Need a new strategy

Hi Folks,

 

I need a new strategy to trade for income (I know I've only been doing this for ~4 months but unemployment benefits aren't going to last forever but I figure I'll solicit some feedback now before the 11th hour).

 

Some of you see me in the BF, where I camp out all day and try to stick and move with Kunal's and SG's picks. They are really good with their picks, to the point where I think Kunal may be a little psychic. I get some booms (I almost typed "boobs") too but I think there's something wrong with my trade management skills.

 

Here's my dilemma: I'm busy all day in the BF. Kunal and SG tell us their picks and I look at the charts and I make my trades, and I watch, and I watch. I probably trade 80% of Kunal and SG's picks per day, so maybe I do 5 trades a day. A couple of them break out and I'll easily make 5-10% in a relatively short period of time. My problem is that at the end of the day, I'm still breaking even. For the other trades, I stop out a lot. 

 

I've received advice before that my stops are too tight -- I was setting them at 3% trailing stop but I recently switched to using hard stops at support levels, which is working a little better for me, but the whole reason I set them at 3% was because I wanted to only lose 3%, and now that I'm setting them at support levels, sometimes I lose 5% or 7% or wherever the support level is. Also, what I'm seeing is that the stock will drop, I'll stop out, and then the stock will climb back up to support and break out from there (arg!)

 

I read in one of my trading books that professional traders actually make more bad calls than good calls, just that their trade management minimizes their losses and maximizes their gains -- this is through the use of stops, conditional orders, bracketed orders, etc. I feel like I'm doing more or less the same thing, but at the end of the day, when you let 3 or 4 trades stop out at 3%, 5%, 7% etc, it all adds up, which is why I'm only breaking even at best, even given a few booms.

 

Sometimes it's frustrating because I'm feel like I'm busy as a squirrel all day long, trying to get a nut -- reading the charts, asking questions, soliciting opinions about X stock, reading the news, checking against Twitter, etc.. and at the end of the day when SG and others post their profits, they're way in the green, and I'm still out flat. 

 

I know a day where "I don't lose money" is still a good day, because it means I've earned myself another day that I can stay in the game and learn how to trade, so I don't mean to sound like I'm rushing the process or that I'm ungrateful for this opportunity to learn and trade with my colleagues. I love and have fun with them, and I'd be in the BF with them whether or not I was making money.

 

My trading books tell me a lot of fundamental information, "fundamental" as in building a foundation for good trade practices, but I think I need to move onto a book that provides trading strategies in detail. In the mean time, does anyone have an opinion on what I am doing wrong? 

 

Thanks in advance!

 

Meemster/Mimi 

Hi there..

 

It could be a combination of things -- but it sounds like overtrading to me.  Maybe what you should try is limit your trades to 1 a day, or swing them a little longer.  Overtrading rarely works out in my opinion, would love to hear others opinions on this.

 

 

Hey Mimi,

 

It does sound like you are over-trading a little bit. Although I am a fairly new trader (1 year), I think I have finally gotten to a point where I can consistently be profitable (no losing weeks this year, knock on wood), which is part due to my experience watching price action and volume, but also the rules that I trade by (keep in mind I am a day-trader before a swing trader, and I will close most of my positions by the end of the day):

 

- Only make trades where the reward is at least 3 times greater than the risk. Sometimes if the day is really boring we will make trades we shouldn't be making. Instead be patient and wait for the right set up.

 

- Use a tight stop. If your trade idea is good, then you should not be losing more than a couple percent. And always have a "oh shit" level (that term is from @geckler's webinar). If you're using a mental stop which you didn't execute, never let the price go below your "oh shit" level. Sell and move on to the next trade. For swing trades maybe loosen the stop but still have that "oh shit" level in mind.

 

- Get the best price possible. If something is breaking out and you're late, do not chase the price. It will come back down. Some of my favorite trades are buying right at support, or at the low of day, then setting my stop right under support or the low of day. So the risk is tiny. An example would be my buy of NBG on Friday one penny above the low of day at $3.66, had a mental stop at $3.64, but the price almost immediately bounced (I was watching volume), and NBG ended up having a high of day of $4.10. So an upside of 0.44 with a downside of 0.02. (I sold way too early though, my selling is the worst).

 

- Price action and volume are your best friend! Get as much screen time as you can watching those two because when you're trading low volume/low float stocks even a small seller can tank the price and you will get stopped out. But if you watch the volume you can adjust your mental stop or play the bounce. I have been watching RODM this whole week and every time some small seller tanks the price shoots back up.

 

I hope these points can help you out, I know these have worked for my style of trading, which is mostly day-trading where i'll hold anymore from a few minutes to a few hours. If I think of anything else i'll add it. Good luck!

 

Stop placements differ greatly depending on the trade.  If im swing trading I could have my stop anywhere from 1-10% away as Im putting stop under a major support area.  For my IRA swings my stop might be even greater as Im building a position and put my stop under a huge break level.  

 

Daytrading is much different as ur timeframe of the chart ur looking at is different.  For swingtrades we might be looking at a 3 month or 6 month chart.  So the stops are going to be put under a support area on a daily.

 

For daytrades I am usually looking at a 3 day chart with 5 minute candles.  Also a 10 day chart with 30 minute candles to get a general direction on intermediate time frames.  Obviously if ur looking at a 3 day chart ur stop under support is going to be a much smaller percentage as ur trading a very small time frame.  That means ur gains are going to be much smaller too.

 

Part of your mixup might be that ur stops are too tight on swingtrades (3%) and too loose on the daytrades.

 

Also be mindful of when we are trading breakouts.  A play that is a breakout if the breakout fails we unload the stock.  Breakouts are played different than swings or pullback trades (which we are buying near support)

 

On friday we traded PEIX and PSID  3 seperate times for 7-10% gains.  These were daytrades.  On these stocks my stops were extremely tight within pennies of the buy.

 

Peix we bought at 1.91.  I for this stock didnt look at its chart on the intraday or the daily. but I could tell the way the ticker was blinking and just the way it was nudging up that it was going to bust out.  My out on this stock would have been 1.89 or so. Minimal risk but high reward as the initial target was 2 but we knew if it got past 2 it was going to run to 2.10 or so.

 

I know the info is a bit jumbled.  Just be cognizant of whether its a swing, ira play, daytrade, breakout, or a play where we are building a position and requires multiple buys.

 

Also ur commisions might be cutting into ur account in relation to how much capital u put in each trade.  

 

5 roundtrip trades at 7 dollars a trade is 70 bucks in commisions.  5days a week x 70=350

 

50 trading weeks=17500 in commisions.

 

Basically if your trading a 25k portfolio you need to double your money 100% gains just to make back commisions and taxes.

 

What I will do for the premium guys is on a video log do a trade review that goes over the chart of what I saw how I knew it would go and where I put the stop on $psid since we traded it twice.

 

 

Tough call here....you are asking for the "secret" ingredients every person seeks when they wish to become a trader.

 

1.commissions -get that in check   

2. market timing --learn to trend trades to find common denominators in the success/fail rates    

3. not sure what book you read, but if I lose more than I make or trade more losing trades than winning trades, I won't be able to make a living  --the key is to know how to remove, repair or adjust trades     

4. I can't live off 5% to 10%  --I would be happy with those returns for growth, but I need income. And unless I have a fat bankroll, 5% to 10% 

5. Suggest you look for bigger return trades -- scalping without a sizable position is merely scraping, in my opinion, unless one is in the education phase.

6. I am not sure you gave yourself enough time to make this your living. If it's your deadline, I understand, but you'll be doing a miracle that thousands and thousands cannot do.  (following an experienced trader/s will probably be the lifeline here)

7. Might want to consider options --especially our proteins 1k trades to produce consistent income. I'm a fairly good stock trader --I'll stack my skills up against anybody.....but even I can't produce the money I need with just stocks. I can create a heck of a growth account however. I need the leverage options provide. 

 

 

All great replies, thank you! Next week I'll start paring down my number of trades to the ones with most upside potential, and being more discerning about where to place my stops depending on what kind of trade it is (I think this will make a big difference, thanks for being so thorough Kunal with your advice). Will also look into getting my feet wet with options once I'm comfortable with day/swing trading. Think I've wrangled in the commissions by using my margin account at OptionsHouse.

 

Thanks again, Bulls. Although we heard from the Traders, I'd love to keep this thread open in case anyone else wants to share strategies that work best for them.

 

 

 

very true chris very true.  for most new people instead of focusing on having an up day.  the key is to view a week as 1 day. focus on having a green week instead of a red week.

 

once u nail that then u can make ur timeframes smaller.  nice observations more on this later.

Reply: I want to share with you my trading plan and so far its been working out for me... As soon as I have earned something during the day, I start to reduce my position size on new positions and setting very tight stops on any positions that are still open to protect my profit for that particular day.  My daily goal is to earn $500 and when I come close to that amount, I have to do my best to protect that profit because I have experienced days when I'm up $500 and end up losing $1K because of greed.  I don't want that to happen anymore.

 

My trading day will be something like this... buy the stock picks of kunal, SG, (usually kunal because SG is more of a swing trader) and I automatically book the first $100 gain I get.  It doesn't matter to me whether the stock has more room to go because what I've noticed is that there would be times where I see myself having the chance to book a $ 130 profit only to find myself at breakeven point after 5 mins.  If I bought 1K shares of $XYZ at $5, most probably I will sell it at $ 5.10 if it gets there.  My logic is that if it goes up then "at least I profited from it."  If it goes back to $5 then I get the chance to buy it again and have the opportunity of selling it again at $ 5.10.  

 

When I get to $500 I almost stop trading because again from my experience I tend to lose it very fast.  And if I do trade, I usually buy 1/4 of my usual position size just to make sure that if the trade goes against me I won't lose my gain for the day.  I just have to constantly remind myself of these things:

 

1. There's always something to trade everyday.

2.  I will not run out of good trades.

3.  I always remember what Cooper said in one of her blogs that "The more money in your account just means that you have more to lose."  

4.  I have wasted tons of money in the past becuase of greediness and overtrading

5.  I always remind myself that if I earn $500 a day (net of commissions), that will be a 6 digit income every year on daytrading not including BOWS swing trade picks.

6.  I just have to be CONSISTENT.