...continued from prior post
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"Extrememly volatile stocks will have a massive sell-off once or twice during the trading day. This intraday sell-off can become an excellent point at which to short the stock, making this strong downward move a bullish trend you will want to take advantage of. When this trend begins to correct, a climax selling reversal can be played by taking a profit on your short position and, at the right moment, going long (buying the stock). "
He then goes on to illustrate the point with a figure/diagram.
This is exactly what Scott Farnham does every day with remarkable genius. He plays each move of high-ADR stocks and ETF 's in succession.
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I think there are some great tips in this book and it would be helpful to the day-trader as well as the swing-trader in training. Especially if you favor the momentum-based trading style found at Fear & Greed Day Trader blog.
And for the price of a foot-long lunch combo at Subway(plus shipping), how can you go wrong!
Sunday, August 30, 2009
Excerpts from The Strategic Day Trader, by Robert Deel
I posted a few weeks ago that I had ordered "The Strategic Day Trader" by Robert Deel, from Amazon. From it, I have found some useful nuggets and found, in some part, the basis of Scott Farnham's method of trading. Published in 2000, much of it is dated; written before decimalization, for instance. However, it was well worth the $6 plus shipping that I paid. I have been re-reading my highlighted portions daily and thought these few from Chapter 4 - "A picture is worth a thousand words," might be interesting to some:
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"An analysis of price movement will show that stocks and markets move in distinctive, identifiable trends. These trends exist in multiple time frames of minutes, hours, weeks, months, even years. The existence of these trends is what high-probability, profitability traders and aggressive investors are seeking to identify."
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"Great traders identify trend and stay with it until it reverses. They do not abandon trend after it moves up 1/16 or 1/8 of a point. In day trading, for example, trends usually sustain themselves over various time intervals.... During this trend, there could be downward movement in one or two of the price bars, [he uses bar charts, not candlesticks] but the trend will usually keep moving upward or downward until the trend reverses. Because the trend is usually of a longer duration, you have the potential to capture substantial capital in one trade."
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"Never be fooled into thinking by taking more trades you will make more money. I prefer to take three to five high-probability trades over twenty scalping trades on every occasion. If you think about it, this is just common sense. When it comes to day trading, it has been my experience that logic and common sense are abandoned for emotional trading driven by fear and greed. "
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"If you look at an individual price bar for a given day, you see the high, low, and open for that day. Most people just see these bits of information and go no further. But as with the magnet, there is an invisible force that surrounds each daily price bar. That invisible force is intraday volatility. Volatility shapes the bar's high-low range, dictates the trend, and influences the other price bars. Each bar has to some degree an influence on the future price movement the next day. Because of this, you need to ascertain the intraday price movement of the previous day. In some cases you might want to observe the intraday movement of the previous five days. This will give you a feel for what traders are doing. For example, you may find intraday support and resistence levels that carry over into the next day."
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more on next post...
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"An analysis of price movement will show that stocks and markets move in distinctive, identifiable trends. These trends exist in multiple time frames of minutes, hours, weeks, months, even years. The existence of these trends is what high-probability, profitability traders and aggressive investors are seeking to identify."
-
"Great traders identify trend and stay with it until it reverses. They do not abandon trend after it moves up 1/16 or 1/8 of a point. In day trading, for example, trends usually sustain themselves over various time intervals.... During this trend, there could be downward movement in one or two of the price bars, [he uses bar charts, not candlesticks] but the trend will usually keep moving upward or downward until the trend reverses. Because the trend is usually of a longer duration, you have the potential to capture substantial capital in one trade."
-
"Never be fooled into thinking by taking more trades you will make more money. I prefer to take three to five high-probability trades over twenty scalping trades on every occasion. If you think about it, this is just common sense. When it comes to day trading, it has been my experience that logic and common sense are abandoned for emotional trading driven by fear and greed. "
-
"If you look at an individual price bar for a given day, you see the high, low, and open for that day. Most people just see these bits of information and go no further. But as with the magnet, there is an invisible force that surrounds each daily price bar. That invisible force is intraday volatility. Volatility shapes the bar's high-low range, dictates the trend, and influences the other price bars. Each bar has to some degree an influence on the future price movement the next day. Because of this, you need to ascertain the intraday price movement of the previous day. In some cases you might want to observe the intraday movement of the previous five days. This will give you a feel for what traders are doing. For example, you may find intraday support and resistence levels that carry over into the next day."
-
more on next post...
Saturday, August 29, 2009
Cost of an education...
As a dollars and cents kind of guy who proudly admits to gripping a nickel so hard the buffalo screams (umm, I mean frugal), I have often tried to calculate the costs of educating myself as a trader. I've heard that the education of a trader can be dearly expensive, alluding to those who have blown out their accounts trying to learn this art.
I met with a friend today who saves all his magazines for me to read. It's been a while so there were over two dozen. I quickly discarded the rubbish: Newsweek, Entertainment Weekly, Money, and Kiplingers, to name a few. But among them were my regular favorites: This Old House, Food Channel magazine, Business Week, The New Yorker, Boston Magazine, and Forbes. And in the August 24th issue of Forbes was the annual ranking of Best Colleges.
Because I have a bachelors degree, I often refer to my stock market training as my self-directed masters degree. As such, the costs of masters degrees was particularly interesting to me. For MBAs at the top ten ranked MBA programs out of the list of 50 best programs, out-of-state tuition and fees averaged $96,800. The ten lowest priced programs averaged $48,200. There's no doubt that these are not representative of all MBA programs available. State schools with in-state rates would be cheaper; the University of Southern Maine charges about $21,000 for the 60 credit-hour program. No matter how you slice it, a masters degree is a big financial committment.
What has trading cost me thus far? Down $3800 over 8 months (actually a one day loss), "tuition" is running me about $475 per month on average. If one assumes that a masters is often earned in about 24 months, my "self-directed" masters will cost me $11,400 if I continue on this track.
Yes, I know this is not a carefully considered and well-researched essay. My clumsy point is this: As expensive as trading can be to learn, it still may be the best deal out there. And the best deal of all? We are in charge of the tuition rates we pay.
I met with a friend today who saves all his magazines for me to read. It's been a while so there were over two dozen. I quickly discarded the rubbish: Newsweek, Entertainment Weekly, Money, and Kiplingers, to name a few. But among them were my regular favorites: This Old House, Food Channel magazine, Business Week, The New Yorker, Boston Magazine, and Forbes. And in the August 24th issue of Forbes was the annual ranking of Best Colleges.
Because I have a bachelors degree, I often refer to my stock market training as my self-directed masters degree. As such, the costs of masters degrees was particularly interesting to me. For MBAs at the top ten ranked MBA programs out of the list of 50 best programs, out-of-state tuition and fees averaged $96,800. The ten lowest priced programs averaged $48,200. There's no doubt that these are not representative of all MBA programs available. State schools with in-state rates would be cheaper; the University of Southern Maine charges about $21,000 for the 60 credit-hour program. No matter how you slice it, a masters degree is a big financial committment.
What has trading cost me thus far? Down $3800 over 8 months (actually a one day loss), "tuition" is running me about $475 per month on average. If one assumes that a masters is often earned in about 24 months, my "self-directed" masters will cost me $11,400 if I continue on this track.
Yes, I know this is not a carefully considered and well-researched essay. My clumsy point is this: As expensive as trading can be to learn, it still may be the best deal out there. And the best deal of all? We are in charge of the tuition rates we pay.
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