Weekly Motivation - Aiming for the Right Target in Trading 1 of 11

By Walter T. Downs

When trading goes right, it can be a great feeling. When trading goes wrong it can be a nightmare. Fortunes are made in a matter of weeks and lost in a matter of minutes. This pattern repeats itself as each new generation of traders hit the market. They hurl themselves out of the night like insane insects against some sort of karmic bug-light; all thought and all existence extinguished in one final cosmic "zzzzzzt". Obviously, for a trader to be successful he must acknowledge this pattern and then break it. This can be accomplished by asking the right questions and finding the correct answers by rational observation and logical conclusion. This article will attempt to address one question:

"What is the difference between a winning trader and a losing trader?"

What follows are eleven observations and conclusions that I use in my own trading to help keep me on the right track. You can put these ideas into table form, and use them as a template to determine the probability of a trader being successful.


OBSERVATION # 1

The greatest number of losing traders is found in the short-term and intraday ranks. This has less to do with the time frame and more to do with the fact that many of these traders lack proper preparation and a well thought-out game plan. By trading in the time frame most unforgiving of even minute error and most vulnerable to floor manipulation and general costs of trading, losses due to lack of knowledge and lack of preparedness are exponential. These traders are often undercapitalized as well. Winning traders often trade in mid-term to long-term time frames. Often they carry greater initial levels of equity as well.

CONCLUSION: Trading in mid-term and long-term time frames offers greater probability of success from a statistical point of view. The same can be said for level of capitalization. The greater the initial equity, the greater the probability of survival.

No ID-NR4 Trade

Trade Planning and Management

April 21, 2006

Entry Strategy for Buy stop order
a. Option 1: The price opens higher than 939.5
i. Do nothing
ii. If the price near MOC is a whiplash, do nothing.
iii. If the price near MOC is higher the open, buy at MOC with risk < 10 points
b. Option 2: The price opens lower than or equal to 939.5
i. Put a buy stop order at 940 after FKLI opens for the whole day.
ii. If the order is triggered, put a sell stop order at 935, 1 tick below the prior day’s low.
iii. If the price closes down below the entry price, cover your long.
c. Option 3 If the market does not appear what you expect, do not trade and stay side-lined to analyze.

I will not short as the market is on the up-trend.

My actual Entry Strategy and Trade Management
a. I did not enter this trade because:
i. The first breakout of new high will usually fail in FKLI and it is more statistical proven if the pattern is an ascending triangle breakout
ii. It is Friday. There are fewer crowds to push the price.
iii. There is a strong up action with a gap-up. I did expect 50% re-tracement before the price moves higher
iv. Next week is a roll-over week.
v. The ID-NR4 appears only on Spot Month chart and it is ID for Next Month chart. There may be whipsaw in ID-NR4 pattern
vi. I have a existing FCPO trade. I do not want to be distracted.

b. The price closed lower the resistance of 944 for Spot Month and 941.5 for the Next Month. If I had entered, I would have gotten out with a small loss The breakout may have failed.

Trade executed according to plan? Yes

Weekly Motivation - Golf and Trading

In this encore presentation of TalkAsia, Sorenstam shares golfing tips with Lorraine Hahn, and discusses new trends in the game on Apr 16 2006.

Born in Stockholm in 1970, Sorenstam discovered her talent for golf in her teens and made her official debut on the LPGA tour in February 1994.

At age 24, she captured the US open title.

Sorenstam continued to dominate the women's game over the year. And in 2003 she made headlines by challenging the men's tour -- the first woman to do so in 58 years.

There are some similarities between professional sports and trading. Here are some of the excerpts from the interview that are very useful in trading as well.

• There is no secret. There are no shortcuts to success, and I really believe that. I try to work out on the road three times a week, at home maybe four to five.

• Well golf is a very mental sport. There's no doubt about it. They say that the longest distance is between your ears. It really is, it's a sport that one day you think you had it, and the next day you wonder where it went. But I also believe that you have to be physically ready, you have to obviously grind on a good technique, and you need to be in good shape. But it's all about getting ball in the hole, and if you don't think positive thoughts it makes it a lot harder.

• Something that I think people don't know is that I do get nervous. I have some butterflies in my stomach, but I really, what I try to do is first of all to think positive, I try to think of shots I've hit in the past that have been good, and then most of all, you've got to trust yourself. It's all about making a decision, and then sticking with it, and I think that's the key.

• Obviously experience is very important, and there are times when I've been in a tournament where I've needed some experience form the past, especially when you come down the stretch, you have a chance to win; you can not finish a tournament without experience, so it really means a lot.

• I'm not superstitious. I have routines, I don't know if you can put that in the same category, but I'm a person. I'm pretty structured, I'm pretty organized. I do mark, you know, my ball on the green with the same coin. I don't know if that's superstitious or if that's just being anal about certain things, but it does have the number 59 on it, which is my lowest score. So I have a few things I stick with, and it seems to work.

• I am very competitive, and I expect a lot from myself, so right now that's not really part of, I mean I enjoy the competition, it's fun in a different way, but I'm not really a social golfer.

• I think golf is as good as its' ever been. I can obviously look at the LPGA and say that the competition is as strong as ever, the level of play is as good as it's ever been.

• I think the technology is obviously very helpful. I think it makes the game a lot more fun. It's a tough game, and why make it harder than it is.

• It's like anything, you need some talent, but mostly you need some hard work and dedication. It's a game that you can't just play maybe once a month or maybe twice a year and think that you can come out and hole every shot and hole every put. But if you have a good attitude, you coming out and just enjoying the scenery, I think it's a great game.

• I always look at my whole game in trying to figure out, well what are my strengths, what are my weaknesses. And then I try to figure out, where do I need to spend time and what parts need to get better. The last few years it's been the short game. My long game is probably my strength, I'm quite consistent, but my short game, I feel like that is my biggest improvement, and it's just, I've just reached a level where the improvements are just very, very small, but you have to be patient and it just takes a long time to change little things, and so it's always something you have to work on. One day I'll think I figured it out, the next day I'll wonder, where did it go.

FKLI April 2006 – Oops Buy and Ascending Triangle Breakout Trade 8 – Closed with Net Gain of RM325

Trade executed according to plan? No. Margin call and further chart analysis made me exit the position.

What I have done best:
a. I follow Oops! rules.
b. I follow trend-line break rule to exit.
c. I did not answer a margin call.

What I need to improve:
a. I need to constantly practice my order execution for Market Order and Buy Stop order to avoid this mishap in the future:
i. I should follow Oops! Buy signal to put my buy stop order at 923, 1 tick above the previous low of Spot Month contract. This will remove any emotional distress and order chasing.
ii. Since the price opened gapped down on Spot Month and lower on Next Month, if I really want to buy, I should use Market Order. The Next Ask with hesitation.
b. I need to further do my FKLI and CI analysis in details.

What I have learned:
If the stop order is triggered before CI opens, it is usually not a good trade.
The trend is always your friend.
If the price touches 3 times the trend-line, the trend is strong and there is a possible big move coming.
When calculating projection target, I should look at also FR 161.8% and the top of up-trend channel line.
Scenario planning and rehearsal in the morning help me to better trade management and planning.
Chart does repeat in similar fashion of recent pattern.

Weekly Motivation - Psychology in The Trade

PSYCHOLOGY IN THE TRADE

How many times have you been in a trade and taken a profit only to see the market roar significantly further in the direction of your original position? How many times have you held on to a position for what looked like a significant move developing, only to see your nice paper profit disappear and perhaps turn into a loss?

Of course if you have traded for any length of time you have experienced both of these situations. How do you avoid them? One of the keys to having the discipline to stay in the game is to make peace with the fact that you simply cannot avoid them.
I try to remember these three points while in a trade:

(i)The market can go anywhere. There are things less likely but virtually nothing is impossible. Don't get caught thinking the market can't go any lower or higher, because in those cases it usually does.

(ii) Remember that what happened in the last trade is of little significance to the current trade you are in. In fact it may actually have an inverse relationship. Do not change your exit plan based on the meaninglessly small sample size of your last trade and or last few trades.

(iii)The large majority of the time short term day traders, or swing traders who are in for a few days, are going to be more successful by taking profits while the market is going your way. Pay yourself!

Weekly Motivation - Drawdowns and Holy Grail of Trading

I have found the following comment and thoughts useful to my trading. Please click the link below to see the article.

Thoughts On Drawdowns & Holy Grail Of Trading

FKLI April 2006 – Ascending Triangle Trade 7 – Closed with a Net Gain of RM325

Trade Setup Details
Entry Price: Buy stop order: 918 (Max. slippage 3 ticks from orig. entry price)
Number of Units / Contracts: Long 1 Contract
Profit Objective: 934 (34 points) (1 tick below the resistance. Do not use round number or tens)
Protective Stop for Buy stop order: 913, 5-piont risk (1 tick below intra-day’s low. Do not use round number or tens)
Risk Reward Ratio: 3.4:1
% of Capital (1% to 5% of your total capital, prefer 2%) <10% (RM250/2785). One tick is RM50.
Duration 1 – 10 days
Market Info
- The price is moving in a side-way market which looks like Ascending Triangle Setup
- The price hit the major trend-line and moves up
- The price hit the Fibonacci retracement levels
- There price is near 200-SMA- The price is still at the higher low of an up-trend.
Avoid: Long or Short on no breakout
Do you have the edge? Yes. Wait for price confirmation
Are the odds in your favor? Yes.


Trade Management
March 24, 2006

Entry Strategy for AT stop order
a. Option 1: If the price opens gaps up from prior day’s low, put a buy stop at 918 after FKLI opens.
b. Option 2: If the price opens flat or lower than prior day’s low, put a buy stop at 918 after FKLI opens.
c. Option 3: If the price opens gapped down, put a buy stop at 918 after FFKLI opens.

Adding more contracts
Place a buy stop order at 918 (based on Next Month chart)
· re-entry if you miss the buy stop orders above
· or additional contracts to maximize profits
Place a sell stop order at 914

Place a buy stop order at 922.5 (based on Next Month chart) as
· re-entry if you miss the buy stop orders above
· or additional contracts to maximize profits
Place a sell stop order at 917.5.

Place a buy stop order at 928.5 (based on Next Month chart) as
· re-entry if you miss the buy stop orders above
· or additional contracts to maximize profits
Place a sell stop order at 923.5.

Trailing Stops
a. If the stop order is triggered, put a stop order as the initial trailing stop at 913, 5-point stop loss.

Exits
a. When your initial stop order is triggered
b. Exit on MOC if the price closed below 918.
c. When the projected AT target of 934 or 937 is hit.
d. Let the trailing buy stop follow the price until it is taken out.

Re-entry
The reason for re-entry is that the previous trade was stopped out but the trend is intact. There are several re-entry options:
Enter at the last entry point again after a fractal is formed.
Enter at 1 tick above the fractal after a fractal is formed.
Enter at MOC when the price closes near the high of a long white candle with higher volume.

Today’s Entry strategy:
a. The DJIA lost 4Call Apex at 10:30am to check the opening price. Put in your buy stop ay 918. Ask them to inform you when any trade is done.
b. If the stop order is triggered, put a sell stop order at 914, 1 tick below the prior day’s low. My risk is only 4 points.
c. If this is a first-time ascending triangle breakout, exit on MOC (5:55pm) if the price is less than 3 points from 918 or my stop is being triggered
d. If it is a second ascending triangle breakout, there is no MOC exit unless the stop is triggered.

My actual Entry strategy:
a. DJIA lost 47 points. This allows me to put in my buy stop.
b. I planned the trade well. I have planned to pyramid for this trade to test my strategy.
c. At 8:46am, I called Apex to put in my buy stop at 918.
d. My stop was triggered at 8:53am. I immediately put my sell stop at 914. I also put additional buy stop at 922.5 based on spot month’s entry to pyramid.
e. The price then moved up to 921.5 high and stayed in the range of 920.
f. The price then hit 921.5 at noon closing.
g. The price then moved down after CI is moving down.
h. However, the price did not move down below 919.5.
i. The price then moved up even CI only gained 0.98 points. It hit the high of 922, 1 tick below another buy stop.

Trade executed according to plan? Yes
What are my entry options:
Buy at the breakout ID-NR4 and the breakout of down-trend line.
i. Put a buy stop at 914.5 before FKLI opens.
ii. If the buy stop is triggered, put a sell stop at 911.5. The risk is only RM200 (3 points + RM50 commission)
Buy at MOC if the ID-NR4 Breakout closes above the breakout point.
i. Buy at 916.5 at MOC. This is safer as the higher closing confirms of breakout of ID-NR4 and down-trend line
Buy at the breakout of 918.
i. Put a buy stop before FKLI opens.
ii. If the buy stop is triggered, put a sell stop at 914. The risk is RM250 (4 points + commission). This is the safest bet

The best entry is (b) above as this confirms the breakout of downtrend line.


March 27, 2006

Today’s Trade Management:
a. DJIA gained 9.78 points on Friday.
b. Call Apex at 8:43am to check the opening price.
c. Trade Management for Existing contract:
i. If the price opens gapped-down, do nothing initially. Closed the position after 11:30am.
ii. If the price opens gapped-up, put my sell stop at 917.5.
iii. If the price opened lower, flat or higher, put my sell stop order at 914.

d. Trade Management for 2nd contract (New):
i. Check the pre-quote of FKLI March and April at 8:43am.
· If the pre-matched price will open gapped up, buy at the market when FKLI opens.
· If the pre-matched price will open flat or lower, put in a buy stop at 922.5, the Spot Month’s entry price.
ii. If the order is triggered, put a sell stop at 917.5, 5 point loss.

e. Trade Management for 3rd contract (New):
i. Check the pre-quote of FKLI March and April at 8:43am.
· If the pre-matched price will open gapped up, put in a buy stop at 928.5, one tick above the recent 2nd high, after FKLI opens.
· If the pre-matched price will open flat or lower, put in a buy stop at 928.5, one tick above the recent 2nd high, after FKLI opens
ii. If the order is triggered, put a sell stop at 922, 5 point loss.

f. Possible Exits
i. When my stop order is triggered
ii. When the projected AT target of 934 or 937 is hit.
iii. When the price breaks a up-trend line
iv. When the trailing stop is hit.

g. Subsequent Trailing Stops for Existing contract:
i. 914, the initial stop
ii. 917.5, 1 tick below the breakout point, if the price breaks 922.5.
iii. 919.5, the breakeven point, if the price breaks 925.
iv. 921.5, 1 tick below the previous day’s high, if the price breaks 928.
v. If the price stayed above 922.5, put a sell stop at 934, the projected AT target of 934 based on Next month contract.

h. Subsequent Trailing Stops for 1st New contract (if triggered):
i. 917.5, the initial stop
ii. 919.5, if the price breaks 925.
iii. 921.5, 1 tick below the previous day’s high, if the price breaks 928.
iv. If the price stayed above 922.5, put a sell stop at 937, the projected AT target of 937 based on Spot month contract.

i. Subsequent Trailing Stops for 2nd New contract (if triggered):
i. 923.5, the initial stop of 5 points
ii. 927.5, 1 tick below the recent 2nd high, if the price breaks 934.
iii. Trail your stop.

My actual trade management:
a. Joann of Apex called at 8:43am to inform me that the price open 929 or 924.5 for March and April contract respectively.
b. I buy at the market at 925.5 for additional contract. U also put a sell stop at 917.5 for my 1st contract and 920.5 for my second contract.
c. Later, I found that the price open gapped up too much, the short-term long traders may take profit. I also think that I should have rehearsed my entry this morning.
d. What I should have done are:
i. Put a buy stop at 922.5. The price would have been triggered at 924.5
ii. Buy at retracement after 9:30am as the price broke up from consolidation.
e. The price of March hit 929 resitance and come down to 926.5 to come the gap. The April contract moved down to hit 923.5 and moved up to 925.5
f. The CI closed 2.39 points at the high at the last minute push-up. This caused March and April contract to move higher after 5:00pm.
g. The March contract hit high of 932 and closed at 931.5, whereas, the April contracts hit 929.5 and closed at this high.
h. Both the contracts are near the resistance at 934.5 and 931.5. I would expect these resistances to be broken. This will cause short covering and more crowds will long after the breakout. I will take profit after the breakout.

Trade executed according to plan? No. I do not add the third contract because the entry of second contract is quite high and I may not have enough margins.


March 28, 2006
Today’s Trade Management:
a. DJIA lost 29.86 points on Overnight.
b. Call Apex at 8:43am to check the opening price.
c. Trade Management for 1st contract:
i. If the price opens gapped-down, do nothing initially. Closed the position after 11:30am.
ii. If the price opens gapped-up, put my sell stop at 923.
iii. If the price opened lower, flat or higher, put my sell stop order at 923.

d. Trade Management for 2nd contract:
i. If the price opens gapped-down, do nothing initially. Closed the position after 11:30am.
ii. If the price opens gapped-up, put my sell stop at 923.
iii. If the price opened lower, flat or higher, put my sell stop order at 923.


e. Possible Exits
i. When my stop order is triggered
ii. When the projected AT target of 934 or 937 is hit.
iii. When the price breaks a up-trend line
iv. When the trailing stop is hit.

f. Subsequent Trailing Stops for 1st contract:
i. 923, the initial stop
ii. 928, 1 tick below the 2nd recent high, if the price breaks 931.5.
g. Subsequent Trailing Stops for 2nd contract:
i. 923, the initial stop
ii. 928, 1 tick below the 2nd recent high, if the price breaks 931.5.

My actual trade management:
a. Joann of Apex called at 8:43am to inform me that the price open 930 or 928 for March and April contract respectively.
b. I immediately put my sell stop at 923 for the 1st entry contract and 922.5 for the 2nd entry contract.
c. The price moved to hit the prior day’s high and moved down to hit 928. It hit low of 927.5 before lunch.
d. I thought that it is ID-NR4 again and hoped for a gap-down tomorrow so that I could add additional contract for a big move.
e. However, the CI stayed near the resistance of 931.15 for the whole day.
f. The CI closed 4.35 points at the high at the last minute push-up. It broke new high. This caused March and April contract to move higher after 5:00pm.
g. The March contract hit high of 933 and closed at 932.5, whereas, the April contracts hit 930.5 and closed at 930.
h. Both the contracts are near the resistance at 934.5 and 931.5. I would expect these resistances to be broken. This will cause short covering and more crowds will long after the breakout. I will take profit after the breakout.

Trade executed according to plan? Yes


March 29, 2006
Today’s Trade Management:
a. DJIA lost 95.57 points on overnight.
b. Call Apex at 8:43am to check the opening price.
c. Trade Management for 1st contract:
i. If the price opens gapped-down, do nothing initially. Closed the position after 11:30am.
ii. If the price opens gapped-up, put my sell stop at 923.
iii. If the price opened lower, flat or higher, put my sell stop order at 923.

d. Trade Management for 2nd contract:
i. If the price opens gapped-down, do nothing initially. Closed the position after 11:30am.
ii. If the price opens gapped-up, put my sell stop at 926, my breakeven point.
iii. If the price opened lower, flat or higher, put my sell stop order at 923.

e. Possible Exits
i. When my stop order is triggered
ii. When the projected AT target of 934 or 937 is hit.
iii. When the price breaks a up-trend line
iv. When the trailing stop is hit.

f. Subsequent Trailing Stops for 1st contract:
i. 923, the initial stop
ii. 926, if the price breaks 931.5.
iii. 928, 1 tick below the 2nd recent high, if the price breaks 934.5.
g. Subsequent Trailing Stops for 2nd contract:
i. 923, the initial stop.
ii. 926, my breakeven point. If the price breaks 931.5
iii. 928, 1 tick below the 2nd recent high, if the price breaks 931.5.

My actual trade management:
a. I called Apex to check the open. The March contract opened gapped-up at 934 and April contract opened at 929. There is strange.
b. I put in my sell stop for the two contracts at 923..
c. Later, I put in another buy order at 932.
d. I know that I did not follow my plan. But I did it according to the AT breakout rule.
e. At 9:41am, my buy stop order was triggered at 932.5. I put in my sell stop order at 927.5. The price hit 933 before moving down again to 931.5 and 932.5 area.
f. The price moved around this area for the rest of the morning and afternoon. It is not right for a breakout with CI gained 1 to 2 points between 932 and 934 area.
g. At 3:30pm, the price showed weakness and moved down to 931.
h. The price finally broke the intra-day low of 929 to 928.
i. I called Joann of Apex to close all my positions. She cancelled my sell stops and put in 3 sell orders at 928.5.
j. The orders are done. I was relieved.
k. My closed positions are as follows:
i. RM475 (RM525 less RM50 commission)
ii. RM100 (RM150 less commission)
iii. –RM250 (RM200 and RM50 commission)
l. There is a net gain of RM325.
m. When the ship is sinking, do not pray or hope, jump.
n. The price hit 927.5 low and closed at this price. It is bearish.
o. Luckily, I got out earlier. The price hit 921.5 the next day.
p. FKLI is like fencing. There is the quick or the death.

Trade executed according to plan? No. I over-traded. I should just trade 2 contracts first to get the feel of it. I went for the maximum 3 for AT breakout.

My initial and planned exit options:
Sell at MOC when there is a long white candle with blow-off volume and CI gained a lot with volume greater than 1 billion.
Sell when the price opened gapped up again after the long white candle with blow-off volume.
Both the contracts are near the resistance at 934.5 and 931.5. I would expect these resistances to be broken. This will cause short covering and more crowds will long after the breakout. I will take profit after the breakout.
Trail my stop according to chart.

My actual exit options:
Exit all contracts when the price broke the intra-day low. I chose this because if the breakout fails, there will be profit-taking like last time.
Exit the 3rd contracts at 927.5 and 1st and 2nd contract at 923.
Sell al 3 contracts at 932 when the price stayed stagnant in the afternoon.

What I have done best:
a. I plan the trade ahead and have rehearsed the possible scenario.
b. I write my entry and exit options to study and rehearse my trade.
c. I do not predict the market. I trade what I see.

What I need to improve:
a. I need to check the price near MOC around 5:10pm and 5:12pm for open position to know the market behavior near MOC. This is because I missed to enter at MOC as the price closed at 922, 1 tick below my near entry price. I should enter MOC at 922 as the price may open higher or gapped-up the next day.
b. I need to plan my trading plan and follow exactly. This includes the risk and the number of contracts to trade. I cannot the market anyway.

What I have learned:
I will wait the market to take me off or the price hit my target. Sometimes, it does not happen.
If the price closes near or at the close after breakout of consolidation, you may buy at MOC as the price may open higher or gapped-up. This pattern draws crowd in. The following scenario may happen:
i. The price may open higher or gapped up. It is the exits for short-term traders. The crowd may come in at the open.
ii. If the gap is more than 2 points, there will be some profit-taking. If you think of buying, buy after retracement after around 9:30am
The power of trend-line and trend cannot be denied.
i. The breakout of consolidation can see price move up fast.
ii. The breakout of down or up trend can see trend change whether it is short-, medium- or long-term.
iii. Go with the gap with the direction of the trend. The gap with the trend is much bigger than the gap against the trend.
iv. The longer the market is consolidation, the better the trade is if the price breaks out.
v. The trend is always your best friend.

I need to take a step-by-step concept when implementing my AT strategy. I will add additional one contract first. I will add 2 contracts after 2 more trades. I want my mind to get used to it.

Weekly Learning - Turle by Russell Sands

The following are the lessons and experience I learned from Rusell Sands DVD

What do you need to become successful as a trader?
- Discipline
- Common Sense
- Ability to learn
- An Open Mind
- Average Intelligence

Trend Following
- Markets do trend even it trends 15% to 20%. Even you are right 20% of the time, you can still be a winner.
- You must take all the trades and cannot second-guess yourself.
- Go with the trend
- We do not know where the target is. We get out when the trend turns.
- Go with the gap with the direction of the trend. The gap with the trend is much bigger than the gap against the trend.
- It is hard works in mental and physical.
- It is a reactive trader. We do not predict but we react. If the market is up, we are the buyers. If the market is down, we are the sellers
- The price is always right.
- Follow the market without ego
- Do not fight the trend.
- Never risk more than 2% of your capital
- It applies to all markets especially commodities and currencies.
- Do not trade on borrowed money or money that you cannot afford to lose. It will affect your judgment.

System rules:
o Buy if the price breaks the 20-day higher sell if the price breaks the 20-day low.
o 50-day high is better than 20-day. The higher the high, the better it is.
o The longer the market is consolidation, the better the trade is if the price breaks out.
o Get out if the prices make 10-day high for shorts or low for long.
o 2% capital is your risk.
o Do not have profit target
o Add more contracts if the price break higher day highs like 50-day high or year-high.
o After a few profitable trades, do not take the next few trades.