Archive for the ‘Trading’ Category
If you have missed part 1, read here.
What this means is that the market is getting ready to open for trading at a price that is lower than it opened. This is known as a gap (a space between the previous day’s closing price and the next day’s opening price).
On average 70% of all gaps will be “faded” or closed in the same day and the highest probability is that it will occur between 10:30AM EST and 11:30AM ET. Remember that I said 70% which means that not all stocks and/or indices will close their gaps the same day.
If I am in a bullish position and it is time to exit the trade and I see that the market is getting ready to open almost 200-points to the downside do not panic.
You can actually wait until 10:30AM EST (no later than 11:30AM EST) to see if the stock can close its gap (unless of course the Stop Loss was triggered at the open).
The Trading Session
As you can see on the following chart the SPY opened lower (as we knew they would) however you can see something pretty amazing! That by 10:30AM EST to 11:30AM EST it was trading positively from where it had closed the previous day (gap was closed). That is the opportunity to close out the bullish position.
The S&P future were negative 26-points so that would mean that at some point during the trading session the SPY would trade down 2.60. It had closed at almost 165.80 so a 2.60 move down would be 163.20 and it took the whole day to get there.
That is why people can’t believe that the market can be so positive one minute and then be so negative by the end of the day – they don’t understand the correlation between the market and the futures. Obviously when the futures are positive or negative by very small amounts this can happen at the open very quickly and it is almost unnoticeable.
The New Media
I talked extensively about the role of the news media and now you know what to expect. I think that this was a hard one for me to conquer however once I began to see the news media for what it was I felt completely liberated and free to make up my own mind as to how price and time are the only true indicators of what is happening in any market.
Today we will discuss about pre-market activities and how to know how the market will open, the potential direction for the day and how to manage a position.
The stock market closes for trading at 4:00PM EST although trades can still be settled after it closes. There are orders which are designed to trigger when the market closes (Market on Close orders). There are also options (e.g., QQQ which may be traded up to 4:15PM (when the futures market closes for the US trading session).
The futures market then opens for trading at 4:30PM EST on the Globex (or Global Exchange). Depending on how that market is traded around the world during the US evening hours depends on how the futures will open for trading the next day.
A positive futures market (considering fair value) will mean a positive open and a negative futures market (again considering fair value) will mean a negative open for the market. We now have a glimpse of how the market will open for trading that day.
If I am already in a shorter style of trading for a few days, I can use this information to enable me to time my exit.
Pre-Market Activity 31 May 2013
I took a snapshot of the premarket activity for 31 May 2013:
As you can see we were in for a very rough market open! The $INDU futures were negative by almost 200-points. It traded very negatively overnight and we now know that at some point during the next trading session that the cash index (which opens at 9:30AM EST) would be trading at that price.
What this means is that the market is getting ready to open for trading at a price that is lower than it opened. This is known as a gap (a space between the previous day’s closing price and the next day’s opening price).
To be continued…
The US government shutdown — what does this mean to us?
Last week the US government furloughed approximately 800,000 government workers (of that number about 40,000 were called back to work since they are in the area of defense).
The bigger picture will come next week when a decision to raise the debt ceiling (again) or for the first time ever in the US default on its interest payments to government bonds that have been issued to individuals, corporations and other countries. Oh boy.
Because of the uncertainty of the outcome of the serious market impact I recommend that we not take directional trades. I recommend that we be hedged in all of our positions at least until 17 October 2013 when a decision needs to be made regarding the potential default.
May everyone have a safe, pleasant, blessed and prosperous trading week!
I am back in Asia right now to conduct the live trainings… how cool is that!
Here are photos of my beloved members from the July 2013 batch:
MALAYSIA JULY 2013
SINGAPORE JULY 2013
Today, I like to share an interview that appear in The Standard newspapers:
Smart investors wanting to understand financial risk can learn from Wealth Mentors.
To Wealth Mentors, risk equals opportunity to gain more than you expected through smart observation and expectations of how market will react.
“Basically, we have different styles of investing,” said Mirriam Macwilliams, the Chief Trainer of Wealth Mentors.
To smart option investors, profits generated from the stock market are seldom affected by the ups and downs of the market.
There are two types of options, “call” and “put” which allow options investors to make money both ways.
When a stock is expected to rise in price, people will buy “call” options on it. On the other hand a “put” option will see its options price rise as stock prices plunge.
The next question is: How can we estimate the movement of the stock market?
“Investors should look at these volatility segments which will provide better guidance and the necessary analysis”, said Aaron Sim, the Founder and CEO of Wealth Mentors. “The conventional method of protecting your funds will not be applicable in a highly volatile market. Therefore, traders must be able to hedge their position in a more mechanical fashion.”
In fact, options investors have the advantage when trading in a falling stock market over others who have no protection.
“Another advantage of options is that you can protect your funds through hedging in a highly volatile market. Not only can you minimize your risks, you can possibly profit when you are wrong in predicting your direction,” said Aaron.
“Hedging may sound rather complicated for beginners but with the right education, this can be executed through simple mechanical steps,” added Aaron.
Wealth Mentors encourages members starting out, to hone their skills through virtual trading.
“The downturn is most of the time caused by human emotions as I take on more risk,” said Aaron. “This happens after I have captured the profit which allows me to take on more risk than usual. But beginners take more risk even before the profit comes in. Such downturns hurt their confidence.”
“That is why virtual trading provides a safe haven for newbies to practise. Human emotions must be dealt with and it is useful for traders to explore their emotions and familiarize themselves with the rules during virtual trading.”
Investors, especially beginners, might think it is not a good idea to enter the market when it is falling, but Aaron and Mirriam are thinking outside of conventional wisdom.
“It is always a good time to enter the market,” said Mirriam, “but it is important to get educated and prepare ourselves for more challenges. Individuals have to understand the market sentiments which cause high market volatility.”
“The market is not a place for individuals who are just pouring in their money without a step-by-step trading plan. Before taking up a trade, you must already calculate your numbers to know when and how much to exit”.
“The stock market is a good place to generate wealth, be it in the bull or bear market, but the investors need to be informed.” Mirriam concluded.
If you have a desire to master money-making as a trader in the stock market, and you have gained the knowledge of a proven system, all you need to do is follow the rules.
Apply the rules, gain experience, get some coaching to learn from your results – you’ll be well on your way to being a successful trader.
Here I like to share with you my take on what makes a successful trader:
1. Have realistic expectations
Huge percentage gains have high risk. 1,000%+ windfalls every now and again is not the path to success – such trades are very risky. Look to trade in a consistent way to yield frequent, consistent profits. Instead, a 10% move on the stock in the US is a realistic, achievable result, and can yield you a 100% return on your investment capital through options.
2. Have a Trading Plan
Use a clear system of strategies and trading rules that is structured, consistent and proven. Stack up the probabilities in your favor by having a plan and using it every time you place a trade. Have a watch list of stocks of about 20-25 that you work with – review the position of each stock in the basket of stocks each trading day. Also, avoid trying to “cherry pick” the top and the bottom of a stock’s movements – that can be very uncertain. Instead, look for the more identifiable 10% “middle” moves of a stock that can produce a 100% profit on the options.
3. Ignore hot tips
Know what the company does, understand the numbers, and make an informed decision. Don’t go into a stock just because it seems like everybody else is and you feel you don’t want to be left behind – that’s “following the followers”, who are often wrong.
4. Have trades in several industries in different stocks
Having your entire investment capital in the market in just a few stocks in the same industry can be a recipe for disaster – one trade or the industry going the wrong way can wipe you out.
5. Understand the risks associated with options trading
Approximately 70% of options trades lose money! That’s because many options traders do not use a proven, low-risk system to deliver them solid profits consistently. They let their human emotions get in the way. Learn how to eliminate the risky trades first before settling on the potentially good ones. Don’t just put some money in the market when it opens and hope some of it comes back. You can overturn the overall statistics and have 70% of your trades or better go your way and deliver you success if you follow a proven trading system.
6. Use a “Stop Loss”
A small percentage of your trades will go against you, even when you follow all the rules. Nobody will ever be 100% accurate. A Stop Loss is a live, working order that will trigger if the trade goes against you, leaving you with the majority of the capital you placed in the trade. It’s one of the methods for managing risk, like a safety net – if the trade goes against you, be out of it as soon as possible with the minimum loss. Automate your trades – don’t let your emotions make you hesitate. Prepare for a potential loss before you go into a trade. If you focus only on potential profits, your results will be weak. You need to assess your potential losses first, and your account will grow.
7. Automate your profits with a “Sell Stop”
Success in trading is not based on your ability to watch the stock market for several hours each trading day. Similarly to a Stop Loss, calculate and set a “Sell Stop” at your target price so that your position is automatically sold for you at your anticipated profit level without you having to be in front of a computer. This means you only need to monitor the market for 20-30 minutes a day most days, adjust your stops if necessary, then switch off your computer. The best strategy is a hands-off one so that you’re not concerned with moment-to-moment fluctuations that can stir up your emotions and end up making loss-making decisions. Make money while you’re asleep!
Even after sequential gains, Smart Traders avoid the temptation to violate the rules – the very formula that delivered them their success.
Some people feel so “bullet-proof” after early success that they start to cut corners with their trading plan. For instance, they put their entire investment capital on the line in a risky trade without stops – this often leads to an absolute disaster by losing all their money.
Panicking about losing your money is also an unreasonable extreme – have a healthy respect and aversion for losing money, so that you are more inclined to be cautious in your trading style.
Be self-disciplined so that you continue to follow the rules no matter what.
Today, I like to share with you a newspapers interview with the Standard. Hope you find these tips useful!
Frequently featured in TV and radio interviews, newspapers and magazine articles, Mirriam MacWilliams is a self-made millionaire and a much admired trader. Taking an initial starting capital of US$10,000, she grew it to over US$2,000,000 in less than two years in the stock market.
Over the years, she has justly established herself as an investment guru, passionately sharing with people her success in the stock market by using easy-to-follow, step-by-step strategies. Today, thousands of people from Hong Kong, Singapore, Malaysia, Indonesia and USA have benefited from her time-tested and proven trading strategies to create wealth, regardless of market direction.
Whether you are a seasoned trader or a complete beginner, you may be interested to learn more about the personal investment story of this well-liked icon.
1. Never Give Up
An ordinary person starts his day in an ordinary way. Yet, with openness, persistence and observation, he may end up with quite an extraordinary result. The once corporate high flyer Mirriam MacWilliams offers a good example.
“It all started with an interesting book by a gentleman in the States who was a taxi driver,” Mirriam recollected. “His philosophy was quite simple. Realizing most taxi drivers wanted to take their passengers to distant locations, this taxi driver decided to do the opposite: taking passengers on shorter routes and do many of those trips instead of waiting for the longer ones!”
“He began making a lot of money and decided to focus on investing his money in the stock market with the same concept. Why wait for four to five years to make money when he could actually make more money trading over just a few days?”
Mirriam continued. “I attended his training which had a fairly high price tag and learned 13 different strategies over two days, but when I left I still had no idea where to begin trading.”
Time passed and Mirriam failed to earn her first bucket of money. She was then recommended to attend his next event entitled “The Next Step” in Las Vegas, Nevada. While most of us might be skeptical about going further, Mirriam decided to take the chance. “It meant more investment of capital, however I felt I was on my way to making money.”
Unfortunately, that did not prove to be the case for the entire year, and by then Mirriam had lost quite a bit of her capital. She then decided to take a year off from actual trading and started her virtual trade. “I did virtual trading until I could see consistent results from my trading a whole year later. While this scenario might seem discouraging to some I would not have missed it, as I now realize these virtual events were vital to my overall success!”
2. Trading is not a hobby
It is often said that we can only change our surroundings by first changing our perspective. This also applies to investment. When Mirriam started investing, she viewed Wall Street as a rather unfriendly and hostile environment. She recalled: “It was as if the odds were so stacked against me that I wondered how anyone made money. However I did not want to have that ‘warfare’ or ‘revenge’ mentality. I decided to adopt an attitude of being at peace with Wall Street. I soon realized that having a more peaceful trading mindset helped me to make money on Wall Street.”
“Now, Wall Street for me is no longer an environment for losing money. It is not a hobby, pastime or something I participate in simply because I received a hot stock tip. It is a place to conduct business. It is all about how to apply a set of rules or parameters to different market environments and learn how to capitalize on those decisions. As with all businesses, we do need to have an exit strategy with either a profit target or a loss potential. Again, focusing on the protection of our capital is the key to success.”
3. It’s always the right time to start
Mirriam is often asked if it is the right time to get started. Her answer is: it is always the right time. “As investors we simply need to recognize the market environment we are in. Once we do that, we then tailor our investing strategies to meet that market demand. It does not work the other way round. Have a plan and work the plan!”
Mirriam MacWilliams is the chief trainer of Wealth Mentors. She will share her secrets of how she generates wealth in the stock market consistently with a small capital, regardless if the market is moving up, down or sideway. If you want to know more about the curriculum and listen to her success in the stock market, the Wealth Mentors team at http://www.wealth-mentors.com will give you good clues in the coming seminars.
The US stock market has made all time high prices two weeks in a row.
This is at a time when if you recall earlier in the year we had some highly respected individuals calling for a severe market crash. One even predicted Dow 3,300 in 2013 (that has since been revised to the year 2013 and we will see why in a minute).
All of this upside momentum is no doubt the positive consequences of quantitative easing – the printing of US dollars by the Federal Reserve. Whether we agree or not there is a saying by the professional traders “don’t fight the Fed.”
Additional monies in the market make it easy for business to borrow to grow their business, to hire employees who then pay taxes and buy homes and go on holiday.
Can the market continue its uptrend?
One argument is that the holders of Bonds now realize the risk in being in bonds.
Remember when (not if) interest rates rise then the bonds can see a large drop.
So where do the bond traders place their money and get some sort of a return — at the local bank? How about the stock market!
Or might we be getting ready to see market prices consolidate?
Even a 50% consolidation would be a good thing for this market!
Remember that as Smart Traders we may be aware of what is being said about the market however we only trade in the direction that our style of trading dictates.
How cool is that! That way we will find ourselves trading in the highest probability direction – always.
On a side-note, here are my beloved members graduated from the April 2013 batch.
Singapore April 2013 Graduates
Malaysia April 2013 Graduates
To your continued trading knowledge and success!
We are often asked why we are not teaching one style of trading over another at our live events?
The reason is that we are always seeking to trade the market with the style of trading that is suitable for that particular environment.
For example we are not teaching how to build a retirement portfolio because you can’t take a trade until the end of October.
In addition our other styles of trading are predicated on the price of the $VXO.
For example a low Implied Volatility (IV) means we can trade our Investing method since we are directional for at least 3 weeks where the IV stays constant yet a high IV means that I will not be in the Investing style of trading and I may be able to participate in a shorter time frame style of trading such as any of the Short Term trades.
Extreme volatilities open yet another door for trading such as Fade (where we will be in the trade for 1-2 days) taking advantage of the stocks’ move back to the moving average on the hourly chart. We cannot share that now with the current market since we don’t have any candidates.
So I have created the following to give you a sense of how our members are focusing their trading energies in different VXO environments:
Click here for Part 1 of The Art Of Back Testing
One trade that goes our way does not create a trend.
We need to back test for at least a year – more is even better since we need to create a test that survives good times and bearish times.
However a year is a good starting point.
You will want to write out every single detail of your plan which includes date, time of entry, direction, style of trading, ticker symbol, etc.
In the event you begin to see unfavorable results in your back testing then you need to make a change and get ready to begin anew.
Don’t destroy the “old” plan.
Keep the old plan handy so that in the event you begin again you don’t begin with the same parameters that did not work to start.
The key to back testing is to stay unbiased.
Don’t get into the habit of seeing what you want to see and simply focus on what is happening — period.
When to Go Live?
We want to make sure that we go live only when we have created a sampling that has the highest probability of being manifest.
Remember that the back test results may very well be the actual results that we will see.
When you do begin make sure that you begin with the smallest amount possible since the migration from going from a back test to a virtual may take some adjustments.
If something does not work out always ask why?
A More Accurate Alternative to Back Testing
Virtual testing is by far the best possible alternative to back testing.
In this case we are going forward in time as opposed to going back in time (which is what back testing) is all about.
All of the price charts, price quote, option quotes, open interest, etc. is as real as it gets.
The reason why I chose this method as opposed to back testing when I began trading was because I did not have the benefit of the future.
It cannot cloud my ability to see what was actual happening as opposed to back testing where I saw what I wanted to see.
Virtual testing results create a final result which is the truest possible outcome and that is the whole purpose of any trading method test!
- Free tools are best for back testing a style of trading where direction is the focus.
- When price becomes the primary focus then we need to invest in a paid service so that we can get the most accurate results.
- No back testing method can substitute virtual trading results.
Back testing is the simple process of creating a sampling based on certain criteria and seeing what the outcome would have been. We are looking to see what may have the highest probability of happening.
For example some individuals would like to see whether entering a trade at any time after the first hour of trading would yield any different results. Others would like to back test different stop loss results based on other types of criteria.
Back testing makes sense since we are shaving off years of trading with unreliable and inconsistent results preventing us from losing monies.
Back testing is designed to create a measure of confidence so that we can approach trading with measurable results.
How do we Begin a Back Test?
The very first think we need to identify is the time frame that we are seeking to be in a trade.
For example a person who is looking to be in a trade for several months does not need to look at a 30-minute bar and vice versa. The person who is looking to be in a trade from one day to the next will not need to look at a monthly chart.
So it all begins with a time frame.
A huge part of this process is the ability to analyze data so you need to keep good records.
Create a back testing journal.
What we are looking for are patterns in something happening more often than not and these patterns are not necessarily technical in nature.
For example I used to enter my trades between 9:30AM EST to 10:00AM EST since it was convenient for me to enter the trades at that time since I usually took a coffee break from work at that time only to find at the end of the day I usually paid the highest price that option went for that day.
What I did was realize was that there are times in the US when certain key economic data (that relates to housing starts, Consumer Confidence, etc.) can take place at 10:00AM EST and these events can impact our position.
So these days I prefer to place trades after 10:30AM EST.
A good idea is to locate all of the FOMC, Non-farm payroll and Earnings dates so that we can see that if a trade did not work out it may have been impacted by anyone of these key events.
In that case you would have either stayed out or created a hedged position prior to the event and have been negatively impacted.
The Back Testing Tools
We need to have access to reliable price quotes and price charts. The key word here is “reliable.”
We need to realize that when we use a free tool the data may not be totally accurate so it would be something that may be useful to use if direction is what we are seeking.
However when we are seeking precise price quotes then we will need to invest in a tool with accurate quotes.
When it comes to option trading it is virtually impossible to recreate the exact option quote since there are many.
There are option quotes for the every month and there are option quotes for every strike price.
Then there is the Earnings environment which can cause the volatility to go hay wire however it does not make itself manifest in a historical chart.
So we will need to make concessions here and go with the “average implied volatility.”
At least we will have something we can measure.
We will continue with the art of back testing in the next post… stay tuned!