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Lessons from the Pros

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A Smart Trading Group, Getting Smarter

Tue, Oct 13 2009, 10:09 GMT
by Sam Seiden

Online Trading Academy

I can always tell how much someone knows about trading and markets and how well they are doing by listening to their questions. With each new year, questions, in general, have become more and more intelligent which means the competition is getting stronger. Recently, some important questions have been sent to me by Online Trading Academy students. For your benefit, I thought I would share them and the answers with you in this piece.

Good Morning Sam,

This AM I took 2 trades a minute into the open as both hit lower levels while the S&P had a big green candle. I managed the trade moving the stops to 2:1 and exited when the corresponding ETF was .10 away from a 60 minute zone. Made 3:1 & 5:1. But both stocks had not hit their respected 60 min zones and did so when the SPY and S&P hit their 60 min zone. The ETF went thru its zone to a previous premarket high. Was I too impatient or is this a shoulda/coulda?

Thanks,

Barbara

Sam –

Nice trading, Barbara. It sounds like you stuck to your rules and had two very nice trades but are wondering if you could have gotten more profit out of the trades. First, it looks like you took these trades very early, near the open of trading. This is a smart move so long as price is opening into a demand or supply level; sounds like that was the case. This is most often when prices are at levels where demand and supply are most out of balance. You took your profits because the sector/broad market was nearing a 60 minute level; this is also a smart move. While price ended up going past that level offering you more profit, I would still say you made the right choice by sticking to your plan. Take a moment and realize how powerful your plan is as it gave you 3:1 and 5:1 payouts that morning. If you never did any better than 3:1 and only had winning trades 40% of the time, you would be making a fantastic income; almost any trading institution in the world would hire you right away. Could you have gone for more gain? Sure. However, that action would also likely hurt your gains and invite more losses. You're trading supply and demand and catching the moves. No one will ever get the entire move, all the time. Great job and have a nice day.

Sam,

I was in the Sunday Forex XLT yesterday. I took the long position on the GBPCHF that we reviewed in class. I took 2 contracts and was happy to find myself up about $2,800 at 6:00 am Tuesday morning. The only negative with the GBPCHF is that I entered the trade at about 7:00 pm with a market order and got about 10 pips slippage. The price hit my level and started back up. I continually tried to get in with a limit order and could not get filled so was forced to use market if I wanted in. Still the trade worked out great. Thanks for the class and for pointing out the setup on the GBPCHF because usually I don't look at any but the majors.

W. Jones

Sam-

Nice trading. Slippage will occur sometimes for two reasons. First, you're trading spot Forex. Taking the proper XLT entry that you took meant you were buying at demand when price was about to turn higher. This means that the broker who is on the other side of your trade had to sell at demand and they don't want to do that; they know they will lose. Therefore, they are going to make sure they sell to you (for your long entry) at a price that ensures they will not lose. The second reason is because this is not one of the "major" markets and slippage is more likely to happen in this group as it can be a bit thin. Great trade and profit while you were sleeping. Using the technology to set and forget your trades is so important. It means you don't have to sit in front of your computer all the time and it also takes the human emotion out of trading which is key.

Good morning Sam,

In an XLT you mentioned that if there is a price turn with volume in the morning session, you'd play that level every time. This morning price rose to 1052 and turned south. That price turn honored RBD from yesterday afternoon. As price rose back towards that 1052 level again at 9:15 am, would you look to short that level? If yes or no, could you explain why?

I opted not to because the move was so small but I just want your thinking on this.

Thanks so much,

Tim

Sam-

Either I misspoke or you heard me wrong. Understand that the most significant turns in price happen with low volume most of the time. While the trading books suggest high volume at price turns; I disagree for a logical reason and because I have watched and traded the markets for so many years. The logic: Price turns at price levels where demand and supply are out of balance. The most significant turns in price happen at price levels where demand and supply are most out-of-balance. The more out-of-balance demand and supply is at a price level, the fewer the trades you will get, hence, low volume. Price spends the least amount of time at levels where the imbalance is huge; again, the volume will be low in this case. So, I look for lower volume turns as that suggests a larger imbalance of willing demand and supply.

Hello Sam,

My name is Jermal, I just want to start of by saying that I have listened to all of your lessons on FxStreet over and over again. I've been trying to tame this FX market for about two years now with no luck. I've been funding somebody else's account. But with your way of teaching, I really feel like I understand now; but my problem is I'm having trouble entering the market. First, I go to the daily and mark down levels to make sure that I'm not running into any larger time frame levels, then I go to the 30 min to set up my trades for the day, and finally, to the 5 or 15 to enter once the market hits a 30 min level - but I'll get the go ahead signal on the 5 or 15 and hesitate. I'll start thinking what if my levels are wrong? Any advice would be greatly appreciated. Thanks.

Sam-

Thanks for the honest email. Trading is a very emotional career, if you let it be that is... I wrote an article about 3 or 4 weeks ago entitled, "Losing to Win, It's All In Your Perception." This piece should really help with the issue you speak of above. The answer you're looking for is to know whether the level (trade) is going to work or not, before the trade happens. Obviously, we don't have crystal balls and there is no certainty. Once you realize this, and I mean really get that concept, your mind will quickly shift into a mode of searching for "better odds." Have a rule-based plan that stacks the odds in your favor and then simply execute. Today, even that is easier with the ability to set and forget your trades with technology.

Hi Sam,

I had my best day ever today – unfortunately, I was only trading 10 shares at a time but at least it's real money.

BBBY Long at 39.75, out at 39.97 – profit/share 22 cents

BBBY Short at 39.99, out at 39.93 - profit 6 cents (Shouldn't have taken this one – target too close but it did work out)

BBBY Long at 39.97, out at $40.17 – profit 20 cents.

Total on BBBY = 48 cents or $480 – that would work for me as a day's income, especially in 1 hour.

Also:

QLD: Buy: 52.18, sell 52.43 – profit 25 cents

So that's $480 + $250 = $730 if I were moving 1000 shares instead of 10!

Any suggestions on how to scale up, Sam? For me, it's much harder with 1000 shares – I am more likely to get nervous!

Anyway – thanks so much for your part in helping me.

Keith

Sam-

Nice job! You're obviously seeing the levels and also executing properly. The issue is fear of moving to larger size. This is very normal. Don't move from 10 to 1000. Instead, move from 10 to 100 and make sure you are rule-based. One of the biggest issues losing traders have is they scale up too fast. Often, that is a recipe for complete failure; I have seen that happen. Because you made such a smart choice in trading 10 shares during your development process, you are very likely to handle the scaling process well, also. If and when you move to 100 shares, please keep me posted. This is a process. Those who take your proper development action with position size typically get paid from those who don't. Lastly, be happy with those profits. The next time you go to Starbucks and order that fancy latte, keep in mind that the person on the other side of your trades paid for it.

Keep those questions coming! This road to self-empowerment in the financial world is a marathon, not a sprint. There are no cutting corners or shortcuts if you want to succeed. Astute market speculators are the ones who asked the right questions, both to themselves and to the right people. When you get an answer, make sure the answer makes logical sense to you and also make sure it's a simple answer. If it doesn't make logical sense and it sounds complicated, it's not the answer you need.

Published on  Tue, Oct 13 2009, 13:24 GMT