Weekly Trade Blog

Trader's Corner

2012-01-21T08:33:00.002-06:00

Kerry,

I would like to thank you for a great service! You have fantastic video consultations and really inspired me, I am more inspired than ever before. Your service helped my equity to grow. I doubled the amount of bonuses on the SpikeTrade and will win Bank Robbery Award 3rd month in a row. What I was missing before was what strategy to use in what market condition. This helped me a great deal. Also I adjusted entries/exits based on your ATR channels and Triggers. This minimized the number of emotional/impulsive trades. This minimizes my capital drawdowns and increases equity curve.

Thanks,

Vlad

Missed opportunity

2012-01-12T11:12:00.002-06:00

There will be times when the trader will be thrown off balance by the market. Basically you will be fooled and you may have the sense of confusion or you are in unfamiliar territory. Keep one thing in mind!

When this happens you will be susceptible to changing your rules and typical methods. It is at these times one finds themselves in danger of incurring a bigger draw down than expected.This bewilderment is what may cause one to make additional trading mistakes and make matters worse rather than better.

If you find yourself that things does not seem to make sense to you, back away and wait. The old saying if in doubt, stay out is important. Taking risks when things seem cloudy and unclear is similar to flying a plane in conditions that you are not trained to fly in. John Kennedy Jr. died taking a risk he had no business in taking. He flew his plane in conditions that he was not trained to fly in. The slogan when in doubt stay out would have benefited him and most likely would have saved his and those with him their lives.
It is the benefit of hindsight and seeing what did happen that may force you into trades that you ordinarily would never make.

The particular methods I use will not and does not get me into every trade I am interested in making. What it does do, it helps me stay out of trades I may would have made impulsively when I should not be making those trades.

A good example recently is LULU. MY method did not get me in that trade I was ready to make. If I begin changing my methods too much than it is likely to put me in more trades that I should NOT be making. Be careful to over adjust due to one trade after having the benefit of hindsight.

I spoke on this issue of missing the boat in last nights WPT group consultation. It is unrealistic to think you can catch every move even when it is on your watch list. Trading is a numbers game and not based on any one single trade.
Successful trading hinges mostly on how we manage ourselves and our emotions. It will not be the last trade I miss and it was not certainly the first. There are missed opportunities every month and year. The focus is catching enough of them to achieve ones objectives. Make sure your objectives are realistic.

“It never was my thinking that made the big money for me. It always was my sitting.”

2011-12-08T09:55:00.000-06:00

Jesse Livermore was one of the greatest traders of all time.

One method that satisfies the desire for profit and subdues the fear of a losing trade is to take one half of your profit off at a predetermined level, put a stop at breakeven on the rest, and let it play out without micromanaging the position.

I personally like to practice a scaling out in one third positions. Once I lock in one third of the profits my stop moves to break-even and then let the trade run. It if turns and stops me out, I guarantee myself the trade cannot lose me any money at this point.

A method that creates doubts in your mind will never work for you, even if it is beneficial to others.

2011-05-28T18:06:00.002-05:00

Ask yourself these questions after every trade

2011-04-20T09:29:00.002-05:00

After every trade regardless if one made money or not, one should ask.

Did I make money - yes/no
Did I trade the plan – yes/no
If #2 question was no - If I had traded the plan would I made money – yes/no
If #2 question was no and I made money on the trade the way I traded it, would I had made more money than I did – yes/no
If #2 question was no - What was the main reason I exited the trade pre-maturely? ( try to answer as honest as possible)

Some examples may be....

I read or heard someone else’s comment and second guessed myself...
I feared losing what profits I had
I feared losing more money
I felt physically sick
I did not like the trade to start with and entered impulsively
I entered the trade based on others comments but really did not like the trade.

You can add other reasons but the exercise is to keep this in your journal so you can identify patterns with yourself. The Trader is 80% of the equation and if the trader cannot function properly in the heat of the battle, the battle is difficult to win.

With the AAPL trade, I looked at the charts about 5 different times since the trade was entered on Monday. All were looked at based on pre-determined alerts and the system alerted me to look over the chart and make the next decision. I was in meetings most of yesterday, no need in micro managing a trade. Either the plan works or it does not and if it does not, I have identified up front how much money I am willing to lose. A trader can only control when he/she enters or exits a trade. Nothing else.

With the AAPL Swing trade example...

Did I make money = yes
Did I trade the plan = yes
Would I make this trade again regardless of profit and loss = yes
Since the trade was traded as planned and I made money and I would make the trade again regardless of profit or loss, end of analysis, next trade.

One should practice doing this exercise on every trade. YES I know, it is mundane, boring, and I rather being making trades. This exercise will help you make better trades and become more comfortable managing the trade. I did not have to be stuck in front of the screens watching 5 minute charts for this trade. At the moment It appears I will leave money on the table, but I don't mind when I leave some money on the table, as the Trading Gods get pissed off when you don't.
In all seriousness, the only two options I have when targets are met is either take my money and run or move to a momentum trailing stop on a smaller time frame. Being that the swing part of the trade was to be closed by end of day due to earnings and I could not find a trailing stop I was willing to use to stay in the trade, I was happy to close the trade and take the profits that was given since Monday afternoon. It is an idea trade for me.
Low risk entry, very little draw down during the trade, and target hit within 3 days. These are the trades that I try to be patient and live for. AAPL gained about 15 points in profits if traded you the shares and if one traded the $310 June calls as mentioned those gained about 10 points on a $28 dollar purchase.

REMINDER: When using options to trade higher dollar stocks be careful with choosing the month and strike prices. You want a 70% Delta at least two months out. It is not being used for leverage, these calls are being used to allow one to trade $300 dollar stocks without tying up all that capital for the stock. It should only be used when one feels they obtained a winning edge.

Trader's Feedback

2011-04-20T09:28:00.000-05:00

Hi Kerry

Ever since I have started taking lessons from you, I'm doing reasonably well in the markets.

In Indian tradition you can't do well in any sphere of life unless you have a mentor. You have become my mentor.

In the last one month exceedingly well.

Thanks and best wishes!

Saty

Trading Frequency

2010-03-28T10:51:00.000-05:00

How many trades do you make in an average month? In Trading, unlike other production based businesses, more trading does not result in more profits. Less is more most times.

My trading has been very light this year. In December and January this was by choice and that choice played out to be correct. By mid February and early March that choice was made by missing an opportunity and getting trapped on the sidelines. I had my most active week last week and made four trades. Two stock trades, an index trade and one currency futures trade. I felt like I had woken up from a 6 month bear hibernation. I would be lying to say staying on the sidelines is NOT difficult. It is the most difficult position to take and requires the most discipline to adhere to.

The chart shows a study conducted several years ago that demonstrated more trading activity does not result into more profits. It is why it is crucial to understand the systems you trade and the activity you are producing. I always ask why one wants to trade? Most will answer to make money. Unfortunately many trade for the activity and others become addicted to the game.

I recently did some work for a trader that had to make over $60,000 per year to break even. That is correct, his commissions we over $60k for one year. He had lost a little over $23,000. His trading was profitable in the tune of $40,000 on a $150,000 account. This was a little better than 25% for the year. As in any business we have a cost to conduct that business. In the end he lost over $23,000. Of the trades that were made we indentified to best of our ability that about 60% of these trades were totally unnecessary. We were able to tag these trades as impulsive trades and never should have been made. This was a savings of over $35,000. He was down $23,000 for the year after commissions. He was not trading as poorly as he thought when he had a viable trade setup. He was simply trading too much and out of boredom making three to four times more trades than necessary. The only person that gets paid for your activity is your broker. I am sharing the info with his permission as he hopes it will help other traders.

I recently finished a two week trip working with clients and holding an Organization class in Florida. It was a great trip and offered me a chance to interact with a variety of clients and traders. I heard stories from those that struggled the last 6 months and lost thousands of dollars, to those that are gearing up to take more control of their investments/trading, to those that are preparing to take the next step in their trading journey, those that are unhappy with their activity and have not made many trades, to a few that are content with their accomplishments and preparing to wait for the next opportunity.

Of all those that I met and worked with the past two weeks I found a common denominator to those that were profitable and those that were not. The more activity one had the more they had lost, the less activity they had the more profits they had kept and was making money. There were those that had not done any trading to speak of, but those were traders that were gearing up to begin to take the next step.

We must have activity to make a profit, but there seems to be a balance between activity and profits/losses. There is a threshold when crossed we begin to lessen our ability to make a gain. That balance is difficult to find and can vary from trader to trader. The common thread was evident. Trade too much and profits became more difficult to earn and much more difficult to keep.

Another common trait I saw was a clarity of what a trader was looking for. Those that had more clarity in what they were looking to trade seemed to have been more profitable and those that were attempting too many styles and strategies seemed to be treading water or running on a tread mill.

This is not a post to say anything negative about those that I met and worked with. It is a post to re-iterate and confirm what occurs in the real world of trading. Remember there are those (brokers/vendors) that want you to be more active and offer you more of everything. In my personal trading and having the opportunity to see other successful traders, I look for the commonality of a theme. The theme is a balance of activity with a clarity and patience to wait.

Like the chart suggests, the more activity the trader had the less the trader was making. Don’t get me wrong, we have to have a certain amount of activity. That activity can vary based on style and strategies traded. The important element here is we understand what that activity should look like and keep our finger on the pulse so we do not cross that line by an extreme amount.

Do you know what your average activity should look like? Are you trading 200%, 300%, or maybe even 500% more than you should? There is a reason why brokers make it so easy to make a trade.

You want to take trades when you indentify that the probabilities are mostly in your favor. High probability trades with low risk opportunity is what a trader should strive for. These opportunities do not come across as often as we would like to think. In the end it is the bottom line that counts, not if we make a gazillion trades a year.

Traders feedback

2010-03-13T10:27:00.001-06:00

Kerry,

I just finished rereading Master the Markets for a 2nd time. I feel like it has allowed me to paint such a different story when looking at the charts. I hope you offer this book to all your clients.

Again, thank you.

Hi Sash,

Yes it is a book in my top 5 favorites and recommend reading.

Glad you found it helpful. All the best!

Kerry

The Analyst and Trader

2010-02-06T10:21:00.002-06:00

Many of you know that I believe we wear two hats in this game we call Trading. There is the Analyst and the Trader. They are both uniquely different. We can be good Analysts yet be lousy Traders. We can be poor Analysts yet be Great Traders.

I read a post by Brett Steenbarger yesterday… The chart above is an excerpt from this post… I cannot find that post now I wanted to link to it. If any of you have it please forward it to me.

Typically it is easier to become a good analyst and more difficult to become a great Trader. This is why we find ourselves getting a directional move right, yet we find ourselves not profiting from our analysis work. We begin to doubt ourselves and will look for other’s opinions to follow, hoping to find others to agree with our outlook. Don't trade solely because someone else told you to. I will be the first to say do not trade anything based on someone else’s opinion and that includes me. I'm a risk manager first and trading coach/mentor second. I am not a fortune teller or psychic. I will likely miss every single move in some form or another. None of us get it right 100%. If we do we were lucky. Take what I say or anyone else for that matter as "information", not "instructions". Then make your own decisions, and then take action based on those decisions. Embrace that you may not get it just right. You will also be wrong many times, we all are. This is what makes trading the markets so difficult. We will always get it wrong somehow or some way. After the move occurs we will know exactly what we should have done. The market has a way to make us feel we messed up. It has a great way to make us feel downright stupid and diminish our self esteem.

I teach by showing what I do, not by making a bunch of after the fact explanations of buy here and sell there. You see my analysis and you see many of my trades, good or bad. Sometimes I trade the moves well and sometimes I miss the move in grand fashion. More times than not I miss the moves in Grand Fashion. It’s not easy to show just how fashionable you can be wrong sometimes. At times the Analyst and the Trader is not functioning so well. At other times they will be in sync. It is always more fun when they are in sync. It is a nightmare when they are both out of sync. These are the days we ask ourselves… “Why the hell am I doing this?”

Thursday evening I posted my thoughts and “opinion” to sell strength and buy weakness based on the morning action. We got a slight bounce from the opening and then sold off, attempted a failed bounce mid morning then eventually sold off to new lows. The sell strength analysis was not a bad directional call. The trader in me attempted to hold the final position in my IWM short. I was not fully positioned as I hoped due to where I had to take the trade near its -1ATR. Again the analyst in me got the move right but I was not participating as much as I hoped. Never the less I had to manage the risk for the trade I had on. Wishing I had more exposure to the short side was not going to help the Trader in me to manage this trade any better. If not careful those thoughts would hinder the Trader managing this trade.

Once we broke to new lows and the oscillator dropped to -270 to -280 it was time to think of closing the short position. I had also remembered that I had 1050 as a support area on the SP and we were beginning to hit -3ATR on multiple time frames. Probabilities suggested the Trader was beginning to overstay his welcome and it was time to get out of this short. This was the Traders job based upon information received from the Analyst. My first job as a Trader was to exit my shorts, I then could start thinking about trading the bounce. The Trader in me felt prudent to exit the final shares of the IWM short and I covered.

I took about a 15 minute break and decided to write a post to the Trading Blog. At about 2:05 EST, I began to write an intraday post of the day’s action and showing how the $TICK indicator can help one manage the intraday action. I knew I was getting ready to call it a day and go pick up my son at the airport.

I wrote…

The market may find deep enough oversold levels to have an afternoon bounce. I had some emails come in about playing the bounce but first I wanted to get out of my last IWM short. That is closed as of now. I will not play the bounce other than a day trade. I rather not hold positions over the weekend as the Sovereign debt news spreads like wild fire. We may set up for a bounce next week.

The Analyst in me (now in hindsight) got the intraday move correct. The markets began to bounce at 2:10 EST (in hindsight) and by 2:55 EST was beginning its big run into the close. When I wrote this I was stating probabilities not anything I knew for certain. Had I known 100% we were going to get a 22 point SP rally from low to high, I would have placed that MIX strategy bet and made off like a bandit. In my post I wrote…

We have a few signals in place but not all of them. Again, even if they were all aligned, I doubt I would put the position on into the weekend. That is just my personal style and my little chicken trading ways. ;-)

As a trader I was debating if I was going to make another trade for the week or call it a day. I know I had limited time to be in front of the screens. If I had taken the MIX strategy the SPY 104’s was selling around 2.70 and closed at 3.67 for a 35% gain in about 2 hours. The 106 strikes netted about 41%.

Did the Trader in me participate? No… and just why not?

The Trader in me decided to call it a day and I had some personal obligations to tend to. I don’t think my son would appreciated the fact I left him stranded at the airport, although it might would have helped if I had brought my winnings and gave it to him. I had decided to write an intraday post and took care of a few phone calls, did some updating on my record keeping, and managed some Spike related issues. I spent about an hour to finish my day up before it was time to leave for the airport.

The point is the Analyst got the direction correct, the Trader followed directions, “closing the final short position”. The Trader chose not to follow the intraday trade opportunity for various reasons. Is the trader badly wrong and should be dragged out behind the wood shed and beaten? I hope not. Be careful talking negative to yourself after having the benefit of hindsight.

Had the market bounce fizzled out and we sold back off into the close I would have felt I had made the perfect decision. In hindsight I would not have done anything differently other than If I had not had the obligation to go pick up my son. ( I could have asked my wife or his grandparents to do it) I might would have day traded the bounce. In hindsight I would have liked to say I would have traded and made some extra money. In reality I know that it was late Friday afternoon going into the weekend. I did not feel I had traded the past two weeks as well as I could have and was looking forward to calling it a week. I did not want that emotion of wanting more to force me into a bad trade. In reality I might have made the same decision to stop trading if I did not have the obligation to pick up my son. I was looking forward to seeing him and so I have no right to take this Trader out behind the ole woodshed and give him three lashes.

The moral of the story is….

This past week the Analyst in me was looking for a bounce that would eventually lead to another leg down. The direction was correct, we bounced Monday and Tuesday with a pause day on Wednesday at resistance levels of 1100 - 1110. The Analyst had been mentioning these levels in my updates. The market began another leg down on Thursday with a gap down and continued into Friday. Thursday evening the Analyst suggested probabilities existed if we saw more selling pushing us down into extreme oversold conditions that we could set up for a bounce. We got all the action in one day on Friday. The directional call was good and the Analyst in me did his job. Did I participate as well as I would have liked as a Trader? Did the Trader in me trade the direction based on the analyst recommendations as well as I should have? The answer to both of these are NO. The Trader did not participate as well as I feel I could have although the Trader did get a little piece of the action. The important part is to recognize who is doing their job well. Make sure you don’t let the market make either one of these parts feel worse than they should.

I wished I had traded my analysis better than I did. My risk profile did not match up that well with the way the markets traded leaving me on the sidelines more than I would have liked. When reflecting back on the week’s events, the Trader in me did not do so bad considering the various events the Trader must maneuver around.

The Trader in me must stay within certain risk parameters to control losses in case the Analyst IS wrong.
The Trader in me must deal with outside interruptions, regardless if they are good interruptions or bad.
The Trader must deal with emotions and directions within hours sometimes minutes. It is not as easy as it sounds to be bullish for a bounce two days, flip to be bearish for two and half days and then flip back bullish for two hours.

What kind of expectations do I have on myself as a Trader? If we are not careful no one will be able to live up to those expectations we impose on ourselves.

In the end – I am happy of the Analyst work and the Trader did the best he could considering all the circumstances. Only in hindsight I know for sure what I could have done differently. In the end, the Trader did not make any foolish mistakes or take any unnecessary impulsive trades. The Trader did not violate any money management rules and did not trade against the direction of the Analyst work. It was a profitable week. The only issue is hindsight. I wished I could have participated better and that the market was not so difficult to trade sometimes. We like to be paid for our work but in Trading that is not always the case.

Why can’t this game be easy so I could just kick back on auto-pilot and let the money roll in?

Have a great weekend!

From the “Analyst and Trader” that feels like “Mr. Jekyll and Mr. Hyde” ;-)

Kerry

Bank Index Negativly Diverged Nov 1st by: Kerry

2009-11-29T19:34:00.002-06:00

Banks negatively diverged from the SP500 and did not participate in the recent rally to new highs.

They now have formed lower highs. This along with weakness in small and mid caps show why this market has been so thin and market breadth so weak.

When we have these type conditions, most long strategies are not following thru. Only a few stocks are working and many of those have been difficult to find good risk reward entries.

All the best!

Kerry

Trader's Feedback

2009-11-25T14:21:00.002-06:00

Hi Kerry,

I want to wish you a Happy Thanksgiving and many thanks for everything. My trading has become less stressful and much more manageable thanks to your guidance. I am posting my November equity curve and proud to announce it is my best month thus far. I am only trading a $40,000 account and I am up about 5% for the month. Prior to working with you I had never experienced a winning month. I always managed to keep my losses small but each and every month I would lose a few dollars. I know I have much more to learn as a new trader, but I finally feel I am on a path of understanding and proper direction.

The dip in my equity curve this month was a very impulsive trade and it cost me. Had it not been for that one trade I would be up over $3,000 dollars for the month.

It only takes one trade to diminish your results. I now have that trade posted on my wall to remind me that impulsiveness takes away from one’s hard earn profits.

I am taking the remainder of the month off for the Holidays and will use the time to relax and take my mind off the market. I am looking forward to December to continue my new found discipline and see what my trading brings me. My goal is to trade near impulsive free for the next 3 months. I will allow myself to have 1 impulsive trade per month as I do not feel my discipline is strong enough currently to eliminate all my impulsiveness. Compared to a few months ago I am 10 times better than I was before and now had my first winning month. With only a few days remaining, no need in risking my profits and will go experience some much needed down time.

Thanks again for great advise and help.

Warmest Regards,

Jim P.

_________________________________________

Jim,

Always great to hear about other’s successes and their growth as a Trader. Best wishes and Happy Holidays!

Over Trading and Impulsive Trading creates stress.

2009-11-22T20:48:00.002-06:00

Reduce Stress, Increase Profitability

Those of you that are Spike Members will have read this in SpikeSpeak, but I wanted to share ti with all my clients this evening and post to the Trade blog.

The best time to look for trades is when the market is closed. Do your research when it is not flashing, gyrating, and trying to seduce you. It is next to impossible to make good decisions while listening to the intraday noise. This takes years of practice and immense discipline.

Intraday monitoring reminds me of the Greek story of Odysseus. As Alex reminds us in “Trading for a Living”, Sirens were sea creatures of Greek myths who sang so beautifully that sailors jumped overboard and drowned. When Odysseus wanted to hear the Sirens’ songs, he ordered his men to tie him to the mast and to put wax in their own ears. Odysseus heard the Sirens’ song but survived because his system would not let him jump.

The market acts like those sirens. It seduces us to enter trades we should not make, and we see our mistakes only after the fact. It pays to tie yourself to the mast and put beeswax in your ears, so as not to fall prey to the beautiful singing and dancing of the market.

I had to tie myself as a trader because I used to have an issue with jumping on anything that moved. There used to be days I would have 20 to 30 trades, but nothing to show for them. By end of the month I could have over 400 trades, and can you imagine the commissions? I would earn a gold-plated Christmas card from my broker.

Several years ago I decided to limit the number of stocks that I monitor intraday to 10. I set alerts to look at them when they reach levels where I must make go / no go decisions based on my chosen strategy. I am forbidden to look for more trades during the day. I either get a trade out of my 10 monitored stocks or I don’t trade that day.

Furthermore, I go through my analytic process every night, and if I cannot do my nightly homework, I am not allowed to trade the next day. This prevents impulsive trading when I want to watch the markets hear the Sirens. I do not have a mast in my office, and so figuratively I tie myself to a chair and put beeswax in my ears.

Trader's Corner

2009-11-20T13:48:00.000-06:00

Ditto Ian’s thoughts, I sit down every night and watch your report to see how you played the day.

This week I’ve been paper trading the system by putting in the setups for the WPT, and then day trading the 9 minute chart, every day has been net profitable, and I can compare what I did during the day to what you did to see how I can refine. My confidence is rising again, and I hope to start back with real money again J.

Todd

Trader's Corner

2009-11-20T13:21:00.000-06:00

Kerry

I was just listening to the Market & WPT video reports and thought how important they are to me (and I'm sure to many others).

Both the market internals and individual stock discussions are extremely useful.

In particular I like the individual trade discussions as it gives us all an insight in to what we should be looking for from our trades.

Although the WPT system may not be what everybody trades their is enough 'meat on the bones' for us all to learn something. It may be just a small comment that lasts a few seconds, but that small comment can ignite a spark and give us that 'aha' moment that eventually (hopefully) leads to a refinement in our trading.

Many thanks

Ian F

Gold Market Update

2009-11-13T08:42:00.001-06:00

As we mentioned a few days ago that Gold appeared to be getting over extended in the short term (daily) and intermediate term (weekly). Both time frames had approached their 3ATR’s.

Yesterday Gold futures market formed a V1 sell trigger. It now looks like it wants to make the next pull back. How far is anyone’s guess. Make sure you have a plan according to your time frame.

Quote

2009-09-10T17:16:00.000-05:00

Many outstanding intelligent people are horrible traders. Average intelligence is enough. Beyond that, emotional makeup is more important. This is not rocket science. However, it’s much easier to learn what you should do in trading than to do it.

By: William Eckarddt

Traders Feedback

2009-09-03T20:03:00.000-05:00

Kerry,

I have been reviewing your new videos (particularly on market view). These are really very succinct and much easier to follow. The short format of the videos is excellent, because attention spans can be relatively short for some people. I am now getting a far better understanding of what daily bearish divergences mean in a market with strong upward momentum (on weekly) and I take particular notice of the McClellan Summation, McClellan Oscillator and NH-NL. Previously, I was looking to sell everything on the first sign of negative divergences, but it is now clearer what the daily bearish divergences mean (caution, and sign of potential correction, which is healthy), but definitely much more significant if they appear on weekly data. The McClellan Oscillator is at a very low level right now, so it will be interesting to see indices action over the next day or so.

I am also seeing the benefit of your patience waiting for the right setup and focus now on a small number of trades with better setups. This has made a significant improvement to my trading, and is a particularly important discipline as I progressively take larger positions relative to what I was doing 12 months ago. You may recall that we discussed gold on our last conference and I have been accumulating Ozzie gold stocks on weakness over the last 8 weeks and today was significant payback day for them (or the first of a few more?). I have become much more selective about what I trade and when I enter/exit and don’t mind waiting for a bigger pop, particularly if my risk margin is small. Although we don’t talk every week, you will be pleased to hear that the benefit of your experience is rubbing off on me, although I haven’t bought a sports car yet!

It has been a real challenge to learn to trade in a variety of different markets and I get the impression that a lot of American traders just stick with their own market, or use ETF’s that hold foreign content if they feel adventurous. I see real benefits in trading the US and ASX markets because of the benefit of knowledge that you get from one market which can be applied to the other in trading strategies. The Australian market, while not exactly an emerging market, is much less mature than the US markets and fires particularly well when the greenback weakens and commodities rise. Not sure if you are still interested in trading the ASX or using CFD’s, but if so, I can show you a lot more when we meet. CFD’s are a magic tool provided you apply the same risk management rules for normal equity and I will use them more and more as my trading develops.

Keep up the great work.

Regards

Graham

Top Ten Ways to Lose Money

2009-08-30T10:51:00.000-05:00

Everyone has a Top Ten….. Here is top ten ways to lose money trading. Add some additional ways if you like.

1. No Specific Trade Plan or System, trading impulsively.

2. Trading a New System/Strategy without knowing its expectancy. Do not back test or forward test, trading on blind faith.

3. Un-realistic expectations, looking for get rich quick systems and searching for the Holy Grail. Looking to trade for the wrong reasons.

4. Trading too large a size for the account. (#3 feeds #4)

5. Making too many trades for the account size. Trading is boring many times and most people want to be entertained.

6. Trading on hope rather than accepting the markets actions. The market will do whatever it is going to do, regardless of your thoughts, hopes, and dreams.

7. Un-willingness to accept a small loss. All large losses begin as a small loss.

8. Letting winners turn into losers. Only believers in Buy and Hold strategy should never sell. A profit cannot be taken unless you are willing to potentially leave some money on the table.

9. Un-willing to scratch a trade when the trade is not working as planned, the trader switches to #6.

10. Not reviewing past performance and learn from mistakes. Do not expect different results if you keep doing the same mistakes over and over. Keep doing what you are doing and you will most likely keep getting what you are getting.

How to find upcoming earnings?

2009-08-03T17:11:00.001-05:00

click title link for video

Objectives and Golas

2009-08-01T09:17:00.002-05:00

What are your expectations for your trading? This is vital to understand as unrealistic expectations will tend to lead you down the path of searching never finding what you hope for as the expectancy is not real.

The three biggest pitfalls for traders are impulsive trading, expecting too much and incorrectly position sizing. These issues will defy anyone success and turn a positive expectancy system into a negative expectancy system.

If you have not identified your Trading Objectives, STOP HERE!

Take the next few days and identify your Trading Objectives/Goals.

Goals should consist of the following criteria.

Specific
Measurable
Attainable
Realistic
Timely

I want to make money is NOT a SMART goal.
I want to be a full time trader is NOT a SMART goal.

I want to achieve an average an income of $10,000 dollars a month over the next 12 months sitting by the pool sipping margaritas is NOT a SMART goal. Unless the pool is filled with money it does not meet the A or R part of the SMART goal.

I want to achieve an average income of $3,000 dollars a month over the next 12 months utilizing a $250,000 account while keeping my risk within 2% of my account. I want to achieve this working 20 hours a week trading a system that will give me a win expectancy of 90% is NOT a SMART goal. 90% does NOT meet the R part of a SMART goal.

BUT....

I want to achieve an average income of $3,000 dollars a month over the next 12 months utilizing a $250,000 account while keeping my risk within 2% of my account. I want to achieve this working 20 hours a week trading a system that will give me a win expectancy of 60% IS a SMART goal.

The above statement is Specific, Measurable, Attainable, Realistic, and Timely. We can measure this goal as it is specific. It appears Attainable and Realistic and we can measure within a time span to see how we are progressing.

The S, M and T parts of the SMART goal is easiest. The A and R parts may be uncertain depending on your experience. My suggesstion is to learn to make $100 dollars before you try to learn to make $1,000.

Once you indentify a winning expectancy system and learn to trade it successful, it is a matter of account and postion sizing to meet your goals.

Once your objectives and goals are identified we can identify the trading tools you will need to achieve these goals.

Quote

2009-07-31T23:17:00.001-05:00

The difference between most losing traders and a super successful trader is NOT in the system they are using. It’s in the position sizing and their psychology.

Quote

2009-07-26T10:29:00.003-05:00

As has been noted by many notable experienced traders over the years, successful investing means doing some things that may make you uncomfortable. You need the courage to do the things that others find difficult or impossible to do.

Trader Results

2009-07-21T10:29:00.002-05:00

Kerry,

I’d worked with financial advisors to manage my money over the last 15 years, and realized after 15 years of paying management fees on an annual basis, that I was about break even… When the market corrected for me over 40% on a $1M + portfolio, I knew it was time for me to learn to trade my own money. My financial advisor ignored 6 months of downward movement before I finally squealed and started to look hard at my statements. His response was ‘the market will recover’. I was 100% invested in Mr. Market. This was my catalyst for realizing that financial independence isn’t financial independence if you are relying on others to handle the money necessary for financial independence. I was still dependent on my financial advisor to perform, and communicate what was happening, how we were doing, if I could spend my money. That said, I paper traded for 3 months after reading Trading for a Living, and did ok, having some wins and losses. When I started trading real money in November of last year, the initial losses and inexperience helped me understand why so few people learn to trade for themselves – the emotional swings were brutal. We began working together in March of this year when I realized I had to develop a system that works for my schedule as a full time consultant, father of two small children, etc.

Here is my equity curve since I began trading with you in March. Having a system to trade doesn’t make me an overnight better trader as much as it exposes my flaws so I can focus on them and become a better trader. Having no system meant I had no areas of resistance or support to based my decisions, I was doing well, and then doing poorly, but I could understand why? In following your simple trend trading system, I’ve realized that when I do something really dumb, I can immediately figure out why it was dumb (poor money management, impulsive trade with no plan, ignoring the basic rules (buying a full position at the 1 ATR instead of the -1, etc.). This means I don’t have to make the same mistake again, and if I do, I get to go back to the same short series of 3 questions?

1) Did you have an entry plan? (price action, position size, technical agreement

2) Did you have an exit plan? (price action, position size, technical agreement)

3) How will you explain this trade to your wife? (my accountability partner). I am trading a $250,000 account, and I write myself a check every Friday for my work week performance. My wife asks me how I did, and telling her I wrote a check is not something I like to explain… I’ve found this for me is the ultimate accountability and keeps me out of risky trades when I realize I may go from receiving a check to writing a check, I net out my account every Friday back to $250,000 through receiving funds, or contributing funds.

Thanks for all your help… I’m pretty sure I’d be in a different position this year without your help and coaching. As of this last week I’m up 17.22% since we started working together in March and I’ve only traded the WPT positions and a few select stocks in the financial services industry where I have some experience. I’ve learned that for me my biggest losses were in order: short trades, trades without a plan (impulsive), and trades where I transitioned from a specific trade plan to hope as my primary strategy…

I have a long way to go, surviving numerous jumps from my ground floor office window after making really bad trade decisions, but overall I’m starting to believe that this is something that can be learned if you are willing to master one system completely before you find another shiny object – the mind wants to move to something else to avoid seeing how hard it is to simply follow your very simple trading rules. That’s the discipline for me, execute this flawlessly – and in doing so exorcise all my personal trading demons.

Regards,
Todd B.

Q/A - Any suggestions on following the WPT system?

2009-07-18T10:22:00.001-05:00

Kerry,

I am having trouble mimicking the results of the WPT system. I am profitable for the year but nowhere near the how the system performed. Any suggestions would be appreciated.

I realize part of my partial result I was not able to take every trade.

Thanks!

This is a very good question and there is no great answer.

Rarely will anyone duplicate any system results precisely. Remember that the reason for me posting the system and tracking a public portfolio is to help show how to trade a system and follow it in a discipline way. I prefer to teach how to trade not be followed blindly. Regardless of the system duplicating results is nearly impossible. However it is there to show the potential of a system and results could be obtainable within a margin of error. I do not have enough data to suggest what that margin of error is, but I have seen results from others that were within 5% - 10% on both sides.

One client has reported much better results and this was due to the fact he caught trades I missed although his largest drawdown is also larger than the Discretionary Portfolio. This particular client has a much deeper risk appetite than I. I have seen other results that are within a small margin of error. How close one mimics the portfolio is determined how exact one trades the portfolio.

For example if you were to miss the two largest winning trades, the results will have a very different look. This month if one did not take the re-entry on SQM, you make $2,500 less in the portfolio. If you scratch SNDA and do not hold it, one makes $5,500 less. If you attempt to only trade one of the picks, you may pick the one that lost money and not trade those that made the money. My suggestion is take the model portfolio and learn how to build and develop your own system that you are the most comfortable with so you are NOT trying to mimic someone else. I would much rather see you develop yourself into the type of trader you desire to be with a system that works for you. Some traders find that the WPT approach works for them and they produce results very similar. Make sure you are not expecting the same results but trading in a very different approach.

Not long ago I worked with a client that had a very similar question and thought he was following the WPT system. After analyzing his account, he realized he was doing everything but following the system. He made trades that were never made, did not honor the discretionary stops and was not honoring the system stops. This allowed much larger losses than system ever encountered. In the end he found he was only haphazardly trading the list of stocks showing up on the WPT buy list and not trading a system at all. He was also position sizing in the trades incorrectly. He has since corrected many of these issues and since has found better results. He continues to admit he has some discipline issues and allowing losses to be much worse than necessary. I am recapping his story with his permission, he only asked for his name to be withheld.

Trading is NOT a get rich quick scheme. To be a Professional Trader takes time and education like any other profession. I have said many times, that no other profession in the world can we wake up one day and say “I want to be a Professional Trader” and within 10 minutes we can be in business trading.

I would suggest we arrange some phone consultations or an on-site visit may be worthwhile. We can conduct an account analysis and indentify what may be the road block to your success.

Thanks!

Kerry

Trade Results

2009-07-17T16:43:00.001-05:00

Kerry,

First I have to say a BIG thank you! Last year I lost over $40,000 dollars gambling in the markets. I say gambling as I had no trade procedure to follow. I realized this after contacting you to help me with my trading losses. Prior to our first few calls I thought I had a trading system. Your work help me indentify I was not following my own rules and allowing the market to spin me in circles. This was in the fall of last year and I closed my brokerage account as you may recall. I simulated trading after we had worked together refining my trading process and began trading live again first of this year. Attached is my equity curve. I struggled early in the year but since have learned to keep all my losses minimal and avoiding the disastrous losses.

I am far from recouping my $40,000 loss, but I feel I have more control over my trading than ever. I started this year with a $50,000 account and risking 1% on my trades and I am up $7,000 for the year. My win ratio is 62% and most importantly my maximum drawdown is $1460. My return this year is equivalent to 24% on an annual basis. This is by far the best I have ever done, plus I feel more relaxed and calm when I have trades on. I set a goal to try an average $1,000 per month this year. If I can accomplish this I will increase my risk by ½%.

I trade fewer stocks that I scan from a custom built list that you help me indentify. There are weeks that I have very little to trade and sometimes nothing at all. This has been difficult to learn and to remain on the side lines during these times. You can see it reflected in my equity curve.

Bottom line is I am hitting my goal and I am positive with a nice return on a small account while I feel 2000% more relaxed.

Thanks again for all the help and I look forward to our working together in the reminder of the year.

Regards,

Robert

Robert,

Thanks for the comments and allowing me to post to the blog. It has been a pleasure working with you and I look forward to your growth and success as a trader. As a Traders coach, one can only suggest possible improvements. The trader implements them and see’s them thru to success. You deserve the credit more than I for achieving your new found success. I wish you the best in achieving your goals and if I can ever assist in any way, please let me know.

All the best,

Kerry

Quote

2009-07-08T09:40:00.002-05:00

In discussing a situation with a fellow client I thought I would make a post as a Quote Today.

The Un-willingness to accept a Small Loss when a Trade is NOT working

AND

The Fear of Missing a Move is the two main causes of Trader’s Mortality!

Stay discipline to your trading process, if you do not have a process, you are making trades on hope, fear, and greed. Make sure your process indentifies setups you prefer to trade and then indentify that your setup has a winning probability. If you do not have this process indentified, than you trading system is in-complete. Once you have a system in place, it is only your willingness to follow that system that will protect you from the two emotions mentioned above.

Thanks!

Kerry

Q/A - What strategy is best to use to become a consistent profitable trader?

2009-05-24T17:17:00.001-05:00

A: You may be surprised by the answer I give.

The answer is NO one strategy is going to make you a consistent profitable trader. Many traders hate to hear this answer and I hope I do not disappoint you. The only thing that will enable you to consistently pull money out of the markets is YOU. One does need to use a strategy that demonstrates a profitable tendency. If it was all about the strategy, then trading would not be so difficult. We would buy a program to run the strategy and hold our bag open for the money to drop in it. YOU must have discipline, learn to control losses, and YOU must be able to take your profits. YOU must eliminate fear to trade, the fear to lose, and the fear of missing a move. You must be able to control the emotional and psychological problems that prevent success in trading. This is the difficult part of trading. Most learn chart reading and analyzing markets, but most never master the psychological aspects of trading. That will be your biggest challenge in learning how to trade with any strategy. Rather than guessing what you will do with a strategy, know what to do and then act. Right or Wrong, you will not know this until after the fact.

As a personal example, I have traded the strategy I use today for many years. A few tweaks here and there but the core basic strategy has remained. The first few years I lost at trading this strategy and most any other strategy I attempted. The major change was me and how I controlled my impulsive trades, contained my losses and captured the profits when I had them. This will be true no matter what strategy or style of trading you use. Market conditions change and run in cycles, not all strategies work in all conditions. The most difficult lesson was to learn when NOT to trade.

My personal system is set up in a way that tells me when to trade and what strategies to focus on. If I have no strategy for the current condition it is up to me NOT trade.

Finding Consistency

2009-04-08T17:50:00.001-05:00

We always here and I certainly talk about finding consistency. What is consistency? What does it mean to you?

One must define it, to know it. It is why I routinely encourage traders to identify what they are trading for.

What exactly do I mean when I say this? We all know we are trading to make money or that is what the purpose is supposed to be.

Let me ask the question this way.

I have a job that requires one to come in and go thru a process of questions and at the end of the day lay a report on my desk.

The report is due every day at 9pm NY time. There will be days it takes longer to run the process than others. You may work 1 hour a day or may work 6 hours a day. At the end of the process there is a report that is required to be given to me. I will not pay you by the hour; I will pay you a salary at the end of the year, quarter, month, week or end of day. This is your preference how to be paid.

I need to know two things. How often do you want to be paid and how much?

The work is a series of questions that I will need you to answer and deliver a written report to me at 9pm each and every night, Sunday – Thursday. I will not need reports on Friday or Saturday.

How much do you want to earn to do this work? Can you determine a fee that this will be worth your effort and time to accomplish? If you find a way to do this work in 1 hour or 6 hours makes no difference to me. I am taking offers please let me know.

Once I know this number I will in turn let you know how much it will take to go into this business. I forgot to mention this is not an employment contract. This is a business venture you must invest in. The amount you want to earn doing this process will be determined by how much you are willing to invest in your new business. First you must determine how much earnings you want to make that will make it worth your while to partake in this business venture.

The investment will not be given to me, you will keep it in any account you prefer and close that account at anytime you choose. You have sole discretion over your investment and can change your mind at any time. Failure to execute the report properly will affect the outcome of your investment.

If one does not know what they are looking for to perform this job, than we will have a hard time determining what sources and tools we need to accomplish our request.

The other issue is realistic expectations. If one has expectations to go into business looking to invest $10,000 to make $100,000, well those offers are only on late night TV, called infomercials.

For me personally, I like to trade fairly conservative. I prefer to try and hit a lot of singles and doubles and not go after too many home runs. The times I went after the home run, it ran me home crying.

My personal style is fairly boring and routine. Most of the trades are never that exciting. Most are never catching bottoms or shorting tops. I do like to trade a few counter trend setups from time to time. Majority of my trading is looking to make 2 - 5% each month as consistently as I can. This means I am looking to have very little drawdown’s and try and grind out small profits with a small basket of markets. If I am trading a $200,000 account I want to make about a $4,000 - $10,000 per month. If I can find opportunities that will present this to me and do it consistently, I have a chance to make 20 – 50% a year. I realize I will not make $1,000 - $2000 each and every week. There will be weeks I lose money and weeks I make $5,000. I attempt to work a process that will give me the opportunity for $1,000 - $2,000 per week. I also realize I give up trying to catch every single market move. I know I only need to catch moves that have the opportunity to achieve my monthly income. If I can accomplish this over time and minimize my losses, I will show a good return on my account.

Most Traders focus too much on the next great thing, the one strategy that will ultimately become their printing press for money and solve all problems. Unfortunately that thinking will drive us to lose money in more ways than we can imagine. It is important to recognize what you are trading for and then discovers the tools and discipline necessary to achieve those goals. Too many traders are chasing moves and not focused on their process and goals.

Once I focus on what I am to do, I become less focused on what the market will or will not do. I focus on what conditions I have and if I have opportunities that meet my criteria. If have no opportunities that meet my criteria, my discipline is the only thing to keep me from making mistakes that I will regret. The market will flash its lights in front of me and tempt me to make trades I have no desire to make.

For example, recently SNDA was a nice setup that fit my criteria. The stock gapped up and never looked back. I did not get in the trade, why? My criteria (trade plan) calls for me not to chase if I do not get the trigger based on my criteria. The trade worked out well only without me profiting from my analysis. If I am going to throw out my trade plans I might as well not make them and trade on my gut. The problem with this is my gut has always had BIG losing trades. My discipline is the only thing that will allow me to follow the plan. I have my instructions and I am to follow. Not following the plan and I am discounting the plan is worthwhile and lack faith it will lead me to where I want to go. The plan will not always be perfect and I will miss opportunities, but will the plan allow me to achieve my goals ver. time? I can always trash the plan and build a new one; I can revamp my plans so that it will help achieve my goals in a better way. I must have something to follow that gives me high probabilities to achieve my desired outcome. If I cannot achieve my goals may be I am just too un-realistic or the plan has no merit what so ever. One will not know if the plan has merit unless it is fully back tested or better yet tested in the real world of trading.

If you want to make $100,000 out $10,000 you are likely better off to go to Las Vegas and have a good time and you just may hit the jackpot.

The WPT Portfolio follows a method to grind out 2 -5 % on average a month. Thus far we are close to achieving this. It is yet to be seen if we will achieve it the rest of the year, we shall see.

It is not the most exciting way to make money and it is not as fun as having those big 20+% moves in a day or two. I rode my share of roller coasters and I prefer a more calming ride as drifting down a slow moving river knowing I will reach my destination if I stay on course.

Don’t get me wrong, there are plenty of ways to trade the markets. There are some methods that will provide exhilarating moments. You just have to know when to place the bets and the conditions are prevalent to make those types of trades. You must be willing to place a bet that will win big or lose it all bet. A few weeks ago a client wanted to work out a trade in the financials and make a $2,000 bet. We structured the trade in a leverage market and he anted up. The trade worked out very well; however, it appeared he may lose it all at one point. His $2,000 bet was only worth about $400 dollars only after a few days. He called asking should he bail and salvage his $400. I asked him why and he proceeded to tell me it looked like he was all wrong and he might as well take the trade off the table. I asked him if he was not serious about wanting to risk $2000, which was the original plan. He was going to risk $2,000 dollars and willing to lose it all to see if he was right. There was nothing different currently than in the original plan; everything was the same except he now thought it was not going to work. The original plan was to lose $2,000 or the oversold condition in the market would be relieved followed by an explosive move to the upside. The play was to risk the full $2,000 and look for a 15+% rally in the markets within one month’s time frame. This was a bet on the financials and was a lottery ticket play. The trade netted $6254. The client was about to take a $1600 loss because he thought it was not going to work. He began to second guess his decision and pull his bet off the table. When the trade appeared to go sour he was no longer willing to embrace the full risk.

The guy called asked how I knew not to get out of the trade. My answer, I did not have a clue. For all I knew the market was going to keep running down and he was going to lose his remaining $400 dollars. I told him if he was willing to risk $1600 why not the other $400 and let the original plan play out. Let’s continue watching the game and see who wins. It is easy to risk other people’s money!

What occurred was when he put the trade on he thought he was making the trade at the right time. Therefore he thought he was willing to lose $2,000 because he was convinced he was right and would never see his $2,000 dwindle down to $400. The client had a good plan and he understood the plan. The issue is he really did not think the market would go down any lower. He was only willing to experience the loss because he believed he would not ever have to accept that loss. Once he realized he could lose his $2,000 he decided he did not want to play this game.

$2,000 is not a huge bet in the markets but it is decent size bet depending on one’s account. This was a small bet compared to the account the client has to trade. He hates to lose more than $1,000 at any one time. I have seen this on numerous occasions. He will lose $500 and not blink an eye. If he loses over $1,000 he is mortified. A $1,000 dollar lose is less than ½% of his account, yet it is the fact it is more than $1,000. When he thought this trade was going to lose him more than $1,000 he was ready to bail. Matter of fact, he told me latter that had he not called he would have bailed as soon as he got his losses under $1,000. Was this in the trade plan? Not at all… The plan called for holding some options for one month and see if the move he expected would occur. In order to play he wanted to pay $2,000. Once the trade went sour the first few days and exceeds the pain threshold, all bets were off and the trade plan was ignored.

Remember nothing had changed. The market conditions were the same, very oversold. The size of bet was the same; he did not overtrade and average down. As a matter of fact the trade was looking even better, but he was sitting on a $1,600 loss. His trade had 3 – 1/2 weeks left, he was only three days into the trade. It was a very well thought out simple plan. Nothing complicated technically or fundamentally, just a speculative bet that within 4 weeks we would see a significant rally. The trade turned out well for the client in less time than projected.

The 10% of doubt he had in the trade and looking at a $1600 loss in reality was enough to say I don’t want to play and never wanted to make this trade. He wanted to close the trade out so he did not have to accept a $2,000 loss. The market had convinced him he was about to have to do something he really did not want to embrace.

Most of us are willing to embrace any risk if we know the outcome. If we knew the outcome it would not be a risk. As Mark Douglas talks about in his book “Trading in the Zone” one must embrace the real risk. This is another part of the Trade Plan, truly know and accept the risk you are taking, if you do, managing of the trade becomes easier.

I have experienced and seen many times Trades performing really well for months only to change the size of their risk and begin to trader vastly different. Make sure you grow your size incrementally and you are placing bets with risk you can truly embrace. Most importantly, never place a bet that is not based on some viable trade plan. Even if it is only a speculative trade plan.

Q/A - Quote

2009-04-04T09:48:00.004-05:00

Every so often I get emails that if I took the name off the email; I would think I received the same email over and over. It may be worded slightly different but they all say the same thing.

Over the past few days I have received emails that basically said….

I just went through my basket of stocks and they all look the same? I can’t find any good setups. So, what do you do?

Here is a quote by the famous Jesse Livermore. He bankrupted many times but each time he rebounded to trade successfully to always pay his creditors back in full with interest.

What beat me was NOT having brains enough to stick to my own game – that is, to play the market ONLY when I was satisfied that precedents favored my play. There is the plain fool, who does the wrong thing at all times everywhere, but there is also the Wall Street fool, who thinks he must trade all the time.

Part of one’s system and process is to tell you when NOT to do something. It is the most difficult part of trading mastery to learn the discipline to sit and wait. The only person that believes you should trade all the time is your broker. They are the only ones that benefit from such transactions. It is a falsity even for day traders to think they are to sit in front of a screen 6 ½ hours a day and trade every minute of the day.

The main purpose of the WPT portfolio was to be published and demonstrate one process and one style of trading in as real time as possible. It was not to demonstrate the best way to trade. It is only the best way if it meets your goals, objectives and fits your personality and life style. There are times where there has been nothing to trade. Maybe due to market conditions that did not favor our play or due to lack of research and thus one had to do nothing.

Forcing trades is rarely a winning proposition.

You design a process of trading to tell you when and when not to do something, then learn to careless what the market does. You want to be concern if your process is taking you where you want to go.

My favorite quote:

“It is hard enough to figure out what the markets will do; if you do not know what you will do, the game is lost.”

Opening Gap Post Comment

2009-03-30T22:05:00.000-05:00

Hey Kerry

A few weeks a ago you posted a couple of questions from one of your clients (Dan) regarding trading the opening gap. I really got a lot from these postings and since last Monday have successfully traded the Australia 200 Cash $5mini contract gap opening every morning I've had the opportunity. I'm making $50 - $150 in 6 - 12 minutes. I'll begin trading 2 contracts this week and as I feel my competence and confidence improve I'll increase my position to 3 contracts in the coming weeks. This has had the positive effect on my swing trend trades in the last week also. You never know when you post something on the blog just how it may influence another trader.

Ryan

Discipline Exercise made the difference

2009-03-28T16:17:00.002-05:00

In all the books you read and all the advice you get from Traders, the number 1 thing you hear is, Be Disciplined. What does that really mean, and if you're not disciplined, how do you become disciplined. I have found being disciplined as a trader is very different than being disciplined at work, the gym or other things in life.

Discipline and focus is what makes you a good trader, but how do you get there?

I have spent the last 2 years learning technical analysis, swing trading and after the market crashed last year, learning to day trade. I was no longer willing to take a trade over night after the crash. Now I'm focused only on day trading and trying to develop a system that works. My biggest obstacle is I am not being focused and disciplined to my system. The system works fine, as long as I remain in control of impulsiveness to make trades that my system does not call for.

In October of 2008 I was day trading SPY and DIA and a few stocks. I typically made about 10 to 20 trades a day and usually had losing days or small winning days of $ 20 or $ 30. Losing days were in the 100s occasionally getting into disastrous losses of $1000 in 1 day. The worse the day went, the more I would raise my position size. This always resulted in bigger losses. This had to stop. It was driving me crazy.

I kept thinking, if nobody knows about these losses, I'll make the money back quickly and it will be like it never happened.

What I did do?
I started sending my results each day for review to Kerry, no matter what those results were.
For a time I would send a screen capture of my TradeStation screen to prove I didn’t trade for the day if there were no trades.
I had to make myself accountable to someone, otherwise I would cheat and who would know?

Each day Kerry would send me a critique of my day. He would review positive points of the day and what needed improvement. During this time I had a few days of high trade count and big losses. The advice on how to handle bad days was a key turning point. This helped to not throw you off your plan for the next trading day. Each day I would consider the previous day’s advice, and little by little, my results started to improve. I started to understand what discipline is for a trader and why it works.

Today I am much more relaxed as I trade, I focus only on making good entries and managing a trade well once I'm in. I keep my position size small and concentrate on making good trades, not making money. I make a few trades a day, at most about 6 trades. For the month of March I have traded 13 days and 11 were profitable. I have become more confident about what I will and will not do, and it improves my decision making thru out the day.

We hear all the advice and little catch phrases about how to become a good trader, but I say, you have to live it to really know what it is to be a disciplined trader. Once you are there, you will understand and it will be the only way you will ever want to trade. Working this closely with Kerry has been a turning point for me.

Thanks!
Tim H

Cutting Losses

2009-02-22T21:52:00.001-06:00

Losses must always be cut and they must be cut quickly, long before they become of any financial consequence. After the elimination, the transaction must be, in a sense, forgotten. It must be left out of future consideration completely that there is no sentimental bar to reinstating the position at a higher level, either very soon or at a later date. Cutting losses is the one rule that can be taught with assurance that is always the correct thing to do. However, as a matter of actual application, it requires a completeness of detachment from human frailties which is very rarely achieved. People like to take profits and don’t like taking losses. They also hate to repurchase something at a price higher than they sold it. Human likes and dislikes will wreck any investment program. Only logic, reason, information and experience can be listened to if failure is to be avoided.

An excerpt for the book…

The Battle from Investment Survival

By: Gerald Loeb

Traders Corner

2009-01-29T08:59:00.000-06:00

Kerry,

As this seems to be "Equity Curve Week" I thought mine may also give some encouragement. The interesting point is that it was back in August that I decided I needed to review what I was doing and seek some guidance from you. You can hopefuly see the results since then (and it has been a tough time in the markets over this period too of course). The percentage gain is relatively small but that is purely because my work is keeping me very busy and so I have been trading very lightly and so have missed numerous signals.

Trading is now nowhere near as stressful as it used to be. I know exactly the game that I am playing even if I don't play it as well as I could.

One interesting point is that the trades I have been making since August have been almost identical to those I made before. The difference is that my entries are now well defined rather than me just blindly buying the market. Trading really is a typical case of where a chain is only as strong as the weakest link. In my case the weak link was my entries.

Still a long way to go of course but the direction is the right one now.

Regards,

Chris

Traders Corner

2009-01-29T08:50:00.002-06:00

I love getting feedback from clients and fellow traders. Here is another email I just received today. Jeff is wonderful guy and a good friend, not to mention a good stock picker. I always pay attention when Jeff mentions a stock. Here shared an email this morning and I asked him to elaborate on the difference in his trading, here is his reply and many thanks for letting me post to the blog.

Hi Kerry,

Here is my equity curve for January. My picks have gotten better, but I have also been more consistent at taking profits. You’ve played a big role in these results. Thanks!

These are the main reasons for my results ( December was also good and I was profitable for 2008 ).

1) I spent much more time on a short list of about 10 favorite stocks and really got to know how they trade and what is and is not out of character.

2) I focus much more on support and resistance on all time frames. I tend to sell as we approach resistance and if we keep going, I don’t worry about it. I’ve always had a tendency to kick myself if I get out too early or if I don’t get out and it drops! That leaves a narrow margin where I’m not kicking myself. Now I’m focusing more on my account goals rather than “being right.”

3) I also like to buy closer to support so my stops can be below that support. I’m also using volume much more to determine if the short term trend is running out of or gaining steam.

4) I am trading smaller with proportionally wider stops so I don’t have to be as precise in my timing.

5) Probably the biggest thing is that I’ve really cut back on questioning myself. There have been many times where my analysis suggested I enter a position but I would talk myself out of it. The same applies to exits. I would see a stock hit a ceiling and stop going up and I was afraid I would sell and be wrong. Now I sell and if it goes up further, no big deal.

Jeff

Equity curve minus impulsive trades

2009-01-29T08:44:00.002-06:00

In working with a client today we reviewed the recent equity curve. In doing so we indentified those trades that was not traded based on an indentified strategy. I suggested that he take his equity curve and remove any trades that were impulsive and re-plot the equity curve, keeping only those trades that were made based on an indentified set of rules.

Here are the results and his comments.

Hi Kerry,

I've omitted some of the trades that we determined as impulsive or no strategy trades...

Attached is the result.. I've printed it out and it is hanging on my wall now, to remind me what is possible and what can happen if I impulsive trade again.

Wessel

Trader's Corner

2009-01-29T08:43:00.003-06:00

I just received this comment from a client, I asked his permission to share, so here it is.

Keith had a tremendous habit of over trading. He never really over traded from over exposure, but his broker had to love him. I am sure Keith received a Christmas gift from his broker each year. I asked Keith to allow me to share this info and he agreed. When we done his account analysis we found that over half his losses were due to commissions alone. It is called churning ones account. The losses were never that huge, but the losses were many as Keith traded about 20 times more than necessary, never really riding a winner nor riding a loser…just churn and burn. It is very stressful way to trade and a guarantee that one will not make money at this game.

Keith has worked hard as he has stayed in touch on a very regular basis. I honestly told him one day that I expected him to give the game up. Keith proved me wrong and has persevered and stayed in the game. I can attest it was not easy and Keith spent a lot of time revamping the way he thought and his approach to trading. Honestly it was like watching a drug addict go thru detox.

I wish Keith much success as I do all the clients I work with. Trading is a difficult path to take. It is very rewarding when one finds his/her own.

All the best to Keith, and hope some of you find his message as up lifting as I do.

_________________________________________________________________________

What a difference in a year...

Here are the key points and it may seem so simple, but what a huge impact it has made in my account. Thanks for all the help!

I trade less because I have learn to be more patient for my type of trades.
I truly understand the type of trader I am and the condition I need for my setups to work.
I established written trading rules to follow and have memorized them. I never feel the need to impulsively trade. I know exactly what I am looking for.
I manage my time using alerts so I don't stare at the screens. I have learned that's it's OK not to have a trade. Rather than watching every move, I have alerts to tell me when to watch the screen. If I have no alert, I never look at the chart.
I am always assessing risk and not profits. Many times this alone has kept me out of several bad trades. If I do not like the risk, I let the trade go without me.
My equity curve tells the story and I can determine more quickly when I have a trader issue and need to reduce size. I look forward to updating my equity curve each and every week.
I do the 5 largest loss exercise once a quarter. I don't wait for a year.

Most of what has helped has nothing to do with a new strategy or indicator. I can't believe how far my trading has come along. I was ready to give up on trading, but your encouragement to implement these simple tools have turned my trading around 180 degrees. I never had a winning year until now.

All of these improvements have come from your videos and phone consultations. The one week personal visit was invaluable. That visit alone is what made me realize just how much I was over trading. I always thought a trader was suppose to be trading all the time and always looking for the next opportunity. After spending a week with you and seeing how profitable one could be making only 3 or 4 trades per week was an eye opener.

Learning to stop over trading and correctly position size is incredible. I trade less, make more money on my trades that do work, and spend less time. I almost feel guilty at times. Your analogy of having a boss come in and telling me to take the day off for doing such a great job was idea. Now I listen to the boss (Mr Market) if he tells me to take the day off... I am out of here.

Thanks for all you do, I likely would not be trading today had it not been from your encouragement and willingness to persist I get control of my trading issues.

Prior to this past year, my biggest one total for trades was 57 (yes 57 trades in one day) it would take me 6 months to have that many trades now. On average I am making 5 -7 trades a week.

My goal is if I can prove to myself I have a positive equity curve for another year like this past year, I will increase my trading size to full positions.

I now have a 5 year plan in place, as I have 5 more years before I plan to retire. Then I plan to trade full time. I feel I am prepared to work my plan and feel in control of trading, rather than my trading is controlling me.

Many Thanks!
Keith P

Trading is about Consistency not racing to a Finish Line

2009-01-27T09:18:00.001-06:00

Many of you have heard me talk about Consistency. The success of a Trader is how consistent they become in their trading.

I would rather have a nice consistency to my trading rather than a roller coaster ride of huge profits and losses. I have done both and I definitely prefer consistent.

A client that works for Disney had one of their cartoonist draw a picture with this saying. It was a wonderful surprise when I got back from traveling for two weeks.

I am posting a pic here and taking it to be framed today. I thought I would share with all.

Many thanks for the pic!

GBB

2009-01-26T21:19:00.002-06:00

Having trading troubles, then you may need a little GBB!

Get Back to Basics…

1. CUT YOUR POSITION SIZE DOWN–Trading with the same amount of shares while you are losing money is a disaster waiting to happen. Reduce size until you start winning.

2. BE PATIENT–Wait for your perfect set-up. It is important not to over-trade. One must know the set up they are looking for. Many times waiting is the best position to take.

3. REVIEW your bad trades–it is one of the best tools to actually see what you are doing and learn what NOT to do.

4. REVIEW RULES–Always helpful to read over and reevaluate your trading rules. Keep them near you while trading, review often. It is one place where a cheat sheet is advisable.

5. VISUALIZE–Visualize a good trade. From seeing the perfect setup to executing the trade to exiting the trade. Know what it looks like.

6. MAKE ONE GOOD TRADE- This is all it takes and then build on it. Repeat what is working.

7. TAKE A DAY OFF –Clear your head and get perspective. It’s ok to skip a day of trading. It is the only way you guarantee yourself a NON losing day.

8. KEEP PROFITS–If you are up on the day, set a tighter stop loss to keep your profits, do not let a winning day turn into a losing day.

9.PREPARE– Preparation is Key for success!

Remember the most important part of your trading is you the “Trader”

China GDP

2009-01-23T07:44:00.002-06:00

Many of you that have been clients for a while, may remember discussions about China slowing after the Olympics.

We discussed how the GDP would likely slow to 5% for China and this will seem like a harsh recession for this country. That scenario is playing out based on the latest data.

China's real GDP growth slowed to 6.8% for the 4th quarter. The continued contraction suggests that GDP growth will continue to fall. While most
countries and their stock markets would be jumping , this isn't the case in China. Most economists suggest that unless growth is over 8%, China cannot absorb the 20 million plus new workers that join their work force every year.

Gold Chart

2009-01-13T08:16:00.002-06:00

Top Trick of the Trade

2008-12-28T19:11:00.006-06:00

Top Trick of the Trade

With this year coming to an end, now it is time to reflect and get ready for the new year. With most funds and individual investors swimming in red ink, we need a better plan for the future. We need a plan to improve our performance, recover losses, and reach for higher profits.

Now is the time to put together your strategy for the coming year. Begin by reflecting on the last year in order to identify the biggest issues that kept you from achieving success.

I highly recommend you take my “five largest losses” test:

Locate your five largest losses and see what your account would have looked like if those trades were never made.

Indentify what exactly turned those trades into the largest losers.

Knowing what caused you to underperform will help you avoid those kinds of pitfalls in the future. Cutting them out will put you on the path towards making money sooner than you realize!

We can set two types of goals: for the outcome or for the process. An example of an outcome goal would be to say “I want to bench-press 200 lbs”. An example of a process goal would be to say “I want to become a strong weightlifter.”

You can see immediately that you can control the process – go to the gym often, stop smoking, cut down on drinking. You can become a stronger weightlifter. The “outcome goal” is much less under your control. Maybe your build allows you to bench only 180 lbs – or maybe you can go up to up to 220. If you get the process under control, the outcome will take care of itself.

Now let us apply this concept to trading.

You may have an outcome goal of a 50% profit on your account in 2009 – but setting up this goal will not help you reach it. Instead, you need to focus on the process. This means you must establish your trading rules.

For example, you may decide that you will buy only trending markets. In that case, you need a set of rules for defining a trend. You better have those rules spelled out before you buy. You may decide you will trade only in flat trading ranges. If that is your choice, you need a set of rules to define them.

Whenever a client tells me he is not having the success he wants, I proceed to analyze his account. Without exception, I find that he buys and sells in a helter-skelter manner. What I always do as a traders’ coach is help each trader develop a plan. This plan will change and grow as the trader gains experience, but he must start out with a plan – how he will conduct his trading process.

Patience and discipline are essential for your success – and having a plan of action manifests that you have these qualities. Let us keep this in mind as we go looking for opportunities in 2009.

I wish you success!

Kerry

It is not the news but how the markets react to the news that is important

2008-11-07T12:52:00.002-06:00

Monthly RSI levels near record lows

2008-10-19T08:29:00.001-05:00

US Dollar weekly trend changes

2008-10-18T08:32:00.001-05:00

Bull Markets_Bear Markets

2008-10-18T07:35:00.001-05:00