Tuesday, March 31, 2015

Trading is a decision making game: Simplify the process!

There is no auto-pilot for the successful trader because trading is the ultimate decision making game. As with most professions that rely heavily on cognitive abilities and mental clarity, we must do everything we can as traders to simplify the process of trading.

Overly complex trading systems do not meaningfully improve results because they
  • Lead to poor decision making due to information overload and analysis paralysis, 
  • Amplify panic trading and emotions such as fear and greed.
  • Bring out personal biases such as confirmation bias, gambler's fallacy, hindsight bias, group think and wishful thinking.
So how do we make better decisions?

We create systems that make things easier for ourselves. For example, I have a methodology based on approximately 10 different setups. Each setup is most effective in certain markets. Thus, I have created a simple weekly and daily process that helps me create a game plan that allows me to focus on what is important and filter the noise. 

Trade Report members see the results of this process in effect on a daily basis with my top down market - - -> sector - - -> trading setups - - -> focus list - - -> approach. The students that I mentor get a first hand look at how to develop this process.

This process not only develops your focus list, it also puts you in tune or "at one" with the market. You know exactly where money is flowing, what setups are working and how stocks are moving. At this point you reach optimal decision making capability and trading becomes easy.

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Saturday, March 28, 2015

Cash as a position and why the best thieves never get caught


The best thieves never get caught.  Let's talk about how they do it . . . yeah, I know what you are thinking: 

WTF does this have to do with trading? 

Bear with me.

The best thieves make it easy for themselves. If they come across a house with a "beware of dog sign", they move on to the next house. If a car door is locked, they'll move on and quickly find the car that is unlocked. There is no honor in making a buck the hard way, just moving on to what is easy.

Now you get it, don't you . . .

We want the easy trade. If things get difficult, we move on. Just as a thief can always find an unlocked car door, we can always find that next great setup. No need to take on average trades when tomorrow a slam dunk setup will emerge.

Right now the market is in a tough spot. While some of us can find good setups, most will find this market difficult to trade. There is no shame in that.  When things get tough, remember, cash is a position. Better to protect your capital and live to fight another day than lose it on tough trades.

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Friday, March 27, 2015

Chart of the Day: Biotechnology

The Biotechnology ETF IBB had gone parabolic and sold off on Friday and continued with a hard pullback to the 50 day moving average. Yesterday we went long at the close.

Why did we go long on a stock that sold off so hard?

A few days ago we talked about not fearing pullbacks. Here, the stock was testing the 50 day moving average and stochastics were extremely oversold under 20. This is a low risk/high reward setup.

Using leveraged biotech ETF BIB we are currently up almost 10 percent.


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Wednesday, March 25, 2015

Chart of the day: CYBR

Today's swing trade stock chart of the day is CYBR. Cyber security stocks have been on fire since early February. When stocks go parabolic like CYBR, it is often tough to find a good entry level. Now the stock has pulled back to the 50 day moving average giving us an entry that makes it easy to mange our risk.

There are multiple ways to trade CYBR.  An entry here, with stop at $46 and target at the hold high around $69 would give us an excellent 3:1 reward to risk

Another way to play it would be to wait for a deeper pullback closer to the moving average, with a tighter stop and closer target.


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Tuesday, March 24, 2015

Example of a Winning Trade and Smart Risk Management: SHAK

We have been talking a lot about risk management and how it relates to being a successful trader.  In fact, three of the first five trading quotes in the 100 trading quotes series related to risk management. This should clue you in on how important I believe risk management is to winning as a trader.

My latest BOW winning trade, SHAK, is a great example of applying risk management. A range had developed in the stock's setup that allowed me to enter at $45.92 with a stop under the $45 level.  I was risking $1.

My target was $50.50, which means I was risking $1 in order to make $4.58.  That gave me a fantastic 4.5:1 reward to risk ratio.

How does this impact my trading over the long term? If I were to have an average 50% win rate with this setup over 100 trades with a 500 share position size, I would make $89,500 over the course of those 100 trades.

Do you see the power of risk management?

This exercise shows that you can become a superstar trader even if  your stock picking ability is basically as random as flipping a coin.

The takeaway from this example and exercise is that you should spend as much time studying the risk management aspects of the setup as the pattern of the setup itself.
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Monday, March 23, 2015

Chart of the day: MNST

MNST broke out on heavy volume a few weeks ago and has been forming a nice post breakout base ever since. This consolidation sets it up for a leg higher and a "trading the post breakout range" setup. Look to enter either 1) on pullback to bottom of the range or 2) breakout of the top of the range.


If you would like to learn more about how I trade, receive my nightly focus list with market analysis,setups and trade alerts, sign up for a 14 day free trial at BullsonWallStreet.com.  

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Saturday, March 21, 2015

100 Trading Quotes To Put Into Action And Change Your Life: Will Smith On The Past, Present and Future




In a perfect world you as a swing trader would never look in the rear view mirror, would always be in the now and have a crystal ball that pointed you in the right direction. If it were only that easy.

In reality, many of us can't let the past go, let the present slip by and fear the future.

1. My Story

Let me tell you a personal story. When I first started trading over 15 years ago, I got lucky. It was the late 90's and the dot com boom was in full effect. Without any trading knowledge, I took $5000 and road it to six figures in a very short time. Not realizing I had caught a ride on a once in a lifetime market, I thought I'd found the holy grail.

We all know how this story ends. As the market turned so did my account, and the $120,000 account was down to $50,000 in a matter of days.  Only if the story ended here.

Rather than appreciate the $50,000 I had lucked into, I could not get past the fact that it was once $120,000.  Rather than take that 50K and actually learn how to trade it, I looked at nothing but that $70,000 I had lost.  Every trade I made was an attempt to win back that 70K. I was haphazardly entering positions with no plan, pulling out before targets were hit, and taking loss after loss trading scared.  In essence, novice Paul was living in the past, ignoring the present and fearful of the future.

2. The Quote

I recently came across a wonderful Will Smith quote that encapsulated how I should have looked at my 50K:

Sometimes you have to forget what's gone, appreciate what still remains, and look forward to what's coming next.

To be a successful trader, truer words have never been spoken.

My story is not uncommon.

In my time mentoring dozens of students and speaking with hundreds of traders, I continually come across traders who are constantly trying to make up for losses instead of trading in the moment. What happens when you trade like this? Most likely, you will take trade too big for your account, take bad setups, lose patience, micro-manage positions and constantly fear what happens tomorrow.

3. Trading Application

If you have suffered a big account loss, I want you to do this right now:

Write down that loss on a piece of paper. I'll give you a minute . . .

Now rip up that paper and throw it in the trash. You will never think about that loss again. From this point forward you will be in the present and focus on what you have and what it will become as you focus on the process that will eventually lead you to success.

You will become a winning trader. The 100 Quotes To Put Into Action and Change Your Life Series:

Quote 1: Nehru on Caution as Risk

Quote 2: Bruce Lee on Creating Opportunity

Quote 3Machiavelli On Risk Management

Quote 4: Michael Jordan On Limits and Trading Scared

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