Day Trading: Using Volatility and Liquidity to Make a Profit February 18, 2010Posted by locustrading in Uncategorized.
Tags: 4 strategies for day traders, analyze and tweak, become a successful day trader, convert the asset, daily pivots, day trading, fading, highly liquid, indexes, leverage large amounts of capital, liquidity, momentum, picking entry and exit points, Risk, scalping, security's value, smalles price movements of stocks, trading, volatility
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If you are new to the day trading scene, then the words “volatility” and “liquidity” probably seem foreign at this point; however, if you are to become successful at day trading then these are definitely two words that you will want to learn and study as they have a lot to do with day trading if you want to make a profit.
First, let’s start by defining both of these terms. Volatility, in short, refers to the risk or uncertainty that is involved in the security’s value that comes from changes of the size of the value. Liquidity refers to being able to convert the asset into cash easily without a price discount being involved.
These two terms are necessary for a day trader to know. When trading throughout the day, one should pay close attention to both the volatility and liquidity of the security. As a day trader, you want to be able to leverage large amounts of capital in order to take advantage of even the smallest price movements of stocks or indexes that are highly liquid.
You will need to study the different stocks that offer both the ability of being highly liquid while making sure that the volatility falls within your risk level. (Typically, the higher the volatility, the better chances for profit; however, it also means that there is a greater risk of loss.) Once you are able to pick out stocks that meet the requirements stated above, you will need to learn how to pick an entry point and an exit point in order to capitalize to the full potential.
There are typically four different strategies that are commonly used by a day trader when trading in this aspect. They include:
- Scalping: when you sell immediately after the trade has made a profit.
- Fading: this is when you short a stock after it makes a rapid move upwards.
- Daily Pivots: this is when you try to buy at the low of the day (LOD) and then sell at the high of the day (HOD) through utilizing signs of reversal in the price.
- Momentum: is usually influenced by news and trends, and the buyer usually jumps aboard to ride the flow until signs of reversal start to form.
Once you find a system that works for you, it will still need tweaking. Why? Well over 50% of day traders fail, but it’s not because of the lack of trying. It’s because of being uninformed and uneducated about this field. No matter what you do, you will always need to analyze it every so often in order to determine where you stand. Then, making adjustments or performing a few tweaks here and there will become evident. By doing this, you are sure to become one of the successful day traders.
Evaluating Your Trading Plan to Determine If It Works February 10, 2010Posted by locustrading in Uncategorized.
Tags: evaluating the trading plan, profit, profit/loss, risk levels, trading plan, trading process, winning ratio, yearly drawdown
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Now that you have developed and implemented your trading plan, you will need to evaluate it in order to determine if this plan is working for you. While losses in trading are inevitable and are expected, you will still want to determine whether your winning percentage falls into the category that makes your trading plan successful.
Don’t get discouraged when you hear of people who are claiming a high winning ratio because if the truth is told, when dissecting the trading plan, you just might find that the numbers are too good to be true. With that being said, don’t expect a winning ratio of 90% or better; be happy and set your goals to obtain a winning ratio of around 60-80%. If your trading plan brings back a winning ratio in this range, then obviously it is working for you.
Besides looking at the winning/losing ratio of the trading plan, you should also take a look at your profit/loss ratio and the drawdown of the yearly profit that you will experience from this trading plan. With these three factors being taken into consideration, you should definitely be able to determine whether or not your trading plan is successful and if you should stick with the plan that you have set for yourself. Besides a 60-80% winning ratio, your goal should be a profit factor of 1.3-2.5 and a drawdown for maximum yearly profit of 10-20%.
To be successful in the trading process you will also want to make sure that your plan allows for making around 5 trades per week, nothing less. This actually helps to determine whether you will have a winning or losing month/trading plan. If your winning ratio is around 70% on a monthly basis, only making one trade per week, with one loss, you’ll have a losing month; however, if you make around 5 trades per week/20 trades per month, the losses aren’t as distinguishing. Just make sure to keep your risk levels right where they need to be and don’t try to trade out of your “range”.
The Trading Plan: Adjustments Are Necessary February 3, 2010Posted by locustrading in the trading plan.
Tags: "get in", capitalize through profits, developing your trading plan, developments arise, get an accurate account of the trading day, get out, incorporate both long and short trades, making adjustments to the trading plan, monthly adjustments, non-volatile stock, particular trading day, realisitic expectations, realistic trading goals, reduce your chances of loss, risk is evident, roadblocks, selection of stocks, specific trade, sticking to the plan, stock selection, stock selection matches risk profile, success, trader, trading, trading event, trading plan, trading plan is working, trading strategy, unrealistic goals, volatile stock, weekly adjustments
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As previously stated in our blog posts, trading without a plan would be the same as starting a business without a proper business plan. With that being said, even if you are not experienced at either one of these scenarios, it is basically common sense that as developments or roadblocks arise, adjustments would be necessary to both the trading plan and the business plan if one expects to succeed.
The trading plan is basically an outline of what your plans are for making a specific trade. At what point are you going to “get in”? At what point are you going to “get out”? But, what if some new development arises, will you still stick to that particular plan that you have developed for yourself? Of course you won’t. If news hits the airways that something major is about to happen, chances are you will want to make adjustments to your plan to either capitalize through profits or to reduce your chances of loss.
To begin with, when developing your trading plan you must set yourself realistic expectations. You will not become rich overnight or during one trading day period. When trading, risk becomes evident; therefore, realistic expectations will either help you to become successful or cause you to lose money if you set your goals unrealistically. Keep your goals in your view for that particular trading day or trading event.
Within the realm of setting realistic trading goals for yourself, you must pay particular attention to the selection of stocks that you choose to take part in. For example, let’s look at Google vs. Citigroup. One happens to be a very volatile stock while the other happens to be non-volatile. In the end, selecting stocks that matches your risk profile (How much risk are you willing to take?) is extremely important.
Your particular trading strategy has to be able to adjust as well. While you may be a trader you likes to go long, going long may not always be in your best interest. Your trading strategy must incorporate both the long and short scenarios so that your trading strategy will adjust to the market and its changes.
So, how often should you make adjustments to your trading plan? Well, this depends on you and your trading plan. Some traders make adjustments on a weekly basis, while others readjust their plans on a monthly basis. One thing to take into consideration here is that on a monthly basis, you will better be able to get an accurate account of the trading days and the results that you have obtained. This means that you will be able to determine whether your trading plan is working for you and if you are sticking to the plan that you have developed. If it’s working for you, adjustments may not be necessary; however, if it’s not working for you, you will definitely need to make adjustments.
How to Develop a Trading Plan January 27, 2010Posted by locustrading in Uncategorized.
Tags: adjustments, alert signals, assess your skills, beginner, develop a trading plan, entering a trade, entry rules, entry signals, exit signals, goal, investment, keep accurate records, Locus Capital, market changes, markets, master plan, mental preparation, portfolio, preparation, profit goal, research, risk level, seasoned trader, the trading plan, traders, trading day, trading plan templates, trading program
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Last week we talked about The Trading Plan and why it is so important for one to develop and implement. This week, we want to continue along the same path and give you tips on how to develop a trading plan that will work for you.
You must remember that the trading plan will change with the market conditions and even though you must follow what is written (as it is a plan) just like it was written in stone, as the trading day ends, you should re-evaluate the plan and make necessary adjustments, if needed.
Developing the perfect trading plan that will work for you entails 10 key points. Actually, you can consider this your Master Plan, as changes may be necessary and the market changes. Those 10 key points are:
- Assess Your Skills. Are you ready to start trading? If so, are you a seasoned trader or just a beginner? It is great to have confidence in this game; however, confidence while lacking skill, will only hinder the results. Traders who are successful have a plan and they follow that plan, raking in profits from those who are not as prepared. So, where do you lie in this scenario?
- Are you mentally prepared? We learned last week about the psychology of trading and how one should be prepared mentally. Have you done your research on this subject? Can you handle the pressure?
- Set the risk level. How much are you prepared to lose? This point must be well defined in your trading plan. How much of your portfolio are you ready to invest in a given trading day? Most of the time, traders choose between 1-5%. The key here is that any time during a given trading day, you happen to hit the mark that you have set for loss, you get out right then. There should be no waiting to see what will happen.
- What’s your goal? Just like setting your risk level, you should also set a goal for profit. At what point would you consider that you have gained enough profit to get out? Most investors set their goals for three times the risk level. For example, if you won’t take more than a $1 dollar per share loss on your investment, then your profit goal should be $3 per share.
- Research. Before making any type of a trade, you should first do your homework and see what is going on around the world. World situations actually affect the markets and can have an impact on what the trading day will be like. You should trade on probability; don’t gamble. If waiting on a report to be made public is necessary, then wait on it.
- Preparation. Before the trading day begins, reboot your computer to get a fresh start. Depending upon the trading program, if any, that you may be using, you might have to reset alert signals for entry and exit, etc. Eliminate any distractions during the trading day.
- Make sure to observe your exit rules. If you are only willing to lose $1 per share, then make sure that when the trade hits that point that you get out. Trading is a game, you are not going to win all the time. With that being said, don’t take losing personally. Everyone has to take a loss at sometime; don’t gamble by staying in, who knows you just might lose more money by doing so. Set these parameters before even entering a trade.
- Set entry Rules. At what point do you want to enter the trade? Of course, the point is to enter low and exit high; however, how low must it be before you will enter? Watch for the signals to enter at your set point and don’t let your feelings or apprehensions get in the way.
- Keep accurate records. If you were successful at a trade, you will want to know how you did it so that you can do it again. Keeping records of your trades will help you to research your efforts and help you to become a better trader by revealing your habits, whether good or bad.
- At the end of the trading day, always add up your profits and losses. This is a must for keeping accurate records as well. It will also let you know where you stand.
You can find trading plan templates available for download on the Internet that can help you with the development of your perfect trading plan. If you have any questions past what is mentioned here, feel free to contact us, Locus Capital, as we are always glad to help.
The Trading Plan: Why You Need It January 22, 2010Posted by locustrading in Uncategorized.
Tags: a trading plan, business, business plan, buy and sell, capital needed, concept of making trades, development of a trading plan, easy money, education, final decision, hardes easiest money, invest, keep it real, locus trading, manage risk, markets, method, mindset, money, overall plan, plan, potential for loss, psychology, risk paramenters, risks, risks involved, start trading, trade, trading, trading is a business, trading plan, why you need it, written plan
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Many traders are not successful. Unfortunately, more times than not, people make trades without understanding the full potential of the risks involved or understanding the accounts in which they trade. Trading is a business and it must be viewed in that way.
If trading is a business then trading plan is your business plan. If you are about to open a business and u need a loan from the bank, the bank will ask you for a business plan. Well, trading must be treated the same way. You need a trading plan BEFORE you start trading. Your plan should include your risk parameters, capital needed, additional education, tech, etc. This is your overall plan and this plan with shed light on what you need to start and keep going for let’s say a year. Please account for all your expenses, both business and personal, and then make a final decision whether or not trading is for you.
Having a written plan will help to give you the advantage over the competition. You CANNOT afford not to have a trading plan. If at any time you can have an edge, then why not do it?
“In regards to being successful in the markets, I think the single most important element is having a plan.” Howard Seidler in ‘The New Market Wizards’ by Jack Schwager
While many people believe that trading is easy money, technically it is the hardest easiest money that you will ever make. While the belief that it is easy money tends to be overwhelming, the truth is that the risk involved makes it hard for it to actually be easy money. The concept of making trades tends to be straightforward, but many people tend to make a mess out of it.
You have to have the right mindset in order to make trading your business and psychology has a lot to do with it. Your trading plan must include three main areas:
With the area of Money, you must determine how you are going to manage your risk. This area is not just for the money that you have to invest, but also the money that could potentially be lost. Second, the area of Method, is exactly how you plan to buy and sell and what method you will be using to perform such. The third, Mindset, is all about the psychology. The third area, is the most important as well as your ability to keep it real and to control your own mindset with this business. This is the area that you will want to focus on the most.
We here at Locus Trading hope that now you understand why developing a trading plan is crucial to your success and that you take into consideration these important factors and understand that trading is a business and that it should be considered that way. You must help yourself through the development of a trading plan if you plan on being successful in this business.
Gain Knowledge and Expand Your Expertise in Trading January 6, 2010Posted by locustrading in Uncategorized.
Tags: advanced educational program, advanced trading techniques and concepts, basics about the markets, begin making trades, beginner courses, comon psychological trading pitfals, day trading, education and guidance, elementary money management strategies, expand expertise, gain knowledge, in depth technical analysis, intro to technical analyss, largest problem that most traders experience, leverage, psychology of trading, traders, trading, trading service, transactions
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Have you always thought about trying your hand at day trading? Does it sound exciting to you? Have you tried before in the past only to find that you didn’t have enough leverage behind you to help you make the transactions that you wanted? If you have answered yes to any of these questions, then maybe you should try taking advantage of a trading service that can offer you education and guidance throughout every transaction that you make.
If you are new to this game, then beginner courses is what you need. In the beginner courses, you will learn about all of the basics about the markets, you will receive an intro to technical analysis, learn elementary money management strategies, and learn about the most common psychological trading pitfalls.
If you know about this business and have been making trades in the past, you can still take advantage of the advanced educational program that is available. In this program, advanced trading techniques and concepts are taught and you will learn a more in depth technical analysis. Once again, the psychology of trading is addressed as this is usually one of the largest problems that most traders experience.
Advance your knowledge and your skills in the markets by taking advantage of the educational programs that are available to help teach you. Once you are ready, you can begin making your trades utilizing the trading service, which will help to give you more leverage than if you were trying to make trades alone.
Locus Capital, LLC Launches New Blog January 4, 2010Posted by locustrading in Uncategorized.
Tags: advanced trading concepts, day trading, different services, education courses available, forest hills new york, in depth technical analysis, Locus Capital, Locus Capital LLC, market basics, markets, new blog, swing trading, trade with more leverage, trading, website
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January 4, 2010, Forest Hills, NY - Locus Capital, LLC has launched their new blog that concentrates on information pertaining to trading and the markets.
Locus Capital, LLC offers a variety of different services to their customers. There are several different levels of education courses available. The beginner course teaches the market basics, while the advanced course introduces advanced trading concepts and more in depth technical analysis.
Through their website, you can find more information about the wide variety of services that Locus Capital, LLC has to offer pertaining to both day trading and swing trading. If you would like to learn more about this subject or if you would like to be able to trade with more leverage, Locus Capital, LLC is here to help.
Most of the new and inexperienced traders get familiar with a negative aspect of trading. Their goal is to minimize negative impact on traders, and maximize the positive side.