Back to the Basics

I want to thank everyone who took the time to post their thoughts about me, both good and bad (I especially appreciate the good :D )

But a lot of this thread has gotten taken up with my personality and I don't want that to happen as it really does distract from the learning process that can happen here. Anyone who has basic to intermediate level things to share that would help a new trader, I would love to have you posted. Questions and debate about posts are certainly helpful to the overall process. Again, thanks to everyone who has posted so far, hopefully we can have many more and make this thread a great resource on ET.

Brandon
 
Brandon,

I'm doubtless one of the beginning traders you are talking about -- starting to trade while reading and learning and keeping my (small-time) consulting business going. I'm finding this thread to be beneficial in terms of reaffirming what I've been reading in other places.

Please keep it up! It is appreciated!

Regards
 
Brandon,

It seems that many neophyte traders that have come your way recently inspired thread.

I applaud you for covering important and timely topics for these traders to be or not to be.

It reminds of a story that my cousin told me about his first day of architecture school. A famous professor addressed the entire first year class the very first day of school. He asked: "How many of you expect to be a famous architect?" Nearly all the students raised their hands. He looked around and answered, "Probably all of you will labor in obscurity" Several students stood up and left. He next asked, "How many of you expect to become rich through architecture?" Again, most raised their hands. The professor answered, "An architects can expect earn the least amount of money of all graduate school professionals, but will probably make slightly more than a poet." Again, many students stood up and left. He kept asking questions about thier unrealistic expectations and by the time he was done, 1/3 of the entering class had departed.

Maybe newbie traders ought to ask themselves what they expect and perhaps they should be told what they can realistically expect.
 
Quote from lindq:



Brandon, I think this is good, solid information for new traders. However, I feel that you have left out an important subject that is always at the top of the list for new traders, and that is time-frame.

From my own experience in the past, and from talking with others who have survived and prospered, my personal opinion is that it is a huge mistake for new traders to put so much emphasis on "day trading", where the odds are so strongly against success. I was interested to note this weekend in reading Elder's "Come into my trading room" that he also shares the opinion. Even studies done of trading rooms at the end of the last bull run showed clearly that those who took a longer term approach...position or swing trader...fared far better than the average daytrader or scalper. While I have no doubt that there are daytraders who are making good returns, it makes little sense to me for a new trader to jump into an environment where the learning and frustration curve is so much harder to overcome.

So again, I think this is a subject that needs to be addressed for any new traders.
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this is a double edged sword....the analogy is like learning how to drive on a suburban street vs. learning to drive on a busy highway. you will undoubtably fare better at first by doing the former, but the latter will hone your skills more than you would ever get from driving on a slow street.

new traders who don't have the discipline to keep a low profile until they get through the initial learning curve of daytrading, well, they're gonna get burned. i did swing trading for quite a while and learned far more daytrading than i did swing trading. you just see more stuff, and if you can consume it all, you WILL be a better trader.
 
dgabriel > traders ought to ask themselves what they expect.<
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I expected to be able to go anywhere I wanted, with whoever I wanted, whenever I felt like it and still earn a steadily increasing income.
 
A downtrend occurs when a stock makes a series of lower lows and lower highs. It will consist of sell-offs interrupted by short term rallies. The rallies will occur over the span of up to several days. Then a sell-off will again occur and the cycle repeats itself until a fundamental event changes the trend. (note that days can be also means minutes, weeks, months etc)
 
An uptrend occurs when a stock is making a series of higher highs and higher lows. It will consist of rallies interrupted by short term sell-offs, generally profit taking, which should stop the down move at or near the area of the last low. In the strongest of uptrends however, this sell-off will stop at the area of the last minor high, that being visible as the last peak on the chart.

Brandon
 
Why did you delete the post you just made calling me a dumbass, Brandon? Come on, I'm tough! I can take it.

BTW,

The sky is blue...
The grass is green...
My URL just got posted again...
 
A trading Range occurs when a stock is trading between established points. This type of trading indicates either accumulation or distribution of a stock. A lot of traders manage to really hurt themselves in ranges by getting extremely bullish near the top of a range (only to see it come back down to the bottom of the range again) and very bearish near the bottom of the range (only to see it rally back up to the top of the range). If you wish to trade range bound stocks or markets (and most of time the markets are in a range) the best way to do it is to buy near low and sell high. I tend to try to avoid range bound markets myself and just wait for the breakout. Even if you miss the initial move there should be a pullback of some sort and that should be tradeable.

Brandon
 
Unfortunately not all gaps are favorable. When a gap occurs that is not favorable you need a plan in place that will help you to deal with this situation. One of the dangers of holding overnight is the gap that blows your stop on the very first trade and there is nothing you can do about this, they will happen a few times if you hold things overnight. Your first reaction is probably to say "oh my"...or something to that effect anyways.."my stop is blown, I must get out right now". In most cases that is the worst thing you can do. Why? Are we not supposed to keep our stops? Yes you are. But this is a special case, calling for special rules. Our first rule of trading is to always follow the rules. Our last rule is know when to break them. This is a case where we bend them.

Here is our case scenario and action.

We are long XYZ from $45.15, our stop is at $44.25 and the close was $45.40. All looks nice at the close so we take the position overnight. For whatever reason the next morning the stock gaps down to $43.90 on the first trade on the next morning, which exceeds our stop. Here is what we do:

1st: Don't panic. The world is not over yet.

2nd: Sit on your hands and do nothing for the first 5 or 15 minutes of open trading. Mark the low. This may be the hardest thing you have ever done, but it is a must. Most gaps fail so remember that you have that on your side.

3rd: If the 5 minute low is violated get out of 1/2 of your open position. Sit on your hands again.

4th: Mark the 45 minute high and low in your stock. Both are important. If this 45 minute low is violated you must get out of the rest of the position. Now remember we are watching the 45 minute high here as well. We use the 45 minutes xone becuase this is a major reversal period intraday. This is the only time in our trading that we truly break a rule. Rule #2 says never ever average down. In this case, however, if the 45 minute high is broken we will take a small position and trade it as any other trade, also treating the remaining open shares as we would any open trade. The stop is moved to below the days low but we will be very very quick to take profits on the small averaged down lot.

Now let me say that the last part of rule #4, and maybe the entire way we handle gaps may seem blatantly against all the rules of successful trading that we have ever learned. On the surface that is true. Look deeper though and you will see the logic. Remember, almost all gaps fail. This does not mean you shouldn't keep your stops, it just means you must use a new one.
 
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