Blog Archive

Sunday, April 24, 2011

Monday

First I'd like to reprint a q&A from the Shadow Trader.
For me this is what trading comes down to, and this is the best, simple answer I've ever seen. I mean people write books to say what the Shadow Trader conveys in a few simple paragraphs.  We have all been here, what a great question.  Here it is:

Dear Shadow,

I have studied and studied everything I can get my hands on. All of the fx hour shows the TOS seminars and everything else I can study. Before I did all of the studying I had lost some money, not a lot but enough to make me gun shy. I now sit here afraid to trade. I am using pivots and volume profile to give me ideas on where to get in and out. I am trading on paper and have been very successful, again on paper, going both long and short but for some reason I can’t pull the trigger on real money.

My biggest fear is that I am in the wrong stock. I know that the 1st hour an a half is the best time to make money but man I just sit here like a deer in the headlights. By the time I start seeing stocks that are moving they have already leveled out and basically go nowhere other than small moves.

Can you give me any ideas on where to find stocks to make a play on 1st thing in the morning. I have googled opening range breakout but my biggest problem is trying to find the stocks in the 1st place.

Thanks

Mark from Wichita, KS

Hi, Mark. Thanks for writing in. At the end of your email you ask a rather specific question about where to find stocks to "make a play on first thing in the morning". While I'm happy to share with you how I approach such a trade, I think that everything you wrote before that is really the meat of the issue. Or in my case, tofu, but whatever.

Firstly, reading everything you can get your hands on is good, but only to a degree. Eventually, the psychological issues come into play as you seem to know full well. There is only so much theory that one can expose themselves to before it all starts to overlap and contradict itself. At this point, I would suggest that you don't read anything else about techniques or the market. It seems that your problem is more one of fear, than anything else.

In your email, you said that you previously lost some money, which has made you gun shy. To this all I can say is that if you are trading scared, its never going to work. You must bring your size down to some level which is totally manageable for you mentally. If that means 50 shares, then so be it. Play for points instead of dollars. More importantly, trade to trade well, not to make money. If you do so, then the money will work itself out.

The whole point of trading some size that is manageable for you is so that you will be able to hold when the trade goes against you. If I could boil down trading to one concept that separates pros from amateurs, it would simply be that pros "hold through the pullback" because they have a defined stop and they know that anything between the stop and the entry is just noise and they refuse to try to outsmart the market and get out with a smaller loss because they think they "know" when the market or stock is really going to tank as opposed to just pullback naturally. The only way you will be able to extend this hold time is if the size you are trading is manageable. Meaning that when stock moves down below your predetermined stop, the loss you take will not be anything that will materially damage your account, your standard of living, nor your peace of mind. If you find that you are seriously disturbing any one of the three, then your size is too large.

The only way that one can conquer psychological issues is to watch them arise and observe them dispassionately as they do. When the fear comes, sit with it, be with it. Ask yourself how it feels. Is it real? Where does it come from? What are you really scared of? Losing money? Not 'making it' as a trader? All the answers are within. Keep a journal of all trades and make sure that at the right edge is a nice wide column where you can put comments about how you felt. You'll start to see patterns develop and that will help you to look at the different emotions and be able to de-energize them. Check out The Disciplined Trader by Mark Douglas if you haven't already. Definitely the best book on this subject, bar none. Good trading to you....keep in touch.
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I spent this week end searching for stocks that lead the SPX. Wow what an interesting study that turned out to be. Along the way I found a few that appear to be on the cusp of a larger move.

BIG could be a short if support is broken.


BKS could be setting up for a short if it bounces off resistance.
COST is in a position where a retest of the support would be extremely Bullish, 
but the fork does not indicate that a retest will hold.  
Definitely a stock to keep an eye on.

Here is my palantiri 
Pretty much not telling me anything.  This is once again up in the air, but Squeeze (Top 3d column) is letting us know that velocity will return soon so expect a break out of the doldrums.
Support below from the Kumo in the 4th column, and a mix come from my favorites in the lower third column
Time Bandit is signaling a possible top has been put in, and Kase says there is room to move and the bias is down.

And on the far right is a new indicator I wrote today,  PivotePequenos
This is a fast little pivot point which I've enjoyed watching today.

But remember it's not the indicators that make the trader.  
It's like the Shadow Trader said above.  It comes down to fear.

I completely concur about the journal.  Even if you don't read it again,writing it will be an amazing benefit.



1 comment:

  1. Very interesting array of indicators Bob. Thanks for sharing this valuable text on trading. I humbly agree human emotions of greed and fear are what rule this field of play and it takes nerves of steel. Indicators are great but they have to be coupled with risk and reward ratios to win in the long run.
    -Trade well-

    ReplyDelete

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