Helping Bob trade the US markets

[peter2]

I play tennis with a guy called Bob. He's very consistent and I know the rallies will be long when Bob's on the other side of the net. I try to hit a winner against Bob and he just waits for me to make a mistake. Bob wins more points than I do.

Bob tells me that he started trading US markets about six months ago and it's not going well. He's asking for my help. What are you doing that for? I ask. Bob's trying to accumulate some short term profits and he's trading intra-day and short term. I know Bob's not a natural risk taker because I play tennis with him. Bob doesn't go for the lines he just keeps hitting it back.

Hell Bob, I say, why did you want to start the hardest trading job in the world (day trading)? Well Bob's no different to the rest of us as he's seen all the Youtube vids that show how easy day trading is.

Assessing Bob's resources comes down to three things, knowledge, time and capital. I know Bob knows the basics and his way around a trading platform. He's got a couple of hours every evening to look for some trade opportunities and I know he's not going to miss a few thousand dollars when he loses it. Bob wants to learn how to trade profitably.

You've no doubt spotted the inconsistencies in this story. Bob's not a real person, but I think the circumstances are quite common for beginning traders. Should we help Bob?

 

[peter2]

Of course we're going to help Bob.

OK Bob, show me what you've done. Bob produces his notebook with all his trades recorded. Hell Bob, why don't you use a computer spreadsheet? Well Peter, why don't you use a mobile phone?
I told you, Bob keeps returning my shots.

I entered Bob's results for the last few months into my spreadsheet and here they are.



No surprises there, Bob's losing money. He started with $26,600, stayed even for a little while, then started losing more consistently. Ring any bells? Is this like your trading account?

Bob's done some day trades (DT) and a few overnight swing trades (SW).

Day trades: Trade risk = $120 / trade. Bob's cutting his losers quickly. That's good, but I also think he's grabbing some profits too quickly as well. Typical newbie mistake. Bob's losing an average $11/trade. His round trip costs are $10 so he's not doing too badly at the day trading caper.

Swing trades: Trade risk = $300/trade. With only five trades the numbers are too low for analysis, but there's been only one winner in those five trades. We need more information about his trading plans in this activity.

The number of results are too low to draw many conclusions but the equity curve is not going in the right direction.

 

[ducati916]

For day-trading, you require a catalyst to create volatility in the day. News/earnings, something that can be picked up early enough to enter a trade and catch part of the move.

Good news/Bad news....stock trading higher/lower, likely to continue for a period, jump on, jump off. The thing you need to be aware off are the time frames above your entry. News should breach any resistance/support in higher time frames, but, not always!

Some like to trade with the market, some opposite to the market. I prefer with the market.

jog on
duc

 

[frugal.rock]

For day-trading, you require a catalyst to create volatility in the day. News/earnings, something that can be picked up early enough to enter a trade and catch part of the move.
duc

The 'something' that can be picked up early enough is price and volume movement when there's no apparent catalyst.
How often do we see price and volume movement for no apparent reason?!
The schamistificated investors, director's, fund firms etc are often 'out to play' on the random stock/s of the day causing the volatility.
I generally just day trade on the general fluctuations on a few favourite actively trading stocks, trying to time a buy on or near the low of the day. Stocks I watch and trade generally on most of my free time so I get this sort of complacency towards them and feel like I know it's habits.
However, there's nothing like trying to catch knives on a day trade to teach you a good lesson, or three
F.Rock

 

[peter2]

OK let's deal with day trading first. Bob enjoys day trading in the first hour of the US trading day and should benefit from having a regular routine to find stocks with a catalyst and then use a plan to trade them. Bob's not losing very much day trading and he should be able to turn things around fairly quickly provided he does the extra work.

@ducati916's short post was spot on.

The aim of the pre-market routine is to find stocks symbols to watch for your setups.

Macro-catalysts: General market sentiment (bullish/bearish), US and world general news, US scheduled reports (NFP, employment, FOMC news etc), Trump tweets, etc

Sector catalysts: OPEC news, movement in gold price, USD strength/weakness, news on large cap stocks, etc

Stock catalysts: Earnings (every 3mths), broker upgrades/downgrades, pre-market gaps up and down with significant pre-market volume, etc

The pre-market routine should provide 3 - 8 charts to watch closely for your setups immediately after the open. You only need to watch a few charts and you'll need to watch them very closely. If you're going through other watch lists or looking at too many charts you'll be distracted too easily and you'll miss your trade.

 

[peter2]

Let me use an example form last night (061219). There was news from OPEC about possible reductions to their oil production. Just prior to the US open there was some confirmed numbers about their planned reduction. This news could lead to an increase in the oil price. One could trade the oil market or trade US oil producing stocks.

This pre-market news should have you watching a few oil stocks for setups. This pic shows my oil stocks work space. The two major oil/energy ETFs are on the left (XLE - energy sector, XOP- oil/gas producers) and I watch USO. You can see the immediate price rise after the open on this OPEC news.



On this day it didn't matter which oil stock you were watching. All of them went up. Even the ETFs are tradable.

 

[peter2]

It's very likely that two people with a similar pre-market procedure may end up with different watch lists for the open. The work is very individual and influenced by our personal biases. For example, Bob may have read the news like I did and focused his attention on the better than expected jobs number that sent the market higher. There were a lot of stocks that were going to gap up at the open and his list may have included many of them instead of the oil stocks. Semi-conductor stocks were worth watching, so were banks, retail, tech stocks. It was that sort of open after the good news.

I suggest that we keep notes about our pre-market observations and record our opening watch list. The idea is that we monitor the effectiveness of our pre-market routine. We should know how often our pre-market work selects stocks that actually form the setups we want to trade.

There's a different catalyst every day and some days there's none. The market has sloppy choppy days and there's no trading setups in the list we choose. That's OK and we don't have to trade everyday.

 

[peter2]

I'd discuss these suggestions with Bob and urge him to create his own pre-market routine. I'd suggest that he monitor his effectiveness at finding stocks that move the way he prefers. We'll talk about it in a few weeks time.

I know we can open our trading platform just before the open and find something to trade fairly quickly. How's that working out for you? Are your stats where you want them? Bob's stats show that he can't cover his costs. He has to let the winners get bigger and this is hard to do without confidence.

Chatting with Bob it's clear that he's done a lot more trades that haven't been recorded. Is this familiar?
All trades must be recorded and until then we won't know if there's been any improvement.

Day trading is very much an individual activity. We can discuss possible swing trades as there's plenty of time while the market is closed. There's no time to discuss possible day trading opportunities especially in the first 30 minutes. They set up within minutes and we've only a minute or two to act.

 

[qldfrog]

Thanks for the thread Peter, i i am not currently interested in this type of trading, would probably not suit me well at all, but there are quite a few gems and many will benefit

 

[Gringotts Bank]

I like this guy's channel. Tell Bob to consider adding.

 

[peter2]

This thread has struck a snag and I need your suggestions. I thought I could talk Bob out of his day trading fantasy and switch him into swing trading or a US portfolio. I know we could make this work and I was keen to see if we could produce a much better performance with a US stock portfolio than AUS. I had dreams of maybe +50%pa.

Well, the snag is, that Bob is determined to make day trading work. He's showed me some pie in the sky blue print aspirations that make my portfolio performance dreams look ordinary. I won't show you the numbers but you get the idea. Many of us probably started with crazy projections like this.

Bob starts off with the aim of earning +1R /day that's +5R/wk etc... no I won't go on.

I have to support Bob with his ideas and we've discussed the pre-market routine and I believe he's recording his notes and checklist's for our fortnightly discussion (Bob provides the food and drinks).
Bob's given himself until the EOFY (Jun 2020 in Aust) to see if he can master this activity.

My query is, what can I show you to make this thread entertaining, educational and document a traders journey tackling something that's very difficult to master?

I could post a few winning and losing trades but that gets a little boring after a while and then there's doubt that the examples are being picked to make Bob's trading better than it really is. You wouldn't know if Bob's showing me the on plan trades and is trading like a maniac off plan. This won't be a concern with Bob as he's given me viewing access to his account. At the moment I'm thinking of posting fortnightly updates of Bob's account and posting the results as a batch along with his cumulative progress.

 

[qldfrog]

This thread has struck a snag and I need your suggestions. I thought I could talk Bob out of his day trading fantasy and switch him into swing trading or a US portfolio. I know we could make this work and I was keen to see if we could produce a much better performance with a US stock portfolio than AUS. I had dreams of maybe +50%pa.

Well, the snag is, that Bob is determined to make day trading work. He's showed me some pie in the sky blue print aspirations that make my portfolio performance dreams look ordinary. I won't show you the numbers but you get the idea. Many of us probably started with crazy projections like this.

Bob starts off with the aim of earning +1R /day that's +5R/wk etc... no I won't go on.

I have to support Bob with his ideas and we've discussed the pre-market routine and I believe he's recording his notes and checklist's for our fortnightly discussion (Bob provides the food and drinks).
Bob's given himself until the EOFY (Jun 2020 in Aust) to see if he can master this activity.

My query is, what can I show you to make this thread entertaining, educational and document a traders journey tackling something that's very difficult to master?

I could post a few winning and losing trades but that gets a little boring after a while and then there's doubt that the examples are being picked to make Bob's trading better than it really is. You wouldn't know if Bob's showing me the on plan trades and is trading like a maniac off plan. This won't be a concern with Bob as he's given me viewing access to his account. At the moment I'm thinking of posting fortnightly updates of Bob's account and posting the results as a batch along with his cumulative progress.

Hi Peter,
As i see it, the problem is that fortnight result for day trading will be just figures..we lost or won xxx
A bit like these pie in the sky numbers "Bob" was mentioning...
Too far from the individual day trades actual action to be of much instructive value..could generate greed envy or fear but not much else?
And if Bob details his Peter flavoured trade, day by day, we might be flooded with details hiding the real information..
Too much information is no information. To little..the same
You are trying to solve a hard problem on my opinion.
I have to say i am not interested in day trading so this could have affected my judgement, or absence of if i listen to some posters there

 

[tech/a]

Im waiting to see something that I don't believe you can day trade without.
I haven't seen it mentioned yet in this thread.
Lots of things pertinent have been mentioned.
Anyway off to Melbourne. Presidents Cup and Shopping!!!

Also why stock
There is a myriad of Futures.
Long and Short.

 

[peter2]

Why equities? I'm comfortable with them.

The main theme of this thread will be on Bob's day trading journey but there's no reason why I can't provide a bit of competition by managing a Wkly/Dly portfolio of US stocks. I help Bob and get experience managing a US stock portfolio. Seems like a win-win situation.

Hopefully the thread won't become confusing. Bob and I will both provide fortnightly updates and between the updates we can post a few examples that demonstrate our trading setups and discuss aspects of trading as they occur.

I'm mindful that I placed this thread in the beginners section here at ASF.
This means I'm happy to reply to any and all questions related to trading US stocks from Aust.

Why trade the US market? It's bigger, the volumes are huge and it's much easier to day trade and short stocks.

 

[tech/a]

Ok Peter I understand.

 

[frugal.rock]

So Poiter,
I am wondering, does Bob have a contingency plan for Forex rates?
I don't know how it works apart from there's a spread of what, 2%? on exchange, and if the AUD gets stronger again, does this add costs into Bob's arrangements or can he make a bit from Forex swings as well, assuming he masters his venture in 6 short months and has profit he wants to bring home?
I get the monstrous exposure comparing US markets to ours.
Where a company is listed on multiple exchanges, do SP movements mimic or relate?
Example, a stock on the asx goes up, is it usually or often reciprocal in the US ?
F.Rock

 

[peter2]

This is an important notice for US day traders and particularly significant for Bob's account as the balance is $25.6K. Bob opened a normal equities margin account with a large US broker and has started trading. Bob is aware of the SEC Pattern Day Trader (PDT) rule.

From Investopedia:


If Bob executes more than 3 day trades within 5 days his account will be flagged as a PDT account. If his account balance falls below $25K USD he will not be allowed to trade until he tops up the account to >$25K. Once an account is flagged as a PDT account it's extremely difficult to have this reversed.
Bob's options:
(i) Restrict his day trading to no more than 3 day trades in a 5 day period. (Might cramp his style)
(ii) Top up the account to provide a buffer until he's consistently profitable.
(iii) Trade as much as he wants (account flagged as PDT) but does not let it go below $25K. (Only trades winners, yeah, good luck with that).

Note: Brokers handle this rule intraday with slight differences, but they must comply at the EOD. It's up to the traders to understand how their broker handles this rule. If you have an IB account in Aust and day trade US equities you must understand how IB handles this rule.

 

[peter2]

@frugal.rock Poitier is not here at present but "Guess Who's Coming for Dinner?"

No, he's not concerned by changes in currency exchange rates. I suppose once his account gets into the 1000s of Ks he might be a little more concerned. It's another cost of business but the much lower commission rates in the US help.

Yes, the prices of stocks on multiple exchanges mimic each other and take into account the fluctuating exchange rates. There are bots (algos) that pounce on any differences in milliseconds.

 

[ducati916]

we can post a few examples that demonstrate our trading setups and discuss aspects of trading as they occur.

This is generally more interesting to me than just purely looking at the results of some mechanical selection.

Being that it is the US, also, more interesting.

The thing with DT US is that the DT stocks change over time. In the late '90's it was a list of QQQ stocks. Today the DT stocks are the TSLA, NFLX, etc.

Wait to see which way Bob jumps.

Just looking at market overall, looks like a couple of down days are setting up. If you trade in general market direction, I'd be looking for short set-ups.

jog on
duc

 

[ducati916]

For those feeling brave, and clearly Bob falls into that category, TSLA looks (to my eyes) a good short set-up for today.

So as a (paper) trade Short 500 TSLA @ $355.40

jog on
duc