Trading for a living - 3 screens and My 3 Fatal Mistakes

Trading for a living - 3 screens

1) Identify trend

2) tactical decision to enter trade
when weekly trend is UP, wait for pullback on intermediate to enter and VICEVERSA

Tools:Oscillators like RSI,STOCH


3) Enter with Stops

Dont risk more than 2% on any trade.

3 fatal mistakes

 

1) Not using stops

2) put on trades that are too large for the account size. Not falling 2% rule. You must know the maximum level of risk

3) Over trading. Getting carried away

Trading for a living - Power and Inertia - Your censor!

Power and Intertia provides censorship

They tell whether to go or no-go.

Falling/Rising EMA - Inertia

MACD histogram - Power

EMA +       MACD +             Means   BUY/go long ||   Absoluletly   DON'T SHORT

EMA -       MACD -             Means   Short ||   Absoluletly   DON'T go Long

EMA +      MACD -             can long/short

EMA -      MACD +             can long/short

Trading for a living - Dont gamble

Before you enter a trade, write down three numbers
1) entry
2) target
3) stop

Without this, it is gambling.

Set profit targets on Intermediate + 1 chart and stops  on your Intermediate chart.


If day trading, use 25 min chart as intermediate for target and 5 minute chart for stops.


One of the popular stop techniques is to use ATR

Trading for a living - What indicators to look in a trade

Decide where to trade - Daily, long or intra-day.

The period you chose to trade is the intermediate period. Once you decide the period, don't open it as a first analysis screen. This is important. Because your first analysis always throws a bias.

Go one level down and open the chart. If intermediate is daily, open Weekly. If intraday,open daily.

If daily, check the Weekly(1 above) chart to get the trend
  (1) first step to identify the trend.You can rely on 200 EMA to get long term and 50 EMA to slightly shorter. If the price is above, it is bullish and if below , it is bearish

 (2) next, go to daily to decide when to enter. The goal is always to get a good price. MACD histogram is good tool. Ideal is when below zero and rising.

(3) go to intraday, check the oscillators. Stochastic and RSI are popular.

Always wait for a pullback when entering bullish.

Other indicators on daily, could be ADX when it is rising from 20 range.

DONT check RSI , stochastic for long term analysis. These are primarily oscillator indicators.

tidbit: Long is usually 5 times duration than intermediate. If intermediate is daily, then long is weekly. If intermediate is 5 mins, then long is 25 mins.

Trading for a living

Dont risk more than 2% for any trade

Opening and Closing Price
Opening Price reflect the amateur's interest. Professionals use that and build their trade for the day.
Opening prices most often occur near the high or lows of the daily bar
Amateurs are active during the morning and early in the week while Professionals are most active at the closing.
Dont risk more than 2% for any trade
Opening Price reflect the amateur's interest. Professionals use that and build their trade for the day.
Opening prices most often occur near the high or lows of the daily bar
Amateurs are active during the morning and early in the week while Professionals are most active at the closing.
Closing price  are for the professionals. Professional set the price.
Trend Following indicators

Closing price  are for the professionals. Professional set the price.
Trend Following indicators
MACD is trend following. Trend following indicators are lagging indicators
Other trend following indicator : On Balance Volume, Accumulation/Distribution

Oscillators:
Help identifying turning points. Stochastic is a popular oscillator.RSI is another, Williams %R. Oscillators are leading indicators that turn ahead of price movement.

If Indicators signals are not clear. Leave them and move to another.

EMA - 22 EMA is one of the best because there are usually 22 trading days in a month.

MACD
1) calculate 12 day EMA of closing prices
2) calculate 26 day EMA of closing prices
3) Substract 26 day EMA from the 12 day EMA and draw a line.This is MACD fasline
4) Calculate 9 day EMA of the fastline and plot the result as a dashed line.This is the slow signal line.
MACD: When the fast moving EMA on MACD crosses the Slow moving EMA and goes up, it means the bulls are dominating and it is good to go long. When the Slow moving EMA on MACD crosses the fast moving EMA and goes up, it means bears are dominating.

MACD Histogram - Difference between MACD line and Signal line. Histogram gives an early signal before the crossover like a squeeze.


ADX - Directional indicator
1. Trade only from the long side when the positive Directional line is above the
negative one. Trade only from the short side when the negative Directional line
is above the positive one. The best time to trade is when the ADX is rising, 
showing that the dominant group is getting stronger.
2. When ADX declines, it shows that the market is becoming less directional. There
are likely to be many whipsaws. When ADX points down, it is better not to use
a trend-following method.
3. When ADX falls below both Directional lines, it identifies a flat, sleepy mar-
ket. Do not use a trend-following system but get ready to trade, because major
trends emerge from such lulls.

Accumulation/Distribution is more finely calibrated than OBV because it credits
bulls or bears with only a fraction of each day’s volume, proportionate to the degree
of their win for the day.