Make Money Trading Online

Archive for May 30th, 2009

Expecting a miracle?? Well it won’t happen. This is intended to help traders get out of a losing position by trading, not as an excuse to ignore stop losses. Ignoring or simply not using stops is the single fastest way to lose all the money in your account. I am serious. While that might help you in the short run eventually there is a 100% chance you will have a massive loss, like 50% or more on your money lost that is invested in the trade if you don’t use a stop. Another thing to remember, if you accumulate all your money into a portfolio of losing positions, you have nothing left to trade with. Every huge loss starts with the trader refusing to take a small loss – often times as a result of taking a loss or a stopout and then watching the stock turn in their favor. The theory is "The market is not going to stick it to me this time".  This is how traders learn to trade with bad habits.

The first thing to realize, there are 4 reasons losses that can happen when you are in a day trading or swing trading.

1. Timing is off on the entry
2. The direction you think the stock will move is just wrong
3. News items come out and move stock or index against you
4. Your price target to exit is too far away

We will address these one by one.

1. Timing is just not right on the entry price

If your timing is off on the entry (the most common), usually that means the stock will go a little for you, then move against you within the first 5-10 minutes. The amount it moves for you will be far less than against, but the stock does not really go down to your stop area. This can be identified by the price hesitating and moving up and down, just below your price for long or just above for short. It should not make a beeline against you and it should not go right near your stop in the first few minutes.

The easiest way to deal with this happening is to assume that your timing is going to be off. Enter long or short only one half to two-thirds the actual size you want in a position where you think the timing is right. To help with this issue, never use market orders. Put a limit in just slightly below market, almost every time you will get filled. Obviously you need to be aware of the trade type – if it’s a breakout and you don’t think you will get filled if you don’t use market, then for sure just go in. Most trades you enter will not immediately run in your favor, including breakouts. Once you receive a fill back, make sure you place an initial stop loss for that position. Wait 5 minutes and see what the stock does. If it runs in your favor immediately, well then your timing was perfect – trade what you have OR look for the remainder on a small dip.

Most of the time the best deal is to stick with day trading what you have. If the stock moves against you more than for you in the first 5 minutes, but is not a beeline against you (meaning it looks like the trade will stop out etc), then put in an order to add at the low of this 5 minutes (for long) or the high (for shorts). If you are an aggressive trader, you can put in some additional orders and press bets above the high for longs or below the low for shorts. If you are not able to get filled on your better price add shares, the press bets additional shares will usually work out because this means there is not much selling. If you get your better price add, cancel the press bets add. If you get filled on your additional shares, you can move your stop down slightly but increase to include all shares OR just place a separate stop on teh add. If you get the press bets add, move your initial stop up to just below that low of the 5 minutes, and make sure you increase the shares.

2. The direction you think the stock will move is just wrong

This does happen, even to the best traders. You try a breakout that fails, you try to catch a turn at the bottom of a downtrend, you think a stock will follow another stock with bad news down … the common element is you are dead wrong. Usually these types of trades will be self evident from the get go – meaning within a few minutes its already far further against you than it ever went for you AND it does not oscillate. This means the upside movement is severely limited for longs, or the downside is limited for shorts. This means it can move easily one direction, but really, really struggles in the direction you bet.

Usually if this happens, the only real chance you have to not lose is to double down on the position near your stop. You basically would risk another 15-20c on double size that it would bounce before you get stopped out, or sell down before you stop on shorts. If you try this you really have to be disciplined. Do not expect to make money on the trade. The goal is to minimize the loss by trying to catch a turn near your stop area. If you can the loss you have in half, or even be able to get out even with no loss, take it. Just move on to the next trade.

If you doubled down and actually caught the turn, you would want to move the stop up on all to just below the turn. When it goes halfway back from your second entry to your first entry, sell the add position. On the additional shares you want to keep you stop to just below that entry. The theory is the side that was pushing the price so far against you finally got washed out, so give the rest a shot. Because you added shares and made some back, if you get stopped now you will lose far less than if you did not add. It really is a judgment call whether that is the appropriate play or just to exit all with a minor loss and move on.

3. News items come out and move stock or index against you

This is arguably a tough situation. You have to be able to analyze the news very quickly AND decide the impact. The call is would this type of news cause the stock price to go far enough to hit the stop level? If the answer is probably yes, exiting at market before the stop will save you money. If you think there is a chance the news would not stop you out, the plan is to exit the position on a counter move the other way. Most of the time there is no good way to get additional shares if you get caught on the wrong side of a news play. Occasionally the market will react in way A, but a few minutes later they realize they are wrong (or someone made a bad assessment, and the market is changing its mind) and react in way B. If you can uncover and notice that this will probably happen, the add point is the high of the bar where the news came out. Most of the time that will run any stops and trap traders playing the news as a quick trade, forcing them out.

4. Your price target to exit is too far away

This is common to. You have to kind of guess based on how the stock has been trading, localized volatility, and support resistance points where a price move might go to. It is very common to think it can move to A, but it struggles to get to even half of A. Usually these types if you don’t monitor them real close will turn into losing trades. The main reason is a scale up seller (for long bets) or scale down buyer (for short bets) is betting the other direction and absorbing a lot of the volume.

Most trade setups attract attention, so the more obvious a trade looks, long or short, and it does not really do that or struggles, the bigger the indication is to get the heck out. This can result in a huge move the other way, as traders are trapped on the wrong side. There is no real method to add to work your way out of it, you really just need to pay attention. If the stock appears weak (meaning it should be going up but its not) and you think you should exit – usually this is the right thing to do. Your instincts are telling you something important - for the trade setup, the stock is not trading like it. Getting out is the best solution because you are looking to avoid your stop getting hit and saving a bigger loss. Also remember if you happen to exit too early and realize it is a mistake, you can get back in the position in a matter of seconds.

One last word – do not fall into the trap of trying to make money on every trade. If it appears something is off or wrong with the way the stock is moving, take any loss and just move on. Staying in a trade and always trying to turn it into a profit will result in much bigger losses eventually. When a trade is really going poorly, usually you will be offered one chance to get out – it is up to you to capitalize on it and take it.

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By The Art of the Chart

If the trend is up and momentum in the range is positive, the second bounce in a range is often a better entry then to wait for the breakout because it can improve r/rw by a factor 2 to 4

5 min chart of a 2 wave correction into the rising sma 20, click to see 1 min momentum change!

I used to buy when a stock moves up and sell when it goes down. It did take me a long time to realise that this might feel nice, but really does hurt profit potential.  Toni Hansen showed me the importance of momentum.  IPG was a strong mover in the morning but came off the highs.  On the 15 min timeframe I saw three bars up, and three bars down, downside momentum slower then upside. Timing is everything and if there is a three bar move I only start looking to buy after it has reacted for at least the same amount of time.  When price is near support, I start looking for a change in momentum (or pace as Toni calls it) on a smaller timeframe, often the 1 min chart. I try to enter as close to support as possible. It really improves r/rw. You might think by entering early that a flush move is more likely, but often the opposite it true. Click on the chart to see the complete marketview I look at.

Many traders would call today a trend day since it started at one end of the range and closed in the other. From the sound of it you would think that you can make a lot of money on these days, yet usually I do worse on those days. Probably because I keep feeling I don’t want to buy the top. 

While today might be considered a trend day, it was hard to trade because it was very choppy. 

I was late becuase of other business then had a hard time finding something I liked until I spottend HUN, right before it started its final move. 

My entry was at 11.90, with a stop at 11.65 and I closed all at 12.50, a nice reward, but more importantly the number resistance area (12.5) and dialy sma 50 resistance. Not much but it was the best I could do today and it was a nice setup.

Please have a look at Online Income too.

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