Tag Archives for " Trading Education "
7 Ways to Be Just Another Failed Trader
Do you want to fail as a trader? Do you want to miss your next mortgage payment? Or pull your daughter out of private school because you can’t make tuition next month? Well you’re in luck! Because we’ve got 7 surefire tips for failing as a trader! Just kidding… sort of. We’ve worked with thousands of traders over the years. The best of them ended up with 6 or even 7-figure incomes. But many flamed out. They end up holding bad trades too long or doubling down on losers. Even worse — we’ve seen traders that spent more time on Twitter and Instagram than on their trading platforms! 9 times out of 10, it’s easy to spot a failing trader. So we’re laying out 7 habits of unsuccessful traders so you can avoid them. How many of these apply to you? 7. Don’t Develop a Daily Routine Successful people don’t have time to figure out what to do next. That’s why they use routines and checklists. Why? Because if you’re asking yourself “what should I do now?,” you are wasting time and energy. If you have a daily trading routine, you’ll accomplish all your key tasks in less time, which will actually frees you up to be more flexible and creative. 6. Don’t Learn New Things Dinosaurs go extinct. And so do traders that refuse to learn and adapt. Chasing novelties can be very dangerous. But if you want to succeed, you must keep yourself up to date. Always strive to understand what’s working in the market right now. And explore new tactics that may work with your current strategy. You don’t want to wake up one day and discover that everything you know is useless. 5. Don’t Analyze Your Results A wise man once said “you can’t manage what you don’t measure.” Traders have bad memories. So it’s important to carefully go through examine your trading results to see exactly what you’re doing right, and what you’re doing wrong. Maybe you think you’re great at trading Tesla (TSLA)… but does a detailed P&L back you up? And who knows? You may find out that you have some strengths you didn’t know about. You may just be a dynamite gold trader, or a genius on the short side. Just let the numbers do the talking. 4. Don’t Talk to Other Traders The biggest myth on Wall Street is that great traders are lone wolves, getting rich on instinct and talent alone. In reality, most profitable traders join a pack. Because there is power in numbers. You may have 3 good trading ideas. But if you’ve got a buddy with 3 more ideas, you’re up to 6. Add a 3rd friend and you’ve got 9. And it’s not just trade ideas. We’re talking trading techniques, news flow, and support when things get tough. 3. Don’t Do Your Own Homework Newsletter, trading rooms, and trade idea generation services can be tremendously valuable. But you must also do your own homework. For example, if you see a stock make a big move, study it and create your own case study. Or, go back to a major historical event like the 1987 market crash or the 2008-2009 financial crisis and study the price action. You can obviously learn a lot from other people’s summaries and explanations. But if you want to build a truly valuable knowledge base, roll up your sleeves, and do the work yourself. You’ll be shocked at how much you learn. 2. Don’t Learn an Actual Strategy Individual tactics are great. And you can learn thousands of them for free. But if you want to actually create wealth through trading, you need a complete strategy. There are 2 major problems problem with just learning random tactics. First, it’s hard to know who to trust. And second, it’s hard to know which tactics work together. So instead of focusing on bright shiny objects, learn a real trading strategy that includes technical analysis, entry/exit parameters, and risk management. And THEN start exploring additional tactics that may work with your evolving trading style. 1. Don’t Pay the Price for Success You may lose money and waste time in learning to trade. That’s the price of success, and you have to pay it. If you start your trading adventure with a legitimate strategy with specific risk-reward parameters, you can keep a lid on your losses. However, you must be willing to put in the time. If you haven’t paid that particular price yet… it’s time to ask yourself why. Ready to take your trading seriously? Check out: Trading the Pristine Method Home Study Program Sami Abusaad’s 5-Day Elite Private Mentorship Program
Continue Reading -->Dynamic vs. Static Risk Management for Swing Trading
Are you one of the many swing traders that takes the same level of risk notwithstanding the market conditions? Do you always trade “a thousand” shares just because that’s an easy number to remember? Do you have a hard time picking the best stocks for swing trading? I will discuss some finer points that might help you to become better at managing risk. First and foremost, the T3 Trained Trader (T3TT) should have a Trading Plan outlining his/her money management rules. Here you should establish parameters such as a “maximum loss per week-month”. When establishing a maximum loss per trade (because no one can know which trade is going to work out), the T3TT has to decide whether he wants to follow a more “static” approach where all the potential losses will be similar, or whether to adopt a more “dynamic” set of guidelines created with the purpose of governing when to be more aggressive, less aggressive, or not active at all. You have to understand the fact that not all market conditions present the same odds for a particular trade. Let’s say, for example, that market “x” is in an up-trend, and has pulled back to support over several days. Today we get a reversal bar, and then the reversal is complete. In this case, the swing trader will likely find several high odds entries both today and tomorrow (depending on the tactics used, many of which are taught in our T3 Technical Strategies Course. The third day comes along, the market continues to climb, and some more entries might be executed. As the market continues to rally, the odds of every new entry following through will diminish, as the probability of a reversal to the downside in market “x” is greater. Based on this scenario, a swing trader might enter into larger positions on days one and two, and might reduce his share lots as the market continues to climb. There will be a time when the market has climbed for 5 or 6 days in a row, and so the T3 Trader will devote more and more of his time to manage already open positions, by selling partial lots and raising stops, instead of being too active in entering new swing positions. (He might be more active in micro trading activities though) Using some modified version of this basic concept, the T3 Trader can implement an intelligent way to participate in the markets, while reducing the risks of getting caught with big positions on a reversal contrary to his positions. Trade Well!
Continue Reading -->5 Sentiment Indicators You Need to Know About
Permabulls always say everyone’s bearish. And permabears always say everyone’s bullish. Most of the time, neither actually gives evidence for their views. That’s why we started T3 Live’s Weekly Sentiment Update. Our Weekly Sentiment Update eliminates opinions, feelings, hunches, and preconceived notions. That lets us strictly focus on the numbers and get a more accurate idea of just how bullish the crowd is. To do this, we take 5 sentiment indicators, break each one down, and then analyze what they mean as a whole. Why 5? Simple — lone sentiment indicators contradict each other all the time. At any given time, one sentiment indicator can read bullish, and another can read bearish. So it’s best to use a variety before forming an opinion. And the 5 we use are all available to the general public without any expensive subscriptions. Here they are, in no particular order: 1) VIX Curve If you understand the basics of the VIX, then you probably know that the VIX alone is useless as a sentiment indicator. And it has little value as a predictor of price. However, by comparing the spot price of the VIX to forward futures prices, you can get an idea of just how much volatility traders are pricing in. For example, if the spot VIX price today is 20 and the 3-month future is 18, that means that traders are pricing in significant short-term volatility. That of course means they’re bearish. Click here for a detailed primer on the VIX Curve 2) CNN Fear & Greed Index The CNN Fear & Greed Index uses a variety of factors including market momentum, junk bond demand, and market volatility to judge whether traders are more fearful (bearish) or greedy (bullish). I’m a big fan of this index because it operates on a simple 0 (extreme fear) to 100 (extreme greed) scale, which eliminates a lot of guesswork. If you’re going to choose only 1 sentiment indicator to follow (which I don’t recommend), this is probably the one to pick because it focuses on actual market activity than polls and surveys. 3) American Association of Individual Investors Sentiment Survey Speaking of surveys, every Thursday, I look forward to the release of the AAII Sentiment Survey. The AAII Sentiment Survey tells us whether individual investors are bullish, bearish, or neutral for the next 6 months. Since individual investors tend to get too bullish at tops and too bearish at bottoms, it’s good to know where they stand. AAII also provides in-depth commentary with its weekly Sentiment Survey data, which is very helpful in making comparisons to historical trends, and in figuring out what’s actually driving public opinion on the market. 4) Chicago Board Options Exchange Equity Put-Call Ratio The CBOE Equity Equity Put-Call Ratio tells us how many put options are traded vs. the number of calls. Reported at the end of each day, the CBOE equity-put call gives us a rough idea of how equity options traders view the market. On average, about 0.65 puts trade for each 1 call every day. When we see major shifts from that long-term average, it can indicate an extreme in sentiment, and a potential trend change in the market. 5) ISE Sentiment Index The ISE Sentiment Index is similar to the CBOE Put-Call ratio, but it has a few interesting twists to it. While many options-derived sentiment indicators are put-call ratios, the ISE Sentiment Index is actually a call-put ratio. The ISE also uses only opening long customer transactions, and eliminates market maker and firm trades. This discards many trades that are not clear bullish or bearish bets from sentiment calculations. For example, shorting puts is actually a bullish trade, and market makers may trade calls and puts strictly to hedge other transactions they make. The ISE also operates on a scale of 100, with 100 representing equal demand for calls and puts. And unlike the CBOE Equity Put-Call, the ISE is reported every 20 minutes on a slight delay. But bizarrely, even tough the ISE Sentiment Index seems better designed, since late December, I’ve found the CBOE Equity Put-Call Ratio more helpful. How You Can You Use Sentiment Indicators in Your Trading Typically, it’s better to buy when sentiment is very bearish, and it’s better to sell when sentiment is very bullish. But you must keep a few things in mind. First, analyzing sentiment is more art than science. Yes, we’re dealing with numbers, but I can tell you from experience that trying to turn them into buy or sell signals through quantitative analysis is extraordinarily difficult. Plus, extremes in sentiment can last quite a long time. For example, as of April 2017, the ISE Sentiment Index has been bearish for months and months. So don’t use sentiment indicators as buy or sell signals on their own. Just treat them as another piece of the puzzle, and incorporate them into your overall market and trend analysis. Let’s take the April 23 French election. After analyzing the 5 sentiment indicators listed above, I determined that traders were very bearish ahead of the news. Traders were clearly pricing in a negative outcome (namely, a victory by far-right populist Marine Le Pen). So if I had wanted to bet on a positive outcome, I would have been encouraged by the bearish sentiment. Why? Because when traders are very negative, positive news can drive huge rallies, which is exactly what we saw on April 24.
Continue Reading -->What Is the VIX? And How Can I Trade It?
How can I make money trading the VIX? That’s one of the most popular questions we get from aspiring traders. And they usually don’t like the answer — because you can’t trade the VIX. The VIX — better known as the Chicago Board Options Exchange Volatility Index — is not a security, and thus the number you see on your screen is not a price. It’s actually a trading indicator. The VIX uses prices of various S&P 500 options with expirations between 23 and 37 days to measure traders’ expectations of volatility. The VIX helps us measure sentiment by telling us how much traders are willing to pay for these options. Typically, the VIX rises when traders are worried about downside risk. Why? Because when traders are worried about downside risk, they’ll pay higher prices for downside protection through options. Let’s take a look at a 10-year monthly chart of the S&P 500 (bar chart) against the VIX (purple line): The chart shows that the VIX had major spikes during the: A) Financial Crisis B) Flash Crash C) Euro Sovereign Debt Crisis D) August 2015 Minicrash This illustrates how the VIX rises when traders are scared and markets are coming under pressure. Why? Again, because traders were willing to pay up big for downside protection through S&P 500 options. The same dynamic plays out on shorter time frames. As you can see in this 20-day hourly chart, when the S&P 500 (bars) rises, the VIX (purple line) falls: And vice versa. What You Can Trade We told you before that you can’t trade the VIX directly, since it is an indicator. However, there are many derivatives of the VIX that can be traded. But before we proceed further, you must understand that virtually all VIX-related instruments can be tricky to deal with. And we urge you to read the prospectus and understand the pricing mechanics of any VIX-related instrument you trade. VIX Options and Futures The CBOE has created VIX futures and options. VIX futures trade nearly 24 hours, 5 days a week. And VIX options can be traded just as easily as a standard equity option. However, keep in mind that VIX options typically expire on Wednesday, and VIX options contracts are based on the price of VIX futures, not the VIX itself. VIX ETN’s There are many VIX-derived exchange traded products, the most popular of which is the iPath S&P 500 VIX ST Futures ETN (VXX). The VXX aims to deliver the return of the S&P 500 VIX Short-Term Futures Index. Many traders also follow the Credit VelocityShares Daily 2x VIX ST ETN (TVIX), which aims to deliver twice the daily return of the S&P 500 VIX Short-Term Futures Index. VIX ETN’s can be bought and sold like stocks. However, they only appropriate for short-term trading since they don’t track the VIX — they track VIX futures, which tend to naturally fall over time. Here’s a direct excerpt from the VXX prospectus: The index underlying your ETNs is based upon holding a rolling long position in futures on the VIX Index. These futures will not necessarily track the performance of the VIX Index. And for technical reasons related to the VIX futures term structure, they tend to decline over time: On the flip side, shorting these instruments over the long run is not easy because of margin requirements and other issues. Plain Old SPY Options The easiest way to trade changes in the VIX may be to just trade SPY options. They’re very liquid and easy to trade with none of the complex mechanics involved with VIX futures, options, and ETN’s. For example, if you think the VIX is set to increase sharply, rather than messing with VIX products, you could simply buy SPY put options. Why? Because a higher VIX means higher put options prices. Remember, the VIX is a measure of implied volatility on S&P 500 options. And all things being equal, when implied volatility goes up, options prices go up. (click here for a primer on implied volatility) And on the flip side, to speculate on a falling VIX, one could simply buy SPY call options, since a falling VIX is typically associated with rising stock prices. Sure, the VIX products are sexier and more exciting, but for newcomers to trading, simpler is often better.
Continue Reading -->How to Define an Uptrend on a Stock Chart
In technical analysis, one of the biggest mistakes you can make is to not have clear criteria for the patterns you’re looking at. What do we mean by that? Quite often, you’ll hear traders use terms like head & shoulders and support and resistance. But you never hear But you never hear about the criteria they use to actually define these terms. In our T3 Technical Strategies and Trading the Pristine Method Programs, we pride ourselves on giving traders, particularly beginners, clearly defined criteria for the patterns we use. Let’s start with one of the most important — the good old uptrend. What is an uptrend? A trendline that points up… right? Well yes, but that’s not enough. Why? Because without clear criteria to define our uptrend, we’ll never know when the trend breaks! Here are our 5 criteria for an uptrend on a daily chart: 1) Higher Highs: stock is making new highs (see letters on chart below) 2) Higher Lows: stock is not breaking below prior lows (see numbers on chart below) 3) Rising 20 Day Moving Average: indicates an improved short-term trend 4) A Rising 40 Day Moving Average: indicates an improved intermediate-term trend 5) Even Space Between the 20 and 40 DMA (a.k.a. railroad tracks) Here’s a chart showing what an uptrend looks like: Next Steps We recommend that you pick out 10 stocks, and see how each of them fits our uptrend criteria. By completing this exercise, you’ll learn to quickly spot the REAL uptrends.
Continue Reading -->4 Real-World Investing Lessons You Need to Know
After 13+ years of looking at the market on a daily basis, and flushing a whole bunch of cash down the drain on idiotic trades, I’ve grasped a few realities about how money moves in the real world — far away from the textbooks and theory pushed at your average business school. Here are 4 of them 1. What You Know, Everyone Else Probably Knows, Too. Investors have a tendency to overestimate the uniqueness of their ideas, even though we’re all drinking from the same information cup. Furthermore, the presence of social media outlets like Twitter (TWTR and Facebook (FB) have drastically accelerated the speed at which investable information is distributed. That means that with few exceptions, everything gets priced into the market pronto. So if you’re thinking of buying bank stocks because The Fed’s about to raise rates, or shorting Apple (AAPL) because of slowing revenue growth, slow down and take a deep breath. It’s important to understand the past and present. But to be a successful investor, you’ll have to predict the future — a far bigger challenge than skimming through 10-Ks and listening to earnings calls. In other words, focus on examining not where the fundamentals and newsflow are, but where they may be going. Remember, when a guy on TV tells you a stock is good because it’s trading at X times earnings and has Y in cash on its balance sheet, he’s simply repeating the bare minimum of what the market knows. As men wiser than me have said, “What the market knows is not worth knowing.” 2. Timing Is Everything. When looking at the market,it’s important to understand not only “the what,” but “the why.” But the more I think about it, the more I’d argue that “the when” trumps both those considerations. Let me tell you a story. I once interviewed at a hedge fund that was making a major bet on its prediction that the then-growing housing bubble would implode. Smart money, right? However, that interview took place in early 2003, right before the Housing Index (^HGX) doubled. Likewise, a lot of folks were short FitBit (FIT) year as it crashed and burned from that $51.90 high hit last August. But a lot of bears got smashed on the 73% rally that precded the drop. So when you have an investment thesis in your mind, ask yourself, “What makes now the right time to bet on this?” Furthermore, if the S&P 500 is skyrocketing, it is entirely likely that junky companies rally big-time. Likewise, if the market’s in meltdown mode, even the best of the best can get smashed. Apple (AAPL) closed out 2007 at $198.08. But in 2008, even in the face of enormous earnings beats and the halo of the iPhone’s unprecedented success, Apple finished the year at $85.35 — a drop of 57%! You may be smart, but remember: Sometimes Mr. Market just does not care about what you think. 3. You Are Probably Suffering From Confirmation Bias. The Oxford Dictionaries defines confirmation bias as “the tendency to interpret new evidence as confirmation of one’s existing beliefs or theories.” Translated into financial terms, it means that if you’re bullish on gold (GLD), you interpret everything you see as bullish for gold. I know the power of confirmation bias from a horrible experience with a former tech highflier called Rackable Systems, which changed its name to SGI (SGI) after it acquired Silicon Graphics in 2009. In 2006, Rackable Systems was a momentum King — kind of like newer names like Acacia (ACIA). It was pulling in boatloads of money selling energy-efficient servers to major data-center operators like Microsoft (MSFT), Amazon, and Yahoo (YHOO). And then — let me point out that I had complete knowledge of this — competitors like Hewlett-Packard (HPQ) decided they wanted some of those data-center dollars. Maybe I should have imagined what would happen if Rackable lost Microsoft (34% of revenues) or Yahoo (26% of revenues) as a customer, or at the very least, the margin pressures that could be introduced in a more competitive server environment. However, I viewed the new competition as nothing less but confirmation that Rackable was on the right track. And then Rackable crashed from $56 to under $10 as earnings collapsed. It is impossible to stay perfectly objective when performing research. But you can stay one step ahead of your own bias by regularly asking the question, “Am I just telling myself what I want to hear?” 4. In Isolation, Valuation Ratios Are Useless. Investors often take a simplistic view of valuation ratios, automatically assuming that if something is “cheap,” it’s good, and if it’s “expensive,” it’s bad. But you’ll often see cheap stocks get cheaper and expensive stocks get more expensive. How many times has someone told you that Salesforce.com (CRM) is overpriced? Next, look at the stocks’ chart since it went public: A P/E ratio, like every other valuation ratio, is 100% meaningless in isolation. It is far more important to examine how the “E” part of the equation is changing. (Or sales for EV/S ratios or EBITDA for EV/EBITDA ratios, etc.) A company trading at five times earnings can look awfully expensive following a bad quarter that destroys future earnings expectations. That’s how a stock like GoPro (GPRO) can go from $98 to $50 to $9 in the blink of an eye. It also works the other way around — a high-priced momentum stock can suddenly look cheap if earnings come in ahead of expectations and forward estimates rise.
Continue Reading -->Morning Call Express: Sluggish With a Constructive Feel
In today’s Morning Call Express, Scott Redler updates the key levels of support and resistance on the SPX. He also talks about some earnings names that have reported as well as other names that are looking constructive.
Continue Reading -->Morning Call Express: A Leveled Approach
In today’s Morning Call Express, Scott Redler talks about some of the talking points that has the SPX futures down this morning. He also offers one of the rules he follows to determine what trading style to implement. Scott also looks at the QQQ and Biotech Index and provides additional insight into the current state of the markets.
Continue Reading -->Morning Call Express: Jobs Report Ahead
In today’s Morning Call Express, Scott Redler reviews the action in the market ahead of the jobs report tomorrow. Scot talso looks at high beta tech names along with a couple sectors and one or two new issues.
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