I would like to post on SI one of the lessons from yesterdays seminar. We are working to get the entire thing logged in this format, and when that is done the entire 6 hour event will be available on our website.
Brandon
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I strongly believe that to be a professional trader, a person needs to have only 2 to 4 setups that they can apply again and again in the market. By having only a few setups, the trader becomes a specialist who can pull profits out of the market with ease. In this section of today's TMTT free seminar I will be showing you a setup which has an accuracy rate of over 70%, and which accounts for most of the profits I have made in the market during my career. By the time I finish here, you will know how to apply one variation of this setup to your own trading.
Some intro and background info which will lead us into the setup:
One of the most dangerous assumptions that novice traders tend to hold is that the market is a big happy place where we are all brothers and sisters. They believe that "We are all in this together to get rich". Relatively quickly they learn that this idea is not true and that there are three groups of people on Wall Street. One group is on the way out the door having lost a good deal of what they came in with. The other group are those happy campers described above. The third group are those known as professionals. Week in and week like clockwork they take the money from the happy campers, who are obviously soon not going to be very happy.
When I came into the market, I was like anyone else. I believed in the big happy mix and that we are all in this together to make money. After several months of trading I had lost over half of what I came in with, and it became obvious to me that my conception of things was wrong. Not wanting to give up on trading, which I still knew was something which had more potential than anything else in the world when it came to the amount of money I could make, and the freedom I could enjoy. Knowing this motivated me to learn how to never become a member of our first group, and to strive to be a member of that third group.
Two things lead to this. The first was finding someone willing to show me the ropes. Trading is like any other skill or business, its a very rare person who learns it alone, with no help along the way. With so many (expensive) pitfalls along the road to success, it is essential that a new trader find an experienced trader who is willing to help them along that path. The next step was for me to study the mistakes I made as a member of our second group. The reason for this should be obvious, for as Sun Tze says, you must know your opponent well. If I wanted to be a Professional, I needed to know the mistakes made by those who I would be taking money from. Knowing, and taking advantage of, these mistakes became the key to my success.
What I found was that I had a knack for buying near the high of a move. Everything looked good, things are recovering and all the people in the free chatroom I was in knew this stock was the buy they did not want to miss out on. When the buy was first mentioned by other, more astute traders, I was too nervous to commit. I, not wanting to throw my money away wanted to find that sure thing. Once a stock had proven to me, beyond a doubt that it was indeed strong I would buy. My buying would almost always occur near the top of the move. Then as the stock moved lower I would remain in, hopeful that soon, very soon things would turn around. After all, the stock market is a friendly place, we are all in this together to make money. But, unfortunately for me, the stock would continue lower. Finally, sick with myself and the market, I would exit. Almost always, you guessed it, near the bottom of a move.
Since I am not a computer wiz I could not figure out how to get real good Real Tick images in the stocks I lost my money in. This might be just as well since it could prove painful to relive it at this point. But, I did find a stock that provides a good representational example of my ordeal.
teachmetotrade.com
This type of action is repeated day in and day out in the market, with the professionals, already in at earlier levels selling to the novice, or buying at a discount from a novice as it moves lower.
Fortunately for us, novice traders are fairly easy to predict. The action that many of them follows closely follows my early action. Because we know what they will be doing, we have an opportunity to profit.
The setup.
A stock must have experienced a strong one directional move which puts novice traders on the wrong side of the market. This strong one directional move can usually be identified by wide ranges and by the lack of upper and lower shadows on the daily candlestick chart. When you see this, you know that, more than likely, novice traders have entered the game with shaky confidence. We next look for a reversal of this bar. When the reversal happens there are a few things going on. First, there are professionals buying the pullback because professionals know that the right kind of pullback presents a buying opportunity for them. Second, there are the novices who had earlier been in the stock that now realize they made a mistake and are rushing back into the stock so as to not miss it this time. They say something like "Ooops, why did I sell that stock yesterday, now everyone is buying it. I will not miss it this time". This is the action that leads to a Teachmetotrade "Ooops" buy.
I have chosen two recent examples of this setup to show you today. Recent because I want you to know this setup is not like many others that may have worked well in a parabolic bull market, but produces steady losses now. The reason this setup continues to produce good results lies with in the powerful psychological forces that drive it.
The first chart I have for us is located at
teachmetotrade.com
I will give you a few moments to get there before I continue.
As Dave and Toni earlier mentioned, your best buying opportunities are going to come on pullbacks in strong stocks, or at the very least those that have very recently been strong. That is the first thing you need to look for when looking for a TMTT Ooops buy setup. A stock which is currently in, or has very recently been in, a strong uptrend. Looking at the daily chart of THQI one can clearly see this to be the case. The stock is in one of the markets current glamour sectors (video games) and is showing the traits of an uptrend. On June 14th the stock fell to strong selling. The sellers opened the stock right at the high of the day, and closed it very near the days low. This is the second criteria for this version of the TMTT Ooops buy setup. When we scanned on the night of the 14th, a note was made to watch THQI on the 15th for potential buying opportunities.
Now please go to
teachmetotrade.com
The next day the stock did exactly what we would want it to do for this particular version of our setup. The sellers, still scared from the prior day acted more aggressively at the open than the buyers and the stock gapped down. For several 15 minute candlestick bars the stock moved lower in the morning, but then it found a stable area and started to move higher and soon crossed above the $51.10 which was the closing price on the 14th. Once this occurs we set a protective stop under $48.90 which was the days low and we are now set. This provided us the criteria we needed to go long THQI. So briefly for a TMTT Ooops buy setup to occur you need four things.
1) A strong stock.
2) On the prior day the stock must have experienced "panic" type selling which we can see in the form of the Wide Range Bar.
3) On the next day the stock must gap lower.
4) After gapping lower, once the prior days closing price is taken out to the upside TMTT traders will go long with a stop under the days low.
Following up on THQI let us now look at the exit. teachmetotrade.com
As THQI moved higher we knew it would meet with around the area of the prior days basing action. The reason for this is that prior support, once broken will become new resistance. For this reason, we and our traders entered THQI expecting a move of about $2.20 to $2.50 for our risk of $2.20. This is a risk we are willing to take because we know the setup has a high degree of accuracy and has rewarded us very well in the past. Ultimately THQI moved $3.97 higher over the course of the day, and by the time it finally topped out the next day it produced gains of up to $8.73. We as professional traders however took or safe gain of $2.34 knowing that in the long run, this is the only way to last. |
