Helping Bob trade the US markets

Now actually a real trade:

Buy DIA....100 @ $278.97
Sell QQQ....130 @ $204.31

Pairs trade looking for convergence.

jog on
duc

@ducati916 thanks for your comments and contributions. It encourages me to continue with a bit more detail.

Bob has decided to go with option (iv) (his own). He's going to trade his setups whenever he see them and if the account falls to 25K he's prepared to deposit another 2K USD to give him a buffer. It doesn't matter to him if the account is flagged with PDT.

With that sorted we address the all important topic of his trading plan. As well as the trades he showed me Bob's been trading in a SIM account. Bob's trading setups are varied and many. I don't think this is a good thing for a new trader.

I ask Bob what sort of price movement his he attempting to trade?
Is he trading individual chart patterns? Is he trading these patterns with the trend of the market and sector? It's much easier to swim with the tide. If he's trading patterns then he must allow time for the patterns to form. He's unlikely to be starting a trade in the first few minutes.

eg. TSLA has been one of the strongest stocks in a rising market over the past three days. TSLA has gone up every day after the open the past three days. There's been good opportunities for a continuation long on each day. Since TSLA has been so strong I would be reluctant to start a short now, even though its at a prior swing high. After three consecutive days up I'd be reluctant to go long also. (Note; I've heard of the Taylor swing cycle but never really studied it.)

OR Is he trading against other traders? This will be difficult to convey as I've not written about it before. There's a constant battle between supply/demand every minute the market is open. However on certain occasions the emotions of fear and greed are more dominant.

eg. Price gaps up on good news. All the shorts realise they're wrong and must get out immediately (they buy to cover, increases demand). Demand also increased by the FOMO crowd (retail traders, not the pros). The sudden increase in price induces many holders to sell or take partial profits (supply increases). The pros (instos) also take the opportunity to sell some of their inventory (more supply). The chart shows the outcome of this opening battle. How many times have we seen price gap up on good news and immediately fall? How many times have we seen good news spur the price higher?
Either can happen, so what are you waiting for to trade?

IMO a DT has to decide how he/she is going to tackle a gap up. Do you wait for a setup to go long or do you wait for a setup to short it? If you wait for either then you're likely to miss them.

ducati916 said:

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

Click to expand...

I'm with the ducati916 on this.
In the few minutes after the open if price gaps up, I'm only looking for a long setup. If price gaps down I'm only looking for a short setup. If the market is going up I'll be watching my pre-market charts for longs only. I won't have any shorts but I will watch an inverse ETF in case the market turns down.

Aside: Wow, the US market has just spiked up and pinged me into two trades and they've hit their targets within minutes. 8 minutes after the open and I'm done for the day. (Unless I hang around to watch what happens next ).

Back on topic. I'm trying to say that a DT must have a plan A and also a plan B.

I'll end here as the market has turned my head inside out.

IMO Bob has to decide what he's going to do. If he's going to trade individual chart patterns then his W% will be 45 - 50%. If he's trading with the market as well, maybe 55%. If he's trading with the market and the sector, maybe 60%. If he's trading the strongest stock in the strongest sector in the same direction as the market, maybe >70%.

The more information Bob has, the more he's able to make a better decision at the correct time. Assembling all the right information and evaluating it quickly while looking at your fav charts for your setups and placing the orders at the correct time takes lots of practice.

Aside: the market is still going higher and I'm out. It appears that a Trump tweet about China trade just after the open has spiked the market higher. Gotta love that man.

Bob has to either improve his W% or let his winners get bigger. I'm trying to point out that he can do both if he does some pre-market analysis, simplifies his TP and executes it consistently well.

From one of Aaron Korbs youtubes (thanks @Gringotts Bank ).
Step One: Master your TP setups.
Step Two: Become consistently profitable
Step three: Scale UP.

Today (12/12/19) provides a good current example of what I'm trying to convey.

The US market have been going up over the past five days. My bias is to the long side. My pre-market work finds me some bullish charts and I place a few stop orders on a few charts soon after the open. If prices go down, I delete the chart. Not interested in that stock for the rest of the day.

Today soon after the open, Trump tweets again and sends the market to the moon. This is unexpected but great. Prices are on their way to the moon but my price targets were only in the stratosphere and I'm taken out for nice regular size profits. My day's work is done.

Now, if the Trump tweets sent the market lower all my pre-market work and bullish charts would have been for nothing. Except, that I watch inverse market ETFs (UVXY, SQQQ) as a back-up (plan B). When I see the market start to fall I will look to the appropriate charts for a setup to go long as they're inverse.

On a normal day I'll see what the index has done during the Euro session (pre US) and see what happens at the open. After two minutes I'll know which sectors are strong and weak. If the market is going up I'll go to my semi-conductors page and find a perfect setup.

Q: What do you happened in the semi-conductor sector today?
Check the image to see if you're correct.



Even after the initial reaction to the Trump tweet, were there any low risk setups (opportunities) to go long in this sector?
[Yes, check out the shallow red bar pull-backs in the charts of AMD, MU, WDC, QCOM, NVDA.]

Whoa there, P2.
Going over my last few posts, have I given far too much information for a beginners thread? (*)
I won't move this into the ASF members section (yet) but I will ease up on the information I post.

I hope Bob assimilates this information and can apply it in real time. I know he's more analytical than me and probably more determined. It'll be interesting to see his next real (not sim) results.

* - Inside joke, 99% of people reading this will not do the work required.

So just an update on the paper trade.

If Bob (aggressive) had been DT and now we know he is, then on his TSLA short he could have exited at the close at $352.70 +/- for a profit of $3 +/-

jog on
duc

peter2 said:

* - Inside joke, 99% of people reading this will not do the work required.

Click to expand...

This.
Not going there.

Now that we're in the holiday season the daily ranges and volume are declining. This makes day trading much harder. The US markets have been gaping up on the open taking most of the daily range away from the individual stocks. Of course there are plenty of good trades but one has to be lucky enough to be watching them before they trigger. Bob and myself have noticed that opportunities are decreasing and the ranges contracting.

It's probably better either taking a break from the markets or preparing for next year.

After another tennis session, Bob still didn't make many mistakes (= I lost) we discussed his day trading progress.

Bob's got an issue that I think is reasonably common. It's an issue I deal with also. The issue is "failing to pull the trigger" or coulda, shoulda but didn't. This is usually due to a lack of confidence in what you're doing or a fear of losing money or being wrong.

Like me, Bob is an analytical thinker. We know that we must first identify the problem before we can work on fixing it. (Sounds a bit like me and my computer atm.)

Fear of losing money is the easiest to diagnose. Bob is not risking too much and has even reduced the initial risk that he was using to $60 / trade. The problem remains.

So it's a lack of confidence or fear of being wrong. I don't think Bob lacks confidence in the process of trading as we've discussed it many times and Bob understand the principles of profitable trading. He's alos done a lot of correct sim trading to perfect his trading process. I also don't think it's a fear of being wrong. Bob admits to being wrong once or twice in his life. Bob's profession is accountancy. The numbers must always add up and with Bob they always do. I think Bob like myself has a problem dealing with uncertainty.

Trading requires us to deal with uncertainty using a probabilistic mindset. Unfortunately our brains have been conditioned to treat uncertainty as a threat that must be avoided (flight) or confronted (fight). This automatic (limbic) response is hardwired and bypasses the rational thinking mind.

Confronting the markets by risking too much and refusing to take losses is a recipe for disaster. Avoiding the markets is the safest option but that means we don't trade.

Starting the day with I'm going to "trade the plan" is all well and good but the market does it's dance in front of us and our primitive (limbic) brain detects the threat of uncertainty and instigates the pre-programmed response. The first thing we actually think is that we missed the trade. No, we didn't have a chance.

However trading psychologists believe that we can re-condition the auto response by willfully changing our core beliefs. These beliefs are created by our rational mind to explain what's happening. We develop beliefs that trading is hard, that we need another plan or another indicator, that we don't deserve success or the money etc.

Welcome Bob, to Trading Psychology 101. I'm no expert and I admit that the market uncertainty still triggers my primitive brain to avoid it.

The resource that helped me deal with this problem was the book written by Mark Douglas, "Trading in the Zone". Mark points out that the problem with poor trading results is not the markets but the trader. All traders start with beliefs about the markets and beliefs about themselves. Most of these beliefs are not helpful in developing a consistent probabilistic mindset.

Mark outlines an exercise in the book that may help. Start with an amount of money that you can comfortably lose as a tuition fee. Divide that by 20 and use the value as your initial trade risk. Then complete 20 trades according to your trading plan. No changes to the TP can be made during the batch of 20 trades. Once you've completed the batch you start another. (egads! My copy of TITZ is missing. Who has it? )

The possibly loss of the next trade is lessened by realising that it's only one in the batch of twenty. Once you've completed the batch you've got some stats to start working with to improve your performance.

The first task is to get through your first batch.

peter2 said:

(egads! My copy of TITZ is missing. Who has it? )
.

Click to expand...

Teenage son?
And you thought he wasn't interested in 'the zone'.
Thanks P2, learn something new from nearly every post, and if it's not new, it's great positive reinforcement.
Must remember to look up limbic. That's a new one for me.
F.Rock

The problem with Bob's earlier posted results was that he was trading two methods, swing trading (poorly) and day trading (inconsistently with no plans).

Bob has decided to day trade only. We've outlined two trading setups to use. One continuation pattern when the market is moving in that direction (both up and down) and one reversal pattern when the market is reversing. We're always trading with in the direction of the market. We're only looking at a small manageable selection of charts for the trading setups.

I've suggested that he use only the continuation pattern for the next batch of 20 trades and that he only trades "long". When the market falls there will be setups to go long in the inverse ETFs. If the batch shows a profit he'll build confidence that he can trade the pattern profitably. It's important to master one pattern that'll you'll always have confidence in and will be the"go to" pattern when trading gets you down.

@frugal.rock The fact that you acknowledged the acronym shows that your limbic or primitive brain is in excellent working condition. You probably posted the response before you thought it funny enough to do so.

peter2 said:

@frugal.rock The fact that you acknowledged the acronym shows that your limbic or primitive brain is in excellent working condition. You probably posted the response before you thought it funny enough to do so.

Click to expand...

Aye, I love it how you twist my primitive brain. I resemble that remark. I wonder how many other people trade like Bob? Bob and I are remarkably similar, quite uncanny really...

Hope you do not mind the holiday spirit fun there, but are we not all Bob....

Spent a couple more US sessions with Bob. He's not trading freely yet and misses the setups he should be trading. I raised this problem of failure to pull the trigger because I thought it might be pretty common. Seems Bob and I are the only ones concerned by it here at ASF because there's been no discussion on the topic since I mentioned it.

Or it could be that you're afflicted with "failure to post on ASF syndrome". That's pretty common around here.

Once again Bob has showed me his plans for growing his account. Hey Bob, you've got to take the trades first.

Is it based on fear: absence of confidence in self or system, or circumstances due to holiday season?
Maybe bob Bob is not ready enough, and need to paper trade a bit longer..but then be hit by regret and rage if he ultimately starts real $ just before a whiplash...

Why has no one suggested to Bob that if he is day trading he should be using lower time frame charts and Patterns?