Back September 1, 2008

On holiday until September 1, 2008...

Time Stops, 4

continued from yesterday...

How soon should a Time Stop be executed? There's a answer in Financial Freedom Through Electronic Day Trading

At pages 239 to 240 of that book there is a section about “Timed Exits” The authors describe Timed Exits as a strategy that “is a favorite of the accomplished EDAT [Electronic Direct Access Trading] traders…The rule for the time stop is…2 to 5 times my trading time frame. Since I trade 1-minute cancles, I’;ll give the trade anywhere from 2 minutes up to (in rare circumstances) 5 minutes to sotp me out or move in my direction…”

The authors explain that “You entered a trade because you recognized a valid setup and then got an entry signal. Now it’s several minutes later and nothing is happeing…So by staying in the trade, you’re just hoping…Just get out and look for another low-risk entry. Naturally, I will reenter if my setup occurs again after taking a timed stop.”

...going on holiday until September 1, 2008 ...

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Time stops, 3

continued from yesterday...

I checked for Time Stops in Alexander Elder’s popular book Trading for a Living: Psychology, Trading Tactics, Money Management

Didn’t find it the Index. Didn’t find it in the Table of Contents. The closest advice in the book that I could find concerning Time Stops is at page 243 where the author talks about Stop Losses in general when using his Triple Screen trading system. He says “as soon as you buy, place a stop-loss one tick below the low of the trade day or the previous day, whichever is lower…Move your stop to a break-even level as soon as the market moves in your favor…If a trade does not work out fast, it is a sign that something is fundamentally changing below the surface of the market. Then it is better to run fast…”

...cont'd tomorrow...

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Time Stops, 2

continued from yesterday...

The thinking upon which Time Stops is based is mentioned in Street Smarts: High Probability Short-Term Trading Strategies

“When in doubt, get out! If the market goes dull and quiet after you enter a trade and makes no pregress in the direction of your entry, do not wait until your stop is hit. Just get out!” (Page 8) The authors continue with a promotion about their book, saying “All the strategies in this book should reward you immediately. If they don’t, it is likely your trade will turn into a losing one.”

In brief, if you bought (or sold short) something and it doesn’t work immediately, get your money back right away. That’s the philosophy behind Time Stops.

...cont'd tomorrow...

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Time Stops, 1

A Time Stop is a technique that contributes to enabling you to cut your losses so that your winning trades can carry your account to profit. Yet it is rarely mentioned in literature about trading.

Accoring to Thomas Bulkowski in Trading Classic Chart Patterns, “A time stop is when you make a trade, and know that if the stock does not move in, say a week, you will sell. The thinking behind this stop type is to maximize your use of capital” (page 73).

Trading Classic Chart Patterns

While Thomas says he does not like to use this type of stop, he admits that “Some analysts argue that the longer you are in a trade, the less likely it is that the trade will work; the best trades are those that work immediately.” (page 73).

...cont'd tomorrow...

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Day Trader's Edge, 4

continued from yesterday...

PART TWO: Day Trader’s Edge

1. Absence of conflicting motives about trading.

2. Using a trading strategy that feels good to you when you use it.

3. Enjoy trading whether you are winning or losing.

4. Carrying through with putting in the time required to trade.

5. Have beliefs that reinforce the feelings of high self-esteem and self-confidence.

6. Have a positive state of mind arising from internally representing things to yourself in a way that reduces anxiety and promotes excellence.

...back next week...

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Day Trader's Edge, 3

continued from yesterday...

10. Trying to be perfect.

11. Failing to consistently apply your trading system.

12. Failing to adopt a money management system suitable for day trading.

13. Trading when you are not in the right state of mind/mood.

...cont'd tomorrow...

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Day Trader's Edge, 2

continued from yesterday...

4. Trading on tips from other people.

5. Trading in a way designed to recover money lost in past trades.

6. Trading recklessly or negligently because you got recent winning trades.

7. Hesitating when you see an entry signal.

8. Not focusing on opportunties.

9. Trading in a way that lets you be “right” even when it means losing money.

...cont'd tomorrow...

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Day Trader's Edge, 1

Have you tried day trading since you last trashed and burned your account? Ready to give it another try? Here’s some ideas for getting it right this time. These ideas are from Howard Abell’s The Day Trader's Advantage: How to Move from One Winning Position to the Next

PART ONE: Day Trader’s Psychological Obstacles

1. Getting into a trade before first deciding at what price to stop your loss.

2. Having decided on your stop loss but failing to execute it.

3. Holding onto a dogmatic belief about the market after price action clearly contradicts that belief.

...cont'd tomorrow...

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Market direction indicators, 5

Continuation of discussion about How Markets Really Work: A Quantitative Guide to Stock Market Behavior

Put/Call Ratio

Over the short term (1 day and 1 week later):

When the Put/Call Ratio is in the upper 10%, the market goes up;

When the Put/Call Ratio is in the lower 10%, the market goes down.

VIX

When the VIX is 10% or more above its 10-period moving average, the market goes up;

When the VIX is 5% or more below its 10-period moving average, the market goes down.

...back next week...

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