Secret Trading Tips - page 3
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Trade with a Plan – Setting Your Limits
I think trading with a specific plan is one of the most sensible things a trader can do. It helps you learn and identify key areas to watch for in a market. More importantly, it helps you avoid sabotaging yourself because it helps keep your emotions in check. One of the key components of a trading plan is knowing your exits. One way to close an open trading position is with a limit order.
Limit orders target a specific price level – they won't be filled unless the market trades there
Limit orders are pretty straightforward once you get the hang of them. They are contingency orders. The market has to trade at a specified price level before it is even possible for the order to get filled. Even then, there is no guarantee that it will get filled.
Limit orders say that the trade can be executed at a specific price level or better, but not worse
Buy limit orders are used for an exit strategy on open short positions. Use these if you sold a contract to enter the market. Sell limit orders are used in a plan to exit open long positions. They are employed if you bought a contract to initiate a trade.
Basic limit orders specify the market and the price level and the action to take.
For example:
Buy one December e-mini S&P futures contract at 1350.00 or better.
To be an effective limit order, the market would have to be trading above that price point at the time the order is placed. Why? Because if you were to put in an order like that and the market was already trading lower, it would already be a better price to buy at. That means the order would probably just be executed at the market.
The same kind of logic has to be played out when you are picking a price for a sell limit order.
For example:
Sell one December e-mini S&P futures contract at 1355.00 or better.
For this order to work as it is intended, the market must be trading lower than the limit price, otherwise it is already at a "better" price to sell.
Limit orders are likely the "happy" exit plan for a trade. They represent better prices than the market will be trading at the time you place them. That means if you enter a market and then place an exit order at a "better" price, you are probably aiming to exit at a profit.
Past performance is not necessarily indicative of future results.
Chart courtesy of Gecko Software.
Once the limit order has been placed (buy limit to close an open short position, sell limit for an open long position), it is just a matter of waiting to see where the market goes. This part of a plan can help traders avoid those mental traps where they ride trades just a little too long, hoping to scoop up extra. Limit orders can prevent you from getting greedy. If you have other working orders at the same time, don't forget to cancel them if the other orders are filled.
Traders can use limit orders as part of a complete trading plan that covers the potential for the good and the bad
Limit orders only come into play when the market trades at or through your limit price. Otherwise, they remain in waiting. If the market trades through the price, you can only be filled at your limit price or better. It's that simple. These contingency orders can also be used to enter a market position, but I often recommend they work as part of an exit plan for trade design.
Best Trades to you,
Larry Levin
President & Founder- Trading AdvantageI wouldn't talk much regarding what you posted. I just kinda relate to setting up your limits thing. I know how much important it is, as it will help me to control or lessen my risks.
Generally speaking, all traders should learn to give themselves limitations when it comes to their trading habits. They must know when and how to stop
Secret Trading Tip #5
Knowing your way around a chart
For most traders, charts are like their road maps to potential trades. Technicians see potential patterns, key clues that they interpret for trading opportunities. Fundamentalists see confirmation of news stories or supply and demand dynamics playing out in the price fluctuations. Charts are indispensible to traders
Understanding what a chart is telling you is paramount for traders
We are going to look at the two most common chart types, and the basics of their construction. The main thing to understand when you are looking at any given chart is that there is key info that shouldn't change. Each chart will be showing you prices on one axis and time periods on another. Most charts will show the prices on the vertical axis and time periods (e.g. daily, hourly, five minute) on the horizontal one, like this: Past performance is not necessarily indicative of future results. Chart courtesy of Gecko Software.
The filler in the middle of the chart is made up of the price bars. Each mark corresponds to a trading period on the bottom and a price range on the right. On this chart, these are the little bars that show the opening price, the high price, the low price, and the closing price.
I tend to favor candlestick charts, which show the same information in a different way.
Past performance is not necessarily indicative of future results. Chart courtesy of Gecko Software.
Each candlestick shows the opening price, closing price, session high price, and low price and the color of each candlestick can tell you at a glance if the market closed higher or lower than the open i.e. if it was a down day or an up day.
Whether a bar chart or candlestick chart, people who analyze charts (also known as technical analysis) are looking for clues to potential market direction. For them each new bar or candle can combine with one or several others to form patterns which they believe might forecast future price movements, or at the very least reveal possible trends.
Technical analysis involves looking for possible clues or patterns in charts
There are many different patterns that traders reading charts might be looking for. Some are simply patterns formed by the bars or candlesticks, others are more complex pattern which use other indicators. Let's take a look at some of the most basic:
Sometimes, a chart that is showing a sideways pattern is said to be a in a channel. Every movement higher meets with overhead resistance where selling comes in. Each move lower brings in buyers which creates support.
Candlestick charts also have special patterns that have been identified and named over a long history, said to stretch back to rice traders in Japan. Many of these patterns have fantastic Japanese names like doji or harami. Others have names which describe what is taking place in the pattern like engulfing patterns where the body of one candlestick overtakes the other. These are explored in more advanced Trading Tips.
Recognizing certain patterns or trends can help when planning trades
Technical analysis is one of the backbones for trading strategies. If you can correctly identify a trend, you might be able to spot a trading opportunity. If you can recognize and understand support and resistance, you might be able to use them when planning exit strategies. One of the key things to remember is that the history of a market's price action is no promise of future trading activity. Just because it went to a certain price level before, doesn't necessarily mean prices will move the same way again. Analysis is fallible. Another word of caution for traders - be careful not to let personal bias overrule chart observations. Sometimes we are guilty of seeing patterns to fit our desired forecasts.
Larry Levin
President & Founder- Trading Advantage
Secret Trading Tip #11
Healthy respect for the markets
Markets are powerful things. When you first start trading, you are likely to hear a lot about the risk that comes with the potential opportunities in trading. Don't just pay it a lip-service. It is important that before you risk one dollar, you understand and respect how the markets work and what your responsibilities are.
Understanding the mechanics of risk and reward will help you plan trades
One key thing to remember about futures trading is that you are leveraged in your positions. What is leverage? Well, you are basically able to control (buy or sell) an exponentially greater value of contract with a fraction of the overall price. You use a smaller deposit (margin) as a performance bond to trade a much larger total value.
Leverage can bring big dreams or big nightmares
If each trade is leveraged, then the risks as well as the potential rewards are multiplied accordingly and that means you are on the hook big time. Consider this scenario:
The S&P 500® Index is the most widely used barometer for large-cap U.S. stocks. Day trading is not done using the cash index itself, but instead using a futures contract that closely follows movements in the Index. This futures contract, dubbed the E-mini® S&P 500, is listed by CME Group, the largest futures and commodities exchange in the world. Each e-mini S&P contract is worth $50 multiplied by the index futures price. That means when the market is trading at 1275.00 that contract is worth 1275 x $50 or $63,750. So, for instance, if a day trader buys a September E-mini at 1275.00 and then sells it later in the day at 1278.00, then this would result in a profit of $150 (calculated as 3 points x $50 per point), minus fees and commissions. The minimum price fluctuation or "tick" is 0.25 points or $12.50.
Initial Futures Margin is the amount of money that is required to open a buy or sell position on a futures contract. Margin essentially acts as a good faith deposit demonstrating your financial ability to tolerate the risk of the trade - as well as cover any potential losses. Initial Futures Margin for the e-mini S&P is set by the CME Group and is currently $5000 per contract. Add another contract, and you have to have twice the amount on deposit. The good news is that margin for day trading is reduced considerably. You should check with your brokerage to inquire about their day trading margin requirements. Also keep in mind that margin rates are sometimes updated or adjusted according to market volatility.
So for every long or short position you have, a mere $5,000 (or in the case of day trading, considerably less) is enabling you to be in charge of over twelve times that value. Isn’t leverage great? Until it isn’t. It also means you can lose unlimited amounts of money, far greater values than you have on deposit. That responsibility is constant – you can lose money even while a position remains open. Every time your account dips below maintenance margin levels, you have to make an immediate deposit to bring it back up. If margin rates change while you have a position open, you are responsible to add funds to meet that level.
Consider the value per point and you will be able to respect the power of the market
If each point in the e-mini S&P 500 contract represents $50, it only takes 10 points for $500 or 100 point move to that $5,000 level. Some days have smaller trading ranges, or a tighter point spread between the high price and low price. Other days might have extremely volatile trading where 30 points can be given or taken away. 30 points is $1,500 per contract that you would have to celebrate if it is in your favor. It is also the amount you would have to deposit if you needed to bring an account up to margin levels. Trading more than one contract? Two will mean $3,000. Five contracts? You get it now – that means a large move in the market will cost you $250 per point. Things add up pretty quickly, and that is why it pays to appreciate and respect what you are getting into with every trade.
Never lose sight of the risks – it helps keep you grounded
It is easy to get carried away with the potentially glamorous parts of trading, but it pays to be aware of the real risks for every minute detail of a trade. I recommend planning every trade with these details in mind. I have specific targets for entry as well as profitable or losing exit strategies. Knowing when and where to pull the trigger every time is important whether the market it moving in my favor or against it. It helps me maintain a healthy respect for the power of the market, and keep me from letting my emotions dig me in too deep.
Larry Levin
President & Founder- Trading Advantage
Bad Data
As traders came into Thursday’s open and then shortly thereafter, they were deluged with bad data. Whether it was from the US, Asia, or Europe – the economic data was in a word: horrible.
Because of this bad data the US indices opened lower. Yes, a lower open is shocking, but that didn’t last long. Although the ensuing waves of bad news hadn’t even reached shore yet, the markets just kept creeping higher until they were positive. And why not – right; the poo-bah of all central planners, Ben Bernanke, has said QEternity is here to stay.
So what was the bad news? Let’s have a look…
But hey, there were no worries on Fraud Street. The markets slowly rallied all day as Hopium trumped reality.
QEternity, indeed.
Trade well and follow the trend, not the so-called “experts.”
Behold the age of infinite moral hazard! On April 2nd, 2009 CONgress forced FASB to suspend rule 157 in favor of deceitful accounting for the TBTF banking mafia.
Value Areas:
ES 1453.25 / 1446.75
POC... 1452.50
YM 13511 / 13460
NQ 2854.00 / 2844.50
Larry Levin
President & Founder- Trading Advantage
TradingAdvantage.com
Secret Trading Tip #9
Secret Trading Tip #9
The Double Stop ReversalStop orders are often used to try to protect profits. Take the stop order to another dimension and use it to reverse your position and open another trading possibility!
When you place a stop order, it is only activated if the market trades at or through the stop price. These stop prices are often key technical levels.
If the market is breaking an important technical barrier, why not double the order and try to play the movement?
Daytraders can use this technique to play trading sessions with wide ranges. Position traders can use the double stop in wider parameters, and target areas of historic support or resistance.
Let's run the typical stop order scenario. A trader puts in an order to buy a contract. They are now long. They place a stop loss order below their entry price, usually at a key technical level. If the market moves higher, they are seeing a gain on their position. If the market moves too low, it will trigger their stop and close the position with a sell order.
If the sell off in the market was triggered by bad news or it was the result of a trend reversal, what better moment could there be to reverse a position? This sets up a new potential trade opportunity if that stop level was based on a key technical area, rather than a simple point-based risk level.
Run the same scene with double the stop order. When the market moved lower and triggered the sell stop, if it was two sells instead of one, the trader would be short one contract, positioned to play any continuing downside move.
When a market breaks a key technical level, it might be signaling the trend shift and indicating that the opposite position should be played due to the momentum likely to carry forward the market from the technical break.
The use of stop loss or contingent orders may not limit losses. Certain market conditions may make it difficult or impossible to execute such orders. Prices may gap through the stop price.
Take a look at this example of a double stop in action:
Past performance is not necessarily indicative of future results.
When you place your new stop after the double stop is triggered, look for those areas of previous support to become the new levels of resistance and vice versa. Use these as a possible guide for your new order placement. Aim just outside these levels so there is sufficient room in case the market retests that area.
Double stops can be used in moments when a trend might come to an end or the market may be poised for a reversal, like those that follow key economic reports.
Using a double stop order is a way to take advantage of the market sentiment that is taking out your original position. It is just one way to try to play a breakout or reversal. This is a technique that can be employed when unknown factors come out into the light or when the rumor becomes news and is contrary to market expectations.
Best Trades to you,
Larry Levin
President & Founder- Trading Advantage
TradingAdvantage.com
Recession Data
Recession Data
This morning’s data was bad – worse than recent poor macro data; however, the market got yet another “stick save.” Thursday morning’s economic news was, in a word: RECESSIONARY.
Durable Goods data was stinky…New orders for manufactured durable goods in August decreased $30.1 billion or 13.2 percentto $198.5 billion, the U.S. Census Bureau announced today. This decrease, down following three consecutive monthly increases, was the largest decrease since January 2009 and followed a 3.3 percent July increase.
Excluding transportation, new orders decreased 1.6 percent. Excluding defense, new orders decreased 12.4 percent. Transportation equipment, down following four consecutive monthly increases, had the largest decrease, $27.8 billion or 34.9 percent to $51.9 billion.
Who needs durable goods data when surely other economic strength was able to pull GDP much higher than expected? After all, this is a recovery – right?
Uh, not so much. In fact, GDP and Durable Goods data were both so bad it made Art Cashin exclaim on TV that they were recessionary…and he’s correct.
ZeroHedge said the following about the all-important GDP data that has somehow become meaningless…
So much for the US recovery (we will never tire of saying that). After the first Q2 GDP revision bubbled up from 1.5% to 1.7%, the sell-side brigade was confident that the rate of growth would continue and final Q2 GDP would be in line. Instead, we got an absolute shock of a print, with the final Q2 GDP print coming in at a ridiculously low 1.25% (rounded up to 1.3%), below the lowest Wall Street estimate of 1.4%, and the lowest number since the revised 0.1% reported in January 2011. Here is the final GDP trendline: Q4 2011: 4.1%; Q1 2012: 2.0%; Q2 2012: 1.25%. Luckily, at least "housing has bottomed." The reason for the major contraction in the final print: a downward revision to all favorable components except Government which detracted the least from growth in years at just -0.14%. Of note - Personal Consumption was 1.06%, down from the 1.20% per the second revision. If nothing, we now know just what data Bernanke was looking at on an advance basis to come up with QEternity, and we also know the reason for the media and administration's all in gamble to reflate housing yet again. If the housing market does not go up courtesy of infinite cheap leverage, it could be curtains for the Bernanke reflation experiment.
Luckily, the centrally-planned policy vehicle once upon a time known as "the market" refuses to react to this horrendous, if only for the meaningless economy, news.
Trade well and follow the trend, not the so-called “experts.”
Behold the age of infinite moral hazard! On April 2nd, 2009 CONgress forced FASB to suspend rule 157 in favor of deceitful accounting for the TBTF banking mafia.
Larry Levin
President & Founder- Trading Advantage
TradingAdvantage.com
Value Areas:
ES 1442.25 / 1431.75
POC... 1441.00
YM 13431 / 13361
NQ 2816.00 / 2784.00
...
you might want to join "traders joking" thread...
Secret Trading Tip #1
you might want to join "traders joking" thread...
That is may be kidding...
Trade with a Plan – Using a Stop Loss
In my opinion, every trade you consider should be laid out ahead of time with a roadmap. A complete map should have an “off ramp” or a place where it makes sense to enter the market. It should also have exits for your destination (profits) as well as off ramps for emergency exits. This part of your plan will likely include stop orders.
Stop orders placed to potentially close an open position are called stop loss orders
A stop order is a contingency order. It is triggered only comes into play at the price level specified in the order. In other words if the market never trades at that price, the order will never become active. The caveat to this is the fact that the market can sometimes gap through your price, at which point the order would be executed at the best possible price. This unfortunately has the tendency to open up the trade to the possibility of getting filled at a far worse price than the one specified in the stop order. So, in summary, a stop loss order specifies a price level at a point and beyond where your order will be triggered to a market order.
Stop loss orders are like big signals where you will pull out of trade
Based on how they function, stop orders have very specific placements. Buy stop orders are placed above the current market price. Sell stop orders are placed below the current market price. *PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
CHART COURTESY OF GECKO SOFTWARE.
They work when the market trades at or through the specified stop price level. Once the price is hit, it becomes a market order and is executed at the best price available. Here is an example of a stop loss for an open long position (one that was initiated by buying a contract):
Sell one December e-mini S&P futures contract at 1335.00 stop.
The mechanics of this trade would work in a straightforward way. It would have to be placed below the price level the market is trading at so for this example, assume the market is trading at 1338.00. Normally, I recommend placing a stop loss order 3 points or less from the current market price. So if a long market position was initiated at 1338.00, this stop was placed. If the market starts to trade lower and hits 1335.00, then the sell stop would be triggered and the order would be filled as a sell at the market.
If the market price gaps lower, say 1330.00, the stop loss would still be triggered and the order would be executed at the best possible price. That might mean any price at or below the 1330.00 point. You can see how the gap is something to be aware of.
The same concept applies to a buy stop order. Consider the same example as a buy stop.
Buy one December e-mini S&P futures at 1335.00 stop.
The order would have to be placed above current market price, so keeping with the idea of 3 points or less, assume the market is trading at 1332.00. If the market trades higher, against your open short position (a trade initiated by selling a contract), the order would be triggered once it touches or moves higher than 1335.00.
Traders can use a stop loss order and trail it behind an open position as the market moves in their favor
Stop loss orders don’t go away if the market is moving in your favor. You can trail them to keep them within 3 points or less of the price level the market is trading at. In this way, you can actually try to use your stop loss to protect unrealized profits on an open trade. As long as the position does not get closed by getting filled on your limit order (Secret #2), you could keep rolling or trailing the stop loss order. Additionally, if you close out your position in a way other than through your stop order, don't forget to cancel your stop.
In this way, stop loss orders remain a key component of any trading plan. They are like a safety net, and they can help you try to keep emotion out of your trade. Knowing when to cut your losses and exit a trade can help traders keep things in perspective. Too often people can fall into a trap of holding an open trade that is moving against them, hoping that the market will turn back in their favor. Making a roadmap and sticking to it can help you avoid this pitfall.
Larry Levin
President & Founder- Trading Advantage
TradingAdvantage.com
Phantom Jobs
Friday’s employment data was interesting; wasn’t it? I think it’s safe to say that it shocked everyone but the politicians. Like Santa Claus delivering presents to children, the Bureau of Lies & Statistics (BLS) delivered a shocking present for politicians before the election.
The Bureau of Lies & Statistics, a name that I have used for years and not due to this data, reported that the unemployment rate magically plummeted to 7.8%. This report surprised the former CEO of GE, Jack Welch, so much that he tweeted “Unbelievable jobs numbers...these Chicago guys will do anything…can't debate so change numbers.” Even if Mr. Welch is a Romney supporter, this tweet like the BLS data, is surprising.
To be sure, there are conspiracy theories and political axes to grind over this number; however, I don’t agree with either. I simply believe the numbers are so tortured that they will scream anything at any time. In a word they are: unreliable.
Analysts at Jeffries agree with me in a recent report “…Taken at face value, the household survey would suggest that economic activity has been rocking-and-rolling and the labor market is bursting at the seams with jobs. We know that has not been the case, hence, the household data is difficult to believe and we are dismissive to the universal strength of the household survey data.
It would truly be wonderful if these numbers were believable, but they are not believable.
The crazy inconsistencies from month to month, as well as the INSANELY LARGE revisions (some over 1 MILLION in just one month) reflect the different samples used in the two surveys; one focuses on households the other on businesses. The so-called establishment survey has a vast sample size of 486,000 worksites, whereas the household survey covers just 60,000 homes.
What have the politicians been crowing about recently? Of course, they love the household portion of the jobs data now that it suits them (the other side of the isle would be doing the same – I hope I don’t have to remind my well-educated readers of that!).
For the conspiracy theorists among us, however, I may have an idea as to where a portion of the pop came from. For the first time in 22 straight years, the BLS declared that the segment of workers in the 20 to 24 year age group was positive. Said another way, every year since this metric has been compiled it has been a drag on the jobs data – until now.
The young adults in this 20-24 year age category decided, for the first time ever, to quit their lives as professional college students and enter the workforce…with a GDP growth level of a recessionary 1.7%. Does this make sense?
The odd thing though is that student loan data continues to skyrocket, especially during this jobs report. Student loans from the government, as well as sub-prime auto loans from the government, rose another $14,000,000,000.00, which does not correlate with the BLS assumption that the heretofore professional student gave up his nerdy ways for the massively abundant jobs scene.
I shall remind you again that the GDP is 1.7% and falling. Tortured numbers from the Bureau of Lies & Statistics – indeed!
Question: if Visa, Amex, and Master Card, as well as hotels, restaurants, business and more can track hundreds of $$billions in transactions – DAILY – IN REAL TIME – why can’t the government track 100k jobs over a full month’s time?
Answer: if it used real-time tracking software, it won’t be able to torture the data. Moreover, those in power (regardless of party) never want to know the real unemployment rate, which is near 16%.
Trade well and follow the trend, not the so-called “experts.”
Behold the age of infinite moral hazard! On April 2nd, 2009 CONgress forced FASB to suspend rule 157 in favor of deceitful accounting for the TBTF banking mafia.
Larry Levin
President & Founder- Trading Advantage
TradingAdvantage.com
Value Areas:
ES 1464.00 / 1454.50
POC... 1462.50
YM 13579 / 13527
NQ 2834.50 / 2805.50
Secret Trading Tip #20
Understanding Candlestick Patterns - Harami
I've already covered some of the better known patterns like doji (Tip #18) and engulfing (Tip#19) – now it's time to add harami to your candlestick chart pattern arsenal. Let's take a look at what this technical signal looks like, and what opportunities might be presenting themselves when you see it.
Harami patterns can be bearish or bullish
Harami, like engulfing patterns, are a two candlestick formation. They are actually often confused with engulfing patterns because they both involve candles where one real body is bigger than the other. The difference is that in harami, the preceding (or first) candle in the pattern is the longer one of the pair; it encompasses the whole body of the second candlestick.
If you see this two candlestick pattern, it could be a sign of a reversal
In a candlestick chart, bullish harami are formed when a long filled (or red) candlestick appears during an established downtrend and is followed by a smaller hollow (or green) candlestick. The reason this is a bullish signal is based on the idea that the first candle forms during a session with potentially high volume and bearish sentiment. The following day, there is a gap higher to open, a smaller trading range, and prices were supported above the previous day's close. This is seen as a potential indication that things are about to turn – a bullish reversal.
A bearish harami is made up of a long hollow (or green) candlestick occurring during an established uptrend which is then followed by a smaller filled (or red) candlestick. Similar principles apply to this signal as they did to the bullish version – the first day makes way for a smaller range led by a gap lower and selling pressure that kept prices from rising.
It is worth noting that some candlestick chartists suggest harami can include candlesticks of any color combination – filled + filled, filled + hollow, and hollow + hollow. The whole point for them is for a larger candlestick to be flanked by a smaller one. The reversal signal is just potentially stronger when the second candle is a different color. The two different candle sizes are just seen as an abrupt and sustained bit of trading contrary to the prevailing trend.
Harami are telling you that there has been a sudden trading shift
This candlestick pattern tends to crop up when there has been an apparent loss of trading momentum. The kanji definition of harami is embryo – I take this to mean that the second candlestick is just the early start of a new trading direction, contrary to the existing one. Like most candlestick patterns, it may be wise to look for confirmation of a reversal once you spot harami.
Best Trades to you,
Larry Levin
President & Founder- Trading Advantage
TradingAdvantage.com