Price Movement Resolved Into Oscillations
Submitted: 28 Oct 10 14:24
Last Updated: 28 Oct 10 14:27
 

Price Oscillation

The chart shows the E-mini Russell 2000 that I trade everyday. In this chart, the 2 red arrows denote the 2 down oscillations of price. The price bars have been colour coded with the Ergodic Indicator to indicate the start and end of each oscillation. Similarly, the 3 green arrows denote the 3 Upward Oscillations of price. Each Up move starts with the onset of blue bars, and red bars will be the retracement period. The key here is to know WHEN the oscillation is beginning and with the help of a longer trend chart, one may take trades based on these smaller oscillations.

Another thing to note here is knowing when the direction of price is highly likely to reverse. In this example, the price break at 600.7 disrupted the down move and the up move is confirmed ONLY by the first green arrow.

Many traders trade based on what is show only by their indicators. The problem here is that indicators are always lagging. Unless you are trading on a longer time horizon, and the momentum allows a more sustained move, trading just by looking at indicator will very often make the trader enter the market too late. What I did here, was to look at price FIRST and letting the indicator marks the start and end of each move. As long as the support and resistant levels are intact, the price will tend to oscillates in the same direction and you may take trades accordingly in conjunction with a larger trend chart.

 

 

 
Trader = Gambler?
Submitted: 19 Oct 10 14:27
 

Most people who are uninitiated into the world of trading often think that trading is the same as gambling. If you look at how many people had lost money in the markets, and picking up stocks or taking trades without any substantiating reasons, it is natural you may think that trading is no more than trying to guess what’s the number on the next die throw.

If a trader takes a trade by pure guesswork, then how do you explain the fact that some traders are able to make money from trading consistently for years? This handful of traders cannot possibly rely on luck.

What these winning traders possess is a set of rules that help them determine WHEN they should take a trade. The set of rules allows the trader to take a trade that has a higher chance of winning. The key idea here is about probability. The trade may still turn bad, but if say the trade has a 70% of success based on research and testing, then typically there will be 7 winners out of every 10 trades. If you look at gambling, the Casino, in this case, has the odds calculated such that the house will have an edge of 4-5% over the player. As long as the players keep playing, the Casino will win in the long run.

If the trader has the discipline to carry out his vigorously tested trading plans religiously, he will be playing AS the house, and the numbers will takes care of itself in the long run.

 

 

 
Where Do You Place Your Stop Loss?
Submitted: 06 Oct 10 17:11
Last Updated: 06 Oct 10 17:12
 

For most traders, the stop loss is the safety net of your trading account. We all know that very often once we are in a losing trade, we are powerless to take the loss there and then and get ourselves out. By placing the stop loss, it prevents our emotions from taking.

There are many ways to determine where you should place your stop loss level. Some goes by a fixed percentage movement of the market price, while some place it at an offset level from their entry price.

For me, I use the market structure to determine where the stop should be. In a series of up moves when the market rallies, I look at the prior support levels as key price points. If I am to enter a trade (say at 510.0 for Emini Russell), I will place my stop loss at a price JUST below the last support (say 507.8 is the support, the stop loss will be at 507.7) as I believe that if the price is to continue its upmove, the probability of price breaking the last support is very low. And IF price is to break the last support, the chances of it going my way is very much diminished and that reason is enough to tell me to take the loss.

Taking a loss is never easy. But I am a firm believer of capital preservation as being the key to long term trading success. By accepting the last loss quickly, it frees you up to take advantage of the next opportunity.

 

 

 
Why is Day Trading Emini Stock Index Futures good for beginners?
Submitted: 29 Sep 10 14:49
 

Trading Emini Futures is a cost effective way to start your adventure in the world of trading.. The US Based Emini futures tracks the price of their full size. Take the very popular Emini S&P (Standard and Poors) futures. Per tick move of the price of the full size S&P Futures  is 5 times more of that of the E-mini version. By trading the Emini version, your outlay and capital risk is thus greatly reduced.  The US market is also extremely liquid which means you will have no problem getting out of the market when you want to.  That means you will not get stuck with a position as there is a shortage of buyer or seller.

Another advantage is the very low commission and account opening requirement (As low as USD 3000) that is charged by a typical US-based broker. A roundabout trade may cost you only US4.50 per contract and it is the low commission that enables you to go in and out of the market quickly and frequently.

On top of that, most brokerages also provide free market data and charting software and they often have order management platforms that are very easy to use.

All you need now is a sound trading system, and you may begin your quest for trading success.

 

 

 
Lost and Happy. Won but Not.
Submitted: 23 Sep 10 17:02
 

Successful trading is not just about wining big. Successful trading is MORE about having the ability to win consistently than anything else. The successful trader wants to know that he CAN repeat that action and thought process that brought about that winning trade.

Trader A

Trader A is frustrated with his system. He just lost 5 trades in a row. Not an especially bad streak but he is feeling helpless and his self talk is casting doubts on his system that has brought him considerable success over  the past few months. After being stopped out again, he is eagerly looking for a way to recoup his losses. Any way at all. As he stares at the ticking charts, he has this feeling that the market is turning. No clear signal, it is just a gut feel. He rationalizes it with some excuses for this trade and sends the order. Order filled, market turned. It just happened at that instance earnings reports were announced and that pushed the market his way. He recoups all his losses plus some profit to keep.

Trader B

Trader B just had 2 losing trades yesterday.

“Today is a new day and it will all be good!” He assured himself.

9:30.

Market opens, and after an hour, he took another hit. He is now having doubts about his system and stares intently at the charts, chasing every tick of the price movement. He has the urge to take a gamble and take a trade based on gut feel. Just before he clicks, he stops himself and he is relieved he did not commit the sin of taking random untested trades.

Few minutes passed and a trading signal appeared. Without hesitation, he clicks and sends the order to go long. Next thing he knows, his laptop beeped and he was stopped out again.

Aftermath

Trader A won but he wasn’t happy. He knew he cannot duplicate this winning and it was all due to luck. On top of that, he broke his rules and allowed his emotions to rule his trading.

Trader B lost but he was pleased that he traded well. He knows that the key to be a successful trader is to be able to face his fear and take the right actions. He did what he was supposed to and he stopped himself from making a key mistake. He knows the system had been tested vigorously and it had worked very well for the past one year. He knows that the law of numbers will kick in and he will get his winning trades very soon. He knows he has probability on his side.

A successful trader is not bothered by a temporary dip in his account. He is not affected by a couple of losses. The good trader’s main objective is to do what is right when a trade comes and let his system works for him. His comfort comes from the trust he built as he saw with his own eyes how the system had served him. He knows he can repeat his winners and not leave anything to luck.

 

 

 
Is Paper Trading Important?
Submitted: 13 Sep 10 15:40
 

Paper trading (or simulated trading) is vital for a trader to practice and test out in real time a strategy without the risk of losing money. It is also useful if a trader finds that he is losing his discipline and confidence, he can paper trade for a short period to regain confidence in his trading system and his ability to put on winning trades.

However, there are some traders who are always hiding behind the safe realm of paper trading and reluctant to start Live trading despite being extremely profitable on paper. The common excuse is often :I am not ready yet, so let me make sure I can make money from this.

He will never be ready.

The trader who thinks like this is immersing himself in self deception and wasting precious time and potential money. Trading is a very personal endeavor and being honest is crucial. In the case of the above trader, his problem is not about being ready but more of the lack of courage and the fear of being proven wrong in case he starts to lose real money.  Besides, as the paper-trader is trading with no stress of losing real money, he will tend to perform well. Thus, it is important that once the system has been proven on paper, we understand that the real ‘training’ starts from your very first Live trade.

 

 

 
The Importance of Price Reading
Submitted: 30 Aug 10 15:24
 

It is amazing how traders make their trading decisions based on news that is published on either news or journals. The fact is that news is never new. It is also peculiar that a trader should make his trade based on the assessment or projections of market analysts, only to find that with every analyst that says market is going up, you can always find another that says the opposite. The problem is that actually none of them will be wrong, as very often, they will not put a time horizon for their projections, and thus at some point in time, they will always be right.

To look at the ebb and flow of the market, there is no better way than to see a simple price chart. You do not even need an indicator. Every market participants’ decision is reflected on the chart and it makes no sense that a trader should look everywhere, study every indicator, and not put what the chart is actually doing as the topmost priority in his decision making process. Every resistance, every support level tells a story.

Trading can be simple. A price that is oscillating upwards continuously means you should stay on the long side until subsequent peaks starts to taper off, and the converse is true. If price is going side way in a congested channel simply means no majority of the traders are agreeing on the price and you should wait until price breaks out of the range. By using simple price patterns, and investing enough screen time to identify various patterns that is able to repeat itself with some level of consistency, it is more than adequate to equip yourself with the tools to trade successfully.

 

 

 
Is It Possible To Trade For A Living?
Submitted: 18 Aug 10 14:24
Last Updated: 18 Aug 10 14:25
 

Trading for a living is a very attractive proposal to many. You can live wherever you want, and practically be the master of your life. It is no wonder many people will take the challenge and attempt to embark on this endeavour. It is true to a certain extent that many who has tried has gotten nowhere after sometime, but it is also a great news to know that there are people out there who are able to trade successfully and profit consistently from the market.

The key points you need to consider to even beginning to try to trade for a living is:

 1.       Have a trading system that is vigorously tested to ensure you possess the edge in your trading decisions.

2.       Be informed of the psychological demands that is required to trading successfully.

3.       If possible, have someone who is already trading full time to give the necessary guidance and mentorship.

Once these are in place, it is through constant practice and fine tuning to your mindset and method that will see you through to a successful trading journey.

 

 

 
The Importance Of Keeping A Tradelog
Submitted: 12 Aug 10 15:11
Last Updated: 12 Aug 10 15:12
 

Trading is a performance sport and in any activity where we desire to excel in, it is important that we keep track of our performance. Hundreds of trades over many years contributes to the health of your trading account and it is of utmost importance when there is a need to review your performance, you have something to fall back on. And I do not mean from memory. A trade log offers you access to the period when you are trading well and when you are not. You will be then able to pick out the reasons behind those periods and make adjustments accordingly to further improve your trading.

Another good reason for having a trade log is that it will police your trading and ensure you stay disciplined. If you resolved to write down every single trade that you took, you will know consciously the time when you break any trading rules. This effort to ensure that you do not ‘cheat’ (since you HAVE to write something whenever you take any trade) will help you to stay calm, focused and prevent you from swaying from your rules. We know that for many traders, it is often a few occasional deviation from their rules that caused huge damage to their accounts. Thus, if you can even catch yourself FIRST before you commit those trading sins, you will be doing yourself a huge favour and be even more profitable in the long run.

 

 

 
The Advantage Of Leverage In Trading
Submitted: 02 Aug 10 16:06
Last Updated: 02 Aug 10 16:07
 

Investopedia explains ‘Leverage’ as : The use of various financial instruments or borrowed capital, such as margin, to increase the potential return of an investment.

Unlike Stock trading where the trader often needs to fork out in cash the full value of stock price, a leveraged instrument like Futures, only requires the trader to use a margin to control the full contract value. This allows the trader to have a small income outlay, but to be entitled to the full profit/loss of the actual transaction of the full value of the counter.

For example, a contract of E-mini Russell 2000 (ER2) Index represents 100 times the index price. If the index is trading at 500, the actual value of 1 contract of ER2 will be USD 50,000. In this case, the leverage is of the order of 100. Depending on the broker, you may need only a margin of USD500 to trade 1 contract. Thus if the index moves from 500.0 to 501.0, you will actually make USD100 (1 x 100). In the above example, a 0.2% move in the index has brought the trader an effective yield of 20%.

The power of leverage is a double edged sword. If the trader does not has a good exit strategy in case the price should move against him, the losses can be substantial. It is thus crucial that when one is considering trading a leveraged instrument, a sound trading system and loss management strategies has to first be in place.

 

 

 
Observe Your Self Talk
Submitted: 30 Jul 10 16:19
 

A self directed trader does not has the luxury of a risk manager to determine his daily maximum losses, positions or risks. The trader’s account is entirely at the mercy of his actions on a daily basis. When one is faced with a string of losses, it is common that negative self talk starts to manifests into actions that greatly jeopardizes his account. He may starts to doubt his trading system which has served him well for months, he may start blaming factors that he has never used to take into his usual trading considerations or he may start to think that trading for a living is just a fairy tale, and stop short when he was just about to find success. Even when a trader is having a string of great trades, he may also talk himself from taking valid trades as he starts to get conservative in order to protect his winning streaks. Trading a system requires an unwavering determination to squeeze the trigger when the moment comes, to follow all the rules that has brought you success and also to obey all the parameters that determines your risks/loss exposure. Trading success comes with self mastery and a great way to begin is to be attentive to what you say to yourself.

 

 

 
The Need To Acquire An Alternative Income Generating Skill
Submitted: 27 Jul 10 14:12
 

The world is becoming a very uncertain place. Jobs are no longer secured and income is never guaranteed. It has come to our realization that having a single source of income is a very risky proposition, especially when it is getting more difficult to generate substantial savings with the ever increasing price and dropping savings interest rates.

Being able to consistently make money from the Stock/Futures/Options markets is an extremely appealing notion but only a handful is able to do that. Imagine having the absolute freedom to generate income at the comfort of your home with a few clicks on the mouse. It is precisely what profitable trading can delivers that has lured many into this business. Trading is simple but not exactly easy. Having a sound and tested trading system, and often with the guidance of a trading mentor, is often the key to successful trading.

 

 

 
Trade Signals On 02-07-2010
Submitted: 25 Jul 10 14:38
 

 

Chart Signals

CLICK HERE TO VIEW A LARGER IMAGE.

 

 

 
Treating Trading as a Business
Submitted: 25 Jul 10 14:27
 

If you are a businessman, will you consider all the risks and do proper research before committing to a deal? The answer is probably yes. But do you also treat your trading as a business and exercise the same diligence? The obvious tell-tale signs are : 1) You do not commit to learning proper trading methods. 2) You buy and sell on your whim and fancies or on some latest hot tips. 3) You do not have an exit strategy 4) You do not commit any proper preparation time to your trading. If your answer is yes to most of the above, then you are treating your trading like a hobby or even gambling.

I am amazed at the number of people who call themselves traders or investors but do not commit the time or effort to learn proper trading methods. What is more shocking is they are risking their hard earned money that is meant to be for their retirement nest. If you treat your trading like a business, you will want to give yourself an edge and be well equipped with the proper knowledge. You will study your risk exposure and take the necessary steps to protect yourself if things go against you. Do yourself a favour this year and commit to learning proper trading strategies that are tried and tested. With a sound trading strategy and proper mindset, your trading will no longer be like a hobby or gambling but a viable business that gives you continual positive financial returns.

 

 

 
Exploiting a Mechanical Trading System
Submitted: 25 Jul 10 14:26
 

For a trader that base his trading decisions on a mechanical trading system, he is exploiting the repeat occurrence of a market scenario where that scenario can be quantified mathematically.

That could be established by a combination of indicators, highs and lows or chart patterns.

The benefit of using a pure mechanical approach is the absence of subjectivity and thus lowers the possibility of judgment errors.

 

 

 
Take Only What the Market Gives
Submitted: 24 Jul 10 17:06
 

Every single trade has a probability of success that is typically unique to its setup. Based on the observation of market behavior over a significant period, each trading signal has an optimal rate of success based on a pre-determined profit target. It is thus senseless to push this envelope without any basis.  One of the most common mistake made is when a trader lost a couple of trades using the system, another signal comes along  and he wants that final  trade to cover all the losers by increasing the target on demand. By doing that, the trader has upset all the research done as that decision is not sound in terms of probability. Rather than covering part of the loss, he could be adding to the total loss of the day. As the saying goes, you take what the market gives, and not ask for what you want from the market.

 

 

 

 
Start from the Beginning
Submitted: 24 Jul 10 16:58
 

Is trading risky?

All ventures have an element of risk. Trading is no exception. However you can minimize your risks by : 1) Commit to learn proper trading methods. 2) Don’t buy and sell on whim and fancies or on some latest hot tips. 3) Have an exit strategy in place 4) Devote proper preparation time to your trading.

Can I just learn trading from books and the internet?

If given the choice, will you prefer to learn how to drive a car from the books or internet or a proper driving instructor? Which do you think will give you better results? Sure you can save money from hiring a qualified instructor but it is unlikely that you will be able to drive your car on the road in real life conditions without causing a serious accident. So unless you have deep pockets for your trading and is willing to go through the school of hard knocks. As the saying goes, don’t be penny-wise pound foolish.

What do I need to get started?

It is easy to get started. All you need is a computer, internet connection and an online broker to start trading.