The RAMOUTAR REPORT VOL3: Elements for Successful Trading

Discussion in 'Psychology' started by RAMOUTAR, Jul 22, 2003.

  1. To reiterate the disclaimer:

    The ignorant and malicious are free to reveal themselves with replies that I will not acknowledge. The inquisitive and intellectually stimulated are invited to post constructive replies, and or questions.

    The RAMOUTAR REPORT, Volume 3.

    Elements For Successful Trading:

    We as traders put our primary focus on the profit, which is the result we seek. Isn’t that why we’re trading? The $64,000 question is how do we make profits consistently? They say repetition is the mother of success, what many fail to realize, is that it’s also the “mother of failure”. Doing the same thing over and over again, the same exact way will almost always produce the same results. A recipe is a combination of components that when followed, produce a result. We all know that when we change any of the ingredients the result will change. Eight years ago, during my transition from a clueless trader, to a consistently profitable trader, I focused on the ingredients and stopped focusing on the end result. A few years back, I had the rare opportunity to see Phil Mickelson warming up for a charity outing, and the press was there. A reporter asked him, “Phil, if there is one word that you could use to attribute to your success as a golfer, what would it be?” Phil replied, “repetition”. That answer further confirmed for me, what is required for trading success. Let’s take Phil’s answer a few steps further with the recipe approach.

    Here’s what I attribute to my trading success:

    1)A “realistic” Personal Trading Plan that I know intimately, respect and follow: When I evaluate traders and review their plans, I find that not only are plans unrealistic, but the trader will fail an oral exam of their own plan. You must know your plan inside and out. When someone asks you a question, your answer must be “reflexive”, no umms and uhhs. Ask someone to test you on your plan. If you can’t answer the questions immediately, you are doomed to fail.

    2) A Daily Trading Plan, which is hinged upon the Personal Trading Plan: the predeterminations of entry, stop, and target and risk reward are derived from a specific method of scanning. The scans and predeterminations are always done the same way. Repetition! After you have reassessed all other components and still feel you’re missing something, you’re method or interpretation of your method may be faulty. At that point, you need to get the right education.

    3)A “Trading Stable”: I know every single stock in my “stable” inside and out. This is the group of stocks I scan. I don’t have an interest in any stock outside of my “stable”.

    4)Right before I enter the trade (like the pro-golfer addressing the ball), I repeat my mantra: “ I know the entry, I know the stop, I know the target, I accept the risk, and the risk outweighs the reward by “X”. I have nothing to fear. I will act.”

    5)"I have acted", I enter my stop (AN AUTOMATED STOP), “load up” or prepare the target, and manage the trade. I neither have fear nor greed. I know that the stock will either be stopped out, or reach my target. Everything in between is noise.

    6)Like a horse with blinders, I ignore everything else that does not fit in points 1 through 5.

    What is the pro-golfer thinking when they address the ball with the club? “Wow! I’m being watched by millions of people, so I can’t screw this shot up”, or “I hope I make a great shot.” No, most of them are reevaluating their grip, making sure their foot is properly aligned with the ball, etc, etc. What is the result of their swing? When I enter a trade, I am reviewing everything that has brought me to that point. If you don’t know what your stop, target and risk reward is before you open the position…”you’re finished”. That repetition will continue to take money out of your pocket, and give it to those who have a plan.

    Reevaluate your recipe, finalize your recipe, respect and follow your recipe, and repeat it over and over again. If you’re willing to give this a try, it may be tough in the beginning, because you will find yourself in a lot less trades, but I can assure you that you that most of your trades will be higher quality.
     
  2. how many stocks are in your stable? i currently watch four stocks trying to become a "specialist" in them. i find that following too many makes me freeze and not pull the trigger. but watching four stocks, i am able to concentrate on the one or two that are moving and put on high probability trades.
     
  3. I currently have 28 stocks in my "stable". After my scans, I have long and short daytrading candidates for the next day, and swing candidates for the week . The list of daytrading stocks contracts by 9:50a - 10:10 aET, and 11:30a-1:30pET. Keep in mind that the times vary, as the market dictates. I have the stable of stocks, and the ones I select to race.

    You may want to expand your stable a bit, starting with four may leave you with no racers. Just follow the same stringent scans you have been using.

    Size does not matter.
     
  4. Not sure where I heard this but (maybe it was me),

    "My definition of insanity is doing the same thing and
    expecting different results."

    I really enjoy what you have been sharing in your reports, please continue.

    regards,

    Bruce Hawkins
     

  5. 1) A Realistic Trading Plan - How does one go about developing this plan? What I'm saying is - when you started trading at what point after all your studies did you decide, this is my plan I'm going with and I'm going to stick with it....

    A trading plan I agree is essential to success... A successful trader I know has told me the same thing. I've only been trading two and a half years (I'm only going to call it 1 though - had no clue the first two years and I didn't trade for half of that time, just studied)and I guess I'm still trying to develop a trading plan that I'm comfortable with. I can say I'm starting to narrow down to something I believe is going to work, but how can I be sure? Right now I'm using somewhat of a "cluster****" of strategies. I'm getting "cluster****" results too. I'm buying support, I'm buying breakouts, I'm using Bollinger Band strategies as I call them. Like I said, I'm really starting to narrow down - Is this just something every trader goes through? The trial and error thing?
    The main thing I'm disciplined in now is a solid money management strategy... I've been profitable since I came back to trading because of it, but my strategies need some help...
    Traders need to be comfortable with a strategy for it to work for them, right? It takes time to develop right?

    2 - I'm working on my daily plan - check there.... School ain't making it easy though... My daily plan might get screwed up by a 1500 word essay right now...

    3 - Trading Stable of Stocks - Can this mean a list of predefined scans? I do a specailized scan that gives me 200 results and I pick my trades from those 200, but they change. They don't change every week or nothing, basically it is just a scan for high relative strength stocks, so the list changes at times.
    Having 28 or whatever # of stocks it seems would be advantageous, because you can learn them intimately. But, what happens when those 28 stocks go from being greyhounds, to a bunch of "washed up" porch dogs? The successful trader I spoke about earlier doesn't have a 28 or whatever # of stocks to choose from... Does this just depend on what kind of trader you are? For Daytraders the stable thing makes a lot of sense to me, but what about Swing/Position/Longer Term guys?

    4 - Targets - I've been using an EST for the most part here lately, but I've been getting away from it. I ALWAYS - ALWAYS have an E and an especially an S, but I've rethought my T.... A lot of stocks I've bought and sold at my target continued to go up. Why should I put a cap on my gains? If the stock wants to go up - why force my Target on it? One of the stocks I'm in right now, that I'm using a trailing stop on has made up of for all my little losses in June, because I didn't force a "Target" on it. I would have sold that stock 5 dollars ago, if I used my usual 3:1 ratio.... I don't take any trades that I don't think I can make at least 3:1 on, but I don't want to limit my gains... Am I correct in thinking this way? I'd like to hear others thoughts.... Keep in mind I'm a swing/position trader, but I'm willing to take a longer term trade if the stock wants to continue to go up.... The stock I'm currently in, I've been in for over a month or so.... Again what is everyone's thoughts concerning this?


    Excellent post as usual Jai....... Thanks!
     
  6. Ramoutar,

    Thank you for your post. When you open a position, you also enter your stop and target orders, right? Are your target order rigid, or do you tend to tweak it with respect to current conditions? Also, is your stop exit fixed , or do you change it as the position moves in your favor? What' s your typical Reward/Risk in your trades?

    I'm trading NQ and use a similar plan. I enter my stop and exit orders once I'm in a trade. I trail my stops as the position moves in my favor. The stop also depends on volatility. However, I tend to change my targets (usually increase) during the trade. Playing with the target is bringing too much uncertainty to my trading. I think I'll be much more comfortable if I fix my target and don't tweak it afterwards.

    Thanks.
     
  7. I'm glad that you're enjoying the reports. My hope is that it will help others to improve their trading results. The continued appreciation by fellow members contributes to the existence of the reports.

    By the way, the quote above is from Albert Einstein. Enjoy.
     
  8. See your quote below with my commentsBltrading says:

    1) A Realistic Trading Plan - How does one go about developing this plan? What I'm saying is - when you started trading at what point after all your studies did you decide, this is my plan I'm going with and I'm going to stick with it....

    RAMOUTAR SAYS:

    There is no right or wrong plan. The right plan is the one that works for you. Think of a business. The very first question you need to ask is “What am I doing?” that’s very much like the “Mission Statement” found in any business plan. That’s exactly how I started. I pretended I was a corporation in search of investors. If you were looking at the business plan of “bltrading corp”, would you provide the capital? If you were publicly traded, would you invest or go short? I have assembled an “intro” to this plan, you send me an email, and I’ll get you the link for it.

    Bltrading says:

    A trading plan I agree is essential to success... A successful trader I know has told me the same thing. I've only been trading two and a half years (I'm only going to call it 1 though - had no clue the first two years and I didn't trade for half of that time, just studied)and I guess I'm still trying to develop a trading plan that I'm comfortable with. I can say I'm starting to narrow down to something I believe is going to work, but how can I be sure? Right now I'm using somewhat of a "cluster****" of strategies. I'm getting "cluster****" results too. I'm buying support, I'm buying breakouts, I'm using Bollinger Band strategies as I call them. Like I said, I'm really starting to narrow down - Is this just something every trader goes through? The trial and error thing?
    The main thing I'm disciplined in now is a solid money management strategy... I've been profitable since I came back to trading because of it, but my strategies need some help...
    Traders need to be comfortable with a strategy for it to work for them, right? It takes time to develop right?

    RAMOUTAR SAYS:

    There is no one specific strategy. In this respect, I’ll use a set of tools as an example. Not long ago, I decided to take on home improvement projects myself. I was told by a 70 y/o general contractor, “You can do just about anything if you have the right tools.” This statement is so true. As a result, the local Home Depot and Craftsmen people know me on a first name basis. The same is true with trading, you may have seen me say…”Expect nothing and be prepared for anything.” One of the ways you can do this is looking at your strategies as tools. Every project has required set of tools. There are many home improvement projects that I won’t take on; it may be because I don’t have the right tools, or don’t have the knowledge or guts to get the job done. Electricity is a job that I will not touch; I don’t have the right tools, the knowledge, or the guts to get the job done. When it comes to the market, I have two choices: try to get involved in every market opportunity, or focus on the ones that I have the tools and knowledge needed to take advantage of them. Yes, it will take some time to develop the strategy. You will experience losses in the process, which is where money & risk management regulates and controls the amount of risk you take on. If that part of your plan is solid, you can forecast your “burn rate”, or how long it will take to get the strategy down before you’ve reached the threshold.

    Bltrading says:

    2 - I'm working on my daily plan - check there.... School ain't making it easy though... My daily plan might get screwed up by a 1500 word essay right now...

    RAMOUTAR SAYS:I advise you put your trading on hold until you get your plan in order. There should be flexibility in your plan to allow for external obligations.

    Bltrading says:


    3 - Trading Stable of Stocks - Can this mean a list of predefined scans? I do a specailized scan that gives me 200 results and I pick my trades from those 200, but they change. They don't change every week or nothing, basically it is just a scan for high relative strength stocks, so the list changes at times.
    Having 28 or whatever # of stocks it seems would be advantageous, because you can learn them intimately. But, what happens when those 28 stocks go from being greyhounds, to a bunch of "washed up" porch dogs? The successful trader I spoke about earlier doesn't have a 28 or whatever # of stocks to choose from... Does this just depend on what kind of trader you are? For Daytraders the stable thing makes a lot of sense to me, but what about Swing/Position/Longer Term guys?

    RAMOUTAR SAYS:
    The stocks in your stable should always meet your criteria. If that criterion is quality and is compatible with your plan, you will always find opportunities. Either your picking “porch doges” to start with, or your mistaking “greyhounds” resting on the porch (which they’re entitled to do). Remember the stock can only be in one of three places in one timeframe: uptrend, downtrend or consolidation. If a stock has consolidated in all timeframes, it’s “resting on the porch”. For example (as you will see in the general criteria I have for assembling the basket in the link I will provide for you), the stocks in my “stable” are NDX and SPX components. If there is nothing going on with these stocks, odds are the market as a whole is dead. That does happen on occasion, like 2001. To compensate, I lower my minimum risk/ reward ratio, and lower my exposure proportionately.


    Bltrading says:

    4 - Targets - I've been using an EST for the most part here lately, but I've been getting away from it. I ALWAYS - ALWAYS have an E and an especially an S, but I've rethought my T.... A lot of stocks I've bought and sold at my target continued to go up. Why should I put a cap on my gains? If the stock wants to go up - why force my Target on it? One of the stocks I'm in right now, that I'm using a trailing stop on has made up of for all my little losses in June, because I didn't force a "Target" on it. I would have sold that stock 5 dollars ago, if I used my usual 3:1 ratio.... I don't take any trades that I don't think I can make at least 3:1 on, but I don't want to limit my gains... Am I correct in thinking this way? I'd like to hear others thoughts.... Keep in mind I'm a swing/position trader, but I'm willing to take a longer term trade if the stock wants to continue to go up.... The stock I'm currently in, I've been in for over a month or so.... Again what is everyone's thoughts concerning this?


    RAMOUTAR SAYS:
    You’re not putting caps on the gains, the cap is there already. Support and resistance is what throws obstacles in a price move. Yes, stocks will rip through many of these zones with ease and very little difficulty and that’s where traders get seduced and sucked into the idea that it will continue to rip. They succumb to the “rubber band” effect. Overextended stocks very often “snap back” very hard, and it when it happens the victim is usually too stunned to react. Bernard Baruch said…”Give me the 80% in the middle every time, leave the top & bottom 10% to the next guy.” I posted a play by play that I did on QCOM 2 weeks ago, http://www.elitetrader.com/vb/showthread.php?s=&threadid=19559&perpage=5&pagenumber=3 I was questioned and criticized by some, “Jai, why are you creating your own roadblocks? Just let it run!” and so on. I saw QCOM penetrating the resistance band on a 3 year downtrend. I also knew that there were a lot of angry people who owned the stock higher from 1,2 & 3 years ago. This no doubt was on their radar screen, and they anticipated getting out for breakeven. Once a stock heads into these zones, the stock is no longer trading on technicals and momentum, it’s now trading on “emotions”. The principles and effects of support and resistance are the same, regardless of timeframe. My targets are usually concrete, they become flexible only when I’m doing a “Scaling Swing Trade”. If there is continuation, I can trade them again, “they’re not going private”.


    Excellent post as usual Jai....... Thanks!



    RAMOUTAR SAYS:

    My pleasure.
     
  9. Immediately after I enter, the stop is placed. The target is rigid, and is rarely tweaked. See my reply to “bltrading” in this thread. My benchmark risk/reward ratio is 1:3. If the benchmark is too high for the market I drop down to a minimum of 1:1.8 and lower my exposure accordingly.

    I trail stops if support and resistance to the left is penetrated and held. They serve as floors on longs and ceilings on shorts. There are also times when I “peel” the target or “scale out”. In this way, I reduce my exposure, lock in profits and I’m still going for the ride. In the past, when I held the position past target, I lost the profit, went it “prayer mode”, and took a loss. Every time I tweak the target I get burned.
     
    #10     Jul 22, 2003