Today’s Trading Lesson…
How to Slash Your Trading losses by 40% or More
One of the biggest mistakes I see, especially with prop traders involves leverage.
Too many traders with large accounts, or access to significant leverage, allocate the leverage without proof of concept, or proof of skills.
Proof of concept, means you trade too large without validated results your edge produces a positive return. You trade too big simply because you can, not because you should. The only valid reason to trade bigger is results.
I’m not talking simulated results, or paper trading. Yes, that absolutely helps, but you must go live, for the results to have significance. Back-testing and simulated trading have their place in strategy development, but they are not enough to trade bigger.
They are a signal to begin live trading, not a signal to release the hounds.
To properly use actual results, you need a large sample or time. I recommend results over a 3 month period. Not only will you get statistical results, but you get a clear view of yourself.
There is a different between having a strategy and following it. You need to assess your skills.
Proof of Skills
I’ve seen it all in prop trading. This one is the grand-daddy of doom. A new trader passes the required tests, and believes that makes her a trader. Not even close.
Taking that a step further, learning to read charts doesn’t make you a trader either, but that’s a whole other article.
Your trading journal becomes critical here, as well as a good mentor. We tend to lie about our skills, to ourselves. One good trade or one good day tricks us into trading bigger.
Don’t fall for it.
Read your journal, be brutally honest when you write, then read it on the weekends, not when you are trading. Half of the time you won’t remember what you wrote, but that’s the point.
Write when it’s fresh, read with fresh eyes.
Follow these guidelines and you reduce your losses by at least 40% because you aren’t trading bigger until you should be trading bigger.
Leave a comment if you have any questions…
On the Tape Today...
$TRGP showed relative strength and increased volume on Friday. (see chart) Looking for a $55.50 buy-stop to enter a new long with a swing trade target of $64. The stock shows minor resistance in the $60 area, look for a pause on light volume to add to the position.
$KORS reached a saturation point at support on Friday. The recent short-sale finished with a cover to buy on the Friday lows, but a pause for the next few days sets up a new trade with a $40.50 target to cover. Buyers continue to step in at this price level, combined with the recent selling momentum, the stock does not trigger a short today. Be patient and keep it on your radar.
Dow takes aim at 20,000 as investors wait for Yellen to speak
U.S. stock futures pointed to a slightly higher start on Monday, with attention focused on a speech by Federal Reserve Chairwoman Janet Yellen, as investors wait to see if markets can get back on track with one last winning week before Christmas.
Beijing agreed over the weekend to return the drone, but analysts said the emerging diplomatic spat could cause some volatility for markets. “While no one expects the USA and China to be best friends, moving away from the current status quo into a frosty relationship could provide an unwelcome backdrop for markets,” said Rebecca O’Keefe, head of investment at stockbroker Interactive Investor, in a note to clients.
Some still believe the stock markets have moved too far too fast this year, and may not get a so-called Santa Claus rally in the last trading days of 2016.
The Dow industrials has tried and failed in recent sessions to nail the psychologically important 20,000 level.
Where’s the Dow headed next? Just don’t ask the Wall Street ‘pros’
This just in: The pros say now’s a great time to buy. Especially bank stocks. Oh yes, load up on those Trump-lovin’ bank stocks. Careful with consumer staples, though. They’re getting a wee bit top heavy.
Or just get long the S&P SPX, -0.18% and relax because 2017 is going to deliver the goods, according to Barron’s “Outlook 2017” round-up. Yes, the experts have spoken!
Continue Reading on marketwatch.com
Stock Market Today: Heatmap of the S&P 500
Stock Trading Today 12-19-16
Dow Backs Away From 20,000; Oil Rises, Alexion Gets A Big Bounce
Stocks coasted to modest losses Friday as investors turned from election and Federal Reserve rate hike news to the upcoming holidays.
The Nasdaq dropped 0.4%. The S&P 500 ended down 0.2% and the Dow Jones industrials slipped less than 0.1%. Preliminary data showed volume on the NYSE and Nasdaq coming in higher than Thursday’s levels.
Before the open, a worse-than-forecast 19% drop in November housing starts and a 5% decline in issued building permits set the market on shaky footing.
Watch Video and Continue Reading on investors.com
Tape Reading the SPY ETF
$SPY volume came in at a large 144.1 million shares traded…
Something to get you up in your seat.
Distribution day? Yes. Time to short? No.
Contrary to popular belief, distribution takes place over time, and is not a singular event. (Such as a parabolic move in price action like “exhaustion,” otherwise know as a clean-up print.)
A lower close, on heavy volume in a trading range is a warning sign, kind of like an alarm to pay attention. The tide changed for one day. Our new goal is to pay attention for a wider trading range with heavy volume.
Distribution can be easier to spot in individual stocks (as opposed to the $SPY, $QQQ or $DIA) because the major ETF’s see a lot of shares trading hands in the form of hedging.
Either way, the alarm sounded. Pay attention. This means the order flow bias remains long but not with as much conviction as before.
Stocks in Play: $LEN research on finviz.com
Lennar (LEN) Q4 Earnings: Disappointment in the Cards?
Miami-based homebuilder Lennar Corporation (LEN – Free Report) is set to report fourth-quarter fiscal 2016 results on Dec 19, before the market opens. Last quarter, the company posted a positive earnings surprise of 14.77%.
In fact, Lennar has recorded positive earnings surprises in all of the past four quarters, with an average surprise of 13.29%.
Let’s see how things are shaping up for this announcement.
Factors to Consider
Overall, a steady job market and historically low mortgage rates have aided the housing market throughout 2016. However, rates hikes and a slowdown in job creation might affect the momentum.
Read More on zacks.com
Jim Cramer — Lennar’s Positive Earnings May Not Matter
Building permits and housing starts for the month of November both came in below economists’ expectations. But shares of Lennar (LEN) were higher on Friday, despite the broader stock market trading mostly in negative territory.
Before the market opens on Monday, Lennar will report its fourth-quarter earnings results.
The company will likely tell a positive story, TheStreet’s Jim Cramer, co-manager of the Action Alerts PLUS portfolio, said from the floor of the New York Stock Exchange Friday. But that might not matter, because interest rates have gone up so much.
Continue Reading on thestreet.com
Stocks to Trade 12-19-16 | Monday Edition
Short-Term Trading Momentum:
Positive the last 20 and 5 trading days | closed 2% higher from the open: TSLA, TRGP, FSLR, HON, ROST, WMB
Negative last 20 and 5 trading days | closed 2% lower from the open: jwn, kss, m, gps, teck, rh, adsk, urbn, rice, adbe, twlo
Quarterly Order Flow:
Bullish Stocks to Trade: UNH, MAR, NVDA, BHI, CVX, VLO, BA, APC, COP, SLB, COST, HES, PCAR, PNC, COF, IBM, PRU, JPM, URI, CMA, GS, X
Bearish Stocks to Trade: kors, twlo, crm, trip, aem, urbm, uaa, teva, htz
2x Normal Volume: NVDA, LLY, JWN, MAR, COF, ADBE, EOG, KSS, FNSR, NUEW, KLAC, KHC, ALXN, VTR, ADSK, HCN
Inside days: aapl, wfc, c, yhoo, ko, usb, sbux, slb, cof, eog, nflx, axp, luv, lvs, ual, len, wdc, wynn, avgo, hes, pru. aet, mbly