There is a gold mine in this country and it is available to anyone who wants to go in and help themselves to it. This gold mine is located in Manhattan NY. The gold mine I speak of is on Wall Street and it is called the U.S. Stock Market. It opens its doors every day and invites us all in and we can leave each day with as much cash as we want to take from it, if we can. That is it; we can literally go inside the stock market everyday and walk away with a fortune, if we want to. So why don't we? It sounds so easy to do and “they”, the stock market, are so willing to let us do it, and yet so few market participants can do it consistently each day. It is much easier said than done. Trading stocks is probably the hardest way to make a living and probably one of the most stressful. It takes time, patience and persistence. With hard work, anyone can do it.
The “Big” Money
A doctor goes to school for 8 years before he can treat patients and make the “big” money. A lawyer goes to school for 8 years before he can defend O. J. Simpson, an alleged murderer, and make the “big” money. A professional baseball player has played baseball all his life and practiced many years before he gets to the big show and makes the “big” money. Why do so many people think that they can just walk into the stock market and make the “big” money without first paying their dues and learning the profession?
Just like the casino’s in Vegas, sometimes the odds are stacked against those naive investor’s that choose to be in the stock market without learning first. Somebody who has never been to a casino before will probably lose their money, as does the new investor or trader. A professional gambler makes money because he has taken to time to learn the business. He can beat the casino at will and the professionals on Wall Street can do the same, they beat the market at will. It took many years for the professional gambler and the professional stock trader to get to the point where they can beat their opponents at will.
A doctor, lawyer or baseball player may be good at what they do and have money to invest but it does not mean that they will be successful in the stock market. The best thing about the stock market is, when you do finally get good enough to make a living, you know you will be a trader for the rest of your life. The other professions that I mentioned do not carry with them this security. A doctor can be sued for malpractice even if they did nothing wrong. A professional athlete gets too old to perform; the professional gambler gets kicked out of the casino and banned for life, if he gets too good. You are never too old to trade stocks, you will never be sued for winning a trade, and no trader has ever gotten kicked out of the stock market for being too good.
Learn to trade stocks like a pro
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The Headquarters for serious traders.
Copyright © 2008 StockTradersHQ.com
Monday, May 26, 2008
Sunday, May 11, 2008
The 3% Risk Trading System
Last week I mentioned the 3% Risk Trading System which is much more aggressive than the 10% Rule used with the StockTradersHQ (STHQ) portfolio. Just a reminder before we proceed, the 10% Rule = 10% of the portfolio value is placed in each trade. As the portfolio value increases, the dollar value placed in each trade also increases, compounding gains while minimizing risk.
I have used the 3% Risk Trading System in the past with great returns; I have not used it recently though. Fair warning: it is for aggressive traders only. You will need tough skin and nerves of steal to use it. If you have a heart condition, you may want to consult your physician before entering any trades using this system.
The 3% Risk Trading System requires more capital to be allocated in each trading position compared to the 10% Rule. Please do not get this system mixed up with the 10% Rule. The STHQ trade record is based on 10% allocation in each trade, and it will stay that way. I am disclosing the 3% Risk Trading System as an alternative approach some members may find attractive. If you decide to use this system, please set up a separate account and do not blend this system in with your STHQ trading account.
In the 3% Risk Trading System, the money allocated to each trade will vary based on your buy point and your stop price (more on that later). What is important is to limit losses to a maximum of 3% of your portfolio. This means that in a $100,000 portfolio our maximum loss of 3% will be $3,000 in our first trade. If we are starting with a $25,000 portfolio then our maximum loss of 3% will be $750 in our first trade.
Here is how it works:
Let's say you want to enter stock XYZ as it breaks above a resistance of $25.00. You set a buy stop order at $25.10. Once you are filled you MUST IMMEDIATELY set a stop loss order. This stop loss is not an automatic 3%. Instead, the stop loss is based on previous support. Let's say the support for XYZ is at $20.00. Our stop would then be just under support at $19.90.
To calculate the number of shares to purchase:
1. Take the difference between the buy price and the stop price you have determined: $25.10 - $19.90 = $5.20.
2. Divide the difference into your risk level of $3,000 (3% of $100,000) $3000 / $5.20 = 576 shares
To calculate the value of your trade:
Multiply the 576 shares by the buy price of $25.10 to get a total of $14,458 (14.5% of your 100K).
Let's look at this example more clearly below along with two others.
Example 1
Buy Price = $25.10
Stop price = $19.10
Risk per share = $25.10 - $19.10 = $5.20
Max loss of 3% = $3,000
$3,000 / $5.20 = 576 shares
576 X $25.10 = $14,458
$14,458 = 14.5% of $100,000 portfolio balance
In Example 1, you have to use 14.5% of your trading capital and you risk 3%.
Example 2
In this example we will use the same buy price but a different stop price for XYZ. The different stop price will depend on the chart and where you see the support levels. Again, you will risk 3% or $3,000 of your $100,000 portfolio.
Buy Price = $25.10
Stop price = $22.10
Risk per share = $25.10 - $22.10 = $2.20
Max loss of 3% = $3,000
$3,000 / 2.20 = 1,363 shares
1,363 X $25.10 = $34,211
$34.211 = 34.2% of $100,000 portfolio balance
As you can see in Example 2, you will use 34% of you portfolio balance because of the tighter stop you have placed on the trade. You risk the same amount ($3,000) but you must use more cash in the trade.
Example 3
In this example we will use the same buy and sell points as Example 2, but the risk will be narrowed to 2% instead of 3%. This system can be adjusted to risk any percent of your portfolio you wish. You can bump it up to 5% risk if you wish. It is the same formula; you will just be adjusting the dollars you want to have at risk.
Buy Price = $25.10
Stop price = $22.10
Risk per share = $25.10 - $22.10 = $2.20
Max loss of 2% = $2,000
$2,000 / $2.20 = 909 shares
909 X $25.10 = $22,815
$22,815 = 22.8% of $100,000 portfolio balance
As you can see, it does not matter what you pay for the stock or how much of your portfolio goes into each trade as long as you risk only 3% (or whatever % you are comfortable with) of your total portfolio. Some trades will cost more or less based on where you determine the stop price to be on the chart to insure a maximum loss of 3%.
This is obviously a much more aggressive approach then our 10% position size rule. Let's take Example 1 again using our normal 10% position size rule. We will assume we will be stopped out of the trade with a 10% loss according to the STHQ trading rules.
Buy $25.10
10% of $100,000 = $10,000
$10,000 / $25.10 = 400 shares
Stop $2.50 (10% below buy price) = $22.60
Sell at $22.60 = $9,050
$10,000 - $9,050 = $950
$100,000 - $950 = $99,050
The loss of $950 = 10% of your 10% position but only 1% of your total $100,000
As you can see, the 10% Rule is more conservative compared to the 3% Risk Trading System. The 3% Risk Trading System is ideal in Bull markets, but performs poorly in flat markets. It is too easy to get whipsawed out of you position in a flat market, and those losses will add up quickly. However, in a Bull market, the 3% Risk Trading System should out perform the 10% rule. Using the 3% Risk Trading System, only four or five positions are open at any one time.
Example 4
If you bought JRCC when we first recommended it on March 26th (see chart) http://stockcharts.com/h-sc/ui?s=JRCC&p=D&yr=0&mn=4&dy=0&id=p29039817531&a=132229947&listNum=19
at $17.50, you would have done very well when it closed Friday 31.10. Let's use the 3% Risk Trading System with this real example. Keep in mind, JRCC is still running and should move higher next week.
Buy Price = $17.50
Stop price = $13.90 (based on $14.00 support on chart)
Risk per share = $17.50 - $13.90 = $3.60
Max loss of 3% = $3,000
$3,000 / $3.60 = 833 shares
833 x $17.50 = $14,578
$14,578 = 14.58% of 100K portfolio balance
Sell at $31.10 x 833 = $25,906
$25,906 - $14,578= $11,328
$100,000 + $11,328 = $111,328
The gain is $11,328 and your risk was only $3,000. This one trade could balance out almost four losing trades with a 3% risk level. This shows that you can lose 3 out of 4 trades and still break even if you keep your losses to a minimum. Remember to risk 3% of the new balance. This means, if the GENC trade was your first trade you now would risk 3% of $111,328 instead of $100,000. This is how you compound your gains very quickly.
To Reiterate
I can not stress this enough, it is imperative with this system to PLACE YOUR STOPS IMEDIATELY AFTER YOUR BUY ORDER IS FILLED. You are risking substantial loss if you fail to place stops with 34% of your capital at risk as with Example 2.
I hope you have enjoyed tonight's Commentary and the introduction of the 3% Risk Trading System. If at some point in the future we decide to open an aggressive portfolio, this is the system we will be using. We currently have two portfolios we trade, a long term portfolio (Dynamic Dozen) in which we buy and try to hold for a year or two and our short term swing trading portfolio which we trade in and out of positions frequently. I have described the 3% Risk Trading System in advance so you will be familiar with the system if we do decide to open an aggressive portfolio at some point in the future.
David Colletti
Founder
StockTradersHQ.com
I have used the 3% Risk Trading System in the past with great returns; I have not used it recently though. Fair warning: it is for aggressive traders only. You will need tough skin and nerves of steal to use it. If you have a heart condition, you may want to consult your physician before entering any trades using this system.
The 3% Risk Trading System requires more capital to be allocated in each trading position compared to the 10% Rule. Please do not get this system mixed up with the 10% Rule. The STHQ trade record is based on 10% allocation in each trade, and it will stay that way. I am disclosing the 3% Risk Trading System as an alternative approach some members may find attractive. If you decide to use this system, please set up a separate account and do not blend this system in with your STHQ trading account.
In the 3% Risk Trading System, the money allocated to each trade will vary based on your buy point and your stop price (more on that later). What is important is to limit losses to a maximum of 3% of your portfolio. This means that in a $100,000 portfolio our maximum loss of 3% will be $3,000 in our first trade. If we are starting with a $25,000 portfolio then our maximum loss of 3% will be $750 in our first trade.
Here is how it works:
Let's say you want to enter stock XYZ as it breaks above a resistance of $25.00. You set a buy stop order at $25.10. Once you are filled you MUST IMMEDIATELY set a stop loss order. This stop loss is not an automatic 3%. Instead, the stop loss is based on previous support. Let's say the support for XYZ is at $20.00. Our stop would then be just under support at $19.90.
To calculate the number of shares to purchase:
1. Take the difference between the buy price and the stop price you have determined: $25.10 - $19.90 = $5.20.
2. Divide the difference into your risk level of $3,000 (3% of $100,000) $3000 / $5.20 = 576 shares
To calculate the value of your trade:
Multiply the 576 shares by the buy price of $25.10 to get a total of $14,458 (14.5% of your 100K).
Let's look at this example more clearly below along with two others.
Example 1
Buy Price = $25.10
Stop price = $19.10
Risk per share = $25.10 - $19.10 = $5.20
Max loss of 3% = $3,000
$3,000 / $5.20 = 576 shares
576 X $25.10 = $14,458
$14,458 = 14.5% of $100,000 portfolio balance
In Example 1, you have to use 14.5% of your trading capital and you risk 3%.
Example 2
In this example we will use the same buy price but a different stop price for XYZ. The different stop price will depend on the chart and where you see the support levels. Again, you will risk 3% or $3,000 of your $100,000 portfolio.
Buy Price = $25.10
Stop price = $22.10
Risk per share = $25.10 - $22.10 = $2.20
Max loss of 3% = $3,000
$3,000 / 2.20 = 1,363 shares
1,363 X $25.10 = $34,211
$34.211 = 34.2% of $100,000 portfolio balance
As you can see in Example 2, you will use 34% of you portfolio balance because of the tighter stop you have placed on the trade. You risk the same amount ($3,000) but you must use more cash in the trade.
Example 3
In this example we will use the same buy and sell points as Example 2, but the risk will be narrowed to 2% instead of 3%. This system can be adjusted to risk any percent of your portfolio you wish. You can bump it up to 5% risk if you wish. It is the same formula; you will just be adjusting the dollars you want to have at risk.
Buy Price = $25.10
Stop price = $22.10
Risk per share = $25.10 - $22.10 = $2.20
Max loss of 2% = $2,000
$2,000 / $2.20 = 909 shares
909 X $25.10 = $22,815
$22,815 = 22.8% of $100,000 portfolio balance
As you can see, it does not matter what you pay for the stock or how much of your portfolio goes into each trade as long as you risk only 3% (or whatever % you are comfortable with) of your total portfolio. Some trades will cost more or less based on where you determine the stop price to be on the chart to insure a maximum loss of 3%.
This is obviously a much more aggressive approach then our 10% position size rule. Let's take Example 1 again using our normal 10% position size rule. We will assume we will be stopped out of the trade with a 10% loss according to the STHQ trading rules.
Buy $25.10
10% of $100,000 = $10,000
$10,000 / $25.10 = 400 shares
Stop $2.50 (10% below buy price) = $22.60
Sell at $22.60 = $9,050
$10,000 - $9,050 = $950
$100,000 - $950 = $99,050
The loss of $950 = 10% of your 10% position but only 1% of your total $100,000
As you can see, the 10% Rule is more conservative compared to the 3% Risk Trading System. The 3% Risk Trading System is ideal in Bull markets, but performs poorly in flat markets. It is too easy to get whipsawed out of you position in a flat market, and those losses will add up quickly. However, in a Bull market, the 3% Risk Trading System should out perform the 10% rule. Using the 3% Risk Trading System, only four or five positions are open at any one time.
Example 4
If you bought JRCC when we first recommended it on March 26th (see chart) http://stockcharts.com/h-sc/ui?s=JRCC&p=D&yr=0&mn=4&dy=0&id=p29039817531&a=132229947&listNum=19
at $17.50, you would have done very well when it closed Friday 31.10. Let's use the 3% Risk Trading System with this real example. Keep in mind, JRCC is still running and should move higher next week.
Buy Price = $17.50
Stop price = $13.90 (based on $14.00 support on chart)
Risk per share = $17.50 - $13.90 = $3.60
Max loss of 3% = $3,000
$3,000 / $3.60 = 833 shares
833 x $17.50 = $14,578
$14,578 = 14.58% of 100K portfolio balance
Sell at $31.10 x 833 = $25,906
$25,906 - $14,578= $11,328
$100,000 + $11,328 = $111,328
The gain is $11,328 and your risk was only $3,000. This one trade could balance out almost four losing trades with a 3% risk level. This shows that you can lose 3 out of 4 trades and still break even if you keep your losses to a minimum. Remember to risk 3% of the new balance. This means, if the GENC trade was your first trade you now would risk 3% of $111,328 instead of $100,000. This is how you compound your gains very quickly.
To Reiterate
I can not stress this enough, it is imperative with this system to PLACE YOUR STOPS IMEDIATELY AFTER YOUR BUY ORDER IS FILLED. You are risking substantial loss if you fail to place stops with 34% of your capital at risk as with Example 2.
I hope you have enjoyed tonight's Commentary and the introduction of the 3% Risk Trading System. If at some point in the future we decide to open an aggressive portfolio, this is the system we will be using. We currently have two portfolios we trade, a long term portfolio (Dynamic Dozen) in which we buy and try to hold for a year or two and our short term swing trading portfolio which we trade in and out of positions frequently. I have described the 3% Risk Trading System in advance so you will be familiar with the system if we do decide to open an aggressive portfolio at some point in the future.
David Colletti
Founder
StockTradersHQ.com
Thursday, May 8, 2008
Building a Winning Trading Plan
There is an old saying in business: "If you fail to plan, you plan to fail. Ask any trader who makes money on a consistent basis and they will tell you, "You have two choices: you can either follow a plan, or you can fail." That's it in a nutshell. Have a plan or fail. If you have a written trading plan already, congratulations! While it's still no guarantee for success, a plan is better than none at all. If your plan is flawed, at least you have something that can be adjusted. Your success won't come immediately, but at least you are in a position to chart and modify your trading activity. By documenting the process, you learn what works and how to avoid repeating costly mistakes. If you have a plan, super, keep modifying it. If you do not, I have listed some idea's that can help you get started.
Assess Your Skills
Ask yourself, "Am I ready to trade?" "Have I tested my system on paper, before using my real money?" "Do I have confidence that my system is going to work?" Can I follow my signals without hesitation?" If you can answer these questions with an honest "yes", then you are ready to take that first step and begin trading for a living. The stock market is set up to separate you from your money and transfer wealth to the professional trader. Trading is a battle of give and take. The real pros are prepared and they take their profits from the rest of the crowd who seem content to hand their cash over. These novice traders, lacking a plan, give their money away through costly mistakes. This may sound brutal but I got to tell it like it is. It's your job to take the crowds money from them and make them pay dearly for their mistakes. The market does not tolerate people who lack respect for it. The crowd lacks respect for the market and for this, they will pay. Always respect the market and never become complacent. Always look for the edge, look for the advantage. Your cash is on the line, you can't let them take it from you.
Mental Preparation
How do you feel? Do you feel up to the challenge ahead? If you are not emotionally and psychologically ready to do battle in the market, it is better to take the day off; otherwise, you risk unnecessary losses. Trading is financial war. It's you against everyone else. When you enter your trading room, there are millions of people trying to take your cash by getting the better of you in a trade. For every trade you make, there is somebody on the other side of the trade who thinks you're wrong and they're right. Only one of you can be right and they have no mercy. I remember what my martial arts instructor told me years ago while I was training for a big tournament. He said " For every hour you are not training, your opponent is in the gym training with one purpose in mind and that is to beat you" Trading is the same way, it's a constant learning process and when you are not doing all you can do to better your trading, your opponent is. Without mental preparation, you will lose. If you are angry, hung-over, preoccupied or otherwise distracted from the task at hand, you can't consistently make money. Many traders have a routine before each market day that prepares them for the day ahead. You must do this also. Create one that puts you in the trading zone.
Set Some Goals
Before you enter a trade, make sure the risk/reward ratio makes sense. Many traders will not take a trade unless the potential profit is at least three times greater than the risk. For example, if your stop loss is $1.00 below your entry point, then your goal should be at least $3.00 to the upside. If resistance is $3.00 above your entry, then the trade makes good sense. If resistance is just $1.00 above your entry, then this trade has a very high risk verses reward and should not be taken in my opinion.
Preparing for the Trade
Whatever trading system or program you use, identify major and minor support and resistance levels, set alerts for entry and exit signals and make sure you can easily see and detect all signals your system generates. Your trading area should be free from distractions. No small children running around and needing attention. No trying to listen or watch that movie you rented last night and didn't finish. No trying to catch an afternoon baseball game on TV while trying to trade. I love baseball, but I do not watch any games during market hours if one should be on. I reserve that for the evenings only. Remember, you are trading for a living and distractions can be costly.
Exit Rules
Most traders make the mistake of concentrating only on their buy signals and entry points and pay little attention to when and where to exit the trade. Many beginners won't sell if they are down because they don't want to take a loss. They say "It's not a loss until I sell" . I got news for these people. At the end of the day, if their account value has dropped significantly, they have lost money, whether or not they sold the stock. If your stop gets filled, get over it or you will not make it as a trader. If your stop gets hit, it means you were wrong, don't take it personally, its part of the business. I lose more trades then I win when I day trade because of my tight stop loss rules but I'm still able to trade for a living and make plenty of profit by managing money properly and limiting losses. I don't care if I'm wrong 4 out of 5 times. I never risk more than a set percentage of my portfolio on any trade and all trades are equally distributed. If I lose 1% on the 4 trades and make 10 or 15% on the one winner, I'm going to have a substantial overall gain at the end of the year.
Record Keeping
After each trading day, adding up the profit or loss is secondary to knowing the why and how you did it. Write down your conclusions in your trading journal so that you can reference them again later. All good traders keep good records. If they win a trade, they want to know exactly why and how. More importantly, they want to know the same when they lose, so they don't repeat the same mistakes again. Record comments about why you made the trade and lessons learned. Also, you should save your trading records so that you can go back and analyze the profit/loss for a particular system. Record the average time per trade, this is necessary to calculate the efficiency of your system. The longer the stock takes to move after you are in the trade diminishes the efficiency of the trade. It may be a winner, but if it takes too long to get there, funds are tied up and opportunities are missed elsewhere.
Final Thoughts
There is no way to guarantee that a trade will make money. Your chances are based on mathematical probabilities and your skill and system used. There is no such thing as winning without losing. Professional traders lose many trades, it is the excellent management of there capital that keeps them in the game. By letting your profits ride and cutting losses short, you may lose some battles, but you will win the overall war. Most traders and investors do the opposite; they cut their winners short by taking the small gains while refusing to part with the losers which is why they never make money. The goal of any trader should be to gain enough skill to use their system so that they are able to make trades without second guessing or doubting their decisions.
Assess Your Skills
Ask yourself, "Am I ready to trade?" "Have I tested my system on paper, before using my real money?" "Do I have confidence that my system is going to work?" Can I follow my signals without hesitation?" If you can answer these questions with an honest "yes", then you are ready to take that first step and begin trading for a living. The stock market is set up to separate you from your money and transfer wealth to the professional trader. Trading is a battle of give and take. The real pros are prepared and they take their profits from the rest of the crowd who seem content to hand their cash over. These novice traders, lacking a plan, give their money away through costly mistakes. This may sound brutal but I got to tell it like it is. It's your job to take the crowds money from them and make them pay dearly for their mistakes. The market does not tolerate people who lack respect for it. The crowd lacks respect for the market and for this, they will pay. Always respect the market and never become complacent. Always look for the edge, look for the advantage. Your cash is on the line, you can't let them take it from you.
Mental Preparation
How do you feel? Do you feel up to the challenge ahead? If you are not emotionally and psychologically ready to do battle in the market, it is better to take the day off; otherwise, you risk unnecessary losses. Trading is financial war. It's you against everyone else. When you enter your trading room, there are millions of people trying to take your cash by getting the better of you in a trade. For every trade you make, there is somebody on the other side of the trade who thinks you're wrong and they're right. Only one of you can be right and they have no mercy. I remember what my martial arts instructor told me years ago while I was training for a big tournament. He said " For every hour you are not training, your opponent is in the gym training with one purpose in mind and that is to beat you" Trading is the same way, it's a constant learning process and when you are not doing all you can do to better your trading, your opponent is. Without mental preparation, you will lose. If you are angry, hung-over, preoccupied or otherwise distracted from the task at hand, you can't consistently make money. Many traders have a routine before each market day that prepares them for the day ahead. You must do this also. Create one that puts you in the trading zone.
Set Some Goals
Before you enter a trade, make sure the risk/reward ratio makes sense. Many traders will not take a trade unless the potential profit is at least three times greater than the risk. For example, if your stop loss is $1.00 below your entry point, then your goal should be at least $3.00 to the upside. If resistance is $3.00 above your entry, then the trade makes good sense. If resistance is just $1.00 above your entry, then this trade has a very high risk verses reward and should not be taken in my opinion.
Preparing for the Trade
Whatever trading system or program you use, identify major and minor support and resistance levels, set alerts for entry and exit signals and make sure you can easily see and detect all signals your system generates. Your trading area should be free from distractions. No small children running around and needing attention. No trying to listen or watch that movie you rented last night and didn't finish. No trying to catch an afternoon baseball game on TV while trying to trade. I love baseball, but I do not watch any games during market hours if one should be on. I reserve that for the evenings only. Remember, you are trading for a living and distractions can be costly.
Exit Rules
Most traders make the mistake of concentrating only on their buy signals and entry points and pay little attention to when and where to exit the trade. Many beginners won't sell if they are down because they don't want to take a loss. They say "It's not a loss until I sell" . I got news for these people. At the end of the day, if their account value has dropped significantly, they have lost money, whether or not they sold the stock. If your stop gets filled, get over it or you will not make it as a trader. If your stop gets hit, it means you were wrong, don't take it personally, its part of the business. I lose more trades then I win when I day trade because of my tight stop loss rules but I'm still able to trade for a living and make plenty of profit by managing money properly and limiting losses. I don't care if I'm wrong 4 out of 5 times. I never risk more than a set percentage of my portfolio on any trade and all trades are equally distributed. If I lose 1% on the 4 trades and make 10 or 15% on the one winner, I'm going to have a substantial overall gain at the end of the year.
Record Keeping
After each trading day, adding up the profit or loss is secondary to knowing the why and how you did it. Write down your conclusions in your trading journal so that you can reference them again later. All good traders keep good records. If they win a trade, they want to know exactly why and how. More importantly, they want to know the same when they lose, so they don't repeat the same mistakes again. Record comments about why you made the trade and lessons learned. Also, you should save your trading records so that you can go back and analyze the profit/loss for a particular system. Record the average time per trade, this is necessary to calculate the efficiency of your system. The longer the stock takes to move after you are in the trade diminishes the efficiency of the trade. It may be a winner, but if it takes too long to get there, funds are tied up and opportunities are missed elsewhere.
Final Thoughts
There is no way to guarantee that a trade will make money. Your chances are based on mathematical probabilities and your skill and system used. There is no such thing as winning without losing. Professional traders lose many trades, it is the excellent management of there capital that keeps them in the game. By letting your profits ride and cutting losses short, you may lose some battles, but you will win the overall war. Most traders and investors do the opposite; they cut their winners short by taking the small gains while refusing to part with the losers which is why they never make money. The goal of any trader should be to gain enough skill to use their system so that they are able to make trades without second guessing or doubting their decisions.
Wednesday, May 7, 2008
Self Discipline
Trading success is all about discipline. The discipline to take the trade in the first place and even more importantly to take the loss when necessary. If you possess the necessary discipline to follow a profitable methodology it can lead you to financial freedom. The freedom to make as much money as you need trading for a living and work at a profession you love. You can do it all with the right amount of discipline.
Let’s break discipline down into a two part process:
1. Preparation
2. Execution
Preparation covers several aspects, such as mental preparation; thinking through the risks of each trade and most importantly, knowing when and how to get out of the trade. These aspects are crucial. Getting in most of the time is much easier than getting out. I’ve always said that I would rather be out of a trade wishing I was in it, than in a trade and wishing I was out of it.
When the market is closed, we should be preparing ourselves mentally for the next trading day. One of the most important things NOT to do is making compulsive trading decisions while the market is moving. Your preparation prior to the market open should consist of your trading plan for that trading day and you should not deviate from the plan. If you do, you are not maintaining your discipline. If you did not plan to trade a particular stock that suddenly spikes up on news, then our advice is, do not trade it, despite the overwhelming urge to get in on the action. You make get lucky and make a fast buck, but at the same time, you are proving to be a very undisciplined trader.
The execution part of discipline involves preparation for the actual trade entries. Doing the technical analysis and fundamental work needed to enter a trade with a reasonable chance at profitability. We at STHQ are technical traders, trading on pattern recognition and technical indicators. Each pattern or indicator we trade has its own probability of success and each pattern has its own measurement of risk control. We have a plan for executing every trade we make and we must follow that plan. If we deviate from the plan, then we are not disciplined.
Combining the execution process is risk control and profit protection. Finely tuned execution skills are going to account for a great percentage of your success in trading.
For the most part, risk is the only thing we can control in the trading process. Sometimes, we can’t even control risk when there is news released on a stock we own and it gaps down, but that is rare, so other than that type of thing, we can certainly control the risk of our trade most of the time.
Profit protection requires monitoring the price action in order to reduce risk as soon as possible. Once a trade begins to work, it is good money management to take steps to reduce risk in the trade. If we control our risk the probability of getting a winning streak is increased. If we don’t control our risk, the probability of financial ruin is certain.
Let’s break discipline down into a two part process:
1. Preparation
2. Execution
Preparation covers several aspects, such as mental preparation; thinking through the risks of each trade and most importantly, knowing when and how to get out of the trade. These aspects are crucial. Getting in most of the time is much easier than getting out. I’ve always said that I would rather be out of a trade wishing I was in it, than in a trade and wishing I was out of it.
When the market is closed, we should be preparing ourselves mentally for the next trading day. One of the most important things NOT to do is making compulsive trading decisions while the market is moving. Your preparation prior to the market open should consist of your trading plan for that trading day and you should not deviate from the plan. If you do, you are not maintaining your discipline. If you did not plan to trade a particular stock that suddenly spikes up on news, then our advice is, do not trade it, despite the overwhelming urge to get in on the action. You make get lucky and make a fast buck, but at the same time, you are proving to be a very undisciplined trader.
The execution part of discipline involves preparation for the actual trade entries. Doing the technical analysis and fundamental work needed to enter a trade with a reasonable chance at profitability. We at STHQ are technical traders, trading on pattern recognition and technical indicators. Each pattern or indicator we trade has its own probability of success and each pattern has its own measurement of risk control. We have a plan for executing every trade we make and we must follow that plan. If we deviate from the plan, then we are not disciplined.
Combining the execution process is risk control and profit protection. Finely tuned execution skills are going to account for a great percentage of your success in trading.
For the most part, risk is the only thing we can control in the trading process. Sometimes, we can’t even control risk when there is news released on a stock we own and it gaps down, but that is rare, so other than that type of thing, we can certainly control the risk of our trade most of the time.
Profit protection requires monitoring the price action in order to reduce risk as soon as possible. Once a trade begins to work, it is good money management to take steps to reduce risk in the trade. If we control our risk the probability of getting a winning streak is increased. If we don’t control our risk, the probability of financial ruin is certain.
Tuesday, May 6, 2008
Sell in May and go away? Really?
With the major indices near their respective 200 SMA lines after a big 3 month run up in the markets, it seems like a good time to cut and run. According to the old Wall Street adage "Sell in May and go away," one who invests in stocks during the colder months and then sits it out during the summer months has done quite nicely overall.
Over the history of the stock market dating back over 100 years, stock gains in November through April have historically been stronger than May through October. The Stock Trader's Almanac has demonstrated this fact by tracking what would happen to a $10,000 investment in the 30 Dow stocks. Money invested in the Dow stocks in the "best six months" and then switched to fixed income in the "worst six months" over 56 years grew to $544,323. But money invested in the Dow in the "worst six" and then switched to fixed income in the "best six" compounded to a loss of $272. These results are startling but it doesn’t mean that you will lose money if you don’t sell in May. All it means is, the chances are good that you will under perform the normal average market returns for all 12 months combined.
Why Does This Happen?
May itself is not really that bad historically, it’s the Memorial Day to Labor Day period that's the worst historically and that tends to give the whole six months a bum rap. The second quarter, which starts in April, tends to be weaker, as the effects of holiday bonuses and the holiday retail sales period fade out. By late May, tax refunds are over, so the flow of fresh funds into stocks slows down. Then it's summer, with people spending more time on the beach than at their trading desks or on the trading floor. Lower trading volume tends to limit stock gains and causes a more rangebound market. Volatility tends to lightens up as well. By the time fall kicks in, the psychology has switched to a back-to-school, back-to-work mentality. In addition, big mutual funds are preparing for the end of their fiscal year in October. Historically, September is the worst month of the year for the Dow, NASDAQ and S&P and this falls in that six month range of the “sell in May and go away theory”
Here is the Real Deal
So what are we supposed to glean from this information? Should you sell all your stocks now because it’s the beginning of May? Not so fast. We have to take a logical approach to this dilemma and really look into the numbers first. There certainly have been years where the market did well in the "bad" six month period. There is no doubt that this six month period has been historically a rather lackluster one. However, history, as we all know, does not always repeat. After all we are talking about averaging numbers from a 50 to 100 year period. Neither you and I are going to be in the stock market for that long a period so this average number is irrelevant. If this happens to be a year when the market does well in the summer (and there have been years it has) you will run the risk of missing out on some terrific gains if you sell.
Lets look at the numbers closer using the S&P 500 instead of the Dow because that is a broader range of stocks. If you sold your stocks on the first trading day in May and returned to the market on October 1st each year from 1969 to 2007. (Yahoo Finance provided data to 1969).
Here are the Results.
26 of the 38 years the markets had a positive return during those supposedly six historically bad months from May through Sep. There were only 12 years in which you would have successfully avoided a loss during that six month period.
Also interesting to point out is that during the grand bull market of the 80s and 90s, the average return during May through September was 3.68%. A positive return, albeit not overwhelming. The average return from 1969-1979 was -2.22%, and from 2000-2007 the return was -1.59%. Outside of the big bull market of 1980-1999, this strategy would have worked. But the point is, it’s just averages. Year to year returns are very different and you don’t know which years will be good or bad. Over a long period of time, which is what these studies are based on, it is true that the market has underperformed in those months but it does not mean that you will lose money. And if you do lose some money, the statistics prove that it will only be a very small percentage.
The Bottom line
We just wanted to put these numbers into perspective before you jump the gun and sell because there is no doubt this “sell in May and go away” adage will be played out by the media. It’s all you are going to hear about for the next couple of weeks. But just look at the numbers and you’ll find that it’s not as bad as they make it out to be.
Our strategy at StockTradersHQ will be as it always is. We will just look at the chart patterns and the technical indicators to make our buy and sell decisions. The seasonality factor is way overblown. Technical Analysis is not.
Over the history of the stock market dating back over 100 years, stock gains in November through April have historically been stronger than May through October. The Stock Trader's Almanac has demonstrated this fact by tracking what would happen to a $10,000 investment in the 30 Dow stocks. Money invested in the Dow stocks in the "best six months" and then switched to fixed income in the "worst six months" over 56 years grew to $544,323. But money invested in the Dow in the "worst six" and then switched to fixed income in the "best six" compounded to a loss of $272. These results are startling but it doesn’t mean that you will lose money if you don’t sell in May. All it means is, the chances are good that you will under perform the normal average market returns for all 12 months combined.
Why Does This Happen?
May itself is not really that bad historically, it’s the Memorial Day to Labor Day period that's the worst historically and that tends to give the whole six months a bum rap. The second quarter, which starts in April, tends to be weaker, as the effects of holiday bonuses and the holiday retail sales period fade out. By late May, tax refunds are over, so the flow of fresh funds into stocks slows down. Then it's summer, with people spending more time on the beach than at their trading desks or on the trading floor. Lower trading volume tends to limit stock gains and causes a more rangebound market. Volatility tends to lightens up as well. By the time fall kicks in, the psychology has switched to a back-to-school, back-to-work mentality. In addition, big mutual funds are preparing for the end of their fiscal year in October. Historically, September is the worst month of the year for the Dow, NASDAQ and S&P and this falls in that six month range of the “sell in May and go away theory”
Here is the Real Deal
So what are we supposed to glean from this information? Should you sell all your stocks now because it’s the beginning of May? Not so fast. We have to take a logical approach to this dilemma and really look into the numbers first. There certainly have been years where the market did well in the "bad" six month period. There is no doubt that this six month period has been historically a rather lackluster one. However, history, as we all know, does not always repeat. After all we are talking about averaging numbers from a 50 to 100 year period. Neither you and I are going to be in the stock market for that long a period so this average number is irrelevant. If this happens to be a year when the market does well in the summer (and there have been years it has) you will run the risk of missing out on some terrific gains if you sell.
Lets look at the numbers closer using the S&P 500 instead of the Dow because that is a broader range of stocks. If you sold your stocks on the first trading day in May and returned to the market on October 1st each year from 1969 to 2007. (Yahoo Finance provided data to 1969).
Here are the Results.
26 of the 38 years the markets had a positive return during those supposedly six historically bad months from May through Sep. There were only 12 years in which you would have successfully avoided a loss during that six month period.
Also interesting to point out is that during the grand bull market of the 80s and 90s, the average return during May through September was 3.68%. A positive return, albeit not overwhelming. The average return from 1969-1979 was -2.22%, and from 2000-2007 the return was -1.59%. Outside of the big bull market of 1980-1999, this strategy would have worked. But the point is, it’s just averages. Year to year returns are very different and you don’t know which years will be good or bad. Over a long period of time, which is what these studies are based on, it is true that the market has underperformed in those months but it does not mean that you will lose money. And if you do lose some money, the statistics prove that it will only be a very small percentage.
The Bottom line
We just wanted to put these numbers into perspective before you jump the gun and sell because there is no doubt this “sell in May and go away” adage will be played out by the media. It’s all you are going to hear about for the next couple of weeks. But just look at the numbers and you’ll find that it’s not as bad as they make it out to be.
Our strategy at StockTradersHQ will be as it always is. We will just look at the chart patterns and the technical indicators to make our buy and sell decisions. The seasonality factor is way overblown. Technical Analysis is not.
Friday, May 2, 2008
The Rule of 72
If you are new to the stock market and investing, you may not be aware of “The rule of 72”. Most investors are aware of this rule. Using this rule we can project how long it will take to compound our cash based on the rate of return we are striving to receive from our investments. Here’s how it works. We simply take the projected return and divide into the number 72. By doing this simply math, we can project how long it will take us to double our money. If we were to earn a 6% return on our money in our trading and investment accounts, it would take us 12 years to double our money (72/6 = 12). On a 10% rate of return, our money doubles in 7.2 years. These are relatively conservative rates of returns that can be achieved in the stock market over time as a long term investor. But we always want to do better than the markets average and we don’t want to settle for just outperforming the market, we want to substantially out perform the market. Let’s use a 25% gain as our goal per year. At this rate of return, it would only take 2.88 years to double our money.
Why are we mentioning this rule of 72 tonight? We just want to put in perspective the returns of our STHQ trading system. You will see on the home page that our returns have averaged 94% per year for the last 5 years. Using this average, we would double our money in only 7.7 months. There is no service or system out there that can match this performance using only 5% to 10% of available capital in each trading position as our system calls for. We did it and all these trades were sent as alerts in real time and are available for all to see for the record on our site in our trade history.
2003, only a Dream?
Our 350% return in 2003 was exceptional and we admit that when averaged into the 5 years it greatly increases our average return. But let’s take out that return just for the heck of it and make believe it was only a dream. Let’s just use only the last 4 years of returns to get our average return. 19%, 23%, 81% and 26% would average out to a 37% return per year. Now if we use the rule of 72 with an average return of 37% per year, we would double our money in just under two years.
It’s hard to believe you will find any system or service including professionally managed mutual and hedge funds that will double your investment in less than two years. If you can find one anywhere in the universe let us know. We are not talking about buying an option with all of your available capital and hoping you hit a home run. That would be pure speculation and nothing more than a gamble. What we are talking about here is a system that limits risk by using no more than 5 to 10% in any one trade. The returns our system has made are amazing in of itself but when you take into consideration that we did it using only 5 to 10% of our capital in each trade, it makes the returns just that much more remarkable.
It’s Not as Easy as it May Seem
Although we are proud of our system and accomplishments, we are not writing this commentary as a means to boast. We are simply explaining the rule of 72 and putting into perspective how hard it is to achieve the types of returns STHQ has achieved since our inception. What we do is not easy and we hope that our new members will realize that high returns in the stock market are not easy to accomplish. It’s not rocket science, but on the same token, it’s not as easy as it may look initially.
Remember the rule of 72 when you are searching for a way to put your investment dollars to work for you. It’s a good way to figure out the rate of return you need each year to accomplish your financial goals.
Why are we mentioning this rule of 72 tonight? We just want to put in perspective the returns of our STHQ trading system. You will see on the home page that our returns have averaged 94% per year for the last 5 years. Using this average, we would double our money in only 7.7 months. There is no service or system out there that can match this performance using only 5% to 10% of available capital in each trading position as our system calls for. We did it and all these trades were sent as alerts in real time and are available for all to see for the record on our site in our trade history.
2003, only a Dream?
Our 350% return in 2003 was exceptional and we admit that when averaged into the 5 years it greatly increases our average return. But let’s take out that return just for the heck of it and make believe it was only a dream. Let’s just use only the last 4 years of returns to get our average return. 19%, 23%, 81% and 26% would average out to a 37% return per year. Now if we use the rule of 72 with an average return of 37% per year, we would double our money in just under two years.
It’s hard to believe you will find any system or service including professionally managed mutual and hedge funds that will double your investment in less than two years. If you can find one anywhere in the universe let us know. We are not talking about buying an option with all of your available capital and hoping you hit a home run. That would be pure speculation and nothing more than a gamble. What we are talking about here is a system that limits risk by using no more than 5 to 10% in any one trade. The returns our system has made are amazing in of itself but when you take into consideration that we did it using only 5 to 10% of our capital in each trade, it makes the returns just that much more remarkable.
It’s Not as Easy as it May Seem
Although we are proud of our system and accomplishments, we are not writing this commentary as a means to boast. We are simply explaining the rule of 72 and putting into perspective how hard it is to achieve the types of returns STHQ has achieved since our inception. What we do is not easy and we hope that our new members will realize that high returns in the stock market are not easy to accomplish. It’s not rocket science, but on the same token, it’s not as easy as it may look initially.
Remember the rule of 72 when you are searching for a way to put your investment dollars to work for you. It’s a good way to figure out the rate of return you need each year to accomplish your financial goals.
The StockTradersHQ Library
Knowledge is the key to be successful in the stock market, but which books should you read? There are thousands books available on every aspect of stock trading - and not all are created equal. The following recommended readings are what we feel are the truly great books available on the each subject. We hope you will find them as useful as we have.
REMINISCENCES OF A STOCK OPERATOR By Edwin Lefevre
Recommended by Dave Colletti:
"A story based on the life of legendary trader Jesse Livermore who was famous for being short the market just before the 1927 crash and made over 100 Million dollars while 99% of all investors lost their life savings. A truly fascinating story and after reading it, I was a believer that timing the market and individual stock moves can be done with great success. My journey into the world of TA began after reading this book."
THE MASTER SWING TRADER by Farley
Recommended by Alan Maxfield:
"The Master Swing Trader is not for beginners, and is a difficult read from cover to cover. But I constantly refer to mine, and I have it highlighted throughout with the margins all marked up. It is very technical but also very thorough. More than any other book this one is responsible for my quest for perfection in my trading systems."
HOW TECHNICAL ANNALYSIS WORKS by Bruce M. Kamich
Recommended by Dave Colletti
SECRECTS FOR PROFITING IN BULL AND BEAR MARKETS by Stan Weinstein
Recommended by Dave Colletti
STICKY STOCK CHARTS : Learn How to Manage Your Stocks -- In an Hour or Lessby Laurence Holt
TOOLS AND TACTICS FOR THE MASTER DAY TRADER by Velez & Capra
Recommended by Alan Maxfield:
"They have written the perfect book for the beginning trader or the trader who is struggling and needs to get back to the basics. They cover trading psychology thoroughly and offer an excellent introduction to basic trading systems."
TRADING FOR A LIVING: by Alexander Elder
Recommended by Alan Maxfield:
"I think he’s the best author I’ve read as far as being able to put a master trader’s mind to pen and paper. He’s a brilliant man who will help you to sharpen your trading instincts and develop an effective trading plan. Trading For a Living is easy to read yet very thorough in its instruction."
TECHNICAL ANALYSIS OF THE FINANCIAL MARKETS: By John Murphy
Recommended by Dave Colletti:
"A must read. Technical Analysis is the heart and sole of my trading style, it doesn’t always work but it sure works enough of the time to make very profitable trades. If you trade on T/A, this book is a must."
TECHNICAL ANALYSIS OF STOCK TRENDS: By Robert Edwards & John Magee
Recommended by Dave Colletti:
"For 50 years, this classic has remained the bible on technical analysis. It explains every aspect of charting from basic principles to advanced trading techniques. I love this book."
ELLIOT WAVE PRINCIPLE: By A.J Frost and Robert Pretcher
Recommended by Dave Colletti:
"A clear and easy to understand discussion of the Elliot wave theory. Readers are shown how they can apply the theory to forecast market and stock direction. If you want to study 'the wave', surf through this book."
MARKET WIZARDS: By Jack Schwager
Recommended by Dave Colletti:
"Interviews with some of the world's top traders. A very enjoyable read. It’s like talking to the best traders in the world right in your own living room."
THE AMAZING LIFE OF JESSE LIVERMORE By Richard Smitten
Recommended by Dave Colletti:
"Jesse Livermore is considered by many on Wall Street to be one of the greatest stock market traders who ever lived. This book is about Jesse Livermore's life. It was written after interviews with Livermore survivors and witnesses to the events which took place during his life. A Wall Street classic."
THE BATTLE FOR INVESTMENT SURVIVAL: By Gerald M. Loeb
Recommended by Dave Colletti:
"A timeless classic first published in 1935, this book remains one of the most popular handbooks on investing. It covers such essential topics as market timing, portfolio selection, hedging one's losses, switching stocks, investing in new products and much more."
HOW THE ECONOMY WORKS: By Edmund Mennis
Recommended by Dave Colletti:
"This book covers a vast amount of subjects concerning the economy. Every investor should know how our economy relates to the stock market and our investing and trading."
THE ALL SEASON INVESTOR: By Martin Pring
Recommended by Dave Colletti:
"This book explains a variety of successful strategies for every stage of the business cycle. The business cycle is a very important part of timing the moves and direction of the stock market."
The next list is for more advanced traders.
JAPANESE CANDLE STICK CHARTING TECHNIQUES: By Steve Nison
Recommended by Dave Colletti:
"This book has everything you need to know about Candlestick charting. If you are interested in learning Candlestick charts and formations as a short term trading tool, look no further than this book."
TRADING CLASSIC CHART PATTERNS: By Thomas Bulkowski
Recommended by Dave Colletti:
"This book covers most trading patterns and explains the statistical chances of each pattern being successful. Includes a scoring system for each pattern. Whether you believe in the probabilities in the book as they relate to each pattern is not important. The patterns themselves are the heart of the book in my opinion."
OPTIONS AS A STRATEGIC INVESTMENT: By Lawrence McMillan
Recommended by Dave Colletti:
"This book is pricy but it’s a super book. If you have any desire to learn stock options, this a must read. Stock options have very high risks and should not be traded if you are a beginner"
THE ENCYCLOPEDIA OF TRADING STRATEGIES: By Jeffrey Owen Katz and Donna L. McCormick
Recommended by Dave Colletti:
"Probably the most advanced book I have every read on the subject of trading. Very complicated reading but once understood, you will learn what methods work and what doesn’t. Skip this book if you are a beginner. If you think you know everything there is to know about trading, you haven’t read this book yet."
Knowledge is the key to be successful in the stock market, but which books should you read? There are thousands books available on every aspect of stock trading - and not all are created equal. The following recommended readings are what we feel are the truly great books available on the each subject. We hope you will find them as useful as we have.
REMINISCENCES OF A STOCK OPERATOR By Edwin Lefevre
Recommended by Dave Colletti:
"A story based on the life of legendary trader Jesse Livermore who was famous for being short the market just before the 1927 crash and made over 100 Million dollars while 99% of all investors lost their life savings. A truly fascinating story and after reading it, I was a believer that timing the market and individual stock moves can be done with great success. My journey into the world of TA began after reading this book."
THE MASTER SWING TRADER by Farley
Recommended by Alan Maxfield:
"The Master Swing Trader is not for beginners, and is a difficult read from cover to cover. But I constantly refer to mine, and I have it highlighted throughout with the margins all marked up. It is very technical but also very thorough. More than any other book this one is responsible for my quest for perfection in my trading systems."
HOW TECHNICAL ANNALYSIS WORKS by Bruce M. Kamich
Recommended by Dave Colletti
SECRECTS FOR PROFITING IN BULL AND BEAR MARKETS by Stan Weinstein
Recommended by Dave Colletti
STICKY STOCK CHARTS : Learn How to Manage Your Stocks -- In an Hour or Lessby Laurence Holt
TOOLS AND TACTICS FOR THE MASTER DAY TRADER by Velez & Capra
Recommended by Alan Maxfield:
"They have written the perfect book for the beginning trader or the trader who is struggling and needs to get back to the basics. They cover trading psychology thoroughly and offer an excellent introduction to basic trading systems."
TRADING FOR A LIVING: by Alexander Elder
Recommended by Alan Maxfield:
"I think he’s the best author I’ve read as far as being able to put a master trader’s mind to pen and paper. He’s a brilliant man who will help you to sharpen your trading instincts and develop an effective trading plan. Trading For a Living is easy to read yet very thorough in its instruction."
TECHNICAL ANALYSIS OF THE FINANCIAL MARKETS: By John Murphy
Recommended by Dave Colletti:
"A must read. Technical Analysis is the heart and sole of my trading style, it doesn’t always work but it sure works enough of the time to make very profitable trades. If you trade on T/A, this book is a must."
TECHNICAL ANALYSIS OF STOCK TRENDS: By Robert Edwards & John Magee
Recommended by Dave Colletti:
"For 50 years, this classic has remained the bible on technical analysis. It explains every aspect of charting from basic principles to advanced trading techniques. I love this book."
ELLIOT WAVE PRINCIPLE: By A.J Frost and Robert Pretcher
Recommended by Dave Colletti:
"A clear and easy to understand discussion of the Elliot wave theory. Readers are shown how they can apply the theory to forecast market and stock direction. If you want to study 'the wave', surf through this book."
MARKET WIZARDS: By Jack Schwager
Recommended by Dave Colletti:
"Interviews with some of the world's top traders. A very enjoyable read. It’s like talking to the best traders in the world right in your own living room."
THE AMAZING LIFE OF JESSE LIVERMORE By Richard Smitten
Recommended by Dave Colletti:
"Jesse Livermore is considered by many on Wall Street to be one of the greatest stock market traders who ever lived. This book is about Jesse Livermore's life. It was written after interviews with Livermore survivors and witnesses to the events which took place during his life. A Wall Street classic."
THE BATTLE FOR INVESTMENT SURVIVAL: By Gerald M. Loeb
Recommended by Dave Colletti:
"A timeless classic first published in 1935, this book remains one of the most popular handbooks on investing. It covers such essential topics as market timing, portfolio selection, hedging one's losses, switching stocks, investing in new products and much more."
HOW THE ECONOMY WORKS: By Edmund Mennis
Recommended by Dave Colletti:
"This book covers a vast amount of subjects concerning the economy. Every investor should know how our economy relates to the stock market and our investing and trading."
THE ALL SEASON INVESTOR: By Martin Pring
Recommended by Dave Colletti:
"This book explains a variety of successful strategies for every stage of the business cycle. The business cycle is a very important part of timing the moves and direction of the stock market."
The next list is for more advanced traders.
JAPANESE CANDLE STICK CHARTING TECHNIQUES: By Steve Nison
Recommended by Dave Colletti:
"This book has everything you need to know about Candlestick charting. If you are interested in learning Candlestick charts and formations as a short term trading tool, look no further than this book."
TRADING CLASSIC CHART PATTERNS: By Thomas Bulkowski
Recommended by Dave Colletti:
"This book covers most trading patterns and explains the statistical chances of each pattern being successful. Includes a scoring system for each pattern. Whether you believe in the probabilities in the book as they relate to each pattern is not important. The patterns themselves are the heart of the book in my opinion."
OPTIONS AS A STRATEGIC INVESTMENT: By Lawrence McMillan
Recommended by Dave Colletti:
"This book is pricy but it’s a super book. If you have any desire to learn stock options, this a must read. Stock options have very high risks and should not be traded if you are a beginner"
THE ENCYCLOPEDIA OF TRADING STRATEGIES: By Jeffrey Owen Katz and Donna L. McCormick
Recommended by Dave Colletti:
"Probably the most advanced book I have every read on the subject of trading. Very complicated reading but once understood, you will learn what methods work and what doesn’t. Skip this book if you are a beginner. If you think you know everything there is to know about trading, you haven’t read this book yet."
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