A valuable lesson in timing the market was demonstrated today. Let me set up the scene.
Markets on an uptrend for a good part of the day. Oils, mining, banks were all strong. Scroll down to my posts starting at 12:04 pm where I sold HES. It was previously a leader in the days up trend. All of a sudden it stopped rising even though some other oils were continuing. That was my signal to bail out and trade it the other way. It also alerted me to a changing sentiment of the overall market. I quickly sold and shorted , or covered and went long my other positions. This turned out to be the daily high. It's another example of thinking contra what the crowd is. Very advantageous fills and a jump start can be had at moments like this. Soon thereafter on one of the chat rooms I was lurking on the bullish comments were still coming fast so I posted its a good time to short with all the bulls around. The market dropped 200 points + in a short time. The GS short was a thing of beauty.
Without sounding like an ass, I sometimes factor in chat room sentiment and do the exact opposite.
The same information is available to all of us but it is the traders that actually recognize what the charts are telling you are the ones making money.
I don't hope and wish and I don't know what a stock will do in the future , but that move was telegraphed to all who were ready to listen, minutes in advance of the actual event.
Friday, October 31, 2008
My set up
To slow time down and make it my ally, I use only 5 minute and 15 minute charts to trade. I use 3 monitors. From left to right here is my set up.
On 3/4 of the left monitor is my 1 day , 5 minute chart. On the remaining space is my 1 day, 15 min. chart. All charts are set on a black background to alleviate eye strain. I use a 7 and 17 day exponential moving average(EMA) of the close on the 5 min chart to keep me in trend. I have the volume along the bottom. No grid lines no time lines. The 15 min is alone with only the candles nothing more. It is a clean and clear set up and uncluttered, information can be disseminated easily and quickly.
I believe that using 5 min charts for the majority of my decision making helps me smooth out time and slow it down. A shorter time period has the effect of too much information and movement and true trend is harder to see. I would say 80% of my decisions are based on what the 5 minute chart is telling me. However when the 15 minute chart talks you have to pay attention and listen. A great example are 15 minute dojis. Odds are it is a reversal that can be played profitably.
On the middle monitor I have tall but thin 5 min charts of the S&P and QQQQ showing an hour or so worth of data. Then comes two watch lists stacked on top of each other. The top one contain some stocks that I am familiar with or watching. The bottom one contains what I am presently trading. Then comes my order entry window with level 2 box showing bid/ask level and size and ticker.
Monitor #3 has a daily chart with 200 or more days displayed. Two hitting highs and hitting lows tickers are overlayed on this. One for the QQQQ stocks and one for DOW stocks. A positions and orders box is also overlayed on this.
My goal is to have enough information, but not too much, presented in a way that is clear and will compel me to make decisions based on what I see.
On 3/4 of the left monitor is my 1 day , 5 minute chart. On the remaining space is my 1 day, 15 min. chart. All charts are set on a black background to alleviate eye strain. I use a 7 and 17 day exponential moving average(EMA) of the close on the 5 min chart to keep me in trend. I have the volume along the bottom. No grid lines no time lines. The 15 min is alone with only the candles nothing more. It is a clean and clear set up and uncluttered, information can be disseminated easily and quickly.
I believe that using 5 min charts for the majority of my decision making helps me smooth out time and slow it down. A shorter time period has the effect of too much information and movement and true trend is harder to see. I would say 80% of my decisions are based on what the 5 minute chart is telling me. However when the 15 minute chart talks you have to pay attention and listen. A great example are 15 minute dojis. Odds are it is a reversal that can be played profitably.
On the middle monitor I have tall but thin 5 min charts of the S&P and QQQQ showing an hour or so worth of data. Then comes two watch lists stacked on top of each other. The top one contain some stocks that I am familiar with or watching. The bottom one contains what I am presently trading. Then comes my order entry window with level 2 box showing bid/ask level and size and ticker.
Monitor #3 has a daily chart with 200 or more days displayed. Two hitting highs and hitting lows tickers are overlayed on this. One for the QQQQ stocks and one for DOW stocks. A positions and orders box is also overlayed on this.
My goal is to have enough information, but not too much, presented in a way that is clear and will compel me to make decisions based on what I see.
Thursday, October 30, 2008
Control
Stocks rise when they are being bought up. Stocks fall when they are being sold off. I always ask myself "Who is in control. The buyers or sellers." Control changes often and in different time frames you can argue that one party or the other were merely taking a rest.
I generally buy stocks that are going up and short sell stocks that are falling. But I also play the sharp reversals that happen if there is a huge gain or drop as I know gravity will take effect and profit taking will occur. The smart way to day trade is to be on the winning side be it buyers or sellers.
As a small fish in a big ocean I can only ride on the coattails of the big boys who actually move the market. My job as a trader is to recognize when trend or momentum is starting to kick in and climb aboard. Short term trends or momentum are the only thing that I trade. The old cliche' "the trend is your friend" is so very true.
I only trade in the direction the chart is telling me to. Maybe you can watch the talking heads on TV blathering on or read about how great some stock is without forming an opinion on it. I can't, so it's safer to insulate myself from any and all information. I actually don't care what, where, why, how or when a company does what it does. Who am I to be able to process all this information? I do know that when a stock is rising, more people are buying it than selling it and vice versa. Seems easier to me to only look at and believe the chart and trade accordingly. If I have preconceived notions about what the stock may do, I will not be able to cut my losses when the chart tells me to. I will hold on to the dream all the way to the poor house. Always trade with the trend.
Cutting your losers is one of the most important aspects of trading.Unless you have an unlimited pile of money to fritter away you must admit you're wrong and exit the trade. If you don't you will not have enough to remain in the game. End of story.
Letting the winners run is also important. They are winners after all and that is all that counts. Adding size (buying more shares) can turn little winners into big winners.
If you disregard any or all of these 3 simple rules you won't be around trading very long.
I generally buy stocks that are going up and short sell stocks that are falling. But I also play the sharp reversals that happen if there is a huge gain or drop as I know gravity will take effect and profit taking will occur. The smart way to day trade is to be on the winning side be it buyers or sellers.
As a small fish in a big ocean I can only ride on the coattails of the big boys who actually move the market. My job as a trader is to recognize when trend or momentum is starting to kick in and climb aboard. Short term trends or momentum are the only thing that I trade. The old cliche' "the trend is your friend" is so very true.
I only trade in the direction the chart is telling me to. Maybe you can watch the talking heads on TV blathering on or read about how great some stock is without forming an opinion on it. I can't, so it's safer to insulate myself from any and all information. I actually don't care what, where, why, how or when a company does what it does. Who am I to be able to process all this information? I do know that when a stock is rising, more people are buying it than selling it and vice versa. Seems easier to me to only look at and believe the chart and trade accordingly. If I have preconceived notions about what the stock may do, I will not be able to cut my losses when the chart tells me to. I will hold on to the dream all the way to the poor house. Always trade with the trend.
Cutting your losers is one of the most important aspects of trading.Unless you have an unlimited pile of money to fritter away you must admit you're wrong and exit the trade. If you don't you will not have enough to remain in the game. End of story.
Letting the winners run is also important. They are winners after all and that is all that counts. Adding size (buying more shares) can turn little winners into big winners.
If you disregard any or all of these 3 simple rules you won't be around trading very long.
Wednesday, October 29, 2008
Maybe this will clear up some confusion. This is my last trade from yesterday. Lower red line show intial entry. Higher red line shows where I doubled up.
Green line shows where I sold right before the market closed for the day.
There was a feeding frenzy going on and I sold into that strength. I think it went up another $3 or $4 from where I got out.
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