Trade Aptitude
Results of Tuesday’s Best S&P Futures Turning Points: Buying 4577.75 stopped out.
Today’s Best S&P Futures Turning Points (consider wider stops and less size in fast moving markets):
Buy 4551.75 stop 4547.25. Short 4595.00 stop 4599.25.
The World Sentiment Index: (+100/-100) jumps from -14 to +14 in a world of mixed sentiment and low volatility.
Catalysts: Nothing on the economic calendar. Not many earnings releases but mostly positive results this morning. The BIG event is $2+ trillion in options expiration coupled with a rebalancing of the Nasdaq 100 for Monday’s open. Volatility should be high.
Quick Tip: Newbies Only Part 5
This is a multi-part process. If you didn’t read the prior four newsletters you can find them here.
Yesterday you chose your primary asset class to be trained in, stocks, options, futures, or Forex. During that training you’ll likely be learning a rule-based trading strategy.
The best way to get started trading is to have specific rules to follow. Entries and exits. Position size. Risk management. All these rules combined are your strategy. Eventually you’ll have more than one strategy but to start it’s better to focus on one.
Strategies can be lumped into three basic styles. Trend Following, Mean Reversion (reversal) and Breakout (momentum). There are many variations of these styles and even more styles, but these are the most common.
The purpose here is not to describe in detail all the strategies, it’s to give you a high-level view of what trading them is like so you can find the educator that teaches the style you’re interested in.
Trend Following is popular and highly effective. As the name implies, you’ll be looking to enter a trend and remain in the trade until it ends. There are some issues that may not resonate with your personality though. First, price doesn’t trend most of the time, it moves in ranges more often. This means you’ll likely have around 30% of your trades win and 70% lose. The winners will be large enough to cover the losers and earn you a profit. Because the losing streaks can last a while, it’s best to trade multiple assets so that your combined results are tolerable. If that frequency of losing doesn’t bother you then Trend Following is a good choice.
Mean Reversion, or reversal trading, attempts to locate turning points where the price move is exhausted and will likely return to the mean (average) of its history. This too is popular and highly effective. Since price bounces back and forth in ranges more often than trending, you’ll see a higher win percentage. However, you’ll need that because your wins will not be as large as trending wins. If you feel better to win more often even though they’re smaller than reversal trading is a good choice.
Breakout, or momentum trading is like Trend Following in that you’re expecting price to trend for a while but differs in its exit. While Trend Following waits for the end of the trend and therefore gives back substantial open profit, momentum traders will use chart patterns and technical indicators to exit when the momentum gets weak. If you like to follow and analyze your open trades this is a good choice.
For a thorough understanding of all the styles of trading you’re encouraged to read any of Jack Schwager’s Market Wizards series of books. He interviews top traders and discusses with them how they trade. You’re certain to find a style that resonates with you.
Next is risk management. Job #1 if you’re going to survive and thrive trading.
if you want help getting through the process from a team of skilled traders, join ours, learn several strategies, and watch us trade live daily. Money back if you’re not blown away! Click here for details.
Trade Fearlessly,
Mike Siewruk