Trading the markets with Alan Rich.

[CYOF]

Hello All,

I am new to this site. I was looking at traders paradise scanning software, it seems to be good for acitive traders. Has anyone used/using this scanner and what's your personal opinion.
Thank you

Hi mahi120,

I am a bit surprised at how many people read the posts on this site but very few reply when someone takes the time to post a question?

My take on it, for what it is worth, is that it is better to get familiar with a single market before you start to screen for everything that is out there. The main reason for this is because there is only one thing that you are guaranteed of in the markets, and that is that every trade you place is a looser, due to the spread you have to pay up to participate and the commissions charged by your broker.

By becoming familiar the most followed market sentiment indicator, namely the DOW, you should after some time be able to gain some insight as to what are the best stocks to trade in the DOW 30 based on the daily and intraday charts.

One market that you can monitor with a small bit of experience, is the correlation of the DOW 30 stocks to the DOW Transportation stocks. As a general rule, note that this is general as the market does not always follow the rules, when the DOW and TRAN are in sync the majority of stocks in both indexes will follow the trend direction.

When the DOW and TRAN are not in sync, we have divergence in the Indexes, and there is a possibility that we may have a trend reversal in the very near future.

The point here is that you must be aware of the big picture, for the stock screening tool may identify one stock as been a good trading opportunity, but the general market may be setting up for a reversal - and guess what, it will more than likely reverse soon after you take your position with the result been that your stock will follow suit and also reverse.

This is why a lot of traders get stopped out -even with wide stops - as they have not read the overall market bias correctly prior to taking a position in the market.

You can, of course, still trade the small movements, but you are now looking at scalping and this requires a completely different approach than daytrading - daytrading meaning that you are taking a position in the market than can last for up to the end of the current day, depending on the stock you are trading and the overall market direction.

We have only mentioned one aspect of trading here, that is, a possible way to identify a high probability trade setup. More important than this is understanding and IMPLEMENTING strict rules to keep your losses as small as possible.

However, if you can't get the first part right right then no risk management strategy in the world will be of any use, for you will not be able to identify high probability trades which are required in order to make money in the markets and it will be only a matter of time before your trading capital is gone.

A very good free software programme, with free data feed, to get started with is available, and IMHO this is all you need for learning how to trade effectively. When you get to know what you are doing, you can set up your own "Global Scans" to identify possible trading opportunities - but be aware of the details as previously mentioned -as it is very easy to start screening for anything that moves - just take your time to learn what you need to know in order to be able to place high probability trades and don't get sucked in to the markets, as the majority do.

Professional free software + free data can be downloaded at the following site:

http://www.fongan.net/MT/

 

[pssonice]

...is that it is better to get familiar with a single market

How do you measure "to get familiar.." ?

regards

"My take on it, for what it is worth, is that it is better to get familiar with a single market before you start to screen for everything that is out there. "

 

[andycan]

Pssonice,

Every trader has their own unique way of approaching the market
some believe the market is random and good fundamentals in the long run will prevail, others believe the market can be measured mathematically in one way or another.
for the latter they search for recurring patterns or expected waves, retracements,expansions or they look for an indicator which at a particular point will indicate a sell or a buy opportunity or a combination of technical and fundamentals
A market monogamist believes that by familiarising themselves with the everyday quirks of a particular market they get a 'SENSE' of what the market does,kind of like a personality
whist a market polygamist believes that all market tend to do more or less the same and hence look for common pattern ie breakouts patterns and so forth

 

[CYOF]

Hi pssonice,

Firstly, I suppose what I mean by "familiar" is that you know the high probability reasoning behind each trade that you place.

If you place a trade based on a scan, say for instance, of the most active traded stocks by volume, then you will be inclined to think that the stock price is going to show some follow thru.

However, if you fail to look at where the stock is right now in relation to its overall sector performance and its individual sector weight -for instance is it a Tier1 or Tier2 stock, then you may be setting yourself up to make a bad trading decision. The sudden volume increase may be some institutional trader off loading to balance portfolios, where the MM's will intentionally run the price up to offload the big order at the average price requested by the institutional trader. You know what happens next of course - down it goes and you are sitting there and wondering why you have been stopped out.

This is only one of the many nuances that faces all stock traders - and these nuances are the reason why you must have a high probability reason behind every trade you place - or else you don't take on the risk.

Question:
How do you measure "to get familiar"

My Answer:
This will be looked on differently by each trader. For me, a good measure that you are familiar with the market you are trading is your daily P&L results - again we are talking about daytrading here, not swingtrading, where you will of course have to average your P&L over a set number of trades which can be weeks or months.

If you are not able to make money each week - if daytrading full-time - then you are not in tune with the market. Again, I think I must stress here that we are talking about daytrading stocks where you will more than likely take a position early in the day with a view to closing that position within the same day, depending on how the market trades that particular day.

Scalping, is a different ball-game altogether, and requires a totally different approach.

This is one area where scans may actually provide you with your high probability trades, and it appears that some traders on this site are very successful with this method, but for the beginner this is very hard to do without a lot of trading experience behind them, and more importantly without sufficient capital, as successful scalping requires large size trades due to the fact that you are looking for quick small movements in price.

I have in the past daytraded Nas Tech Stocks, based on the following method:

Sector based trading with main focus on 2 Day H/L breakouts.

In relation to my statement, how did I measure my familiarity with that particular market and trading approach. To cut a long story short, it took me months of trading day in and day out, with 100 share lots, to get to the point where I was able to place high probability trades and come out on top most days - some days will just be pure BAD and you are mush better off to shut down the PC and do something else on these days.

So the answer is that it took me the best part of 6-9 months to become familiar with the Nas Tech Stock market - for daytrading.

As I am not full-time trading at the moment, I am now looking to start daytrading the YM Dow futures along with the DOW 30 stocks and the TRAN stocks. How will I measure my familiarity with this market - easy - when I can come out on top each and every day I will say that I am familiar with trading this market.

Hope this makes sense.

BTW, I am looking at setting up a new private group for "Daytrading and Swingtrading using Daily & 5 min Bar Charts".

This is a totally different approach to daytrading the Nas Tech Stocks, as I will be monitoring the DOW & TRAN and placing high probability trades based on Daily and 5 min bar charts.

Hopefully some traders will join and we can make it a good BB for Daytyrading & Swingtrading.

 

[CYOF]

Pssonice,

Every trader has their own unique way of approaching the market
some believe the market is random and good fundamentals in the long run will prevail, others believe the market can be measured mathematically in one way or another.
for the latter they search for recurring patterns or expected waves, retracements,expansions or they look for an indicator which at a particular point will indicate a sell or a buy opportunity or a combination of technical and fundamentals
A market monogamist believes that by familiarising themselves with the everyday quirks of a particular market they get a 'SENSE' of what the market does,kind of like a personality
whist a market polygamist believes that all market tend to do more or less the same and hence look for common pattern ie breakouts patterns and so forth

andycan is of course correct.

Trading approaches and ones understanding of what constitutes a high probability trade will differ greatly amongst traders - hence the reason why we have price movement on a daily basis.

However, most new traders spend too much time looking for the best way to trade, instead of actively trading and gaining the required experiences.

What approach you take should be based on reality, not on some day dream or from reading posts from someone else - including yours truly

For instance: how much time can I allocate each day for trading, do I have a private room where I can concentrate on what I am doing, what approach do I like best following some study and demo papertrading to get familiar with the various options available, how much money can I spare to spend as learning tuition (as you have to be prepared to loose a small amount starting out -the key is to make it last as long as possible), etc,etc.

You can always of course decide to copycat someone that is currently successful, but what happens if that someone suddenly disappears for what ever reason and you are suddenly faced with the reality of having to call your own trades. Do you have to start at the beginning again?

If you want to be successful at trading, you must learn how to trade for yourself. The only way to do this is to actively trade. If you have to actively trade to learn, and because you are only sure that you are going to loose (you never know for certain if you are going to win), you must have a plan for limiting you risk to very small amounts until you are able to place high probability trades for most that you place. When the trade does not work out, it should not really bother you, as you know your plan will keep you in the game and you will make good money in the long-run - the length of time been determined by your trading approach.

 

[CYOF]

Pssonice,

The main thing to understand with different markets should be understanding the best way to trade each market. All markets move up, down and go sideways. How you decide to trade them will depend on whether you will make money or not.

In my experiences to date, the Nas Tech Stocks tend to be best for quick daytrades between 09:30 and 10:30 -sometime up to 11:00, but this is an exception.

For placing quick daytrades you will require a daytrading rig, consisting of multi monitor setups so that you can quickly spot the high percentage moves from the opening bell. This type of trading is based on Institutional money flow into and out of the various Nas sectors -it is probably incorrect to call them Tech stocks, as the Biotech and other sectors are also heavily traded - this probably stemmed from the tech run up to the year 2K. Also the majority of the trades are pure momentum trades, relying heavily on Lev II screens and T&Sales.

I have seen a lot of posts concerning Lev II, most of which I think are incorrect. Lev II, when used with the trading approach I have outlined above, is used to identify your max risk on the trade. Your target for quick daytrades is to have a max risk that is 2-4 levels away from the inside level. Forget about trying to see who the AX is, the days of the SOES traders are long gone and if you follow this approach you will take big losses. T&Sales is your lifeline to the market - if you are unable to identify when a stock may be gathering momentum for a quick move, then you are at nothing. Getting filled for both entries and exits also requires several tricks to be learned - but with the smart routing now available from most DA Brokers this is getting easier.

On the other hand, the DOW & TRAN stocks, most of which are traded on the NYSE with dedicated specialists - not like the multi MM's for the Nasdaq stocks - tend to offer high probability trades based on longer term daytrades - form the opening bell to market on close orders. This said, you can of course mix both styles to trade each market, but it is better to stick with what works best - if something works you keep using it until it stops working.

 

[Grey1]

Pssonice,

The main thing to understand with different markets should be understanding the best way to trade each market. All markets move up, down and go sideways. How you decide to trade them will depend on whether you will make money or not.

In my experiences to date, the Nas Tech Stocks tend to be best for quick daytrades between 09:30 and 10:30 -sometime up to 11:00, but this is an exception.

For placing quick daytrades you will require a daytrading rig, consisting of multi monitor setups so that you can quickly spot the high percentage moves from the opening bell. This type of trading is based on Institutional money flow into and out of the various Nas sectors -it is probably incorrect to call them Tech stocks, as the Biotech and other sectors are also heavily traded - this probably stemmed from the tech run up to the year 2K. Also the majority of the trades are pure momentum trades, relying heavily on Lev II screens and T&Sales.

I have seen a lot of posts concerning Lev II, most of which I think are incorrect. Lev II, when used with the trading approach I have outlined above, is used to identify your max risk on the trade. Your target for quick daytrades is to have a max risk that is 2-4 levels away from the inside level. Forget about trying to see who the AX is, the days of the SOES traders are long gone and if you follow this approach you will take big losses. T&Sales is your lifeline to the market - if you are unable to identify when a stock may be gathering momentum for a quick move, then you are at nothing. Getting filled for both entries and exits also requires several tricks to be learned - but with the smart routing now available from most DA Brokers this is getting easier.

On the other hand, the DOW & TRAN stocks, most of which are traded on the NYSE with dedicated specialists - not like the multi MM's for the Nasdaq stocks - tend to offer high probability trades based on longer term daytrades - form the opening bell to market on close orders. This said, you can of course mix both styles to trade each market, but it is better to stick with what works best - if something works you keep using it until it stops working.

Thanks .. May I ask what your strategy is in manageing risk during the trade..

grey1

 

[CYOF]

Thanks .. May I ask what your strategy is in manageing risk during the trade..

grey1

Hi Grey1,

I can only speak in relation to my past experiences daytrading the Nas between 09:30 & 11:00, as I am just starting to test the daytrading of the Dow & Tran stocks - which is a totally different approach I am taking based on using Daily & 5min Bar charts.

For the Nas, the 2 hr time-frame for trading is broken down as follows:

1. 09:30 > 10:00
3-8 min round trips using fixed amount size (no scaling). The T&S is used more than the 1 min candle chart. Stops are kept @ 2-3 spreads max. This is the high risk / high gain period.

2. 10:00 > 11:30
5-15 min round trips using larger size (scale in to build up position during momentum waves). The 1 min candle chart is of equal importance as the T&S. Stops are trailed based on the 1 min candle chart S&R levels. This is the medium risk / medium to high gain period.

During all trades the Lev 2 is closely watched for size @ the first 4 levels, as the max desired exit is 3-4 levels out when you make a decision to exit the trade.

Position size per trade is dependant on available equity and risk tolerance - I prefer to keep my initial max risk level per trade @ 0.1% of available equity - so for 100K account this is $100 max risk per trade - which equates to 10cent stop on 1000 share or 20 cent stop on 500 shares.The fixed amount size will be based on what the Lev 2 levels are - if the levels allow for a quick exit at the 4th level max that keeps the risk level intact, then the max size can be placed - if not the size must be reduced accordingly.

The key is to perfect entries so that you very rarely get your initial max risk hit - and when you do have to exit very quick after entry you try for a scratch trade.

As you can see, 0.1% risk is very small, but the opportunities are such that you can place multiple trades at the one time to increase profits - a skill that I have yet to master.

Here is a simple graph of how the 3-8 min P&L may look .

 

[Grey1]

Hi Grey1,

I can only speak in relation to my past experiences daytrading the Nas between 09:30 & 11:00, as I am just starting to test the daytrading of the Dow & Tran stocks - which is a totally different approach I am taking based on using Daily & 5min Bar charts.

For the Nas, the 2 hr time-frame for trading is broken down as follows:

1. 09:30 > 10:00
3-8 min round trips using fixed amount size (no scaling). The T&S is used more than the 1 min candle chart. Stops are kept @ 2-3 spreads max. This is the high risk / high gain period.

2. 10:00 > 11:30
5-15 min round trips using larger size (scale in to build up position during momentum waves). The 1 min candle chart is of equal importance as the T&S. Stops are trailed based on the 1 min candle chart S&R levels. This is the medium risk / medium to high gain period.

During all trades the Lev 2 is closely watched for size @ the first 4 levels, as the max desired exit is 3-4 levels out when you make a decision to exit the trade.

Position size per trade is dependant on available equity and risk tolerance - I prefer to keep my initial max risk level per trade @ 0.1% of available equity - so for 100K account this is $100 max risk per trade - which equates to 10cent stop on 1000 share or 20 cent stop on 500 shares.The fixed amount size will be based on what the Lev 2 levels are - if the levels allow for a quick exit at the 4th level max that keeps the risk level intact, then the max size can be placed - if not the size must be reduced accordingly.

The key is to perfect entries so that you very rarely get your initial max risk hit - and when you do have to exit very quick after entry you try for a scratch trade.

As you can see, 0.1% risk is very small, but the opportunities are such that you can place multiple trades at the one time to increase profits - a skill that I have yet to master.

Here is a simple graph of how the 3-8 min P&L may look .

Thanks for the replay .. Your first step in evaluating your risk profile must be the study of volatility of the stock under analysis.. We have outlined an objective and dynamic pos sizing strategy on Technical Trader which answers most of the issues on intra day trading ...

In short,,,

You use three time frames lets say 1, 5 and 10

you open a new pos with pos size equal tothe ATR of the stock on 1 min and then scale in and out according to stocks behaviour on the above mentioned time frames.. You can automate this on Trade station ( radar) and your risk can then be controlled hence not expsoing your capital to excess pressure ..

The code is available on Technical Trader site for you to copy


Grey1

 

[CYOF]

Thanks Grey1,

I have seen how effective your strategies are and plan to have a detailed look in the future.

At the present time I am unable to give my full attention to trading and I am also limited in relation to firewalls, so most of my time is spent testing new approaches for when I return to full-time trading in 2007.

I have recently spent some time on Forex using Interbank FX and MT4, but due to the way the retail brokers operate I had to drop it as it is impossible to place quick trades when a little volatility appears in the market - you keep getting re-quotes, etc, etc. I plan to look at Forex with DA brokers again in 2007 when I am setup for full time trading.

I am keen to test some longer term daytrading and swingtrading strategies for the YM futures along with the DOW & TRAN stocks. This approach is totally new to for me and I am hoping to learn some new skills that will compliment my current skill set.

Thanks for the detail on position sizing - as I have seen that this does work on the TT site - and also for making the tradestation code available. I will definitely be looking at same when the time is right.

 

[CYOF]

In relation to the graph - as I may not have explained it fully in the previous post.

This revised graph below shows how much of a difference your stops can make to your bottom line - I think most of us will agree that the timing of entries is paramount - if you can enter a trade just prior, or at the very beginning, of a short term price movement, then you are automatically limiting your risk on that trade to zero.

However, letting a zero risk trade turn into a losing trade is very easy to do, and the best way that I have seen to date to prevent this is as described previously by the use of Lev 2 & T& Sales.

In the 24 trade example below, we have 12 losers and 12 winners -a 50:50 win / loss ratio.

But, from the example, we can also see that we have a R:R ratio of 1:5.4

How can this be so? All the so called money making systems boast a win / loss ratio of around 80% - the magical number, but very few can achieve a R:R above 1:3 - this should really be called the "marketing" number

For me, the key is in the timing of entries and applying 2 fundamental rules of trading - details as follows:

There is a very good pdf by P.O.P (Phantom Of The Pits) where the P.O.P states the two most important rules that has kept him in the trading game all of his life. They are as follows:

Rule No.1
In a losing game such as trading, we shall start against the majority and assume we are wrong until proven correct (We do not assume we are correct until proven wrong). Positions established must be reduced and removed until or unless the market proves the position correct! (We allow the market to verify correct positions)

Rule No.2
Press your winners correctly without exception

I would advise any new trader to memorize these rules and place no trade without fully understanding their meaning.

For me, this means that the next trade that I place is a loser. If I know this trade is a loser, then I want to try and enter the market with the intention of not losing too much on the trade. The best way I have found to date to do this is again, as stated previously, using Lev2 and T&Sales to fine tune my entry with the intention to take the smallest loss possible, and scratch the trade if I am able to.

By perfecting my entries, it simply means that I want the price to move in my direction very quickly after I place the trade - if it doesn't then I want to make sure that I use Rule No.1.

Your risk then becomes a function of your ability to read what the market is doing at the present time (as in reading the volume patterns of the last X no. of trades printed on the T&Sales screen) - a little different to letting your risk be determined by what the market has been doing (as in the price differential based on a set time-frame).

Rule No.2 is more about the longer term trades for position sizing, as P.O.P goes into great detail in relation to scalping - namely, that with scalping you are better off to have your full position on from the start due to the nature of the trading approach, i.e., very short time-frame.

If the P.O.P pdf file has not already been posted on this site I can dig it out and post if anyone wants same - just let me know.

PS:There is actually a mistake in the 0.8 profit level, as this should read 1600 instead of 800, but the overall picture is still the same in this example.

It is obvious from the graph what can be achieved by considering the various scenarios - like been able to decrease your profit level targets if you can also decrease your stop level targets.

The opposite is also true, if you stop levels target increases you will need to increase your profit level targets in order to make money - something which may not be possible to do with very short term scalping trades!

Your ultimate goal should be to have no losing trades, but in reality this will just not happen, so the next best thing is to not go too far out to the left on the scale - try and stay at the 0.0 level as much as possible when you are wrong. There will be always some trades that will move up a substantial amount very quickly, but again this is not the norm. Knowing what is possible on the graph, for the market you are trading, is a good indicator of how much in tune you are with that market.

Each trader needs to find a win/loss level on the graph that is within their practical reach - and this will be determined by the amount of experience that they have acquired.

Rule No.1 is the basis for all successful trading - no matter what time-frame you choose to trade-but for scalping it is also the deciding factor as to how much money you will actually make on your trades, as per graph scenarios.

This is my take on it, others will differ, but finding what works for YOU is the key, not what I do or what anyone else does. The approach one decides to take for trading is really a very personal decision - I have recently seen one Forex trader make substantial money with long term trading, but his risk level is also substantial - something which does not bother him as he has a trading account in excess of $1m.

 

[3tuple]

In relation to the graph - as I may not have explained it fully in the previous post.

...

CYOF, thanks for the extended posting. It's much appreciated by those of us trying to put together a system.

 

[3tuple]

Thanks for the replay .. Your first step in evaluating your risk profile must be the study of volatility of the stock under analysis.. We have outlined an objective and dynamic pos sizing strategy on Technical Trader which answers most of the issues on intra day trading ...

In short,,,

You use three time frames lets say 1, 5 and 10

you open a new pos with pos size equal tothe ATR of the stock on 1 min and then scale in and out according to stocks behaviour on the above mentioned time frames.. You can automate this on Trade station ( radar) and your risk can then be controlled hence not expsoing your capital to excess pressure ..

The code is available on Technical Trader site for you to copy


Grey1

Grey1, how do we get access to Technical Trader? I don't see it in the list of forums, seems to be a restricted/private. Regards.

 

[robq]

links to POP's book



http://www.futuresmag.com/cms/futures/website/phantom/

http://www.spytrdr.com/PhantomOfThePits.pdf

 

[foredog]

I attach a chart again of an intra day chart next to end of day chart on a UK stock. On 20/6 intra day clearly shows the stock opens at the highs and closes at it lows and goes down all day. EOD bar shows it as an up day closing at its highs. The exact opposite.

The next day 21/6, intra day shows the stock continues its trend down, only the EOD bar shows it as a small up day. The exact opposite.

The next day intra day shows it as a slightly up day, EOD shows it as a down day. The opposite.

There maybe some reason for the discrepancy and i would be only to happy to listen to anyone who could explain what it is. Other than that its confusing EOD chart readers and something needs to be done about the structure of the charts to fully show whats truly occurring.

Alan[/QUOTE]


Reading through a few old posts and saw this, I'd guess that you've probably discovered the answer by now but if you haven't or for others here goes.....

i believe the strange highs on the EOD bars are because these bars count up until 5pm, but the auction ends at 435pm, BUT, market makers can book trades dealt over the phone or amend them after this time...

... so if you had forgotten to book 100 shares dealt just after the open at the highs and then found it after hours an booked it then it would look like a valid price on an hourly or more bar but looking at a 30 min or less you'd see the real close.

 

[neil]

I attach a chart again of an intra day chart next to end of day chart on a UK stock. On 20/6 intra day clearly shows the stock opens at the highs and closes at it lows and goes down all day. EOD bar shows it as an up day closing at its highs. The exact opposite.

The next day 21/6, intra day shows the stock continues its trend down, only the EOD bar shows it as a small up day. The exact opposite.

The next day intra day shows it as a slightly up day, EOD shows it as a down day. The opposite.

There maybe some reason for the discrepancy and i would be only to happy to listen to anyone who could explain what it is. Other than that its confusing EOD chart readers and something needs to be done about the structure of the charts to fully show whats truly occurring.

Alan

Reading through a few old posts and saw this, I'd guess that you've probably discovered the answer by now but if you haven't or for others here goes.....

i believe the strange highs on the EOD bars are because these bars count up until 5pm, but the auction ends at 435pm, BUT, market makers can book trades dealt over the phone or amend them after this time...

... so if you had forgotten to book 100 shares dealt just after the open at the highs and then found it after hours an booked it then it would look like a valid price on an hourly or more bar but looking at a 30 min or less you'd see the real close.[/QUOTE]

Doggy - this thread has been dead for 2 years !!

 

[foredog]

Yeah, but i was just reading through some old threads by NAZ & MR CHARTS, saw that nobody had ever answer the question so thought i would, you still get these prints so it's a valid question.

Maybe a good time to revive a HOT stocks thread, try and find the really hot ones from all the stocks that are only moving about 5% a day!!!!!!

 

[eagle321]

via-trader.com

This thread will be dedicated to everyone who enjoys day trading US stocks and will include swing trading UK and US stocks as well.

Although i day trade the US markets primarily, i see many swing trades set themselves up from day trading opportunities both in the US and the UK. I also find the skills i use in day trading are so helpful in being able to swing trade profitably.

Spotting hot movers in anytime frame can be a problem. The more eyes out there the better. So if you think you might have found one let us all know. UK or US it dos'nt matter.

My resume is as follows. I was a Nasdaq level 2 instructor in the city, had a regular slot on CNBC Europe appeared on the BBC, in the FT and a number of UK and US financial publications. I run the US day trader product on Via-trader.com where i post live trades and market commentary along side my bespoke real time scans throughout the day.

I also coach beginners through to experienced traders 1-2-1 and hold numerous free trading events at top UK hotels attended by 80-200 people.

Most of all i love to trade and hope together we can talk about trading and some of the stocks were all following.

How do I access via-trader? any trial?

 

[Mr. Charts]

eagle321,
I'll take the liberty of answering this on my friend Alan's behalf as he has not posted on t2w for some time.
Via-trader was re-structured some time ago and is no longer available to you.
Richard

 

[oak]

So what is a good way of spotting potential Hot Stocks in advance or during a trading day? TIA, Oak.