Why Setting Stop Losses Can Save You

Stop loss in a trade is very important as it will help you to minimize losses when the market moves against you. When trading always put a stop loss as sometimes market may make a very fast and furious turn against you. An example was one of my trades that turned against me while I was not actively looking at the market.

In this trade, I had a short in GBPUSD with a very good entry. I was expecting a breakout from the consolidation but it never happen and market moved against me while I was away from the market in the day. The stop loss saved my trade from bigger losses as it went further up. What happens if one never put stop loss on a trade? Heavy losses of course! Hence the lesson every starting trader is to have stop loss! Never have a trade without stop loss!

Demo Trading: Why You Should Always Demo Trade

You just created a new trading account or you were trading live already but things are not looking well for your account. Hence what is the reason you were failing? Was it due to emotion or lack of experience or bad trading strategy? One way to look back is to demo trade.

Demo Trading

Demo trading allows one to get used to the broker's platform and also allows you to train and hone in your trading skills as it carries no risk of losing your real money. I recommend new traders to demo trade for a period of time before starting your real trades. Once you can start making consistent profits on demo trading, you can shift to the real trades. Do take note that entering the real battlefield of trading after your demo trade is totally different as you are trading real money and most likely you will be subjected to your emotion. So do not assume that once you are consistent on demo, you will start making big money on your real trades.

Demo With Live Trading

Another way of trading for those who are already trading live and still refining their strategy is to demo trade while you trade your live trades. That means have your demo trades mirror your live trades vice versa. In this way you can somehow manage your emotions better and also see how well your strategy is working. With demo trading, you can also test the limit of your trades in a scenario of "what will happen if" even after you closed your live trades. With demo trading, you can also test your judgement on the market before you enter a live trade especially in consolidation situation.

Having A Trading Journal

Use a journal to track your trades so you can see your performance. One of the difficulty I have is being able to track my trades after closing as some broker does not give you much data to backtrack. Hence I found Myfxbook. It connects to your trading account and tracks your wins/losses and gives you many statistical data which allows you to reflect on your trading performance. It supports some of the popular brokers like Oanda and it is not a hassle to set it up.

Conclusion

Demo trading is a very useful tool in your trading journey and I do have to really recommend demo trading to all, newbies to learning traders as it will help you to grow well. Experienced traders can use it to try new strategies or to tweak their existing strategy without risk.

"Buy Up" And "Sell Down"

What does "Buy Up" and "Sell Down" mean when you see the "Time & Sales" column?

"Buy Up" is when trades by the buyers snatching up lots queued by the sellers at higher price. This will mostly result in the move up of share prices.

"Sell Down" is when trades by the sellers desperate to sell their shares to the buyer's lower price. This will mostly result in a move down of share prices

Mistakes You Should Avoid When Trading (Series)

Dividends

"A dividend is a payment made by corporation to its shareholders, usually as a distribution of profits."

One of the many mistakes people make is buying a stock just before its ex-dividend, merely for the sake of getting its dividend. Many people do this thinking that they get the extra money for the stock they bought, not realising that stock prices always drop on its ex-dividend dates.
In a bull market, the stock price may eventually recover to is pre-dividend state. But in cases of bear markets, your stock price will continue to get flushed down. Hence your losses will be bigger than your gain from the dividend.

Lesson: Do not buy a stock based on dividend payout at the last minute. Buy only when stock price is low to reap better dividend yield and capital gain.

The Secret Trading Strategy From The 1930s That Hedge Funders Don't Want You To Know About

"The large operator does not, as a rule, go into a campaign unless he sees in prospect a movement of from 10 to 50 points. Livermore once told me he never touched anything unless there were at least 10 points in it according to his calculations."

So writes Richard Wyckoff, the legendary trader who in the 1930s wrote a manifesto that gained him a cult following on Wall Street.

His 1931 book, "The Richard D. Wyckoff Method of Trading and Investing in Stocks – A Course of Instruction in Stock Market Science and Technique," is out of print and somewhat difficult to find these days (not impossible), but even in 2013, hedge fund managers still swear by it.

One of the key takeaways from the book is that if you want to succeed, you have to learn to recognize the professionals and understand what they are doing. That's what those who follow Wyckoff do — they watch the large operators.

Wyckoff walks us through the process of how a large operator will manipulate a stock up or down — so that next time one sees it unfolding on the screen before his or her own eyes, he or she can react accordingly.

First, some context: trading is a lot like any other merchandising business, and liquidity is important

flickr / MSVG

Wyckoff writes, "When you have learned to take a wholly impartial viewpoint, unbiased by news, gossip, opinions and your own prejudices, you will realize that the stock market is like any other merchandising business.

"Those who understand it buy only when prices are low with the idea of selling when they are high; and they operate only in the stocks or commodities which they can move best so they may secure the highest possible rate of turnover of inventories."

Source: Wyckoff (1937)

It takes a while for a pro to accumulate a position in advance of a big move – buying too many shares at once would cause the price to rise too quickly

AP

"The preparation of an important move in the market takes a considerable time. A large operator or investor acting singly cannot often, in a single day's session, buy 25,000 to 100,000 shares of stock without putting the price up too much. Instead, he takes days, weeks or months in which to accumulate his line in one or many stocks."

Source: Wyckoff (1937)

Instead, here's how he sets it up: first, he'll "shake out" the little guys by forcing the stock lower in order to get a better price

"He prefers to do this while the market is weak, dull, inactive and depressed. To the extent that they are able, he, and the other interests with whom he works, bring about the very conditions which are most favorable for accumulation of stocks at low prices...

"When he wishes to accumulate a line, he raids the market for that stock, makes it look very weak, and gives it the appearance of heavy liquidation by sending in selling orders through a great number of brokers."

Source: Wyckoff (1937)

Then, he will try to time the top of his planned price rise with some "good news" about the stock he may already know about

Barron's

Remember the saying, "Buy the rumor, sell the news"?

"You have often noticed that a stock will sell at the highest price for many months on the very day when a stock dividend, or some very bullish news, appears in print. This is not mere accident.

The whole move is manufactured. Its purpose is to make money for inside interests — those who are operating in the stock in a large way. And this can only be done by fooling the public, or by inducing the public to fool themselves."

Source: Wyckoff (1937)

So, let's look at an example of a typical market operation. Say a stock is trading in the $30-35 range and the pro sees it going to $60 soon...

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Source: Wyckoff (1937)

He's trying to pick up 50,000 shares, but it's too much, so he starts by taking as much as he can between $30 and $35

Wyckoff (1937)

Source: Wyckoff (1937)

When it gets back to the top of that range, he forces the price back down so he can pick up more shares for cheaper

Wyckoff (1937)

"Then he forces the price down to around 30 by offering large amounts of stock and inducing floor traders and other people to sell their long holdings or go short because the stock looks weak. By putting the price down, he may sell 10,000 shares and buy 20,000; hence he has 10,000 shares long at the lower prices of his range of accumulation.

"By keeping the stock low and depressed, he discourages other people from buying it and induces more short selling. He may, by various means, spread bearish reports on the stock. All this helps him to buy. When he is thus buying and selling to accumulate, he necessarily causes the price to move up and down, forming the familiar trading ranges, or congestion areas, which appear frequently on figure charts."

Source: Wyckoff (1937)

Using this method, the pro will accumulate a large enough position to effectively remove almost ALL would-be sellers from the market

Wykcoff (1937)

"Finally he completes his line. The stock now stands at 35, and, as he has absorbed 50,000 shares below that figure and other operators have observed his accumulation and have taken on considerable lines for themselves, the floating supply of the stock below 35 is greatly reduced. At 36 the stock is prepared for the 'mark-up.' It is ready to go up as soon as he is willing to allow it."

Source: Wyckoff (1937)

Then, he starts driving the price up to $60 by buying more shares – and he really ramps it up toward the end to coincide with the "good news" he is expecting in a few days' time

Wyckoff (1937)

Source: Wyckoff (1937)

Now, the pro has accumulated a huge position in the stock, and he needs to find someone to sell it to at $60. By now, people have seen the surge, and they think something's coming

Boiler Room trailer via YouTube

"The process of distributing calls for much publicity so that the attention of the public will be attracted to the stock. The rise to 50 started a whole crop of rumors. Brokers who are close to the bankers or the management of the company have been trying to find out what is going on to make the stock so strong.

"Insiders have hinted vaguely that 'something good is coming out,' and without knowing just what this expected favorable news is, the brokers have put their clients into it. Considerable outside public following has been gained during the rise. The market for the stock is broadening."

Source: Wyckoff (1937)

Then, the news hits, and the pro can instantly unload 20-30k shares as people rush in to buy

D-Mark / Flickr

Source: Wyckoff (1937)

To finish unwinding his position, the pro does the exact same thing he did at the bottom – he works that stock up and down in a range until he's sold it all

Wyckoff (1937)

"After this the price may recede a few points, but he, having sold a large part of his line, is willing to take a small percentage of it back at 57 to 56, and after this has been accomplished, and the activity has quieted down, he will mark the price up to 60 or 61 again.

"At that point he either turns seller, and markets the balance of his stock on the way down; or he works it up and down in a range of a few points from the top, till he has completed his selling."

Source: Wyckoff (1937)

Now, the stock is in "weak hands" – everyone bought it on bullish news after a ~$30 rally

YouTube / ETRADE Commercials

"The operator has now disposed of his entire line, and as the news is now known to the public and many people have bought and thus taken the stock off his hands, the stock may be regarded as technically in a weak position, for it is in what is called 'weak hands.'

"By this I mean it is held mostly by those who have bought at the top of a 30 point rise, when the news was bullish; most of these purchases being made on margin, the holders can be shaken out or tired out."

Source: Wyckoff (1937)

So, it's time to go short at $60! The pro can initiate a big short position, but fool people by putting on good-sized buy orders at $56, supporting the stock and inducing people to keep buying

Shutterstock

"The operator now sees a chance to make a turn on the short side, so while the market is in this range of say 56 to 60, and after he has completed selling his long line, he sells short, say 25,000 shares.

"In doing this he makes the stock swing back and forth over this range, keeping good-sized supporting orders in around 56 to fool the floor traders, the specialists and the public, who see on the floor and on the tape evidence of his support on the reactions. Thus they are led to believe the stock is going still higher."

Source: Wyckoff (1937)

Then, he pulls out the rug – canceling all his buy orders and leading a raid on the stock. That's how it's done – played in both directions

Wyckoff (1937)

"When the operator has sold all of his 25,000 shares short, he cancels all of his buying orders. The specialist in the stock then tells some of the more important floor traders that the stock is in a weak technical position and that there is no support for the next 8 or 10 points and they all get together and raid it down to 50, at which point the operator covers his shorts."

Source: Wyckoff (1937)

Read more: http://www.businessinsider.com/the-richard-wyckoff-stock-trading-method-2013-2?op=1#ixzz2gTwgJaf2

How To Train Yourself To Be A Better Trader

I got this inspiration to write this entry as I am also on the learning path to become a better trader. The reason I'm sharing this because this will be a good article for the beginners and experienced traders who still wants to learn and affirm their trading experience.

Today I'm going to share some plans that will get me to be a better trader. You can tweak the plans to suit your style as successful traders have their own style of trading.

1. Trade The Major Markets

One of the plan is to only concentrate the major markets for Forex. I like to trade just a handful of major forex pairs and Indexes. Most of the pairs include EURUSD, GBPUSD, AUDUSD, EURJPY, AUDJPY, GBPJPY, EURGBP, EURAUD, USDCAD, USDCHF and XAUUSD. For Indexes I like to trade DJ30, ITALY40, DAX, HSI and NIKKEI. Having just these major pairs are already enough opportunities for you to analyse and trade. You do not need to trade 20 - 30 pairs (that's crazy!) as many of exotic pairs are just too illiquid for trading. Stick to simple.

2. Demo Trade

Some traders just jumped into action without demo trading. That's as good as gambling and throwing money into the drain. One action a trader should always do is to demo trade, demo trade, demo trade. Demo trading is a good way to test out your trading strategy and gain confidence in trading skills. Till now I still demo trade on the side to tweak my strategy. Nowadays brokers are getting friendlier and are offering demo trading on their platforms. Some of my favourite platforms for demo trading are CMC Markets and Oanda. Oanda also offers MetaTrader platform which you can install into your computer.

3. Clean Up Your Chart

Having a clean chart allows better clarity in your analysis and planning trading strategy. Check out my article on trading with cleaner charts and also learn how to draw support and resistance.

These are a few technical tips to start your path to better trading. I'll be coming with Part 2 of this article soon. So keep checking for more updates!

Stop Trading With Messy Indicators

You are in the mid of your trading journey. You have read tons of investment and trading books, went for trading seminars. Each of these books and gurus telling you the many wonderful technical indicators like MACD, Stochastic, ADX, etc that gives you a signal that tells you to buy or sell. You thought: "Wow that's easy! Just wait for the cross or signal and the just execute the trade!" You started with one indicator. Oh, it doesn't work, you lost money even the signal is correct but the markets just turned against your favour. You started to ask: "Hmmmmm, this indicator seems to be not working." You then add another indicator to make your chart reading more accurate. Again it doesn't work. Soon you will be adding more and more indicators until your chart looks so "professional". Still your trades are not working and you find yourself slower than the rest of the market.

STOP USING INDICATORS

Indicators are useful for novices who are just starting their trading journey. It's because they have no idea how the market behaves and moves. And these indicators provides them with some info on how to trade. However as one progresses, indicators are not entirely useful at all. There are a few reasons for it:

1) Technical indicators are all lagging the market. Even so called leading indicators are lagging as they need to wait for market data.

2) Technical indicators encourage you to stare at the chart all day. Staring at the chart all day will screw up your thinking and make emotional trades when they fail to work.

3) Technical Indicators take up space in your chart and makes it look messy. 

4) The best traders seldom use technical indicators. Enough said.

The Zen Chart

How does your chart looks like? Does it looks like a complex state of chart that looks like something coming from Einstein, or the zen-like state of simplicity?

This is what a typical chart full of indicators. Taking up spaces in your workspace preventing you from reading a good chart.

This is what a clean chart will look like. Can you spot the turns and movement clearly?

Cut Down Your Indicators

Start removing indicators. Start to read charts in their raw unprocessed state. Start reading about support and resistance. You will find yourself to start reading charts and movement better. Good luck and Happy Trading!

Top 5 Mistakes Traders Make

Market is always volatile and dynamic. Some mistakes can really make a dent in your trading account. Here are some of the top mistakes traders make and I'm sure most of you and I have made before too.

1. Trading too big or over trading. Though it may provide huge rewards when you are right, large losses can quickly dwindle your trading account.

2. Revenge trading. Going back to action after a heartbreaking loss most likely to result into emotional trading and more loss.

3. Being emotional while trading. I admit, it is difficult when prices are hovering so near to your stop loss or profit target. Best to look away or close your position and relax.

4. Trading someone else's trading strategy which you have no idea how it works. Learn, break it down, understand and assimilate into your own trading style.

5. Straying from the trading plan. Just like moving your stop losses further away, ending in bigger losses. Stick with the plan unless your gut feeling tells you something is wrong.

Price Action: How To Draw Support and Resistance

In market movements, prices move according to demand and supply. There are certain points where prices seem to bounce off. These are called the support and resistance points.

In this lesson we are going to learn how to draw simple support and resistance lines.

There are two ways to draw your support and resistance:

1. Drawing the line exactly at the high/low of the bar.

2. Drawing in-between the shadows of the bar.

The first is usually the basic where it will show simple points of support and resistance. As markets are not always exact as banks will try to flush you out of your stop-loss, there will be instances where the shadow of the bar will extend out of their support or resistance. Hence we will look at the middle points where the line is in-between those shadows of the bars.

Drawing support and resistance can take quite abit of skill and practice. But it is the basis of price action trading where you'll see areas of price reversals. The higher the timeframe, the stronger the resistance/support will be. Try drawing those support/resistance lines in your chart in different timeframes. You'll find some lines are far more significant than others. Hence you do not need to draw so many lines at all!

Till then, good trading to all!