What are MACD, Stochastics ?
- Moving average correllation/deviation
- Non-deterministic (ie not governed by inputs)
How many weeks of the year are tradeable, eg christmas, holidays etc.
- say 48
Why not set a 0% stop loss on every trade?
- because the market could slightly downtrend
- Can you build an incremental system, ie earn 100 then stop, earn 200 then stop.
- How long to achive statistical significance for back,paper testing ?
- How can you identify the trending markets?
- with a number of input signals (MACD, RSI, Bollinger bands)
= Action points
Get a trading journal (or keep a blog)
- why do you want to trade?
Confirm that the $25k NYSE pattern rule does not apply to:
- non-margin (cash) a/c’s
Don’t set daily targets when you trade. In order to make
money, two conditions have to be met:
1.) YOU have to be ready to trade.
2.) THE MARKET must be ready to be traded.
There will be days when YOU are not at your best (sickness, emotional
stress, no time because of an emergency, etc.), and there will be days
when the market is not ready to be traded (e.g. holidays, including the
days before and after holidays, days before a major news release, like the
Federal announcement regarding interest rates or the unemployment re -
It’s important to start small and set a weekly goal for only ONE contract,
or 100 shares. This goal should be LOW, very low, so that it is easy for
you to reach it.
Then keep raising the bar
> like it: incremental learning
You can’t avoid losses
STOP TRADING when you’ve reached your target!
If you have a stop loss 50% of your profit target, you only need to succeed in
50% of trades.
> Does this mean if you have a stop loss of 25% you only need to win 1 trade out
Daily targets create psycological pressure
> is this relevant to a FATS?
full-service brokers offer advice & reports, discount brokers just fulfill orders
Developing a Trading strategy
- Selecting a Market
- Selecting a Timeframe
- Selecting a Trading Style
- Defining Entry Points
- Defining Exit Points
- Evaluating Your Trading Strategy
- Improving Your Trading Strategy
start with small capital and then move up to larger capital when
you’re comfortable enough with the market.
When trading a market, we want to ensure that we receive
quick and accurate fills for our orders, and also that a large
order placed by a market-maker or broker does not move the
market in an erratic way.
It’s easier to trade a market that’s either going up or going down.
Currently there are more than 10,000 stocks available on U.S. stock exchanges.
- Around 900 stocks have an average
- daily volume of more than 2,000,000 shares traded,
- and more than 600 of them are traded with over 3,000,000 shares
- per day.
- If you focus on these stocks then you won’t have a
- problem with market manipulation or slippage.
Stock markets are volatile:
- DJI avg movement of 1-2%
- stock prices can vary from 2-8% on the day
- Futures are standardized contracts among buyers
and sellers of commodities that specify the amount of a commodity, the
grade/quality, and the delivery location.
Stock option: the right – but not the obligation -– to
buy (call) or sell (put) a specific underlying asset at a prearranged price
on or before a given date.
- Low volume (liquidity)
- option prices are NOT subject to market manipula -
- tion since the value of an option is not determined by supply and
- demand, but by a mathematical formula created by Black and
- significant spread between the bid and the ask
Very high volatility
Day trading stock options is extremely risky and difficult, and not for the novice trader.
However, when selecting a very small timeframe like 1-minute, 3-
minute, or 5-minute, you might experience a lot of “noise” that is cause
by hedge funds, by scalpers, and by automated trading.
- Recommends 15 min charts to avoid algo & scalping noise
> Does this contradict his video advise to use movement charts
Selecting a trading approach
Fundamental analysis aims to study the CAUSE of market movement
technical analysis: use of charts, trendlines, support and
resistance levels, mathematical analysis tools, to predict future movements in a
stock’s price, and to help identify trading opportunities
opening price (O),
closing price ©,
absolute high price of the day (H)
absolute low price of the day (L)
- identify an uptrend (from input signals)
- buy with stop loss + profit target/cap
When should I enter?
- when there’s an uptrend
- at/near the top bollinger band (std dev from MA)
- macd + 30
- RSI + 70
When should I exit?
- when you’ve achived your profit target
support level is the low point in any chart pattern (hourly, weekly, or annually)
resistance level is the high or the peak point of the pattern.
- Trend indicators
- average price at a point of time over a defined period
- reflect the latest average, while adhering to the same time measure.
- they lag the market, so they do not necessarily signal a change in trends.
- to avoid too long a lag, use shorter period, such as a 5- or 10-day moving average
MACD (Gerald Apple) shows the relationship between two moving averages of prices
- eg difference between a 26-bar exponential moving average (EMA) and the 12-bar
Williams %R (Larry Williams)
- compares a stock’s close to the high-low range over a certain period of time.
- if prices are trading at the high of the high-low range (indicator reading close to 100),
- then the market is overbought,
- RSI (Welles Wilder)
- overbought/oversold indicator
- compares the magnitude of a stock’s recent gains to the magnitude of its recent losses and
- turns that information into a number which ranges from 0 to 100.
- single parameter – the number of time periods – to use in the calcula -
- tion. In his book, Wilder recommends using 14 periods.
- One of the most important skills of a trader is being able to identify the
direction of the market.
- 1 std dev ABOVE moving average & 1 std dev BELOW moving average
Make SURE to cancel your orders, or use so-called “bracket orders,” or
“one-cancel-other (OCO) orders” for your profit target and stop loss.
- If your stop loss is too low, the market can dip below your SL on an uptrend
the key to trading success: small profits, consistently.
- testing your strategy with historical data
- How long you backtest depends on the number of trades per day; more trades/day,
the shorter the testing period
While testing your trading strategy, you should keep detailed records of
the wins and losses in order to produce a performance report.
- Total trades
- Total profit
- Avg. profit per trade
- Winning %
- Avg. winning trade
- Avg. losing trade
- Profit factor (Gross Profit / Gross Loss)
- how many £ you’ll win for every one you lose
- Max drawdown
Don’t over optimise: find a simple system & stick with it.
1. Identify all the parameters in your system
For each parameter variation:
- 2. Back test
- 3. Paper trade
- 4. Trade at low volume
- 5. Trade at normal volume
Might need taguchi or stats to simplify optimisation
Once your system is optimised: STOP
Principles of successfull trading strategies
- use few rules
- make it easy to understand
- The higher your trading frequency, the smaller your chances of having a losing month.
- start small and grow big.
- Automate Your Exits
- chose a valid back testing period