Taking holiday...back July 15 2008

Jack on winning trades, 5

...cont'd from yesterday...

Continuation of discussion about managing a profitable open position based on Schwager on Futures: Technical Analysis.

8. When taking partial profits, always use multiple price targets limits to exit (while using a trailing stop for the remainder of your position). Don’t exit all of your winning position at one single price (except when your stop loss or trailing stop is hit).

Here’s an article I published November 13, 2006 on Trailing Stops

...back July 15/08, taking a two week holiday ...

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Jack on winning trades, 4

...cont'd from yesterday...

Continuation of discussion about managing a profitable open position based on Schwager on Futures: Technical Analysis.

6. If you have a huge open position relative to your account balance and you have huge open accrued profits on a trade, do scale out of the trade using multiple price targets as price moves favorably. Don’t exit the entire position in one shot; use several exits, while maintaining a trailing stop on the remainder of your position. You won’t know when the move ends until long after you’re out of it.

7. If your trading plan requires re-entry after taking partial profits, carry through with it notwithstanding that your re-entry price is unfavorable compared to your exit price. For example, if you sold at $100 for partial profits and your re-entry requires you to buy back at $120, do carry through with the re-entry. Otherwise, you might miss the remainder of a humongous move.

...cont'd tomorrow...

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Jack on winning trades, 3

...cont'd from yesterday...

Continuation of discussion about managing a profitable open position based on Schwager on Futures: Technical Analysis.

4. Yes, DO take profits on PART of your position if such profits are both LARGE and QUICK. If in a very short time interval price moves swiftly towards what you estimate to be the maximum for the move (e.g. price reaches a prior pivot high/low), then do take partial profits provided you re-enter on a retracement. That is, if a price move covers more than 50% of your estimate of the maximum move within one week or more than 75% within two weeks, do exit part of your position provided you re-reinstate that partial position when price retraces. This will sometimes result in missing part of a major move in cases where price does not retrace (so that you can re-enter), but this will enable you to avoid nervous liquidation on a sharp retracement.

5. If you take a large quick profit on part of your position, use a trailing stop for the remainder of the position.

...cont'd tomorrow...

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Jack on winning trades, 2

...cont'd from yesterday...

Continuation of discussion about managing a profitable open position based on Schwager on Futures: Technical Analysis.

2. If price gaps favorably, move your stop to somewhere in the gap. Then trail your stop to capture profits if price continues to move favorably.

3. Using a trailing stop will produce better profits over the long run than exiting with Profit Target prices. You’ll need the occasional humungous winner to offset losers in your trading system. Don’t take small quick profits.

...cont'd tomorrow...

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Jack on winning trades, 1

Professional traders are far superior to amateur traders…while amateur traders wreck their accounts by taking large losses due to failing to use stop loss orders, professional traders wreck their accounts by taking small profits with limit orders.

Here’s what professional trader Jack Schwager (the guy who wrote the Market Wizards series) says about this starting at page 745 in his tome Schwager on Futures: Technical Analysis. I have paraphrased what he wrote to comply with copyright laws. For the actual wording, see his book.

1. On a major position trade, hold for large, slow profits. Do not take small, quick ones. Never take profits on the Entry Day of a trade (he doesn't say whether or not this applies to Day Trading systems).

...cont'd tomorrow...

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Trading headline disasters, 5

Continued discussion about World Event Trading: How to Analyze and Profit from Today's Headlines

Andrew's book is a worthwhile, albeit light, read. It'll give you a look at the big picture while trading news. For the actual mechanics of how to handle the second half of the trade, see the following.

Laurence A. Connors and Linda Bradford Raschke wrote a book selling for $175 in which they described a strategy for fading swift steep movements in S&P futures, Bond futures, and Currencies that happen when big news items occur. The book is entitled Street Smarts: High Probability Short-Term Trading Strategies

Larry and Linda’s advice is to wait for the move to retrace back to the price the instrument was at when the news event was first publicized. If price reverses back through the starting point in the opposite direction, then go with the reversal. For example, let’s say the S&P futures went up dramatically on the day a big news story was published about a high profile government figure using the services of a bordello and it (the S&P) continued going up for 2 more weeks. If price falls back to where it was on the first day of the news, then sell short on a downside breakthrough at the price where the S&P was on the first day of the news.


...back next week...

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Trading headline disasters, 4

Continued discussion about World Event Trading: How to Analyze and Profit from Today's Headlines

Disastrous Political Events discussed in Andrew’s book include Terrorism, Government Change, Government Scandals, and Short-Term Wars. Impact typically as follows.

Dramatic rise and fall (within 2 to 3 months): Oil and Natural Gas (if war is in jurisdiction that exports oil, e.g. Middle East ); however, Bonds of the jurisdiction affected become volatile and could either boom and then bust or go in the reverse direction.

Dramatic fall and rise (within 2 to 3 months): Equity Indicies of the jurisdiction affected; Currency of the jurisdiction affected; Airline Stocks; however, Bonds of the jurisdiction affected become volatile and could either sell off and then boom or go in the reverse direction.


...cont'd tomorrow...

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Trading headline disasters, 3

...cont'd discussion about Andrew Busch’s World Event Trading: How to Analyze and Profit from Today's Headlines (Wiley Trading)

Disastrous Weather discussed in Andrew’s book include Hurricanes, Earthquakes, Tsunamis, and Global Warming.

Industries that benefit: construction

Industries that suffer: insurance

Dramatic rise and fall (within 2 to 3 months): oil, natural gas, lumber, Stocks of Construction Companies.

Dramatic fall and rise (within 2 to 3 months): Stocks of Home Building companies; Stocks of Insurance Companies; Stock Indicies of the jurisdiction affected; Currency of the jurisdiction affected; Bonds of the jurisdiction affected

...cont'd tomorrow...

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Trading headline disasters, 2

Continued discussion about World Event Trading: How to Analyze and Profit from Today's Headlines

Disastrous Diseases discussed in Andrew’s book include Influenza, Mad Cow Disease, SARS, Bird Flu. Andrew says a common characteristic of these diseases is that they strike in areas of the world already stressed by other issues when these diseases first manifest there.

Industries that benefit: funeral businesses, health care, laborer’s wages, telecommunications, home entertainment, courier companies.

Industries that suffer: transportation, hotel, retail, travel, lodging, tourism, entertainment (except home entertainment), restaurants, banking & financial services, food affected by the disease, labor-intensive industries.

Dramatic rise and fall: gold, bonds.

Dramatic fall and rise: currency of the country affected, stock indicies, stocks of companies affected.


...cont'd tomorrow...

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Trading headline disasters, 1

With China’s earthquakes/floods and the USA’s floods presently prominent in the news, it’s time to review Andrew Busch’s World Event Trading: How to Analyze and Profit from Today's Headlines (Wiley Trading)

Andrew’s book describes how markets behave during historically prominent world disasters. The disasters discussed in the book include disastrous diseases, disastrous weather, and disastrous political events.

...cont'd tomorrow...

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Moody Trading, 5

...cont'd from yesterday...

One implication of this is that if you use more than one strategy in your trading, you need to ensure that the moods for each strategy are compatable if you use different strategies concurrently. If not, you need to remember to change moods as you change from one strategy to another.

See information about how to control your trading moods see my website page “Fear and Greed”.

...back next week...

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Moody Trading, 4

...cont'd from yesterday...

To complicate things, have you noticed experienceing different moods when using different methods of trading?

For example, to day trade news flashes you need a mood involving high speed and ultra-confidence.

To position trade trend following system, you need a mood of leisureliness.

Switch those around and you’ll get your account balance shredded.

Go ahead, try it. See if your account doesn’t get shredded when you are in a leisurely mood while day trading news flashes. Or try a mood of high speed ultra-confidence while in a trend following position trade and see if you don’t get suckered into taking profits too early while in a high speed ultra-confident mood.

...cont'd tomorrow...

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Moody Trading, 3

...cont'd from yesterday...

Van also reports having observed that the following moods detract, if not disable, you from trading well: compulsiveness, anger, anxiety, impatience, frustration, regret and being stuck.

...cont'd tomorrow...

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Moody Trading, 2

...cont'd from yesterday...

Van Tharp has observed in his clients who trade that three moods facilitate trading well: Happiness, Inquisitiveness, and Motivation. See Volume 4, Chapter VIII of Peak Performance for Investors and Traders. Van refers to these three moods as “key states”. He adds that confidence is “another important state”.

...cont'd tomorrow...

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Moody Trading, 1

Call it emotions, feelings, mental states or moods. If you’ve traded for even a day or a few minutes, you know that moods affect the results you get in trading.

...cont'd tomorrow...

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More worries, part 5

...cont'd from yesterday...

Other strategies for dealing with worry are at my website’s new address http://LeisurelyCashFlow.Googlepages.com

...back next week...

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More worries, part 4

...cont'd from yesterday...

A fourth category of solutions is to hit the reset button on your mind, body and emotions regularly through recreation, relaxation and vacations away from trading.

A fifth category of solutions is to practice Peak Performance under the worrisome conditions. That way you’ll be in the habit carrying out proper trading techniques even when you are worrying.

...cont'd tomorrow...

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More worries, part 3

...cont'd from yesterday...

One category of solutions that Van proposes is to avoid what worries you. For example, many traders find the sight of their Profit and Loss Statement a cause for worry. One solution is to avoid looking at the P&L Statement during trading hours. Just delay looking at it until after-hours.

A second category of solutions is to change your beliefs about what worries you. For example, if your P&L Statement worries you, change your beliefs about it. You need to capture your thoughts about your P&L so you can change them. For example, if when you see your P&L you think “I’ve got a loss and I don’t want any further loss”, change your beliefs to something supportive. That could be “I’ve got a loss but it’s within my budget so I’m still OK” or “I’ve got a loss but I have faith that by following my Trading Plan I’ll recover”.

A third category of solutions is to immunize yourself against worry. Van recommends following a healthy eating program and a healthy exercise program to strengthen your immunity to worry. Details are in Van’s book, Volume 2 of the Peak Performance Course.

...cont'd tomorrow...

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More worries, part 2

Recently, I was reviewing trading-guru Van Tharp’s masterpiece Peak Performance Course, Volume 2. It includes a lengthy discussion about worry and what to do about it. My understanding of Van’s materials is that worry interferes with making proper trading decisions, which in turn results in losing money at trading. Van also adds that money, profits and losses in themselves add to traders worries or aggravates them.

Van proposes five categories of strategies for alleviating worry so that you can achieve peak performance in trading.

...cont'd tomorrow...

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More worries, part 1

I recently searched Google for the topic of “worry + traders” and got 441,000 articles! If you’re a trader or even if you just dabble in the financial markets, you worry. Indeed, I searched the Traderdaily.com website and got 50 articles that mentions “worry” including one I myself wrote, entitled "Worried?"

The word "Worry", in literature about psychology, has two usages. In one, it refers to self-talk that distracts you from focusing on the matter you want to focus upon in the moment. In a second usage, it refers to a feeling of concern.

This week’s series of blog articles will be about the first usage of the word “worry”, namely the self-talk that distracts you from focusing on the matter you want to focus upon in the moment. For traders, the “matter you want to focus upon in the moment” for successful trading is the task of following your own Trading Plan including your rules for entry, exits, and money management.

...cont'd tomorrow...

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