The Key to Success: Money Management

image1

In trading a lot of people will tell you that trade management, along with mastering emotions are the most important factors to success. While I agree they are very important to success…they are entirely MEANINGLESS without proper, solid money management.  Sadly, this is where far too many traders destroy their trading hopes and dreams…namely in the form of blown accounts which leads to quitting.


Let’s be honest, the vast majority of traders lose when they begin this career path, yet over-time some become immensely successful and others fall to the way side and give up. How can this be? If most folks lose in the beginning, why do some people achieve such high levels of success while others fail? MONEY MANAGEMENT. You have to understand that the market doesn’t care about you or me, or anyone for that matter.

The market just is. It’s neither fair nor unfair. It’s neither good nor bad. It’s neither this nor that. It just is.


On the one hand this is the greatest meritocracy there is, no advantage to anyone, no nepotism, no advantage to the rich or poor, no advantage to the smart or dumb, no advantage to the young or old; a truly level playing field. How perfect. Please understand that I’m not saying the market is a 100% level playing field, however for our purposes as individual traders, it is. Why? Because generally speaking the average day-trader or retail trader has access to the same information; thus making our opportunity for success relatively equal.


So, why then do some do so well while others struggle? There are a multitude of answers to that, but the one that is most important, especially in the beginning of a trading career, is money management. Far too many traders allow their ego to take over their trading, thus risking too much too soon, and ultimately losing far more than they should, especially given their level of experience. The problem with many traders is that by the time they appreciate and understand the business, they have run out of money. How is this possible? Usually it’s down to EGO. They feel like they have to raise risk to pay the bills, or perhaps they’ve been trading for several years now and they have to raise risk to satisfy their ego. “I couldn’t possibly tell my family friends that I am a breakeven trader after 1-2 years of doing this. In my old job I used to make $250k a year. How will they react knowing I haven’t made a dime in trading yet? I need to prove to them that I was RIGHT when I left my old job and decided to become a trader.” Sound familiar, or sound like some variation of how you’ve felt from time to time? Don’t become this type of trader.


What effect does this have on our psyche? It makes us feel frustrated and inadequate, and this ‘offends’ our ego, and then our need to prove we are right comes out in the form of raising risk or doubling down on losing positions. Essentially ‘the idiot’ (we all have one) takes over which leads to poor decision making in the form of poor money management, which leads to eventual failure.


If this sounds like you, then you need to re-evaluate your money management approach, and also re-evaluate your timeline for success. The shorter you make it, the more stress you will be under, thus the more likely you will make poor money management decisions and struggle to succeed.
Every trader needs to make specific rules about how much money they are ‘allowed’ to lose before quitting for the day, the week, the month and so on…It is also important to have ‘account’ based rules as well. For example, if your trading account loses 10% of its value, then immediately stop trading and seek professional guidance. This business is NOT a game, and things can spiral out of control very quickly, so please don’t take this topic lightly. If so, you could end up as an EX-trader in a very short amount of time.


Successful trading begins and ends with proper money management. Some of the smartest people in the history of the world have been brought down by ego, greed and the inability to properly manage risk. If this sounds like you, let this be your wake-up call! Ignore proper money management and you will likely be doing something else for a living real soon!

Best of Luck and Happy Trading. Jared, Jay and Anmol and the Livetraders.net Team!

KCapital: New Position and Market Recap!

Hey Trader!

Kyle Matthew here. This was week was one where we found some form of stability in an otherwise crazy world. We saw mild to low volume across the markets as the FED decision continues to hover over the entire US economy. We found some new setups that are trading well, but continue to be haunted by a bearish market. Following our rules has saved us over and over again.

So, with that, here’s our latest newsletter for the trading week ending 09/11/15 with our take on the overall market, our position update and where we think the markets are heading.

Total return since inception:

+70% since inception. Our ENTIRE alert history is posted here

What happened in the overall market this week:

We found some level of support in the DOW as support from the massive sell off two weeks is holding. That said, I don’t expect that to be the case long term though as the current pattern indicates another move to new lows is coming. When we look at the charts we see the recovery from the 15,400 low was quickly sold into and we’re now seeing another selloff through weeks end. I think we continue downward which is why I’m holding our short in CSLT for now. Our other watch list shorts would have been GREAT returns especially in TGTX and ARIA. I think CSLT is another one like those.

Looking at the technicals in the DOW and Russell we see the 50/200 ma bearish cross is continuing and without much support below it. One bullish indicator is that we’re oversold from a RSI and MACD standpoint, but that can continue that way for many weeks as we’ve seen in the past.
1545d0a9-0ee7-4242-a4fe-a502fba35c456ff35675-2c65-4448-a148-546ee04998dc

One New Position We’re In (usually for members):

EMKR – Holding long term support at $6.75. This level dates back 5 years on the weekly charts and shows a large area of resistance. It also matches the mid point of the break out candle recently so if we hold this we should a nice move up soon.

b9295921-3bfc-4ffb-bd94-6d7a59cc8797

Want to start profiting with us? check out our current member promotions here.

We were rated 4.2 of 5 stars by TradingSchools.org for a reason, and we will continue to find winners and educate our members on the keys to successful swing trading. We’re glad you’re on board with us and we can’t wait to see what the future holds. Read their full, detailed review here. All the best,Kyle – CEO & Founder

Be Great, Or Get Hit..HARD: Stocks you NEED to pay attention to!

It’s been very obvious stocks have been all over the place during this earnings season. There have been big gaps in both directions from both high-quality and low-quality companies, particularly internet stocks.

PCLN gapped up big yesterday. NFLX has been on a roll. FB, GOOL, AMZN – all have done great. TWTR has gotten crushed; it’s almost back to its IPO level. YELP has gotten clobbered. It topped near 100 and is now down to the mid-20’s. Zillow has been trending down for several months. YHOO and GRPN have also experienced steady selling.

The contrast between the good and the bad is stark.

Either Wall St. loves you or they dislike you. There’s very little in the middle.

Here’s a quick list of internet stocks I follow and how they’ve done the last six months. Then I discuss a handful of leaders/laggards and attempt to explain their performance.

internets080515

The Bad

Zillow. I love Zillow.com. Real estate was an industry that was closed to the public. Brokers could justify their commissions because they had access to information that was not available to the public. Zillow changed this, but but the company has become a joke in the real estate community because their zestimates are so inaccurate. I love the info they provide, but all the negative press regarding their zestimates has taken a toll. It’s odd that a big source of their revenue comes from those who bad-mouth them (brokers).

Yelp is getting hit on both sides. Consumers generally distrust the accuracy of the reviews, and there are many negative stories in the news about the company strong-arming businesses – threatening to move negative reviews to the top of a page unless a restaurant buys some ad space. By employing questionable business practices and not doing a better job authenticating reviews, they’re alienating users on both sides, and their stock is taking a hit because of it.

Twitter. There are few companies in the world more ubiquitous than Twitter, so there is little upside to their numbers. They just can’t figure out how to make money. The property is extremely valuable, but given their revenue, they haven’t been able to grow into their evaluation. Those who bought early assumed the company would figure it out, but as time has gone by, investors realized it just wasn’t happening. The current price is reflective of Twitter being a one-trick pony that hasn’t figured out how to capitalize on the popularity and usage of the product.

Yahoo. This company has been an under-performer for many years. It’s gotten a well-deserved reputation as a media company, not a tech company. It got a nice boost (it tripled) because it owned a big part of BABA, but other than that, YHOO has done nothing to re-position itself as anything but a big media company. There’s nothing wrong with that, but other than upping the price of ads, where is growth going to come from.

Groupon. The company grew too big too fast and screwed over too many people along the way. Consumers who use it love it because of the deals they get, but business generally dislike the service. Like YELP, there are hellish stories out there.

The Good

Amazon. It’s a huge conglomerate that has its hand in many cookie jars, and although they’ve had a bumpy ride laying a big and solid foundation, things are falling into place. The retail store is the undisputed winner in online shopping. Whether you’re an author or recording artist, you can sell your stuff on amazon.com. Tablet computers, smart phones, other electronics – they do that too. Amazon Web Services. This company is broad and clicking on all cylinders.

Facebook. In the winner-take-most social media space, Facebook is king. Is the company great? I don’t know, but they only have to be better than everyone else because in this space where you aren’t going to maintain a profile in many different places (Google+ anyone?) you are either the leader or you don’t exist. Facebook is the winner. Also, they’re viewed as a tech company that will be able to stay ahead of the competition. Unlike YHOO which never adapted to change.

Netflix. It just gets better and better. More and better content. Expanding into different countries. And it’s super cheap for consumers.

Priceline.com. Continues to chug along. They’re just a middleman. They don’t have inventory, so they don’t ever have to eat unused flights or hotel rooms. The space is crowed, and they certainly don’t have a monopoly, but they have enough of a loyal following to keep chugging along.

Google. These guys have their hands in many cookie jars, and although most businesses have not worked out (they built their own versions of YELP, GRPN and FB), their ad business continues to be a cash cow and they have a stable of products that could be game changers (driverless cars, for example). Some of their current price no doubt takes into consideration big potential upside if even one of the secret products at GoogleX explodes.

Is there a common theme here? I think it’s obvious. The companies doing well are high-quality, time-tested, market-tested and innovative. They are the cream of the crop.

The companies not doing well are much lower quality, haven’t adapted to change, have employed questionable business practices and have pissed off a lot of people.

During a big bull run, a rising tide raises all ships – most stocks, regardless of how deserving they are, rally. But as the rally matures, the strong continue to do well while the weak drift away.

In today’s market, a company is going to have to earn it. No free rides. You better be great or suffer the consequences.

Editor of this article, Jason Leavitt, is the founder and head of research at LeavittBrothers.com, a boutique research firm which offers market analysis and trading ideas to hedge funds, financial advisors and full- and part-time independent traders.

Being Human: Trader Strength or Weakness

478019901

There are many aspiring, as well as seasoned traders out there who are trying to earn a living in the markets each day. However, the vast majority of them struggle to ever make a profit, let alone make enough money to pay the bills. Therefore, if technical charts are so simple and so easy to learn (at least that’s what most online educational companies are pitching these days), then why do so many traders struggle and ultimately fail?

The answer is actually pretty simple: we are HUMAN.

Being human means we are largely run by our emotions. When learning technical charts, ‘fear’ and ‘greed’ are often represented as the two most powerful emotions that make the markets move. While I generally agree with that ‘theory,’ making money from OTHER people’s emotions also means we have to be able to understand and control our own emotions first. This is where most traders fail. So, while being human (having emotions) is what makes the markets move and allows us all to be traders, it’s also the same thing that causes most aspiring traders to struggle.

So, where does that leave us? For starters, it means spending a lot more time working through emotional demons and a lot less time looking at charts, which is typically the opposite of how most traders appropriate their time. The only way to become a profitable, successful trader is to find your niche, which is to fully understand who you are as a trader. Most traders eventually learn charts, but very few traders every truly master their emotions, and that’s why so few are genuinely successful. I used to work with a trader who would often say; “Technically profitable traders are a dime a dozen, but genuinely profitable traders are few and far between.” I completely agree with this statement. It’s no different than going to the driving range every day and spending the entire time hitting your driver, without practicing your short game or putting, yet the vast majority of shots in golf are inside of a 100 yards. It makes no sense at all.

In trading you will either make yourself accountable or you will be made accountable by the markets. For the aspiring trader you have to learn to control your emotions and not get caught up in the moment. This means trading with confidence not with arrogance. This can mean many different things, perhaps on one trade it means cutting your losses and moving on before you find yourself in a hole so deep you can’t get out. On another instance it might mean passing on a trade or taking a fewer shares because the stock is extra spready or whippy. It’s the understanding that not every day will be a massive winning day, and as long as you can control your losing days and keep them “acceptable” the winning days will come. Good traders wait for high odds opportunity, and that means a lot of scanning and waiting, scanning and waiting, because you can only take what the market is willing to give you…and the market is not always in a giving mood. This takes us back to learning to trade with confidence and not arrogance. Be smart. Controlling emotion is how we make informed decisions, which is imperative to trading success.

One of the most challenging things to learn as a trader is that it is a very personal business. By personal I mean that it ISN’T a one size fits all type of industry. Too many traders get caught up in the idea that there is only “one way” to succeed and they must copy someone else’s path. In truth there are 1000’s of ways to make money in the markets. So go out there and try different styles, different timeframes, different methods and see which one speaks to you the most. See which one is most comfortable for you, because if you are uncomfortable, you will likely allow your emotions to take over, which leads to doing something foolish. Find your niche!

Being human can be a blessing and a curse…the goods new is; you are responsible no matter what! So make mastering your emotions your main focus and never forget that this business is NOT easy, it will take time to master your demons and ultimately find your niche. Folks out there selling get rich quick courses or too good to be true automated black boxes are usually full of it, and not worth your time. Find someone that will take the time to help educate and mentor you in the aspects of proper, professional trading. This must also include live market experience so you can feel the full gambit of emotions that afflict traders.

Search out a method that makes sense for you, find educators who are open and honest about their own trading, not hiding behind the veil of the internet, get live market experience and then continue to fine tune your trading through continual studying, tracking spreadsheets and of course asking questions of traders who are better than you are. If you work hard and do these things you will significantly increase your chances of becoming successful.

Remember, earning a living as a trader is a very rewarding experience, but there is also a lot of hard work, barrier breaking and generally an emotional paradigm shift to get there! For those who are motivated and truly want it, it’s absolutely worth it!
Best of Luck!

Live Traders is an educational online trading firm catering to a community of serious traders. We pride ourselves on transparency and providing the type of real-life knowledge necessary to be successful with day trading. When we call trades, we actually take them, and we show our live P-L while we are trading. Stop by livetraders.net to see if our community is right for you.

withshadow

Shark Traders Weekly Update – S&P 500 Still Pressing Higher

Stock markets have officially entered into the summer trading period but this has not led to the slowing volatility that typically accompanies these sessions.  Instead, traders are focused on the underlying fundamentals that could likely lead to higher interest rates before the end of this year.  Most of the analyst commentary in this area has focused on the job market, and the US economy is now looking at the potential for unemployment levels to continue dropping as a key indicator that the Federal Reserve will finally act to normalize its monetary policy.

For the year, the SPDR S&P 500 Trust ETF (NYSE: SPY) has posted gains of 2.5%.  But what is more significant is the fact that the most commonly traded S&P 500 ETF is now trading more than 200% higher when compared to the lows seen in 2009.  This, needless to say, is a massive rally in a relatively short period of time.  This creates cause for concern for many newer traders looking to establish positions at these elevated levels.  But the real basis for the rally comes from the fact that the S&P itself is still trading within its historical valuations on a per-share earnings basis.  The S&P 500 is now trading at a multiple of 16.5 times earnings, so there is still scope for further rallies into the second part of this year.

Elsewhere, a good deal of attention has been focused on the iShares S&P Europe 350 Index (NYSE: IEV) as markets are still dealing with the possibility of changes in the European monetary union.  At the moment, it looks as though these fears have started to subside but there is still some likely volatility to be had given all of the position changes that led up to the current resolution handed down by the ECB.  Here, we will compare the broader activity in both of these ETFs to see where the next trends might travel.
_____________________________________

SPDR S&P 500 Trust ETF (NYSE: SPY)

Critical Resistance:   215
Critical Support:   205

Trading Stance:  Cautiously Bullish

SPDR S&P 500 Trust ETF

S&P 500 / SPY – Stock Trading Strategy:  Prices are holding below the next psychological resistance at 215.  We could see some failures here but an upside break should accelerate gains in the ETF.

Momentum in the SPY is still positive and we are now moving toward key psychological resistance at 215.  The daily MACD reading is still in negative territory but a break through resistance at 215 would likely change this and send prices higher after tripping short term stop losses.  Initial support can now be found at 204, so we would need to see a downside break here in order to change the bias.  If we do see 215 resistance give way, the next upside target rests at 220.
_______________________________________

iShares S&P Europe 350 Index (NYSE: IEV)

Critical Resistance:   47.10
Critical Support:   42.30

Trading Stance:  Watch for Volatility

iShares S&P Europe 350 Index

IEV Europe ETF – Stock Trading Strategy:  Prices in the IEV ETF have shown increased volatility and negative indicator readings.  Expect heightened volatility in the weeks ahead as the dust settles after the bounce from 42.30.

Price activity in the IEV ETF has picked up in volatility and this is likely to continue until we see traders start to square more of their positions.  So if you are looking to trade in the IEV ETF it will be important to use tighter stop losses and a more conservative outlook.  First support is now seen at 42.30 and resistance is not seen until 47.10.

Shark Traders is a prop firm providing online access and leverage for trading on NYSE, NASDAQ and AMEX to traders from all over the world. Click here to learn more

The Holy Grail: Add & Reduce Management (Pyramiding)

withshadow

Although many have searched, there is actually no such thing as ‘the holy grail’ in trading, however, as it relates to management, Add & Reduce is certainly one of the most potent strategies out there. Let’s take a deeper look into this powerful technique.


The basic concept of Add & Reduce Management is to add to winning positions without incurring any more risk on the trade. Essentially it helps to accelerate winners and maximize profits. The reason it is a powerful technique is because it gives us the ability to double and even triple our potential profits without increasing risk. In life, as in trading, this is a rare “win/win” combination. Most of the time we have to give-up something or increase our exposure in order to gain a bigger edge or obtain bigger profits, however with Add & Reduce this is not the case.


There are various ways this can be done; however, there is one key component to this type of management: it requires confidence and winning trades. What this means is that if you are a newer trader and you haven’t yet honed your skills, then you are likely still struggling to find basic winning trades, thus being in the position to add to a trade will probably be a rare occurrence. However if you have some more market experience and confidence, Add & Reduce is a fantastic way to accelerate profits without giving up much in return!


In order for this to work, we must have additional areas on the chart to add to our trade. This means that we DO NOT randomly add to our trades simply because they are moving in our direction. If our initial entry is on a pullback buy set-up, then we will ride this up until we are presented with another possible entry point, such as a breakout or a 3 bar play. When we do this we will add shares at the new entry point, then raise our stop to the new stop area, and in doing so, gain a better position cost average, with potentially double the shares (or more). We are not ‘obligated’ to double our share size, in fact it’s entirely up to the trader. We can add an extra 1/3rd lot, or perhaps an extra ½ lot, and sometimes even more than double our current share size. How much we add is solely up to us, and our comfort level. Also note there are times when we will have multiple areas to add to our position throughout a trade, thus it’s possible to have 3 to 4 times more shares than we started with, YET, without increasing our risk exposure. This is also known as pyramiding. Check out the example below to see just how powerful this technique can be:

p1

As you can see in the example above from a trade that we took in our trading room, the initial entry was a nice controlled breakdown with a $250 risk level (1000 shares). Then after the stock began to move lower another entry presented itself in the form of a 3 bar play (3BP). This gave us the opportunity to add shares, and tighten our stop loss. Ultimately this allowed us to literally DOUBLE our profits, without being exposed to any additional risk. This is powerful stuff!!
Here is another example of a trade that we took live in our trading room

p2

In this example there is an initial entry at $43.15, with not one, but 2 areas to add to our position. The initial entry is a nice 5’ buy set-up at the r21ema with a BT, a NBB, at L2 Support and on a 50% retracement. After moving higher, a consolidation area forms that allows us to add to our position and tighten our stop loss, thus incurring no additional risk. Finally there is a 3 Bar Play that forms shortly after the breakout, once again allowing us to add even more shares without adding to our risk level. Ultimately this trade began with a $250 risk level (2500 shares) and though we ended up with 7500 shares we never incurred another penny of risk, while ultimately doubling our profits!!  There aren’t too many instances in life where we can increase our bottom-line while decreasing our risk exposure. Add & Reduce can be one of them!!
This can be an effective way to increase/accelerate profits; however we must not forget several things:

  • You have to be a good enough trader to find and ‘be in’ stocks that move.
  • You have to be willing to ‘re-invest’ some of your profits to make this work (takes confidence)
  • You should only be adding on recognizable patterns.
  • How much you add is up to you; however it should never be ‘more’ than your initial risk if you stop out.

When used properly by disciplined traders this can be a powerful tool to have in your tool box. It’s usually best to start small when adding, and as you gain confidence and comfort you can begin to add more and more.

Live Traders is an educational online trading firm catering to a community of serious traders. We pride ourselves on transparency and providing the type of real-life knowledge necessary to be successful with day trading. When we call trades, we actually take them, and we show our live P-L while we are trading. Stop by http://livetraders.net to see if our community is right for you.

Trading the Market Open for MAXIMUM Income

withshadow

There are many benefits to trading the market open and being able to earn a living in only 60-90 minutes a day. However to do this, we must be organized and focused, as the early minutes of the day tend to be fast paced and very active. Trading this time of the day is also very conducive for traders who are somewhat jittery with their management and generally possess less patience. The reason being is that stocks typically move much faster in the morning, therefor the potential to hit a solid target in a shorter period of time is more likely.

Despite the attractiveness of trading the open, we must also fore-warn newer traders about the potential drawbacks as well. Namely, stocks tend to be much spreadier and whippier, making them more challenging to get filled on, as well as the possibility of stopping out of a trade much quicker. As you can see, everything is a give and take. So, while trading the market open is not for everyone, it is absolutely our favorite time of the day to trade and happens to be one of the most profitable times as well!

Let’s talk a little bit more specifically about how to trade the open with effectiveness and precision. The main component of being a proficient early morning trader is ORGANIZATION. Things happen very quickly at this time of the day, and it is imperative that we have a very focused and organized list of the stocks we are most interested in because you can miss something in an instant and be left shaking your head in frustration.

The first thing a trader needs to do is develop a healthy and consistent morning routine. For example, when we get in front of my trading desk, usually around 8:45am EST, the first thing we do is look at the markets. We do this by checking the 60’ and daily chart of the SPY and QQQ. This gives us an idea of where the market is gapping to, as well as where it gapped from, and of course the next areas of support and resistance. We recommend that traders draw support and resistance lines on their chart for
the SPY and QQQ as a guide to follow. Once we have our morning market bias (higher-lower or neutral), then it is time to formulate our watch list by scanning for GAPPING stocks.

Almost every stock gaps every day, however, not every gap is “compelling.” In fact, most are worthless. It is our job as traders to scan through our watch list and choose the highest quality gapping stocks of the day. Personally we use $ gainers and $ losers to formulate my morning gap list. We will also use % gainers and % losers as well at times if necessary. The key here is to know what you are looking for. At LIVETRADERS.net we have very specific rules for scanning our morning gaps, this includes using a detailed ranking system from “Level 1 to Level 3” to determine the highest quality gaps of the morning.

The reason we rate every gap is so that we can organize them in order of importance. By importance we mean urgency. Simply put, the better the gap the more urgent the entry, the shoddier the gap, the less urgent the entry. As an example, We will be much more aggressive with level 1 gaps than with level 3 gaps due their shock value, relative strength/weakness, void and overall superior quality, whereas a level 3 gap doesn’t possess as many defined attributes and thus needs a more “confirmed” entry.

Once we have formulated my gap list, we organize them from most favorite to least favorite and then put them on 2’ thumbnail charts. At the same time we will usually write down the “ideal” entry prices of my top 3 or 4 favorite gaps, so that when the market opens we am very clear about the levels I’d like to enter those stocks. Despite this pre-market scanning and organizing, it does not ‘guarantee’ that we will get the entry or pattern we desire. However, even if we don’t get my ideal entry, that doesn’t mean we will take the stock off the list or ignore it. Quite the opposite actually, now we will pay ‘extra’ attention, making sure to look for an alternate entry. After all, these are our absolute favorite ideas for the morning session, and we don’t want to miss them. Focus and organization are essential here. Done properly a handsome income can be earned in a very short amount of time every day, allowing us to do other things and truly enjoy the life that trading can afford.

When the market opens we are ready to push the button without hesitation IF our favorite ideas provide the entry we are looking for. If they don’t we will simply wait. You must be on your toes and ready at all times during the first 15-30 minutes of the market open because it is very easy to miss a trade by mere seconds.

In the chart example below you can see that we have chosen a high quality gapping stock, and then we simply waited for a high odds pattern on the 2’ timeframe. The reason the daily chart on CF is compelling is because it is gapping over multiple red bars creating a level of shock value, it is also gapping into ‘void’ above, which means there are no prior pivots to the left that might cause selling pressure and lastly it is gapping just enough to clear the consolidation resistance to the left. This is the type of gap that will usually garner a very high rating from our  Professional Trading Strategies (PTS) rating system. Now that we have a nice gap, our job is to wait for a high odds intra-day entry. In this case it happened to be a very nice 4 bar play on the 2’ chart. This is comprised of a wide range bar that shows commitment from the buyers, followed by multiple narrow range resting bars that provide a nice tight stop loss and an adequate amount of rest before the stock continue its move higher. In this case we were able to make over $1300 in less than 2 minutes, and overall earn over $2300 in less than 20 minutes using the organization and focus that I alluded to earlier. High odds daily chart + high odds intra-day pattern = powerful results!

Below is another example of a daily chart that was in a strong stage 2 uptrend showing continued strength, followed by a small, yet powerful bullish gap. This stock gapped over
multiple pivots, with relative strength (not shown), void above and just enough to get the job done, which are all attributes of a highly rated gap per our PTS course rating system. Now that our focus is clear, we will simply wait until WFM gives me a high quality intra-day entry. In this case, it happened to be a 3 bar play on the 2’ chart, somewhat similar to the CF chart from earlier. The 2’ wide ranged bar showed commitment from the buyers, followed by a narrow ranged resting bar that allowed the stock to breath before continuing its move higher into the void above.

As you can see from the illustration, WFM moved more than $1 in less than an hour, enabling us to turn a $500 risk into over $4000 in profits. That’s an 8:1 gain!

We’d say that’s a pretty respectable return on your TIME and your MONEY!

If you’d like to learn more about these patterns as well as how to trade the market open with precision please stop by our  live trading room which is open every market day from 9am to 4pm. At LIVETRADERS.net we openly trade live with real money because want to show our traders not only the importance of technical charts, but also the importance of good order execution, good trade management as well as good money management. We feel it’s important to emphasize the realities of trading, which include slippage, spreads, partial fills, skipped orders, as well as the myriad of emotions that go through a traders mind each day. We teach technical analysis theory as well, but we also show our theory in real time live market conditions each and every day.

If you would like to check us out, go to LIVETRADERS.net. We also teach these strategies and patterns in our Professional Trading Strategies course (PTS) and take traders from A-Z of trading the markets so they can achieve Financial Independence.

Happy Trading !!

How Trading Options Taught Me How To Trade Stocks (part 2) Trade High Quality Stocks

Trap

Options trading and stock trading are considered different animals mastered by different personality types.

There are definite differences between the two, but experience with one can help define your style with the other. Such was my case.

When I started trading, I spent about six months trading stocks off and on. Profit wise I did okay, but I was clueless when it came to trade management. I really didn’t know what to do under different scenarios. I didn’t know if I should take quick profits or shoot for a big move. I didn’t know how much time and space to give positions. Then I moved over to options, mostly because I lacked the capital to make serious money trading stocks, and without intention, this turned out to be one of the best paths I’ve taken because successfully trading options taught me how to trade stocks.

This is the second part of a multi-part series covering the subject: How trading options taught me how to trade stocks.

If you have not read the first part of this series, click here to check it out.

Many new traders are attractive to the potentially big and quick returns offered by high beta stocks that can move 20% in just a couple weeks. But these are a death trap for traders who don’t know how to manage positions and aren’t disciplined enough to take quick losses. High reward means high risk, and since the name of the game when you’re first starting is survival, high risk anything should be off the table.

This was a trap I too fell into – wanting the potential kills of hot tech stocks instead of being content with lower beta blue chips. But when I switched over to options, I didn’t have a choice; I had to focus on the slower moving blue chips. The reason was simple: Premiums on high-beta tech stock were too expensive. An at-the-money call option for a 50-dollar stock was 5 bucks – way too steep. The stock would have to move 10% just to break even. So I focused on established companies with more price history and much higher deltas. If a stock moved 5 bucks, I wanted to make 4.

To my surprise, I not only did very well, I did better than I had previously done trading more volatile stocks. Taking the slow and steady approach with slower moving stocks helped my bottom line because I didn’t have any big losers. Sure my upside was more limited – ORCL wasn’t going to rally 20% in a week – but my downside was also limited, and for a new trader who didn’t know how to manage risk, risk was somewhat managed for me by trading safer high-quality stocks.

When I switched back to trading stocks, I was again attracted to the potential high-beta stocks offered, but after a handful of losses, I reminded myself to stick with quality.

This is another way trading options molded my stock trading. The high premiums that came with high-beta stocks forced me to trade established high-quality names. Most traders would benefit doing the same.

Jason Leavitt is the founder and head of research at LeavittBrothers.com, a boutique research firm which offers market analysis and trading ideas to hedge funds, financial advisors and full- and part-time independent traders.

Strong Labor Market But Stocks Still Decline — What is the Main Factor to Watch?

Time To Think Meaning At The Moment And Now

Volatility in stock markets was slower than normal for most of this week as of of the investor attention was focused on the monthly non farm payrolls number out of the US.  This is not entirely uncommon, as many traders will hold off on establishing large market positions until this important data is made available to the public.  But once the results were released this week, some surprising reactions occurred that might have taken many traders off-guard.  Scenarios like this can create losses very quickly if traders are not aware of the overriding factors that are likely to control flow activity once major economic releases like this become public.  So here we will outline the main factor that should have been considered before any real money trades were taken using this information.

Friday’s report showed a monthly increase of 280,000 jobs for May 2015, which solidly beat the original expectation of 226,000 for the period.  This was enough to overshadow the slightly negative news in the unemployment rate, which rose to 5.5% (5.4% was expected by the consensus).  On balance, this is very positive news for the US economy but the reaction in stocks was negative and the S&P 500 closed lower for the second week in a row.  The reason for this comes from the fact that the stronger than expected data will make it easier for the Federal Reserve to raise interest rates before the end of this year, and so the long-term impact could actually be negative for those invested in equities.  This will need to be kept in mind going forward, as we could continue to see positive economic news translate to negative price moments in stocks.

S&P 500 Trust ETF (NYSE: SPY)

Critical Resistance:   220

Critical Support:   204

Trading Bias:  Bullish Momentum Slowing

shark1

S&P 500 / SPY – Stock Trading Strategy:  Momentum remains positive but it is starting to slow and this could lead to retracements back into key support levels.  Look to buy into the 204 region in the weeks ahead.

We are still seeing upside in SPY but momentum is starting to slow and we are now approaching the mid-point on the MACD histogram.  When we combine this with the increasingly negative fundamental outlook, it will not be surprising to start seeing further bearish retracements in the ETF.  Long-term the outlook remains favorable, however, so these retracements should be viewed as buying opportunities for those that are trading on a daily time frame.

_______________________________________

PowerShares NASDAQ 100 Trust ETF (NASDAQ:QQQ)

Critical Resistance:   32

Critical Support:   24.80

Trading Bias:  Buy Dips

Shark2

NASDAQ 100 / QQQ – Stock Trading Strategy:  Prices in QQQ have rallied sharply since March but we have started to stall at the elevated levels and we expect a move back toward the 25 region.  Look to buy dips.

QQQ has seen some sharp rallies during the early parts of this year but there is some cause for concern as we appear to have hit a wall just ahead of the 30 mark.  This suggests that the buy orders have exhausted themselves and that we are now in store for a retracement into the 25 region before we can make another run higher.  Look to buy dips into this area as this marks much better prospects in terms of risk to reward opportunities.  Resistance ahead is now defined by Fibonacci projections at the 32 mark, so there is plenty of room to extend once we travel back into our favored support zone.

Shark Traders

A prop firm providing online access and leverage for trading on NYSE, NASDAQ and AMEX to traders from all over the world.

shark3

How Trading Options Taught Me How To Trade Stocks

Time in business illustration with clock in hands of businesswoman. Elements of this image are furnished by NASA

Options trading and stock trading are considered different animals mastered by different personality types.

There are definite differences between the two, but experience with one can help define your style with the other. Such was my case.

When I started trading, I spent about six months trading stocks off and on. Profit wise I did okay, but I was clueless when it came to trade management. I really didn’t know what to do under different scenarios. I didn’t know if I should take quick profits or shoot for a big move. I didn’t know how much time and space to give positions. Then I moved over to options, mostly because I lacked the capital to make serious money trading stocks, and without intention, this turned out to be one of the best paths I’ve taken because successfully trading options taught me how to trade stocks.

This is the first part of a multi-part series covering the subject: How trading options taught me how to trade stocks.

Purely from a trading standpoint, the biggest difference between stocks and options is the open-endedness of a stock trade vs. the clearly defined and enforced time parameters of an options trade due to expiration dates.

A stock can be held for a day or a week or a month or what the heck, it can be held forever. Managing positions is the hardest aspect of stock trading. Should you take a quick profit on an initial pop? Should you sell at a pre-determined target or use a trailing stop? Should you attempt to nail a big move? The sliding scale is extremely hard for traders to deal with.

Expired red grunge stamp

An option has an expiration date, so a trader’s hand is forced. They’re not just trying to make as much as possible, they have to do so in a given period of time. Since most traders aren’t very good at making decisions, having a time element forced on you is more helpful than hurtful. Sure there will be times when holding would have been beneficial, but there’ll be many more times when a looming expiration date forces a decision instead of allowing for a “let’s see what happens” approach.

For example, XYZ is at $52, and based on the chart formation and market conditions, a reasonable target is $56. A stock trader buys here at $52 while an options trader buys the 50 calls. The stock then moves up to $55 over the course of five days. Both traders have a dilemma.

A stock trader is excited. Maybe the stock can rally to $60 or beyond. After all, it just moved smoothly to $55. Perhaps after a brief rest or minor correction, the next leg up of the move will begin. This could be a big winner. Taking all or partial profits never enters his mind. He wants to see what will happen.

An options trader has similar thoughts, but he has an expiration date looming in two weeks. A consolidation pattern will eat away at the time value of his options; a correction, even if minor, would eat away at the time value and intrinsic value. He likes the action and believes the stock can go higher, but he isn’t sure if there’s enough time. He was hoping for a 4-point move, and he got a 3-point move in one week. Why wait for one more point when a rest is likely? The option trader takes his profit.

It’s entirely possible XYZ briefly rests and then legs up again, but many more times than not our stock trader will end up taking profits pretty close to $55 and will probably ride an emotional roller coaster for several weeks before it happens.

This is how trading options taught me how to trade stocks.

Stocks are open-ended and forced me to make decisions I wasn’t good at making. Options told me to do the best I could within a given period of time. This turned out to be a godsend. Instead of fantasizing about how much I could make, I asked myself how much I could realistically make within the parameters forced on me by the various expiration dates. When I worked my account up to a level I could trade stocks and make decent money, I’d often ask myself: If you were long calls and the expiration date was in two weeks, what would I do. Nine times out of ten, the decision I made was the right decision.

Introduce a time element to your decisions. You’ll be surprised at how much better you do.

Leavitt Brothers is a boutique research firm which has offered market analysis and trading ideas to hedge funds, financial advisors and full- and part-time independent traders. Click here to find out more.