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Strategies & Market Trends : Trader J's Inner Circle -- Ignore unavailable to you. Want to Upgrade?

To: Jon K. who wrote (10671)	3/6/1999 4:51:00 AM
From: Tony B	Respond to of 56535

JonK - goals... No goals? Yikes. See my BKS trade for what happens without any goals. I've gotten into the habit of writing down why I enter a trade as soon as I make it. If I don't have a good goal (simply "making money isn't acceptable), then I won't even make the trade in the first place. I've missed a few little gains, but also avoided a lot of big losses that way. Good luck! llater, Tony B

To: Jon K. who wrote (10671)	3/6/1999 12:31:00 PM
From: Trader J	Read Replies (1) \| Respond to of 56535

Jon - "How do you discipline yourself". Unfortunately, there isn't an easy answer, or way, to do this. It usually comes from experience of what can happen if you do not use your discipline. The market is no place for "hopes and dreams" trading and investing. This is exactly what I do when I enter a trade: 1) Firstly, remember my $500/day goal. And say "Don't get greedy". 2) Pick an entry point, and then ...... wait. Just a bit to see. 3) Place the limit order to buy or short. 4) As it is executing I have already judged, realistically, where I feel this issue can go ... whether it is a 1/4, 1/2 or 1+. 5) I also determine, how much I am willing to lose and set a mental stop. 6) Then I step back and watch the price action and volume. 7) If it immediately turns against me and hits my stop, I sell. 8) If it runs up to my goal, and starts churning, I sell. 9) If it runs beyond my goal, I will set another mental stop or physical stop at some point near my goal to lock in and protect my gains. 10) If the issue runs to close to my goal and starts to retrace, I sell immediately, especially if it is on volume. 11) I "try" to follow this each time, but the most important step of all of these is..... #1 It is too easy to get lost in the $4000, $5000, or $6000+ gainer ... and then try to recreate that on a daily basis. Have been there. I have learned to keep myself in check on those days, appreciate them for what they are, pat myself on the back for making a good decision and remind myself again not to get greedy. A $500/day goal is still roughly $125,000/yr. Not everyone will be able to use this goal because of limited trading capital.... but everyone needs a goal, as long as it is realistic. If you are trading 100-200 shares at a time, it is not realistic to think that you will make $500/day .... I would then recommend weekly goals or scaled down daily goals. It is all relative. Learn to be happy making a little bit at a time and then look back on your progress after a month. You will see that, although not as exciting as the big kill every day, it is much safer, nearly as exciting, and helps you get to sleep quicker. Gone for me are the 5000 and 10,000 lot trades. They may be back, but I really enjoy changing my strategy to fit the market, or trying new trading theories. But right now, I found that balance and it feels pretty good. I think you will too. Good luck Tj

To: Jon K. who wrote (10671)	3/6/1999 1:38:00 PM
From: Ron McKinnon	Read Replies (2) \| Respond to of 56535

Jon TJ gave some great thoughts let me toss out a few of my own >>>You asked me about goals. But when I stopped and think about it, I did not have any goals other than make as much money as possible. I have no idea how I should set goals. (I guess I would be very happy if I can average $300/day) if you are a full time trader I think goals are critical; they set the standard for your activity >>>My trading capital is about 50k each for trading and IRA accounts. As you know IRA is for cash account only. I do not trade this account too often. (a month to a year term). With trading account I use margin so I can use up to 100k. I try not to exceed 20k on any one stock. if you ask 10 people what is the "right" amount of equity to day trade you will get 12 answers I've tried various sizes and at least for me 50-100k seems to work the best, for me; in a pure day trade account too small and you really can't trade "right' too much and you tend to "push" trades I think 25k is a minimum and 200k the max (based on how I trade)others with different styles will say more or less you say you would be "happy" with $300 a day off of a $50k equity account that's 75k profit a year; a 150% return assuming you take out profits and do not compound your equity (by the way, I write myself a paycheck out of my trading account every Sat; this is my job; it makes it real; I suggest everyone do this) so 300 a day is 1500 a week or 3% on your equity you see people post how they get returns MUCH greater than this possible, but not likely over the LONG term, ie, 5-10 years or more my own feeling is the a CONSISTANT return of 1.5-3.0% a week is doable for the highly disciplined trader my personal target in my day trade, margin account is 2% I have consistantly exceeded this for over 5 years but all my trades are oriented around this goal to try for more is to invite disaster; I think at least for the first few months/years at this CONSISTANCY is the key if you break the rules and get lucky it is very easy to have a 10-20% day just as easy if pushing the edges of the envelope to lose that much or more so to be consistant one needs to be conservative a few possible "rules" a true day trader goes "flat" at every close; most of us do a combo of day and short term position trades 1. No margin usage overnight; ever; period 2. No more than 33% of your EQUITY in any single stock 3. Never lose more than 2% of your equity on any single trade (that means with 33% and a 2% loss you can take a 6% loss on any single trade) 4. If you lose 2 days in a row, take a day off to re group 5. If you lose on a weekly basis; 2 weeks in a row; go back to the basics; re think your trades; go back to trading with half the amount you used in the past 6. For a position trading account, as an IRA, use an average of 8-12% of equity for each position this will give you 10 or so stocks on average to get diversification 7. If in doubt go small; either on positions or $ goals those are a few off the top of my head I am going to boot up my other computer and dump some stuff from my hard drive on here I've posted most of this on other threads in the past but it may help you as well as me to re read them

To: Jon K. who wrote (10671)	3/6/1999 1:51:00 PM
From: Ron McKinnon	Respond to of 56535

Jon K--Stuff #1 (this one I have printed and next to my computer; I read it every day; sadly do not always follow it) TRADING RULES-----SHORT VERSION PATIENCE Wait for all the stars to line up You never "have" to make a trade CAPITAL PRESERVATION You can not play if you lose your chips Better to forego profits than lose capital Good money management is critical ADMIT MISTAKES FAST Take losses quickly, while they are small First loss is the best loss; small losses are good losses MAINTAIN BUYING POWER Never be fully invested Have some ammo ready for the "perfect" trade DO NOT OVER TRADE Too many trades or an excessive concentration in a single stock or sector HAVE A PLAN Before you make the entry, have "out" target in mind ahead of time BELIEVE THE MARKET It is bigger than you are, don't fight the tape DO YOUR HOMEWORK Good trading requires a lot of work STAY COOL Emotions will kill you DO NOT GET GREEDY A bunch of singles is better than a home run

To: Jon K. who wrote (10671)	3/6/1999 1:53:00 PM
From: Ron McKinnon	Read Replies (1) \| Respond to of 56535

Stuff #2 TRADING STRATEGIES · PATIENCE - If there is one thing you must learn, it's patience. Good things come to those who wait, be it low buy prices or high sell prices. Sometimes if you had only waited, you could have sold higher or bought lower. Have patience, it's without a doubt one of the golden keys to making money in the stock market. REVERSE PSYCHOLOGY - If patience if the golden key to trading, then the silver key is doing things opposite from the rest of the market. You want to buy when the average investor is selling and driving the price down. And when wonderful news is driving a stocks price higher, you want to sell your shares at the over inflated price. Buying when stocks are falling and selling when they are moving into higher ground is one of the hardest things to learn [and do] when you first start trading. We don't have the luxury of holding our stocks for years to help iron out the little highs and lows. We live off the little highs and lows. Buy when there is blood in the streets! EMOTIONS - The stock market is very good at playing on your emotions. In order to be a good trader, you must look at the market in a cold, hard way. When the masses are selling in a panic, you must stand fast or step up and buy. Remember that the market is made up of emotional sheep buying and selling in waves - you must be the cold, cunning and calculating wolf looking over the heard for your kill. Don't panic sell and don't buy on hysteria. MARKET ORDERS - Don't use them unless you have to, and DON'T EVER place a market order for a stock at the opening of the market, or when a stock is making new ground fast (such as during a positive mention on CNBC). Putting in a market order in the first 10 minutes of the market is a sure way of paying the highest possible price for your stock, because as all the built up orders from the previous day go through, it lifts the stock prices for a few minutes. You can be pretty sure that you order will go off at the high of the day this way (but keep in mind it's sometimes handy to sell during this time). BUYING LOW - Sometimes the best way to buy low is to put in a limit order for a stock at "a price you'd love to own the stock at". Let's assume for a moment that the stock you want is trading at 20 dollars, try putting in an order at 18 1/2 and wait it out, what do you have to loose? You never know when you might hit the low for the day that way. It's far better than putting your limit order at 19 7/8, only to find it crashed past that, filled your order and continued down to 18 3/8. You'd be surprised what an effective way this can be to both buy and sell. When you get your "dream" price, it's a great feeling. SELLING - Selling is actually harder than buying in many ways. If you are trading a stock, then decide what price you want to sell your stock at as soon as you buy it, so when that price does come along, you'll be ready to move. Using a GTC order ( good till cancel) is also a good way to sell stocks once you own them, since many times a stock will move up for just seconds - not even enough time to place your order. But if it's "on the books" when the stock makes a quick run up, you'll be right there selling it. IF YOU ARE WRONG - then you are wrong. Don't try to justify a bad trade by convincing yourself it will turn into a good trade.. Talking yourself into believing that your mistakes are actually wise moves in disguise is very costly. Be professional enough to spot your mistakes and move on - think of it as day trader insurance. PROFITS AREN'T AS IMPORTANT - as your capital. If you miss out on some profits, that's okay, you can always find another stock to buy. However, if you lose a big chunk of your trading money then the game is over. Protecting your trading capital is your number one mission, followed, of course by increasing it. DON'T GET GREEDY - Greed and fear drive the markets and for the most part drive the average investor to making mistakes. Sell with good profits, but don't get too greedy. A savvy trader once said, "Pigs get fat, hogs get slaughtered". BIG SWINGS - Big moves up are sometimes followed by big moves down and visa versa. Sell on abnormally large moves to the upside and buy on abnormally moves to the down side. They are generally out of character of the stock and can many times be followed by a "snap back" on the stock. Knowing your stock's trading habits can be very helpful. HOT STOCKS - Stocks that are hot move great, but nothing lasts for ever. If you buy a stock for a big, quick gain and find that the stock has "lost its heat", don't allow your money to be dead (unless you are looking for an investment). Sell and move on, don't justify your mistakes - it tends to be a costly justification process in the long run. JUSTIFICATION IS COSTLY - Don't hold a losing stock to justify your original purchase. If you make an incorrect buy or end up with a stock that is falling when you thought it would climb, handle those mistakes quickly - do not be tolerant of stocks that are costing you time and money - get rid of them! SUDDEN MOVES UP - Be very careful buying stocks that have just made sudden moves up. Many times they are following very closely with sudden profit taking. TIME TO BUY - One of the best times to buy is when a stock is going down on low volume (with no news) as compared to recent increases on higher volume. This suggests that the selling is lighter and that the holders of the stock that are going to sell have finished selling and the rest are holding. The sellers of the stocks then may come back into the market when they see the price stabilize. It's also not a bad idea to sell on high volume on the way up, as this usually creates abnormally high prices that cannot be maintained very long. SIDELINES - Remember, you can't take advantage of market dips if you are already in the market. It's better to be out of the market more for day trading than in the market. This will allow you to get in and out with profits fast and be on the sidelines should dips occur. Try to be out of the market more with your trades and in the market more with you investments (as long as they are good ones).

To: Jon K. who wrote (10671)	3/6/1999 1:57:00 PM
From: Ron McKinnon	Respond to of 56535

#3 Trading truisms are lies. If it were possible to implement, "Buy low, sell high" or, "Cut your losses and let your profits run" in any meaningful way, then more people would be making money. Greed will make you poor. If you experience an overwhelming emotional urge to take a trade because you are sure to make a killing this time, then you are experiencing greed. Impatience will make you poor. If you experience an overwhelming emotional urge to take a trade because you are sure that you are missing out on the perfect trading opportunity, then you are experiencing impatience. Patience! The opportunity that you perceive in the markets today will be there tomorrow as well. Were this not the case, then there would be little point in pursuing profit in the marketplace for any length of time. There may well be a grand, cosmic harmony behind market motion, but all the technical market analysts put together are not grand enough or cosmic enough to understand it, much less trade it profitably. A small sequence of consecutive winning trades is often all it takes to delude yourself into thinking that you have found a system that is guaranteed to make you rich. Asking somebody, "Where do you think this market will go?" is a sign that you should be on the sidelines in that market. If upcoming market motion is not totally obvious to you, why are you risking money? You'll be wrong often enough when you're certain... There is no one "Ultimate Trade". If there were, then after experiencing it you would be... done... regardless of the outcome of the trade. Never sneer at a losing trader. You are never safe enough from losses of your own to justify that kind of behavior. Learn to trade before you trade. If you lose without understanding why, then how can you avoid future losses? If you win by accident, then how will you create a consistent winning strategy? ----------------- For new traders, first and foremost, have some system or method to define entry and exit. Eliminate judgment when you start out by having clear-cut rules and exact prices. Don't jump from idea to idea and trade impulsively. In gambling, changing methods is known as "the switches". Your method starts losing, so you switch to another, which immediately starts losing. By switching, you open the door to getting the worst results from each method and none of the good, and the overall result can be much worse than even the worst system followed faithfully. If you think you may be a good intuitive trader, one of the rare individuals who has a natural "feel" for when to act, and if you find it hard to quantify and write rules: test yourself in real-time until you're sure it's real. You've got to know that the next 100 trades will have X% losers. They are inevitable. They're just part of the picture, not a cause for despair. Before entering each trade, visualize it losing, and visualize it winning, because either may happen. Don't root for it like an underdog, just observe it and act accordingly. NOTHING ever makes THIS trade more certain than any other. ----------------------------------------------------------------- Patience "Our patience will achieve more than our force." Edmund Burke, Reflections on the Revolution in France (1790) p. 205 Patience is a very powerful attribute. It manifests control by those who practice it. Philippians 4:6 mentions, "Do not be anxious over anything..." Patience is also a virtue to have when engaged in trading. Time and time again the markets seem to reward those who are patient. Patient traders seem to display a certain air of confidence and control, acting only when the time is right. Ask yourself, "Am I a patient trader?" To help you with this self-examination, see if any of these following actions describes your trading at times: 1) The market moved to where I expected it to go, but I did not get in on time. Now the price has moved substantially in my direction. I've got to get in or I'll miss a big opportunity. I'll just enter right away at the market. 2) I know the trend is down, but I believe it is finally the bottom. I'm going to enter to go long at this point. 3) Well, the market trend is down and we have been rallying up. I believe the rally top is in although it hasn't really hit any resistance price that I know of nor do all my signals/tools say it is time, but I don't want to miss this shorting opportunity. If I don't act now, I may never get in. 4) I know that this market is going to top soon and then plummet down for a long time. I will be ready to short it. But until then, I want to be in this market. Therefore, I'll go long this market now until the top is in. Sound familiar? Each of these examples displays some lack of control, or patience. The outcome can be very costly. Consider... The first scenario shows one who has the mentality that this is the only opportunity that will ever come his/her way. Missed the earliest entry point and is now willing to chase the market and enter where the risk is much higher. Many times, these ones find they are entering right when a retracement is to occur, getting themselves stopped out with a loss and again chasing the market or becoming unable to execute the trade when the time is right. PATIENT Trader: The patient trader realizing that he/she has missed the entry point will patiently wait for what happens more times than not, the market later retraces back not exceeding the previous extreme (top or bottom) thus allowing a much lower risk entry into the market. The second scenario is shows one who is ichy to enter the market. Going against his/her own rules ( in this case, trading with the trend) and going by gut feeling, the rule is thrown out. Now, intuition is a good thing, but it should be coupled with discipline and patience. What usually happens here is that the market continues in the direction it was going and the trader than is left guessing the next bottom, and the next. Losses pile up with the trader later unable to execute a proper entry when confirmation finally arrives. PATIENT Trader: The patient trader realizing that the trend is down and that a bottom may be due soon will wait for the bottom to occur, possibly some accumulation, then the breakout to the upside before going long. He/she may even wait a little longer after the breakout for prices to retrace back to the point of the breakout which makes a very good low risk entry location. The third scenario is where the trader is anxious to enter in the direction of the trend, but does not wait for any confirmation that the rally has run its course. He/she feels that the wait may result in a missed opportunity, and enters at what is believed to be the end of the move. Many times, the market is correct in its behavior by continuing to rally until resistance is found, stopping out the impatient trader. Losses occur and soon this trader again starts to second guess whether the rally is really going to end soon, which it does and goes without him/her. PATIENCE: The patient trader has self-control and waits for his indicators to tell him when to enter. Even if the market 'appears' to have ended its rally, if it does not meet certain criteria the trader had previously set for himself, he will wait. Most times, the move does confirm with the traders indicators and a low risk entry is performed. The fourth and last scenario is when the trader knows the market is going to make a big move down, but gets anxious and does not want to be on the sidelines waiting. Instead, he enters in the opposite direction that he soon expects the market to go, only to find the market starts down sooner than expected and he ends up with a loss. Still thinking long, he likely re-enters long again on each down move bottom and fails to see he is trading against the move he was originally waiting for. PATIENCE: The patient trader exercises restraint and waits to enter in the anticipated direction of the market once confirmed by his indicators. Not feeling the need to just be 'in' this market, he may stand aside or trade elsewhere until the time is right. This trader then does not get 'caught up' in constant entering of the market against his original analysis not being able to see that it has indeed started already. Patience is power. We all have the ability to harness and use this power. Make it a point to exercise control over your emotions and stick with a plan. Follow the plan to help you develop this patience. If you write down what is necessary to happen before you enter a particular market, and stick to it, this may help you to have control. Do not be anxious when it comes to trading. Opportunities abound, and have done so over and over again, year after year. You will find them, ride them, if you have the patience to wait for them. Whenever you lose a trade, ask yourself if it was due to a lack of patience. You'd be surprised at the answer you will come up with if you are honest with yourself.

To: Jon K. who wrote (10671)	3/6/1999 1:58:00 PM
From: Ron McKinnon	Respond to of 56535

#5 last and enough (or maybe too much) RISK MANAGEMENT - MONEY MANAGEMENT If you don't bet, you can't win. If you lose all of your chips you can't bet again. The three most important things for good trading are; Risk Control, risk control, and risk control. Never risk more than 5% of your money on any one idea. The most important. WHEN TO BUY Stick to your game plan for a particular trade and avoid impulsive trading decisions. The best trades are the ones that have everything going for them; fundamentals, technicals, and market tone (direction)). DON'T OVERTRADE Don't make too many trades. Frequent trading is more entertainment than profitable. Don't take on positions that are too big. Take on the "right sized position", don't get greedy. WHEN TO SELL Cut losses, ride winners. Let your profits run; cut your losses short and fast The Three Elements of Good Trading: Cut losses, cut losses, and cut losses. If unsure, sell. If in doubt, sell. If confused, sell. If something feels wrong right after you buy, don't be embarrassed to change your mind and get right out. It's ok to make frequent small mistakes. STOPS, PRICE TARGETS Good traders anticipate the sale before they make the buy. Always use stops; would you drive a car without breaks? Always use stops. Protects your capital and commits you to take the right action, without emotion. Have a predetermined stop price before you enter a position. Set your stop as soon as the trade is entered. For short term trades, place your stops close. For long term trades place your stops further away. .Place your stops close on a big trade. Place the stop further away for a small trade. Always pick a point at which you want to get out, before you get in Know where you will get out before you get in. Think through a trade before you make it, have a target objective, and determine a stop price. Use both a price stop and a time stop. If you thought that a move would take place in a certain time frame, and it does not, sell. WHEN TO AVERAGE DOWN Never Never WHEN TO BUY A STOCK THAT IS FALLING Never Never ON TRYING TO PICK BOTTOMS OR TOPS. Don't try. No one can do it consistently. TECHNICAL ANALYSIS Can often clarify the fundamental picture. Technical analysis can often clarify the fundamental picture. T/A is like a thermometer, use it; you want to know everything you can to have an edge on the market. T/A reflects the vote of the entire marketplace" FUNDAMENTAL ANALYSIS Fundamental analysis tells us what to buy. Technical analysis tells us when to buy and at what price. F/A tells us if there will be anything left to sell" WHAT TO DO IF YOU ARE TRADING POORLY; on a losing streak? Decrease your trades. Reduce your positions until you are back on track again. Cut back. Cut back or stop for a while to get mental clarity. THE MARKET IS ALWAYS RIGHT Believe the market, it is bigger than you. Take a market view, try to know why the market "should" move in a certain way. If it goes in a different direction, try to understand why. If you can't figure it out, stop trading. NEWS If a stock does not respond to news "the way it should", be careful. There is an important message being sent. 4f the news is wonderful and the stock does not go up, sell or go short. EMOTIONS Stay rational and disciplined, especially under pressure.

To: Jon K. who wrote (10671)	3/6/1999 2:01:00 PM
From: Ron McKinnon	Read Replies (4) \| Respond to of 56535

#6 the real last one this guy wrote this back in 1968 still true today most things never change Lange's Trading Guideposts 1. Buy only stocks that either the investor or the research department know thoroughly and where up-to-date information and opinions are readily accessible. 2. Do not take extreme positions. 3. Buy stocks only when the technical pattern confirms fundamental judgment. 4. Sell quickly if the stock does not act as anticipated. 5. Do not be afraid to buy back quickly if the stock continues to act exceptionally strong, even if it is higher. 6. Do not ever become overly enthusiastic despite what current trends appear to be (lose objectivity). 7. Do not ever become overly pessimistic despite what current trends appear to be (lose objectivity). 8. Do not overtrade. 9. Act according to your convictions; learn to trust your doubts as well as your expectations. 10. Seek to buy strong stocks on weakness. 11. Seek to sell strong stocks on strength. 12. Anticipate at least 10% to 15% after commissions. 13. Trade evenly; doubling up on a new position to offset a prior loss may create additional problems. 14. Be patient. 15. Try to trade with the market trend and not against it. 16. Do not attempt to squeeze out the last point(s) on either the buy or the sell side. 17. Tentatively know where the market can run into supply or possibly meet support. 18. Tentatively know where the stock can run into supply or attract support. 19. Let profits run; limit losses to a predetermined price and/or percentage. 20. Determine what industries and issues are the current market leaders -- often invaluable since a basic understanding of general market conditions can be quite beneficial in anticipating market trends and reversals. 21. Remember the market may do the unexpected. 22. In an up market, the trend probably will at least continue into early the following day before any reversal. 23. In a down market, the trend probably will at least continue into early the following day before any reversal. 24. Commissions are a small price to pay for preservation of capital. 25. Do not overstay trading positions -- greed is a trader's constant and greatest enemy. 26. Do not trade on tips. 27. Do not short stocks that are heavily shorted unless perhaps the downtrend is well defined and preferably in a down market. 28. Hedge strong stocks by selling a portion on strength and buying back on weakness, particularly in an up market. 29. Do not fight the tape. 30. Do not let interpretations of market movements by the writers of leading financial publications distort your thinking. 31. For the minority to make money on the shorter term, the majority has to be wrong. 32. Do not become excessively keyed to the fluctuations in the popular averages; concentrate on the trends of individual issues. 33. Lighten commitments in a down market or in a market that appears "toppy" after an extended or rapid advance; it is important to preserve capital during uncertain periods. 34. Learn by mistakes. 35. Do not look back (in a wishful manner) -- can easily distort current and future judgments. 36. Study your own weaknesses. Fred W. Lange -- November 1968