2 Technical Analysis 101 : Session 6 Stanley YabroffVal Alekseyev
3 Session 6 Rules for trading Discipline the key to trading Open discussion on trading
4 Thoughts on Trading Use Money you can afford to loose Know yourself Start smallDon’t over commitIsolate from your desire for profit
5 Thoughts on Trading 6. Don’t form new opinions during trading hours. 7. Take a trading break.8. Don’t follow the crowd.9. Block out other opinions.10. When you’re not sure, stand aside.
6 Thoughts on Trading 11. Try to avoid market orders. 12. Trade the most active option month.13. Trade divergence between related commodities.14. Don’t trade too many commodities at once.15. Trade the opening range break out.
7 Thoughts on Trading Trade the breakout of the previous day’s range. Trade the breakout of the weekly range.Trade the breakout of the monthly range.Build a trading “pyramid.”Never put your entire position on at once.
8 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.
9 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.
10 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.
11 Thoughts on Trading 36. Act promptly. 37. Don’t reverse your position. 38. Don’t 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.
12 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.
13 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.
14 Jack Schwager’s Planned Trading Approach 1.Define your trading philosophy or system2. Choose your markets to be traded3. Specify your risk parametersA. Minimum risk per tradeB. Stop loss strategyC. DiversificationD. Reduce leverage for correlated marketsE. Losing period adjustment4. Establish a planning time routineA. Upgrade system and chartsB. Plan new tradesC. Update exit points for existing positions5. Maintain a trader’s notebook6. Maintain a trader’s diary1. Reason for trades2. How the trades turn out3. What lessons are learned7. Analyze your personal trading
15 Jack Schwager’s Trading Rules and Observations Differentiate between major position trades and short term tradesDon’t be greedy trying to get a better entry price for major trend tradesEntry into major trend trades should planned not intraday impulsesFind a chart pattern that says the timing is correctPlace order on a daily analysis, wait for desired entry pointsWhen looking for a major reversal in the trend. It is usually wiser to wait for some pattern that suggest that the timing is right.Don’t let the fact you missed the beginning portion of a trend keep you from trading with that trend
16 Trading Rules 2 Never fade the first gap of a price move Use market orders not limit orders to enter tradesNever double up near the original trade entry point after having been aheadDetermine a specific protective stop point at the time of trade entryExit any trade as newly developing patterns or market action are contrary to your tradeAlways get out immediately once the original premise for the trade is violatedIf the market goes dramatically against your trade in the first day, especially a gap, exit the trade immediatelyIf there is a major breakout counter to your position either exit immediately or use a very short stop orderIf a given market suddenly trades far in excess of its recent volatility in the opposite direction of your position, exit immediatelyIf selling (buying) into resistance (support) and the market consolidates instead of reversing, get out.
17 Trading Rules 3If you are able to follow the market for a period of time, exit your position or place and GTC orderFight the desire to immediately get back into the market following a stopped out systemWhen trading goes badlyReduce position size ( strongly correlated positions are similar to a large position)Use tight stop loss pointsSlow up in taking new tradesReduce risk exposure by liquidating losing trades, not winning tradesBe extremely careful not to change trading patterns after making a profitDon’t initiate risky tradesDo not suddenly increase the number of contracts you typically tradeTrade small positions with the same common sense as large positionsNever say It’s only one or two contracts.
18 Trading Rules 4Avoid holding large positions into major reports or the release of government reportsApply the same money management principles to spreads as to outright positionsDon’t buy options without planning at what outright price trade is to be liquidatedDo not take small, quick profits in major positions tradesIn a large move in your favor, never take profits on the first dayDon’t be too hasty to get out of trade with a gap in your directionUse trailing stops instead of profit objectives as a means of getting out of profitable tradesIt is useful to set profit objectives at the time of initiating tradesWith larger positions take partial profitReinstate position on correction
19 Trading Rules 5If your objective is met and the trade remains good, use trailing stops and remain in the tradeIn a very strong move, too good to be true, take partial profitPay more attention to market action and evolving pattern than to objectives and support/resistance areasWhen you think you need to enter or exit a trade, do it, don’t procrastinateDon’t trade counter to your view of long term trendWinning trades tend to be ahead right from the startCorrect timing entry and exit can often keep a loss smallIntraday decisions are almost always wrong
20 Trading Rules 6Be sure to check your positions before the close on FridayIf a market sets new historical highs and holds, the odds strongly favor a move higher. Selling new highs is an amateur trader’s worst mistakeNarrow market consolidation near upper end of broad trading ranges are bullish patterns.Narrow consolidations near the low end of trading are bearish patternsPlay the breakout from an extended, narrow range with a stop against the other side of the rangeBreakouts from trading ranges that hold 1-2 weeks or longer, are among the most reliable technical indicators of impending trendsA 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
21 Trading Rules 7A 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 trapIf 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 stopA 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 formationIf 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.
22 Trading Rules 8If a tight flag or pennant consolidations breakout in the wrong direction expect the move to continue in the direction of the breakoutCurve consolidations tend to suggest an accelerated move in the direction of the curveA breakout of a short term curved consolidation is the opposite direction tends to be a trend reversalWide 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 weeksSpikes 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 weaknessIf a market trades consistently higher for most of the trading session, expect the close to be higher
23 Trading Rules 9Two successive flags with little separation can be view as a continuation planView 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 stopThe 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
24 Stan Yabroff Val Alekseyev email@example.com firstname.lastname@example.org