10 Great Technical Trading Rules

 

 

“We learned just to go with the chart. Why work when Mr. Market can do it for you?” – Paul Tudor Jones

Only price pays. In trading, emotions and egos are expensive collaborators. Our goal as traders is to capture price moves inside our time frame, while limiting our drawdowns in capital. The longer I have traded, the more I have become an advocate of price action. Moving away from the perils of opinions and predictions has improved my mental well-being, and my bottom line.

In developing a trading system of your own, you must begin with the big picture. First, look at the price action and then work your way down into your own time frame. You need to create a systematic and specific approach to entering and exiting trades, executing your signals with the right trailing stops, setting realistic price targets and position sizing, and limiting your risk exposure. Relying on fact, rather than being tossed around by your own subjective feelings, will insure your long term profitability.

Here are 10 great technical trading rules that will help you build a systematic approach to trading:

  1. Start with the weekly price chart to establish the long term trend, and then work down through the daily and hourly charts to trade in the direction of that trend. The odds are better if you are trading in the direction of the long term trend.
  2. In Bull Markets, the best strategy is to buy the dips. In Bear Markets, the best strategy is to sell short into each rally. Always go with the path of least resistance.
  3. Support and resistance levels can hold for long periods of time; the first few breakout attempts usually fail.
  4. The more times a support or resistance level is tested, the greater the odds that it will be broken. Old resistance can become the new support, and the old support may become the new resistance.
  5. Trend lines are the easiest way to measure trends by connecting higher highs or lower lows, and they must always go from left to right.
  6. Chart patterns are visible representations of the price ranges that buyers and sellers are creating. Chart Patterns are connected trend lines that signal a possible breakout buy point if one line is broken.
  7. Moving averages quantify trends and create signals for entries, exits, and trailing stops.
  8. Moving averages are great tools for a trader to use, but they are best used along with an overbought/oversold oscillator like the RSI. This maximizes exit profitability on extensions from a moving average.
  9. 52 week highs are bullish, and 52 week lows are bearish.  All-time highs are more bullish, and all-time lows are more bearish.  Bull Markets have no long term resistance, and Bear Markets have no long term support.
  10. Above the 200 day is where bulls create uptrends. Bad things happen below the 200 day; downtrends, distribution, bear markets, crashes, and bankruptcies.

Originally posted on www.seeitmarket.com

5 Mistakes Almost All New Traders Make

 

Over trading

Most new traders think that they must always be long or short the market. They lose a lot of money during certain market stages like corrections, high volatility, or bear markets. Sometimes the best position is cash. Sometimes the best trade is no trade. Sometimes their is no signal just chaos. Profitable trading is taking signals for trades that have good odds for success and the right risk/reward ratio for your win rate expectations. Cash is a position in itself. The less I trade the more money I make.

Ignorant of their own ignorance

The more you don’t know, the more sure you are that you know everything. New traders many times do not understand the danger of big losses. They also do not understand the mental and emotional strain of having on trades with real money in real time. A lot of hubris and arrogance is born out of not being humbled by the markets. Looking at historical charts and past history is nothing like holding positions in real time.With skin in the game and not being able to see the hard right edge of the chart as it unfolds is a different experience than theories, back tests, and reading trading books. The real traders I know that have a ton of experience are humble and know that they don’t know the future.

Always thinking they know why something happened

“These days, there are many more deep intellectuals in the business, and that, coupled with the explosion of information on the Internet, creates an illusion that there is an explanation for everything and that the primary tast is simply to find that explanation. As a result, technical analysis is at the bottom of the study list for many of the younger generation, particularly since the skill often requires them to close their eyes and trust price action. The pain of gain is just too overwhelming to bear.” – Paul Tudor Jones

Survivor bias

Confusing a guru that was lucky on ‘market calls’ as being able to predict. Or following a trader that had a great winning streak due to a specific market environment or a few specific ‘stock picks’. A few traders and talking heads will always be right just out of the amount of predictions and people out their making them. Be careful not to confuse luck with skill. It is the long term that determines who has skill, the short term is just luck and randomness.

Fall in love with a trade

New traders at times marry stocks or fall in love with a trade and lose their sense of judgement. The longer you stay married to a bad trade the more expensive the divorce will be. Stubbornness and ego are expensive things in the markets. Losing your perspective and ignoring your stop loss is a step toward ruin. A stop loss has to be the exit strategy for a losing trade regardless of your conviction about it.

 

What Your Trading Results Can Teach You.

 

This is a Guest Post from Rolf @Tradeciety (He has some of the best content and trading graphics on twitter).

“You only learn from your mistakes” is a very dangerous and misleading statement. And at the same time, it is totally wrong. In fact, there is so much you can only learn from your winning trades that not using this opportunity will cost you a lot of money as a trader. In the following article we will take a look how you should analyze your winning and your losing trades and what to focus on when evaluating your trades.

Not all winning trades are good
In the first step you have to understand that you can make a bad trading decision, violate all your trading rules and still come out ahead. Having a winning trade while breaking trading rules is very dangerous for the development of a trader because it might lead to sloppy trading behavior and a mindset that trading rules should not be taken too seriously. On the other hand, the best setup can turn into a losing trade, and there is nothing to worry about. It is the nature of the game that not all trades will be winners. The graphic below illustrates the connection between the outcome of a trade and the adherence of trading rules.

https://newtraderu.zendesk.com/attachments/token/ZdIoeBOGMN0bqy04PGyBeiFKp/?name=outcome.png

How to learn from winning trades
There are mainly three things that you have to ask yourself when it comes to analyzing your winning trades when it comes to increasing your trading performance.

1. Were you just lucky?
“In trading, it does not matter whether you are right or wrong; the only thing that matters is whether you are making money”.
The quote above wanders around trading forums and on social media, but it could not be further from the truth. The previous diagram shows, you can easily end up in a winning trade while having violated all your trading rules; a winning trade would then be the result of pure luck.

Inexperienced and ignorant traders might start to believe that they don’t need trading rules and that their ‘gut feeling’ tells them what to do. Dead wrong. Winning trades, when violating rules, can be very harmful for a trader’s discipline and his overall development. It is therefore important to analyze whether your winning trades are the result of accurate planning and following the plan, or whether you were just lucky.

2. How to make more money?
If you have followed the rules and price made it to your take profit order, you did what a trader is supposed to do. But, did you execute your plan in the best possible way, or was there something you could have done better? There are two things you should analyze when it comes to optimizing your trading performance:
• Was my entry good? Could I have entered later for a better price and, therefore, had a bigger winner?
• Could I have used a smaller stop loss or a wider take profit target?
Although analyzing these two points is crucial for a trader to increase his performance, it is even more important to avoid knee-jerk decisions. Only after you have collected data on a big enough sample size, the numbers can tell you what to do.

3. What do your winning trades have in common?
Finally, you should evaluate your winning trades and find things they have in common. If you are able to find a common denominator you can take more of those trades that already work. Pay attention to the time of the trade entry, a certain indicator setting if you use any, the prevailing market conditions or just whether you have more winning trades on certain instruments than on others.

How to learn from losing trades
It is great when you can find ways to turn winning trades into even bigger wins, but finding out how to eliminate losing trades is equally important for your overall success. And keep in mind, you will never be able to avoid all your losses. They are just part of the game. The following three points can serve as a guideline when analyzing your losing trades.

1. Could the loss have been avoided?
This is probably the most obvious question and the one you have to ask yourself first. Did you violate your trading rules, or was there any way that the loss could have been avoided? Besides breaking trading rules, going against the overall trend and ignoring the impact or release of important news usually fall into this category. But be honest, you cannot avoid all losses and even the best setups will fail over and over again.

2. Could you have lost less?
If you rule out the possibility that the loss was avoidable, you have to answer the question whether it would have been possible to minimize the loss. Did you see early signs for a potential losing trade or was it even your mistake, due to wrong trade management decisions that caused the loss?

Traders sell winners at a 50% higher rate than losers. 60% of sales are winners, while 40% of sales are losers.- Odean (1998): Volume, volatility, price, and profit when all traders are above average

Finding ways to cut losses early is one of the fastest ways to increase trading performance. Evaluate your losing trades to find patterns that signal early when the trade goes wrong. Most trades do not head straight to your stop loss order, but provide opportunities to get out for a smaller loss.

3. What do your losing trades have in common?
In the last step you have to evaluate your losing trades and check whether you can find similarities. Often traders find that they lose a disproportionate amount of money on a specific kind of trade, setup or instrument. Some traders even report that they are better at trading long trades than short trades. An easy way to avoid losses is to find what is not working for you and stop doing it. It seems so obvious, but not many traders follow this advice.

Conclusion: There are several ways to increase your trading performance
Most traders do not see the bigger picture and only focus on finding a ‘better’ indicator that can tell them how to find better trades, whereas the answer is so often right in front of them. By analyzing how to win even more on your winning trades and how to cut losses in an effective way, you can become a profitable trader much faster than believing in the Holy Grail of trading.

You can find more of Rolf’s great articles at www.Tradeciety.com

FAQ: New Trader 101 E-Learning Course

New Trader 101---Coming Soon!
New Trader 101—Coming Soon!

 

I have fielded many questions since the announcement of New Trader 101, and while I am happy to answer email, I thought that other folks may benefit from the answers.

Q: Why did you make an e-learning course?

A: I have been asked on a daily basis if I will create a course for new traders, take part in someone else’s project, or offer individual training. I looked at all these options and decided that creating my own course would allow me to guarantee high quality and a low price.

Q: Will you EVER offer individual training?

A: I am not crazy enough to say never, but it doesn’t make a lot of sense to try and do that. There are only so many hours in the day, and I would rather devote my time to helping as many people as possible.

Q: How long is the course?

A: The course is 12 modules (plus a bonus module of actual trades) and associated worksheets. It covers Psychology, Risk Management, and Methodology, and is meant to teach the fundamentals necessary to be a successful trader.

Q: Is this a learn at your own pace kind of thing, or do I need to be logged on at a certain time?

A: This course is created for your convenience, so you can learn at your own pace, as your schedule allows. It is entirely online.

Q: Is it a month to month subscription? And how much does it cost?

A: It is not a monthly subscription, rather It is a yearly subscription of $49 per year (+VAT in EU) for the Student version, and $69 per year(+VAT in EU) for the Pro version. It does not auto renew. This is introductory pricing.

Q: What is the difference between the Student and the Pro version?

A: The Student version is the course, limited access to the forums, and standard (24 hour turnaround) support. The Pro version is the course, access to exclusive forums (including live trading) and premium support (8 hours or less).

Q: Where can I learn more about the course?

A: You can find out more about the course, and register to be notified when we go live by going to: www.newtrader101.com.

Q: Will you do more classes?

A: Yes! We already have plans for another class, so stay tuned!

Q: Are you writing anymore books?

A: Yes! There are more books coming this year.

If you have questions that weren’t answered here, or If you have any suggestions, please send an email to help@newtraderu.com.

I look forward to seeing you in the course!

10 Ways A Trader Can Diversify Their Life

 

You have power over your mind – not outside events. Realize this, and you will find strength.” – Marcus Aurelius

The weakest part of any trading system is the trader themselves.

To be a successful trader, you must manage yourself. The ability to manage your own physical, emotional, mental, and spiritual health will go a long way in determining if you can maintain the energy and drive that it takes to be a consistently profitable trader, over long periods of time. Like so many other areas of life, I suspect that over 90% of traders fail to be profitable because they fail to manage themselves. They fail as traders because self control and self discipline are the key traits of a successful trader.

  • So much is written about the dangers of financial ruin because of trading too big, but little is written about the risk of emotional and mental ruin by trading too much, or without a balanced life. A trader can still make a comeback after blowing up a trading account, but there is no coming back  from personal ruin and permanent  loss of hope and belief in themselves as a competent trader.
  • You must run your trading like a business, scheduling your “on” and “off” hours. This includes your family, who should know when you are available and focused on them.  You must always be sure to schedule quality time with your significant other, children, friends, and family for optimum emotional health.
  • You need to have hobbies, recreation, and games that help you forget you are a trader for awhile; allowing you to recharge your batteries and return refreshed and ready to trade.
  • You must be able to leave your trading results at the trading desk, and not allow them to bleed into your personal life. The best way to do this is to trade a position size that keeps your emotions manageable.
  • A trader needs a diversified life, with trading as just one part of it. Having a healthy family life, friends, hobbies, exercise, and  good nutrition leads to a balanced personal portfolio of time and energy. This helps to keep trading in perspective.
  • Having a great group of trading friends helps you remember that you are not alone, and that others share your journey as a trader. The camaraderie is very healthy, and it is great to have someone that understands your ups and downs.
  • Your significant other needs to have the confidence and faith in you, that we will be successful in trading. They need to understand the risks involved in trading, and our money management and our winning percentage. It is still the trader’s job to ensure the family’s needs are taken care of through the proper safety nets. Most traders will make a living and pay bills by other means.
  • Only a trader’s passion and work ethic will take them the distance. Trading is not for everyone, but it can be richly rewarding for those that put in the time and run the race with all their heart, focus, perseverance, and drive.  We must remember that we trade to create a great life, and not live to trade.
  • A trader needs a spiritual aspect of their life to keep them centered. Whether it is a belief in a higher power, prayer, mediation, or mindfulness. A trader has to have access to a part of themselves that is much bigger than trading.

It is not trading or profits that make us better people, as much as the lessons and principles we learn from our trading, that can help to strengthen all areas of our lives, and make us whole.