Things I've Learned After 15 Years Of Trading

Never underestimate the power of a momentum move. Up or Down. Once the freight train is in motion, it will keep going much further than most have anticipated.

Price is the only thing that matters. Adapt to it, don't fight it.

Don't under estimate the power of desperate money managers in the fourth quarter. They need to beat their bench marks or risk losing their jobs/clients.

Mental stops will ensure you an emotional trade. Don;t use mental stops. You are either in the trade or not. Mental stops invite emotions.

Mental stops is another way of saying : "I am not sure where to place my stop"

Adding to a losing position is one of the best ways to end your trading career.

The biggest winning trades normally have big volume driving them higher.

Trading triple ETFS will deplete the account over the long term.

"Too many eyes" on a key breakout point will most likely cause that pattern to fail first. AKA ; fuckery. Revisit the "NEW" setup after the fuckery has shaken out the majority.

Sentiment is always more negative on bottom retests than in the FIRST low. Watch out above if the retest is successful.

Most double bottoms come with strong MACD/RSI divergences. A powerful event if you see this.

Be aware of stocks that take "too long to go". early indication of demand drying up.

The best trade setups, work immediately after they trigger. They barely give you a chance of to jump on board.

The best traders are incredibly nimble. They can be bearish but still capable to taking longs without hesitation.

Perma bears and perma bulls eventually get washed out of the market. You have to respect a strong bull market and you have to respect a mean bear market.

More trades does NOT equal more profits. LESS IS MORE.

The best traders i know, keep their routine very simple.

Price charts and volume is all you need. Most indicators are noise the majority of the time.

Never confuse YOUR macro views with what is actually happening in the stock market.

Economy could be in recession but if the market is rallying, you need to listen to the market. It pays better.

Fighting the trend doesn't pay well. In general, trading with a trend, pays off much better.

Get aggressive when you make 2-3 good trades back to back.

Get VERY defensive when you make 2-3 bad trades. Often times traders will do the opposite. (Self destructive behavior).

Trading on margin is the surest way to emotional decision making and eventually will wash you out of the business.

Never underestimate the confidence building power of a tiny gain that is booked. Green on the screen helps build confidence for future trades.

Big winning streak start with tiny wins. (The snow ball effect).

Most losing streaks start because a "basic' rule was broken. Emotions taking over.

IN bulls markets, if you are to err, err on the long side. NOT SHORT. Short squeezes can be powerful and painful.

It's ok to be wrong but it's NEVER ok to "STAY WRONG".

Good fundamental analysis and proper technical trading is a killer combination. Think CANSLIM / IBD (investors Business Daily)

Too many bullish setups is NOT always a "good thing"/ A plethora of bullish setups normally precedes a big down day. Aka: Fuckery.

Trading stocks is a lot like a beauty contest. What looks best, wins.

THe best technical patterns is the BULL FLAGS. It comes in many varities. Learn to spot them.

Candle stick patterns don't mean anything WITHOUT follow thru. A Hammer or a DOJI means nothing unless it gets follow thru the next day.

Very hard to short a market when the financial stocks(XLF) are strong.

Trading with 'conviction' is great BUT trading with 'arrogance' is a sure way to the poor house.

You have to understand, you cannot impose your will on the market. The market is bigger and smarter than you and you need to adapt to it. Not the other way around.

Sentiment polls are worthless for the most part. Focus on price action.

More market bottoms take place in October than in any other month. A simple observation that i made over the years.

Always be aware when short interest on the NYSE starts to hit record highs. Normally means we are getting close to a major bottom.

In december, small caps and micro cap stocks(junk stocks) come alive. many will double or triple in a few days.

Keep your approach as simple and basic as possible. Can you explain it to a 10 year old?

The market is master at forecasting events well ahead of time. by the time, the actual news hits, the market has already discounted it.

never short a market in momentum mode.

Never short a market that is "quiet" or "choppy".

Trading in choppy market is one of the most difficult and frustrating things to do.

Shorting over the long run pays very poorly. Odds are heavily stacked against bears over the long run.

Many strong forces are constantly working against shorts: PPT, short sales bans, government intervention etc.

Every stock will go thru a period of accumulation, topping out, distribution and bottoming and a new cycle begins. Rinse, repeat.....

Big long candles on big volume are often the start of something bigger. Scan and track those stocks. Many will end up being big winners.

Trust your gut, if something doesn't 'feel' right, sell it. Analyze it from the sidelines (emotion free)

Chat rooms are the best learning tool but be aware of what is noise and what is quality actionable, tradeable information.

Be ware of trades that "fill easily". The best trades barely give you a 'good price'.

It takes a brave soul to admit a trade is not working and sell it at a loss. The 'easy' thing to do is carry the position and "hope" it turns.

Your 'hardest' work should be done while the market is closed. So that when the market opens, you will be prepared once your setups become active.

Surround yourself with POSITIVE people. haters are hating for a reason. They are LOSING. pure and simple. Positive people are winning or on the right path to winning.

Work HARD and work SMART. Both are equally important if you want to make a profession from your trades.

The character of the person will be tested when things are going horribly bad. Will you be the phoenix to rise from the ashes?

Don't brag, beat your chest when things are going well. Eventually mother market humbles us all.

The harder you force trades, the more likely to lose. Allow the natural process to happen...naturally.

Lucky breaks normally come when you are trading well. Unlucky breaks come when you are trading poorly.

Wining and losing streaks come in cycles. Be aware which cycle YOU are currently in. Be aggressive when winning and confidence is high.

TOPS are a long process, rarely a single day event.

Failed breakouts and deterioration of stocks under the surface are the first warning signs. Fewer and fewer stocks left holding up the indexes.

BOTTOMS are a process, rarely a single event. Many stocks start to bottom well ahead of the indexes.

Always be aware of what is going on in the "MARKET OF STOCKS", not just the "stock market". INdexes will always react to what is happening to stocks under the surface.

in bull markets, you buy dips and trade breakouts when momentum is clearly UP. In bear markets, you short weak low volume bounces and short breakdowns when momentum is clearly DOWN.

Don't be a bull, don;t be a bear: Be a predator. constantly lurking and stalking the "easy prey".

Perma bulls and perma bulls are dangerous, lazy and arrogant. Don't take their views too seriously if you care about YOUR account.

It's not about being 'bullish' or 'bearish'. It's about being RIGHT. Please understand this. It's vital to long term survival.

It's not about being 'bullish' or 'bearish'. It's about being RIGHT. Please understand this. It's vital to long term survival.

It's not about being 'bullish' or 'bearish'. It's about being RIGHT. Please understand this. It's vital to long term survival.

Catching falling knives will sooner or later land you into a mine field. Big difference between buying a dip and catching a falling knife.

Swing trading triple ETFs will give you insomnia. Is it really worth it?

Professional traders know strength begets more strengths. Weakness begets more weakness.

Anticipate "now" what you think will be 'popular' later.

Most traders are never "happy" with their trades. Understand that no trade will ever be "PERFECT".

When a stock breaks out on big volume. The first dip will normaly bought up very quickly.

If you have no solid plan(i.e. Setup, proper entry, stop loss, exit strategy, target), then why are you in the trade?

Often times, the best trades require you to buy high and sell higher.

Learn to be patient once in a winning position. Learn to be very impateint when in a losing or questionable position

Lowering a stop loss is the first sign of trouble. You are breaking the rules and emotions are starting to creep in. Careful when u see that.

Never ever, get into a position that is "too BIG" for the account size. All it takes is a bad trades to cripple you beyond repair.

It's ok to say " i am wrong and what do i need to do now?"

Always be aware of which stocks are exhibiting STRENGTH in a weak tape.

Always be aware of which stocks are exhibiting WEAKNESS in a strong tape.

Boredom trades costs add up and can hurt you. Be aware of when you are simply bored and looking to trade something "JUST TO TRADE"

You will never buy the exact bottom and you'll never exact sell the exact top: Don't beat yourself up if "you left money on the table"

EMOTIONS is what causes most traders to break their rules.

It's NOT the news that is most important, it's the REACTION to the news. Respect the price action.

Use YOUR gut. If it doesn't 'feel' right. Remove it. Reassess from the sidelines(emotion free).

Have a list of setups READY for the following day. Know the trigger prices ahead of time. Have plan: setup, position size, entry, exit, max loss and targets.

NO plan? NO TRADE!

10 times out of 10, Traders who carry BIG losses wishes they had respected their "ORIGINAL" stop. So, respect the ORIGINAL STOP LOSS, ALWAYS!

Over trading is the POISON for your trading. LESS IS MORE!

Never chase GAP UPS. Allow the first 45-60 minutes to pass by and then see what is setting up best intra-day.

You want to enter stocks that have the BEST bases on ALL TIME FRAMES. Weekly, daily, 60 min, 30 min, 10, 5 min. << the more time frames align, the higher the probability the trade.

Focus on finding "GOOD BASES" :: The longer a stock bases, the more meaningful the breakout.

Keep a balanced life. It's not all about the screens. Spend time with family, friends: They deserve more attention.

Stay humble, stay grounded, remember where you came from and where you want to go. What is here today, can easily be gone tomorrow. Respect what you have yet shoot to achieve more.

cheers and god bless.

An ART OF TRADING Member Asks For Help

An ART OF TRADING member of 4 months has been going thru a hard time in the market lately, here's what he writes me. Rather then simply answer his question like i normally do, this time i wanted to do something different and i asked other ART OF TRADING members to help him out and give him their BEST advice on his very familiar situation.

Here's what "JOHN DOE" writes me:

"HI Stewie,

this is my current situation as of now.

I started out with around 30k capital , and am currently down to around 22k, (-26%)
using the law of percentages, I need around 36.9% to break even.

My greatest loss was in a TZA trade, which cost me around 10.5%, which was pure stupidity because I didn't obey the stop losses that I put into place. (Pure greedy)
I think my total losses in $TZA has been around $6,960 , which amounts to 22.8% of my capital. (BIG Mistake there)

As of now, I am under the PDT rule and am unable to day-trade more than 3 times.. my first aim is to get back to 25k.

My current strategy:

I usually follow your trades/alerts if I am on the computer. I personally prefer the momo breakout trade setups
I have a1% stop loss in any trade, calculate the stop & entry to determine no. of shares and check target to see if it's realistic
If trade target is realistic, I go in.

_____________________

My question(s) I have for you:

- Is my stop loss too high now that I am under 25k?
- Is my current strategy realistic enough to get back to my first target of 25k?
- You mentioned just now that if you were me, you would skip day-trades and do swing trades instead be very selective about the trades.. could you give me some guidance on this?
- Could you work out with me a trading plan that I can stick by? I understand that this takes time, and there are no fast ways to go about doing it.

If you need more specific information please let me know!

Thank You Stew, really appreciate you helping me, my 4 months in the chat room has really taught me so much about trading!"

Let's help him out guys!! Share with me your ideas! what do you suggest? There are no right or wrong answers. Thank you in advance!

Here's what "Bryan" and "George" wrote back: These are two of the better answers in my opinion and wanted to share it here on the blog. Hope it helps some of you newer traders out there who could be going thru a similar situation:

"Stewie,

With a starting account size of $30K, he should have been using proper position size in each trade. I would normally use 10% of the account in each trade (so in this case $3000). Since he was a newbie, I would have suggested only trading one stock at a time so that only 10% of his account was at risk. Any additional positions should have been paper traded. I would be willing to bet that his position sizes have been way too large.

The number one rule of trading is to avoid big losses. Before placing a trade, he should have a stop loss price established. I do not necessarily like using a blanket -1% stop but I understand that many traders do use percentage stop losses. I would normally find the nearest logical support location (such as a moving average, or prior resistance that has been broken, etc.). My stop would go just below that support level. I would then identify where I expect the next resistance level to lie (broken previous supports, moving averages and such). This level would be my target price. I would like to see the potential reward from entry to target price to be 2 - 3 times the potential risk (from entry to stop price). I don't follow this rule when scalping but I don't believe that a newbie should be scalping yet.

A newbie trader with little experience should not be trading any triple, double leveraged ETFs such as TZA. They are inherently risky and the potential loses will deplete his account before he learns how to trade. Instead of TZA he should trade RWM or an individual stock. He has to avoid leverage for now based on his experience level. When you are a new unskilled trader, leveraged ETFs magnify your mistakes by 2 - 3 times.

Having the mindset that you need to make 36.9% to break even is very destructive. That goal is very, very lofty and will put undo psychological pressure on him. He has to consider that $7000 loss as a learning fee. An expensive lesson that stops must be honored, position size appropriate, greed controlled, expectations lowered. Trading is very difficult. You are competing against all other participants in the market. Many of these are seasoned, experienced and skilled traders. When you are a newbie trader it is like a Pee Wee football player going up against the Green Bay Packers. It takes years of education to become a doctor, lawyer or engineer. Trading is just as difficult as these occupations yet people expect to start trading with no experience and education and to be successful immediately. Personally, it took me about 2 years to overcome all my stupid mistakes and tendencies in order to become somewhat consistently profitable. I still trade only a small portion of my available funds. He has to focus on one trade at a time, reward vs. risk. Focus on potential profit and loss on each trade. Forget about making some large break even amount. Also, remember not to over trade.

For a newbie, swing trading would make the most sense. Unfortunately, the current market has not been stable enough to allow overnight holds of positions. Most traders are scalping and daytrading in this market.

I would also recommend that newbie traders not trade as a source of income. Having to come up with a profit to pay the rent is tremendous pressure.

Bryan. " ART OF TRADING member for almost 2 years

"Stew,

Two quick ideas from reading this:

1. I see some anchoring here. Obviously when down we all just want to get back to breakeven - I know because I've been there. But it's really important to learn to view each trade as an isolated risk vs. reward scenario, and let the results, like getting to break even, take care of themselves. If you anchor hard on that 25k number you'll probably make bad decisions. Trading, as far as I can tell, is mostly psychology.

2. Swing trade classic patterns conservatively. That's how I learned what little I know. The big head and shoulder in the SPX before the August dive. The parabolic move in GLD followed by a nice double top. The double bottom most recently in the SPX (a little more chutzpah required). Those patterns are relatively easy to spot - and everybody sees them, so if they get some movement behind them they play out nicely. I have no idea if the member can size positions appropriately to get back to breakeven, but you have to trade what you can understand. My guess would be that it is imperative for this fellow to stay away from aiming for big scores with leveraged ETFs. That seems like a nice way to blow yourself up.

Everybody has to pay their dues - which means literally paying those dues. Hopefully he can trade smart, and if he needs to, recapitalize himself a little bit down the road so that he can follow your alerts in a disciplined fashion. If he can do that it sure looks, from my limited time here and from looking at your record, that he can be successful.

I hope this works out for him. It's tough to breathe underwater!

best,
George" ART OF TRADING member for 2-3 months

Hi Stewie,
Here are my thoughts for the fellow member

1. First of all newbie should not trade 3x ETFs. Even 1x ETF's is hard to trade. Individual stocks are easier to predict, so it is easier to trade and get profit.
3. Stop is mandatory! You always must know your stop. Stop must be set on every position you have.
2. Find a one chart pattern that you like, understand and know how to play it. Look for that pattern in various stocks and trade it. Don't try to learn everything at once. Learn to perfection one pattern and only then start learning another. If you cannot find chart with that pattern, wait and learn do nothing.
3. When you find good chart ask others what they think of it.
4. Draw trend lines and your thoughts on charts, put a date and look at them after a week, month, three months.
5. The first goal is stop loosing money and only next to get back to 25k.
6. Not being able to day trade is a positive thing for a newbie.


Best regards,
Laura

Hi Stu,

I'm not a super successful trader but i've been doing it a long time... the way i have survived and profited (modestly), if i had to think of one thing is position sizing... i am religious about it. On a risky trade or boredom trade i risk 100. on a trade later in the day after a nice run of good trades i risk 200. on trades i think are a "lay-up" (grade a) i risk 300-500. no matter what i risk i always run it through my position size calculator... http://oak.ucc.nau.edu/del/stockcalcs/sizer.aspx My second rule is i walk if i lose 300-500 in any combination of trades. i also only risk .1% to .25% (yes those are fractions not whole numbers) per trade of my capital, so if i do have a bad day i can stay in the game mentally the rest of the day or the next day. The best offense is a good defense. this advice is coming from a mediocre trader who without these techniques would have never survived!!

best.

jack.

I've been on the same boat. Some thoughts from my experience....

- Always enter a stop immediately after you enter the trade. No mental stops to take emotions away from the trade. Would seem like preaching to the choir here.....but only using mental stops killed me for a year (i've been trading only 1.5 yrs now). I had 70-30 win-loose ratio but those 30% trades took away more than my profits.

- Never hold leveraged ETF overnight. Only exception would be if you're deep in the money and willing to give away profits. Market direction for next day is a random walk.

- 1% stop usually doesn't work on low priced, low volume stocks. Classic example was ZAGG today. We would've been stopped out a few times if we had a 14c stop. It works for large cap...i usually use 1pt or 2pt stop on AAPL, GOOG etc, which is usually less than 1%. These trades have worked out well for me since they move well with the market direction.

Manish

Here are some suggestions:

Risk management is the key! Know your risk before you go into a trade. I would advise you to risk no more than 1-2% of your account on each trade. This means that if your account now is $22K, and you risk 1% on a trade, then you're willing to lose no more than $220 on a trade. Follow Stewie's stop loss and calculate the number of shares you buy to match your risk. For example - if the stop is $1 from entry and your risk is $220, then you buy 220 shares. This way of managing risk will avoid situations like the one you described above. And of course - obey your stop!

If you're planning to do swing trades on your own, then you need to give your trades more room to work, which means a wider stop, and under the above system will mean less shares.

If you're planning to give each trade a stop of 1% of the stock price, then again you should calculate your risk according to the above system. (Another way of setting stops is according to the ATR of the stock, instead of a percentage of its price).

I hope this helps.

Moti

ART OF TRADING Videos: Discussing TWO Trades Taken This Week!

Absolutely the best chart plays around

This is the first and only review I have ever given on stock advice or picks. I have tried several different services before The Art of Trading. I signed up for his 2 week free trial and started making money the first day. Stewie has trading alerts and chart set up plays as well as a chatroom. Personally for the first two weeks I have around 15 winners and 2 losers. A profit of just about 10k. If you are trying to learn to use charts .....Stewie is the best period. I sound like a commercial LOL but Stewie could charge 4 times his rate and I would not blink an eye.Hope this helps anybody looking for a good quality service.

Earl (Art Of Trading member for 2 weeks)

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Have We Bottomed??

UPDATED chart(Above) on October 15th, 2011. I wanted to add the CURRENT Dow Jones chart to illustrate what the chart looks like now: Three weeks after i wrote this original message regarding the 'market bottom' scenario. My target is 12,000 on the Dow Jones which is about 400 points away now. If we somehow are able to get there before year end, we will have to re-analyze the price action and sentiment. Let's get there first tho! It won't be easy.

On Sept 23rd 2011, i sent this email and market analysis note to ART OF TRADING members. I am sharing it here because i think this is what is playing out right now and hints that we have bottomed and some possible targets.

"Hi guys,

I hate making these kinds of projections but it's always a good idea to keep in mind what are the possible scenarios and this way, you can be prepared just in case. Please pay attention to the action over the next 2-4 weeks. As i have been saying for a number of weeks now. This market will have the highest chance at a bottom if it retests and more importantly BREAKS below the August lows. The August lows and it's retest is SO crucial for various reasons. In my 15 plus years of trading, the BEST bottoms come when a key initial bottom or low(in this case the August 9th lows) are retested and hold successfully. As i am writing this email, I am expecting the markets to break thru the August lows sometime within the next 1-3 weeks. This break will force people and institutions to SELL their positions, this will create a very nasty and ugly collapse. If that happens or not that remains to be seen. HOWEVER, the purpose of this email to get you guys on watch for WHAT COULD HAPPEN IF we do indeed break thru the August lows. We need to monitor VERY closely what the market does in the days following this breakdown.

What i will be looking for is a POSSIBLE: 2B Bottom: here's what it looks like in case u never heard of it: http://www.trading-naked.com/2b-reversal.htm

here's another good link that explains the 2B reversal: https://docs.google.com/viewer?url=http://www.surinotes.com/Tradestation/articles/suri2B_TJDec2007.pdf&pli=1

This scenario is what i will be watching like a hawk. If this 2B Reversal sticks and we will find out soon in my humble opinion THEN we are potentially setting up for a sweet rally that will most likely last a few weeks or even months. See the DJIA attache chart.

(I also attached that IWM Chart, an updated chart which i emailed you guys several weeks ago pointing to this BEARISH potential scenario which indeed played out nicely if i may say so myself). :-)

So bottom line, his is a scenario that needs to be seriously considered. Especially now that everyone is depressed as trading and investing conditions have deteriorated considerably. The market normally bottoms once the majority of traders/investors are paralyzed and shell shocked. Many traders contemplate quitting trading/investing all together and ironically that's when the market bottoms and bounces hard, only to suck you back in later after it's moved higher in a big way. Managing emotions in bearish and bullish phases for that matter is so critical folks. Just realize that trading and speculation in general works in cycles. There are bullish cycles, there are bearish cycles. there are momentum trading cycles, there are mean reversion cycles. Stocks do not go up forever and stocks to not stop for ever. catching the exact bottom or tops of move is not how the big money is made in stock market speculation, if you ask me, the biggest money is made by catching what happens in the MIDDLE parts.

I found this very interesting and this along with the idea that a lot of traders are depressed right now. CNBC polled their audience today: They asked bluntly: "DO YOU THINK WE ARE ENTERING A DEPRESSION?" not recession, DEPRESSION. Wanna guess what the poll results yielded?? 63% said we are in a depression!! 63%! Am i the only one that find this absolutely ridiculous?

So, bottom line, I am looking for a POTENTIAL 2B Reversal play soon. Whether it happens or not remains to be seen. For the time being, i am going to focus on short term trading only until i see evidence that we are shifting gears.

I hope this emails help you and if anything at least now you know what a 2B Reversal is!! :-)

Happy Trades!"

10 New Setups To Watch This Week

"I just joined your site from being at another site. I am glad that you are not super aggressive with your trades. It is a money saver, and someday-the market will probably burn everyone that is just trading SPY, TNA, TZA, at their set ranges right now. I like your picks, and even before I joined, you made me some good money on a GLD short through twitter, and I thank you.

Matt D."

"Hi stewie,

Had a good trading day today – played ADSK short (through the robot), DRV, MOLX, and HANS(from your watchlist)– all made a nice profits!

Thank you for your great work!

Cheers

Ragnar"

New Investimonial from a NEW ART OF TRADING member!

"All around solid, educational trading service

I can't say enough about TraderStewie and The Art of Trading. His recommendations are spot on, numerous, understandable and well thought out. The community and chat room are full of good traders offering excellent advice and recommendations with little chatter.

TraderStewie and his members are all extremely helpful. Getting advice on any stock, etf, etc., is as simple as asking a question in chat or sending out an email. ALL questions are answered QUICKLY!

TraderStewie gives out numerous recommendations throughout the week with clear charts indicating patterns, support and resistance levels, relevant moving averages and entry and exit levels. His recommendations are MOSTLY correct and his actual TRADES are conservative, not risking your money with 'gambles' and 'tight stops'. He even updates his stop losses and trades throughout the day.

TraderStewie gives you several updates during the day informing members on the overall market environment and direction. He is constantly watching the indexes and in touch with market sentiment.

Like I said I can't say enough about TraderStewie. If you don't believe me, sign up for the two week free trial like I did. See if you are not pleased like I was after only a few days!!!"

Review by: "CityTrader"

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10 New Setups To Watch This Week

Check Out Some Recent Feedback From ART OF TRADING members!

Hello Trader Stewie,

Just wanted to give you a heads up, I'm returning to your service after having previously rashly canceled. Upon further review, and having tried out several other services, I've decided that at my level of trading experience, your service and overall track record of success (in all aspects of trading) were the absolute best. Also, I'm approaching this again with a view to patience and disclipline (and risk management) and am looking forward to the months to come!

Thanks very much!

-John C

Hey great calls today off your watchlist from last night. Missed the SINA trade because of the fast price movement, but caught GMCR, APKT and WLT shorts. Great first day for me with your service!

Thanks

Sid.

I closed my BIDU puts this AM for $8.90 the ones I had bought yesterday AM @ 0.93. I was watching this based on your SINA / YOKU setups.

Ganesh

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