Category Archives for free trading education
7 Things You Should Know Before You Short a Stock
“As a very successful investor once said: “The bearish argument always sounds more intelligent.” -Peter Lynch, One up on Wall Street The stock market is the greatest wealth creation machine ever created. But every so often, you’re going to be tempted to bet against the market, or a particular stock or ETF. Maybe you see a technical pattern you don’t like. Maybe you see an economic downturn coming. Or maybe you think you’ve spotted an outright scam. But shorting is not as simple as you think. Shorting requires an intimate understanding of market mechanics, and the harsh reality that stocks sometimes go up for no good reason. So let’s go through 7 things you absolutely need to know before shorting a stock or ETF. 1) Understand What Shorting Really Is Shorting stock isn’t quite as simple as buying it. Shorting requires borrowing shares from another investor. Your brokerage firm facilitates this process for you. Then, you sell those shares in the hope that they’ll fall in price. If it drops, you’ll buy the shares back (which is called ‘covering’ a short), capturing a profit. For example, if you sell Amazon.com (AMZN) at $1000 and buy it back at $950, you’ve earned a profit of $50 per share. 2) You Can’t Short Everything You Want Not every stock is available to be shorted because it can’t be borrowed. Typically, when a stock is widely disliked or is facing a scandal, it will be so heavily shorted that your broker simply won’t be able to locate shares for you to short. Every brokerage platform has some mechanism for indicating that a stock is hard to borrow, or not available to borrow at all. For examples, as of June 12, 2017, shares of the troubled radio company Cumulus Media (CMLS) can’t be borrowed. With the company rumored to be on the brink of collapse, it’s already attracted plenty of shorts. So there are no shares left for new potential shorts to borrow. 3) Know Your Expenses and Margin Requirements If you want to short stocks, you are required to have a margin account. And you must have enough capital in your account to back up your short positions. For example, if you want to short $10,000 worth of stock, you may be required to have $5,000 of cash in your account. Plus, shorting isn’t free. To short a stock, you have to pay your broker a “stock loan fee.” And the more volatile a stock is, and the more difficult the shares are to borrow, the higher that fee is. Check with your broker for exact terms. 4) Realize That the Interesting Bear Argument Always Sounds Better Most investors want the stock market to go up. But many traders are attracted to contrarianism, and the often-sexy arguments of bears. For example, for years many bears have used obscure financial metrics like the Schiller PE (CAPE) Ratio, market cap to GDP ratio, and NYSE Short Interest to imply that the SPX is overvalued. These arguments always sound a lot more clever than the typical bull rationale, which revolves around plain old earnings and economic growth. And yet, the market’s done nothing but gone up: So think twice before buying into doomsday scenarios, no matter how attractive they sound. 5) Don’t Short Momentum Stocks on Valuation Never short a stock simply because it’s trading at 50 times earnings. You know why? Because it might be worth 60 or 70 times earnings a week from now. Momentum stocks have a tendency to go way farther than may seem reasonable, especially if they are reporting strong earnings. We suggest watching Scott Redler’s recent video lesson Facebook (FB) so you can see how a stock with consistently strong earnings can destroy the bears: And look at momenutm favortie Salesforce.com (CRM). It’s regularly been called overvalued throughout this bull market: Now look at this chart: The bears — as smart as they may be — have been wrong. Why? Because traders love to buy momentum stocks with strong earnings. 6) Your Timing Must Be Impeccable If you want to short a hot stock or the market as a whole, you need great timing. Being right doesn’t matter if you’re not right at the wrong time. For example, many experts correctly called the housing bubble and subsequent collapse of the financial system very early. We’re talking 2004 or 2005. But bank stocks didn’t peak until December 2006. And in the last 5 years, how many times have you heard that there’s a bond bubble?: The bond bubble people may be right… but the TLT chart hasn’t really broken yet, has it?: 7) You Are Betting Against Gravity The S&P 500 has returned an average of 11.4% since 1928, according to NYU Professor Aswath Damodaran. And when it’s rising, even the worst stocks can go up. So you are betting against the market’s reverse gravitational pull towards the sky. We’re not saying you can’t make money shorting. Just be careful!
Continue Reading -->T3 Live Coming Events | June 2017
Boca Raton, Florida | Saturday June 10 | FREE Stock Trading Seminar RESERVE YOUR SEMINAR SEAT >> Join T3 Live for a special 4 hour training event for stock traders. | 1-888-998-3548 View the Agenda | Register Today == > Veteran trader Joseph Conti is one of the original SOES Bandits. One of the earliest NASDAQ traders capitalizing on the small order execution system and routinely traded millions of shares per day. Joseph also managed over 500 proprietary traders from the mid 1990’s through the mid 2000’s. He has witnessed the highs and lows of trading for more than 2 decades, his stories and insights will surely shorten your learning curve. Former floor trader in Chicago, Rob Smith has dedicated his life to mastering a quantified edge. Sounds fancy, but it means you never make a decision without a good reason. A repeatable reason. Defining your edge is where consistency is borne. Plan to be blown away by Rob’s Quant Edge presentation. Reserve Your Spot == > Here is your Itinerary: Saturday June 10, 2017 9am-1pm RENAISSANCE BOCA RATON HOTEL 2000 NW 19th St, Boca Raton, FL 33431 RESERVE YOUR SEMINAR SEAT >> Traders Digest: The 10 Stories We’re Reading Right NowFrom the Desk of Micheal Comeau… Wonder what traders are talking about today? We’re here with the top 10 stories we’re sharing with colleagues today, covering topics like:Why traders are betting big on the QQQ ETFTuesday’s mega-rally in gold, which could be a sign of things to comeThe mysterious world of bitcoin and other cryptocurrenciesAnd more! So check out these links right now and get up to speed: Get All 10 Posts From this Week’s Trader’s Digest Here == >Omega Prop Training | June 24-June 27 | Info 1-888-998-3548 Redler Ultimate Access | Only 20 Spots | NYC October 2017 LEARN MORE ABOUT TRAINING WITH SCOTT >> Jeff Cooper: Why the Gold Explosion May Boom BIggerThe precious metals miners were the big story on Tuesday. And I think it’s the beginning of a bigger move. The upthrust didn’t take us by surprise since the Daily Market Report has been positioned long in GDXJ, FNV and PAAS for the past week. What was surprising was the persistent trend day that wouldn’t pull back to allow players on. For the last week, I’ve been getting a lot of emails and Tweets asking how I could be bullish on the miners when they were lagging gold itself. My answer was that there may have been some month-end cross currents dragging the miners down. Continue Reading == > Trader Training…Quant Edge 4 – Week Coaching Program with Rob Smith | Begins July 10, 2017 Learn More == > Options Training With Doug Robertson | Listen to the Podcast == > Forex Training with Kurt Capra | How to bounce back from adversity == > New Training from Jeff Cooper | How to Combine Technical Signals for Maximum Profits == > How to Trade the News With Mark Melnick | Download the Case Study == >
Continue Reading -->Why You Need a Trading Checklist
Checklists can save your life. Literally. Anesthesiologist Peter Provonost studied how 100 Michigan hospitals inserted central lines (also known as intravenous tubing) into patients’ chests. . Central lines deliver lifesaving medications, and proper installation is critical for avoiding life-threatening infections. 30% of the time, surgical teams skipped 1 of 5 essential steps in the process. But by using a simple checklist, the infection went from 4% to zero, saving 1,500 lives and nearly $200 million. That’s not all. Checklists keep planes in the air. Checklists keep nuclear power plants operating safely. And checklists can keep traders like you avoid simple errors that can cost you money. Here’s a simple checklist you can use to avoid errors when they’re most likely — the order entry process. Before we get to the checklist, make sure your trading platform is set up in a way that works for you. For example, many trading platforms let you set defaults for trade parameters including share size. You can also often set little things like how your mouse interacts with the platform. Depending on your settings, you could even place orders with a single mouse click. And set your chart time frames in a way that corresponds to your actual trading. Since all platforms allow you to save your screen layouts, keep yours saved so you can always go back to square one. So take a half hour and go through your platform’s default settings. This will reduce the risk of placing accidental orders, or of accidentally looking at the wrong charts. Now let’s take a look at an actual order entry checklist that can prevent you from making errors: Step 1: Ask Yourself If You Have a Good Reason for Making This Trade Since they’re constantly bombarded with news, data, and ideas, traders are always tempted to act impulsively. You can counteract this tendency by asking yourself: do I have a good reason for doing what I’m about to do? Often, that will be enough to stop you from getting in bad trades. Step 2: Form an Entry and Exit Plan If you’ve got a good reason to make a trade, now it’s time to decide on an entry and exit plan. Know where you want to get in, and where you want to get out. You should have a stop loss to minimize downside risk, and a target price that gives you room to make a solid profit. This will prevent you from getting in a trade, and then asking “so what do I do now?” Step 3: Double Check Your Ticker There are two types of “fat finger” trades. That’s what happens when a trader hits the wrong keys on the keyboard, and a whole lot of money ends up in the wrong place. In 2015, Deutsche Bank’s foreign exchange desk accidentally sent a hedge fund $6 billion because of a simple typo. If you’re not watching carefully, you could very easily buy Advance Auto Parts (AAP) instead of Apple (AAPL). You could mix up Agilent (A) and Alcoa (AA). Or Dominion Energy (D) and Dupont (DD). Step 3: Double Check Your Share Size Let’s say you want to buy 100 shares of JP Morgan (JPM) at $80. That’s $8,000 — a decent chunk of change. But what if you accidentally pop in another zero, and buy 1000 shares? Well, you just made an $80,000 trade. That’s an an extra $72,000. And if the stock suddenly drops $2, you’re down $2,000. Had you bought just the 100 shares you wanted, you’d only be down $200! Step 4: Double-Check Your Expirations and Strike Prices on Options and Futures If you’re trading any instrument with an expiration date, like options or futures, you must absolutely double-check the expiration dates of what you’re trading. You’re often looking at dozens or even hundreds of small numbers on a single computer screen, and it’s easy to make mistakes. Make sure you select the right the expirations and strike prices. This is especially important if you’re entering an order with multiple legs. You may fool yourself into thinking you’ve found an especially attractive calendar or butterfly spread, when in fact, you just got ripped off! Step 5: Perform a Post-Mortem Analysis of Your Best and Worst Trades We recommend that traders keep a diary of their trading activities so they can accurately track their trading history. We’ve found that this piece of advice is mostly ignored. If you’re not willing to take this step, at the very least, do after-the-trade breakdowns of your best and worst trades. Was your rationale for the trade correct? Did you get lucky? What could you have done better? How did you know when to get out? Be honest with yourself, and you’ll start to understand your true trading nature.
Continue Reading -->The 7 Deadly Sins of Trading, and How You Can Cure Them
Greed, for the lack of a better word, is good. That’s what Gordon Gekko said in the classic 1987 film Wall Street. And indeed, a little greed goes a long way. Greed can push you to work harder to bring home a bigger paycheck. It can push you to save more money for retirement. But greed can also eat you alive… even if you have all the money in the world. Greed is only one of the 7 deadly sins you’ve heard about from religious texts or pop culture. And as you’re about to learn, they all apply to trading, and they all have cures if you understand them. Lust is often associated with sexuality. But there’s another kind… the lust for money and power at all costs. That’s a recipe for disaster for 2 simple reasons. An obsession with making more money can push you to take bigger and bigger risks. You’ll put yourself in harm’s way when there’s no good reason to. It can also push you to cross ethical and moral boundaries. Remember, once you cross that line, there’s no turning back. The Cure for Lust Replace your desire for money with a desire to learn. As you become a more skilled and experienced trader, you’ll likely earn more money. So focus on building your skills and gaining experience, NOT the potential rewards of skills and experience. It’s like dreaming about buying a Ferrari before you’ve even had a job. It’s downright childish. Grow up, get good, and the rewards will come. 44% of lottery winners go broke, according to a 2015 study by the Camelot Group. Why? Because most people can’t handle sudden wealth. Traders are no different. Once a trader achieves financial success, he’ll be tempted to overindulge in everything from food to clothes to travel to cars to real estate. An upgraded lifestyle means upgraded living expenses So what happens when that trader has a bad month or bad year? Panic, frustration, and inaction. When the mortgage is due today and there’s just $28.71 in the checking account, it’s pretty dang hard to focus on the charts. The Cure for Gluttony As you earn more money, save a higher percentage of what you take home.. Let’s say that after a year of trading, you have $25,000 left over when all your taxes, trading expenses, and bills are paid. And let’s assume you feel comfortable spending $7,500 of that on “fun stuff” like new clothes, travel and entertainment. That’s 30%. On your next $25,000, take it down to 25%. And the $25,000 after that, reduce it down to 20%. The exact numbers don’t matter. The point is, by scaling down your spending, you’ll keep a safety net in place for the rough times. It’s okay to want a bigger house, a nicer car, and private school for your kids. And it’s okay to dream about having $10 million in your bank account. But if you’re trading just to make money to buy more stuff… go do something else. To become a great trader, you must love the process of trading. It’s not easy to stare at computer screens for 9+ hours a day, trying to make sense of news and charts and price action. Most people burn out from it. But the best of the best can’t pull themselves away! The Cure for Greed Revisit what you really love about trading. Is it the process of scanning through 200 charts to find the one that speaks to you? Is it the rush of adrenaline you get when you nail a trade? Or is it just plain fun? Your trading results are important. If they’re not, you shouldn’t be in this business. But it’s equally important to enjoy the process. So shift your greed for money to a greed for sheer enjoyment. Experienced traders often get nostalgic for the ‘good old days’ before high frequency trading, decimalization, and overactive central banks. Many of these traders run into trouble because they do more complaining than learning. Instead of learning new skills, they get left behind. Evolution is a cruel beast. And it comes for the weakest traders first, the ones that don’t adapt. It’s 2017. The strategies you use today may not work 3 years from now. What are you gonna do about that today? The Cure for Sloth Put yourself on a regular schedule for continuing education and personal development. Don’t give yourself the option of NOT improving. You could set a goal of reading 2 new books a month. Or learning 4 new chart patterns. Or writing out 3 case studies about your best — or worst — trades of the month. The possibilities are endless. And don’t forget about improving your non-trading self. Some of the biggest trading lessons are learned away from the desk on a racquetball court… or on a wild boar hunt in Texas. (seriously) An angry trader is one that just lost money, and is on the verge of losing more. If you’re angry, you’re impatient. If you’re impatient, you’ll make more bad trades. And if you make more bad trades, you’ll get even angrier. That’s when the ‘revenge trading’ starts. That’s when you lose $2,000 in the morning, and you’re determined to ‘make it up’ with more trading. Before you know it, you’re down $5,000. And then $10,000. And so on. And so on. The Cure for Wrath Clean up your mess as best you can. And then walk away from your trading workstation. Don’t come trade again until you have your anger out of your system. Talk to your buddies, watch a funny movie, or take a walk. But get it out of your system. And if you feel like you’re getting out of control too often, seek professional help. Anger won’t just hurt your bottom line. It will also destroy your body. On Wall Street, you can make $1 million a year and still feel poor. Why? Because the guy next to you made $2 million! Traders are competitive by nature. It’s no wonder so many love
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 -->How the 3-Bar Rule Can Help You Deal With Failed Setups
Our Trading the Pristine Method® Home Study Course teaches traders a unique approach to trading candlestick price patterns. What make it unique? It is 100% objective and systematic, and eliminates all guesswork from the buying and selling process. We teach identifiable patterns that stocks trade in, and then show the exact strategies of what to do in each stage of a stock’s movement, including how to enter, manage, and exit the trade. That said, not all trades work. No pattern makes money 100% of the time, and the failures must be watched for 3 reasons: 1) To see and capitalize on a “new opportunity” when a pattern fails but immediately sets up again 2) To know how best to manage a position before it fails by evaluating the charts objectively. 3) To help you in disaster management mode in the event you are in a position that has failed. One Failed Pattern we teach is the Three Bar Rule. Whether that means to exit the trade or enter as new opportunity depends on the overall pattern and market environment). Let’s assume you entered a stock with a perfect “quality” price pattern that suggested an immediate move up with bullish market internals. It could have been a T3 Buy Setup (T3BS), a Climactic Buy Setup (CBS), or a T3 Breakout (T3BO), timed with the futures at the 10 a.m. reversal period. The T3 Three Bar Rule states: If the setup is not doing as suggested within three (3) bars, either exit or reduce the position. That begs an important question, “How does one know when the setup is not doing as suggested?” Note that this must be used only in the time frame being used. Some traders will incorrectly bail on a daily setup because the intraday pattern is not moving. They should be using the daily chart to judge the setup. Here are a few questions to ask in considering whether to close a trade early before the stop is triggered: 1. Did the trade violate every single reason for entry? Did it take out major intraday pivot lows? Is it a healthy consolidation that might actually be an opportunity to add to your position? 2. Assess the situation from the standpoint as if you were not in the trade, based on your training. What would you tell a friend about the technical setup? Is the pattern’s “quality” decreasing? For example, are the intraday charts getting very volatile, with overlapping bars, No Follow Through (NFT) to bullish/bearish bars; Breakout Bar Failures (BBF), shakeouts, etc.? 3. How far has the stock already moved? Is the current stop and reward-risk still adequate? 4. Are multiple time frames in alignment? 5. Are market conditions (broader market, sector analysis, and market internals) favorable for the trade direction? 6. Did the stock move with the sector and market internals, or is it lagging, showing relative weakness? 7. What time of day is it? Is it a low volume doldrums summer day with everything going sideways, or is your position underperforming? 8. Is the position distracting you from other trade opportunities? You must overcome the temptation to act prior to gaining information needed out of fear of missing the trade. Selling out of fear that the market will move against you must be fought. You must have the patience and discipline to logically apply the setup. Always have at least two scenarios when entering trades, no matter how bullish or bearish. This will keep you open to other possibilities. Remember, anything can and will happen at times.
Continue Reading -->What Wild Boar Hunting, Triathlons, and Racquetball Can Teach You About Trading
Trading is like anything else worth doing. If you want to be good, you’ve got to develop discipline, patience, and mental toughness. Now, you can learn plenty about trading by watching screens and reading books… but sometimes, the very best lessons come on mile 25 of a marathon… or when a 200-pound boar is charging you at full speed. So we sat down with several of our trading experts to talk about the lessons they’ve learned far way from their charts and spreadsheets. Here are their stories. Brandon Perry on Hunting Wild Boars Here in Texas, we love the taste of wild boars. But wild boars love the taste of crops, grazing fields, wildlife, and private property. Smithsonian magazine said they’re “among the most destructive invasive species in the United States today,” doing $400 million worth of damage in Texas annually. I have a rancher friend who invites me to help take care of his problem with wild boars. We start with weather patterns. If it’s rainy, the boars spread out and won’t be concentrated around a water source. In the winter, food gets scarce and they move away from acorn-rich oak trees to lowland valleys with rich sources of grass and grubs. In the summer, they stay out of the brutal Texas heat during the day. That’s my macro analysis. Next, I have to drill down to analyze my specific target. Boars are probably the most dangerous wild land animal in Texas. They have razor sharp tusks and they’re not afraid to take on humans. One time on a hunt, we came across a 200+ pound boar. We’re talking a big ugly beast right out of a horror movie. We saw it and it saw us. Usually they run away. This boar didn’t. He turned toward us and started sauntering toward us. We had a choice. We could run or shoot. My friend took a shot with his AK-47. Now you may think having an AK-47 made this an unfair fight. But boars are very, very tough, with with inch-thick skin and a cranial bone that can deflect bullets. The first shot only made it turn. The second took it down. In hunting, there are a few very important rules to follow. Only take a sure shot Don’t be afraid to pass on a shot Don’t rush your shot. These rules also apply to trading. For example, I love trading washout lows, but it’s not easy. I have to make sure the technicals are right. And when I have my target picked out, I can’t rush in. I need to wait until the odds are in my favor. If things go wrong, I need enough room to exit the situation to minimize risk… whether I’m looking at a charging stock or a charging boar. When trading lows, you have a brief moment for action, and then the opportunity is gone. But in trading, like hunting, opportunities always come around again. So don’t rush to pick a shot. You’ll get another. Brandon is a contributor to the Virtual Trading Floor®. Click here for a 14-Day FREE Trial. Scott Redler on Triathlons If you want a better brain, build a better body. One of the biggest factors in my trading success has been competing in 100+ triathlons and marathons, including 2 Ironman events. When I started doing triathlons, my trading profits went through the roof for 2 reasons. First, I suddenly had fewer hours in the day. That may seem a little counter intuitive, but hear me out. To balance my trading career and family time with triathlon training, I was forced to become more focused. I started getting up earlier, partying less, and most importantly, I learned the power of a routine. Instead of flying by the seat of my pants, I started every trading day with a comprehensive plan. That’s why I’m so adamant about daily game planning. If you don’t have a plan, you end up wasting all your time and energy trying to figure out what to do! When you start your day with a plan, you can keep your eyes on the prize and not waste your time with distractions. And the second reason endurance training is valuable is that it builds mental toughness. You learn that you’re capable of a lot more than you think. When you start out running, running a mile or two may seem impossible. And then you read about Fauja Singh, a man who ran his first marathon at 89! So find an outlet that pushes you physically. It could be an Ironman. Or it could be a walk around the neighborhood, a martial art, or pushups in the office at lunch. Just do something. Click here to learn about Redler Ultimate Access, Scott’s new trader training program. Mark Harila on Racquetball I’ m a trader and a racquetball player. After a day sitting in the office staring at charts, I love the physicality of racquetball. Getting your heart rate up and losing yourself in the game is a great way to let the tensions of our profession go by the wayside. The comradery I have with other players and random little moments of levity really bring me back down to Earth. There are many parallels between racquetball and trading. There’s often a furious pace of play that requires instant analysis. On the court, you must assess: Where the ball is now Where it is likely to go Where the other players are Where to set yourself up in order to best take advantage of the situation In trading, you must assess: Where the price action is now Where it is likely to go Where support and resistance (other players) are Where to find your entries to take advantage of the price action Novice racquetball players are desperate to hit the ball to score points. So they’ll chase after the ball once it has passed them, rather than running to a spot that will give them an opportunity. They take wild shots, swinging and missing repeatedly, because they don’t plan, and don’t know
Continue Reading -->Sami Abusaad: Why You Need to Know the Only 4 Stages of Market Movement
If you want to be an expert swing trader, then you have to understand the Foundation of stock movement, broken down into 4 clear stages: Ambivalence Greed Indecision Fear In our latest swing trading tutorial (scroll down to see it), T3 Live’s Director of Education Sami Abusaad breaks down each of these 4 stages so you can understand The Foundation — or the entire life cycle — of price movement. Most traders are not even aware these stages exist. But once you understand how they work, you’ll start viewing the market action through a clear new prism. You’ll see how greed and fear show their hands through price and trend action. So watch this video today and learn: Which market stage offer the highest reward relative to risk How to pick the best stocks for swing trading The single most important trading picture you may ever see Why Sami doesn’t try to buy at the exact bottom and sell at the exact top The right time to start putting on buy setups What to do when a stock goes climactic to the upside What to do when a stock goes climactic to the downside The danger of the “Fear of Missing Out” Why you can’t wait to be 100% sure to get in The type of behavior that leads to climactic tops
Continue Reading -->Do You Need a Trading Intervention?
There are a million courses and instructional videos on chart reading, economics, fundamentals, and quantitative analysis. Most traders come up through the ranks by taking information from various sources and mixing it together to create an individual path. You don’t need to be original or overly creative to be a great trader. You must simply be able to curate strategies that work for your personality and trading style. But the ugly truth is that a lot of trades desperately need a wake-up call. Sometimes, we think we’re putting things together in a very rational and controlled fashion, but we’re still not getting the result we should. That’s often a failure of mindset rather than of intelligence or natural trading acumen. So we put together a list of 9 clear signs that you need a trading intervention. If you suffer from 1 or more of these symptoms, then it’s time for a gut check! 1) You Suffer from Brain Freeze (and we don’t mean the ice cream kind) You do your best to learn a strategy or methodology, but when it comes time to implement it, you freeze up and do nothing. Quite often, traders are more comfortable with the idea of risk than risk itself. When traders find themselves freezing up, it often makes sense to dramatically cut position sizes to get acclimated to executing real trades. 2) You Make Conscious Errors You realize that you are doing something that does not fit into a logical strategy, and yet you do it anyway. This is a bizarre mix of anxiety and arrogance, as it’s based on two illogical beliefs: that doing something is always better than doing nothing, and that things will miraculously work out in your favor. Both are wrong on all counts. 3) You Are Underconfident You exit winning trades too early, stunting the potential of your winners. As unusual as it seems, traders often have difficulty letting winners run. Many traders want the security of having locked in a gain, which means they miss the bulk of a move. The best traders look for clear signs of exhaustion in trends before exiting winners, because trends often last longer than may seem logical. 4) You Have Too Much Patience You exit trades too late, allowing your winners to turn to losers, and losers to turn into bigger losers. This comes back to the belief that things will somehow just work out. Many traders have a problem with wanting more! more! more! out of a winning trade, even after it’s showing signs of of change in trend. So they’ll let emotion take over, and they’ll watch a position decline in the hope that it will magically turn around and restore prior gains. Traders also sometimes have a hard time dealing with losses, so they’ll sit and wait for them to turn around, even when they have no rational reason for doing so. 5) Not Enough Patience You chase trades aggressively, giving yourself bad entries, which eventually causes you to get stopped out. The fear of missing out is pervasive among traders. We see a stock go up $10 and we start to wonder if it’s going up another $5. A smart trader accepts that sometimes, trades just pass you buy. You’re never going to catch them all, and trying to do so means acting out of emotion instead of logic and analysis. 6) You Don’t Take Responsibility for Your Results You blame others for your problems trading problems instead of taking responsibility. We can’t control anything in the markets beyond our own strategies and risk management techniques. But since we all consenting adults engaging in an uncertain business, we must accept responsibility for our own results. We’ve all stepped into this arena by choice. So we must own the consequences — both good and bad. 7) Your Stop Get Hit Constantly You are dying of a thousand paper cuts, getting stopped out constantly, which adds up to huge losses. Many traders set extremely tight stops, which is death in today’s volatile, algorithm-driven markets. There is a misplaced belief that hard stops ensure limited losses, but that’s not always the case. A stop strategy must be adapted to current market conditions, and if you are getting consistently stopped out, you must reassess your thresholds. Quite often, traders that suffer from an overload of stop losses find that they’d actually have profited if they’d held on a little bit longer, or set their stops a little looser. 8) You’ve Forgotten That Trading Is Work It’s easy to view trading as an unstructured entrepreneurial adventure rather than a job. It takes a big streak of independence to become a trader. But beware of too much of a good thing. Traders often find themselves living an unhealthy lifestyle, including bad sleep habits, heavy hunk food intake, and zero exercise. If you want a healthy trading mind, you must take care of our body of first so you can show up ready to work effectively every day, just like any other job. When you’re tired, unfocused, and unprepared, you are throwing money away. 9) You Are Not Compartmentalizing We all have life problems. But when we trade, they must be put away to be dealt with later. You must be focused on the task at hand. You can’t be thinking about the fight you had with your spouse the night before or how you’re going to make the next mortgage payment. So when it’s time to trade, stay focused on the task at hand.
Continue Reading -->Which ETF’s Should You Be Trading?
The ETF industry is HUGE. According to the Investment Company Institute, as of February 2017, we have 1,736 ETF’s to choose from, with total assets of $2.7 trillion. There’s an ETF for everything. Yes, we all know about SPY and QQQ and IWM, but did you know that there’s an ETF for lithium? That’s right, you can ride the lithium market with the Global X Lithium (LIT) fund. Into livestock? Then check out the iPath Dow Jones-UBS Livestock Subindex Total Return (COW). (h/t to RothIRA.com) Heck, there’s even an ETF that invest in ETF companies… albeit not very well. To help you make sense of the endless array of ETF’s available to you, we’re going to give you 5 basic ground rules to keep you away from the worst of the ETF lot. 1) If It’s New, Tiny, or Illiquid, Stay Away New ETF’s tend to be expensive and illiquid, with plenty of alternatives that are already on the market. Plus, a hot new fund may not actually ever garner enough assets to stay in business. So why bother with them? According to ETF.com, once a fund surpasses $50 million in assets, it’s far likely to close, so that’s a decent benchmark to keep in mind. However, we’d suggest upping your minimum requirement to $250 million to reduce the likelihood of a fund closure during times of extreme market stress. And if you’re an active trader, look for funds that trade over 1 million shares per day. This will ensure you can get in and out of them without too much trouble. 2) Forget Those Highly Specialized Sector Funds As with many new ETF’s, highly specialized sector funds are usually not worth trading. Specialty funds are typically more expensive and less liquid than generalized funds with similar performance characteristics For example, the Bioshares Biotechnology Clinical Trials Fund (BBC) sounds exciting, but it trades less than 13,000 shares a day. It also has an expense ratio of 0.85%. The iShares Nasdaq Biotechnology ETF (IBB) trades over 1 million shares per day with an expense ratio of 0.47%. Here, you can see a chart comparing IBB (bars) to BBC (purple line): They look pretty much the same, though BBC has been more volatile and a weaker performer over this 2-year time frame. 3) Know What You Own Before trading an ETF, you should actually make sure it fits your trading and investment objectives. Always look at a prospective fund’s underlying holdings, because you can’t always rely on a fund’s name to determine what it owns. For example, the SPDR Homebuilders ETF (XHB) is more of a retail/building supply ETF than a homebuilders ETF. Only 1 of its top 10 holdings is a homebuilder, and the biggest position is Williams-Sonoma (WSM)! And if you’re playing with anything fancy like leveraged ETF’s or VIX-derived products like VXX and TVIX, run, don’t walk, to the prospectus. Quite often, these complex products have significant tracking errors and other risks of which you should be aware. 4) Check Your Free Options Many large brokerage firms allow you to trade certain ETF’s for free. Every dollar you save on commissions is another dollar that stays in your pocket, so why not look into your free options? For example, Fidelity offers commission-free trading of the popular iShares ETF’s. TD Ameritrade also offers free trading of select ETF’s from iShares and Vanguard. However, there are two caveats to keep in mind: there are usually some restrictions with free ETF trading, like a minimum 30-day holding period. And secondly, some ETF’s offered in commission-free trading programs aren’t exactly top-shelf offerings. Occasionally, you’ll come across a fund that has very little liquidity and a high expense ratio, which you’ll want to avoid. 5) Stick With the Establishment Most of the time, it makes sense to stick with the industry giants like Vanguard, iShares, State Street SPDR, and PowerShares. In all likelihood, these companies will stay in business and remain very profitable for a very long time. And because of rampant competition, fees just keep going lower and lower. Plus, funds from major ETF companies, allowing you to get in and out of the market at will. It’s just one of those cases where bigger is almost always better.
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