And the winner for this round of Q&A is…

But before I announce the winners, I’d like to thank everyone for their questions they were all quite thought provoking and made me really think…

Ok, the winner is…

There were actually 2 questions that stood out, they were:

* How can a trader tell when a trend is over and a consolidation is the current market direction?

* I believe the most important attribute that a successful trader needs is to have the ability to quickly identify when a trend turns into congestion and vica versa. I can look like a genius when I follow the trend, but easily give it all back if I can’t see congestion before it’s too late. Are there good rules of thumb or otherwise that could help identify the transition?

These are the two questions that I have chosen as the winners. Because…

1. They are too long to answer in a simple post.
2. They are the topic of my soon to be released product.

It actually took me over 2 hours of video to really get into this and address this question, so I really can’t do it justice in a single post.

Congratulations to Millowena and Dan. (I’ll be emailing you both shortly.)

Both will receive a free copy of my latest course.

There is 1 problem though, the course is missing a name.

So that’s the perfect excuse to have 1 more ‘contest’.

The winner will again receive a copy of this soon to be released course, and will have bragging rights as the ‘Title Namer’ extraordinaire!

But how can you name a course you know nothing about? Good question.

So here’s the gist of it.

It’s a course that shows you how to define both trends and consolidations then gives specific strategies to trade both those market conditions.

It’s designed to be flexible enough to allow you to tailor it to your trading risk tolerance and personal style while adhering to solid market foundations.

I’ve got some rough notes at www.trading202.com/name-it.html that you can take a look (if you like).

To enter, just leave your entry as a comment on this post. You can enter as often as you like, and the winner will be announced either by next Tuesday, or as soon as I get an entry I like. (So it pays to act fast.)

If no entries seem suitable we won’t have a winner and I’ll just have to go with my backup name (unfortunately my first choice was not available as a website address).

Good Luck!

P.S. This course is planned to be released July 1st. But before then I’ll be looking for some beta testers.

If you’d like to get on the list for beta testing, or want to learn more about the course please visit www.trading202.com/name-it.html and sign up at the bottom of the page.

Categories: Trading
22 Comments »

1. “Hi Ray, I want to ask you about the proliferation of indicators that are given with virtually every charting service. I keep seeing comments like “only 5% of traders ever make any money”
   Now I’m assuming that this ratio of winning traders has been roughly the same since the year dot, even long before computers were around. If that is true, then why are all these indicators not producing more winning traders?. I vaguely suspect that the pro’s are using them like a smokescreen so that the “sheep” get slaughtered on a consistant basis!!.
   Could you please give your view on it, thanks.”

I think an indicator is like a golf club… every year millions of dollars are spent on new clubs with the hope that “this” new club will take my game to the next level.

That being said, will the new club make a difference?

Yes and no.

It may make a huge difference to someone who has the skill to wield the club, but it will probably make almost no difference to someone who doesn’t.

It’s the same with indicators… if you have a great indicator, but couple that indicator with poor trading decisions and flawed logic, then you’ll really see no difference in the end. The club is only part of the whole equation.

I don’t believe there is a consipiracy by pros to use indicators as a smokescreen… I actually think non-pros go out looking for magical indicators thinking that this is what the pro’s are using… inadvertently causing themselves to focus on the wrong things.

2. While trend trading, I like to get in a trade after it has been consolidating. Is there a way to tell a true breakout from a false one?

   Three things to consider are:

   1. If the breakout is strong… in other words, does it extend well over the consolidation range vs just barely inching over.

   2. Is the breakout news driven or price driven… in other words, did news make it move or is it unknown as to why. News breaks tend to be more false.

   3. There’s no REAL way of knowing for sure if a breakout will be true until after its done… all you can do is add filters to attempt to reduce the odds, but that may simulataneously cause you to miss a good breakout… that is the nature of the beast.

3. If you could only choose one trading method for swing trading stocks and/or ETFs, what would it be and what are your rules for trading it?

   Interestingly enough, this is the one combination I haven’t really done… I’ve day traded stocks and ETFs, but not swing traded them. And since my day trading strategy does not really suit swing trading, I actually don’t have a specific trading method to recommend for this off hand.

4. If you had to pick the top 3 things to utilize when trading what would they be?

   1. s/r levels/ pivot points
   2. trend lines
   3. candle stick patterns
   4. chart patterns
   5. certain indicator
   6. fibonacci
   7. elliot wave
   8. time frames – fractals

Would interested to see your view on this.

I use 1,2 & 4 with a little of 3.

5. In your experience what parameters would you set up bollinger bands and what time periods are most effective using them? I would also like to have another confirmation with a slow stochastic to increase odds of the trade. I hope this makes sense. Thanks for taking question.

   I’m actually not a big user of Bollinger bands. While I have experimented with them a bit, I haven’t found anything that really works for me.

6. What technical indicators do you use to make the decision to enter/exit a stock? And how do you use these indicators?

   When I was day trading – price and level II was all I used.

   With position/swing trading – support/resistance levels are used to gauge price action or trends, with some chart patterns and candlesticks to round out the analysis.

   I enter and exit based on how price reacts around key price levels.

7. In trading, the mantra goes “Cut your losers short, and let your winners run.” So, I have a pretty good feel of cutting losers short at a pre-determined level, but how do you get out of winning trades and feel like you’ve gotten most of the goodie out of it? I’ve closed trades at 100% return, only to watch would have been profits run much higher.

   There’s actually only 1 person I know who has (or is extemely close) to figuring out how to get out at THE very top or bottom of a trade… barring that, there’s 2 things I’d suggest.

   1. Use trailing stops as a means of allowing trades to progress and close out only when the market has indicated vs you picking a point to exit.

   2. Keep a trading journal and access whether you closed out a trade because your strategy dicatated it or you were afraid of losing paper profits. The aspect of “feeling good” about it, is really subjective. I learned early on that if I followed my strategy and exited where I planned then I should feel good. The fact that the market continued to move further than expected was beyond my control. But making yourself feel bad while executing your strategy as planned will only get you doubting yourself more and more.

8. Often in trading I use the Stochastics and the %R, combined with moving averages and some information about buy and sell pressure they give a pretty accurate picture of what is happening and help me choose to enter a long or short position.But equally often I had the trade going against me because instead of continuing to leave the oversold or overbought position the indicators returned below or above their respective 20 and 80 lines and stayed there quite a while and generating huge pip/tick amounts. Is there a tool, indicator,analysis which can help me to determine that the market will stay in its oversold or overbought position(after having given first a false change of direction signal) ?

   It sounds like with all the indicators you’re using you’re having about a 50/50 odds of getting into a winning trade.

   That said, if you can simply keep your winning trades larger than your losses, you’ll be fine.

   As per another tool to increase the accuracy of those indicators, I’m not sure if adding more is really the key.

   The only suggestion I would make is to try your analysis on multiple timeframes… using the same approach you have take a look at the next timeframes up. So if you trade daily, take a look at weekly charts, if you trade hourly take a look at 4 hour or daily. Apply your analysis there and you may see that things happening on the higher timeframe that contradict your lower level analysis.

9. My question:
   In my situation I kinda have 2 options:

   A. I choose the best looking trading system. The disadvantage imo is that There is no spreading risk. The advantages are that I have a clear overview and that I don’t need micro lots

   B. I choose different trading systems. The advantage is spreading risk and the disadvantage is a messy overview of the trades. It’s also more work and with my budget I need micro lots.

I would lean towards “A”, and find a system that fits your trading style and personality. In other words does the trades it triggers match your philosophy of the market, do the trades make sense to you, are you able to follow the trades generated, etc…

If you can do this successfully you don’t really need additional strategies, but if you wanted you could always then look for more to integrate into your main approach.

I think trying to trade multiple systems at once is too tough, and in the end I think all it will do is scatter your focus and delay your progress.

10. Which of EUR/USD or GBP/USD is generally the more lucrative pair to trade?

    Going solely from faulty memory I believe the GBP/USD is more volitile and has larger moves, so with the same margin requirments it would make that pair more lucrative.

    I tend to follow the EUR/USD because of it’s more favorable spread.

    I think both pairs would offer an equivalent number of opportunities… I’m not sure what else you might mean by lucrative.

11. Followup question: When generally are the best times to trade EUR/USD and GBP/USD?

    About an hour before the London open… which I BELIEVE is about 3am EST (that’s the time I watch, you’ll have to translate it to your timezone.)

    And if want volitility watch for news releases (but be wary of trying to trade news because of fast markets and slippage.)

12. about the fibnocci on the chart the calculation entry point and target

    I guessing you’re asking about how to use Fibonacci for entries and targets.

    This is really not my area of expertise, as I never traded with Fibonacci at all. I’ve only been recently turned on to it as I’ve been working with a guy who can do some pretty remarkable things with it.

    That being said, I really am not equiped to provide any suggestions in this area… sorry.

13. How do you use a trailing stop order if you think the stock will go up or down? What is a trailing stop order?

    Ok, I’ll answer what I think the question is.

    First off a “stop order” is an order that gets triggered into a “market order” WHEN the price reaches a price level you define.

    For example if I place a “buy stop” for 10 shares of XYZ stock at $100, when the price touches $100 my order will become active at the market and I will get filled at the prevailing market price. So if the price is rocketing up and hits my buy stop order, and continues running up, I may be filled at $100.25, $101, $102… anything depending on the market.

    Now a trailing stop order is essentially an order you “trail” or move along with an existing trade as a means of closing out out that trade.

    So if I got into XYZ at $100 I may have a trailing stop of $2, so if it goes to $101, my trailing stop will be $99, if it goes up to $102, my trailing stop is $100.

    Now a “trailing stop” is not necessarily a feature your broker will have… and asking them to do a trailing stop may be met with confusion. The fact is a trailing stop is simply the process of moving your stop loss as price moves.

    So if your broker happens to have a trailing stop functionality, you can use that, otherwise you will simply move your stop manually as the market moves.

Categories: Trading
No Comments »

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
1 Comment »

OK; I’ll do this from time to time if it turns out to be popular. Here are the rules:

1. Between now and Friday, post your question as a comment to this post.

2. One question per post please.

3. You can post as many questions as you would like… as separate comments.

4. Your question must be about trading.

5. I’ll answer your questions in future posts.

I’ll choose the best question (my sole judgement) and that contributor will be given a copy my soon to be released trading course.

Enter as many questions as you would like.

-Ray

Categories: Trading
24 Comments »