Thanks for all the great questions!

I’ll actually be sending everyone who asked a question an email in the next few days, so watch for that.

This is part I of the answers… I’ve listed the question followed by my answer.

1. Would you recommend option trading for a begginer trader ?

I don’t usually recommend options trading for beginners, as I find that there are a number of additional variables that make trading them more difficult than trading the underlying instrument directly.

That being said, if you want to get involved with options, I would suggest studying them in their own right vs using them as a substitute for the underlying instrument (which is what I originally did).

Options pricing, and the various measures employed with them are a bit overwhelming to me, but that doesn’t mean they are necessarily something a beginner should totally avoid.

2. If you have a situation where the 20 day simple moving average is above the 50 day simple moving average and price has just closed below the 20sma for the day, do you consider a test of the 50sma a more than likely condition and would you take it as a quick trade?

I am not a huge user of moving averages. I usually plot them on my charts, and use them as guides, but don’t really base trades off of them as you’re outlining.

I actually did spend some time trying to trade off of moving averages, but in the end it wasn’t something that worked for me.

That being said, I did know traders that swore by them although I don’t recall how they might handle your example.

3. Could you analize Citibank (symbol C), using chatrs.

Yes, just about every instrument can be analyzed with charts.

4. Where is the best place to learn in detail how to enter contingency orders? Example: how to buy a certain call option if the stock hits a certain buy point with a pre-entered order.

I would take a look at your broker’s website, or contact their customer support. Various options sites might use slightly different definitions and functionalities for contingency orders.

5. use of stops!!!

“I am trying to trade the DOW Cash…after some time now with no success…..Q!uestion I get my signal to enter a trade…I enter with a market order…..here it comes…there are times I use a tight stop 20/30 points…there are times I wait until I see 25 pts in my favour and then place the stop. Either way the market reacts to the market order and goes the opposite way until the pain is too much and I exist…..lo and behold the market then resumes the original direction.

Is it best to use market order or stops or give up altogether?”

It sounds like in either situation you’re finding the market is moving against you whether you use stops or not.

One thing to consider is using wider stops and trading a smaller unit of contracts. So in effect if you were to double the size of your stop, and cut your trading size in half you would be able to weather a larger pullback and simply wait for the market to resume the direction of your analysis.

The second element to consider is your analysis. If you are ALWAYS experiencing this, then maybe you need to account for the pullback prior to entry.

Third, you need to objectively record (or go back in your trading records) and document how many times this has ACTUALLY happened. I know it’s common for many of us to focus on our losses and forget about our wins, so this might actually be the first thing you want to do.

6. Is is necessary to take profits on a portion of your position at a target to counteract the unplanned losses caused be gaps against you?

It isn’t necessary to do anything. I’ve seen and used strategies that have done both, it really comes down to your trading objectives and what you’re willing to accept.

7. When trading we are told that we should see what is happening on higher time frames and enter thru a lower time frame. For example, you look at 4 hour and 1 hour chart before we enter on a 15 min chart. That is fine. My question is if the current trend on the 4 hr chart is bullish but the over all the trend changing to bearish how do you detect it on a 15 min chart. Per our rules because the current 4 hr reflects the Bullish we enter LONG on 15 min. Obviously we will be stopped out. How to overcome this problem.

It sounds like you’re bullish on the 4 hour chart and suppose to enter long on the 15min – but you see that the trend is changing to bearish what do you do.

It sounds like the analysis that the trend is turning is being done, but the rules you’re outlining don’t account for that. I’d update the criteria for my 4 hour chart analysis factoring in the possibility of a trend turn. Because either your analysis on the 4hr must indicate that the trend is changing (which you seem to be indicating) and you start to trade bearish on 15min, or you continue to trade bullish until an actual turn in trend is confirmed.

8. “I have seen your comments on adjusting stops for money management purposes on stock (great), but how about position sizing on stocks, and more importantly on futures and 4x as per van tharp, ryan jones, larry williams/ralph vince..etc?

the above are a little confusing, and you seem to have an easy explanatory style”

I am not aware of varying styles of position sizing. I’m only really aware that when position sizing you’d take:

How much of your account you’re willing to risk (dollar wise) on the trade and divide that by how much you’ll potentially lose per contract/share – this gives you how much stock/contracts you should be trading.

For example:

If I’m willing to risk $1000 of my account on the next trade, and I’m looking to buy the EUR/USD at 1.5000 and will place a stoploss at 1.4950 – I will be willing to lose 50 pips or $500 per full contract. By dividing the $1000 by $500 I calculate that I should trade up to 2 contracts.

If there are other position sizing techniques please feel free to post a link.

Categories: Trading

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