Monday, January 16, 2017

Basics of Trading Part 5: Your Heath and Day Trading the Daily Chart

5th in a series of post's on the basics of day trading for beginner traders. Will be archived so can be used in conjunction with trades I post, and my trading plan which doesn't cover the basics.

PART 5: Your health and trading and a Simple Day Trading Setup Using the Daily Chart.

YOUR HEATH: Everyone needs to take their everyday health seriously and as traders we need to be sharp and alert when our money is on the line. As a friend reminded me "the preservation of health is easier than the cure for disease" :)

Sitting is the "new smoking" and Movement is the key to beating this habit. Set a weekly exercise routine based around walking, mid core, strength training and cardio workouts.

Your daily diet should have an abundance of fruits and vegetables to snack on throughout the day. Supplement intake is almost a must and I highly recommend liquid vitamins that absorb quickly and give you the needed nutrients over the standard hard tablet that absorbs less than 20% into the body. The 2 vitamins I take first thing every morning are Isotonix Vitamin B complex and OPC-3 antioxidant. All natural and keeps me sharp. The follow link I touch more on Your Heath and Trading.

Step 1: Scan for Bearish and Bullish Engulfing Candlesticks on the Daily Chart. I touched on these in Part 2 of this 5 part series on the basics of Day Trading.

Bullish Engulfing Candles need to be trending up on the Daily and Weekly Chart and bouncing off Support or closing above resistance on the Daily Chart.

Bearish Engulfing Candles need to be trending down on the Daily and Weekly Chart and bouncing off resistance or closing below support on the Daily Chart.
Prefer the engulfing bar has higher volume then the previous day. The engulfing bar must be wider than the average candle and stand out with small wicks near the entry point. When you see this bar you should have zero doubt that it’s an engulfing bar.

Support/Resistance points on the Daily Chart: candlesticks off the 10sma, 20sma, or a multi touch support or resistance area.

Bollinger Bands: can be used to measure the "highness" or "lowness" of the price relative to previous candles using the 20sma and as support and resistance. A tight BB with an Engulfing Candlestick can signal a breakout/breakdown is near. A spread BB with an opposite trend Engulfing Bar can signal the trend is near over. (Example the trend is up with Bollinger bar expanded up and a Bearish Engulfing bar appears off the band)

Entry: For a Bullish Engulfing Bar enter one tick above the high of the bar. Do not chase more than .5 to .10 above the price.

Stop Exit Point: For the Bullish Engulfing Bar place the stop at the low. (I outline in my business plan alternative stop areas - but stick to this stop premise as you learn how the markets trade and become more comfortable) Always exit at end of the trading day if neither stop or exit is obtained.

Exit Point: The same range between the stop and entry point. Add the range to your entry point and this is your profit point. (Example entry is 50 and stop is 49, range is 1.00 – exit would be 51)

Shares to Purchase: Use this calculator to determine the # of shares to purchase based off your risk. New traders don’t risk any more than $25 per trade.

Video Attached: Here I go through scanning, a few candidates and trades made the previous week to help give you an idea of the process. Will need to click HD on your computer for a clear screen. my find better quality on the Facebook site:


Of Note: DO not enter the trade the night before - wait until the market opens the next day and hits your entry point. If the stock runs away from you and doesn't trigger your entry then DO NOT CHASE. There is always another trade.

The Daily Candlestick Day Trade will help build a foundation for intraday trading. You can grow your account and learn without the roller coaster ride of quick stop outs, big wins and big losses. Sticking to the trend, using support and resistance and only the trading strong candles will dramatically reduce the number of times you are stopped out and enhance your success rate.

Like any new skill it takes time to learn but most of all you must enjoy it. Trade for the game not for the money.

"A man must believe in himself and his judgment if he expects to make a living at this game." - Jesse Livermore

* You don't have to trade everyday. If the conditions don't feel right or if you're unsure of the current days trading environment then PASS on the trade. Missed money is better than lost money.  Day trading and the stock market is not a "war" that you must win at all cost. Trading should be fun, wait for only the good setups. Follow your rules, stick to your stops, and know that everyday the market presents a new chess board.

Wednesday, January 11, 2017

Basic's of Trading Part 4: Margin, Pattern Day Trader, Account, Commissions

4th in a series of posts on the basics of day trading for beginner traders. Will be archived so can be used in conjunction with trades I post, and my trading plan which doesn't cover the basics. 

Part 4: Margin, Pattern Day Trader, Account, Commissions, More on Mother Market

Margin: Before defining Margin, new traders should avoid the temptation to use margin.  In simplistic terms Margin is when borrow money from your brokerage to finance all or part of a trade. Basically you are given more money to trade with and if you don’t know what you’re doing or inexperienced - more money to lose. But when used properly margin can increase potential returns. The pattern Day Trader can use up to 4x their account in buying power during the trading day. Over night the maximum is 2x from your brokerage to help purchase stock. For example, with a $30,000 trading account, you’ll be given enough buying power to purchase $120,000 worth of securities intraday. Overnight, however, the margin requirement is still 2:1 so the maximum is $60,000. 

What is a Pattern Day Trader: A pattern day trader is a trader that makes four or more round trip trades within five business days and your day-trading activities are greater than six percent of your total trading activity for that same five-day period. So why is this relevant?  To be able to have unlimited day trades, and be approved to use 4:1 intra-day margin, you must maintain a minimum of 25K in your account.  Without this amount you are only limited to three Day Trades over five business days.
Do you Need 25K to Trade?: The obvious  issue is that not everybody can afford to open a 25K+ trading account and have trading privileges...and that is a good thing. New traders should start with a small account and limited trades until your skill and account level gets to the point where you can start to scale up.  

Trading with less than the 25K Minimum: This is the safest method for starting out as a trader.  You are allowed to make three-day trades over a five business day.  This will force you choose only the best setups.  If you see a number of average setups one day, you are more likely to pass on them and wait for a better opportunity on another day. If you stick to $25 per trade risk and lose 10 trades in a row (hard to do) you would only be down $250. Another idea for placing more trades is having a split account. This would give you 6 Day Trades to place over a 5 day period. 

Commissions: When you make a trade you must pay the brokerage firm. Some brokerage’s will offer new accounts free trades for a period of time with a minimum of 5K account. Like any business, yes you need to treat this as a business, there are expenses. Shop around for the best deals. For my IRA I use Think and Swim ( TD ameritrade) so I can access their superior software system for charts and scanning. For day trading my regular account I use Options House for their cheaper commissions.  Check Nerd Wallet for deals, reviews and guidance as they have an article posted on January 6th that needs to be explored in its fullest. I recommend a few times and don’t rush through as lots to uncover.

More on Mother Market:

This video portrays the realization when you gain the respect of mother market through time, practice, study and can recognize high % patterns on a chart with ease. It’s a state of ease as you balance the highs and lows of winning and losing trades by always focusing on the process over  the $. This state of ease is always sticking to your entry point if you miss an entry and the stock runs away without you. This state of ease is sticking to your profit exit point and not getting greedy and holding on for more and ALWAYS sticking to your stop exit point. It’s treating day trading as a business not a hobby.
It’s the understanding the war is over, and that in reality it wasn’t a war with mother market. It was a learning process that gave you the foundation to help propel you to success.

Next Post: your health and trading, Simple Setup using  the Daily Chart and a basic video showing how I scan for candidates and use the charts to filter out daily candidates to trade. 

Sunday, January 8, 2017

Basics of Trading - Part 3 Mother Market

3rd in a series of post's on the Basics of Day Trading for beginner traders. Will be archived so can be used in conjunction with trades I post, and my trading plan which doesn't cover the basics.

Part 3: Mother Market, respect her and her rules.

Mother Market is the markets. She rewards those who maintain their discipline and focus on the process over greed. In turn she will beat down those who don't respect their risk tolerance, the markets signals, or put in the time to learn how to trade. Trading is similar to venturing onto the ocean, if you enter that vast blue unpredictable sea unprepared you will end up with the Titanic.

Trading comes down to protecting your capitol through proper risk management and discipline. In the last post I touched on risk and highly suggested not risking more than $25 per trade until you can consistently trade well. If you lose 10 trades in a row with a maximum risk of $25 a trade while maintaining your stop you will only be out $250. That is less than a 3 month course at a community college or a new cell phone. You will learn more from your losses than any winning trade or trading book you lose cheaply!

As stated by expert trader Ed Seykota - "The elements of good trading are: (1) cutting losses, (2) cutting losses, and (3) cutting losses. If you can follow these three rules, you may have a chance."

So what happens when you don't implement or follow your rules, trade outside your risk tolerance and lack discipline? Well then Mother Market shows up and she can be cold, ruthless and without mercy on your account and mindset.
The video attached if from the Movie the Last Samurai - excellent movie simulating what its like to learn a skill outside your comfort zone and the work that must be applied. In reality most people "talk" of what they want or will put into a goal or vision they have - few follow through, be one of those who do.
This scene portrays what happens when Mother Market shows up at your front door.

The Story:

You are Tom Cruise in this video. You want to find an easy way to make extra $ for the family, your retirement, your kids future and his kids future. You want to be one of the 10% who actually make it as a day trader. You have thoughts of traveling and trading, being financial independent and showing your kids how to trade. You start off by googling Day Trading. You read an article or two, buy a basics book and now believe you a firm understanding of trading as reading red and green candles and following a trend is nothing more than a video game.

You open your account and have a basic trading plan. You are determined to keep to your stop and exit points. Your are feeling confident and instead of risking $25 per trade you start at $200. You start off with a few winners and you are feeling good as your account has grown. Your thoughts now turn to - how much more can I make by increasing my risk - and what will it take to quit your job and do this on a daily basis.Yes you are on the fast track to your financial freedom - so you think.

After a week of trading, feeling your an expert, you up your risk to $1000. You then hit another winner. Now your mind is swimming with thoughts of all the big things your going to buy as the market feels like an ATM. Your walking around like Mr. Wall Street thinking of the resignation letter your going to send to your boss, calling your buddies about your new found success,taking your kid on a spending spree at TOY R US, and looking into a new car for your wife. While your on cloud 9, Mother Market is lurking in the background.

The next day you up your risk to $2000 and buy 2000 shares of XYZ at 20 a share because you heard some guy on the business channel say the stock is ready to explode upwards. You don't research the chart (it was actually in a down trend) and you reason that XYZ should have no problem hitting 21 so you can sell for an "easy" 2k profit. The markets opens, you buy at 20 and XYZ trades up to 20.50. You are high fiveing everyone..the mail man, your kid, your unemployed buddy who came over to raid the refrigerator, and your calling the wife letting her know that your anniversary dinner wont be at The Sizzler this year but the 5 star retreat. All the while your mind is calculating what earning 2k a day will add up to over a a full year.. 10K week x 50 weeks is 1/2 mil a year working 60 minutes a day! Damn Life is great, I am a genius!!

So as the trading day develops it starts to rain as XYZ starts to drop in price, and with the falling price a Dark Cloud appears - its Mother Market and she is warning you to sell and cut your losses now. Mother Market doesn't like greedy traders and can be especially cold and ruthless with new traders. At the end of the trading day XYZ sits at 19.50, and now your down 1K. Your plan is to always sell at the end of the day, which would still put you up for the year - but you don't like losing, you rationalize that the Market is off and will correct itself and send XYZ to 21 tomorrow. You decide to break your rules and hold on overnight and defy Mother Market. Big Mistake.

The next day the Market opens and you stare down Mother Market refusing to sell. Mother Market starts her beat down and by the end of the day XYZ has dropped to 18...your now down 4K. You are stung, but instead of taking your loss you decide to hold on overnight as the market must be wrong. All night long you cant say a word, don't have the energy to play with your kid, or get to sleep. The only thing on your mind is XYZ. So you formulate what you think is a brilliant plan - you are going to double up and buy 2000 more shares of XYZ!! - rationalizing if XYZ goes back to 19 you will get out at break even - with no thoughts of what to do if XYZ drops more.

You follow this "brilliant plan" the next day, and stare down Mother Market and buy 2000 more shares at 18 a share. XYZ starts to trade up, hits 18.75 after the first hour of trading and you are feeling good as XYZ is almost to 19 and this nightmare will be over. You walk away from the computer, start to get your son ready for the park, promise him a Micky D's Happy meal after the park as he smiles ear to ear...........and then it happens..... you glance back at the screen and Mother Markets unleashes her final beat down as XYZ starts to drop and drop and drop. Your in shock and you just stare at the screen for the next 6 hours. Finally at the end of the day, as your kid looks on upset because you broke your promise, your feeling mentally exhausted and over ridden with guilt, you sell XYZ for a 9K loss. Yes you are the Titanic - what should of been a $25 loss for a beginner trader 3 days ago turns into a 9K loss. Your trading career is about done. Three days ago you were Warren Buffet and now you feel like the Cleveland Browns and your confidence is shattered. Yes Mother Market is wicked to those that don't respect her rules, proper risk tolerance, and that put greed before the process.

For the next 6 months the only thing your hands will be permitted to touch is a paint brush as you repaint the house for 3rd time with the computer in the trash. Each paint stroke its met with you replaying what happen over and over in your mind as you deliberate if your going to make a comeback and take one more shot or if you should just move on from trading.

While this short story and video may sound like fiction - its not - happens all the time to new traders as this was my story and introduction to Mother Market. In a way I was lucky, could of been worse as XYZ kept dropping days after.
Mother Market only feeds those with the respect and discipline for the markets. Having money on the line can do funny things to the mind if your not prepared or have the experience. Its why Casinos roll in the money, they want you to panic and bet more. You may get lucky for a short time but it will catch up to you and put you in a hole.

Set a plan, start small, get a mentor, trade with a buddy, make it fun and expect to spend a year or more learning the basics. Look at trading as a game of chess as everyday in the markets is a new chess board. If you start off trading from this point of view you will be one of the 10%.

Next Post: - Time, practice and study are what you will need when you face off with Mother Market again.... and Bankroll, commissions, more on risk, time frame to trade, your health and trading.

Thursday, January 5, 2017

Basics of Trading Part 2

2nd in a series of post's on the Basics of Day Trading for beginner traders. Will be archived so can be used in conjunction with trades I post, and my trading plan which doesn't cover the basics.

Part 2:

Charting: support and resistance on a stock chart. (see pictures as a reference)

Support is an area on the chart where price has a difficult time breaking through to the downside as there are many more buyers then sellers. Support areas can be the low price of a previous day, a price point that has been touched several times and failed to penetrate through, a popular simple moving average (20sma), or a trading pivot. Support areas that have multiple support points...(example Low of yesterday met by a rising 20 simple moving average) have more strength. A basic strategy is to buy at support at multiple support areas in an uptrend - or Sell and Short if a support area is broken as the buyers have dried up and the sellers are taking over.

Resistance is an area on the chart where price has a difficult time breaking through to the upside as there are many more sellers than buyers. Resistance areas can be the high price of a previous day, an upward price point that has been touched several times and failed to penetrate through, a popular simple moving average (20sma), or a trading pivot. Resistance areas that have multiple support points...(example High of yesterday met by a declining 20 simple moving average) have more strength. A basic strategy is to SHORT trade at multiple resistance areas in a down trend - or Buy if a resistance area is broken as the sellers have dried up and the buyers are taking over.

Volume: Volume is the number of shares traded during a given period of time. For every buyer, there is a seller, and each transaction contributes to the count of total volume. Its wise to trade stocks that have a high daily volume, that average over a millions shares traded a day, as it makes it easier to find a buyer or seller when looking to enter or exit a stock. Remember that to buy a stock there must be a seller and to sell a stock there must be a buyer. Don't play around with stocks that have inconsistent or low volume, play were the action is.

3 Basic Steps to placing a trade: Entry point, Exit point and Stop point. Entry point is the price point where you want buy or short the stock. The exit point is the price point you hope to obtain to exit and profit. The stop point is the price price point where you will exit if the trade goes against you. Example: I want to buy 100 shares of DIS at 50. My exit point goal is 51.25 and my stop point is 48.75. Always stick to your stop. Live to fight another day. Without a bankroll you cant play.

Risk: Is the amount of $ you are willing to risk on a given trade. Start small at $25, as you must learn before you can earn. Some suggest paper trade (not use money, but write down your plan and see how it works without using real $). To  paper trade at first is fine but unless you have the feel for putting your $ on the line, you wont begin to gain your comfort in trading and discipline. Watching your money fluctuate can play with your mind and cause you to alter your plan. Its imperative you learn to trade and maintain discipline with money on the line and stick to your 2 exit price points. Once you have your risk amount you determine the # of shares to buy or Short. How do you determine the amount of shares to buy? I have posted a calculator at this link,, bottom of the page in EXCEL, to help you determine how many share you will buy/short with your risk. The process is simple. Enter your Risk $ amount, the difference between Entry and Stop price (entry is 50 and stop price is 49.25 - the difference is .75) and this will then calculate your shares that you can trade within your defined risk.

Candlestick Pattern: There are many, but starting off as a new trader start learn one at a time. I suggest start with Bearish and Bullish Engulfing Candles. Look for these to develop with the trend and off support or resistance.

Bullish Engulfing Candle: This pattern consists of two candlesticks, the first one red and the second a larger green candle that engulfs the red candle. I like to consider this pattern when the stock is in an uptrend and the Green engulfing bar is bouncing off support. The more bars that are engulfed by the Green candle the better along with increased volume over the red candle.

The power from this setup comes 3 fold:
1. The trend is up
2. the bar is bouncing off support where there are buyers
3. The final trust comes from the sellers who are in the red candle or candles that have been engulfed.

In simplistic terms the sellers in the red candles think they are smart and shorting early against the trend. Then out of nowhere this green engulfing bar full of buyers over takes them, sending those sellers into a panic as they watch there gains turn into losses. They are then scrambling to get out of their position, this adds more fuel to the green candle as they are trapped. This along with the other buyers from the support area along with the stock already in a bullish trend helps drive the odds of this bullish engulfing bar continuing upward. Remember this is a game and you want the odds in your favor when making a trade.

Bearish Engulfing Candle: Same as premise as above but inverse. (see attached picture of bullish and bearish engulfing candle's off support and resistance)

Next post will talk about the story of  "Mother Market" and what happens when you disrespect her and don't follow her rules and let greed set in. Post 4 will touch on Bankroll, commissions, more on risk, time frame to trade, your health and how long it takes to obtain a feel for the markets.

Monday, January 2, 2017

Basics of Trading Part 1

Starting a series of post on the Basics of Trading for the Beginner. Will be archived for so can be used in conjunction with trades I post, my trading plan which doesn't cover the basics, and for anyone who is looking to be a trader.


Stock Symbol: Is the abbreviation used to uniquely identify publicly company or stock. Example DIS is Disney, A is Agilent Technologies Inc.

Stock: A share in a the company. If DIS is trading at $50 and you buy 1 share it will cost you $50. If the you buy 100 Shares it will cost you $5000

Commission: Anytime you buy a stock you pay a commission to your broker. This can be as low at $4.95 a trade with Options House.

S&P 500 Index or SPY: A weighted priced of the largest 500 companies in the United States. Its wise to trade with the direction of this Index.

Bullish (Bulls): A stock that is rising

Bearish (Bears): A stock that is declining

Two simple ways to trade the Market and make $:

1. Buy a Stock: Here you are betting on the stock to go up, you are bullish. Example: You buy 300 Shares of DIS at 50 with a goal to sell at 50.50 for a net a gain of $150.

2. Short a Stock: Here you are betting on the stock to go DOWN, you are bearish. Example: You short 300 Shares of DIS at 50 with a goal to cover at 49.50 for a net a gain of $150.

Who are you trading with: I call this the greatest game ever invented as you are trading against someone else and you are betting you are smarter. In its simplest form If you are buying you are betting the stock will go up and the person you are trading with is selling, betting the stock will not. This trader can be anyone: A large brokerage firm, a teacher, a nun, a stay at home mom or dad, your cousin, someone in India, China, Africa, Australia....ect

Determining the Trend: You want to trade with the trend of the stock. Is the stock trending up, down or sideways. The best way to determine is use a simple moving average (sma) on a stock chart. Start with the 20 sma. I will preach over and over and over trade with the @#$% trend. Put the odds in your favor.

20 SMA (simple moving average): The 20 simple moving average is taking the closing price of the stock for the last 20 time periods, adding them together and then dividing this total by 20, which gives the average price of this stock. Stocks trading above the 20sma are considered to be trending up or bullish. Stocks trading below the 20sma are considered to be trading down or bearish. SMA is found on all charting software systems.

Candlesticks: A candlestick shows a stocks trading range for that period. Each candlestick is made up open, high, low and close for that time period and this determines the look of the candlestick. The time period could be a 30 minute time period for day traders which means every 30 minute's of trading a new candlestick is formed. This time period can also be the Daily Chart which is a candlestick of an entire days trading. As new traders you will focus on Daily Charts. ( I will present this basic system at the end of these post) A Daily Candlestick is made up of the OPEN 9:30am est, the Close 4:00pm est, with the High of the day and the low.

Parts of a Candlestick: The wide part that represents the range between the open and close. When the real body is RED it means the close was lower than the open so the day was bearish, a DOWN day. If the real body is GREEN it means the close was higher than the open, bullish an UP day.
Just above and below the real body are wicks that show the high and low prices of that day's trading. The low wick shows the Low of the day, the high wick shows the high of the day.

 I have also attached a stock I am watching tomorrow, CA. The white line is a 10SMA and the blue line is the 20sma. As you can see CA is trading below these moving averages, which signals a BEARISH or Down trend. As a trader I want to trade with the trend to give me the highest odds of success. I will look to go short tomorrow if an opportunity arises.

Support System: This is critical. Trading while simplistic in nature will mentally challenge you as a new trader as you are putting your money on the line. Like any profession it takes time to learn. Its estimated 90% fail due to greed, fear, discipline, greed again and not taking the time to learn and wait for high % setups. Those that fail start with the thought process of thinking about the money and not focusing on the process of making high % trades and learning. You need a plan for each trade: When to enter, when to exit if the trade goes in your favor or does not go in your favor. You will have losing trades and as a new trader you will question your system and trade after each loss. As humans we hate to lose but in trading its part of the game and must be accepted. For example a successful trader can have these results after 10 trades risking $100 per trade
-50, -30, +100, +60, -65, +100, +75, +100, -100, +90, ..Result $280... This results in 6 wins and 4 losses. Notice the first 2 trades were losses and 40% of the time you exited with a loss. The physiology behind this can cause you to panic. Its imperative you stick to your discipline and take your small losses and not hold on to a stock in hopes it will come back. If you don't stick to your discipline those losses will be much larger as those -50 and -30 losses can turn into -150 or larger if you dont stick to the plan.

This is why having positive support is critical. I highly suggest another trader to bounce ideas off of or just keep your trading ambitions to yourself. Your spouse will not understand, your friends of family wont need positive in your life as a trader. For me my support system was my 6 month old son. I got hammered early on as a trader, had no mentor and was learning as I went. Everyone told me to quit. Anyone I tried to discuss trading with had no clue and all I heard was don't do it, wasting your time, its for professional's blah blah blah. It hurt my trading even more as I pressed and made bad trade after bad trade. But I was lucky as I got to be a stay at home Dad everyday until 4pm. I wanted to be a trader badly so I turned to my 6 month old son to discuss my trading (and losses) with. He would just stare at me and smile away as I released my frustrations and brainstormed how I was going to make this work. Yea I had a conversation with a 6 month old daily about trading, sat him right next to the computer...and it helped tremendously. Good trading days meant we go to the park...and bad trading days meant... we went to the park. He always knew after trading we went to the park and he kept on smiling and pointing at green candles. (think WILSON in the movie Cast Away, he never talked back!) Anyone can make it in this game but you need to have that positive support so you focus on the process and not on the $.

Next Post I will cover Charts: Support points, Resistance points, Volume, candlesticks I look for, managing your bankroll, risk and reward. In Post 3 I will cover a simple setup using the Daily Charts.

* You don't have to trade everyday. If the conditions don't feel right or if you're unsure of the current days trading environment then PASS on the trade. Missed money is better than lost money.  Day trading and the stock market is not a "war" that you must win at all cost. Trading should be fun, wait for only the good setups. Follow your rules, stick to your stops, and know that everyday the market presents a new chess board.