but rather the determination of how much to trade over the course of the trend.
Risk Control: Trend following is grounded in a system of risk control and money management. The math is straightforward and easy to learn. During periods of higher market volatility, your trading size is reduced. During losing periods, positions are reduced and trade size is cut back. The main objective is to preserve capital until more favorable price trends reappear. Cutting losses is the way to stay in the game.
Rules Rule: Trend following should be systematic. Price and time are pivotal at all times. Trend Following is not based on an analysis of fundamental supply or demand factors. Trend Following does NOT involve seasonals, point and figure, Market Profile, triangles or day trading.
Trend Following answers these critical questions:
1. How and when to enter the market.
2. How many contracts or shares to trade at any time.
3. How much money to risk on each trade.
4. How to exit the trade if it becomes unprofitable.
5. How to exit the trade if it becomes profitable.
Conclusions
If you want in-and-out day trading, we can't help. Good trend following systems average five or six trades per market per year. Good trend following systems ride big winners and cut short small losses. What do you need to get started?
* An active mind, willingness to learn and passion to win.
* No knowledge of what an Italian bond is worth or what companies comprise the S&P or FTSE index. The key to trend trading is the price on the chart.
* Discipline and common sense to do the right thing per all rules.
* About an hour each day at the end of the day to check trades.
* A PC and telephone line (or internet connection).
Trading is a zero-sum game. For every winner, there is a loser. What's the difference between winners and losers? Smarts and strategy. For every loser in the NASDAQ implosion or the real estate/credit meltdown there was a winner. Does this mean that there are traders with neither strategy nor smarts actively losing, effectively shifting their funds to the winners, armed with strategy and smarts? Yes, absolutely.
Some stock trading secrets - reality of any online stock market investment strategy
Can you hear these points during stock trading courses ?
I would like to present you some important points - "stock trading secrets". I noticed that they are not well known by aspiring traders trying to learn how to trade for living.
Every time when somebody is asking me "teach me to trade" I start with these stock market trading tips and very important points.
Trading must be done as business
Every trader must do it is a business and acts accordingly. If anybody is doing it as a hobby - he will lose money sooner or later. Remember - only business earn money. Hobby is taking money from you.
Trading is boring
No one should expect big excitements from trading. As any other business, trading should be done as a routine, without emotions.
Trading needs patience
Every trader must be patient. Trader must wait for ideal trade setup. Do not chase strong moves. If you will see some missed trade opportunity then relax. Another will be available soon.
There is huge amount of stocks listed on SGX & HK stock markets and every day there are plenty of different trading opportunities: day trading strategies, swing trading strategies, ideas for online stock market investment strategy. All financial markets offer a lot of superior and best ways to invest money every week.
I would like to present you some important points - "stock trading secrets". I noticed that they are not well known by aspiring traders trying to learn how to trade for living.
Every time when somebody is asking me "teach me to trade" I start with these stock market trading tips and very important points.
Trading must be done as business
Every trader must do it is a business and acts accordingly. If anybody is doing it as a hobby - he will lose money sooner or later. Remember - only business earn money. Hobby is taking money from you.
Trading is boring
No one should expect big excitements from trading. As any other business, trading should be done as a routine, without emotions.
Trading needs patience
Every trader must be patient. Trader must wait for ideal trade setup. Do not chase strong moves. If you will see some missed trade opportunity then relax. Another will be available soon.
There is huge amount of stocks listed on SGX & HK stock markets and every day there are plenty of different trading opportunities: day trading strategies, swing trading strategies, ideas for online stock market investment strategy. All financial markets offer a lot of superior and best ways to invest money every week.
How to create stock trading system
Well, when I say stock trading system I am thinking about set of rules. These rules have to reply to questions described below. Consider them as your best stock pick guides.
1. What is time frame for your trades
2. What type of trades you are looking for
3. How you will find best trading opportunities
4. How you will set entry, stop-loss and target points for my trades
5. How you will enter and exit trades
6. How you will manage trade
I use rules based on these points in my everyday stock trading for living.
Time Frame
Definition of time frame for your trades is necessary. You need to know how long you could hold position. I personally define these types of stock trading
Trade Types
My trades are based on simple rules. My basic premises for trades are support and resistance . So simple stock trade can be :
1. Breakout trade . This trade expect break of significant support or resistance level
2. Pullback trade . This type of trade expects that price will bounce from important support or resistance level
How to find trading opportunities
There are several ways how to find best stock pick (understand stock trade setup) for the next day. You can use:
* stock screener available on Internet
* stock scanner integrated in your trading software or analytics software
* special list with manual selections
I also found that checklists can help to improve stock picking process a lot.
Set up you entry, stop loss and targets
You need to have these important values prepared for each of trade setup you like and which fit with your trading strategy.
First you need to find good entry price, then you have to think where to place stop loss and finally you can think about possible targets where you can realize profits.
These 3 values must fit with your risk:reward ratio definition. This procedure will tell you if your setup is good and worth trading.
Entering and exiting of trade
Knowledge of right order types used to enter or close of the trade is part of good stock trading system.
Read also why I do not enter any orders before market open.
One trading veteran told me that it is not good to enter stop loss orders or stock trade entry order before market open.
The main story is that "amateurs control the open, professionals control close". It means that a lot of amateurs investors are placing their orders before market open. Most of these orders are based on some "hot stock pick advice" or some "hot news" received in pre market hours.
It creates huge opportunity for market professionals to profit from these orders. It is very common that such news move stock price during premarket hours already and stock is opening with gap (price is much different from yesterdays close price).
It means that stop loss orders or trade entry stop orders of these amateurs investors are often filled in totally different price then they expect. And after first few minutes of trading , when all these orders are filled , price returns back to previous days close levels.
It is happening on daily basis. I saw it a lot of times during my trading career. So I think that this stock trading advice for online trading is very important.
Stock trading advice for online trading
* Do not enter any orders before market open to be filled after market open
* Wait 5 or 10 or 15 minutes and then enter your orders. Adjust stop loss levels or trade entry levels accordingly
Trade management
Good trader have to take care of every opened trade. You also must make regularly monitor development of your stock trade.
The most important tasks of trade management are
* trailing (moving) stop level
* profit taking
* exit decision if breakout or breakdown fail
Very profitable approach in trade management is adding into already profitable trade or re-entry of trade.
Prepare list of rules for all these tasks in advance and follow them during active trading hours.
Write all answers to question list above to paper to ensure you will not omit them in the future. These rules are basics of your stock trading system.
1. What is time frame for your trades
2. What type of trades you are looking for
3. How you will find best trading opportunities
4. How you will set entry, stop-loss and target points for my trades
5. How you will enter and exit trades
6. How you will manage trade
I use rules based on these points in my everyday stock trading for living.
Time Frame
Definition of time frame for your trades is necessary. You need to know how long you could hold position. I personally define these types of stock trading
Trade Types
My trades are based on simple rules. My basic premises for trades are support and resistance . So simple stock trade can be :
1. Breakout trade . This trade expect break of significant support or resistance level
2. Pullback trade . This type of trade expects that price will bounce from important support or resistance level
How to find trading opportunities
There are several ways how to find best stock pick (understand stock trade setup) for the next day. You can use:
* stock screener available on Internet
* stock scanner integrated in your trading software or analytics software
* special list with manual selections
I also found that checklists can help to improve stock picking process a lot.
Set up you entry, stop loss and targets
You need to have these important values prepared for each of trade setup you like and which fit with your trading strategy.
First you need to find good entry price, then you have to think where to place stop loss and finally you can think about possible targets where you can realize profits.
These 3 values must fit with your risk:reward ratio definition. This procedure will tell you if your setup is good and worth trading.
Entering and exiting of trade
Knowledge of right order types used to enter or close of the trade is part of good stock trading system.
Read also why I do not enter any orders before market open.
One trading veteran told me that it is not good to enter stop loss orders or stock trade entry order before market open.
The main story is that "amateurs control the open, professionals control close". It means that a lot of amateurs investors are placing their orders before market open. Most of these orders are based on some "hot stock pick advice" or some "hot news" received in pre market hours.
It creates huge opportunity for market professionals to profit from these orders. It is very common that such news move stock price during premarket hours already and stock is opening with gap (price is much different from yesterdays close price).
It means that stop loss orders or trade entry stop orders of these amateurs investors are often filled in totally different price then they expect. And after first few minutes of trading , when all these orders are filled , price returns back to previous days close levels.
It is happening on daily basis. I saw it a lot of times during my trading career. So I think that this stock trading advice for online trading is very important.
Stock trading advice for online trading
* Do not enter any orders before market open to be filled after market open
* Wait 5 or 10 or 15 minutes and then enter your orders. Adjust stop loss levels or trade entry levels accordingly
Trade management
Good trader have to take care of every opened trade. You also must make regularly monitor development of your stock trade.
The most important tasks of trade management are
* trailing (moving) stop level
* profit taking
* exit decision if breakout or breakdown fail
Very profitable approach in trade management is adding into already profitable trade or re-entry of trade.
Prepare list of rules for all these tasks in advance and follow them during active trading hours.
Write all answers to question list above to paper to ensure you will not omit them in the future. These rules are basics of your stock trading system.
Types of stock trading
There are several types of stock trading, based on profit expectations and on time frame of realized trades. I personally divide them into these categories:
* Day trading is for very short term trades. Day trader holds position only during one day. It means that no position is held overnight. Such traders use intraday charts with very short primary time frame like 3 min, 5min, or 10 min. Their trades last from several minutes to hours.
* Swing trading is based on daily charts. Trades can last from one day up to several days or a few weeks. This is my favorite time frame. Basic type of chart is daily. Some swing traders use also 240 min (4hours) charts as primary time frame. I like these 4hours charts, too. See my charts setup for my analysis, if you want.
* Position trading is based on weekly charts. Such trades can last much longer. Typical holding period is between 1 month to 6 months
Any of these approaches can make money. But if you plan to generate regular income from trading, you have to consider shorter time frame for trading (day trading or swing trading). Position trading is good if you want to create more wealth.
My special multi time frame stock trading tip !
I like to use same stock for swing trading and for position trading . When I find stock with nice chart for position trade, it often means also several possibilities for swing trade in same stock.
* Day trading is for very short term trades. Day trader holds position only during one day. It means that no position is held overnight. Such traders use intraday charts with very short primary time frame like 3 min, 5min, or 10 min. Their trades last from several minutes to hours.
* Swing trading is based on daily charts. Trades can last from one day up to several days or a few weeks. This is my favorite time frame. Basic type of chart is daily. Some swing traders use also 240 min (4hours) charts as primary time frame. I like these 4hours charts, too. See my charts setup for my analysis, if you want.
* Position trading is based on weekly charts. Such trades can last much longer. Typical holding period is between 1 month to 6 months
Any of these approaches can make money. But if you plan to generate regular income from trading, you have to consider shorter time frame for trading (day trading or swing trading). Position trading is good if you want to create more wealth.
My special multi time frame stock trading tip !
I like to use same stock for swing trading and for position trading . When I find stock with nice chart for position trade, it often means also several possibilities for swing trade in same stock.
Trading for this week
Somehow....did well for the 1st 2 days when I was able to monitor the trades than from Wed onwards...things just screw-up for me. 1st...still have this itchy backside problem. Somehow...whatever stocks I sold, it would then fly just to spite me. What I buy....will go "limp" until I give up and sell.
No luck??? No skill??? I am starting to doubt myself :(
No luck??? No skill??? I am starting to doubt myself :(
Thursday, January 7, 2010
Thu - mini correction?
Shit....stocks went nicely up during the morning trades, then started to turn around noon time. Got worst in the afternoon....btw I went to sleep after putting in my stop-loss orders. Woke up at 4.30pm....shit, my Wilmar kena 'stopped out" as I want to protect my profit. Still due to loss by Genting....YAnlord and Wilmar, loss a total of about 8% of funding. Plus commission...now total loss back to 27 to 28% level. Still better than earlier loss level of 38% hahaha.
Okay...gotto tone down my trading until my fund shows a profit as per my agreement with wife. I shall stick to that....sort of self discipline thingy!
No profit....no adding of funds.
Okay...gotto tone down my trading until my fund shows a profit as per my agreement with wife. I shall stick to that....sort of self discipline thingy!
No profit....no adding of funds.
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