Making Trade Setups Come To You.

About once every five years, against my better judgment, I get roped into going to a professional baseball game with my friends.  I always rationalize how “it might be fun this time,” but sure enough, by the time we get to the fourth or fifth inning I am bored out of my mind.

I mean I can only put up with so much….

…..ball…..strike….step out of batter’s box…..foul ball……foul ball……throw to first to keep runner honest……foul ball……foul ball……naked guy on field…..foul ball….foul ball…….balk……

If I’m going to go to a sporting event it has to be something with some action, like hockey, or basketball, or curling.

Last season I ended up going to a Los Angeles Angels game, and just as I suspected, it was a snoozefest.

However one of the things that I have to admit was pretty cool was how the servers now come to your seat to take your order, and then deliver the food right to you.

In life we are taught from an early age that we have to go after what we want, and that anything worth having is worth is worth pursuing.  But sometimes it’s nice to just sit on your ass and have a mega-beer and a double jalapeño nachos placed gently in your lap.

When trading, it can also be to your advantage to have setups brought to you instead of having to hunt them down.  By using the “Triple F” method, you can set up your watch list’s to do just that.

The first “F” stands for “filtering”, the process by which you take your macro list of stocks and bring it down to an actionable one.  This can be done with EOD technical and fundamental scans or by just visually reviewing charts one by one in order to find candidates that are approaching entry points.

The results can then be put into three different groups; day trades, swing trades, and long-term trades (or no setup).  Transferring over your day trade and swing trade lists to your real-time charting software then sets the stage for the second “F”, which is “focus.”

Here you can configure and organize your stocks in a way that will keep non-movers out of your way, and bring potential trade setups right to you.

Swing trade candidates by definition will usually be farther away from entry points than day trade candidates, and you don’t want them to get in your way until they are ready to go.  Set alerts on these stocks at 50 cents below your intended buys points, and then minimize the list so it does not take up valuable screen real estate.

Now focus on your day trade list.  Set alerts there as well, which will tend to be closer to entry points than those on the swing list, but also make sure to set your list to auto sort every 5-10 seconds.  If your software has the capability, you want to sort by the “% change in average volume” column criteria.

This will then constantly push stocks to the top of your list that have the highest increase in volume relative to their average, and volume is what moves stocks.  If you don’t have that column criteria available, you can just use “Volume” instead, which although not as effective, will still push movers to the top of the list.

You can now limit yourself to monitoring the stocks on your day trade list that are constantly being brought to the top, and forget about those at the bottom.  If any stocks on your lists get near entry points, your alerts will trigger causing them to automatically be loaded into your chart windows.  Setups literally are brought to you.

This gives you the freedom to watch the indexes or market barometers, monitor news feeds, or look for intraday setups without worrying that you will miss a potential trade.  This system works best when looking for breakout trades, long or short, but can be modified to work for trades off of pullbacks to support or resistance.

And the third “F”….well there isn’t really one, but the “Triple F” system just sounded better than the “Double F” system.

How To Determine Overall Market Health: Talk To Your Dentist

The market has been on a nice run lately and many people think that the worst of our economic problems are behind us.  In fact recently somebody told me that they were beginning to buy stocks “like crazy.”

The problem is, the person who told me that was my dentist.

There is an old saying that goes something along the lines of “when your dentist tells you to buy stocks, it’s time to sell,” (a variation on the “Time magazine cover” theory).

The concept behind this saying is that there always has to be a “greater fool” to sell your stocks to at a higher price in order to make money.  This greater fool is also referred to as “dumb money.”

Your dentist’s day is presumably filled up with important dentally things like patients, cavities, and spit.  He doesn’t have time to watch the markets on tick by tick basis because his focus is on running his practice.  The theory goes, that by the time the markets have come into his purview, it’s usually via the constant attention given to them by the general mass media.

By that point everybody that is going go be in the market already is, and when the dentist buys he will have nobody else to sell his stocks to at a higher price and thus becomes a “bicuspid bagholder.”   Hahaaa…hah…hah….biscup bag…..see….cause he works on teeth…hah…hah…..get it?   Meh….!

Besides the dentist indicator, I have seen other non-traditional indicators of market health over the years.

For a long time, the amount of space my local bookstore dedicated to “Investing” titles could give me a clue.  When the market was going crazy in the dot-com bubble of the late 90’s, it seemed as if they occupied shelves that went on for miles.  But after the bubble popped they were reduced to one lonely “Charlie Brown” type shelf in the back corner of the store.

The sudden appearance of TV commercials for trading services or study courses can often be an indicator that you might want to start raising cash.  And if you hear the terms “Ka-Chin-Go” or “Gorilla Trades,” run for cover.

30 Years Of Time Magazine Covers & The Stock Market (via The Big Picture)

The American Dental Association

The Blog Post That Changed My Trading Life.

Ever since I bought my first stock at the age of eighteen, I always had a job to rely on for my steady income.  This meant that I felt no pressure to trade and could be patient in waiting for the right market environment and right setups to arise.

However that changed when I sold my business in early 2005 and decided to trade full-time. I suddenly felt a “pressure” to trade, knowing now that this was my only source of income.

I had just come off of a twenty year run in a business in which sixteen hour days and six-day weeks were the norm.  If I was not constantly driving my business on a daily basis, not only would it stagnate, but it would ultimately fail.  Because of this ingrained mentality, NOT trading on a daily basis felt counter intuitive to me.

I abandoned the previous style of trading that had worked for me so well and switched over to a “hyper trading” mode.  I felt a need to constantly find setups to trade and thus I was continually switching between methodologies in an effort to drive my profits.

As you can guess this added up to a lot of frustration, a lot stress, and a lot of losing trades.

Then one day I came across a blog post on Trader X’s site called “Chasing Success.”

I talk to numerous people through email every week who are struggling to be successful at trading. And, I find two common traits in most of them:

1.) They trade too much – most of the people struggling make multiple trades daily, some as many as 10+ round trips.
2.) They have a lack of focus.

……I call this “chasing success”. The bottom line is the person does not spend enough time on any one method to really understand and execute it properly. They bounce around, and before they know it a lot of time has passed and they are still struggling.

If you pick something and stick to it, you get good at it. Once you get good at it – once you perfect it, THEN you can add something else to your arsenal. 

Remember, this was in  pre-StockTwits days, and up until that point I had never heard somebody talk so plainly and in such a common sense way about trading.  It was as if a lightning bolt struck me and shocked my out of my sinning ways.

It took a while to completely sink in and I had a number of stumbles along the way, but it was the beginning of the transformation of my trading life.  I began to take a “trade less, make more” approach and narrowed the types of trading setups I took to just a handful.

Trader X doesn’t post much anymore and he doesn’t seem to want to engage in tweeting (can you blame him), but he was a minimalist trader before it became the trend.  And from his site I not only learned a ton about trading, but it was my first introduction to other great trading teachers like Trader Mike, Trader Jamie, and the High Chart Patterns Group.

I can only wonder what would have happened if I had never found that post.

See The Complete “Chasing Success” Post (Trader X)

Wall St. Warrior (Trader Jamie)

High Chart Patterns Group (HCPG)

How To Draw A Trendline With Stocks.

(Sorry, video no longer expands.)