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Rules for Starting Out - general tips to live and die by PM I'll give you some very valuable tips for starting out, but just remember what * said earlier, "everyone is different." Don't expect to win early on, expect to learn how the market functions. Don't worry about your strategies (plural; different strategies for the many different directions of the market) as much as your risk tolerances (ie Stop Losses, trailing Stops, and the % of capital in any one sector) Trade small (early on) at either a discount broker ($7/trade or less) or at p/share pricing. Never trade more than about 10-20 round trips in a day, and you don't have to worry about hefty fees too much. If you develop a strategy where you're using more than 20% of your trading capital on any one trade, BE VERY CAREFUL. Many successful traders won't tell you how they trade, most successful traders also trade different strategies, but few of them trade more than 25% of their capital in one trade. Whatever your specific risk tolerance is, probably isn't as important as having at least a small amount of diversification. Don't put too much capital in any one sector. Knowledge is power. Knowing the overall direction of the market is almost always more important than looking at the technicals of any one, or handful of, specific stocks. The psychology of the market usually dictates price action more than chart patterns. Many, MANY traders never pick up on this, and trade purely on technicals. If the overall market is trending up, why go short because of past data? Makes sense right? Well, most traders don't trade short very often, so why go long when the overall market is trending down? I'm not saying technical traders are wrong, I'm not saying fundamental traders are wrong, (I don't consider them traders though, they usually trade long term so they're investors) what I'm saying is that whatever reason you chose to enter a stock, you need to know that what a chart says isn't always what a stock does. Market direction is very important. Know it, and you'll know your appropriate strategy.
Rules for Starting Out - general tips to live and die by PM Position size is very important, but often only because it is overlooked. Sector depth (or the % amount of trading capital currently proportioned in one sector) is probably much more often overlooked. If a trader has 30% or more of his capital in one sector, even though it may be diversified by 3 or more different stocks, he may be subject to what I call a Sector Dip. Such an example would be buying multiple stocks in one sector (buy signals being based on technical data) and then listening to the direction of the overall market, instead of the market sector. The technical data may suggest long positions, the weekly market direction may be trending up, the intra-day overall market direction may be currently moving up, but after entering the trade you realize that the specific sector may have already been shaky or may have just been starting to reverse. Diversification is important, but it is not always necessary. Sometimes I trade multiple stocks based on what is happening in their current sector, but when doing so I ALWAYS make sure that I know exactly what the corresponding sector is doing. There can be a lot of money made through Narrow Diversification (that's what I call it, made it up myself; several stocks = diverse, one sector = narrow.) Just make sure you know what the sector is doing. Like I said before, I trade what moves, and what moves well is always changing. Note: ETFs can be a good vessel, but I usually trade them based on what the overall market is doing. Like when I'm inside of a down day, during a down week, I really like to short. However, when a specific sector starts a break out many of the low-end, low-value, and low-volume stocks tend to lag behind the breakout, so going with the Best of Breed (I never follow Cramer's footsteps, but he does have fairly good philosophies) is usually the best option for these types of moves. When a sector starts to fall though, most of the lower-end stocks tend to follow suit much quicker. Try trading the Best of Breed and ETFs simultaneously. Depending on the type of move I do this occasionally too. By the way, I often trade against the trend, but rarely past the first 30 minutes to first hour of the open. The market direction usually changes around this time anyway, and most of the best moves occur in the open. Letting morning breakouts run can bring in $$$, regardless of where the market goes. But beware, they often run out of gas before the end of the first hour, and sometimes when they do they bomb. So I'd say that always knowing where the trend is heading is probably more important than always trying to trade with it. Starting out though, The Trend is Your Friend is an excellent policy. I don't (usually) trade the first 5 minutes though. Usually I let the market direction of the previous day and week tell me what to do in the open, but sometimes I listen to Big News too (important news that will effect more than one sector, segment, and market.) Interest rate changes, dollar/currency moves, earnings reports, dangerous weather or disasters, wage increases, terror/jihad... you know whatever will have an impact on the trading day. I really feel like I get a lot back by helping others, so I try to do it often. Starting out though, it is very important to keep asking questions. This isn't grade school, where other kids might make fun of you for raising your hand all the time. The more questions you ask, the more knowledge you will attain. One question answered almost always prompts a new question. After a handful of years, I still ask other people questions, and while I take what most people online say with a grain of salt, there are some people on ET I almost never question. General rule of thumb is, if they have over 1000 posts, and were on ET in the 1990's, they probably know what they're talking about. Not always though, some of those guys were the ones who scorned me in 2002. So, ask away and I'll help as best I can. And I'm not saying you should make any exceptions for me. You should always question the logistics of anything anyone says before taking it to heart. That's just one of my philosophies of Life though...
http://www.barchart.com/ ETFs on 5-12-2006 PM check out the percent on the day. Prime example of my previous explanation. Ever tried to short a whole bunch of individual stocks in a short period of time on a down day? Hard isn't it? ETFs, for traders, are primarily used for days like today. Easy in, easy out. For upward momentum days, many of the worst of breed stocks lag behind, so the moves are smaller than they are on down days. There is money to be made on down days, you just have to know where to find it. It was a very long time before I came across this strategy, I used to wait out down days by not putting anything in the market, and just watching. Now, I am more consistent on down days shorting ETFs, than many mixed momentum days. (DOW & NASDAQ up, S&P down... etc) PS the charts always update every ten minutes, I'm not sure if the links always change too. When I sent this, all the ETFs were in a -0.06% to about -5.3% range. 200 of them I think. While not exactly fish in a barrel, you still have to use charts and sector news to weed out imposters and gap hoppers, today was a good example of trending intra-day price movements.
Price and Volume PM "I don't need analysis paralysis." How very true that statement is. I thought I did when I was starting out (I think I read about every technical trading book there was for beginners) and I was trying to use every indicator available, the only problem is that I almost never made any trades because indicators were rarely in sync. Then as soon as any indicator turned to a sell, I got out. Big waste of time if you ask me, unless you're specializing in 5 stocks or less, and that's all you trade. I don't have time for all the nonsense though, PRICE and VOLUME. MA's and all they're clones are pretty much useless. For long term investments they can be useful, but intra-day they're manipulative more often than not.