KYEOTB - Position Trading
Contents:
A - Constructing A Trading Method
Identifying Potential Position Trades:
- Identifying Anticipation Trades
- Technical Trading
Using Tape Reading To Time Exit/Entry Points
Trading Day Procedures
- Before the Open
- During The Day
- After The Close
B - Define Your Risk & Money Management Method
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C - Constructing A Trading Method
Identifying Potential Position Trades:
As a Position trader you thrive on trends based off anticipated events. Positon Trades can be defined by these triggering events.
Identifying Anticipation Trades:
This involves analyzing what stocks have upcoming earnings, news announcements,rumors coming in the near term. Generally stocks will pickup momentum as the timing of the anticipated event grows closer.
Technical Position Trading:
These are trades which you tend to hold longer(30 minute to several hours or days)and therefore are looking to make 1/2 to several points.
Technical Position Trading is based on strict technical signals which confirm entry points along with tight stops that signal exit points.
Using Technical Analysis In Several Times Frames:
Once I have identified potential Positon Trades candidates I use 10 and 60 minute intraday charts as well as daily charts to determine support and resistance zones. I visualize and draw trendlines, areas of congestion, and insert moving averages on charts to come to some conclusions as too where support and resistance zones exist. Once these zones are identifed I can determine the potential profit that exists and decide whether the trade would be worthwile. If the potential trade is confirmed by 2 or 3 time frames I will consider it a Technical Positon Trade.
Using Tape Reading To Time Exit/Entry Points
Trading Day Procedures:
Before the Open:
1) Review your Trading Plan to get into the proper state of mind for trading.
2) Review overnight markets and news.
3) Review the DOW's mood and determine in what time frame the best trades should exist. Is the DOW trading in a range or trending? in what direction? Is the NASDAQ diverging or running with the DOW as a whole? How are the different sectors behaving with relation to the DOW and NASDAQ?
4) Update your watchlist to reflect any potential positon trade candidates.
5) Review charts of potential position trade candidates.
During The Day:
1)Follow your watchlist and add any potential Anticipation Trades,
as you observe the intraday news and judge the mood of the market.
2)Use charts in several times frames to determine support/resistance zones to determine potential Technical Position Trades.
3)Use tape reading to time exit/entry points.
After The Close:
1) Review your trades.What did you do right or wrong? what can you you learn from each trade?
D - Define Your Risk & Money Management Method
Adequate Capitalization:
For the experienced trader an adequate level of starting capital is in the 75,000 - 150,000 dollar range. The inexperienced trader will most likely start with less which will limit his available opportunities within the market.
Diversification:
Position Trading offers you the ability to diversify because of it's rigid entry and exit signals and longer time frame.
Margin/Bet Size:
Be careful not to overextend yourself by betting too much on one trade, or using margin to increase your leverage more than you usually would. A good strategy is to determine the bet size you are comfortable with and NEVER increase it. If you feel less confident
about a trade REDUCE the bet size until you feel more confident about your trades. The less margin you use the better. Trading on margin is a double edge sword which can cut deeply if a trade runs away from you.
Stop Losses:
You MUST have a stop loss strategy in place to mechanically get you out of trades. Not using mechanical stops is the fastest way to lossing everything!
There are two types of stop losses I use. The first is a manual stop loss which I trigger whenever the trade is not proven correct by the market.
The second is the "Act Of God Stop" which is used to protect against spikes in the market.This is a trailing stop set(where possible) @ 5% outside the market)
Stopping Acts Of God:
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Averaging Down:
You MUST NOT average down! This only increases the size of the loss you will take from not holding your stop target.
Averaging Up:
May be a good strategy if the trade is proceeding as you expected.
Holding Winners Overnight:
Often many Day Traders hold overnight if the trade is closing strongly in their favor.What if the market or sector the stock is trading in, gaps dramatically in the opposite direction of your trade the next day at the opening? Are you willing to assume the risk
of a gap down on a concentrated position?
Trade Liquid Markets Only:
Consider trading only markets such as the NASDAQ or NYSE where you can find stocks that havevolume of 100,000 to 25 million shares trading daily. Liquidity means you can get in and out easily. The more liquidity also means the less likely the security is being manipulated by insiders,brokers, or promoters.
Know When Not To Trade:
Often times the market is flat, or you do not have the proper state of mind to trade. If this is the case take the day off and relax! The market will be there tomorrow.
Days to Trade, Beware and Avoid:
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