Dip buying and clock watching

I find when you see something like this, probability says it's a better trade to the upside. Watch the clock to time your entry.

AEM shows big drop and good entry right before  a new 5 minute candle appears...

AEM ends up as nice trade

Clock watching

Different periods of the day provide different levels of market activity. My trading day starts one hour after the open at 7:30 am or so. Since I'm on the west coast I'd rather get an extra hour of sleep than trade the open. I never feel I'm missing out on opportunities as there are so many during the rest of the day I can't advantage of all of them anyway. Although once or twice last fall when the markets were pile driving lower I got up earlier an was rewarded for it.

From 7:30 to about 9 am is what I call the first half of the day. Trends are established or countertrends are formed. 

From 9 -11 am is usually but not always "The Dead ZOne". Slowly trending stocks keep going, volume is lighter, sometimes quick volatility.

At 11 am the second half starts sometimes with very powerful moves. Being prepared for this is important. The moves can be a quick fake out then back to the original trend that continues  to the close. Whatever happens it's important to be fully focused at this time of day.

15 minutes or so before the close I start to reduce positions so I don't get stuck with any over night holds.

Check out todays action at 11 am...

First chart shows SRS in downtrend all day with slowing then reversal providing a long entry, then a pop right before 11 am. Second chart shows pop was shorted and it's heading down again.

The Disciplined Trader

I believe that life is a journey that you should never stop trying to learn new things and make yourself a better person in all areas. In this game, what you think you know now is not so much when compared to how you'll feel about it in the future.
With that in mind I stumbled onto a site a while ago http://thedisciplinedtrader.com
run by Norman Hallett. I'm always on the lookout for information on the mental side of trading and so signed up for his 6 week course.
I was not disappointed by the content or volume of great material that I received. Normans teachings get to the very heart of the psychology required to become a consistently profitable trader. He tackles the common problems that most new and some experienced traders will face. The solutions offered and the techniques used to help you overcome drive right to the very heart of issues. The issues I write briefly about here are some of the same that Norman goes very indepth on. I wholeheartedly endorse his course if you feel lost, if you want to up your game or if your desire is to just keep learning.
His is the first trading link I have on my site and it is well worth signing up for.

Focus to win.

One of the reoccurring themes of my blog is that you need to focus on what the market is doing and make the correct decisions based on this information. I like to simplify things down to their lowest form so I fervently believe that it is my ability to concentrate my attention on what I see whether it be the nuances or obvious signals and then act on it. However it occurs to me that a thing as simple as this concept, can be difficult or impossible to learn if you don't know how to train yourself.

In previous posts I've touched on how top level athletes or musicians practice their respective crafts until their skills are ingrained into their muscles. They don't know how to make a bad play. We traders can strive to attain the same level. Ours is not a physical game but a mental one. So the events we have to train for come our way in the form of patterns and price information. After you spend enough time watching the markets and seeing how they move and you can think in probabilities so that the probabilities are proven correct more often than not, then you will find the missing piece to becoming a successful trader lies in mental focus. 

Having a positive mental attitude should be foremost in your mind. You need to believe 100% in your skills and your system. These two things work together to let you achieve your goals.

Training yourself to concentrate is at the root of all of this.  Concentration is the ability to have control of your thoughts and think on a subject until you decide not to. Being able to filter out unwanted and useless thoughts is a hallmark of a strong mind. In a previous post I suggested to close your eyes and visualize an apple, it's colour, texture, shape and every detail that makes it unique. Can you do this for 5 seconds, 30 seconds or 1 minute before any other type of thought enters into your mind? Concentration and focus let you exclude all non important information to attaining your goals. 

Let's take this a step further and follow a program for training the mind to concentrate.

First off it's going to take the desire to want to put the work in and develop your hidden strengths. If your goal is to be a consistently successful trader then you must want to put in the hard work and effort required. Some work must be done every day so that you can advance closer to your goal. 

 Write down your goal twenty times a day. Then say it out loud to yourself. This turns a thought into a real and tangible thing. Work every day trains the mind and builds the necessary mental pathways.

So start your visualization with a simple object that is in your trading space. Computer speakers, scissors, a pen or a calculator for instance. I’ll use the scissors in front of me as an example. I can see the following, they have two holes and a curved, tapered, finger rest, grey plastic handle, steel blades 4 “ in length with a bevel edge, a rivet makes the pivot point, a reflection from the window lights up the upper plastic surface particularly in the finger holes, there is a horizontal line where the moulds joined when it was manufactured. Now if I close my eyes for 10 seconds and think about this image, I let no unrelated thoughts enter my mind. Concentrate and draw every detail in my mind. Open my eyes and compare my mental image with the actual object. Critique myself honestly. Was I right in remembering all the details? More importantly, did any non scissor related thoughts enter into my mind?

Now you choose an object try it.  

The goal of this exercise is to begin to train your concentration skills. Focus your mental powers on one item at a time. Block out unwanted thoughts and distractions.

Do an exercise like this for 30 minutes a day. Pick different but simple objects. Leave your eyes open and stare at your keys for 1 minute. Can you do this without any other thoughts but the keys for that length of time? If not, do the exercise again and again until you can.

This is just like practicing your golf swing except it’s your brain that’s being trained.

If you’re not used to it, you’ll experience fatigue of a different sort because it’s new to you.

This experience can be directly applied to your trading and your results will improve.

Once you can immerse yourself into the market flow, you can get much more in tuned to the market machinations. You can feel the buy and sell pressure. The momentum. Confidence will increase. Good results beget better ones. You can finally take advantage of the infinite possibilities the market offers up every day. Your system can be put into play and followed without deviation. The power of your will to take the necessary steps in order to meet your expectations is waiting to be used if your desire to succeed is strong. Be your own harshest critic. Did I focus? If not,why not? What steps can I do so that I can.

I listen to chill out music http://www.oemradio.org/ through headphones when I trade. I’ve come to think that this helps me a great deal to concentrate. I believe that the constant rhythms distract some part of my brain and give it data to process without an end. This I think frees up my attention to focus on the visual data I’m getting from the stock charts. Recently when the music feed was dead for 2 days I didn’t have my normal trading days. If you don’t like the music they play, then find something else without commercials or singing as they will distract you.

In the coming days I will post further information on keeping your focus 

Simple is better

When there is no expectations there can be no disappointments. The following 2 posts demonstrate why keeping it simple is a great way to trade. When you don't set profit targets or worry about risk -reward your focus instead is on what you see happening before you. No psychological noise is forcing it's way in and messing up your concentration.

Of course it is a requirement to set your risk before you enter the trade since that is the point at which your decision will be proven wrong, this is something that you can control, but forget about pulling a target number of a hat. Instead use the signals the markets give you that say" I'm finished trending for the moment here, take the profits".

Maintaining your focus is the key to successful trading. Traders need to work hard at this and sometimes it won't be easy. But I know that the less psychological burdens you place on yourself the easier your tasks become.

Classic patterns continued

Check post below first.

When you see some classic signals that say the momentum is finished for the moment , take the profits and trade them the other direction. Keep your eyes open for the trends to continue or reverse.

S&P and QQQQ stalled / stopped.

FAS

SKF

SRS

Classic chart patterns

Markets are moving at the moment and many stocks are exhibiting some clssic chart patterns. Does that mean that normalcy has returned? I can't tell you that but take a look at this high probability setups when they break past the previous daily high/low.

SKF

SRS

JPM

FAZ

FNG style of monetization

I think it's humourous to see other traders, plaster their blogs and web sites with advertising promoting the lastest tool to make ( them) money or become coporate shills and prostitute themselves for a few bucks.  Can't they make enough trading? The world needs less adverstising  and more personal action in my opinion.

And so here is my style of using this blog to "monetize". Click on the links or find something else locally that will offer payback of a different sort to you. Doing something good and getting involved in worthwhile causes brings humility to a person. That is tonic for the soul.

http://www.freethechildren.com/

http://www.percyschmeiser.com/

http://wwf.org/

http://doctorswithoutborders.org/

http://www.greenpeace.org/international/

Part 2 of the fake out

The markets were giving some good opportunities all day.  SKF FAZ SRS all closed  near high of day after the fake outs.

Make out on the fake out.

Market fake outs are excellent places to add size to winning trades. At this moment in time the markets are showing a big reversal candle.  Well don't take the bait, instead keep an eye on the clock and right before a new candle appears, add some more size instead.  If the trade goes against you, then your risk is virtually what it was in the first place. If it works you'll be ahead before the crowd.

The reason for not taking the bait was the low volume on that big candle. That says to me  there is not a lot of conviction and the the original trend will appear again, if only for a while Check it out...

1st chart shows S&P and QQQQ pop but low volume

The following charts look identical,FAZ

SKF

SRS

Mind over market.

What is your objective as a trader? The thrill of the kill, bragging rights, or make enough money to pay your bills and get out from under your boss’ foot?

Mine is to be a consistently profitable trader. I have come to learn that a narrow focus brings more power to the object of your desire compared to a wide and nebulous effort. Think high powered rifle vs. a shotgun.

In order to reach that state of desire what tools will you use? Hoping and wishing your stock picks are right?

I use my mind to formulate a plan, a road map if you like, to my final destination. My plan details the steps I need to take, based on observation of my personality, mental state and how to interface with the market. I then use my will power to compel myself to do what ever is necessary to reach my goal. Eliminate emotions and trade like a machine.

To be able to trade like a machine, it is necessary to work in such a way that the way you work never differs. You do the same actions again and again in response to the market because your trading system is ingrained into your being that so it is an automatic reflex. Everyone has will power if they decide to use. Whatever obstacles in your way can be overcome by applying your will power to find a solution and implementing it. This takes dedication to reach your goal. Putting the effort in to change or fix whatever it is that is holding you back. Make up your mind to focus on the issues and one by one the problems will disappear.

Concentration is what makes this possible. A trader needs to be able to identify, organize and implement all steps toward their desired goal. You’ll find that when you can concentrate fully on an idea and bring to bear all your mental powers, a solution is easily found.

In broad strokes my daily trading plan is as follows:

1. Get into the flow.
2. Feel the momentum
3. Confirm the markets
4. Check the clock
5. Enter the trade
6. Set stop at exit price (mental or hard)
7. Manage the trade.

There are many, many sub sections in each of those steps but the learning of how to achieve all those steps was met a long time ago for me. And the completion of these steps bring me to my ultimate objective to be a consistently profitable trader.

When you can utilize your will power and concentration as tools in the same way as your computer is to be a necessary component or tool of your trading system, I think you’ll find good results will quickly come your way.

Connected stocks show the way.

With the markets trading pretty choppy lately, one technique I use to help point the way and give me more weight to a probable direction is to look at what other "connected" stocks are doing. By connected I mean related in some way. When trading the bank and financial stocks I always look to see what gold stocks are doing. They are connected.

Earlier this morning the bank/financials were shooting up again but the market volume was weak. I took a look at AEM and ABX gold stocks. They were already on their way down so it was a good probability that the banks etc. were going to follow even though they were still going up.  Good profits are possible due to seeing these small signals 10 minutes before the other stocks follow and being prepared to take the correct action.

1st chart is S&P andd QQQQ before the move.

2nd chart is after/during  the move 

3rd chart is ABX shows downward move 10 minutes before bank stocks

AEM does the same

FAS before

FAS after/during

FAZ before

FAZ during/ after

SKF before the move

SKF during / after

SRS shows the same

SRS after the move

Profit goals are a bad idea.

I fail to understand the 1000's of stock market pundits that recommend you set a profit target when you enter a position for the following reason:

Exhibit A - your bruised and bloodied ego after the markets have shown you who is always right. (hint - it ain't you or me)

 I don't know anyone that can predict what the market is going to do. And to set yourself up for psychological beatings time after time is a sure way to run your trading account down to zero. But, says you, "it's a perfect set up, the stars are aligned and maybe even some trusted analysts are touting the stock to X$ level." All you are doing when you subscribe to this train of thought is to CONVINCE yourself that you know what the future is. And there is a huge difference psychologically between convincing yourself that an event will happen,  and believing in the probability of an event happening.

To demonstrate these two approaches let look into this summary of two traders named Bob and Cindy.

-Bob buys 1000 SKF @$250 and a sell target of $300. (secretly $500)

-Cindy buys 1000 SKF @ $250 with a stop at $249

- an hour later SKF hits $260. Bob is thrilled and says to himself , "Booyah, I'm right" He does a  victory dance and dreams about a new Ferrari.

- Cindy sells SKF and pockets $10K. She then shorts it and says to herself "way to take those  profits girl" High 5.

- SKF is sliding down so Bob checks his fundamentals and reaffirms that SKF should at any  moment shoot back up.

- Bob buys more SKF to average down his cost.

- Cindy moves her stop lower to protect profits should SKF suddenly and violently reverse.

- At the end of the day Bob checks various chat rooms that forecast SKF going to "at least $300.   He feels better and says to himself " I'll get out at $290 then".

- The next day SKF opens @ $220. Bob picks himself up off the floor and looks  stunned into his  flat screen monitors. He can't even think right now.

- Cindy covers her short sale, putting a huge chunk of $ into her account.

- Bob can't remember his plan or what to do. But he rationalizes "well it was a good buy at $250  so  it's a screamin' good buy now." And he proceeds to buy more @ $218, $212, $207, and $190.

 "I mean it has to go up, the banks are in a real mess. This is a fact!!!" He shouts at no one in  particular.

- Cindy acknowledges SKF is making big red candles moving down so she shorts it again almost  immediately after covering her first short. She doesn't even consider the additional $10 in  commissions.

- Bobs brokerage firm gives him a margin call. Bob and Bobs life is destroyed. Reality has  overtaken fantasy in his life.

- Going into the close, Cindy is thinks it is wise to cover her short.  She admits" I don't know  what tomorrow will bring" as she leafs through a brochure on "Great diving destinations in the  South Pacific"

Ego will destroy you as a trader and possibly a human being when you are wrong after you convince yourself you're right.

Hoping and wishing will not make the market do so.

How many beatings can you take before self doubt creeps in, effectively paralyzing you as a trader?

Profit targets are just one more nail in the coffin of traders who think they know.

Try this approach instead. Say to yourself,

"I don't know what a stock will do in the future."

"No one on TV, or on web sites or newspapers know what a stock will do."

" Based on past patterns, the charts and prices tell me now which direction is more PROBABLE." 

"I do know my risk amount so I will set a stop at that point."

Now sit back and let the market do it's thing.

Some of you very persistant FNG seekers  have convinced me that my way of trading and my articles have value to those trying to learn the game. SO this blog is open to the public again. Feel free to download stuff while it's available...