Luck Is Risk Management

Rudy said...

Anon: Luck is when probability favors a change in trend, but outcome is proven wrong, and you are "lucky" to exit with a small loss.

Fortune favors the brave, not the timid. The difference is risk management.

Nice trade 00nr7!. Rudy

Marooned!

"You don't just deal with adversity. You use it to propel you forward."

A reflective introspective from a fellow blogger:

"Not even sure if I’m using that phrase right but it sounds right. I need to get some regular income before I spend every penny I have ever earned. I saved some money before I started day trading but I blew through it much faster then expected. I can’t afford to go on without any source of income. I’m thinking of getting a part time job so I can still trade during the morning hours but its hard to find anything that has the hours and pay I want. I’m pretty sure I can get a decent full time job but that will bring the trading dream to a halt. I maybe have till the end of this year before I am fully tapped out and the last thing I want to do is start taking money out of my trading account. Basically my options are get a crappy part time job just to get some money and still trade during the morning hours, get a full time job and quit trading, or pull money from my trading accounts and trade less size. I really don’t no what to do at this point but I have to decide soon".

My 2 cents:

"Do the hardest thing on earth for you. Face the truth."

Sometimes in life, you have to step back in order to move forward. My suggestion is to take time out from this minor set-back and re-vitalize, re-group, and re-double your efforts for the inevitable comeback.

You gave it your best shot, now stand aside for a few months and reflect on your strengths and weakness. During this hiatus, take stock of your accomplishments, failures, and successes. Free yourself from the self defeating burden of having to place trades to cover living expenses, and let your mind wander to a time when you will be at one with the market. Stop the spiral of self doubt that is spawned by underachieving, and live to fight another day at your choosing.

During this hiatus, mark time by paper trading on real time platform, such as, Interactive Brokers, and study diligently the postings of Trader X, Wall Street Warrior, and 00NR7. These traders are consistently profitable and their posts are better than anything you can find in the most expensive trading books or software.

Although, your style of trading may differ from theirs, it is a matter of crucial importance for you to digest and fully understand the method to their madness, so that you can better devise your own unique and personalize trading system. Use this vacation period to restudy candlestick patterns, Fibonacci method, money management techniques, trading mechanics, and most of all trading psychology.

At the end of the trading day, study the momentum trades you missed, including the trades listed by the bloggers above. Learn how to develop a watch list from daily new highs/new lows, how to trade gappers, how to use volume to track the big money footsteps, how to trade pivot point breakouts, how to use candlestick reversal to time entries and exits, how to use 5 min charts to qualify 15 min open range consolidation breakouts, etc.

Use every opportunity in your spare time to focus on your study, especially after trading hours. Most importantly, only begin day trading full time when you have saved at least six months living expenses.

You are young, you have the rest of your life to trade, so like Robinson Crusoe, find strength and comfort from the hidden qualities that will reveal itself in your time of adversity.

Only this time, make a commitment to yourself that you will be the best comeback kid ever!.

"Every failure, obstacle or hardship is an opportunity in disguise. Success in many cases is failure turned inside out."

How The Falling Dollar Affects You!

Gold appreciates as the dollar declines!

A weak dollar will discourage investors from buying stocks, bonds, and real estate.

A lower-valued dollar will add to the inflation rate, since imports will become more expensive.

A falling dollar reduces the economic influence of the US in the world. Its purchases abroad will shrink relatively. Its foreign aid will be less valuable.

How To Average Virtual Trading Volume

A simple method to estimate virtual trading volume by the hour:

Assume 50 Day average daily volume for a stock is 1mm. On a breakout from a trading range, you expect at the end of the trading day, at minimum, 2 times 50 day average volume, or 2mm.

There are 6.5 hours in a trading day. By dividing the number of market hours by 6.5 hours, you convert the number of hours as a percent of total market hours. By multiplying this percent by the expected end of day volume, you estimate the hourly virtual volume.

1. 10:30 .......... 15% .......... 308k ........... (1/6.5 hour x 2mm)
2. 11: 30 ........... 31% ......... 615k ........... (2/6.5 hour x 2mm)
3. 12:30 ........... 46% ......... 923k ........... (3/6.5 hour x 2mm)
4. 1:30 ............ 62% ......... 1.23mm ....... (4/6.5 hour x 2mm)
5. 2:30 ............ 77% ......... 1.54mm ....... (5/6.5 hour x 2mm)
6. 3:30 ............. 92% ........ 1.85mm ....... (6/6.5 hour x 2mm)
7. 4:00 ............ 100% ...... 2.0mm ........ (6.5/6.5 hour x 2mm)

What Is Succes In Trading?

"You know you're a successful trader when you can systematically withdraw money from your trading account, at minimum, to cover your monthly living expenses, on a consistent basis!".

Goal Setting

Competitive goals can lead to burnout. Michael Jordan who is a compulsive competitor, exhausted himself in continually reinventing new ways to spark the fire in his enthusiasm.

Destination goals, such as, "I'll get to this particular place by x date" tend to be difficult to maintain since the reward exist in the non-existent future.

Process goals, are increments of cumulative experiences that instantly offer rewards in the present of now. For example, when I first started day trading, I made no attempt to make a lot of money immediately. My immediate goal was to learn market dynamics without suffering major financial losses.

I convinced myself that once I learned how to not loose money, probability favors my chances of starting to make money!.

This approach allowed me to (1) maintain my self-confidence, (2) stay in the game without capital blow-out, (3) develop a non-emotional response to rapid fire decision making, (4) handle small draw down with minimum psychological upheaval, (5) visualize the feeling that I will be doing this for the next 50 years, and (6) secure the knowledge that my journey was a life long commitment to learning.

I believe it is good to set smaller challenges that generate rewards in the present and not in the non-existant future and let the long term goal of consistence of profit flow naturally from a great set of process actions, such as system design, indicator design, system testing, placement of trades, etc.

"It is the very foundation of strategy to be able to adapt to any situation and continue fighting without losing heart. You gain this ability by practicing day in and day out with intensity."

--Miyamoto Musashi

Commit To Following Your System.

For Some Very Bright People

figuring it out

is more important

than following the system.

www.seykota.com

Gor-ill-az!

Avoid Making Predictions in the Market

How do you make money if you have no opinions about what the market is going to do? There are five critical ingredients involved:

1. Follow the signals generated by your system.
2. Get out when the market proves you wrong.
3. Allow your profits to run as much as possible—meaning you have a high positive expectancy system.
4. Have enough opportunity so that there is a great chance of realizing the positive expectancy any given month and little chance of having a losing month.
5. Understand position sizing well enough so that you will continue to be in the game if you are wrong and make big money when you are right.
   

"... For I Am Caesar!"

The 80% RULE

If you’re not 80% sure that you are right, don’t buy. 50% doesn’t cut it!.

"Although the cheetah is the fastest animal in the world and can catch any animal on the plains, it will wait until it is absolutely sure it can catch its prey. It may hide in the bush for a week, waiting for just the right moment. It will wait for a baby antelope, and not just any baby antelope, but preferable one that is also sick or lame. Only then, when there is no chance it can lose its prey, does it attack. That, to me, is the epitome of professional trading."

Market Wizards quote from Mark Weinstein

The Master At His Best!

Cool Moves!

Put Your Hands Up For Detroit - Click here for more blooper videos

The Thrill Of The Ride

Some People Get the Feeling

in a raft.

Other people get it

in the markets.

http://www.seykota.com

Survive The Wave

Many Try, Few Succeed

In some ways, day trading can be a great job: no boss, potentially large income, take a vacation whenever you wish—you can even work in your pajamas if you want.

However, no one wants a job where he or she loses money going to work!.

Most day traders do lose, but the high profit potential and flexible lifestyle associated with day trading keeps many people motivated to continue trying. To dance with the devil, remember to:

Preserve Your Trading Capital = "Survive To Trade Another Day"

Hurdles To Overcome

There are three related hurdles for traders.

1. The first is finding a trading method that actually has a statistical edge.
2. Second is following it with consistency.
3. Third is consistently following the method long enough for the edge to manifest itself on the bottom line.

The 20 Rules Of Trading

1. Never, under any circumstance add to a losing position.... ever! Nothing more need be said; to do otherwise will eventually and absolutely lead to ruin!

2. Trade like a mercenary guerrilla. We must fight on the winning side and be willing to change sides readily when one side has gained the upper hand.

3. Capital comes in two varieties: Mental and that which is in your pocket or account. Of the two types of capital, the mental is the more important and expensive of the two. Holding to losing positions costs measurable sums of actual capital, but it costs immeasurable sums of mental capital.

4. The objective is not to buy low and sell high, but to buy high and to sell higher. We can never know what price is "low." Nor can we know what price is "high."

5. "Markets can remain illogical longer than you or I can remain solvent," according to our good friend, Dr. A. Gary Shilling. Illogic often reigns and markets are enormously inefficient despite what the academics believe.

6. Sell markets that show the greatest weakness, and buy those that show the greatest strength. Metaphorically, when bearish, throw your rocks into the wettest paper sack, for they break most readily. In bull markets, we need to ride upon the strongest winds... they shall carry us higher than shall lesser ones.

7. Try to trade the first day of a gap, for gaps usually indicate violent new action. We have come to respect "gaps" in our nearly thirty years of watching markets; when they happen (especially in stocks) they are usually very important.

8. Trading runs in cycles: some good; most bad. Trade large and aggressively when trading well; trade small and modestly when trading poorly. In "good times," even errors are profitable; in "bad times" even the most well researched trades go awry. This is the nature of trading; accept it.

9. To trade successfully, think like a fundamentalist; trade like a technician. It is imperative that we understand the fundamentals driving a trade, but also that we understand the market's technicals. When we do, then, and only then, can we or should we, trade.

10. Respect "outside reversals" after extended bull or bear runs. Reversal days on the charts signal the final exhaustion of the bullish or bearish forces that drove the market previously. Respect them, and respect even more "weekly" and "monthly," reversals.

11. Keep your technical systems simple. Complicated systems breed confusion; simplicity breeds elegance.

12. Respect and embrace the very normal 50-62% retracements that take prices back to major trends. If a trade is missed, wait patiently for the market to retrace. Far more often than not, retracements happen... just as we are about to give up hope that they shall not.

13. An understanding of mass psychology is often more important than an understanding of economics. Markets are driven by human beings making human errors and also making super-human insights.

14. Bear markets are more violent than are bull markets and so also are their retracements.

15. Be patient with winning trades; be enormously impatient with losing trades. Remember it is quite possible to make large sums trading/investing if we are "right" only 30% of the time, as long as our losses are small and our profits are large.

16. The market is the sum total of the wisdom ... and the ignorance...of all of those who deal in it; and we dare not argue with the market's wisdom. If we learn nothing more than this we've learned much indeed.

17. Do more of that which is working and less of that which is not: If a market is strong, buy more; if a market is weak, sell more. New highs are to be bought; new lows sold.

18. The hard trade is the right trade: If it is easy to sell, don't; and if it is easy to buy, don't. Do the trade that is hard to do and that which the crowd finds objectionable. Peter Steidelmeyer taught us this twenty five years ago and it holds truer now than then.

19. There is never one cockroach! This is the "winning" new rule submitted by my friend, Tom Powell.

20. All rules are meant to be broken: The trick is knowing when... and how infrequently this rule may be invoked!

adapted John Mauldin

Create A Self-Insurance Fund

For age and want, save while you may; no morning sun lasts a whole day. --Benjamin Franklin

The first step in constructing any serious financial plan is to create an emergency cash fund--ideally, three to six months' living expenses--stashed in a low-cost ultrasafe bank account or money-market fund.

Without this financial cushion, any unexpected expense can derail your long-term plans.

We Have An Intuition

There lies within us a yearning for that which we have no definition for, little or no evidence of, no visable source nor clear path to....

It is the feeling that there is something better. Or, that there is something beyond our understanding or our capacity to conceive...
...it is the belief that there is an answer to all things
...and that it lies somewhere above us, somewhere below us, without us and within us. Deep inside there is, we just know, answers to questions, solutions to problems and reason for hope.... ... We have an intuition.

Six Rules by Michael Steinhardt

Michael Steinhardt is considered one of the most successful hedge fund managers. One dollar invested with Steinhardt Partners LP, his flagship hedge fund, at its launch in 1967 would have been worth $481 when Steinhardt retired in 1995.

I've been reading about Mr. Steinhardt and recently came across a speech in which he provided six rules in order to become a successful hedge fund manager. Since I think the same apply to all investors, not just those who run hedge funds, I decided to provide them for you as well. They include the following:

1) Make all your mistakes early in life. He says the more tough lessons you learn early on, the fewer errors you make later. A common mistake of all young investors is to be too trusting with brokers, analysts, and newsletters who are trying to sell you bad stocks.

2) Always make your living doing something you enjoy. This way, you devote your full intensity to it which is required for success over the long-term.

3) Be intellectually competitive. This involves doing constant research on subjects that make you money. The trick, he says, in plowing through such data is to be able to sense a major change coming in a situation before anyone else.

4) Make good decisions even with incomplete information. In the real world, he argues, investors never have all the data they need before they put their money at risk. You will never have all the information you need. What matters is what you do with the information you have. Do your homework and focus on the facts that matter most in any investing situation.

5) Always trust your intuition. For him, intuition is more than just a hunch. He says intuition resembles a hidden supercomputer in the mind that you're not even aware is there. It can help you do the right thing at the right time if you give it a chance. In fact, over time your own trading experience will help develop your intuition so that major pitfalls can be avoided.

6) Don't make small investments. You only have so much time and energy when you put your money in play. So, if you're going to put money at risk, make sure the reward is high enough to justify it.

from the kirk report

Happiness Is A Choice!

A wise man should have money in his head, but not in his heart.
--Jonathan Swift

People who say they value money highly report that they are less happy in life than those who care more about love and friends. Enough said.

How I Day Trade In Stocks

Watch List (approx. 80 stocks):

Pre-screen: 50d vol +1M shares, Closing Price + $30 - $125, +25% 52-week high

(1) 1st Screen: 9:30 - 9:50 am

1. Watch list: screen for Gap B/O + (1) prior day, & (2) @ ATH
2. Quote.com: Gap B/O & B/D (vol > 100k)

(2) 2nd Screen: 9:50 - 10:00 am

1. Daily Graph: above list determine: gap b/o trading range, support & resistance areas, ATH & ATL, Vol considerations. (by 10:00 am vol + 500k)

(3) Intraday Hit List (usually 10 stocks) :

1. All Time High (ATH)
2. All Time Low (ATL)
3. Gap B/O from trading range (daily)
   
4. +2x * 50 day volume (> 500k)
   

(a) Trading Areas:

1. AM play: OR = WRB = B/E + * Doji + WRB/IB + OR/IB + Run Away (R/A)
2. Gap Pennant
3. Gap Fade
4. OR Base and Break (B/B)
   
5. Fib Retracements
6. OR / #3 WRB test

(b) Bulls-Eye List:

1. 15 min: OR / R/A = WRB + IB
2. 5 min: (1) +3 bar, (2) +3 bar, (3) +3 bar, etc

1. # Footprint: # WRB's
   
2. Solidest Bars - no tails (orderly, not wide and loose, well defined)
   
3. B/O from consolidation areas = WRB
4. Higher Lows
   
5. NR7 (p&v contraction) = higher lows
   
6. Ascending triangle pattern
7. Vol clues = bullsih, not bearish (rally A+, pullback no D)
8. Offsetting bars (higher lows)
   
9. IB = red hammer, doji (ok) = inside bars

Break-Out

1. WRB - marabazu, no tails
2. Close near High
3. Vol greater prior consolidation area
4. Get out when in doubt; Expect immediate movement; any stalling = exit (watch 1 min)
5. Cap = widest WRB + Vol spike = exit (re-enter next consolidation b/o)
   

Naz Analysis

1. B/E + consolidation area b/o (top/bot)
   
2. Best/worst RS stock @ Naz top/bot (intra-day/bulls-eye list)

Psychology

1. Bulls-Eye List = trade best looking chart pattern from Intra-day Hit list
   
2. Trade Bulls-Eye List, regardless of Naz behavior
   
3. Goal is to identify best ATH/ATL 5-min "step-by-step" chart pattern
   
4. Let profits run
5. +2-3 setups per day