Technical Analysis 101 : Session 6

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(No Transcript)
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Technical Analysis 101 Session 6 Stanley
Yabroff Val Alekseyev
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Session 6

• Rules for trading
• Discipline the key to trading
• Open discussion on trading

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Thoughts on Trading

• Use Money you can afford to loose
• Know yourself
• Start small
• Dont over commit
• Isolate from your desire for profit

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Thoughts on Trading
6. Dont form new opinions during trading
hours. 7. Take a trading break. 8. Dont follow
the crowd. 9. Block out other opinions. 10. When
youre not sure, stand aside.
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Thoughts on Trading
11. Try to avoid market orders. 12. Trade the
most active option month. 13. Trade divergence
between related commodities. 14. Dont trade too
many commodities at once. 15. Trade the opening
range break out.
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Thoughts on Trading

1. Trade the breakout of the previous days range.
2. Trade the breakout of the weekly range.
3. Trade the breakout of the monthly range.
4. Build a trading pyramid.
5. Never put your entire position on at once.

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Thoughts on Trading
21. Never add a losing position. 22. Cut your
losses short. 23. Let profits run. 24. Be
impatient with losing positions. 25. Learn to
like losses.
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Thoughts on Trading
26. Use stop orders cautiously. 27. Get out
before contract maturity. 28. Ignore normal
seasonal trends. 29. Trade the divergence from
normal. 30. Avoid picking tops and bottoms.
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Thoughts on Trading
31. Buy bullish news, sell the fact. 32. Bull
markets die of overweight. 33. Look for good
odds. 34. Always take windfall profits. 35.
Learn to sell short.
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Thoughts on Trading
36. Act promptly. 37. Dont reverse your
position. 38. Dont be a nickel and dimer. 39.
Know the price trend. 40. Watch for the key
breakouts through trend lines. 41. Look at one
timeframe above and below the one you are using.
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Thoughts on Trading
41. Watch for 50 retracements of a major
move 42. Use the half way rule when picking
buy-sell spots. 43. Watch the magnitude of market
change. 44. Congestion areas can mean support or
resistance. 45. Major moves frequently climax
with a key reversal.
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Thoughts on Trading
46. Watch for head and shoulder formations. 47.
Watch for M tops and W bottoms. 48. Trade
triple tops and bottoms. 49. Watch Volume for
price clues. 50. Open interest may be a tip off.

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Jack Schwagers Planned Trading Approach

• 1.Define your trading philosophy or system
• 2. Choose your markets to be traded
• 3. Specify your risk parameters
• A. Minimum risk per trade
• B. Stop loss strategy
• C. Diversification
• D. Reduce leverage for correlated markets
• E. Losing period adjustment
• 4. Establish a planning time routine
• A. Upgrade system and charts
• B. Plan new trades
• C. Update exit points for existing positions
• 5. Maintain a traders notebook
• 6. Maintain a traders diary
• 1. Reason for trades
• 2. How the trades turn out
• 3. What lessons are learned
• 7. Analyze your personal trading

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Jack Schwagers Trading Rules and Observations

• Differentiate between major position trades and
  short term trades
• Dont be greedy trying to get a better entry
  price for major trend trades
• Entry into major trend trades should planned not
  intraday impulses
• Find a chart pattern that says the timing is
  correct
• Place order on a daily analysis, wait for desired
  entry points
• When looking for a major reversal in the trend.
  It is usually wiser to wait for some pattern that
  suggest that the timing is right.
• Dont let the fact you missed the beginning
  portion of a trend keep you from trading with
  that trend

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Trading Rules 2

• Never fade the first gap of a price move
• Use market orders not limit orders to enter
  trades
• Never double up near the original trade entry
  point after having been ahead
• Determine a specific protective stop point at the
  time of trade entry
• Exit any trade as newly developing patterns or
  market action are contrary to your trade
• Always get out immediately once the original
  premise for the trade is violated
• If the market goes dramatically against your
  trade in the first day, especially a gap, exit
  the trade immediately
• If there is a major breakout counter to your
  position either exit immediately or use a very
  short stop order
• If a given market suddenly trades far in excess
  of its recent volatility in the opposite
  direction of your position, exit immediately
• If selling (buying) into resistance (support) and
  the market consolidates instead of reversing,
  get out.

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Trading Rules 3

• If you are able to follow the market for a period
  of time, exit your position or place and GTC
  order
• Fight the desire to immediately get back into the
  market following a stopped out system
• When trading goes badly
• Reduce position size ( strongly correlated
  positions are similar to a large position)
• Use tight stop loss points
• Slow up in taking new trades
• Reduce risk exposure by liquidating losing
  trades, not winning trades
• Be extremely careful not to change trading
  patterns after making a profit
• Dont initiate risky trades
• Do not suddenly increase the number of contracts
  you typically trade
• Trade small positions with the same common sense
  as large positions
• Never say Its only one or two contracts.

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Trading Rules 4

• Avoid holding large positions into major reports
  or the release of government reports
• Apply the same money management principles to
  spreads as to outright positions
• Dont buy options without planning at what
  outright price trade is to be liquidated
• Do not take small, quick profits in major
  positions trades
• In a large move in your favor, never take profits
  on the first day
• Dont be too hasty to get out of trade with a gap
  in your direction
• Use trailing stops instead of profit objectives
  as a means of getting out of profitable trades
• It is useful to set profit objectives at the time
  of initiating trades
• With larger positions take partial profit
• Reinstate position on correction

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Trading Rules 5

• If your objective is met and the trade remains
  good, use trailing stops and remain in the trade
• In a very strong move, too good to be true, take
  partial profit
• Pay more attention to market action and evolving
  pattern than to objectives and support/resistance
  areas
• When you think you need to enter or exit a trade,
  do it, dont procrastinate
• Dont trade counter to your view of long term
  trend
• Winning trades tend to be ahead right from the
  start
• Correct timing entry and exit can often keep a
  loss small
• Intraday decisions are almost always wrong

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Trading Rules 6

• Be sure to check your positions before the close
  on Friday
• If a market sets new historical highs and holds,
  the odds strongly favor a move higher. Selling
  new highs is an amateur traders worst mistake
• Narrow market consolidation near upper end of
  broad trading ranges are bullish patterns.
• Narrow consolidations near the low end of trading
  are bearish patterns
• Play the breakout from an extended, narrow range
  with a stop against the other side of the range
• Breakouts from trading ranges that hold 1-2 weeks
  or longer, are among the most reliable technical
  indicators of impending trends
• A common useful form of the above rule is flags
  and pennants forming right above or below prior
  extended and broad trading ranges tend to be
  fairly reliable continuation patterns

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Trading Rules 7

• A breakout to new highs or lows followed within
  the next week or two by a gap back into the range
  is a particularly reliable form of bull or bear
  trap
• If the market breaks out to a new high or low and
  then pulls back to for a flag or pennant in the
  pre-breakout trading range assume the top or
  bottom is in place. Take a position using the
  other side of the consolidation for your stop
• A breakout from a trading range followed by a
  pullback deep into the range ( ¾ or the range or
  more) is another bull or bear trap formation
• If an apparent V bottom is followed by a near by
  congestion pattern it may represent a bottom.
  However if the is consolidation is then broken on
  the downside and the V bottom is approached this
  may point to a new lower low. The opposite is
  true for tops. You can play the breakout using
  the congestion level as your protective stop.
• V tops and V bottoms followed by multi month
  consolidations that form in close proximity to
  the reversal point tend to major tops and
  bottoms.
• Tight flag and pennant consolidations tend to be
  reliable continuation patterns and allow entry
  into an existing trend with a close stop point.

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Trading Rules 8

• If a tight flag or pennant consolidations
  breakout in the wrong direction expect the move
  to continue in the direction of the breakout
• Curve consolidations tend to suggest an
  accelerated move in the direction of the curve
• A breakout of a short term curved consolidation
  is the opposite direction tends to be a trend
  reversal
• Wide ranging days compared to recent trading days
  with close counter to the main trade is a signal
  of a trend change (key reversal)
• Near vertical, large price move over a 2-4 days,
  coming off a recent high or low, tend to extend
  in the following weeks
• Spikes are good short term reversal signals. The
  extreme of the spike is a good stop point.
• The ability of a market to hold relatively firm
  when other related markets are under significant
  pressure can be view as intrinsic strength. A
  market acting weak when related markets strong
  show intrinsic weakness
• If a market trades consistently higher for most
  of the trading session, expect the close to be
  higher

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Trading Rules 9

• Two successive flags with little separation can
  be view as a continuation plan
• View a curved bottom followed by a shallower same
  direction curved consolidation near the top of
  the pattern, as a bullish formation (cup and
  handle). Major bottom for stocks. Similar pattern
  would apply to market tops.
• Major tops and bottom rarely occur in the absence
  of extreme sentiment readings (current or recent)
• A failed signal is more reliable than the
  original signal. Go the other way using the high
  (low) before the failure signal as a stop
• The failure of a market to follow through on
  significant bullish or bearish news is often an
  indication of an imminent trend reversal. Pay
  particular attention is you have an existing
  position

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Stan Yabroff stan_at_cqg.com
Val Alekseyev valekseyev_at_cqg.com
1 800-525-7082 www.cqg.com