A Trade A Day

Hola Amigos!

Sorry for the delay in posting. Nothing earth shattering going on. Just so many hours in the day. The summer can be a slow time and I find it helpful to take a break. However, I got dragged back this AM. I wanted to share some interesting charts to impress upon you how becoming an expert in one area is the way to go.

If you’ve read this blog for any amount of time, you know I love to trade traps. A trap, simply defined, is when the stock is trending in one direction, and then the next morning the stock opens in the opposite direction of the trend. Traps can be subtle with an open above the previous day’s close or severe with the stock gapping 5 or more percent. This severe kind of action is called an OOPS. As in “OOPS! There goes my retirement”

Seriously though, imagine yourself shorting a large position, the stock price crumbles over the next couple of days, and then one morning you find the stock has gapped above (or close to) where you initiated your short. The stock typically, begins to trend upward during the session as more and more traders exit.

A picture is worth a thousand words. So let’s take a look:

You can see that the setups aren’t always perfect. Not sure if I can remember if they ever have been. They don’t have to be. I like to take setups on the 15 minute time frame because it’s slower and offers time to do analysis. The 5 minute time frame is my second choice, but can be too quick and I get stopped out alot more. Hope this helps to get your mind thinking about what you can specialize in.

BTW, I had to lock comments because of all the spam. I’m going to be upgrading soon. Hopefully that will slow the spam that gets into my comments and I can reopen them.

Happy trading!

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Here is a story from Scientific American on trading success and testosterone.

According to the story, the traders in the study had a higher level of testosterone in their saliva on days when they beat their daily average.

The story goes on to state that the increase in testosterone led to more confidence which in turn led to more winning.

I found it amusing that the researchers warned that longer periods of testosterone make traders prone to excessive risk taking which exacerbates a bubble. You know what caused the last bubble? Highly compensated traders making huge bets with little downside risk to themselves. I mean, really, how many years of multi million dollar pay checks does it take before you’re set for life, but I digress.

Before you go to your neighborhood gym to stock up on Andros or raid granny’s medicine cabinet, let’s talk about building trading confidence legally:

The most effective step I took to build confidence in the system I wanted to trade was to get a mentor. Someone who had been there. Someone who knew the ins and outs of my chosen style of trading. I had confidence in my mentor(s) and they gave me confidence in my system. I was able to experience a variety of trading situations through their combined expertise. I was able to avoid certain pitfalls and navigate through ones into which I had fallen.

In other industries, having a mentor is standard practice. You seek them out. The relationship may only last through a certain project or be for a specific problem. So why is it not common practice in trading? Perhaps, at least for the retail trader, there’s the desire to be on your own. Another big reason is the financial one. Mentoring relationships for retail traders can cost $$$.

I think blogs can be helpful as a mentoring tool, as a mentor and protege. I love to coach people and I enjoy answering questions. It forces me to really know what I’m talking about.

Commenting on other blogs as also helped me personally. Trying to understand how others view the market, analyze setups, control their emotions.

I am skeptical by nature. So, being a protege was difficult at first. I have a hard time taking what a person says without asking questions. So, when you do get that mentor, listen to what he/she has to say, but test. Trust but verify.

Finally, maintain strict risk management discipline. I’m always saying trade small, and I know it probably gets annoying. However, it is a fundamental building block of my trading operation, and even coaches in professional leagues teach fundamentals, right?

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Time to take a break. I’ll be back on 4/21. Good luck this week!

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My Trader’s Journal turned one this week! Congrats!

Momentum trader always has a slew of interesting trading ideas.

It’s always darkest before dawn…

When is a recession not a recession?

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3 Comments »

Jeff White from thestockbandit.net has an excellent video on trading those breakouts that seem to go nowhere fast.

I routinely visit Jeff’s blog. The concepts discussed are always on topic and useful. I’ve never been a paid member of Jeff’s service, but If you’re struggling or maybe just need a boost I would be willing to be he can help.

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