Today Rob and I went through Chapter 3 "Fundamental Analysis" of the coaching manual. This approach to fundamental analysis is based on scoring various aspects of the company's fundamental information, giving 1-20 points per item, with 100 being the highest possible score. Anything above 80 is a pretty good indication of a fundamentally strong company.
The potential value for each bit of fundamental information is added up based on certain thresholds and industry comparisons. For example if the Sales % is > 25%, 5 points are awarded; 5 points are also awarded if the EPS (Earnings Per Share) % is > 25%; if the EPS % is > the Sales % 10 points are awarded. Different aspects of the fundamentals get weighted with higher or lower possible points. Simply adding them up gives you a reasonably complete evaluation of the fundamental picture.
It's a fairly easy-to-follow system. Unfortunately, some of the directions in the printed coaching manual no longer match the software exactly. Some of the fundamental analysis information needed to be collected from Yahoo instead of in the area described in the print. This is the first worthwhile flaw I've found in the materials, but it doesn't invalidate the system, it just makes the evaluation process require a trifle more time & energy to perform.
More than just blindly filling in the worksheet with the above scores, this chapter explained how some fundamental aspects relate to others and what that can say about the company. Looking at earnings vs revenue could reveal that the company is having to cut back in order to continue the facade of a rosy general financial picture. I think one of the more powerful aspects of fundamental analysis for a trader is the ability to compare these aspects of a company's fundamentals in order to sense a strengthening fundamental picture versus a weakening fundamental picture.
As a trader, I don't know that I'll really ever spend a lot of time evaluating the fundamentals, but I do recognize that it is a worthwhile study in particular for longer term position trades. The big trouble with any kind of fundamental analysis is timing. And timing is everything. You may have the right analysis of the fundamentals of a company, but you must use technical analysis to ascertain when to enter and when to exit.
Wednesday, August 30, 2006
Email: Looking forward to new TMTT posts
On 8/30/06, RJ wrote:
Thank you for your continued interest RJ (aka Jim*, right?)... Mostly I've been busy. Work (the dreaded j.o.b.) has become pretty intense lately and burning the candle at both ends caught up to me on the weekend. I do try to post regularly and am currently behind by about 3 posts! It's just a matter of prioritizing my time and the blog is lower on the priority than my other activities including trading, journalizing my trades, reading/learning more about trading, teaching music, rehearsing, performing, training for triathlons, etc... Oh, and attempting an occasional date now and then.
Unfortunately I spent a lot of time this weekend trying to find some software to help me ascertain my current gains. It's unfortunate because I ended up spending so much time searching only to create my own Access database. I've kind of known that I was positive over the last few trades, but I didn't know the specific numbers. After plugging in all my paper trades YTD I'm at -12%. Horrible I know, but the news does get better :).
Since learning from my past mistakes and using a trade formula calculator (excel spreadsheet) that gives me # of shares, entry, and initial stop-loss adjustment target, I've done considerably better. Excluding the first trades from about a month ago (see: Paper Trade Update 2 Post-Mortem) that are a blight on my record, I'm up 9% on my trades (the past 7). This calculates to 2% on $5k in 3 weeks which extrapolates to 33% annual. Of course this is a short time sampling and my current open positions could easily affect that percent either beneficially or not.
I also spent some time over the weekend on my trading journal. I will post a good, bad & ugly with charts, my comments at the entry and exit, etc... very soon. It's just a matter of converting them to a bloggable format (I'm not even sure if bloggable is a word, but you know what I mean, right?).
Thanks for the interest and encouragement. I am alive and well, but have been using my time selfishly and privately. Not to worry though, more updates to come!
*I initially changed RJ to Jim on his first email that I posted to my blog (see: Soon-To-Be TMTT Student Email). I never did find out if he liked being called Jim temporarily or not. Care to comment RJ?
Mark,
Hope all is OK, I've not seen any new posts since 8/23, and I've gotten kind of hooked on checking your updates and progress. Hope you're just busy or vacationing.
Looking forward to more info and to your success. R.J. in Chicago
Thank you for your continued interest RJ (aka Jim*, right?)... Mostly I've been busy. Work (the dreaded j.o.b.) has become pretty intense lately and burning the candle at both ends caught up to me on the weekend. I do try to post regularly and am currently behind by about 3 posts! It's just a matter of prioritizing my time and the blog is lower on the priority than my other activities including trading, journalizing my trades, reading/learning more about trading, teaching music, rehearsing, performing, training for triathlons, etc... Oh, and attempting an occasional date now and then.
Unfortunately I spent a lot of time this weekend trying to find some software to help me ascertain my current gains. It's unfortunate because I ended up spending so much time searching only to create my own Access database. I've kind of known that I was positive over the last few trades, but I didn't know the specific numbers. After plugging in all my paper trades YTD I'm at -12%. Horrible I know, but the news does get better :).
Since learning from my past mistakes and using a trade formula calculator (excel spreadsheet) that gives me # of shares, entry, and initial stop-loss adjustment target, I've done considerably better. Excluding the first trades from about a month ago (see: Paper Trade Update 2 Post-Mortem) that are a blight on my record, I'm up 9% on my trades (the past 7). This calculates to 2% on $5k in 3 weeks which extrapolates to 33% annual. Of course this is a short time sampling and my current open positions could easily affect that percent either beneficially or not.
I also spent some time over the weekend on my trading journal. I will post a good, bad & ugly with charts, my comments at the entry and exit, etc... very soon. It's just a matter of converting them to a bloggable format (I'm not even sure if bloggable is a word, but you know what I mean, right?).
Thanks for the interest and encouragement. I am alive and well, but have been using my time selfishly and privately. Not to worry though, more updates to come!
*I initially changed RJ to Jim on his first email that I posted to my blog (see: Soon-To-Be TMTT Student Email). I never did find out if he liked being called Jim temporarily or not. Care to comment RJ?
Wednesday, August 23, 2006
Coaching Call Week 9
In today's coaching call we decided to postpone chapter 3 about fundamental analysis for next weeks call, instead we favored doing a check in on my progress. This was perfect timing as I wanted to solicit Rob's feedback on several trades. It also flowed into my trading journal very nicely too and gave me an idea of what to write and track in said journal.
We looked over several of my trades to see how I was managing entry and exit. The main trade we looked at was a trade I placed on ABI. This went against me, which is why I was particularly interested in what Rob had to say about it. Let's file this one under "The Bad" (as in The Good, The Bad and The Ugly). Here's the closing chart showing where I entered and where I was stopped out for a loss:
With the information available to me on 8/14 (entry, marked by the green line), you can see that the stock was in an uptrend (black line), but had a deeper pullback than previous pullbacks and had violated it's trendline. Also, you can pretty clearly see that the uptrend showed some signs of weakening before I entered the trade. The previous 2 swing highs were not as high as they should have been for a strong uptrend, and it even retested the peak. It was looking suspiciously as if the peak became resistance and that it was forming a reversal pattern as the stock crossed the 50 day moving average. The volume charateristics weren't ideal, but they weren't too bad. The CMF was negative and the Stochastics were showing some divergence (highlighted in yellow). All of what I've writen so far is me evaluating the stock today after having discussed it with Rob. Hindsight is 20/20 right? So instead, let's look back into what I wrote in my trading journal upon entry:
We looked over several of my trades to see how I was managing entry and exit. The main trade we looked at was a trade I placed on ABI. This went against me, which is why I was particularly interested in what Rob had to say about it. Let's file this one under "The Bad" (as in The Good, The Bad and The Ugly). Here's the closing chart showing where I entered and where I was stopped out for a loss:
With the information available to me on 8/14 (entry, marked by the green line), you can see that the stock was in an uptrend (black line), but had a deeper pullback than previous pullbacks and had violated it's trendline. Also, you can pretty clearly see that the uptrend showed some signs of weakening before I entered the trade. The previous 2 swing highs were not as high as they should have been for a strong uptrend, and it even retested the peak. It was looking suspiciously as if the peak became resistance and that it was forming a reversal pattern as the stock crossed the 50 day moving average. The volume charateristics weren't ideal, but they weren't too bad. The CMF was negative and the Stochastics were showing some divergence (highlighted in yellow). All of what I've writen so far is me evaluating the stock today after having discussed it with Rob. Hindsight is 20/20 right? So instead, let's look back into what I wrote in my trading journal upon entry:ABI pulled back a little deeper than I’d like to see and volume on the selloff was higher than I’d like to see, however the Institutional Intent shows a buying pattern during the last week. Stochastic is setting up nicely and I’m expecting a return to at least retest the previous swing high.Upon exit (8/23) I wrote the following:
That's it, that's all I wrote, and that's all I saw at the time. Of course my knowledge and skills are growing and becoming more refined, and part of that has to do with reading, studying, coach Rob's calls, but quite important to this learning process has been my self evaluation and trading journal. The mistakes are great because they provide such a learning experience. I've gone into a bit more depth in this blog posting, and this is far more reflective of how I journal today, and I'm sure how I journal will evolve over time also.Lost all of what I risked. Most likely it’s just a trade that I should not have entered. I entered when the stock dropped below the 50, near where it found support before. This was definitely a sign of a weakening trend. Additionally there was some divergence on the Stochastic. Note the previous dip and failure for a swing high in early July. Could it have gone up? Yes, of course, but I could have found a better stock to trade.The basic mistake I made on this stock is that I did not reevaluated my outlook as the stock started to show signs of weakening. I decided I wanted the stock to go up because I thought it would go up 3 days before entry and since I wasn’t filled I would just get in for a better reward:risk. I think this is known as trying to argue with the market. My mistake, market, you are correct, I will listen to what you have to say and never attempt to tell you what to do again.
Email Question: Am I Making Any Money?
On 8/18/06, Jane* wrote:
I'm pretty sure I've seen most of the negative posts or "reviews" online. The vast majority of the negative reviews are not from actual students but from people who have very limited first-hand experience with Teach Me To Trade/EduTrades. Since starting my blog, a few TMTT students have come forward to report that it is working for them and to wish me all the best. I believe these are honest, real people taking a moment to say hi and encourage me. You can see some of their comments on my blog and a few more have emailed me directly.
I've been rather diligent to seek other sources of information on trading and, if you've been reading my blog recently, you're probably aware of some of the books I've been recommending. TMTT isn't teaching something strange or magical. Similar concepts, tactics and practices can be found in many reputable books. TMTT does distill down the information to its essence and highlights and teaches the most successful of the tactics, including easy-to-follow guidelines and rules. Their marketing may be a bit over-the-top (which I personally think is what has garnered the negative "reviews"), but they teach best practices and responsibly. That's not going to stop some people from going out and donating their money to the market on haphazard trades. I have heard of some people losing a lot of money after jumping into the market -- sometimes only based on the 3-day seminar! They walk away thinking they're going to be market genius overnight! The people that have lost big-time didn't even follow the guidelines, yet they want to blame someone!
Sorry, I'm beginning to rant... how 'bout I just answer your question:
No, I have not made any money yet. The more in-depth answer is: Yes, I'm beginning to make profitable paper trades. I have not yet placed a live trade with actual money, so it's not possible for me to make money yet (it's also not possible for me to lose money yet). I will be placing live trades very soon, but am still refining my system/style and learning from some mistakes in my paper trading account. It's far cheaper to learn on a virtual account, but I'm actually a slightly positive for the last couple weeks. I've been keeping a trading journal starting from last week and I'll share some entries demonstrating the good the bad and the ugly here in my blog.
The good news is that I am getting better at entering and managing my trades. I'm also getting more consistent about my analysis. I'm more thorough and am getting a better feel for the market. I'm putting it all together and will be making trades soon, stay tuned!
*Name changed to protect the presumed innocent.
I recently attended a 3 day seminar on tmtt as the guest of someone who had paid. I thought it was quite interesting but I'm well aware of the sales tactics used and am skeptical. I saw some negatives on line about the company as well. Jane*
I'm pretty sure I've seen most of the negative posts or "reviews" online. The vast majority of the negative reviews are not from actual students but from people who have very limited first-hand experience with Teach Me To Trade/EduTrades. Since starting my blog, a few TMTT students have come forward to report that it is working for them and to wish me all the best. I believe these are honest, real people taking a moment to say hi and encourage me. You can see some of their comments on my blog and a few more have emailed me directly.
I've been rather diligent to seek other sources of information on trading and, if you've been reading my blog recently, you're probably aware of some of the books I've been recommending. TMTT isn't teaching something strange or magical. Similar concepts, tactics and practices can be found in many reputable books. TMTT does distill down the information to its essence and highlights and teaches the most successful of the tactics, including easy-to-follow guidelines and rules. Their marketing may be a bit over-the-top (which I personally think is what has garnered the negative "reviews"), but they teach best practices and responsibly. That's not going to stop some people from going out and donating their money to the market on haphazard trades. I have heard of some people losing a lot of money after jumping into the market -- sometimes only based on the 3-day seminar! They walk away thinking they're going to be market genius overnight! The people that have lost big-time didn't even follow the guidelines, yet they want to blame someone!
Sorry, I'm beginning to rant... how 'bout I just answer your question:
No, I have not made any money yet. The more in-depth answer is: Yes, I'm beginning to make profitable paper trades. I have not yet placed a live trade with actual money, so it's not possible for me to make money yet (it's also not possible for me to lose money yet). I will be placing live trades very soon, but am still refining my system/style and learning from some mistakes in my paper trading account. It's far cheaper to learn on a virtual account, but I'm actually a slightly positive for the last couple weeks. I've been keeping a trading journal starting from last week and I'll share some entries demonstrating the good the bad and the ugly here in my blog.
The good news is that I am getting better at entering and managing my trades. I'm also getting more consistent about my analysis. I'm more thorough and am getting a better feel for the market. I'm putting it all together and will be making trades soon, stay tuned!
*Name changed to protect the presumed innocent.
Tuesday, August 22, 2006
2nd Follow-Up Email ...
On 8/21/06, Name Blanked Out To Protect the Innocent ;-) wrote:
After many amateurs lost their money day-trading a few years ago the U.S. Securities & Exchange Commission decided to help protect you from yourself. In general, I'm not a fan of this sort of legislation, but I digress. They now require anyone who shows signs of pattern day trading to have a minimum of $25k in their account. You can read more on the SEC's website: The Security and Exchange Commissions Pattern Day Trading Answers. Also, you can see how Interactive Brokers handles this issue by reading this web page: Pattern Day Traders Criteria and Restrictions. Day trading is not an activity that you want to engage in unless you're well capitalized anyway, so it's probably not a bad restriction. You need over $200k in your account to take advantage of TMTT's Hedging & Institutional Tactics & Strategies (HITS) class, because in order to control the number of stocks and behave like an institution does, you'll need a lot of money.Thanks again for your reply, its much appreciated. When you say you would like to have over 25k in your account to avoid the pattern day trading restrictions, im not sure what that means if you could explain a little more. Also about the hits class requiring 200k not clear on that either. Just wondered where you got that information if your coach told you or you ask tmtt about it. Sorry if my questions are repetitive and bothering you, im just 20 years old and I am trying to soak up as much of this information as possible I know im not going to have the financial abilities as some people older than me however I believe I have time on my side also though. Also how did you purchase more days with your mentor do you call and ask for that or do they offer it to you, I haven’t heard anything about that. Also I heard that a mentor has to have a million dollars in his/her trading account before they can become a mentor just wondered if you heard that also. Thanks again for your time, Name Blanked Out To Protect the Innocent ;-)
I don't know about the > $1 million requirement for a TMTT Mentor. That's likely enough to be true, but it's not something I have any particular knowledge of. If you're eager to soak up more knowledge about trading check out the books I'm recommending in the other posts on my blog. So far I've found 3 that I think will are very helpful.
I'm 30 years old and while I wish I could have started trading sooner, I recognize that I have a far greater chance of success now. I may not have been ready for the emotional stresses and been able to contain my impulsiveness when I was younger. I don't mean to discourage you, quite the opposite, but realize that trading has inherent risk and the market is not a place to work out your personal issues. You should not be trying to prove something in the market, nor should you be rebelling against society, your father, childhood, etc... Trading requires a level-headed approach to be in it for the long haul. Putting too much of your account at risk in a given trade or trying to trade your way out of a loosing streak will likely have disastrous effects. Your goals should be to preserve your capital first, achieve steady growth second and third: make a ton of money. It should be a cold, calculated discipline. One where you are constantly reevaluating the market and how you trade to take advantage of any particular market condition.
Mark
Another New TMTT Student
On 8/20/06, Bob* wrote:
Hi Bob*,Howdy, just signed up for the classes on Saturday for TMTT. One thing I don't here about is people that have completed a couple classes complaining about how bad they were. The people that are doing most of the complaining are the ones that did not move forward. I did find a person that after a couple of years after TMTT she quit her job. Some girl in Indiana.
I actually feel pretty good about this.
Bob*
There are some people that are upset with TMTT because they want their money back. You can read more about it on ripoffreport.com and I'll be posting something about it sometime soon too. Honestly, I don't know what people expect sometimes. If you blindly listen to the sales-pitch only, without critical assessment of what's being offered and a healthy skepticism of the claims being made, you probably don't have the capacity to think independently and succeed as a trader. The marketing of TMTT is quite aggressive, and there are probably many people that buy their educational materials that really shouldn't. However, if you're serious about trading, TMTT can certainly help you. As you noted, I and many others do like the classes. At the time I bought their classes there wasn't any positive reviews of the company nor programs, just a bunch of shallow arguments about how it's a scam without any first-hand knowledge. Their courses are expensive... VERY EXPENSIVE, and they do promise a lot, but what they teach brings the most important information and tactics within reach of even the inexperienced. I see trading as the something I'm going to do for the rest of my life. 20 years from now I'll still be trading. I'm going to be smart about my money management and make every effort to trade well.
I decided to put together the blog because it's something I'd like to have seen at the time I signed up. A real, in-depth, honest assessment of what I would be getting in to. That, and the blog does help keep me honest :-P. Also, I figured that if it was a scam, I would provide a first-hand account of the scam to help prevent others from getting ripped off. If you're disciplined about learning and applying what they teach, you should do well. Definitely look for a cheap brokerage firm... Slippage and commissions can kill you as a trader. I wish you the best and will be starting a discussion board for fellow TMTT students. I already have the server and look forward to collaborating with other traders :). Best of luck to you!
Mark
On 8/22/06, Bob* wrote:
Thanks Mark. My wife and I are moving ahead we believe in what they are trying to teach people and we in it for the long haul. I will keep you up to date to our progress and knowledge and we can look at some charts together to help our progression to professional traders.
Bob*
If you check my blog, you'll see that I recycled the above statements from another email response... These books are really terrific. You can read more reviews and such on Amazon, but I can't stress enough just how useful I find these books. I haven't spent a lot of time with the Options book, but know that I'll refer to it in the future again. For the moment, I'm concentrating on mastering my technical analysis and trend spotting skills. I'll increase my leverage with Options when I'm more consistent with stocks.
I look forward to collaborating with you and others about stocks and options and will get a discussion board up very soon to facilitate the information exchange.
Mark
*Name has been changed to protect the presumed innocent.
Soon-To-Be TMTT Student Email
On 8/22/06, Jim* wrote:
You're welcome... the blog's a lot of work, but I know I'm helping others make more informed decisions. I know I'd like to have seen something like my blog when I was signing up for courses. If you're really interested in trading for a living I'm finding The Complete Trading for a Living by Dr. Alexander Elder to be very useful and is probably a good place to start, even before any TMTT classes (and it's only $40, including the study guide in a leather bound edition, I bought the study guide separately and spent more!). Add what's commonly known as the Technical Analysis and Options "Bibles": Technical Analysis of the Financial Markets by John J. Murphy and Options as a Strategic Investment by Lawrence G. McMillan, and you'll have a head start on trading and be even more prepared for what TMTT can teach you.
Best of Luck and Diligence!
Mark
*Name changed to protect the presumed innocent.
Mark,Boy am I glad I stumbled across your post.I went to the TMTT 3 day seminar, but found myselfvery skeptical about dropping the kind of money theywanted (especially since I've recently beeen victim of a corporate downsize), even though I found myself interestedin the course. (maybe the Russ Whitney connection wasjust too slimy for me).Anyway, I was looking for anyone who had experiencewith TMTT, and thank God, you popped up.I wish you nothing but the best of luck (probably for some selfish reasons - so I'll feel safe buying the course the next time they're in town). Keep up the great work, and thanks for the honesty.
Jim*
You're welcome... the blog's a lot of work, but I know I'm helping others make more informed decisions. I know I'd like to have seen something like my blog when I was signing up for courses. If you're really interested in trading for a living I'm finding The Complete Trading for a Living by Dr. Alexander Elder to be very useful and is probably a good place to start, even before any TMTT classes (and it's only $40, including the study guide in a leather bound edition, I bought the study guide separately and spent more!). Add what's commonly known as the Technical Analysis and Options "Bibles": Technical Analysis of the Financial Markets by John J. Murphy and Options as a Strategic Investment by Lawrence G. McMillan, and you'll have a head start on trading and be even more prepared for what TMTT can teach you.
Best of Luck and Diligence!
Mark
*Name changed to protect the presumed innocent.
Monday, August 21, 2006
Study of Market Charts
As part of my technical analysis for trading I take some time, at least once a week, to study the board market indexes. It's a known phenominon that an individual stock's direction is heavily influenced by the general market direction. Cliches like "a rising tide lifts all boats" are quite applicable. I've drawn some trend lines and key support and resistance in the following charts to help guide my eyes. This technical analysis is based on what I've learned from Teach Me To Trade as well as Technical Analysis of the Financial Markets by John J. Murphy. I'll attempt to identify the source as I explain what I've drawn in, etc...
On the right is my analysis of the S&P 500 10 days ago (August 11, 2006). I drew in the 3 ascending trendlines following the Fan pattern that Murphy describes in his book. Another idea that Murphy brings to light is 2/3 retrace. Simply stated: we can expect a 1/3 retrace from the low to the high, however if we fall through that we may find support at 1/2 way down from the peak, and after that 2/3 way down. What you'll notice on the S&P 500 over the last year matches this pattern pretty well. Notice that there's basically 150 points between the low in October to the high in early May. Interestingly enough, there's a bump at the halfway point on the retrace in mid May. After the market crashed through that level of support it retraced down almost exactly 100 points to find support 2/3 down from the peak to early-to-mid June. Take a really good look at the trendlines I've drawn in. They are initially drawn along the line of support on uptrends and resistance on downtrends, but notice how once the trendline (support) was violated it became resistance. This is especially true of the first trendline for both bottom (uptrend support) & top (downtrend resistance).
Because of this purely technical market analysis, two weeks ago I was expecting the bear market to be weakening and that we may soon see a bull market. At the time of the analysis (August 11) it was not exactly a certainty, and I honestly expected some consolidation before we actually see a true uptrend. However, it has lead me to favor my bulls watchlist for long positions that currently have a good setups, rather than continuing to be weighted towards the bearish side.
Here's an updated chart for the S&P 500 as of today. I've drawn in all the same forward-looking lines as was in the previous version, adding a couple new trendlines showing current market trend. These are not very well established, and because August's history as being a bad month (August Angst) a great number of people expect it to be the worst month of the year. The S&P 500 has managed to show some signs of predictability, but from a purely technical analysis, it's a time to be cautiously optimistic IMHO.
Below is a similar study of the Dow Jones Industrial Average. Notice how many of the same phenomina appear on the DJI as the S&P.
Please consider your source carefully when taking anyone's opinion about the outlook for the markets and/or stocks; after all, if you're taking my interpretation, allow me to remind you that I haven't even placed a trade with real money yet! I just wanted to let you see an example of how I'm looking at the market to help determine my positions. All of the above is only my interpretation & opinion, so be especially skeptical! I hope that in the future I can look back at this post and either 1) be proud of my decent interpretation or 2) laugh about how I could have such an outlook based on the charts because my technical analysis skills are so much better.
This post resembles a trading journal entry in many ways and it is part of my journaling activities. I'll give an example of my trading journal soon. As in music, the best person to learn from is yourself; it does require that you keep a certain detached, honest perspective in order for you to learn from your strengths & weaknesses. In music, the sound you produce is your ultimate goal and a mic is brutally honest and allows you a external perspective of how effective your efforts are. Listening to the playback with an impartial ear is one of the most effective self-teaching tools available. A trading journal is a way of capturing your thoughts, justifications, emotions, etc... at open and close of a trade. It gives you insight into your own trading strengths and weaknesses and thus is a learning tool that's custom tailored to you.
On the right is my analysis of the S&P 500 10 days ago (August 11, 2006). I drew in the 3 ascending trendlines following the Fan pattern that Murphy describes in his book. Another idea that Murphy brings to light is 2/3 retrace. Simply stated: we can expect a 1/3 retrace from the low to the high, however if we fall through that we may find support at 1/2 way down from the peak, and after that 2/3 way down. What you'll notice on the S&P 500 over the last year matches this pattern pretty well. Notice that there's basically 150 points between the low in October to the high in early May. Interestingly enough, there's a bump at the halfway point on the retrace in mid May. After the market crashed through that level of support it retraced down almost exactly 100 points to find support 2/3 down from the peak to early-to-mid June. Take a really good look at the trendlines I've drawn in. They are initially drawn along the line of support on uptrends and resistance on downtrends, but notice how once the trendline (support) was violated it became resistance. This is especially true of the first trendline for both bottom (uptrend support) & top (downtrend resistance).Because of this purely technical market analysis, two weeks ago I was expecting the bear market to be weakening and that we may soon see a bull market. At the time of the analysis (August 11) it was not exactly a certainty, and I honestly expected some consolidation before we actually see a true uptrend. However, it has lead me to favor my bulls watchlist for long positions that currently have a good setups, rather than continuing to be weighted towards the bearish side.
Here's an updated chart for the S&P 500 as of today. I've drawn in all the same forward-looking lines as was in the previous version, adding a couple new trendlines showing current market trend. These are not very well established, and because August's history as being a bad month (August Angst) a great number of people expect it to be the worst month of the year. The S&P 500 has managed to show some signs of predictability, but from a purely technical analysis, it's a time to be cautiously optimistic IMHO.Below is a similar study of the Dow Jones Industrial Average. Notice how many of the same phenomina appear on the DJI as the S&P.
Please consider your source carefully when taking anyone's opinion about the outlook for the markets and/or stocks; after all, if you're taking my interpretation, allow me to remind you that I haven't even placed a trade with real money yet! I just wanted to let you see an example of how I'm looking at the market to help determine my positions. All of the above is only my interpretation & opinion, so be especially skeptical! I hope that in the future I can look back at this post and either 1) be proud of my decent interpretation or 2) laugh about how I could have such an outlook based on the charts because my technical analysis skills are so much better.
This post resembles a trading journal entry in many ways and it is part of my journaling activities. I'll give an example of my trading journal soon. As in music, the best person to learn from is yourself; it does require that you keep a certain detached, honest perspective in order for you to learn from your strengths & weaknesses. In music, the sound you produce is your ultimate goal and a mic is brutally honest and allows you a external perspective of how effective your efforts are. Listening to the playback with an impartial ear is one of the most effective self-teaching tools available. A trading journal is a way of capturing your thoughts, justifications, emotions, etc... at open and close of a trade. It gives you insight into your own trading strengths and weaknesses and thus is a learning tool that's custom tailored to you.
Follow-Up Email About Market Reversals
Here's the follow-up to the previous email question I received about coaching along with my response...
I'm highly considering going to the trading room class, but I'd like to have more money in my account when I get there. I'd like to have over $25k in order to avoid the pattern day trading restrictions. I also plan to attend the Advanced Trading P.I.T. The HITS class really has my attention, but I think I'd like to take their Advanced Technical Analysis class first. Well, that and the HITS class requires > $200k in your account to be able to employ the Institutional tactics. My plan isn't set in stone quite yet, and attending a class that isn't offered online is a bit too much of a hardship for me at the moment. I still need my job and the money that pays the bills, and taking off for a few days isn't an option for the next couple months.
There are signs about market reversals. They seem to be slightly clearer on the broad market charts and I'll be posting some of the chart analysis work on the markets to my blog very soon. Basically when you start to see the swing lows (or swing highs) weakening, it's time to reevaluate your market outlook. During such transitional times you can look through your watchlist for the next direction and see if there are any good setups. During such transitional times, you probably need to keep your stop-loss a little looser and accept that additional risk. Certainly the trade can still go against you and a volatile, switching market isn't the easiest to navigate, but you have the potential for some nice reward. Simply being a sheep and only following the trend isn't necessarily the best way either although it's "safer" if you really wait for the stock to come to you and pay attention to reversal signs (weakening swing highs/lows, exhaustion gaps, extended range candles, etc...). Bottom line is that there are signs the market is turning, but it takes some practice to spot them. Even when you spot them it just may mean that you should NOT trade until you have confirmation of the new trend. It's a highly personal decision and interpretation, but remember one of the most powerful abilities you have as an individual trader is that you do not have to trade. You can keep your money out until you see a trade that you just can't pass up.
I'm a detail oriented guy (just in case you couldn't tell from my blog) and I've taken to the following books for further information/motivation behind what TMTT teaches: Technical Analysis of the Financial Markets: A Comprehensive Guide to Trading Methods and Applications by John J. Murphy and Trading for a Living: Psychology, Trading Tactics, Money Management by Dr. Alexander Elder. Basically I'm looking to these books for a bit of the why behind the what. TMTT does a nice job of compressing the information down to get you successful asap, but I like to know the motivation behind the rules. I'll post some thoughts on each book soon as I continue to read.
On 8/20/06, Name Blanked Out To Protect the Innocent ;-) wrote:
Thanks for your time to email me back. Are you going to the trading room class. This class really interests me because you can see them trading and do what they are doing. I think I would learn a lot at that one because I'm better at seeing it and doing it, also they say they make a lot of money at that class which would be nice to see some profit. Also the market looks like it just went back into an uptrend and is bullish rather than bearish and trades are harder to find with the switch taking place wondered if you had the same opinion.
I'm highly considering going to the trading room class, but I'd like to have more money in my account when I get there. I'd like to have over $25k in order to avoid the pattern day trading restrictions. I also plan to attend the Advanced Trading P.I.T. The HITS class really has my attention, but I think I'd like to take their Advanced Technical Analysis class first. Well, that and the HITS class requires > $200k in your account to be able to employ the Institutional tactics. My plan isn't set in stone quite yet, and attending a class that isn't offered online is a bit too much of a hardship for me at the moment. I still need my job and the money that pays the bills, and taking off for a few days isn't an option for the next couple months.
There are signs about market reversals. They seem to be slightly clearer on the broad market charts and I'll be posting some of the chart analysis work on the markets to my blog very soon. Basically when you start to see the swing lows (or swing highs) weakening, it's time to reevaluate your market outlook. During such transitional times you can look through your watchlist for the next direction and see if there are any good setups. During such transitional times, you probably need to keep your stop-loss a little looser and accept that additional risk. Certainly the trade can still go against you and a volatile, switching market isn't the easiest to navigate, but you have the potential for some nice reward. Simply being a sheep and only following the trend isn't necessarily the best way either although it's "safer" if you really wait for the stock to come to you and pay attention to reversal signs (weakening swing highs/lows, exhaustion gaps, extended range candles, etc...). Bottom line is that there are signs the market is turning, but it takes some practice to spot them. Even when you spot them it just may mean that you should NOT trade until you have confirmation of the new trend. It's a highly personal decision and interpretation, but remember one of the most powerful abilities you have as an individual trader is that you do not have to trade. You can keep your money out until you see a trade that you just can't pass up.
I'm a detail oriented guy (just in case you couldn't tell from my blog) and I've taken to the following books for further information/motivation behind what TMTT teaches: Technical Analysis of the Financial Markets: A Comprehensive Guide to Trading Methods and Applications by John J. Murphy and Trading for a Living: Psychology, Trading Tactics, Money Management by Dr. Alexander Elder. Basically I'm looking to these books for a bit of the why behind the what. TMTT does a nice job of compressing the information down to get you successful asap, but I like to know the motivation behind the rules. I'll post some thoughts on each book soon as I continue to read.
Friday, August 18, 2006
Coaching Question From Fellow TMTT Student
I've received a few questions most every week and have chosen to privately respond directly to the sender. I'm rethinking that and will post select emails with my answer at my discretion. I'd like to take this moment to apologize for my recent delays in posts. I performed in a Wedding last Saturday and participated in a Triathlon on Sunday. Between all those activities I haven't had a lot of time to write up posts for my blog, but you'll see more regular posts again. I've been using my available time to evaluate stocks and put in paper trades. More on all that in a separate post, for now... On with the question:
I've been paper trading and am beginning to see some consistency with my choices. It takes some practice. If you read my post-mortem on my second update to paper trading, you'll understand how I'm learning from my past mistakes. The way I see it is that this is the best way for me to get the most of my experience. It's not simply enough to do this half-heartedly. On every trade it's important to evaluate what went wrong and what went right. A trading journal is an invaluable learning tool. I don't know if you've started a trading journal but I'll post about what I'm tracking in my trading journal soon. I'm just a burgeoning trader and am cutting my teeth with paper trades, but let me tell you, I'm managing them and thinking of the trades exactly as if they were real money.
To answer your questions about what package etc... My father and I purchased the Platinum package: 4 advanced training courses and a couple days with a mentor. Eventually we were sold an add-on package of coaching, an additional class, and another couple days with a mentor. I jumped on this opportunity, because the sales pitch was just that good. In retrospect (and gently stated earlier in my blog), although I'm very happy with the coaching I'm receiving, I'd rather have only paid $3,500 for the coaching alone, as I feel I already had purchased enough classes and time with my mentor to become a professional trader, and could eventually add the classes on with money that I make in the markets. However, I will be taking advantage of these additional courses and look forward to taking advantage of all that I've paid for.
I really cannot state strongly enough how happy I am with the coaching. It's a weekly call that helps keep me in the rhythm of trading and also gives me an experienced trader to ask questions of. It's not just a rehashing of the Master Trader class, at least not with my coach. Having taken Master Trader has given me the foundation to get the most from my coach and he's helped me tremendously towards putting the theory and lessons learned in Master Trader into practice. It's taken the "what do I do now?" question out of the equation with a simple set of building blocks that add to my arsenal of tools to help me choose the best trades. Given the choice to do this all over again, I'd definitely choose the coaching program.
Of course this is just my opinion. Everybody has their own pace and style and the person you'll learn the most from is yourself. You may not need the coaching, especially if you manage to journal your trades at open and close. It may not be intuitive, but you can have the majority of trades go against you and you can still make money. I'm just starting to see a net positive from my positions. It is hard to take to watch trades go against you, but that's just part of the game. Having a system helps remove the emotional component which can otherwise scare you out of the market. Refining that system to meet current market conditions seems to be the way to make it as a professional trader. Consistency and discipline in your day-to-day trading routine will eventually make you the trader that you want to be.
On 8/17/06, Name Blanked Out To Protect the Innocent ;-) wrote:
I saw your website and it is interesting. I am in the classes also just wondered how you like it and if you have had any success yet. I have only gone to the master trader class so far and am going to attend the covered calls shortly. Just wondered when you are going to get your mentor and what package you chose. The trading room class sounds interesting so you can actually make some money. I got a call to do the coaching also however I didn't like how they were pushing me in to purchasing it, my teacher for the master trader class said it would just be a rehash of the class, I was wanting your opinion to see if you think it has helped you. I am really excited about becoming a trader but getting started is frustrating especially when trades go against you. I have been paper trading for a while and got some consistency so I did a couple real trades and they got me down because they went the wrong way. Just wanted your opinion on the classes and school.
I've been paper trading and am beginning to see some consistency with my choices. It takes some practice. If you read my post-mortem on my second update to paper trading, you'll understand how I'm learning from my past mistakes. The way I see it is that this is the best way for me to get the most of my experience. It's not simply enough to do this half-heartedly. On every trade it's important to evaluate what went wrong and what went right. A trading journal is an invaluable learning tool. I don't know if you've started a trading journal but I'll post about what I'm tracking in my trading journal soon. I'm just a burgeoning trader and am cutting my teeth with paper trades, but let me tell you, I'm managing them and thinking of the trades exactly as if they were real money.
To answer your questions about what package etc... My father and I purchased the Platinum package: 4 advanced training courses and a couple days with a mentor. Eventually we were sold an add-on package of coaching, an additional class, and another couple days with a mentor. I jumped on this opportunity, because the sales pitch was just that good. In retrospect (and gently stated earlier in my blog), although I'm very happy with the coaching I'm receiving, I'd rather have only paid $3,500 for the coaching alone, as I feel I already had purchased enough classes and time with my mentor to become a professional trader, and could eventually add the classes on with money that I make in the markets. However, I will be taking advantage of these additional courses and look forward to taking advantage of all that I've paid for.
I really cannot state strongly enough how happy I am with the coaching. It's a weekly call that helps keep me in the rhythm of trading and also gives me an experienced trader to ask questions of. It's not just a rehashing of the Master Trader class, at least not with my coach. Having taken Master Trader has given me the foundation to get the most from my coach and he's helped me tremendously towards putting the theory and lessons learned in Master Trader into practice. It's taken the "what do I do now?" question out of the equation with a simple set of building blocks that add to my arsenal of tools to help me choose the best trades. Given the choice to do this all over again, I'd definitely choose the coaching program.
Of course this is just my opinion. Everybody has their own pace and style and the person you'll learn the most from is yourself. You may not need the coaching, especially if you manage to journal your trades at open and close. It may not be intuitive, but you can have the majority of trades go against you and you can still make money. I'm just starting to see a net positive from my positions. It is hard to take to watch trades go against you, but that's just part of the game. Having a system helps remove the emotional component which can otherwise scare you out of the market. Refining that system to meet current market conditions seems to be the way to make it as a professional trader. Consistency and discipline in your day-to-day trading routine will eventually make you the trader that you want to be.
Wednesday, August 16, 2006
Coaching Call Week 8
Today coach Rob and I reviewed Chapter 6: Intermarket Analysis. Although we did go through the chapter, the majority of our time was spent in a hands-on fashion, evaluating a couple of the stocks in my hotwatch folder. There are a number of free tools out there to aid evaluating a stock relative to it's sector, industry and competitors.
To figure out a stock's relative strength to a given sector we used SmartMoney.com's Sector Tracker . Sometimes it's a little tricky to discover which sector a stock belongs to because there isn't a clear standard. We ran into this difficulty with ORB however, by looking at ORB's competitors, the we figured that it's part of Aerospace & Defense. It's useful to know which sector a stock is part of not only to help evaluate its strength relative to the sector, but the sector's strength relative to other sectors and the market as a whole. It's yet another way to filter for best-of-breed stocks. Another benefit of drilling down into the sector is that you will likely come across another stock that you'd like to add to your hotwatch and/or trade instead of your original stock. After all, if the sector is performing well relative to the market, you may as well take a look at other stocks in that sector as it's not uncommon for the majority of stocks in a given sector to perform similarly.
After identifying the sector we used Yahoo! Finance to compare our stock (ORB) to the best of the sector. SmartMoney.com's Sector Tracker allows us to drill down into the sector to see what stocks comprise the sector. We chose the top 3 performers and entered them on Yahoo! Finance's charting "vs" feature. Yahoo! Finance allows you to enter a number of stocks to compare to the current stock (enter multiple symbols by separating them with a comma). This gives you a pretty good picture of how your stock's relative strength to its competitors.
Another handy feature that SmartMoney.com provides is insider buying and selling. It seems to make sense that if the employees of a company are actually buying shares of their own company, then the people on the inside think the value of the stock value will increase. On the surface it seems like a good indicator, however most of the time buying won't show because the stocks are given to the employees as incentive or reward, but they don't show up as a purchase. However, when an employee sells, it's most certainly going to show on the insider tracking. Consequently, you're more likely to see sell orders than buy. Once more, this information requires some interpretation.
Combine all of the above with all of the technical analysis tools, volume, indicators and last week's lesson on institutional intent and you have quite a bit more evidence to support your position & outlook for a given stock. There are no guarantees, but filling in the picture with more information can either give us a higher probability or it can be enough for us to decide to simply walk away from a trade.
No doubt that it takes some time and energy to do all this research, but it is your money and if you aren't happy with part of the picture, why risk it? There are so many stocks to choose from, it seems like good practice to choose the best-of-the-best and to not bother with the rest. Don't you think it's worth that bit of extra effort on each trade?
To figure out a stock's relative strength to a given sector we used SmartMoney.com's Sector Tracker . Sometimes it's a little tricky to discover which sector a stock belongs to because there isn't a clear standard. We ran into this difficulty with ORB however, by looking at ORB's competitors, the we figured that it's part of Aerospace & Defense. It's useful to know which sector a stock is part of not only to help evaluate its strength relative to the sector, but the sector's strength relative to other sectors and the market as a whole. It's yet another way to filter for best-of-breed stocks. Another benefit of drilling down into the sector is that you will likely come across another stock that you'd like to add to your hotwatch and/or trade instead of your original stock. After all, if the sector is performing well relative to the market, you may as well take a look at other stocks in that sector as it's not uncommon for the majority of stocks in a given sector to perform similarly.
After identifying the sector we used Yahoo! Finance to compare our stock (ORB) to the best of the sector. SmartMoney.com's Sector Tracker allows us to drill down into the sector to see what stocks comprise the sector. We chose the top 3 performers and entered them on Yahoo! Finance's charting "vs" feature. Yahoo! Finance allows you to enter a number of stocks to compare to the current stock (enter multiple symbols by separating them with a comma). This gives you a pretty good picture of how your stock's relative strength to its competitors.
Another handy feature that SmartMoney.com provides is insider buying and selling. It seems to make sense that if the employees of a company are actually buying shares of their own company, then the people on the inside think the value of the stock value will increase. On the surface it seems like a good indicator, however most of the time buying won't show because the stocks are given to the employees as incentive or reward, but they don't show up as a purchase. However, when an employee sells, it's most certainly going to show on the insider tracking. Consequently, you're more likely to see sell orders than buy. Once more, this information requires some interpretation.
Combine all of the above with all of the technical analysis tools, volume, indicators and last week's lesson on institutional intent and you have quite a bit more evidence to support your position & outlook for a given stock. There are no guarantees, but filling in the picture with more information can either give us a higher probability or it can be enough for us to decide to simply walk away from a trade.
No doubt that it takes some time and energy to do all this research, but it is your money and if you aren't happy with part of the picture, why risk it? There are so many stocks to choose from, it seems like good practice to choose the best-of-the-best and to not bother with the rest. Don't you think it's worth that bit of extra effort on each trade?
Wednesday, August 09, 2006
Coaching Call Week 7
On today's call Rob showed me a number of cool things. By far the coolest thing was the correlation between the MACD and the NDX (NASDAQ-100) during basically all of 2005. Check it out for yourself. Pull up a chart for NDX in 2005 and watch where you would enter and exit trades when the MACD crosses. I told you that was cool. Also notice that this strategy would not do well for you in 2006.
After that fascinating study, we reviewed some intraday charts to look for volume spikes. Paying attention to volume spikes helps you spot a great ground-floor entry to capture a bit more on the move. This does require being in front of the computer during market hours and I'm sure some practice to get down pat.
The volume spikes lead us to looking at Institutional Intent. We used The Trade Center software to pull up information on Institutional ownership and intent. You can get directly to I-Watch by clicking here. It seems pretty obvious that it is wise to heed what the big players are doing and I-Watch aids in discovering what the institutions are up to.
We then looked through my fledgling trading journal and my hotwatch lists. He provided me with some valuable feedback on the stocks that I had in my watchlist, in particular the bulls hotwatch folder. Honestly, I had some stocks in my hotwatch folder that did not belong there. It's great to have someone to give me that sort of feedback. My bears hotwatch list was far better than my bulls hotwatch and although my bulls hotwatch was embarrassing, it was great to have someone give me that feedback and keep me on track.
After that fascinating study, we reviewed some intraday charts to look for volume spikes. Paying attention to volume spikes helps you spot a great ground-floor entry to capture a bit more on the move. This does require being in front of the computer during market hours and I'm sure some practice to get down pat.
The volume spikes lead us to looking at Institutional Intent. We used The Trade Center software to pull up information on Institutional ownership and intent. You can get directly to I-Watch by clicking here. It seems pretty obvious that it is wise to heed what the big players are doing and I-Watch aids in discovering what the institutions are up to.
We then looked through my fledgling trading journal and my hotwatch lists. He provided me with some valuable feedback on the stocks that I had in my watchlist, in particular the bulls hotwatch folder. Honestly, I had some stocks in my hotwatch folder that did not belong there. It's great to have someone to give me that sort of feedback. My bears hotwatch list was far better than my bulls hotwatch and although my bulls hotwatch was embarrassing, it was great to have someone give me that feedback and keep me on track.
Monday, August 07, 2006
Paper Trade Update 2 Post-Mortem
After reviewing the trades that went against me last week, I have found several things I can improve. Of course it's easier to look back and critique a trade because you can see where things were going, but the critical statements I have of the trades are on information that I knew at the time.
Long #1 (HANS): I should have heeded an earlier exhaustion gap as well as paid attention to the declining nature of the trend. This was my biggest loss due to a gap down after an analyst report. Had I managed the gap the way I was taught, I could have shaved some off the loss ... maybe not too much, but certainly some. This is a trade I really should have avoided and probably shouldn't have been in my watchlist for the aforementioned reasons.
Long #2 (LBIX): Although this trade didn't meet the criteria that it should have upon entry and I critiqued myself earlier on all the flaws with the trade, it actually closed profitable for me. I managed this trade properly using a 2/5 EMA and got out for a profit and before it took the ~20% drop today. Although it isn't a trade I'd duplicate, I managed it well by following what I've been taught and even profited despite all the negatives.
Short #1 (AVT): Excellent trade. Perfect entry and had I not tightened my stop on the second day, I'd still be in this trade today for a small gain. I was just a little excited that I could tighten my stop, but it actually wasn't how I was taught to manage the trade. It hadn't achieved quite enough movement for me to tighten yet.
Short #2 (BZH): Would have been a good trade, but I put my entry too tight and got filled at the very bottom of the dip while it was still rallying up to the 50 day moving average. I've since begun to evaluate using a looser entry (and stop) to avoid false entry like this. If I hadn't been filled that day I would probably have kept attempting entry and would have been filled today, but the trade left a bad taste in my mouth.
Short #3 (YHOO): Honestly, I'm not sure what I was thinking when I entered this trade. It hadn't settled down after a breakaway downside gap. I should not have entered this trade.
Short #4 (BBBY): Could have been a good trade, but I was a little late to the party. I decided to enter the day after the rally pullback high because there wasn't much downside movement. This could have worked for me but the stock decided to rally up a bit more before making a proper down turn today. If I was just more patient, I would have avoided the trade and possibly entered for a better reward:risk this week.
So, what looked like bad luck to me last week now reveals weaknesses that I need to work on. These are practice trades and I'm glad to know there is room for me to improve. It's also encouraging to see that if I had not deviated from what I was taught I would be in a considerably better position today.
Long #1 (HANS): I should have heeded an earlier exhaustion gap as well as paid attention to the declining nature of the trend. This was my biggest loss due to a gap down after an analyst report. Had I managed the gap the way I was taught, I could have shaved some off the loss ... maybe not too much, but certainly some. This is a trade I really should have avoided and probably shouldn't have been in my watchlist for the aforementioned reasons.
Long #2 (LBIX): Although this trade didn't meet the criteria that it should have upon entry and I critiqued myself earlier on all the flaws with the trade, it actually closed profitable for me. I managed this trade properly using a 2/5 EMA and got out for a profit and before it took the ~20% drop today. Although it isn't a trade I'd duplicate, I managed it well by following what I've been taught and even profited despite all the negatives.
Short #1 (AVT): Excellent trade. Perfect entry and had I not tightened my stop on the second day, I'd still be in this trade today for a small gain. I was just a little excited that I could tighten my stop, but it actually wasn't how I was taught to manage the trade. It hadn't achieved quite enough movement for me to tighten yet.
Short #2 (BZH): Would have been a good trade, but I put my entry too tight and got filled at the very bottom of the dip while it was still rallying up to the 50 day moving average. I've since begun to evaluate using a looser entry (and stop) to avoid false entry like this. If I hadn't been filled that day I would probably have kept attempting entry and would have been filled today, but the trade left a bad taste in my mouth.
Short #3 (YHOO): Honestly, I'm not sure what I was thinking when I entered this trade. It hadn't settled down after a breakaway downside gap. I should not have entered this trade.
Short #4 (BBBY): Could have been a good trade, but I was a little late to the party. I decided to enter the day after the rally pullback high because there wasn't much downside movement. This could have worked for me but the stock decided to rally up a bit more before making a proper down turn today. If I was just more patient, I would have avoided the trade and possibly entered for a better reward:risk this week.
So, what looked like bad luck to me last week now reveals weaknesses that I need to work on. These are practice trades and I'm glad to know there is room for me to improve. It's also encouraging to see that if I had not deviated from what I was taught I would be in a considerably better position today.
Friday, August 04, 2006
Paper Trades Update 2
I took a beating this week. I haven't lost all that I made previously, but I did give back about 3/4s of what I had from earlier paper trades. I'm doing a post-mortem on the trades to see what I could have improved on in my decision making process to either avoid the trade in the first place, shave a bit off the loss or even stay in the trade a bit longer for a profit (if that is even possible on any of the positions).
Between Sunday and Monday night's analysis I entered 5 new positions that looked to have good reward:risk ratios, and 3 confirmation signals supporting my position. Confirmation signals included: reversal candlestick at some previous level of support/resistance, stock pulled back (or rallied up) to a channel line or Moving Average, favorable volume characteristics, crossing Stochastics, and/or positive (or negative) Chaikin Money Flow.
To me, the market in general looked like it was heading for another downturn as both the S&P 500 and the Dow-Jones Industrial Average were hitting a previous level of resistance from about 3 weeks ago. The Bear trend does seem to be weakening after a 2/3rds retrace from the Bull move starting from the low in October of last year to the high in May, but I figured that there was at least one more good bearish move left in the market before we see true confirmation of the emerging uptrend.
Because of this read, and some nice technical setups I entered 1 long and 4 short positions. I was feeling pretty good about the bearish trades in particular but unfortunately the market decided to head back up/consolidate on Wednesday. One after another they all started to go against me and hit my entry stop-loss, only making enough of a move on the entry day to fill the order. I held out hope on a couple trades all the way until Friday, but eventually they closed for a loss save 1. The one profitable trade was a very small 1% gain. I gave it room to move but when the 2 EMA crossed the 5 EMA I closed the position.
This week's trades did bum me out a little and in response I've decided to crack open Technical Analysis of the Financial Markets: A Comprehensive Guide to Trading Methods and Applications by John J. Murphy. I've also decided to order Trading for a Living: Psychology, Trading Tactics, Money Management because I realize that even though these trades are only virtual, it really harshed my mellow, if you know what I mean. It was just a little hard to take because all the earlier ones went so well. Anyway, I'm looking forward to this further input to my trading education and will spend some quality time with the John J. Murphy's book this weekend.
Between Sunday and Monday night's analysis I entered 5 new positions that looked to have good reward:risk ratios, and 3 confirmation signals supporting my position. Confirmation signals included: reversal candlestick at some previous level of support/resistance, stock pulled back (or rallied up) to a channel line or Moving Average, favorable volume characteristics, crossing Stochastics, and/or positive (or negative) Chaikin Money Flow.
To me, the market in general looked like it was heading for another downturn as both the S&P 500 and the Dow-Jones Industrial Average were hitting a previous level of resistance from about 3 weeks ago. The Bear trend does seem to be weakening after a 2/3rds retrace from the Bull move starting from the low in October of last year to the high in May, but I figured that there was at least one more good bearish move left in the market before we see true confirmation of the emerging uptrend.
Because of this read, and some nice technical setups I entered 1 long and 4 short positions. I was feeling pretty good about the bearish trades in particular but unfortunately the market decided to head back up/consolidate on Wednesday. One after another they all started to go against me and hit my entry stop-loss, only making enough of a move on the entry day to fill the order. I held out hope on a couple trades all the way until Friday, but eventually they closed for a loss save 1. The one profitable trade was a very small 1% gain. I gave it room to move but when the 2 EMA crossed the 5 EMA I closed the position.
This week's trades did bum me out a little and in response I've decided to crack open Technical Analysis of the Financial Markets: A Comprehensive Guide to Trading Methods and Applications by John J. Murphy. I've also decided to order Trading for a Living: Psychology, Trading Tactics, Money Management because I realize that even though these trades are only virtual, it really harshed my mellow, if you know what I mean. It was just a little hard to take because all the earlier ones went so well. Anyway, I'm looking forward to this further input to my trading education and will spend some quality time with the John J. Murphy's book this weekend.
Wednesday, August 02, 2006
Trading P.I.T. Session 6
The final online session of the Trading P.I.T. with Bill Keevan began with a review of the previous Options strategies we've learned. Although I thought the material was presented in an easy-to-grasp manner, there were a number of questions from the students on each of the strategies. Most of the questions were worthwhile and demonstrated understanding from the student that asked it. It seems natural to be a little confused on the finer points, and Bill did a nice job of answering each question as it arose. Because the review covered the specific entry and exit criteria, I can't simply spell it all out, but I'll include the list of strategies learned along with a brief description of their general applicability:
There is considerably more to know about the above trades that the definition of what they are. Teach Me To Trade's entry and exit guidelines are pretty easy to follow, but do require considerable analysis of the options to put the odds in your favor and limit your downside risk. In most trades you make decisions based on the cost of the option and the delta, but if you want to know the specifics you'll need to take the class for yourself ;-). Seriously, mention my name... I don't gain anything from you doing so, but shouldn't you give credit where credit is due?
Following the review of the options strategies and the introduction of the Collar trade, Bill looked through some of our suggested trades and put them into OPUS. Bill took my suggestion which happened to be the last one of the night. I had suggested a Call Calendar Spread on COF (Capitol One Financial). The initial parameters of my trade made sense according to the entry guidelines but when we used OPUS to analyze the risk graphs of other combinations of options for a Calendar Spread, a Put Calendar Spread may make more sense. Bill suggested that it may be good to reevaluate this trade in a couple weeks and use the September expiration on the sale of the short term option to see if it works for me then. It was much easier to "see" the trade (risk graphs) using OPUS. I will be reevaluating what makes sense for this trade nearer to the August expiration.
I do plan to get OPUS or an equivalent option analysis software package to really unlock the potential of options in all market conditions. I'll be keeping all of these trades in mind and have already put in a Put Ratio Backspread and am watching it develop. The world of Options & Spread trading is very exciting and I see a ton of potential that I'll tap into soon. Stay tuned!
- Bull Call Spread & Bear Put Spread (Trading P.I.T. Sessions 1 & 2):
Buy ATM & Sell equal number of OTM
This is a debit trade used when expecting a strong directional move. This spread trade reduces our downside risk and limits our upside potential. - Bull Put Spread & Bear Call Spread (Trading P.I.T. Sessions 1 & 2):
Buy OTM & Sell equal number of ITM
This is the credit trade equivalent of the Bull Call Spread (Bear Put Spread) but it has some advantages. It's ideal to hold to expiration and it tends works on less movement (which doesn't necessarily match our market outlook for a bullish move). For these reasons Bill Keevan doesn't like this trade. - Straddle/Strangle ( Trading P.I.T. Session 3):
Buy ATM/OTM Bulls & Puts
This is a debit trade where we stand to make money if the stock moves in either direction, especially on increased volatility. - Call/Put Ratio Backspread ( Trading P.I.T. Session 4):
Buy more OTM options than the number of ITM Options sold (2:1,3:1,3:2,etc...)
This is a credit trade where we make money as long as the stock moves. You have unlimited upside potential if the underlying moves in your direction or the possibility to keep the credit if it moves against you. - Calendar Spreads (Trading P.I.T. Session 5):
Buy long-term option and sell short term at the same strike price (unless it's desirable to diagonalize the trade).
Calendar spreads are a way to take advantage of stagnation in an underlying security. If the stock trades within a certain range, you can be profitable. The strategy is similar to a covered call, except that it is pure options without owning the underlying.
There is considerably more to know about the above trades that the definition of what they are. Teach Me To Trade's entry and exit guidelines are pretty easy to follow, but do require considerable analysis of the options to put the odds in your favor and limit your downside risk. In most trades you make decisions based on the cost of the option and the delta, but if you want to know the specifics you'll need to take the class for yourself ;-). Seriously, mention my name... I don't gain anything from you doing so, but shouldn't you give credit where credit is due?
Following the review of the options strategies and the introduction of the Collar trade, Bill looked through some of our suggested trades and put them into OPUS. Bill took my suggestion which happened to be the last one of the night. I had suggested a Call Calendar Spread on COF (Capitol One Financial). The initial parameters of my trade made sense according to the entry guidelines but when we used OPUS to analyze the risk graphs of other combinations of options for a Calendar Spread, a Put Calendar Spread may make more sense. Bill suggested that it may be good to reevaluate this trade in a couple weeks and use the September expiration on the sale of the short term option to see if it works for me then. It was much easier to "see" the trade (risk graphs) using OPUS. I will be reevaluating what makes sense for this trade nearer to the August expiration.
I do plan to get OPUS or an equivalent option analysis software package to really unlock the potential of options in all market conditions. I'll be keeping all of these trades in mind and have already put in a Put Ratio Backspread and am watching it develop. The world of Options & Spread trading is very exciting and I see a ton of potential that I'll tap into soon. Stay tuned!
Coaching Call Week 6
You may have noticed that last week there was no coaching call posted. I had to reschedule last week's call for personal reasons and so we picked up this week where we left off. We reviewed the money management chapter and looked over some of the current stocks I have in my watchlists.
Money management & position sizing is essential to a savvy, professional trader. While the risks associated with trading can be mitigated, any given individual trade is risky. As a trader, the goal isn't to never lose money, it's to keep the losses to a minimum while maximizing your profits. There are times when a stock will move against you, gapping up or down either for your benefit or detriment. Even if 8 out of 10 trades move in the desired direction, if the first 2 wipe out your entire account, you're done. This is why position sizing and money management are essential. By only risking a set percentage of your account (say 5-10%), you can't be wiped out on a single trade and you also will naturally diversify your positions.
I don't mean what people generally think "diversify" means. I'm not referring to diversifying your portfolio by spreading your money over several sectors. I mean to say you can diversify your positions in terms of Bullish, Bearish, and Stagnant. Since an individual stock's movement is so heavily influenced by the market as a whole, diversifying your position by spreading out your account across multiple sectors only reduces volatility. Losing money slowly is still losing money. However, you can capitalize on the market's direction by placing bearish trades or just keep your money in cash during downtrends.
Another benefit that will likely come with this sort of money management plan is that you will probably have some cash available to put into a particularly appealing trade; it's not as likely that you'll have all of your money tied up in open positions. This will leave you some available capital to take advantage of a trade that you wouldn't want to miss.
To be clear, the above ramblings are pretty much my current interpretation of things. I'd mostly credit the coaching handbook, my coach, and the teachers of the classes I've attended, but that's my take. Any erroneous or poorly understood concept can be credited to me, hopefully I don't need to apologize to my teachers.
Rob and I also talked about journaling my trades. I'm to write up some free-form text explaining my position, with an honest evaluation of my emotions at the time of the trade, etc... I'll share some highlights here in the blog, both good and bad.
Money management & position sizing is essential to a savvy, professional trader. While the risks associated with trading can be mitigated, any given individual trade is risky. As a trader, the goal isn't to never lose money, it's to keep the losses to a minimum while maximizing your profits. There are times when a stock will move against you, gapping up or down either for your benefit or detriment. Even if 8 out of 10 trades move in the desired direction, if the first 2 wipe out your entire account, you're done. This is why position sizing and money management are essential. By only risking a set percentage of your account (say 5-10%), you can't be wiped out on a single trade and you also will naturally diversify your positions.
I don't mean what people generally think "diversify" means. I'm not referring to diversifying your portfolio by spreading your money over several sectors. I mean to say you can diversify your positions in terms of Bullish, Bearish, and Stagnant. Since an individual stock's movement is so heavily influenced by the market as a whole, diversifying your position by spreading out your account across multiple sectors only reduces volatility. Losing money slowly is still losing money. However, you can capitalize on the market's direction by placing bearish trades or just keep your money in cash during downtrends.
Another benefit that will likely come with this sort of money management plan is that you will probably have some cash available to put into a particularly appealing trade; it's not as likely that you'll have all of your money tied up in open positions. This will leave you some available capital to take advantage of a trade that you wouldn't want to miss.
To be clear, the above ramblings are pretty much my current interpretation of things. I'd mostly credit the coaching handbook, my coach, and the teachers of the classes I've attended, but that's my take. Any erroneous or poorly understood concept can be credited to me, hopefully I don't need to apologize to my teachers.
Rob and I also talked about journaling my trades. I'm to write up some free-form text explaining my position, with an honest evaluation of my emotions at the time of the trade, etc... I'll share some highlights here in the blog, both good and bad.
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