toni...thanks for understanding...say hello to uptick...virt

Hi Virtualpar,

No problem.. people tend to confuse me with Toni Turner at times. She has written a popular beginner's book for traders. She does good stuff =)Thanks for your input on equipment.. really appreciated!

Toni Hansen

Candlestick Charting Patterns: The Hammer

Today I want to familiarize you with a very popular candlestick reversal pattern known as a "Hammer." The Hammer is used to identify reversals off market lows.

The real body of the hammer candlestick occurs at the top of the day's range and the majority of the day's range is made up of a lower tail. In a perfect hammer, this tail is twice the length of the body and the candlestick will have no upper shadow. The smaller the body and the longer the tail, the more significant it becomes as a bullish indicator. The images below are examples of what perfect hammers look like.

http://www.swingtrader.net/temporary/candlehammer1a.gif

It does not matter what color the body of the hammer is. It can be either an open or closed candlestick but the open candlesticks are slightly more bullish. In forming this candlestick, it means that the stock sold off sharply early in the day yet managed to rally back and close above the high of the open. In open hammers like that, one thing you will notice is that there can often be a gap up past the hammer the next day so if you are looking to go long, make sure to wait for confirmation such as an intraday breakout to highs.

Hammers are most consistent when they occur at support in uptrends or sideways trends. The image below shows an example of what the ideal setup involving a hammer would look like.

http://www.swingtrader.net/temporary/candlehammer1b.gif

To give you an idea of what a Hammer looks like in practice I've included the following image of the QQQ. You can see that in each example the Hammer comes after several bars of selling. If you see this pattern at highs it is not called a Hammer but rather a Hanging Man. A Hammer will always occur after selling. Also note how the Hammers occur at support levels. In the first two examples on the daily chart it was at the 50 day sma. The third one from the left occurred at price support which is not shown here other than whole number support and the one furthest to the right occurred at the prior lows. Intraday each Hammer also had similar support levels at which they formed.

http://www.swingtrader.net/temporary/July27_2001hammer.gif

Follow through on a Hammer tends to be strongest when volume increases as it forms. On daily charts when you have high volume at support on a Hammer you can often get a gap up the next morning. The traditional method to enter a setup based on a Hammer candlestick bar is to use a break above the Hammer as an entry with a stop placed under the low of the Hammer. You can also use under the current candlestick bar in many cases, thus reducing your risk. One thing you have to watch for is on the daily chart if the market ran up into the close it often needs to take a break before moving strongly to the upside again. Again, you also have to watch out for gaps and play them accordingly. I hope this discussion helps you out in some of your own research. Take care and good trading!

Please feel free to discuss your favorite charting methods and patterns as well! =)

-Toni Hansen

Free Daily Market Commentary on the Hard Right Edge

Hi gang,

I just wanted to post a link to you guys. I do daily commentary for Alan Farley's site, The Hard Right Edge, which you may be interested in as I include lessons as well as my current thoughts on the market. The link is http://www.hardrightedge.com/midnight.htm

Let me know what you think...

All my best,
Toni Hansen

Hi Scott,

Sorry to take so long to respond. I've been pretty much out of commission for almost a month now due to a lower back injury. Just started back to work full time this week..

Regarding board popularity, I just don't know too many people that are our members that have much interest in free message boards... I had asked once what they thought of them and I think most of them were just so exposed to hype, etc. that they felt they were counter-productive. of course there are great ones out there but you just have to look. I do not think many people may be aware of IHub.

I can't really tell you much about how our service compares to Pristine but I can tell you what we do and let you decide... Intraday we have running commentary and lessons regarding current market action, helping members learn how to anticipate the market moves. We use specific stocks in some cases while I personally have focused on the QQQ and SPY so that there is a consistent issue traders are looking at from day to day to learn how it changes. I think focusing on one or two stocks or a short list of stocks to begin with is extremely important because it helps you learn the different types of actions that can take place and when they will most likely occur. From there you can move onto scanning for specific setups.

I hold after hours classes on Mondays and Wednesdays. On Mondays we go in depth on a specific topic a member has suggested to us. This next Monday for example I'm going to talk about Exhaustion moves... how to recognize them to tell when the move is ending and how to take setups based upon them. This week we discussed a setup known as the Avalanche which is basically a type of bear flag reversal setup off highs. I'll do a short writeup here in a few days when I get some more time as I think you guys will find it really helpful... It's one of those setups that tends to lead to immediate follow through. A good example of this was CEFT which I put in our daily newsletter yesterday (8-2-01) for a short. You can see what the core setup looks like at the following link: http://www.teachmetotrade.com/images/upload_images/55_image.gif

We also have several free newsletters which come out once a week called Market Lab and Stock Spotlight which David Bush writes and I write the Daily Trading From Main Street and weekly Position Trader newsletter with Brandon Fredrickson.

I am not sure what Pristine does for their mentoring but our is aimed at complete beginners to the market. It's like an introductory college course to online trading and technical analysis. If you have had experience in the markets and understand how support and resistance work and other tools traders commonly use you might not find it as useful as you would if you had no other education. We are working on putting together more advanced mentoring but it too will be online. What we are doing is a one month course which will be limited to 5-10 people where one of us spends pretty much the entire day with the students giving several classes a day and focusing on a very limited number of stocks to teach students everything from the beginner to advanced trading tactics and market approaches.

At any rate, this is too much running on for this platform as I don't really want this board to turn into some sort of sales pitch. I think no matter where you go for more intense education, just get a free trial, see what they have to offer and if their personalities mesh with yours or not. There are as many varieties of successful approaches to the market and trading as there are traders so it's really important to find a strategy and approach that supports your own personality and skills (or fills a niche you are missing in your education.)


Wishing you the best,
Toni

What if sombody started a discussion board and nobody came????

Hello Toni,

I have 3 1/2 months till I plan on starting my full time attention to trading. I have been following Oliver Velez and Pristine for some time now...I remember David Bush also giving the stock pick of the week...which is excellent...

That said, could you tell me the advantage to going with your program? It seems to be on the same lines as theirs...a bit less expensive but that is not a plus unless...well you know. I will have the means to go for my desire to trade...have been reading, watching, losing(learning)and winning for some time and this November I am going for it. I love it...the whole mechanics of it..

I do believe that sitting next to a trader in a mentor program would be well worth the money..They(Pris) offer one that runs 3k(1 week) and I think it would more than pay for its self in the long and short run. I see you all offer a mentorship program but it seems to be only online and by phone...correct? I am not sure it would be near as valuble as sitting, talking and seeing everything happen.

This board has not really gotten going...do any of you members know about it? I would love to see any comments they have to say...

Anyway...Thanks for any input..

Scott

scottfreedom@yahoo.com

dear toni....mea culpa...many of the references were meant for another toni...geez...brain dead or hit by lightning...hope you understand...virtualpar

hi toni...haven't visited TFMS for awhile and neglected to sign-up/post earlier...congratulations on a great start to what will surely prove to be another successful endeavour...thanks again for past observations and insights, and here's to the many that will come...don't want to clutter this board with tech stuff but you sorta asked...am running dual pIII processors, plain vanilla pc133 sdram and using an enseo quad agp card with great results...appian cards are highly regarded while matrox cards are currently the most cost effective...there is also a "new" ATI Radeon card...waiting to get a dual amd athlon box with ddr memory, but there are still some compatability issues...probably have to wait about six months (speed may kill but whatta way to go...this combo will cook)...toni's comments on monitors were spot on (tho i can't see spending the extra $ on 21's, but i guess size does count, sigh: no wonder she can see the charts from across the room)...fyi samsung (i think, not sure) builds the trinitron flat crt...finally, installing win2k pro will make a huge improvement in system robustness (especially compared to win98 se) and flexibility (unless you are a dedicated gamer) making networking a snap...sorry for the tech rant and all the parens, got carried away (its raining, can't play golf)...the highly biased opinions expressed above come with no guarantee or waranty of any kind, lol, caveat emptor...anyway toni "may the wind be always at your back", and/or may certain charts, chocs, choppers or whatever waft gently at an article of your clothing causing it to ascend...good luck to you and your partners, not that you need it...spitlessly, virt(y'all par)...ps oex has forgotten more about this techno stuff than i ever hope to learn

I'm often asked what my "Tools of the trade" are so I've put together a list which I've included in the Ibox. Feel free to pvt msg me with any additional info you'd like to see added.

All my best,
Toni Hansen

An associate of mine, Eric Patterson, wrote a brief lesson a few months back that I felt would be appropriate to re-post here (with his permission of course =) I hope you guys enjoy!




The advice I'd give to a friend or relative that was just getting started daytrading.

TAKE THINGS SLOW The first advice I'd give to the new trader is to not rush things. The best way to lose money fast (very fast) is to either play the lottery or make numerous rapid-fire trades in the stock market. Your initial goal is not to make a lot of trades, it should be to gain a lot of knowledge without losing your shirt. You will not make money in your first 3+ months. Use this time to learn as cheaply as possible. In fact, perhaps the worst thing possible is that you will make money in your first several months, giving you much more confidence than you are entitle to and, ultimately, a much more expensive tuition fee (trade losses) in the long run.

DON'T DAYTRADE IF YOU CAN'T AFFORD TO LOSE This is critical for two reasons. First, most daytraders lose! Second, if you absolutely can't afford to lose the ! money in your account, you won't be able to make unbiased, unemotional trading decisions. If you're constantly thinking about your next mortgage payment, you won't likely be a successful trader.

BE EXTREMELY SELECTIVE IN YOUR TRADE CHOICES It is okay to not take a trade. You will not lose a dime in a trade you didn't take. A missed trade can be a great learning experience, as you see the outcome (win or lose) of your potential trade without risking any money. I would suggest a new daytrader wait for the absolute perfect trade setup before entering a position. A perfect trade may only appear once per week, but it will likely be profitable 80%+ of the time. Again, try to avoid losing money, and LEARN from what you see in the market. Eventually, you will gain experience, hopefully cheaply, and you will gain the corresponding confidence to initiate trades in less than perfect situations. In the meantime, look for the perfect trade opportunity. For starters, stick! with long positions only. Perhaps look for a stock in an uptrend on t he daily chart, that is pulling back down to support on the daily or intraday chart. Ideally, the stock will be rising on heavy volume, and declining on weak volume.

DON'T TRADE ULTRA SHORT TERM Leave the scalping and very short term trading (i.e. trades of less than an hour) to the more experienced professionals. Instead, you should give the stock some room and some time. Don't expect to cash out in less than an hour for a months pay. Purchase a smaller number of shares (100?) so that you won't be too concerned if the stock goes down a bit. Remember, the goal is to LEARN. Watch what the stock is doing. What what the market is doing. Pay attention. Recognize what happened when you made/loss money. Eventually, you will see patterns and develop a 'feel' for the market.

AVOID NEWS PLAYS Trading based on news and hype is again something to leave to the more experienced than you. Don't attempt to buy the stocks mentioned on CNBC. This is a losing gam! e for the new trader. To profit from these stocks, you will need to be extremely fast to enter your order before the thousands of other daytraders watching CNBC. They will beat you every time. Don't waste your time with these plays. Similarly, avoid trading stocks based on stories from other news media. If a stock is favorable mentioned in Barron's, or the Wall Street Journal, the stock will gap up the next day, but by then it will be too late to purchase the stock. The news has already been taken into account in the price of the stock.

DON'T BECOME EMOTIONAL If you are emotionally attached to your trading, you will have a much more difficult time making money. This is another reason why it is best to start trading with an almost insignificant position size (100 shares or less). Unemotional trading is a huge advantage (or even prerequisite) towards successful daytrading.

CONSIDER PAPER TRADING Perhaps you should consider paper trading or tradin! g with a practice account. If you do, make sure you record every 'buy' and 'sell' on paper as it happens. Otherwise, you might fall into the trap of remembering only the good trades and forgetting about the poor ones. Don't fool yourself, stick with cold, hard facts. Also, recognize that it is much easier to 'make money' paper trading than it is to make money in the real market. There are many reasons for this, but the biggest problems are getting your 'real' orders filled and avoiding the emotional mistakes that can be made when trading for 'real'.

BUY LOW, SELL HIGH There are as many successful daytrading techniques as there are successful daytraders. However, for new traders, I would encourage them to buy stocks with limit orders on pullback during an uptrend. Don't chase stocks, you will ultimately buy the stock at it's top. Buy waiting for pullbacks, you will win the spread on every trade and be buying the stock at a discount from it's highs. To summarize this entry philosophy, your candidate list of stocks should be stocks! in an uptrend that are now in a short term downward move within the context of the uptrend. Ideally, the stock should be approaching some support level on the pullback at the point of entry.

When I was in high school I worked on a turkey farm as a hired hand. My job consisted of hauling grit and bring dead turkeys out of the bar. Turkeys die. The farm I worked on raised about 200,000 turkeys each year. Of those about 12,000, give or take a few, would die. Nothing can be done about it, its just the 33 turkeys are going to die each day. If we went 10 days in a row with out a dead turkey at all, then on the 11th day I just might end up having to haul 363 dead turkeys out of the bar. This never bothered the farmer when he had dead turkeys. He knew that turkeys die. When they got sick he would medicate them so as to reduce the loss, but its accepted that a certain amount of turkeys will die for one reason or another. Those dead turkeys are like losses in the market. There is nothing you can do about it, your going to take the losses as sure as Pete Hermanson is going to lose 12,000 turkeys this year. The distribution of these losses may be fairly random, meaning for some time you may take no, or very slight losses, but at some point you are going to take the losses inherent in your system. Its not personnel, its just a fact. If you are to be a turkey farmer you can not cry over dead turkeys. If you are to be a trader you can not let losses effect you. You can only control them and move on.

Brandon

My assumption is that everyone knows of the mess that was the Nasdaq on Friday. After basiclly closing down for a few hours mid-day, they tried to have an extended trading session which was the biggest joke I have ever seen. They have sent people to jail for much less than what we saw on the tape Friday night, but that is another matter entirely. What is of concern is how this screwy tape has effected data. At this point, not only are many Nasdaq stock prices questionable, but all of the averages that Nasdaq stocks are members of are also effected. This makes market and sector analysis very difficult going into Monday.

Brandon

Brandon & Toni,

Have been going through your site as much as I can without making use of the free week offer.

Spent the last hour going over your online seminar and enjoyed it. You definantly are on the same page as I am and what I want to do starting in the next few months. As I said to Toni in another post, I have been following Pristine for some time and had planned on going to Miami to spend a week with Paul Lange in Novemberin a mentorship program they provide. It seems you have one of sorts, but it is done on the phone and through a chat room. Which is nice but I really think it would benefit me that much more to go through and watch and learn first hand. I think having a real conversation has a lot going for it. If you ever plan on doing this...please let me know.

I do plan on trying out your free week offer, probably the week after next as I do believe it will be a slow one(maybe not because of the holiday. Looking forward to it and the chance to give your site a better look.

Thanks for the comments posted so far,

Scott

One of the great things about price patterns is that the truely good ones, the ones that have a valid ideology behind them are fractal..that is, you can take the same idea and apply it to any time frame. You can take the Marabozu pattern, which we traditionally use as a daytrading setup, and using the exact same concept apply it on a weekly, monthly or quarterly chart allowing you to utilize it in your longer term trading plan. You can also take the idea behind the core Core Swingtrade Buy setup and apply it to longer term time frames giving yourself the ability to use this powerful concept in longer term trades. You can also shorten the time frame,and with some slight modifications have yourself a very profitable daytrading methodology. That will be my focus here.
This entry setup is very simple needing only a few things. You need a liquid (over 1million shares a day) volatile (with at least the same volatility as the SP500) stock to start with that is trending. Next you need a 13 minute chart, a 20 period exponential moving average and a 3 period Relative Strength Index (RSI). I will briefly explain each tool before moving on to the setup and its application. Im going to keep it very simple, they can easily become more complicated than they need to be leading to inaction.

Not to be confused with Relative strength, which is simply how a stock is performing relative to the major averages, The RSI is an overbought/oversold indicator, much like stochastics. It was developed in the late 70's by Welles Wilder and is one of the more reliable of the popular technical indicators. The RSI is an oscillator that measures the relative internal strength of a stock or indexes average upward price movement against its average downward price movement over a selected time frame. The shorter the timeframe the more sensative it will be. Didnt get all that? Dont worry...I dont really either. Here is the important part: An RSI reading over 70 is overbought and an RSI under 30 is oversold. Just be sure to remember that last part, its the one that matters.

For this setup, I use an exponential moving average rather then a simple moving average. Exponential moving average give greater weight to more recent price data than do simple ones and are thus more sensative to recent data. Why do I use an exponential moving average for this setup and not a simple moving average? For the same reason in other cases I use a simple in place of an exponential...it works better

The setup here is fairly simple and straight forward. First you want to be able to look at the stock or index and see that its fairly obviously trending. Once that is established, when its above the 20ema you are looking for long setups. When its below the 20ema you are looking for short setups. Trending stocks often have the counter trend moves and become overbought/oversold before moving again in the direction of the trend. These can often be very strong moves. The RSI set at 3 periods gives us a very sensitive measure of overbought and oversold. When the stock is uptrending and above the 20ma on the 13minute chart, once the RSI triggers oversold, you go into a buy alert. The actual buy setup will occur once the stock trades above the prior bars high on the 13minute chart. The alert will remain valid for two bars. On the short side you want to see the an obvious downtrend in place on the 13 minute chart. The stock must be trading below the 20ema and then go to overbought. The short is triggered below the prior bars low and again the alert remains valid for 2 bars.

I will use PDLI as an example for this setup. We had an earlier trade in PDLI which resulted in a small loss, and then I mentioned that I was again watching the stock. When it setup I had stepped out an so we all missed it. But, since its right here and was something mentioned I will go ahead and walk you through the setup. URL is http://www.swingtrader.net/RTRcharts/PDLI.gif

As you can see when you look at this chart, PDLI is in an obvious uptrend. Its making higher highs and lows on this time frame. Todays early action was very strong and the stock took the opportunity to rest and pullback. The pullback gave us an oversold reading on the 3 period RSI. Once this is in effect the long trigger is above a bars high. So, on the very next bar, the $80.06 high was taken out and long positions can be taken. Stops are placed 79.19 which is the bars low. As we can see the stock is doing very well. Trade mgnt is pretty standard. Once you are up an amount equal to your initial risk go ahead and move the stops to breakeven and manage the trade.

If you take trades using this setup a few things are pretty important that I have found. First of all make sure you dont take trades on alerts, only the setup. That should be obvious. Also, if you dont have a liquid, volatile stock that you can see a trend on when you look at the chart, your going to go broke.

Enjoy,
Brandon

Alphatrade is a Real Time Quote Service with Level 2 quotes for a subscription price of $17.00 per month. It's difficult to explain, but the best way to see what I'm talking about is to download a free version Level 2 quote here: http://www.quotetracker.com/ install it and let me know what you think! This one also has charting in it.


muel <ggg>

Ihub offering intraday charting? I'd never heard that but have only been here a few days.. It's always a good addition for sure. We added it to our own site this year. I've also never heard of Alphatrade.. What is it like?
Toni

The day went pretty much as planned... The nice thing about events like the Fed is that they are so predictable... We did see our rally in the morning, then a slowdown over noon. After the announcement of a 25 basis pt cut the market dropped sharply, no doubt because it was the lower end of expectations. The counter-swing was even more severe though, this is also not uncommon, and gained back all that was lost. Then with the price resistance over noon the market broke down once again in the direction initially indicated after the annoumcement. This was more evident in the S&P as the Nasdaq held up better in the last move, closing pretty even ont he day while the S&Ps were down slightly.

I've been debating what to make of the action over the past week. As those who talk to me in other arenas on the web know, I did not think the last drop would be steep. In fact, it wasn't, ending yesterday. I think we could actually see some upside again here because weekly support in many stoicks is pretty strong. The market just has CCI (Commodity Channel Index) resistance to break and it's been testing that for awhile here on the daily so can now break it more easily.

Take care everyone and I hope the Fed. was good to you! :)
Toni Hansen

When you couple technical analysis with your personal knowledge of how a stock moves and reacts to events, I think you have a winning combination. The recently new ability of quote services to offer real time intraday charting has been an extremely usefull trading tool for me! Alphatrade is what I'm using now, but there are others out there that I'm told are just as good. It might also be of interest that Ihub will soon be offering the same thing! Can't give a time frame for when this will happen, just know it's in the works!

muel <ggg>

Hi Scott,

Reading and watching... always a great part of the learning process =) Your concerns are well-warranted. If people don't think you're insane or class you with the old ladies heading to bingo or those off to vegas to waste away their hard-earned savings then they think it's their duty to give you the latest "sure thing" to invest in and trade. Even the guy I had installing a window for me this fall was trying to tell me I just had to check out his wife's company cause they were so close to a breakthrough in such and such a technology. 5 years ago no one really cared... it wasn't such a trend, aka "fad." At any rate, overcoming the streotypes can be difficult so the best way to beat them is just to educate yourself and gain the confidence necessary to succeed.

You asked me about my office check list. First, always have a backup. For me this means another inet connection in case the first one goes down. I just use a dial up as a backup on my laptop and find cable inet works great as a primary line... Reliability is imperative though.

As far as monitors go... I have 4 I use most of the time but could get away with 3 easily. (We have about 10 total in the office but don't generally run them all at once.) I like to keep an eye on as many of the stocks in my watch list as I can at once. It's easier that way to catch changes. You don't have to invest a lot for them either. Something like View Mate or the works just as well as a Trinitron and while flat screens may be what the coolest of the cool have I haven't felt the need to cough up the extra bucks for them. (Besides, then what would my cats sleep on all day? =)

For a broker I would recommend direct access. Since charts are very important to me in the type of trading I do, I use Real Tick 3 software which is provided by a Terra Nova broker such as Maverick Trading (http://www.mavericktrading.html) While there are a number of direct access brokers, I find RT3 has the best charting platform out there.

As for a computer... well, I need a new one of those myself now =) I'll let you know what I end up getting... Right now I believe I have a 600 mhz AMD processor and appian graphics card. You'd think that since I'd been around computers since they were just big boxes with lights I'd know more about them but I'm afraid I just rely on what others have told me. Perhaps we can get a few people to give their opinions.. hint hint readers =)

Well, I should take off and get the rest of my work done so take care!

All my best,
Toni Hansen

With the Fed. news hitting today you should use extra caution. Typically a move higher in the morning will occur with decent trading but unless you like to gamble I would not hold into the Fed. announcement. Personally, I'm not the gambling type. The common action following the announcement is a rapid swing one direction, a counter-swing near the same magnitude and then a swing back in the initial direction which followed the announcement. Online brokers tend to get bogged down at these times so executions are much much more difficult when you want them and fills can be all over the place. Kind of reminds me of those soccer tournament rallies where everyone just falls all over each other going stupid. Watching the game on tv in the comfort of your own home is much safer. Take care out there today gang!

Toni, I will check out those books...never hurts to hear different view points.

Interesting that David Bush has joined you at TMTT. I have been following Pristine for about 2 years and find them to be an excellent site. A bit pricey(but if it works)have learned a lot from some of there free area's. I signed up for the free stuff at your place and will give you all a good look.

I agree about having your own system that you can trust and tweek from time to time. I am planning on going into trading full time this fall when some funds I have coming become available. At this time I am reading, watching and learning.

Do you have a office set-up check list such as ...
PC's needed..
Monitors..
Brokers..
software...etc

I do not want at this time want to be a what people think of as a "Day Trader" Trading in and out all day long..

Its late but this is going to happen for me starting in Mid November and hoping that next year will be one of my best and enjoyable years...I do like to trade and have learned a lot from past mistakes and am looking forward to taking it up to the next level....and the next.....

Scott

Actually, there ARE two books by that name. =) The book by Douglas is also an excellent read and highly recommended!

Toni

Hi Toni....

Flagg here...just wanted to correct the baove response to Scott.......

The book "Trading in the Zone" is actually written by Mark Douglas I believe. I have the book and unless there is another one with the same title Mark Douglas is the author.

Take Care,

Flagg

A few random thoughts on sectors:

$XOI.X The oil index bounced strongly Friday off the 100 day simple moving average after a selloff from highs which began last month. The sector is currently oversold and looks like it will hold this support for at least a few more days.

$BTK.X The biotechs which have been strong since about March showed signs of establishing a lower high on the daily charts in last week's session after pulling back strongly to 50 day and 10 week sma support where it has been stalled for nearly two weeks. This high also occurred at Commodity Channel Index resistance at zero. While this index looks to head lower, risk is high as the monthly chart is getting really congested. The trading range over the next few weeks could easily just tighten.

$IIX.X The internet sector is another which pulled off lows made several months ago and in recent weeks has been weakening. It has one set of lower highs and lower lows and is now working on lower high number two. This resistance zone on the daily chart is the same one which held last time (the 10 day sma) and the CCI is also at resistance.

One thing that concerns me about all sectors with this patterns like the inets though is that the weekly and monthly charts are at strong support which suggest that we can easily see a continuation of the trading range throughout the summer with the rally off yearly lows and the current pullback just one section of that trading range.

All in all I would consider using a lot more caution on investments and position trades this summer because when you have patterns like this the risk is much higher. Often they will fall into longer term flags. Given the time frame, this would be on the monthly charts, thus taking quite a long time to work themselves out.

Good point muel....

A lot of what I learned about the markets just came from spending hours upon hours studying price action and market patterns each and every day. I started with a list of about 50 stocks which were popular at the time and would try every night to "predict" the next day's action. With time patterns began to "jump out" and I began to learn how each stock reacted to different events and conditions. While I now look at many stocks every day some of the best traders I know still only trade a core group of stocks every day because the "know" the stocks... My reason for diversifying came from the fact that no matter what the stock, similar circumstances generally lead to similar responses. So, by taking what I learned from a few stocks I was able to apply it to the market as a whole and thus filter through more stocks for the best patterns. It definitely takes time (usually I spend about 3-4 hours a night scanning and narrowing down prospects - at least it's a fast inet connection!) but it's well worth it! =)

Toni

Hi Scott,

Nice to see you on the thread! I do agree that Valez's book contain a number of great bites on the basics of trader's psychology and mistakes traders often make early on. I always helps to know as many of them as possible before you begin trading yourself! =)

You'll find that a great deal of what I'll be covering on this thread is similar to the information you have read as much of my collegues and my own backgrounds also stem from an influence in the futures markets where T/A was much more commonly written about until recent years with the onset of online daytrading. One of my partners, David Bush, actually wrote several of Pristine's daily newsletters and hotline for about three years before joing us a few months ago.

The great thing about T/A is that the basics are pretty easy to learn and from there you can develop your own style of trading. Just keep in mind in your studies that there is no "right" way to trade. You need to take what you learn and integrate it with your own personality in a way that works best for you. Learning this just takes time and patience. Having a mentor is a great way to get you heading in the right direction which is why we offer such a program as well. I also wanted to give you a few more titles you may be interested in as you get started:

Trading in the Zone by Ari Kiev
Trading to Win by Ari Kiev

Both books deal with the psychological issues one must deal with to trade successfully. Success in trading after all has very little to do with technical aspects and A LOT to do with how you handle your emotions. This month's Active Trader magazine also has a great article by Kiev. I hope this helps you out! =)

All my best,
Toni

"The greatest mistake you can make in life is to be continually fearing that you will make one."
- Ellen Hubbard

Why is the market up? Everyone seems to want to know this, but it seems to me its usually just to pat themselves on the back. A long wants to hear the reasons to validate his long position, to pat himself on the back and feel really smart. On the other side, the guy who is short wants to know the reason too, but will probably have an opposite reaction to the whole thing. This person probably wants to argue with the market, to say this is the dumbest thing and tell you exactly why. This allows them to feel like smart guys and pat themselves on the back too.
As traders our focus needs to be more on the what, not the why. We can always lie to ourselves about why, come of with great little tales to tell ourselves and feel real good. What does not lie though.

If you are long and havent a clue as to why the market is up, you still get to keep all the money you made..minus the brokers cut. If you are short and know every single reason the market is up and why it should not be, it really does not matter though now does it, you still have to pay up..plus commissions.

Be careful when you are more concerned with the why than the what.

Brandon
http://www.teachmetotrade.com

For every trade you enter you should have a plan, its the lifeblood of a trader. There are only two ways a position will stop out if you have a valid criteria to enter in the first place. First there was some sort of market change that effected the setup. There is nothing you can do about that, and unless it starts to happen with great consistancy its not something you can worry about. The next reason you can stop out, or just simply underperform, is by not following this plan. This is where traders go broke, even if they have a valid approach. If you are not following your plan, then there is some reason for this and you need to find out what it is and kill it before it kills your account.

Brandon

Excellent read, a point that I feel is also important when preparing to buy a stock is the consideration of how well do I know this stocks tradeing habits. To learn these habits I have found that watching a stock daily for price per share movement while also researching it for news articles is an excellent indicator of it's reactive movements! The time it takes to do this is long, but most always very rewarding!

muel <ggg>

If you make a map of success it will help you get there faster and keep you on the right track as you are on the road. Setting goals is important in all aspects of life, trading included, if you are to be successful.
By setting goals you identify the things you want. Not only that, but you identify how you are going to get what you want.

Grab a pen and paper now and determine the following things.

What do you want to accomplish with your trading this week, this month, this year and in five years.

Why do you want to achieve these goals.

What steps are you going to take to reach these goals.

What are you doing right now which is preventing you from reaching these goals.

Review this often to keep them fresh in your mind.

Brandon
http://www.teachmetotrade.com

One of the things most critical to your long term success as a trader is losing correctly. If a trader learns to lose correctly (s)he will eventually come out a winner. The hallmark of a true professional is small wins....and smaller losses. Most professional traders will be "right" 30 to 50% of the time, the rest of their trades will be very small stops or break even trades. Most novices however, are forever on the search for the holy grail technique that will be right 80% of the time of more. While a professional knows there is no such thing, there are unfortunatly a lot of dishonest people willing to sell such a dream.
Earnings season kicks into gear this weak. The historical trend is a a run into earnings season, but then as the news is out and the market has little to look forward to, the trend switches to down.

Brandon
http://www.teachmetotrade.com

Hello Tony, I like the start of this forum.

I have been planning on getting into swing trading starting this fall. I have read several books on this area and find Oliver Velez "Tools and Tactic of the Master Day Trader" an excellent read. It deals a lot with the mind set and different mistakes trader do. I have been in the stock market for 10 years and do not believe in the buy and hold routine. I would like to have short term trades for income and invest long in companies that do stay on an uptrend.

I have been thinking of going to a mentorship with Pristine.com this fall...it is a lot but I hope it will show me how to run it like a business,a way to find stocks and a routine to follow. A log is a great way to find your mistakes and learn from them.

I do believe a lot in TA and that you should have predetermined entry and exit points.

Thanks for starting this forum and hope that you and others can keep it going with regular posts...I will also throw some questions and comments in myself on occasion...


Nice informative start...

Scott

Hi gang,

Yesterday we held a free online seminar at Teach Me to Trade. One section of it presented by David Bush dealt with the question: "Why use technical analysis?" Since this thread deals intensely with T/A I feel it would be beneficial to repost that section here. I hope you enjoy!

All my best,
Toni Hansen



Why Do We Use Technical Analysis?

This is a fair question. An Important one

We believe that it is essential to successful trading to understand perhaps the most fundamental premise underlying Technical Analysis, and it is this:

Everything known about each and every stock (or commodity, index, etc),

or anticipated to be a known fact sometime in the future, is already reflected in the price chart of the stock in question. This is important for reasons we’ll see shortly.

In other words, if WXYZ Corp. is expected to have revenue shortfalls and excess inventory for the next three quarters,

this expectation is already written into the stock price.

Therefore, these expectations are already apparent in the price chart of WXYZ.

This is why the stock market is commonly referred to as a "discounting mechanism."

To understand why this is, think about what’s at stake in the stock market.

Each and every day, the world’s largest financial institutions’ trading desks, pension funds, hedge funds, mutual funds, and individual, independent market participants show up to stake their claim in the open marketplace and in most cases attempt to out perform each other. Each entity is looking for an edge in the market.

It is for this reason that common sense rarely applies to the stock market.

Take this example. ABDC Inc. releases earnings data showing their worst loss of revenue in the company’s 20-year history after the closing bell.

The next morning, ABCD gaps up and gains $4.50 to mark its biggest winning day in 6 months. Most investors think --and rightly so-

"How could this possibly be? Did everybody hear the news wrong? I mean, this was BAD news! Why did the stock rocket higher? It doesn’t make sense!"

Ahhh…the danger of common sense.

The real fact is that ABCD Inc.’s dismal quarterly earnings report was anticipated as much as nine months ago,

and by no accident that is when the stock began a steep downtrend.

By the time of the actual poor earnings report, the shortfall had been completely discounted, entirely factored in to the price of the stock.

So instead of performing terribly after the report, ABCD gains handsomely.

Why? The bad news is old hat, and there are no more aggressive sellers with future expectations of more shortfalls, only the expected bad news, so the stock rises.

Technical analysis does not rely on common sense.

It simply displays in graphic form each and every trade made by each and every individual or institution second by second, minute by minute, day by day.

Therefore, by definition, each chart displays the expectations of these market participants far in advance of the actual realization of the expectations.

This is where ideas about a company’s business and the stock of the same company often part ways.

Technical analysis helps us see what is actually happening to the investment vehicle itself, not solely to the company’s business itself.

That’s why we use it. The charts show the facts.

Now that we’ve briefly explored one of the underlying principles of technical analysis, let’s tale a look at how we apply it on a daily basis.

As we have already said, price charts are a record of all trades, and therefore of the expectations of those making them.

It is a logical deduction then to say that price charts are a refection of human nature.

This sounds loftily philosophical, but it is actually quite practical,

and something we use each and every day in our Advanced Chat Room.

Think about buying a car. Before any of us shell out $30,000 or more for a new buggy,

we walk around it, grill the seller with question after question, and take it out on the road for a test drive.

Only then are we willing to make the commitment.

So it is human nature to expect the same seemingly smart, thorough strategy to work in the stock market.

But requiring "proof" in the market means buying only once the value of a stock becomes obvious to all. In the market, this means buying too late.

Most traders wait for a stock to become obviously attractive,

and this means that it has already gone up. "Hey, it’s going up…it must be good… I’ll buy it." The longer a trader waits, the more it goes up, and the greedier he/she becomes.

So greed shows itself at tops, after the move is obvious,

when everybody and their uncle wants it.

This greed typically shows up as a wide range candlestick following several prior days

(or periods) of gains.

A spike in volume will frequently also accompany this range expansion bar,

telling the educated chart reader that the recent gains in the stock have been talked about

at every water cooler on every floor of every office all over the world and therefore has now become obvious to all.

By the very nature of wanting what everybody else wants,

greed sets in and everyone rushes to buy at the top.

We see this simple yet profound dynamic played out repeatedly in all timeframes of charts,

and use it to our advantage by either [1] selling our now very valuable merchandise to those who will so desperately pay any price to acquire it,

[2] sell short to the anxious buyers in anticipation that since the move is obvious to all there will be no more buyers to follow,

or [3] simply avoid buying blindly with the stampeding herd after such rampant greed has set in.

It’s all in the charts.

And in a nutshell, that’s why we use Technical Analysis…to see the facts,

and play them accordingly.

To trade the patterns, not hearsay.

And to act based on what IS, not on what we hope…some day…will be.

Technical Analysis helps us achieve that aim.

Here is a class which was given in the RealTimeTrading Room last week. Hope you enjoy.




I think most of us have a good idea of how to go about getting into a trade with regard to the setups. It's pretty uniform and easy to do, so I don't see many people have a problem with it. What I do see a problem with is exits, because people don't have as clear an exit plan as they do an entry plan, but you need to. Otherwise the exit part of a trade becomes very confusing and hard to make a buck. So I'm going to talk about trade management and your exit points when you have a trade.

Types of Exits:

A) The initial stop: This is your first potential exit area. It is like an insurance policy and no trade should be entered with out it. You always have to have a worst case stop that you will take no matter what. This is what you base your risk on and it keeps you in the game which is always the goal. Show up tomorrow, blowing stops, and that's the surest way to have to call the traders suicide hotline. Not fun. Don't do it. So, your first exit is the stop and you always have to have it. This worst case stop should be placed at a logical area of support, right under it. I'm assuming a long position for ease in the class, just know a short is reversed.

B) A break even stop.This will come into effect at various times depending on ththe price and volatility of a stock but a good rule of thumb is $1.50 to $2.00. At this point you should have a worst case scenario of break even. There will be variations of this obviously. So this will require a bit of thinking on your part, which is too bad, and that's not meant to offend anyone. That's just saying the best trading plans you wont have too think much. You just follow the plan. So it's too bad on this one part that you have to. At some point though you need to say: Ok, I am playing with the market's money. I am no longer at risk and the worst I can do is break even. It's very liberating and promotes free thought in a trade. If I could point to one of the things I do that make me successful, using break even stops would be in the top 3 or so. It's very important.

C) The trailing stop method. The saying "once a winner, always a winner" here. Usually this will be applied after the break even stop and what you need to do on this, again you have some room. There are two ways to do it: The first of which is to trail out under major intraday pivots. These could be from today or yesterday. A pivot is a bottoming area. So, look at say QLGC, 15 min chart, 13:45 is a pivot. One option you have is to adjust your stops to under those. As soon as those are better than your break even level, but not until. The next option, one which I use in a very well trending market but not really this one, is to simply trail out under the prior days low. This allows you to stay in the trade awhile and unless an sellable event occurs, which I will cover in a minute, then I would trail out in this manner.

Next I want to talk about taking partials. I'm a big fan of taking partials. It insures a trade is better than break even and it's saved my ass(ets) more than a few times. In most cases when a stock is up to my break even stop amount, this is when I will start to look for partials to be taken. So if I have 600 shares of XYZ at $60, when its up to $61.50 I will go ahead and sell 200 or 300 shares and then move my stop on the rest of the shares to break even. This will insure that, at worst, I take a gain. Not a bad way to play at all. It also allows you to be a little bit more liberal on the trailing stops, just from a psychological standpoint. It makes it easier to stay in for some long pulls. Hope I'm making some sense here and clearing up a lot of selling issues for you guys.

Ok, next I need to cover the sellable events. If a sellable event occurs, you will sell regardless of the stop being hit, even if your stop is not hit. If one of these sellable events occurs, you will say good bye to your trade.

1) The first sellable event is when a stock gaps up 2 1/2% or more at the open. The instant this happens you need to sell 1/2 of your remaining shares. Then, wait for a five minute low to be established and if it's broken, kill the rest of the trade. The reason here is that most gaps do in fact fail on a swing setup. So, you need to sell those gaps, On the gap there will be plenty of amateurs begging you to sell to them. Be nice. Give 'em what they want, you already have it at a better price. That's sellable event 1.

2) If in the last 30 minutes of the day a stock is at or near the days low, you need to sell. If the stock closes in the lower 1/3 of the day's range, that's usually not a good sign. That shows sellers became active and you are probably sitting on the wrong side of the market at this point.

3) If a stock you are in gaps down more than 1/2 point at the open, then breaks the low it establishes in the first 30 minutes of the day you need to get out, regardless of trailing stops.

4) If a stock is up a good deal all day, then it gets strong selling in the last hour or the day which force it to close under the day's opening price, that is a sign that bad things could be in store for the stock and you should get out.

5) If an exhaustion bar occurs. You all remember my trade in ENTU, Here is one of my major screw ups. On Friday we had a very large range day, on climax volume. When you see this, especially after a stock has already been up a few days, this signals a blow off and, more often than not, the next major move is down. When I got greedy with ENTU and did not take this signal it cost me about 1/3 of my account in a day.

6) The final sellable event would occur if there is climax volume but hardly any move. This is also a sign to us that the stock is liable to break down.

Ok, that's your sell plan


Brandon
http://www.teachmetotrade.com

One tool I find enormously helpful in evaluating trades is to keep a trading journal where I log all relevant information regarding a position. I can then use this information for future reference to identify problem areas, strengths, mistakes, etc. The following are key sections in my journal that you might find helpful:

DATE:
SYMBOL:
SECTOR (if known):
BUY/SHORT (circle one)
TYPE OF SETUP:

ANALYZING THE POSITION:
PROS:
CONS:

CURRENT MARKET CONDITIONS:

EXPECTATIONS:
PRICE TARGET:
REASON FOR PRICE TARGET:

ANTICIPATED RISK TO REWARD:
ANTICIPATED RISK LEVEL (rate 1 to 10 with 10 being high risk and 1 low risk):

ENTRY TIME(S):
ENTRY PRICE(S):
REASON FOR ENTRY AT THAT PARTICULAR TIME AND PRICE:

STOP PRICE AND WHY IT'S SET AT THAT PRICE (also note when the stop was adjusted and why):

EXIT TIME(S):
EXIT PRICE(S):
REASON FOR EXIT:

OUTCOME OF TRADE:
EXPECTATIONS MET? YES/NO (circle one)
TRADE ANALYSIS (Include thoughts on the trade such as what could have been improved, what
you felt you did correctly, areas you may need to work on, etc.)

TRENDS: AN INTRODUCTION

A trend is the primary direction of price movement in a given time period. A stock may have a number of different trends going at the same time so it is important to determine the time period you want to focus on. The trend we use most often in swing trading is the daily trend but you should also be able to identify the weekly and intraday trends as well.

Simply put an uptrend is a series of higher highs and higher lows while a downtrend is a series of lower highs and lower lows. The third type of trend is a sideways trend. This occurs when prices move up and down within an established range. The following image is designed to give you a basic idea of what the three types of trends look like.

http://www.swingtrader.net/lessons/trend1.gif

In an uptrend note how each new high is higher than the previous one while each successive low is also higher. Often the high of the last "swing" in the trend will serve as support for the next low. These areas are circled.

In a downtrend note how each low is lower than the previous one while each successive high is also lower. Often the low of the last "swing" in the stock's trend will serve as resistance for the next high. These are also circled.

Hi Folks,

I just wanted to take a minute here to introduce myself. I've never really followed message boards before but my partners Brandon Fredrickson, David Bush, and Eric Patterson tell me it can be a lot of fun as well as addicting. (I'm not sure if the last part is good or not since time seems to be a limited enough commodity as it is but I'm willing to give it a go!) Brandon started the previous board known as Trading From Main Street but for some reason it doesn't allow for us to post new messages as it's gone a bit haywire so I've started this one to continue his efforts at creating a medium where fellow traders and investors can help each other grow in their profession. I look forward to hearing from you!

All my best,
Toni Hansen
http://www.teachmetotrade.com