Index of contents • Know When to Really Bet Your Hand • Cluster analysis and filtering • How to Handle a Losing Streak (everyone has them) • The Components of Trading Well • Placing An Order 2 • Swing Trading: Making $$$ in a Sideways Market • Placing An Order • 13 Different Market Orders and When to Use Each • "Pyramiding" – When and When Not to Do it • Know When to Fold ‘Em • Keep It Simple
Know When to Really Bet Your Hand (Van K. Tharp, Ph.D.) As I mentioned previously, one of my hobbies is playing poker and I can do it for free online. When I visit a casino and play poker, I usually make money. However, I used to have trouble making money when I’m playing with a lot of bad players. The problem is that they all stay with me and one of them often gets a good draw (because there are so many of them) that I get beaten.
The secret to overcoming this is to really play conservatively. Get out of every starting hand that doesn’t give you at least a 30% chance of winning the pot. And get out of the good hands that don’t develop well after you’ve seen three more cards...
Cluster analysis and filtering (Mark DiMaggio) Most all investors and traders long [no pun intended] for something to confirm their trading decisions. One idea that you may want to consider is to do your homework and determine where you would enter an investment or trade from a mathematical standpoint. There are many trading systems for sale that will give you numerical entries for a long or short position. A clever way to filter your trades is take a linear approach on the same market and use a longer-term time frame.
Once your trendlines or other linear work is in place you can then look for a cluster, or intersect if you will, of the linear work and the mathematical work via the trade system you bought or your own mathematical computations then you may have a much higher probability of success on the trade if you wait on that ‘intersect’ or ‘cluster’...
How to Handle a Losing Streak (Jim Wyckoff) A trader emailed me a while back, asking for some advice on a good money manager for him. He said he was a "lousy trader" and tired of losing money. I doubt there is one non-rookie trader reading this story who has not experienced at least a small run of poor performance in trading futures. I've said before that most successful veteran traders have more losing trades than winning trades in any given year. The key is maximizing profits on the winning trades and minimizing losses on the losers.
I will also argue that at one point or another in most traders' experiences, they, too, have felt like "lousy traders." I certainly have. (Those who say they have never had a run of poor trading performance or felt "lousy" about a trade or trades are likely either lying or completely out of touch with futures trading reality.)
The Components of Trading Well (Van K. Tharp, Ph.D.) I’m an NLP modeler and a coach for traders. As a NLP modeler, I find a number of people who really excel in something. Once I’ve found them, I determine what they do in common. And then when I’ve found the common tasks, I determine what beliefs and mental states are required to perform each task. Once I have this information, I can then teach the tasks to others and expect to get similar results. And my job as a coach is to find talented people and make sure they learn and follow the fundamentals.
I remember doing a workshop with Market Wizards, Ed Seykota and Tom Basso around 1990. All three of us agreed that trading consisted of three parts: personal psychology, money management (which I subsequently renamed Position Sizing in my book Trade Your Way to Financial Freedom) and system development. We also generally agreed that trading psychology contributed about 60% to success. Position sizing contributed another 30% which left about 10% for system development. Furthermore, most traders ignore the first two areas and don’t really have a trading system and that’s why 90% of them fail...
Placing An Order 2 (Mark DiMaggio) Today’s discussion will focus on the power of using divergence between London and New York, with respect to price divergence market session highs. Historical data seems to show over the years that when we see jolts up into new high ground on gold, during London trading, but then gap down the following morning in New York, followed by a negative settlement in New York, that mid-term tops are often seen. Naturally, if an investor had gold bullion or gold coins and was concerned with tax ramifications they may not be concerned with a short or mid-term top, whereas an investor with futures or options may want to capitalize on the pattern and take any profits they may have, thus allowing them to stand aside and re-enter the market at a later date, preferably on a pullback that was then confirmed by some highly reliable tools such as the neural network, VantagePoint.
Swing Trading: Making $$$ in a Sideways Market (Jim Wyckoff) "The Trend is Your Friend" is a tried and true market adage that is indeed one of the most valuable futures trading tenets. However, history shows that most markets tend to move in a non-trending, or "sideways" fashion more of the time than they are in a trending mode. There are several methods by which to trade non-trending markets. One popular method is called "swing trading."
The basic principle for swing trading is finding a market that is trapped in a sideways trading range (also called a congestion area), or in an up-trending or down-trending channel on the chart. On the chart, the trader must be able to distinguish some clear support and resistance levels that are boundaries of the congestion area or channel. When a market price approaches the support or resistance area boundary, the trader will establish a position: long if prices are moving lower and close to the support boundary, and short if prices are moving higher and toward the resistance boundary...
Placing An Order (Mark DiMaggio ) Today’s discussion will focus on getting your investment in position, or as some call it placing an order or trade. Let us address the issue of getting an order “filled.” Most traders will look at a quote source of some kind and then place their order either on an electronic platform or at an order desk. There are many options to placing an order, no pun intended, from the electronic platform where a trader keys in their own trades to a discount order desk where a “clerk” or broker takes your order, and then calls a central order desk on the floor to place your trade, or goes to a floor individual who gives attention to your order, then places it with either a “runner” or a floor broker who then holds the “paper” until the price is attained via the bid and ask, and endorses or fills the ticket.
The electronic platform is potentially risky for some investors, as there are horror stories about traders that “fat-fingered” their trade entry or exit order touching the keys one too many times and ended up placing a “100” lot instead of the “10” lot order that they intended to place. One error of this magnitude could literally wipe out days or weeks worth of gains. The discount desk is appropriately named, as you get just what you pay for, discount service, no expertise, phone calls transferred often, slow execution if at all with clerks and newly licensed brokers lacking the experience to handle the hard earned capital in your investment account...
13 Different Market Orders and When to Use Each (Jim Wyckoff) This feature on types of market orders, including stops, may be a "refresher" feature for the more experienced traders, and will likely be a more valuable feature for the traders newer to this fascinating field...
"Pyramiding" – When and When Not to Do it (Jim Wyckoff) A frequent question I get from less-experienced traders is: "Should I add futures contracts to my existing market position?" That's a broad question and there is no single right answer. So, let's break down the question into some scenarios.
First, if your trading plan calls for the "scaling in" to a trading position, then adding to an existing position would be prudent. For example, let's say a trader plans on entering a long soybean trade with three contracts. His first "leg" into the trade may be at $4.40, and the second "leg" at $4.60 and his third "leg" of the trade would be at the $4.80 level. Thus, if the market action plays out the way the trader expected in his initial trading plan, he would be adding to his existing position twice. Again, this trader is adhering to his initial trading plan...
Know When to Fold ‘Em (Van K. Tharp, Ph.D.) One of my hobbies is playing poker and I can do it for free online. When I visit a casino and play poker, I usually make money. However, when I started to play online with play money, I had tremendous difficulty making money. And that didn’t make sense to me because I knew that most of the people I was playing against were terrible. Why couldn’t I make money?
However, one day I read a poker book by a professional who said that he had the same experience in low-limit games in Las Vegas. He said that when he had a good hand, he typically had five or six bad players staying with him. One of them would typically make a very lucky draw and he would be beaten...
Keep It Simple (Van K. Tharp, Ph.D.) This applies to so many things in life and it also applies to anything you might do in trading or investing. Keep things simple.
Your mind only has a conscious capacity of about seven chunks of information. You cannot hold anything more than that in consciousness. Have someone give you a series of 10 two-digit numbers and you’ll probably find that you have trouble remembering more than five of them because of this limitation in capacity. If you attempt to do complex things with the market that require you to use more capacity than you have, then you’ll probably fail...
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