Trading Rules To Keep In Mind When You Have A Automated Trading Idea

Posted on May 5, 2008
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Anytime anyone invests, or trades, there are some basic rules that will help ensure success and hopefully profits. While basic selection of a robot trading idea is essential also, using the wrong rules to manage the position once in it can take a good trade and turn it into a loss very easily, and can lead to the formation of bad habits which are very costly in the long run.

Here are some rules, in no particular order when you have a robot trading idea:

1. Make sure you size the position right. The position size should be relative to the risk and reward on the trade. Ideally you want all your losses to be in the same range, over all symbols traded. So if your risk is .30, and you normally lose no more than 600 bucks on a trade, your position size should be no more than 2000 shares to keep it in line.

2. Have a target for the day in terms of profits and losses. Once the target is reached, either cut share size way back or just stop for the day. It is far too easy, especially with profits, to think that is the “house” money and then start trading more aggressively. 9 out of 10 times that will just lead to giving all the profits back and then some. There is nothing worse than having a great day and then turning that into a terrible day. Most of that comes through greed trading and not realizing that money in the account is real and its yours and should be protected. If you want to trade more, just cut the share size way down or risk only a predetermined amount of that gain - if you lose that much, you are done on the day.

Another issue comes with losses, where people just keep trading “trying to make it back” - to no avail. There are some days where you can do that, others you just cant. Not every day is good for trading a stock trading idea, if its not working, just stop - the market will be here tomorrow, and its a new day.

3. Make sure that the reasonable price target that can be achieved (key is reasonable, not hopeful, or greedy price target) is in line with the risk. If you think something can only trade up 20c, there is no way you would use a 1.00 stop risk - its simply not worth it. Ideally you want 2:1 reward:risk so that for every 2 losers from a stock trading idea, 1 winner can offset. Of course in real trading stuff does not always go according to a “plan” but you still have to have one to start with.

4. Do not have rigid, can’t be bent rules on when to take profits. Stops should always be adhered to no matter what. But profits are a bit different. If you are looking to make 1.20 on a day trade from a stock trading idea, and it gets up up .98 and stalls out, either move the stop way up to protect profits, or even better just take the trade. Why let it go back down 1.00 to make another 20c gain - it just doesn’t make sense, yet traders do it all the time.

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How To Find Some Day Trading Ideas

Posted on April 26, 2008
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For people new to trading, or even the experienced trader finding stock trading ideas is always the hardest thing. Like in most other industries, quality, not quantity is the key here. Coming up with a list of 70 possible stock trading ideas does no one any good. You cant possibly follow, or even act upon that many ideas in a dynamic environment during the day.

Usually a good start begins before the market opens. Everyone should know the economic news that has been released, or is scheduled for release during the day. This will give some guidance to the market direction (or can create some extreme volatility if the news is unexpected). This is more for an overall feel - it does not directly generate anything that is tradeable in terms of ideas. However to have a good list stock trading ideas, you need to have a feel for overall market direction.

Once this is done, use a price scanner to find stocks that are moving in the premarket, either up or down. These are usually items with news on them - but not always. Go to each of these names (the ones that stand out) and pull up a daily chart. Are the names near a clear support or resistance area? Is the chart in a defined trend, either up or down? If so, its probably good to put this name on the list as others will probably see the chart too and that will lead to more action during the day. It is probably a good idea here to not have more than 7-10 trading ideas on your list before the market opens - otherwise you cannot focus on trying to take advantage of the idea if there is an opportunity.

When the market is open, pay attention to news feeds during the day - this can be a key to sector movements if there is a decent story that comes out. Look for macro stories that will affect all stocks in a sector, rather than XYZ corp gets a 5mil order. Those might be ok for scalp trade, but you really have to be fast. For the most part, computers are much faster than people. They have computers looking for keywords in headlines to trade off of. So unless the news is really huge, this game generally will be a losing one. Anything with news that is deemed important should go on your watch list of trading ideas to monitor during the day.

While not perfect, making a list like this will give every trader, novice or expert alike a decent list of stocks to watch for potential trading setups.

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The Art Of Picking A Stop When Trading Stocks

Posted on April 19, 2008
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Anyone who trades or invests in the stock market knows that proper money management requires one to figure out at what level the idea is wrong and should be cut off. This applies to both short sales and buying stocks long. I am going to share a few tricks of the trade for determining the proper stop loss when day trading stocks.

First off, pull up an intraday chart of the price for today. Exact timeframe does not matter, but a 5 minute chart will work fine. Look at the range (high-low) of the stock in the last 20-30 minutes or so. The larger the range, the larger your stop will likely need to be to let the stock have normal oscillations in price and not get you out for no reason. We will call this the micro-range. This micro range will help us create our automatic stop price while day trading. Once this is done, you should look for the last decent up bar (if going long), or the last decent down bar (if going short) in the last 30 minutes or so. To be on the safe side, for buying the price should currently be above the low of this up bar, and if shorting, the price should be below the high of this down bar. This will keep you from trying to guess the turn of the trend, and also is an excellent place to start with the stop. If there is not any decent up bar in the last 30 minutes (or down) to work off of, you can go back a bit more but you never want to go further back than about 60 minutes or so. If there still is nothing good, move on to another name or wait for that to happen so you have something to work from.

Once you have this high or low price, figure out how far from that low or high the price currently is. Compare this number to the micro-range number you had earlier. Ideally you want this micro range number (if subtracted from current price for long) to go decently below that low price, or for shorts, decently above the high price when added to it. This high or low pivot number should provide some support or resistance (if shorting), and that combined with the micro-range number you can figure out a stop. If the micro-range number when subtracted from current price is still above this low point for longs, you need to wait for a pullback to buy to lower the risk. Converse for shorts. Ideally you want the micro range to extent about 1/2 to 1/3 below the low for longs, but no more. Here is the reason - that pivot point will likely provide some support AND if at the same time the stock is getting a bit extended to the downside vs average movement, it is more likely to turn back up, even if it breaks it a bit.

Anyone wanting to watch day trading in action needs to see how a computer does it

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Mastering Technical Analysis

Posted on April 19, 2008
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Technical Analysis relates to the examination of a wide array of indicators and financial charts with a view to predicting future price positions based upon past precedents from comparable historical chart and indicator movements. Some academic studies have concluded that technical analysis can attain a higher degree of a likely outcome compared with just using fundamental analysis on its own.

Technical analysis makes use of all the technical and related information that you can glean pertaining to a traded instrument, be it a stock, option, currency, warrant or other derivative financial instrument. If you want to be successful and profitable over the long-term, you cannot avoid the requirement to educate yourself with a reasonable degree of knowledge of technical analysis as a part of your toolbox.

The good news is that with the advent of the Internet, we can now download a vast range of technical information with only a few clicks on our mouse. Further, there are powerful software solutions nowadays such as StockMarket Plus which can chart and crunch a great degree of data in a millisecond.

These advances should provide even more motivation to learn and master the science of technical analysis. There is an excellent interactive and self-paced technical analysis education program called Intelyze which enables you to master the many different elements to technical analysis at your own rhythm.

The Intelyze programme includes a four phase learning arrangement. Each indicator is first explained in detail. The program then makes available examples to demonstrate the explanation. It then makes available exercises for you to test yourself with, and finally allows you to self-assess your comprehension by comparing your exercise results with the program’s pre-installed result for each exercise.

The Intelyze Technical Analysis programme is data independent. That is to say that it is not connected to, or dependent upon, any other technical analysis software or data feed on the market. It will simply demonstrate how to interpret the output from any other analysis programs such as StockMarket Plus.

If you have clicked the link to the above Intelyze program webpage, you may have noticed a peel away ad in the top right hand corner of the page which advertises Success Uni. That is included on that webpage is because some of the courses as a part of the Success University curriculum cover financial education as well.

The Intelyze programme includes interactive help functions and an interactive manual, in addition to an interactive teacher that directs you through the course with sound and illustrations. The Intelyze programme doesn’t just provide you with video clips or formatted text course material. Rather, it includes a wide variety of navigational elements to bring interactivity beyond that of any other similar product on the market.

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