Stay in Line – Don’t chop and change

Stay in line

At his recent seminar, Vince Stanzione played an smart video clip that highlighted the importance of not chopping and changing from one strategy to the next. [I’ve seen the videos now]

 

He said that many new traders want to make £100 a day and that they look at trading like it is going to pay like a regular job.

 

This ideal is not realistic in many cases.

 

He went on to say that some days he could lose £200,000 and another day make £400,000 and that he uses different systems/strategies throughout the year.

 

And it is over the years that all the profits come together.

 

He doesn’t look at trading profits as wages.

 

His results are from across the board… and that some part of his portfolio might be in profit whilst another strategy is running at a loss.

 

Although I don’t think that new traders should take on too much at once, trading a few winning strategies over time is a good way to increase your exposure to the markets without having all your eggs in one basket.

Stay in Line

That said… firstly you need to find a winning strategy and stay with it.

 

So once you find a system that you are interested in trading and after you have traded with real funds and got use to the concept of winning and losing, then and only then should you consider adding another string to your bow with another trading idea.

 

Here is the video from the seminar that Vince used to explain what most people do when looking for a winning opportunity.

 

They can’t handle the losses, slow pace, or whatever else, so they move about from one system to another looking for the golden goose… ultimately to get nowhere fast nor anywhere better.

 

If you know a system or strategy works, then you should stay with it.

 

The biggest part of any trading system that you use is going to be self control; fully accepting the ups, downs and the sideways… every system you find will require the same… so better to just stay in line as the video suggests.

General Update – Binary Alert Service

General update

General Update and Binary Service Results

I didn’t get the chance to do a proper update of results for my Binary Alert Service in May. So I thought I’d do a general update instead.

Overall it was a poorer run of binary trade results and as of the 1st of June when I initially was going to write the update I was up by around £51 on the previous month.

 

Just over a week later I was marginally down.

 

This is when you need to grasp trading psychology and understand that the aim is to look long term and the results will be positive.

 

My starting bank is still up over 110% since I started the service.

 

Although I can’t deny that I wasn’t upset about a few bad results… [mainly because I have subscribers that I want to make profits for]. I I have been trading the markets long enough to know that this is not science. We will have ups and downs.

 

If you can’t stomach losses, then trading is unlikely to be for you.

 

Anyhow, I’ll cut and paste all the images and do a complete update next month.

 

Trading Support and Clients

 

A huge portion of my mornings have been taken up by support for some of my customers.

 

Whilst the majority of my customers do not need any support at all… or maybe I get an email from some of them once a week, others are in a league of their own.

 

Sometimes this has a bit of an impact on me. Not because I don’t like giving support… but occasionally after a mornings support session, I haven’t wanted to do much else. I’m drained for the day.

 

I remember Vince Stanzione saying that 20% of your customers will need 80% of your support… well I’m closer to 1% of my customers need 99% of my support.

 

It’s seems to be a case of some people are just incredibly hard work. Nice people? undoubtedly… just a little demanding.

 

Out of all my subscribers and customers though, I have only ever had to bar one person. He just had to go. Another came close… but I think that overall I have a great crowd of customers and subscribers that I feel blessed to have the opportunity to be trading with.

 

What have I got planned from here on for 2017?

 

Well, I want to concentrate of writing longer blog posts about how to trade. I’ll focus on areas that I use personally, have used and also areas I consider to be not so useful to traders and why I think that.

 

Also I want to write about my life as a trader, and what being a self employed blogger can realistically bring to one’s life.

 

I’ll also mention some stocks and positions on occasion if possible.

 

Spread Betting Guide

 

I’m also looking at a day trading opportunity that will be for spread betting The German 30 DAX.

 

I’m not sure of how to offer this at the moment though… free or added to the member’s area. However, it will certainly not be ready until late Autumn at the earliest.

 

Learning to Trade

 

As I have said previously in posts, the summer is a great time to practice and learn how to trade. It is a generally quiet time for traders. If you start studying now, you can then be ready for the markets springing to life in the Autumn. Even if you take a few books on holiday with you, it’s a start.

Price Action Trading Strategy

One of the simplest ways that you can trade the markets is by using a strategy known as trading the price action.

 

This basically means that you are deciding on what direction you anticipate the price of the market moving without using any technical indicators at all.

 

My version of this trading strategy uses a single moving average and the price. That’s it.

 

You can remove the use of the moving average if you have set profit target levels.

 

Price Action Trading Strategy

 

Lets take a look at this Mastercard chart.

 

You can see that on here we have a multitude of indicators and drawings that are serving the same purpose… that is to help give us an idea of where the price might be heading.

Trading Price Action Strategy

 

The chart above may seem complicated to many of us… but some traders will genuinely use a set up similar to this.

 

If I were to use a chart with that many indicators on I don’t think I’d be any closer to an accurate decision after analysis.

 

So let’s have another look at the chart with all the indicators removed.

Price action system

 

That’s better… a nice calm chart.

 

Now we have to decide on where we think the price will go next?

 

From my perception, I think that the price will continue to rise, although I also think that there may be some price correction soon, before the upward trend continues.

 

So that being said, where do I enter the trade? I don’t want to just enter the trade with a random guess. So I need to analyse the entry point visually.

 

I can do this by reading and analysing the candle patterns, waiting for a price correction to finish and by drawing imaginary trend, support and resistance lines.

 

A Closer Look at Trading Price Action

 

So let’s take a closer look at my mental price action trading strategy.

 

You can see from this chart that I can mentally draw a picture of what is happening. Obviously I’m drawing on the chart to highlight my thinking.

Price action

 

 

This is a nice steady and well behaved chart. You can clearly see that support and resistance levels have formed and prices have broken out. It is at these price breakouts that I can enter the trades.

 

So as you see, we can make profitable trades using a simple price action trading strategy without the need for using any on screen indicators. You can do this quite easily with a bit of practice.

 

Now if we take an even closer look, we can use candle formations to give us even better entry points and conformation of where the price may be heading.

 

Price Action Trading Strategy Using Candle Formation

 

There are many candle formations that can signify a change in direction of the price on a chart.

 

I have actually read a lot about Japanese candle stick patterns.

 

Initially and with what I learnt from reading online, I could see the logic, but there was no real deep information that I could use to gain a better understanding.

 

I deciding on buying a book, or shall I say tome from Amazon… at £60 I did find it a little overrated after I had read the reviews, but maybe I missed something???  Anyhow, it is still a good book and I gained much useful and fascinating information about candle patterns, even if not trading strategies.

 

The Best Candle Stick Patterns

 

What I did take from the book was the reasoning behind the formation of certain patterns and why some formations are considered more accurate than others.

 

One can then use this information to gain better entry and exit points.

 

My 3 Favourite Candle Patterns for price action trading.

 

So when using a price action trading strategy here are the 3 most effective patterns [in my opinion] that can accommodate the theory.

 

The Hammer and Hanging Man

 

Looking at our chart of Mastercard we can see that we have had a price correction from the 16th May until the 18th May using our 4-hour chart. At 16.00 on 18th a hammer candle forms and from there the price continues its upward trend.

 

The reason that the hammer has formed at this level is because the bears have managed to push the price down further but then the bulls have resisted and fought back pushing the price back up.

 

This is why hammers often signal support levels and reversals. In saying that, the bears are still around… and further price action needs to be confirmed before entering the market.

 

NOTE: The longer the time frame of your candles on your chart the more accurate you can consider these candle pattern signals.

 

After the hammer has formed, a small doji candle forms and then we have a big gap and a nice bull candle that can confirm the upward price may continue. You can then enter on the next candle.

Price action candles

 

Engulfing Pattern

 

The engulfing pattern signifies that the bears have lost momentum and that the bulls have taken control. It also signifies downward price movement capitulation and that the price is likely to retreat.

 

A bullish engulfing pattern should be formed with a small down bear candle and a large up bull candle that has very little shadow.

Engulfing pattern

 

This is one of the most commonly used candle stick patterns to identify price reversal. It is also one of the easiest to identify and understand.

 

The best place to see a bullish engulfing pattern is at the bottom of a sustained downward trend with a minimum of four consecutive down bear candles that are not increasing in size.

 

Price Action Bullish engulfing

 

A Bearish engulfing pattern is the opposite of a bullish engulfing pattern.

 

A bearish engulfing pattern signifies that a sustained bull period may be about to reverse.

 

The engulfing bear candle must completely consume the previous bull candle.

Bearish engulfing

The Morning Star Pattern

The final pattern that I commonly use or shall I say look for, is the morning star pattern.

 

This is another reversal pattern that consists of a 3 candle set up.

 

The morning star was called such as Japanese rice traders call Mercury [the planet] the morning star and this good omen was considered a sign of brighter things to come. Hence why this pattern is named and formed after a bear market. The down trend has finished and better times are ahead.

 

The 3 candles that form the pattern are one bear candle, one doji [the star] and one bull candle.

 

Morning star pattern

 

Reading the formation is as easy as spotting it. The longer the bear and bull candles the more thrust behind the reversal.

 

The bigger the gap from the candles either side of the star, the greater the chance of reversal as this indicates market indecision.

 

The higher up the close of the 3rd candle is [the bull candle] the greater significance this has to the price reversal.

 

The morning star formation is the least common of the candles I mention but many will argue that it is the most accurate in terms of signalling a valid reversal in price.

 

Other Candle Formations

 

You can read more about candle formations and patterns here. You may find other formations more suited to your style of trading.

 

The book I bought that I mentioned earlier, explains the history of these candles and formations and explains in detail how they were developed when the Japanese initially used them when trading rice hundreds of years ago.

 

I found all of this fascinating and what’s even more bizarre is that traders in the western world didn’t even know about them [candles] until the 80’s.

 

Price action Trading Strategy and moving averages.

 

When using a price action trading strategy, adding a single moving average to your chart can really add some weight to making more of an informed decision as to where the price may move to.

 

If you look at our Mastercard chart again you see that I have added a single EMA, Exponential Moving Average.

Price action EMA

You can conform your earlier findings with the EMA and then enter the market confidently. Before I show you how, let’s take stock quickly…. no pun intended.

 

So to recap… Identify trend, determine support and resistance levels, look for candle formations that may signal a change in market sentiment and then add a 6 period EMA to verify your findings.

 

Bare Bones Price Action Trading Strategy

 

If all the above sounds like too much effort, then the easiest way possible to trade price action is just by trading above or below your EMA.

 

So in our Mastercard example, we can go long as the candles cross up and over the EMA and go short when they cross over and under.

You will get more false signals trading like this, but your win gains will out number your losses.

Price action trading strategy

 

 

In Conclusion

 

A simple trade the price action strategy can give great returns, without the headache of 20 different indicators on a single chart all opposing each other. It’s a simple as you want to make it in all honesty.

Beginner traders can practice this easy enough without spending any money on charting packages or systems.

You can use the free charts on google or yahoo finance

How to Choose a Stock to Trade

I’m often asked how to choose a stock to trade? What do I look at that ultimately sways my decision to go long or short?

 

So I’m going to give you a run down today at what I look at and how you can start to do the same.

 

Choose a Stock to Trade – Mastercard Inc

 

This is actually a stock that I’m interested in trading soon.

Choose a stock to trade

 

Firstly, I will look at the monthly and weekly charts. This gives me an idea of where the price is going.

 

Looking at the above monthly chart, I can see that there seems to be a nice steady trend in place.

 

There is a similar picture on the weekly chart.

How to choose a stock to trade

 

Finally, I will load the daily chart as this what I will be using for my final analysis and entry points.

 

When looking at the daily chart, I’ll now start to use my other indicators to make an informed decision on where to enter a trade.

 

I’ll start by checking to see if my moving averages have crossed over? Are the candles forming above the moving averages? Is the trend still in place?

 

You can see that this is the case on our daily chart.

Choose a stock

 

I use different moving averages depending on how long I am looking to trade a particular market.

 

Shorter term I’ll use moving averages around 20 days [the longest period] Medium term 50 days and longer term 200 day moving averages.

 

Now as the trend has already been identified, we are looking for a good entry point.

 

This can be a tricky decision as you can quite easily over think the situation and delay the entry, or you’ll find that you do enter but wish you hadn’t because the price shoots of in the opposite direction.

 

The main thing to remember is that you are not trying to enter at the absolute low or high… it’s a nice idea but in reality it rarely happens.

 

As long as you enter and follow your rules, and you are not trying to buck the trend, then you should be ok.

 

It’s ok to open a trade and the price moves in the opposite direction. Prices move up and down… that’s the name of the game.

 

If the price moves completely against you… remember that these things can and do happen. It doesn’t mean that you can’t trade and the markets don’t like you. It isn’t some game the markets are playing with just you in particular…

 

Just go again when the time looks right. Overall when trend trading you’ll come out on top over time.

 

Trade Entry Points

 

Good entry points are at the moving average crossover as already mentioned and also at price breakouts when price moves above or below support or resistance levels.

 

Using our Mastercard chart, we can set our entry points where the price goes beyond a previous high.

stock trade

Volume and Candle Patterns

 

Volume and candle patterns can be incredibly useful entry indicators when you combine them with your charts.

 

I can’t possibly tell you how to trade using either in a single blog post… I just couldn’t do it with any detail that the methods deserve. However, you can get some free info here. This guy is a bit of a legend when it comes to candle chart patterns.

 

I also have a copy of this book… although personally I found it a bit over rated compared to the reviews, it is still probably the best book on the subject.

 

Learning about volume and candle chart patterns, combined with moving averages is many a pro trader’s main arsenal when it comes to entry points.

 

As you know, there are hundreds of other indicators that you can use. MACD is another I use to confirm trends and entry. Stochastic oscillator can be very useful too, as this can identify price direction change [swings].

 

For me though, I’m mainly moving averages and trend following. It has been the core of all my trading. It keeps thing simple and easy to see.

 

Gaining a Greater Edge – Company Insights

 

Analysing a company and delving deep into its current news can sometimes give you a clue to where the price may be heading.

 

Profit announcements, mergers, product launches, new land acquisition, new directors and so on… can all play a part in knowing which way a price might move.

 

For me personally, I am of the opinion that what we need to know has already been factored into the current price.

 

That said, Vince Stanzione is an absolute master at identifying emerging trends. I have no idea how he does it, nor do I have any idea how many points he has made me on this information alone??? It is many thousands though.

 

In Conclusion

 

Keep it simple.

 

My main tools are moving averages.

 

I have not changed the foundations of my trading since I have started… that’s because long term moving averages have remained profitable.

 

Deciding on a good entry point is all you need to do once you have seen a trending stock. Again, keep that simple too.

 

If spread betting is a little to nervy for you, start by trading binary options and then move on to spread trading from there.