First of all, if you're a new intra-day trader, this is probably the most important part of the entire post... "Trading is a numbers game, and getting the numbers right is half the battle. Over-exposure will kill the new trader. Many new intra-day traders who end up losing are in the market for 7+ hours a day. Why?" In my opinion, lagging indicators are the devil's little secret of the brokerage industry. They're simple and they lull new traders into a false sense of security. They tell traders one of two things, when the indicator does this then that means buy, or when it does that then it means sell. If you're planning on trading over long time periods (days and weeks) or investing, then lagging indicators could help... however if you're trading inside the same day, lagging indicators are only telling you that you missed some good moves from a few minutes ago. In my experience, looking at moving averages on intra-day charts tends to trigger cross-over buy/sell signals after the move has been made and the stock has hit a temporary support or resistance level. Meaning that buying and selling intra-day based on an intra-day chart's moving average signal will (typically) put you in a position that tends to stall or reverse more often than not. So, what are my independent variables? That depends on the Security at hand, it's technicals, fundamentals, and how much it's weighted in its corresponding index. For example, we could look at WWY (Wrigley) and find out what the independent variables surrounding the trade were for today. It's listed on the NYSE, which was up this morning, but since it's not a large market cap, that doesn't really matter. The Dow took off and basically everything else followed. Variable number 1 = DOW, Nasdaq, S&P, Russell, and NYSE were all taking off straight out of the gate this morning. This makes the morning, and most likely the rest of the day a Long only trading day. This means you shouldn't be shorting anything with this much of a bullish market sentiment. Variable number 2 = NEWS. Wrigley announces $.53/share from $.46, which beats expectations by $.04 That alone is probably reason enough to go long, but we've got a quite a bit to still look at first. The CEO steps down and a family run company announces a non-family related CEO for the first time in their history... Good or Bad? On a bad earnings report, this usually means good news, but not for traders, this is investor news... Today, they could have reported that Mickey Mouse was going to become the new CEO and it still would have been good news. Variable number 3 = analyst recommendations were fairly neutral, and off of great news, that means an expected neutral/underperformer is more likely to break out... Look for a big week, but I wouldn't trade it tomorrow (unless they announce that Mickey really is taking over...) Variable number 4 = Dow breaking 12,000 just after the open. Bee-lining toward 12,100. Variable number 5 = Volume with little resistance. Looking at a 5 day chart, WWY had gaped up today before it took off and ran further. Meaning that it had exceeded the previous levels of support and resistance very early on, and that it would be more likely to just keep running. Variable number 6 = Volume and Level II. Wow. A monkey (Jim Cramer) could have seen the "Buy Me Now" signal from this one. Variable number 7 = the Chart. Candlesticks. No MA or any crap. Volume bars at the bottom. Clear the chart of all the crappy tools, and learn how to read the signals inherent on Price and Volume alone. Variable number 8 = Screening tools. These are very important, and can also be very simple while retaining their effectiveness. Ask jho how important I think these tools are, and how underutilized they are. As far as what I screen for, I'm not telling. But come up with an ideal time frame for your style of trading, what and how you want to trade, and toy around with the things that you feel are most important in regards to how they will affect where the price is going. The Matrix around the trade is all of these variables and what they wholly add up to. If the overall market sentiment is very bearish, but the other variables are bullish, then the matrix is not forming a consistent path to an appropriate decision. Don't make the trade. Sit on your thumbs if you have to, but if the important factors of a trade are not (mostly) adding up to the same consistent conclusion, then follow the rules and search for something else. Like I said, Trading is NOT easy. But that doesn't mean that it can't be simple...
I used to be down on indicators but have changed my mind. Of course price based indicators lag price BUT there are still times they lead but not for the purpose they were intended for. A good example is the stochastic divergence. These will often point out a reversal before it happens. I find commonly used moving averages are often excellent support and resistence points. These are just a couple of examples.
New traders are FAR too dependent on the yes/no signals that Market Gurus sell them. New trader or not, making a buy or sell decision based on a lagging indicator (like a 90 or even 20 day MA) for a twenty minute or two hour trade is why there are so many losing traders. Not looking for an argument, just sharing my humble opinion.
2manywhiners, that was a cool one. Thank you for posting Still, if you look at what you say about Mickey Mouse, you will notice that you expose a knowledge of the behavior of the market that implies that you have spent quite some time looking at it. You don't go into more details when you talk about the rest, like the charts, but I'm sure it works the same. What I mean is that what you just said, look at these variables and then make the trade, doesn't automatically mean that it's simple. It's simple when you know how it works, and that's not simple.
Forming a Matrix of Independent variables around your trading decisions does not make trading easy. I'll give you that one... Look, traders should be learning all of these things right from the beginning. If a new trader doesn't understand the functions of the market and why it moves the way it does, then in my opinion that trader should not yet be trading. I know being a trader or investor is one of the easier career moves anyone could make because it doesn't require any training or being hired on at a firm. All you have to do is open an account. That doesn't mean that trading is simple or easy. If new traders don't understand the intricacies of the market, then they should learn before jumping off a diving board into a pool of sharks... Market direction News Analyst recommendations Volume and Support/Resistance Price and Volume Charts Level II and Advances: Declines Screening Tools Market direction What we're looking for is a uniform direction from all of the major indices. Everything up means Long only. Everything down means Short only. If there is a mixed reaction then experience will be trading both sides possibly at the same time, however new or young traders should probably wait out a uniform direction. Same thing with a market that is chopping around with no solid direction. News Scan the News wires for anything released after the previous close. Mostly it's just stuff that's irrelevant to intra-day trading, but the stuff that really makes stocks breakout or breakdown big are usually found here. Analyst recommendations Recent upgrades/downgrades are the only thing we're looking for. These are intended for investors who want their hand held, so we're not buying or selling anything based on what these clowns say. All we want to see is if and when one of the analysts changed their mind, and how many of them did it at the same time with the same rating. Again, do not buy or sell b/c of an analysts buy or sell rating. We're only here for a confirmation of a previously held notion. Volume and Support/Resistance Looking at the volume alone can hint at the possibility of how fluid the stock is, how well it is moving, and what the price is reacting to (news, technicals, rest of market direction, etc) With Support and Resistance (as in previous price levels, not MAs or Bollingers) we're looking for something that has already broken it's recent resistance (or support) or is not too close to it yet. You don't want to buy anything if it is very close to it's previous resistance, but hasn't broke through yet. If it has already soared past it, then that's usually a good thing, but it depends on what the Price and Volume charts say... Price and Volume Charts I've spent countless hours on ET explaining how Price & Volume candlesticks work. If you use the search function, you'll find some gold buried somewhere around posts 150-250... Otherwise, you should look into some detailed explanations of how this works. Most candlestick books have entire chapters or even sections of the book dedicated to Price and Volume patterns. There are far too many to learn from one post, but within a few weeks of looking at these charts, it'll click and you'll suddenly start recognizing things while they happen and not after they're done. http://www.elitetrader.com/vb/showthread.php?s=&threadid=70650 I found it for you... I posted a chart attachment and some explanations for basic Price&Volume chart reading. Have fun. Level II and Advances: Declines This is important after I've looked at all the other variables. If you're familiar with Level II, then you already know the purpose of incorporating what is happening on your Level II screen into your decision making process. If you don't... WoW. Start reading Intro to Trading books. Screening Tools I use multiple screening criteria for multiple market directions, times of day, and types of trades. Some screening criteria is very simple, like Price between $X.xx and $YY.yy with Volume between W and Z; and some is a bit more complicated, like screening specific long-term technicals, intra-day technicals, and basic fundamentals of a company into one screen. What is the purpose? I have screens for up days, down days, sideways, choppy, etc. Morning, Lunch, Afternoon, etc. Short, Long, Short one related vessel, Long the other, etc... I highly suggest all intra-day traders learn about the basic fundamentals of companies, what their significance is, and learn the functions of long-term trading and investing. It will open doors to your understanding of what exactly is occurring intra-day and why. Investors and Institutions still control the markets intra-day... when traders learn that, light bulbs start to flicker...
I am not sure where this thread has gone since inception but I am equally disillusioned but for a different reason. My method works extremely well and I have about an 80% win rate on live trades. The problem is I have almost no cash after riding out most of the brutal learning curve. TYpical trade just made......entered ym short with 8 tick stop. Market goes 8 ticks against me stopping me out. Market goes 23 tcicks in my favor. Yup...my stop is too tight but I have no choice. This happens a few time a week. Other times, I take a 4 tick profit only to watch the market move 50 ticks in my favor.
<i>"Yup...my stop is too tight <u>but I have no choice</u>. This happens a few time a week. Other times, I take a 4 tick profit only to watch the market move 50 ticks in my favor."</i> Why is it that you have no choice but to take a -$40 stoploss on YM contract? What prevents you from using a sensible stop relative to normal market range of travel?
Great post. One of the truest things I've read here at ET. Most companies demand that employees devote their whole being and soul to the glorious corporation but when it suits their purposes to f___ you they have absolutely no hesitation whatsoever. There is another psychological factor at play here. When I began trading on my own, many of my former co-workers and even close friends seemed eager to tell me that it was too risky, it would never work, I couldn't make it, nobody survives as a trader, blah blah blah. What I was doing made them doubt their own choice to go the conventional employee route and, if someone else made it in something like trading, it was a blow to their ego. Even though I think they wanted the best for me, they were a bit desperate to have their own life choices confirmed. I think that's a pretty common phenomenon and it can add a lot of pressure to an independent trader.