Game plan

Due to market conditions my game plan for the past little while has just been to scalp TNA and TZA during the day for .20 gains or whatever and then position myself for the last hour of the day low volume run up. I'm happy to do that as that is what the market is giving right now for the most part. However there are still stocks that run and present classic patterns to trade that actually follow through for multi dollar runs. Today SINA was one of those. Yesterday it was SVNT.

Watch the new highs/lows ticker and keep you eyes open for opportunities like these and set a stop so that if it doesn't follow through you can keep the loss small.

Trading is tuff these days, I wouldn't want to be a beginner trying to learn the ropes but if you can adapt and apply your system and edge successfully now then when or if the markets return to "normal" conditions it will all seem just too easy. Meanwhile bide your time and practice on the areas that need work.

1st chart SINA ascending triangle break to new highs

2nd chart SINA, sell into all the buying frenzy.

Patterns to trade by.

One of the unexpected side benefits that comes from doing this blog is when I get some thought provoking question from a reader that leads to a good blogging post.

"How to develop an edge" is always on new traders minds. Here is a way to burn high probabilities chart patterns into your mind.

I like to keep things simple and I am a visual person, not a touchy feely or over analytical type. Drawing ascending or descending triangles on charts will show you visual representation of what is happening. Ascending triangles means higher highs and higher lows, descending means the opposite. When the point of the triangle breaks through resistance or support , it means momentum and opportunity are present. Trade it. Grab it. look for more.

It's optimism and pessimism, buyers and sellers in control. Going with the flow. The patterns are not 100% guaranteed so just play the probabilities.

Print these out (black background will kill your ink though) or find the same patterns yourself and make "flash cards" out of them. Have a friend show you these one at a time in a rapid manner. Your job will be to identify what they are, what direction they are moving and decide on the probable, typical outcome within a second or less such as - ascending triangle--up--buy. Or descending triangle--down--short it. You can probably do it on computer as well but get out the scissors and make these little flash cards instead. It turns them into something tangible you can touch and makes them real.

A task like this will hurry your pattern recognition skills and decision making skills along.

An important note- I am not too picky about or debate whether a pattern is there or not or if tails are in the way. If I can see the pattern it is there. Don't debate yourself if it is not perfect.

Also if a pattern does not follow through, that gives you valuable information as well for a move opposite the probable or typical can mean an excellent and strong trade that way.

The following are some patterns from 9/9/2010 but it is not an exhaustive list:

Patterns

RIG

RIG ...wow, eh.

SNDK short fail led to great trade long

SRS break to highs

SRS ascending triangle

GG break low

GG linear drop

ABX break low

ABX continues

V descending triangles

Don't play the victim

With many sources lamenting the takeover of the markets by the robots I see too many traders crying "woe is me" and playing the victim. It doesn't have to be like that. The bots are not the big bogeyman hiding under your bed as the mainstream media would lead you to believe. In fact once you wake up to the fact that it is now easier than ever to jump on the coattails of the robots and let them make you money, you'll have a change in perceptions. The smart momentum trader doesn't care about the fundamentals or direction that any particular stock trades in. Any stock at any time in any direction is thus fair game. They become just vehicles to be used and then discarded when their usefulness expires.

When the robots take over, prices seem to move faster than ever before but that doesn't mean that the classic chart patterns don't repeat themselves. They do and thats because the programming is done by humans based on classic technical analysis and momentum. When the bots discover a stock in play, they make it really in play.

If the prices are getting jacked up or hammered down and the bids/asks are flying by, go with the flow. I like to play very liquid .01 spread stocks so I don't get screwed by the spread. I'm not in this game for fractions of pennies and will gladly give up some pennies in order to have the opportunity to get dollars.

I follow what I now call "The will of the bots". My style has been changing or evolving you could say to keep with the trend longer and not to jump on every directional change. I see evidence the bots pile on a stock that shows movement. I don't care if the initial movement was caused by the bots or by another entity wanting to accumulate or disburse shares. The important thing is to crash their party and drink some of their free booze.

Look at some plays from today. Classic technical analysis chart patterns.

1st chart NZ buying pullback

2nd chart NZ sell as it stalls

3rd chart AKAM short as it stalls

4th chart AKAM cover on huge volume candle

Identifying the trend

Sometimes the trend is not so easily spotted. Whipsaw action and fakeouts are the name of the game. You can counter those by either going for a walk or if you choose to trade by paying careful attention to the technical indicators.

This large green candle on the QQQQ looks strange coming right after a longish low volume red candle. I view obvious fakeouts like this as an ideal place to do the opposite---go short. I only use the QQQQ as a guide for the market strength and don't trade it.

A little while later you can see the QQQQ is down to lows again. Here it pops up on no volume and just hangs there. I watched for many seconds and no trades went by. HHmmm smells like manipulation to me.

3rd chart shows a little more later it has returned to lows with gusto. A trend made up of quick down candles followed by no volume pops or counter uptrends tells me the general trend is more down than up. Now find a stock that is trending like BIDU shown below and trade it.

Playing the trend

When markets are jumpy and with little follow through I prefer to find a stock that is trending and then keep on trading the trend. BIDU popped up on the making new lows ticker, that means it's in play.

Short BIDU

Cover BIDU

Could have played the bounce but didn't want to go against the trend which was down today

Waited for weakness to show itself again. Waited for it to come to me again. Short BIDU.

Cover BIDU

Momentum in action

Go with it, don't fight it.The 1:00 wave is the best.

Thinking vs. feeling

The road of discovery to becoming a successful trader is a long one fraught with many wrong turns and trials.

There is much to learn about technical indicators and trading systems. Obtaining and retaining strategies that work for your situation and your personality is a daunting process.

I would also venture to say that the new trader probably doesn't give much thought to turning inward to themselves and examine in-depth their thought processes and belief systems. After you learn to read charts and have amassed a data bank of practical knowledge about how the markets work and react, the most important step is to apply that knowledge successfully in an ongoing manner. You can have the best system in the world but if you continually sabotage yourself by letting your faulty programming ruin the show you will not be successful.

The solution is to recognize what is holding you back and change these areas. That sounds like common sense doesn't it. But if you keep doing the same things that get you in trouble you will continue to replay the painful past.

Keep a journal and immediately write down your thoughts, your actions and zero in on problem areas as they happen. Be true with yourself. Then trust yourself. Work through each area. Stop the bad habits. Change them into good habits.

The most frequent question is "How long will this transformation from amateur to consistent pro take"? There is no definite answer. It will take as long as it does and your timetable means nothing to natures timetable. I know that the less you fight the system and the more you go with the flow, the easier and faster it comes to you. Fighting the system means being rigid in your expectations and flexible in the execution of your edge. Reverse that. Your transformation is not a race. It is a plodding absorption of knowledge that you eventually can use to your benefit.

After you gain this knowledge of the markets and yourself, a change occurs that moves you from thinking about what the markets are doing and moves into a more instinctive feeling about what is happening. Throughout this blog I've said many times that I feel what the markets will do. I certainly have conviction and act on those feelings. I trust myself. Call it being in the flow or zone or whatever you want but whatever it is I just let the markets show me what to do. I heed the advice and play the probabilities not expectations. The markets are an ocean of opportunities. You can cast your net into them and haul in your catch when you are in the right place at the right time.

Anything can happen and once you prepare yourself to trade from that perspective things will suddenly become easier. You and only you are responsible for adjusting your outlook on where the future direction may be. Unlearn bad habits or entrenched personality traits. Overcome stumbling blocks. Go around walls if you cannot go over them. Never give up.

Targets of opportunities

While the markets sort themselves or pile on more trickery be ready for what I call targets of opportunity.

Obvious weakness in APA leads me to join in the short party.

Well I don't need an engraved invitation to say take the money and run a few minutes later.

Cover APA

Face your fears

To clear your mind of the fears you have picked up from the world around you, you will need to go back to a simpler time of your life when you had none and examine the source. When we were younger and carefree we didn't have many fears at all. Over time other peoples fears were instilled in you rightly or wrongly. You can work through your fears so that they are now longer affect you and become the person you want to be.

Anything that is holding you back is a boundary like a prison fence, a barrier to you becoming all what your dreams can imagine. Facing these fears down can produce a quantum leap in you as a person. Confidence, freedom, excellence.

Fears are future projections of something that might happen. Might. Is it ever so bad as you imagined when it does happen? Not usually. Our puny minds amplify and give us negative feedback that tricks us into not living our life as we should and this is not a way to go through life. You have to keep running towards these fear barriers and burst into the limitless expanse of possibilities of your life. You can choose how to live your life and seeing as it is the only one you're got, it makes sense to live it in a way that makes you happy. One of the greatest regrets a person can ever have is getting to the end of their life and realizing they did not follow their dreams or take the golden opportunity. Don't be a timid soul, don't have a failure to try something that scares you. This is where the essence of life comes from. These moments are where you as a person can grow, learn and can feel truly happy.

The picture here is one of my favourites from this past season. It shows me in perfect form about to drop into a fucking seriously steep section. It's not one of those "you fall, you die" chutes but it has to be a sustained 65 degree angle. The effort to ski 2 hours into here, camp out overnight, and kick steps up the steep face are all like they never even happened they are so far buried by the 100% focus I feel in these moments. This is living for me. I never feel more alive than at times like this. Senses are heightened yet in the background. Total joy is the outcome. Sublime.

In trading the common fears of losing money and being wrong can be conquered by using the same techniques. Question what you want to do, what things you will no longer tolerate and what standards of excellence you will hold yourself to, on a go forward basis. Staying with your plan and staying true to yourself even if it means not trading and simply observing the markets until you absorb the necessary skills will get you there. The markets are a limitless space filled with unlimited opportunities. Prepare yourself to operate without boundaries. When you have the attitude and calmness that fears are nothing really but wisps of misguided imagination, the courage to overcome can be easily found. Mark Twain said- "Courage is not the absence of fear. It is acting in spite of it.