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

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

Traders Must Bend But Not Break

 

Today I would like to explore three concepts in trading that many traders have never thought about. Fragility, robustness, and anti-fragility are concepts that describe a trader’s psychology, risk management, and method.

Here are some general definitions:

Fragility is a word used to describe something that is easily broken, shattered, or damaged. It means very delicate or brittle.

Robustness is a system’s ability to operate without failure under a variety of conditions. Being robust means a system can handle variability and remain effective in challenging environments.

Anti-Fragility can be described as high-impact events or shocks that can be beneficial to certain kinds of investment methodologies. It is a concept invented by professor, millionaire trader, bestselling author, and former hedge fund manager Nassim Nicholas Taleb. He invented the term “anti-fragility” because the existing words used to describe the opposite of “fragility,” such as “unbreakable” and “robustness,” were not really accurate. Anti-fragility goes beyond these concepts; it means that something does not merely withstand a shock, but actually benefits from an outlying Black Swan event.
[hr]

Fragile Traders are new traders that struggle to survive the first year. Their psychology is fragile; they don’t make it through the learning curve because they expect to immediately make money. Learning to trade takes time, just like any other professional pursuit. Fragile traders lack the mental strength and perseverance to stick with trading until they are successful. They make decisions based on their pride, fear, and greed which eventually break their accounts.

A fragile trader has poor risk management. They risk a lot to make a little. Big position sizing leads to fragility because all it takes in one big adverse move to seriously damage an account.

A fragile trading methodology is one based purely on opinion that really has no edge. It is counter-trend, where a trader thinks the logical thing to do is to short uptrends, and go long downtrends, instead of going with the flow. Shorting bull markets and catching falling knives is a fragile trading methodology.

[hr]

Robust Traders are usually, but not always, trend following traders. There are many different types of robust trading methodologies that put the odds on their side.

Part of what makes traders successful is that they don’t put too much weight on any one trade. The most successful traders limit their total account risk on any one trade to 1%-2% of total trading capital. They carefully look at a market’s volatility and logical support levels to position size effectively and set appropriate stop losses.

Their risk management principles make every trade just one of the next 50-100 trades. This brings down their stress level, and turns down the volume on their emotions. They risk a little over and over again for the chance to make many times their risk.

A Robust Trader has completed the homework on their methodology, system, and principles. They know why their system works, and they understand their edge. They keep the faith in their systems, even during losing streaks, because they understand the realities of changing market environments. They know what kind of trader they are, so there is little internal dialogue of doubt or confusion; they just trade.

Because robust systems are generally trend trading systems, they can profit in both bull and bear markets. These traders need trends to make money, and don’t do well in choppy, trend-free markets or range bound markets. Their systems are robust because the trends come back around eventually, and the profitability of those periods, make up for the  smaller losses in trend-free markets.

[hr]

The Anti-Fragile Trader is someone that puts on very small position sizes in low probability trades, but shifts huge amounts of risk to the trader on the other side of the trade. The methodology of the anti-fragile trader is to bet on the eventual blowup of the traders making high risk trades for a small premium.

The favorite tool of the Anti-Fragile Trader is the out-of-the-money option contract. For pennies on the dollar, they can control huge amounts of assets. While they expire worthless the majority of the time, when a random Black Swan event hits the market affecting the option contract, they can return thousands of percent on capital at risk, and makeup for all the past losses.

The creator of the anti-fragile concept, Nassim Nicholas Taleb, traded long option strangles, betting on both directions to capture any huge trend event up or down. A company being purchased and rocketing up, or a disaster and a company stock sent crashing, was hugely profitable for Taleb. He also bought option contracts on futures markets. The key is very tiny bets on these trades versus total account equity. Tiny losses and tremendous wins was what made the system profitable.

Anti-fragile traders grow stronger through losing trades by learning instead of quitting. Rough market environments don’t break them; it educates them on what to do different in the future. A trader who is mentally anti-fragile has no doubt that they will be a successful trader, and that only time separates them from their goal.

The anti-fragile trader wins in volatile markets and random Black Swan events, outside the bell curve of normal price movements. Taleb made a fortune in the Black Monday crash of 1987, and many other instances over the past 25 years.

What kind of trader do you want to be?

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!