Silver

A lot of financial analysts and gurus have been talking about gold and silver lately. Usually,when an asset class is overheating and in need for a pullback, cnbc and others like them are starting to jump on the bandwagon near or at the intermediate top. I have been trading in and out of silver this year by buying the dips and selling into strength. That has been a working strategy,but right now,i do not want to get involved in the silver trade immediately.

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I think it would be healthy,if it stayed around 40$-45$ for a while. When i look at the weekly chart of silver,i just can’t get myself to buy it here. Of course it is possible that silver starts running again tomorrow,but when i look at it from a risk reward standpoint, it is not possible for me to get excited right now.

To get me really excited again two things should happen: when QE 2 ends, the market should see a pullback and the metals an even stronger one. If that happened,i would hope that silver started trading in a range.As soon as it finds strong buyers at a certain level i would buy again and hold it against that level until the market tells me to get out again.

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I have not shorted for months now,because i just don’t like to trade counter trend. I would rather wait and do nothing,because the patterns are less reliable,when you short in a bull market. Especially the “head and shoulders” pattern has been failing many times. In the metals there have even been more failed breakdowns. The break of a support level in silver for instance has often been the best time to watch closely for a new entry,because as soon as it broke down, it reversed and the shorts got squeezed.

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Waiting…

During times when the market gives me mixed signals i have learned to be patient.I didnt take  a lot of trades this month. The only thing i still do is add to my precious metals positions on weakness (wich feels strange,because in day trading i only buy on strength after a pullback).

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But this strategy has payed out, because i didn’t get chopped up and also now have a long-term position in Silver that i plan to hold for at least 1 or 2 years (i will only sell if the weekly chart starts to look weak or if we get a parabolic move).

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But i have a lot of stocks that i plan to trade on the long side if the mkt strengthens again,especially energy stocks,mining companies and tech stocks as well as some in the transportation sector.

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One bad trading day…

can possibly destroy the work of the whole week or even month. That is one of the extraordinary challenges that makes being a day trader a pretty hard job sometimes.When you have even more than one of those bad days in one week,there can be an immense pressure to make the losses back quickly. That is when you have to remind yourself to analyse exactly what lead to your bad trades and why you were not able to trade the way you wanted to.

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In my case i had two terrible trading days last week,that cost me almost all of my gains of this year. Fortunately after the second day i realized that it was a simple reason that made me lose so much in those days. I started both days with the feeling that the market would perhaps pull back after an initial upmove. So i made the decision to buy strength after the open and scalp those moves,because i did not believe that the market would have a trend day up.  So i took a big position with the intention of exiting after a few cents and got stopped out of that almost immediately. Because of the early loss i began searching my scanners for charts that looked promising and entered the first trade that i found. Of course i got stopped out again.

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All of that could have been prevented by following a rule that i usually follow: if you get stopped out in a strong stock after the open don’t take a second trade directly after that,because your judgement is still influenced by the emotions that followed the loss. My best trading days have been the days were i took just one trade in the morning and one trade in the afternoon. My worst days were always following the same pattern:quick loss,revenge trade and second loss and many  terrible smaller trades for the rest of the day with bad entry points (willing to take any trade to make the losses back).

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My best weeks were always those with about ten trades taken. That way i only took trades in stocks that meet my entry criteria exactly. Otherwise it can happen that i am not perfectly concentrated or react to something i hear or read,pull the chart up and make myself believe that is i have to get in. Most of the time i am able to stop myself from pushing the “buy” button,but sometimes after an unexpected loss or two it can be pretty hard to do.

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To be a really good trader you have to follow all of your rules all of the time. That is often easier said than done,but i am still trying to improve,someday i will get there. Hopefully that will be sooner than later.

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Trading is rationality vs emotions…

and to be a successful trader you have to make sure that rational thinking always wins. The problem with that is that your emotions sometimes lead to decisions that seem rational at that moment, but are really based on fear (like when you tighten your stops when the stock moves up for five minutes or sell positions too early).

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Those decisions can only be identified as wrong when you do your analysis after the trading day. For me it has shown me that my biggest mistake that i still continue to do is to sell a winning position too early. I have to learn to accept that it is impossible to know the top in an uptrending stock. As long as the stock is in a bullish pattern and there is no important long-term level where it is unlikely to continue,you should not sell your entire position.

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I often sell stocks because i lose patience with them when they don’t move. That can be a good idea sometimes. When the advance/decline is 9 to 1 and your stock is the only one not moving there is no point in holding on to it. It just distracts you and you cannot focus fully on the good stocks. But when the market is negative and your stock is not falling with the market it makes no sense selling it. It is more likely that the stock will perform better as soon as the market turns.

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I think it is essentially important to be in a certain state of mind when the trading day begins. When you start observing your own mood swings you also can start to see correlations to your trading performance. Being to relaxed has not worked out too good for me, but being too aggressive is the worst thing when you are trading. I try to be as aggressive as possible without forgetting that aggressive trading doesn’t always mean successful trading. That is only the case in the right market conditions,so you have to be willing to wait for your chance. Always remind yourself that trading is a business and it is not about having fun,but about making money (although for most traders both are the same). It is never good to get overly excited about a stock. If it goes up-good, if it goes down-get out and move on.

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Timing your entries

I have often tried to trade stocks that had recently broken out and still looked like they probably had some more room to run. And frequently i got stopped out with a loss in those stocks,only to see them have huge runs the next day,when i didn’t trade them any more. There are not many things more frustrating than losing money in a stock that is going up all the time, just by being in it on the wrong day

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But there are simple ways to avoid that. Even if you had a bad trade in a stock,that doesn’t mean that this stock won’t eventually do what you thought it would. Only perhaps a day or two later. Just continue to keep the stock on your watch list (and watch it). This way you won’t miss it when it finally does go up. The problem with that is, it can lead to many false entries if you have no strict system that only gets you in at the best moments.  Also if the market is weak you cannot expect the stock to perform the same as if the market was strong. And it is of course also possible that the stock continues to go down instead of up. In that case your system should keep you out of the stock and you should delete it from your watch list until it looks attractive again on all timeframes.

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Never forget that stocks never go up in a straight line. Even in the strongest uptrend there will be down days, so you have to be prepared for that. But if a stock is in an uptrend on all timeframes it will most likely continue higher sooner or later. Then your alerts should go off and your charts should be prepared. Continue reading

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You can’t control the market!

When you are trading you are always depending on two things to make a profit-yourself and the market. You can only influence one of them. What the market does is always beyond your control. You have to accept that. Prepare yourself every day for the possibility of three things that can happen: uptrend,downtrend or no trend. If there is no trend then there is no edge.

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When you come in with the mindset that you must have a certain number of successful trades every day,that is just not realistic. If the market is flat the entire day and there are no good tradeable setups it is best to do nothing. Trying to force things just leads to frustration and a waste of money on commissions.

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What?How?When?

Those three things are basic questions that you need to answer every day as a day trader.

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What:

That is the first question you have to answer. What stocks do you want to trade? There are different reasons for trading stocks. In the best case, you have a stock that has a promising technical setup and an upgrade or some kind of positive news event that could push the stock higher.  Most of the time there are certain groups of strong stocks that move togehter (like the casino stocks at the moment). Then you pick the strongest ones and/or the ones that have the best risk reward.

Also sometimes there is a news event during the day that influences only a few stocks .Then it is not the best thing to jump on those stocks immediately, but to observe them for a few minutes and wait for a good entry. If you dont get a good entry,dont trade those stocks. It is better to lose opportunity than capital ( i cant remember who said that,probably Livermore or some guy on Stocktwits) but I sometimes bought stocks based on news and the first reaction to it,just to be stopped out minutes later.

During the morning session i always look for stocks that had extreme moves on high volume. If they had strong morning sessions, i hope for a pullback and a possibility to get a scalp trade if the stock runs into the close.

 

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How:

Trading directly after the open is very risky, so most of the time i don’t do it. I will wait for the first 5-10 minutes to see what happens. Then it depends on the market. If  i want to trade a stock that had been strong the day before and i am looking for continuation of the move i will not be as aggressive as if i have a stock that i have been stalking for a while and that is just breaking out of a longer term consolidation range. Those are my favorite setups,because they usually work well immediately. After the first explosive move i will sell at least 1/4 or half of my position (depending on the size of that move) and move my stop up as soon as the stock makes a higher low.

Then i just stay in the rest of it until it a)looses the daily VWAP or b)has a parabolic move to the upside, in wich case i have a very tight stop that is underneath the close of the last 1min candle. I do that because i rather sell into that kind of strength,because i found out that intraday those vertical or parabolic moves most of the time are followed by sharp corrections that take the stock back to or below VWAP as soon as the first vertical phase is over. As a swing trader that would not be the best way to trade those,because you could expect the stock to perform strongly the next day. But i am not comfortable holding stocks over night, so i usually don’t care about the next day.

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When:

I trade every day, but depending on the direction of the general market i trade with more or less size. If the market is acting well,i will take bigger positions, when the market is very extended i will trade with tight stops and try to get in and out very fast. I also have tighter than usual stops in place when the market is without direction. The ideal situation to take the biggest risks are those,when the market is in a general uptrend, consolidates its gains for a while so that enough people begin to doubt if the move will continue. Then you just have to wait for example for the FED to announce the amount of QE 2 or some event of similar importance. Often events/news are only affecting one group in particular. Then focus on that group. At that moment you have to be there with a plan. Anticipate how the reaction to the event could look like and trade accordingly,when you have good setups,those are the times that i put the biggest risk on. Not necessarily immediately after the announcement, but as soon as there are breakouts from a solid basis on big volume. Then there are times,when there is just nothing tradeable ou there. Then you just have to sit on your hands and wait for opportunities. But as i wrote in an earlier post,that is not one of my strengths. I still have to work on that, because making money is not so hard, not losing it is.

 

 

 

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