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Strategies & Market Trends : Strictly Buy and Sell Set Ups -- Ignore unavailable to you. Want to Upgrade?

To: chowder who wrote (5286)	9/2/2005 6:50:25 PM
From: chowder	Read Replies (1) \| Respond to of 13449

10 Questions for Your Trading Plan ........... September 2, 2005 ... Do you have a written trading plan? Most do not. In order to manage your emotions effectively when trading, you need to create a written plan that you can review regularly to stay focused on your goal of trading success. By writing down your plan, you put yourself in the top 3% of individuals who have written goals and plans, giving you an immediate edge on most traders. Make sure you have answered these questions, which are covered in further depth in my book Big Trends in Trading: 1) How you will enter trades? The key to good entries is putting on trades where there is relatively low risk compared to much higher reward. You also should write down a clear catalyst for the expected stock move. 2) How will you exit trades? You should define an initial stop point for your trade, at the point where the trend is invalidated. You will also need a 'trailing stop' technique to protect your profits. 3) What type of orders will you use to enter and exit? When entering, I like to use limit orders, good for the day only, while exits are often market orders. Why? Because limit orders allow me to define my risk and reward clearly on the entry of a trade, while when I need to get out, market orders allows immediate exit compared to the risk of missing my exit with a limit order. 4) How much capital will you need to trade successfully? There are economies of scale as you increase the amount of capital you trade with. Costs related to commissions, quote systems and equipment begin to diminish as the percentage of capital invested goes up. 5) What percentage of your capital will you invest in each trade? The amount of capital I typically use is 10% per trade in my own accounts. I know traders who commit anywhere from 5% of their account per trade to 20% of their account per trade. You goal should be to keep portfolio risk per trade at less than 2% per trade (for example if you invest 20% of your portfolio in a trade, a 10% loss on that position would lead to a 2% loss on your portfolio). (continued below) 6) How many positions will you focus on at once? I like to concentrate my portfolio in my best ideas, plus I like to stay focused on how each stock is acting. If my portfolio is too big (I'd say more than 7 stocks is too many to focus on), then I will lose focus and invariably miss an exit on a trade that I should have previously exited. 7) What will your Trading Journal look like? In my Trading Journal, I note daily observations, particularly related to my ability to execute my trading plan. I also commit to doing a post-trade analysis every month. I note what I did right and wrong, and seek to learn from mistakes to minimize future errors in similar circumstances, while also looking for winning patterns where I seek to repeat big successes. 8) What is your Position Review process? Have an end-of-day routine to close your day. Review your trades, and assess if you followed your plan. Keep a log of all your trades, and make comments on each position. 9) What is your Preparation process before trading? You need defined time to prepare for the next trading day to build up your trading confidence. I prepare after the close for the next day's trading, which allows me to formulate a plan of action BEFORE I get into the heat of battle. This keeps my trading proactive instead of reactive. 10) What broker will you use? Most traders mistakenly think that commissions are the number one factor they can control. In reality, commissions are a small cost compared to the broker's effectiveness at executing your trade. Your focus should be finding a broker who gets you speedy and fair execution of your orders. Once you have defined these facets of your trading plan, you are in an excellent position to have a strategy to control your emotions when trading. Make sure to review your plan on a regular basis to create effective trading habits. BigTrends.com (This message is linked to previous articles.)

To: chowder who wrote (5286)	9/7/2005 3:57:03 AM
From: chowder	Read Replies (1) \| Respond to of 13449

Unconventional Wisdom ....... September 6, 2005 ................ I think Victor Niederhoffer best stated the point of today's Daily TrendWatch in his book "The Education of a Speculator". On the topic of conventional wisdom, Niederhoffer writes "when I hear the words 'conventional wisdom', I put my hand on my wallet". While the text is amusing, it's certainly worth understanding why this experienced commodities trader is frightened of what could be categorized as common sense. The human mind can rationalize a lot of things. Unfortunately, being human, it can also rationalize incorrectly. For example, if you toss a coin ten times, and landed on heads all ten times in a row, what is the likelihood it would land on heads on the eleventh toss? Most 'conventional thinkers' would say that eleven heads in a row would be nearly impossible. But 'unconventional thinkers' realize that the chance of getting heads on that eleventh toss is exactly 50/50. Inaccurate conventional wisdom is common in trading. Two of these most common incorrect rationalizations are: 1) What goes up must come down. 2) What goes down must go up. These axioms seem accurate on paper, don't they? But the reality is that these two statements are false as often as they are true. What goes up may eventually come down, but if a stock is going up, it's going up for a reason. It may not be a good reason, but there's a reason nonetheless. That's why we typically recommend trading with the trend, rather than against it. That's also why we value technical analysis as highly as fundamental analysis. While a company may have outstanding fundamentals, the stock price is not set by a company's fundamentals - it's set by other investors. As a shareholder, you only make money if share prices increase. So, a 'good' company is no guarantee of a good return on your investment. Conversely, shares that 'can't go any higher' can and often do go higher, even if the company is losing money. Conventional wisdom says buy good companies, but that's the wisdom that's been drilled into our heads since the day we started investing. Perhaps we should adopt a new conventional wisdom - buy stocks that are increasing in value. The point is, you have to realize if your trading logic is flawed or not. Conventional wisdom is largely a collection of assumptions. The problem is, these assumptions may have stuck around for years after the events and information that led to those assumptions had changed. Are you basing your logic on what you think to be true, or what you know to be true? BigTrends.com (This message is linked to previous articles.)

To: chowder who wrote (5286)	10/3/2005 9:53:10 AM
From: chowder	Read Replies (2) \| Respond to of 13449

Key Pillars of Trading Success ... October 3, 2005 ..................... I know most traders and investors are not as clear as they need to be regarding their goals, and I believe any accomplishment of a goal involves some simple but critical building blocks. I believe successful trading boils down to these critical factors: 1) You must have an Edge - Become an expert at one type of pattern in the markets and then to exploit that pattern when it reappears. We generally look for opportunities with a 3:1 reward-to-risk ratio or higher. For us at BigTrends.com, our edge involves technical Accelerations on the upside and the downside, plus the ability to spot extremes in fear and greed via our sentiment indicators. We are constantly testing other systems to improve our edge in the markets. Can you define your edge in writing? 2) Disciplined Execution - Once you have an edge, you have to be able to execute. I personally like the systematized approach, as it takes your ego out of the game and allows you to focus on how well you are executing your trading plan. Can you say that your trading plan allows you to define how you will execute your way in and out of both good and bad trades? 3) Effective Money Management - Overly aggressive investment allocations can ruin even a good system with excessive drawdowns, while overly conservative allocations of capital will not optimize your total returns. Have you tested your method to determine the appropriate amount to risk per trade? 4) Have a Plan and a clear Preparation Process - If you're not prepared, by creating a written trading plan of your goals, and knowing specifically how your battle-tested trading method dictates your entries and exits, you give yourself no chance to confidently execute the plan. If you're flying by the seat of your pants, your emotions will take over and force you into a reactive mentality (for example, selling only after a significant decline). Do you have a written trading plan and a defined preparation process (outside of market hours)? 5) Accountability - No matter what approach you use, you must believe that YOU are the ultimate one who is personally responsible for getting investment results. This gives you an internal locus of control that gives you a greater ability to make quicker decisions that can help you get to your goals. I believe a regular review of your trading results is an important part of keeping yourself accountable. DO you have a regular review process for your performance? 6) Commitment - You must have a determination not to quit when things are not going your way. I have learned in life that those who succeed in any endeavor have made a commitment to seeing it through both good times and bad. Certainly you must also define your maximum risk tolerance and make sure you do everything in your power to keep your equity in an overall uptrend. Commitment is enhanced by continuous testing of new ideas and regular monitoring of your existing approach. Do you have a certain amount of time set up for future R&D testing plus a defined process for monitoring your positions? BigTrends.com (This message is linked to previous articles.)