Finding Your Edge

If you are going to be in the market
1)You better have an edge and you better be sure of it.
2)You better make sure you can manage your money properly
3)You better be prepared to dedicate a lot of time towards mastering your craft.

Let's talk about edges. One such edge is knowing a stocks PRICE relative to historical earnings. You want to see the stocks earnings outgrowing the price. You want to see a stock oversold AND undervalued OR in a strong uptrend in a strong sector which is an uptrend in a strong industry in an uptend when all in that sector are consolidating and ready to break out.

You can look at when a stock is undervalued, and oversold, but that's only one of the steps you then need to see the technical pattern confirm.

Longer term, you can look for a rotation into sectors.

Identifying rotations into individual sectors requires knowledge of chart patterns and such. But a knowledge of of the cycles and where you are can help you stay ahead of it and keep looking for a bias in the direction that his historically favored. Another identification is of individual industries. Particularly those leading out of a brief pullback or correction showing strong gains. You can just find a rotation and ride the trend.

Another such edge is knowing the funds the institutions are accumulating. Another is knowing how the price reacts to volume. Another is understanding volume profile and market sentiment and psychology. Another is understanding the seasonal, production, economic and weather cycles and how they effect different assets.

There are all sorts of edge which we can cover going forward.

Commission Free ETF Investing Strategies

Commissions are a huge barrier to the novice and/or low funded investor. Fortunately there are now platforms that offer commission free trading.

Looking at the list, you can get a diversified low correlation "permenant portfolio" strategy of:

Equities:
IVV (The S&P index fund) Or if you want more global, consider ACWI or AT (all world index) or VWO (emerging markets)
Sector:
RWR/VNQ (One of REIT index fund)
Bonds:
TLT/AGG/PCY (One of the BOND Index Funds)
Commodity
DJP/DBC/DBO (commodity index or oil etf)
Cash
Cash or SHY etf to use to rebalance your funds when needed.

Thre is no GLD on the list, but I may suggest it instead of commodity and just deal with the fee $20 for purchase and a sale divided by 4 is $5 per transaction or like having $2.50 per trade commission. I don't know if paying $20 is worth having the GLD etf rather than commodity, but at least you have the option.

Now rebalancing doesn't cost you anything but time, as you must hold for over 30 days before selling.

More on this commission free strategy later.

How Many Bets Should You Have At One Time?

Previously I have discussed the relationship of the kelly criterion and correlation. Previously I have also shown that MORE bets at a lower correlation (ideally zero) is often much better.

The problem is FEES. Previously I had not quantified the difference that fees make in your portfolio. Now I have made the adjustments to the spreadsheet so that you can. You would be surprised that even with a LOT more capital, you still will be limited by the fees.

10 bets at a time, no problem, right?
One of the best traders I know who in a very short time frame can produce an average of 27% returns 26% of the time, 7% 20.61% of the time, and a "scratch" (0%) 10% of the time and most of the time capping losses between 5 and 10% with the occasional 15% loss. I figured, someone just starting out could easily play 10 bets at a time, right?

WRONG! With $5 per trade costs, it takes a bankroll of about 100,000 until 11 bets is better than 10 bets and only very very marginally so. AND THAT is at a correlation of zero. Put 70% correlation on it and you need 150,000 before you should even consider 10 bets.

I was shocked, especially considering I have been marginally profitable this year trading more positions than that. Granted, I used options, but the position sizes were even smaller so the fee ate me up even more.
Especially considering the kelly often favors underbetting, and the only way to do that without causing fees to eat up your bankroll to a greater extent, is FEWER bets with more capital at risk. I now wonder how much of the success was just varience, another word for basically saying "luck". I will reform my strategy immediately. no more small trades, and no more portfolios with so many positions... Until I build my bankroll, it's time to apply focus.

It's a bit scary because it is really leveraged to the results of a very small number of trades over the course of a year. That doesn't matter, the fact is the math suggests that it can handle the varience better because of the fees impacting it less.

I have dramatically over estimated the true "cost" of fees and the starategy it takes, and instead opted for a lower volatility, marginally profitable to slightly negative strategy.

With this style of trading and 2 single bet at a time, how much does one need to get started?
With a correlation of 70%, until you get $2500, you should not bet more than 1 at a time. At $2000, 1 bet is better. If correlation is 50, you need $1750 to run 2 bets at once. If you have 5k you probably only want maybe 3 bets at a time. I would still be one less at a time than suggested because that's the only way to apply less risk without the fees eating you up and reduce the insane volatility of the strategy. If you dip below that, you have to start saving up before you can resume again.

If the best swing trader I have seen can't do it with those numbers, neither can you.

But You can do options, right?
Not so fast. Options are more leveraged, so the "no fee" optimal strategy is to risk less. If you risk less and fees are the same (plus an individual fee per each contract), you need more capital. For example, 2% of a $5000 bankroll is only $100. $10 fees ($5 buying and $5 selling) means 10% per trade. That's a HUGE barrier to overcome, even with substantial leverage. Additionally, there is another disadvantage you have to overcome. The difference between the bid and ask. The spread is usally another $5 per contract. However, if you can find the ideal trade, you may be able to make it work. Please note that buying a ton of excess time such as a year can really be helpful because it limits the risk. Thus, you can put more capital at risk (than out of the money options), thus fees can impact you less. Unfortunately the yearly contracts typically have the widest bid-ask  spread of all of them. So you theoretically could do options IF it was a very, very good setup in a very good stock that has very liquid options and you can get a fair price... AND the expectations are still as high as the stock trading strategy. Since many of those stock trades were small low priced volatile stocks, you are probably going to get a few possible trades a year that work with this strategy.


STOP TRADING, start investing

The advantage of investing is much more significant for a small trader. An investment may only produce maybe something such as a 20% gain over a year depending on your skill level, but when you consider you avoid the compound costs of constantly going in and out of a trade, it's likely worth it. A DRIP (Dividend Re-Investment Program) Helps you even more if you are lower funded like most retail traders because you get to automatically reinvest the dividend without FEES and effectively dollar cost average in without paying fees. If you are going to have so many positions a once, you are better off sticking it all in the SPY. Better yet, take $500 in the SPY, $500 in the GLD, $500 in the TLT and $500 in cash to get started, and then build upon it from there, particularly if you have a "commission free trades".

Bottom picking for small fees... sometimes.

Another strategy is "picking bottoms" You basically look for an oversold stock in an oversold sector (using RSI below 40 (or 30), with fundamentals worth buying and holding. You buy on either a candlestick popping up and closing above the high of the previous day candlestick, or else you look for other signals. Regardless, a close below new lows and it's easy to exit and not convince yourself there is a reason for holding on. You will have several failed trades, and some that pop 10% before declining again, but you are looking to just hit one great trade in which you hit the bottom and can let it ride and pay for all your losses and then keep going.

Conclusion:
Trading is hard enough as it is. Add fees and it is even harder. The "little guy" still can make it work if from the start he knows what he is doing, he trades extremely well, he limits himself to one or two trades at a time, and he manages his trade with discipline and grows his account over time (with discipline). You should not approach it as "easy" like all the infomercials suggest, but incredibly difficult especially with a huge disadvantage of a small account. As a result, ONLY strict discipline and a lot of knowledge and experience will give you positive results.

I believe there are some solutions that I will be able to find to counteract some of the drawbacks, but it is not going to be easy to build your account.

Shifting Bias

Depending on your time frame when using the 5 assets of TLT,EEM,UUP,GLD,USO. (or if you are a minimalist and use TLT,GLD,SPY (and cash on the side), you may wish to try to "time" the market.
Picking exact tops and bottoms is too difficult to where I do not want to suggest it. Trading for "bottom picking" is possible; as is averaging in as an investment. The gameplan is much, much different for each one.

First, lets look at the strategy of legging into an investment using TLT,EEM,UUP,GLD,USO. The strategy works GREAT as just owning 20% of each of those 5 assets. However, if you believe you have an adge you may wish to increase and decrease according to bias. One such way is using the weekly chart's RSI What you can do is take 1 divided by the RSI for each etf on the weekly chart and add up the total. Divide each amount by the total to get your allocation. For example right now the RSI is
GLD 21.99. 1/21.99=.045475216
UUP 53.43 1/53.43=.018716077
TLT 31.93 1/31.93=.031318509
EEM 31.41 1/31.41=.031836995
USO 50.41 1/50.41=.019837334
Add them up and you get .14718413... take each of those numbers divided by this total and you get allocation of
30.89% GLD
12.72% UUP
21.28% TLT
21.63% EEM
13.48% USO.

I really don't like this plan on it's own because it adds to those in a downtrend. But it's not a terrible start. I would prefer only shifting into aggressively increasing allocation once the RSI dips below 40, and only shift at reducing (and not so aggressively as RSI goes above 60 or 70.

You could structure an individual bet as 40.01-64.99%=17.5%-22.5% investment. Above 40 is a bit backwards because as RSI increases it suggests a bull market so allocation can increase. Below 40 it is oversold and suggests the move is overplayed and is more likely to bounce.
35-40RSI=22.25-25% investment
30-35RSI=25-27.5%
25-30RSI=27.5-30%
20-25RSI=30%-32.5%
15-20RSI=32.5%-35%
10-15RSI=35-40% (from this point the allocation increases aggressively)
5-10RSI=40%-45%
0-5RSI=45-55%

Now, if we did this for multiple, we instead would be assigning a percentage, adding them up and taking the individual asset estimation divided by the sum.
For example the total of all 5 is 124
GLD 31/124=25%
UUP 20.1/124=16.2%
TLT 26.55/124=21.4%
EEM 26.75/124=21.6%
USO 19.6% 19.6/124=15.8%
This seems much more reasonable overall.

However, There are some other important indicators one may wish to consider. For example, an uptrend could add to a "score" a MACD crossover or histogram going positive or negative could trigger a "score" as well that applies to an individual assets correlation. The trick is understanding that with MULTIPLE assets comes the problem that if everything is oversold, you still have to apply more capital somewhere. Additionally, if there are commissions, you don't really want to adjust too much unless the adjustments are very significant from current levels.

Now you can construct mechanical systems like this, and that can provide your guidelines, but when it comes down to it, you may have better skill applying your own bias according to certain limits. You may not want to exceed a certain amount or allocate less than a certain amount per asset.


As a trader you can behave much more differently. What you can do as a trader is if an area is oversold, start a position either as soon as you also get an oversold on the 15m or 30m or 10m chart in addition to the daily and/or weekly chart. If you don't trade mid-day, you can wait for a candlestick closing ABOVE the previous candles high, and put a stop below the previous candle's low. You will probably incorrectly bottom pick a few times before you get it right, but if it is in a down trend, you miss most of the trend, and wait until the asset actually starts showing the V shape bottom on a intraday chart (will probably look like a hammer candlestick on a daily chart). As a trader, you might still use that mentality to acquire investment shares. You can establish a very long term position provided your low holds. On the other hand, you can also trade it for 2 or 3 times your downside risk, and if you really believe in the bottom, put on a 20% trailing stop after the stock has really rallied.

Another thing you can wait for, is an EQUAL high to be formed. Now you can either scale in at this point and if it starts to dip add, but then use the low as the stop. Or you can hold that position if it rallies from there and make the short term trade. The higher low follows the equal high and then a break of the equal high to higher highs tends to happen.

If you wait for these type of moments to establish these long term positions, or at least to add to them significantly, then you will possibly really boost this strategy.

Of course, you can also look for individual patterns to trade directionally in either direction with any of these assets. You might add to a position when a chart pattern sets up, and use it likea normal trade, but perhaps rather than sell all of the position, you leave a share or two behind. Then you repeat Basically the way you look at it as, you go in with 1k in the trade, you make 1.1k and you sell out your 1k and go about putting it to work again. When you lose, you may have to wait until you accumulate the capital.

You might also choose to use your technical skills to assign a "confidence" interval 0-100 in each asset class. 0-25 is very bearish 25-50 is neutral to slightly bearish 50-75 is neutral to slightly bullish and 75-100 is very bullish. Then add those up and find the sum and average of each will be your allocation. This requires that you actually have a good track record.

I personally like using long term charts. I look for price patterns, I look for support, I look at volume profits, I look at trends and weekly and monthly parabolic SAR. I look at MACD. And for oversold I look for bollinger bands, Slow Stochastics and RSI. Overbought only RSI concerns me. I look for divergences in the Slow Stoch and RSI as well. I also have a "triple oversold" indicator that works really well on longer term time-frames. Finally The McClellan Oscillator works great on a 6 month time horizon, and on a very short (few days) as well. If you don't want information overload, you can construct a spreadsheet and map out the suggested allocations 1 indicator at a time, and then produce an average or weighted average of them all together to produce a "suggestion" The slow stoch oversold triggers first, followed by RSI oversold and bollinger bands around the same time, then typically (unless uptrend is intact and you still get an oversold) you then get a crossover of momentum followed by a parabolic SAR break followed by positive relative strength (if no overbought is made) Typically you can ignore the initial overbought of the slow stochastics but after that the other indicators start to become more relevant.. Even though all of the oversold triggers happen first, I still might apply more capital to those that have BOTH oversold AND have just triggered parabolic SAR upside reversal. But it depends. Go back 10 years and is there any sort of advantageous signal? Such as support? Such as a monthly MACD crossover to the upside? Such as a 50day and 200 day moving average cross (or longer)

A Shifting Bias is about becoming exposed to one area over the other. You could also find assets that have greater correlation to the assets you re bullish on, giving you more exposure that way. When I show you a correlation matrix you can do some math and figure out which areas you have the most exposure to. For example with TLT everything is negative JJC(instead of GLD), UUP,USO,EEM. That means that in an equal weighted portfolio you are still biased against the movement of TLT. If you are bullish on bond principal (think interest rates are going lower). You may wish to find an asset that exposes you more towards it, such as AGG,SHY,PCY,BOND,CORP,etc. You can add up the correlations TO one specific asset to see that indirectly you have the most exposure in USO for example (with equal weight) because copper and EEM are both strongly correlated with it.

I have no problem with that bet, but at individual timeframes you might have more of a problem with it than others.

Psychology of Chart Patterns

Chart Patterns Represent a set up and formations that have historically signaled buy points and identify a change in trend. Typically they are an upward trend followed by some sort of congestion and then the trend resumes. Those who have gains start to take profits, and those who recognize the dips may start to buy and those who think stock is over extended may try to short. But once it breaks to the upside the shorts are forced out and the buyers pile in causing a "short squeeze". So before we get started I want to explain the nature of a "short squeeze.

The people who "go short" are betting on the prices going down. If prices go down they basically have the opportunity to buy what they already promised to sell at a given price. For example, they identify the price of $30 and promise to sell. If the price goes to $27 and they "cover" they then buy and the shares are immediately taken off at $30. So they might "short" 100 shares at $30 or $3000 worth and effectively borrow shares they don't own to sell, (from someone else who is buying at that price). They then BUY the shares for $2700 and make $300.

The risk of course if the stock goes higher. They already promised to sell the shares at $30, so now if the shares goes from $30 to $40 they have to pay $4000 to sell at $3000. If they don't have $4000 in cash including what they got from the short sale (so they need an extra $1000) they then will be given a "margin call" they either can send money into the account or else they must sell shares. If they do not, the broker will sell shares FOR THEM at his own discretion, and may even charge a fee.

This is extremely relevant to stock prices. Short sellers are the FUEL for bull runs to continue. The reason is, if you go short and I buy your shares, you have created 2 buyers one (me) and another on credit. In other words, you must eventually BUY back your shares. Of course you might argue there has to be a seller on the other side too so it evens out, however if price continues to go higher and no one wants to buy until much, much, much, much, much higher.... you still have to buy by any means necessary. So you don't REALLY create a seller on credit, but the short seller better hope there isone when he needs to buy, or he's in trouble. If there i no one asking to sell and only buyers forced to buy, prices are going to go up and up again and up again. You may see them GAP up drastically after a positive earnings announcement or FDA apporval that in the perspective of shareholders increases the value dramatically.

However, regardless of how dramatically the price increases, if the shareholders still want to sell the news, and there aren't enough people with demand to buy it to cause all the selling demand to liquidate and then some, prices won't go up. The stock market is very very psychologically based, which is why many believe it's a "random walk" because they don't know how to read the tealeafs. The psychology of investors is much different usually (or at least should be) they don't care about day to day values of the company, they are just looking to be part-business owners and share in the company through future dividends and book value appreciation that they hope will EVENTUALLY manifest itself in great price appreciation.

But short sellers are generally the fuel. The fuel for lower prices are too many buyers that are underwater. Volume profile analysis REALLY can come in handy if you understad this kind of thing. But an individual institutional fund (mutual funds, index funds, hedge funds, money managers) take time to develop a position.
The stocks that get stretched going really high then consolidate for awhile as some take profits and then others tame their buying. Some buy on a dip while they still can and then some more take their profit as the trend starts going sideways. Eventually some shorts come in and finally it either breaks upwards squeezing the shorts out, or downward. In either case tight price ranges signals a battle between bears and bulls and equalibrium of sellers and buyers that will not continue forever. Eventually some party will leave seeking an alternative or more will come in force and drive the other party out. Knowing where the support/resistance ranges are, who's under water (shorts or longs) and how much, and other htings like momentum can help you to predict patterns.

Only Busy Work Remains

I have determined in detail how exactly I will complete the spreadsheet to where I want it to be. The spreadsheet will allow me to determine my expected return given a bet size after adjusting for fees, varience, volatility, multiple possible outcomes, based upon the bet size. It also will tell me the probability after X trades of having a given return. Now it just comes down to busy work

1)Changing the formulas
2)Setting up inputs (account size fees per total trade, fees per contract, contract size, etc)
3)Formulas to modify the win ratio based upon the inputs adjusted for bet size with F% (1 bet at a time)
4)Setting up the win rate with the corresponding risk adjusted for bet size for multiple bets at a time
5)setting up the formulas to determing the expected long term growth rate and other details based upon this information
6)Allowing for a multiplier to increase Fees according to risk of variance. THEN the second part will be
7)setting up macros to input 5 trades of 5 possible outcomes
8)repeating the macros 3 times
9)insert 2 rows and use a find and replace tools to pull each of the numbers in one of the rows
10)Setting the win ratio to pull from the other sheet and go into 1 of these rows
11)Copying and pasting the efforts over side by side to all the other numbers
12)putting the Probabilities of the win ratio occuring so that they pull in one of the rows
13)Setting up ONE of the other two tabs with data that will pull from the results of the first spreadsheet in the other row
14)Setting up the second of the other two tabs to pull from the results in the 2nd spreadsheet also displayed in ITs other row.
15)collecting the data from the final spreadsheet to pull to a "cover sheet" that will summarize basically all I am trying to learn and get out of the kelly criterion spreadsheet.

So... I know what to do. I have done this kind of thing before in a similar manner for a different purpose. Now it is just a TON of busy work and motivation required. I plan to work on this over the summer. Once I have an idea of how minimal of capital I can be profitable with I want to start multiple accounts, each to trade a different method, so I can develop more exact numbers based upon the actual EXECUTION of the strategies, rather than looking at someone else's results that I may shadow (and occasionally be late to the punch) or looking at the results of a particular candlestick pattern which I also may occasionally miss the ideal entry. By keeping the "trade history" separate for each account, I will better be able to track the results and from there anticipate gains. THEN I can consolidate the accounts into the one with the best strategy going forward Hopefully I will have this done before October as that will be a great month to get started in due to the history of it being a great historical time to buy until May with.

The separate accounts also will allow me to attempt a "challenge" of starting with much less capital and helping people who are low funded by showing them how it's possible if you adhere to the "indisputable mathematical laws of statistics and money management".

Volume Profiles, And The Nature Of Psychology In Trading

One of the best things for a trader is to understand market psychology so you avoid being on the wrong end of it. That means not only are you not a victim of market psychology, but you recognize and exploit it without emotion when possible.
Why do stocks go up? There ALWAYS is At a given price there is more DEMAND (buyers) then there are sellers who want to sell at that price. Prices MUST move to where a transaction can place. The market is an auction BUT there are plenty of buyers who may be willing to buy lower and even sellers who arewaiting for stocks to lose momentum and break downwards. Those who believe they bought or sold at a good price will very likely take a second opportunity if they get it. Of course some may be happy to break even and relieved when it went against them, and some may have the rule of not letting a profit turn back into a gain, so it can work the other way. Nevertheless, the areas in which volume takes place tends to repeat and continue to be an area where volume takes place for longer periods of time. Stocks go down because selling demand overwhelms buying demand. There aren't enough buyers to consume the demnd at that price. Anyone who wants to buy needs a lower price, so prices must decline for the last seller standing to get filled. You can say this another way by saying, the buyers who have the mindset of "get me in at any price" cause market to go upwards in order for them to get their order, particularly if at the same time the sellers are cautious and not as willing to sell at current prices. The reverse is also true. If buyers are cautious and don't really want to buy much at this price and sellers instead want in (short) (or out) at any price, then prices must go down in order for them to get filled.

I don't have to find stocks following this exact model, just general understandings of what's going on. It works on 30m chart, daily chart and weekly chart. But just pay attention to the process it goes through and how to recognize it. Typically panic is not the final low but markets the start of the bottoming process. You can have 2 or 3 "legs down" and then a sharp bounce and a retreat to new lows. Then an equal high and then a higher low and then you can start to build upon it. It doesn't always work that way. Sometimes the market will make an equal high and keep going and only move sideways slightly. But if you can recognize what's going on, there will be enough situations when you find an edge. The "aversion" point is a great spot to buy as is the 1st higher low after discouragement. Do not try to bottom pick the exact bottom unless you have advanced plans and really know what you are doing.

Unfortunately, many people still feel emotion when their account is moving and may tend to trade more setups than they should. For this reason it is VITAl that from the start one starts out with a gameplan and sticks to it. If they jump in head first trading without a plan not only do they have significant risks for the trades they make losing money and them losing over time, but even worse, they risk the degenerate gamblers mentality that pulls at their emotions and makes it near impossible to make the corrective action.

I will have another post on this if you are in this position on how you can protect you from yourself, because it can be done to some extent.


Managing the trade is important. If you try to buy at aversion or the 1st higher low you have places to manage your trade. The first higher low you can just cut your risk if you get a close below the discouragement low. The aversion you can use a stop below that same higher low or also the discouragement low.

Aside from this, there is an important concept to understand. Price has MEMORY. I am not trying to personify stocks by saying the market thinks this or goes here or "capital realizes". But the markets are driven by people who have memory and it's just quicker to refer to "the market" to mean anything from "people" to "traders" to "stocks" to "stock holders" to "A collection of many individual price securities driven by the supply and demand forces of both the underlying shares and underlying companies as well as the supply and demand and emotional forces of the individuals."

So "price has memory" what does this mean? It means a stock the has a history of holding at a certain price means the likelihood is good that it will hold their again. Prices that move very quickly up in price have a tendency to both move back down very quickly as it enters those price ranges, as well as move very quickly back up either the 2nd time around, or through an area in which prices moved DOWN very quickly.

Perhaps even more telling and easier to understand WHY this is the case, and also understand some more "hidden" support/resistance areas that perhaps haven't developed yet as well as areas where quick movement is more likely is by learning "volume profiles" or "price by volume".
Here is an example of an amazing setup that occurred in Netflix (NFLX) December 30th, 2011. I circled the support/resistance zones where prices will tend to battle to find direction and may move sideways in the congestion region, as well as the "volume pockets" or "gaps" where prices tend to move quickly.

This highlights an example that is awesom because there also is a "price patterns" We won't cover the details of this, but basically, if we get a breakout, or a failed breakdown and prices go above the bulk of the support resistance area (which occurred later) the possibilities are great for an upward move.
1)On one hand, you have strong support below at that time
2)On the other hand you have weak resistance above. That spells out a high reward, low risk setup with a good probability of working in a short amount of time. In other words, a GREAT entry point. Now, if you can correctly anticipate a breakout, you have a better entry point, however the probability is much greater AFTER the move above resistance  but the tradeoff is a lower reward portential. Lets fast forward and see what it did.

From a psychology perspective, it isn't entirely clear if you have had discouragement AND a higher low yet, but certainly you have had several legs down of panic and you can make a case that the low represents discouragement and you have very tiny minor lows that represent potential for a bottoming process.

Here is the results across several dates. First we have 1/2 then 1/5 then 1/12 then 1/30 then 2/28 then 3/30

This should be pretty eye opening. Study how the moves occurred and could be predicted with reasonable accuracy. Now lets continue from 3/30 to 4/30 and see if we break out or down.
Actually it's down... but let's compare it to the sentiment chart now.

WOW, isn't that stunning? What an eye opener that is. The reason this stuff works because the natures of mankind remain the same throughout history. Now lets go forward 5/30, 6/30 7/30

Oops, failed trade. It's important to understand that even the setups that looks so accurate aren't always right. The idea is that if they are correct, the upside is huge, so just keep the downside tight and you are good. This is why you have to manage your risk, and perhaps even wait until you have a break to the upside from discouragement lows. I will have more on a "bottom picking" strategy that I sometimes use. So did it ever get back into the volume pocket? Actually, it did but you wouln'd have had much of a chance unless you re-entered on discouragement or the first higher high and held through earnings. I don't hold through earnings.  
Finally, lets fast forward to present day.

  This is not a prediction of the future, just a study of the past to teach those for educational purposes only about volume pockets and market psychology. Why do volume pockets work? Because if you trade above a volume pocket, you typically have a lot of sellers who are "underwater" on their position and buyers who are up on their position. There typically aren't goign to be many people who sell, and there only needs to be a few that buy in order to drive prices higher. On the opposite side, you have say a bulk of buyers, a pocket and then a HUGE bulk of buyers. Now the price starts to slip. of course many people may have sold as well, but they typically aren't looking to get back in after they already won and moved on. So while there are a ton of people above who may want to take profits if prices pull back significantly, there also are those that want to sell if they end up under water and made a bad entry. The volume pocket represents a void in much transaction. There is a MARKET at TWO prices, but not much between. Therefore, just a few people bidding price lower and a few people selling it and not only is psychology such that it is set for a panic, but also you will SHIFT from one market of buyers and sellers at a premium price, to the PAST example of people buying. Mutual funds may be willing to buy at a given position as may sellers, but once prices get away from the buyers, the sellers may not want to commit good money after bad and chase a losing position, particularly if prices are moving sharply and momentum is still higher, and the buyers don't want to sell it as long as it's still going up without disruption downwards or any sort of fear of a top. But once that changes and now you add in all the people that did buy higher and now are under water, and you have conditions for a quick move. Of course, some of this is just looking and PREDICTING which means you don't KNOW any of this will happen. You don't know if something in the crowd's mindset may not have changed or fundamentals caused a paradigm shift. But generally speaking you will notice these sort of tendencies with good accuracy. A Gap fill may not be accurate because gaps don't take a look at action prior to the gap. Perhaps one bad earnings casued a gap but previously that whole range was a "congestion zone" and there are plenty of both buyers and selers. As such rather than a quick move back to "fill the gap" you get a sideways battle between bulls and bears. Finally, psychology of an entire market is what I have displayed, chart patterns help better determine the actual institutions beginning to move capital as individuals and open the door for potential rewards. Candlestick patterns help you see what happened more on an intraday basis and as such may help you determine setups, and also let you know what other people are doing. For example a bullish pattern will create a lot of POTENTIAL selling demand IF the pattern breaks below the common "support" area and as such that could create enough selling pressure to make it even more profitable to SELL those patterns. This is known as "broken setups" and they happen on both the bull and bear side. We will get to this as well as the psychology of international traders and investors later.

Gold Bottom Fishing

It is time for me to go bottom fishing in gold. I suspect that with window dressing there will be perhaps a bit more left to this selloff. Nevertheless, I initiated a small starter position in Silver. It is entirely possibhly they will diverge, but typically and recently the correlation has been very strong. A position in gold is mostly a position in silver in terms of trend. Silver is a slightly more leveraged play but it also may have a bit more commercial and industrial use and be more scarce going forward.It isn't about being able to pick the exact bottom, it's about accumulating it cheap to develop a low correlation portfolio at the right prices.

	DBA	EEM	TLT
DBA	1.00
EEM	0.25	1.00
TLT	-0.08	-0.24	1.00

or

	GLD	SPY	TLT
GLD	1.00
SPY	0.29	1.00
TLT	0.05	-0.41	1.00
OR

	SLV	SPY	UUP
SLV	1.00
SPY	0.32	1.00
UUP	-0.28	-0.26	1.00

I don't like DBA or TLT right now so it was a choice between the above or
 something closer to

	GLD	SPY	UUP
GLD	1.00
SPY	0.29	1.00
UUP	-0.30	-0.26	1.00

Of the two, SLV ranks out better (closer to zero).

I must say, I am immensely worried that if we do not rally soon, we could flush out much lower and even crack below another 15% or so. Psychologically GOLD $1000 is a crucial area where we could get a brief panic into that area followed by a low. If possible I will get out with a fairly tight stop and try again if the near term range doesn't hold. I am approaching this with more of a traders mindset. The cardinal sin allegedly is to not turn a trade into an investment, but in this case, if it drops to $1000 I would be a buyer significantly anyways. And the way I approach "bottom picking" is to have a traders stop, but an investor's time horizon on the upside. I hope to have a tight stop and let it run.

From an investment perspective, you would not be concerned and instead wait it out and then rebalance or even increase the position size and just run the correlations in your favor.

Permanant Portfolio With A Bias

If you look at any portfolio (or asset) compared to the correlation of the other ETFs (assets) in the portfolio, you can see that there will be an average of a slight positive or negative correlation to that aspect of the portfolio, even if overall the portfolio nets out to a relatively neutral bias (correlation average of zero). What this means is that you are going to be levered independently to a particular asset more than to your overall portfolio. Such "zero correlation" strategies aren't actually really "zero correlation". For starters the correlation is a look into the PAST, and you never know what they will be going forward. Secondly the independent variables may have a strong correlation while overall the portfolio zeros out.
For example.

	GLD	SPY	UUP
GLD	1.00
SPY	0.29	1.00
UUP	-0.30	-0.26	1.00

Although this has a slightly negative bias overall, it has a slighly positive one to the SPY. Thus if the SPY moves up or down, the rest of your portfolio will be slightly more likely than 50% to do the same (in aggregate). On the other hand, the dollar has a negative bias, meaning that if the dollar is up, the rest of your portfolio other than UUP is down.

	GLD	SPY	TLT
GLD	1.00
SPY	0.29	1.00
TLT	0.05	-0.41	1.00

A more extreme example. Overall this portfolio is very good but the TLT-SPY correlation creates a fairly moderate correlation against the SPY and much stronger against the TLT. GLD-SPY offsets some of the negative correlation but GLD-TLT hardly offsets anything. If TLT trends very strongly downward, the SPY is expected to trend upward strongly more often than not.

 It's not terrible to have this relationship. Afterall if ONE asset goes down strongly and the other up, you can sell the one that is up (reduce position) and BUY what goes down (add on). This is entirely how one can beat a "random walk" market.With a much flatter correlation, you reduce risks more because of the lack of exposure to any one area, or negative exposure.

25% of each 3, plus 25% cash beats a random walk or one in which prediction is impossible. However, if you don't believe in "efficient market" and think you have a significant edge, you can gain.

If it was just a choice between SPY and cash, if 50% represents a random walk (50% of increase, 50% of a decline), then 75% would be aggressively bullish (75% of an uptrend). You probably wouldn't be able to be too much more confident than 75% that you are near the bottom or in an uptrend over the next X years, nor will you be 75% confident that stocks will go down. As such you would position between 25% SPY and 75% SPY allocation. With more assets

However, If one was to observe that they believe they have an advantage and can predict a "bottom" in gold, rather than own say 25% of each (25% will remain in cash ready to rebalance when necessary), they may decide that they will start to accumulate a larger position as a percentage of the portfolio as gold goes more and more oversold. For example, even though gold is here around $1225 right now and anyone who previously held such a portfolio would be buying a bit more to rebalance since UUP and SPY are moderately up lately. If for example one held $500 in SPY and $500 in UUP and $500 in GLD, they might find their portfolio over the last 6 months, their portfolio has gone from

25% SPY, 25% GLD, 25% UUP, 25% cash to

about
29.30% SPY , 18.83% GLD and 26.38% UUP and 25.48% cash.

Rather than rebalance it, you may want to consider an alternative if you think gold is going to bottom soon, and perhaps SPY has been on a run and you are worried about it peaking soon.

So you shift from the 29.30% SPY , 18.83% GLD and 26.38% UUP and 25.48% cash.
TO
20% SPY 30% GLD 25%UUP 25% cash
Then say months later, GLD flushes out from $1225 to $950 and now the SPY and UUP goes significantly higher.
Now you add up even more because you are convinced this is the bottom in GLD and you really believe you have an edge. This strategy can be a bit dangerous, but if you really believe your odds and upside in the future have improved, you may rebalance to
20% SPY 35% GLD 25% UUP 20% Cash.

Now if from there, Gold goes up significantly, you are naturally going to have an even larger position and you will have bought fairly aggressively at $1225, and then aggressively again at $950. At this point you may want to rebalance back to 30% GLD or 25%. If it continues then you rebalance to 30%. And maybe TLT drops really low as UUP shoots higher and you want to sub out UUP for TLT.

The idea is you are positioning yourself to more aggressively "play the odds", and more aggressively "buy low" and "sell high" than simply believing in a "random walk". You have to really know what kind of market you are in and whether or not it is a correction, a bear market, or a long term decline like GOLD in 1980 or Nikkei in 1989. I don't think 2011 was a 1989 Nikkei or 1980 GLD type top. I Do think gold has been in a bear market. I am supremely confident that $950 in gold holds, but worried we could test that area, and even break below it temporarily (very short term). I could be wrong, but you have to be willing to take the risk in order to profit.

This has been my thoughts only, as always, not to be taken as investment advice. Full Disclosure: I bought SLV just prior to this post.

Correlations And Profitability

The permanent portfolio strategy has been proven to beat the market.
http://harrybrowne.org/PermanentPortfolioResults.htm
Sure, you can just imitate a strategy marketed as "bullet proof" or a "magic formula" or whatever, or you can understand WHY it works.
With an investment having a ZERO correlation, (but individual parts with negative correlations to other parts), it doesn't matter what day it is, you should have something that goes up and something that goes down. That means on ANY time frame, the same will be true. Of course, it's entirely possible the correlations shift, but for the time being it seems that it is such that
The most simple portfolio that can have a very close to zero correlation, is the following:

Equities (EEM)
Treasury Bonds (TLT)
Gold (GLD)
Oil (USO)
Dollar (UUP)

Rather than own the dollar, you instead might wish to actually own cash. If you own cash, the correlation actually goes slightly positive and oil can be taken out and sub in SPY for EEM.

SPY(IVV works too),TLT,GLD is really all you need if you want the minimum work required in the portfolio. Add in SHY if you want the short term yield or perhaps put the cash in a 1 year CD spread out on the 25th day of each month. (Or even a 1 yr Bond). That way after a year every month you will receive cash from which you can put to work to rebalance along with your monthly deposit savings in the account, and if interest rates go up, the interest accumulated on the CDs will go up. You are dollar cost averaging into the interest rate so if you get a better value later it is a superior strategy than putting it all in a CD now, and you still get the compounding each year.


The point I am pointing this out is to show you that if you are low funded you can greatly reduce the amount of trades you have to put on, remain diversified, and have bets that will bennefit from the "synergy" of your portfolio.

Now if you can run commission free trades you can rebalance without fees, but with not much capital you may not be able to rebalance. At least with a DRIP (Dividend Re-Investment program) program (don't ask me why people say DRIP program using the work program twice) and fractional shares you effectively have the dollar cost averaging going on and perhaps can rebalance. So I would consider sharebuilder if this is your strategy. This knowledge still can work with trading, or more skilled "timing" of the investment aspect (some might call it longer term trading). It can apply to swing trading or position trading.

Correlations that have aspects of positive and negative correlations and sum out at zero protect you from being exposed to market risk in any direction and provides stability and profit.

When you are actually trading, you don't have to be using all of these at the same time. I personally believe timing is possible and will give this strategy an edge, and leverage will as well, but you better be sure you do have an edge and manage risk properly

Nevertheless, when the timing is right, you may want to accumulate shares on either a short term trade or long term trade in any of these names. It can either be entire positions or portions of your position and you can either time the sale or just gradually reduce on the "high points" or "overbought' areas.

One alternative is to combine trading and investing in the sense that you have these 4 ETFs or so make up a portion of your portfolio to provide the stability, and with say the other half of it, you consider your trading capital and base trades off of that.

Aside from zero correlation working... WHY does it work?
Basically, money is changing hands ALL of the time. Capital expands and contracts as well increasing or decreasing the value in dollars (or some form of currency somewhere in the world). The contraction phases are typically short and are offset by an even greater expansion phase. But as it exchanges hands and expands, it causes some areas to go up more than others. At times some areas go down and down more than others, and often one goes up as the other goes down. Think about if you sat at a table where cards exchanged hands. By  positioning everywhere, at every seat you are involved in EVERY transaction that takes place. You are skimming chips with every exchange of cards. Now it's just a question of skimming the profits when you notice the trade flows too aggressively into one asset class and neglects another, or pulling the best cards and switching them with your own until you position yourself to have the "strongest hand"

If you believe over LONGER periods of time, markets enter trend mode, you may wish to rebalance less frequently. If commissions cost you  and you have limited capital, rebalance less frequently.

Now I will discuss a gameplan of someone who might use this to their advantage with a slight bias that may shrink or grow in each asset.

Relationship Of Risk In Multiple Portfolio Betting Strategies

In the "nature of risk" I said that "Once you understand how this relationship applies to ONE bet in a portfolio mixed with a percentage cash and a percentage towards that SINGLE bet, you can start to develop your understanding to account for multiple bets at a correlation between 1 and zero. We will cover that next." This is the spreadsheet I developed and in it, we take a hypothetical coin flip where heads you win 20% ROI on your capital, tails you lose 10% and 2% of the time you lose everything. 49% chance of a win, 49% of a loss and 2% of catastrophe. You can make 1 of these bets a month or 12 a year. The results: With One Single Bet the "ideal" amount is 47% of your capital on one bet. The expectation in that scenario is that you gain an average of 10% over the course of a year. With the multiple bet strategy, at zero correlation you can risk 19.16% of capital for EACH of 5 bets and you expect to yield 25% per year. If you have a more typical correlation of 70%, your return goes down to about 17% per year.  
If you are overwhelmed by numbers, this means that you earn more by betting with more than 
one stock at a time risking significantly less per bet but risking more total. In spite of risking more total, the actual volatility/risk is expected to be the same.

Why do things work this way that MORE bets at a lower correlation earns a better return better? The kelly criterion (see nature of risk) is such that for INDEPENDENT bets (zero correlation) you can roughly risk the kelly on each bet as a percentage of the REMAINING capital (capital remaining AFTER the previous bets). For 10 bets the way this would work is if the kelly was 10%, you could risk 6.5% per bet over 10 bets or around 65% of capital at risk. The way this is determined is 10% of capital is risked on the first bet, then 10% of remaining 90% capital or 9% on the next bet, and then 8.1% on the next bet. As this continues you could average this out over 10 bets to be 6.513% per bet for every bet. Or you could do this over 5 bets and the amount per bet would be nearly 8.2%. The reason the capital remaining has to be calculated and you can't just risk 10% per bet across 10 bets using all capital up is because there is the possibility that every single one of those bets losses. In the normal kelly, bet one at a time, after every single loss you can properly adjust the risk downward by taking 10% of the remaining capital which would then have been reduced to 90% after the first loss, and so on.You can make sure each consecutive bet is smaller if you wish, but I prefer remaining consistent with the option for a "half bet or 1/4th bet). Ultimately I want to cut whatever "average" number in half at a minimum as a "full bet" even though it does not represent a "Full Kelly".

We also know that if you were to risk 10 bets at a correlation of 1 the sum of all bets would equal the kelly criterion if we used bets at a correlation of 1. It would be like opening 10 positions of the same ticker symbol, and so the sum of each position must not exceed the kelly.

Now with use of this knowledge you can construct a weighted average and determine the amount given a correlation of 50% to be 50% between the two, and 70% being 70% of the value of a correlation of 1 and 30% of the value of the zero correlation number and so on. The point of this knowledge is to quantify the value of correlation and to understand the relationship. When it comes to actual betting you will often find more bets at a lower correlation is better with less risk. However, when fees are involved 10% of a $5000 account would be to put $500 at risk. If you pay $5 fees TWICE that's $10. $10/$500=2% loss. So every trade you break even loses 2%. If you gain 10% or $50, $10 represents 20% of that. When modeling the expectations, it's important you plug in the results adjusted for the amount of capital at risk. The formula doesn't do this yet, but I plan to adapt it at some point. For now, even a $5000 account doesn't get you tremendously far if you are position sizing properly unless you are very, very good. The amount that each trade limits you over time is tremendous, and that is the danger of "compounding costs".

Fortunately, I have gotten to the point where I can produce on trades. With many starting out with even less, they are going to have to be very smart about how they build their income gradually and safely while they wait to accumulate more to deposit. If you are investing, and can use a DRIP program to effectively dollar cost average in without incurring fees, you can get started with a very small amount. If you are trading you need more. Just how small of an account could one who has experience start with and actually hope to grow it? I am working on the spreadsheet so I can run the math and include the effect of fees. With some adjustment we can determine the amount when trading becomes profitable, and also when trading becomes profitable to the extent that it expects to produces more than investing.

The Nature Of Risk

What is the nature of risk?

The nature of risk is such that if you risk too much as a percentage of your portfolio in a given trade, that you can take any strategy, even those with a very winning expectation and over time LOSE money on what would otherwise be a winning strategy.

This is what most people do by

1)Trading too often
2)Trading while being underfunded
3)Trading with commission and
4)Trying to "time" how much to risk believing that somehow in the long run risking MORE than an optimal amount to "get abck to even" will somehow benefit them.

It is a mathematical certainty that over the course of your career if you attempt to adjust your bet size to risk more(when the odds remain the same) that you will be hindering the long term growth of capital over time. In theory people say "well if I start with a dollar and every tiem I lose that dollar I double down eventually I will get back to even. This is crap. Even Bill Gates would run out of cash after a losing streak that inevitably would happen. You are talking about a chance of losing an INFINITE amount of capital, so only to win HALF of $1 per bet. In no reality that I know of is that ever going to work other than to temporarily produce very very small gains before it wipes out EVERYTHING.

It is important after I talk about my strategy of "rebalancing" which means adding lower and reducing higher that a specify the complete difference because some people may be confused.
MAINTAINING a PERCENTAGE amount in a world with no fees over time may help but that is different than doubling down and increasing that percentage size of your portfolio towards that risk area.
So since we know that a FIXED percentage according to the odds is best (if the odds and edge improves that could allow slightly more risk to be correct if it goes higher or lower in theory, but in reality ignore this), how does our overall account growth rate per trade relate to the percentage at risk? Observe: What the heck is "fractional kelly" The kelly criterion shows you the optimal risk percentage in maximizing your portfolio/bankroll reward over the very long run.

As risk increases, volatility increases dramatically and exponentially. Perhaps not illustrated is the danger of overbetting as the return goes negative. In an environment where our reward to risk and our expected win rates are completely uncertain, overbetting risks jeopardizing our entire account balance over time. As such it is almost NEVER correct in stock trading to bet the exact kelly or even half of it, especially considering the nature of overconfidence, the tendency for past results to not equal the future, and that the relationship is such that you can STILL get 3/4ths of the return with half the risk. When you add in commission, ironically it actually favors risking less. At some point, if you have too much of limited capital you should not play because you are no longer profitable. However as long as you are still profitable, less is more favorable because the volatility creates an even greater problem of it being exponentially more difficult coming back and digging yourself out of the hole as the commissions are now an even GREATER percentage of your bankroll. This relationship is fundamental towards understanding why 90% of traders fail, and how to avoid being that 90% and focus on being the 10% that succeed. Once you understand how this relationship applys to ONE bet in a portfolio mixed with a percentage cash and a percentage towards that SINGLE bet, you can start to develop your understanding to account for multiple bets at a correlation between 1 and zero. We will cover that next.

Why The Portfolio Working Together Is Greater Than The Sum Of Your Portfolio's Individual Parts

Science and/or business may teach you the concept of synergy. If not, Synergy is when the WHOLE is GREATER than the sum of it's parts

What this means is that if you take a wooden 2 by 4 board and put say 100 pounds on it, it may reach it's breaking point. Now if you take two of these and bind them together, you might think that it would take 200 pounds to reach the breaking point. Not SO. Synergy is involved so that the support of two is greater than the support of the sum of each. In other words, the boards together may produce enough support to hold up to 300 pounds without breaking.

In trading terms, this does manifest itself in a way as well, but it's tricky to explain without first starting simple...

Say for example you have the option to either own a stock market ETF or cash and that is it. Assume NO FEES for trading. Assume a random walk. (over enough time it also works over a relatively normally distributed market that "cycles". This is not a "real market" but the market is "normally distributed" or at least very close. In other words, the market has a very good chance of having a near equal number of consecutive up days and down days over the life of it's trade to a near same magnitude. For example, take a look at Apple's stock courtesy of tastytrade's research. That may or may not mean that the market is a "random walk". I believe it cycles and it sometimes breaks into a trends up and breaks into a trend down. I believe there are things that only temporarily give it pause and it retraces, but ultimately throughout a cycle it is evenly distributed. In either case this chart should give you a look at what is "realistic" when it comes to trying to determine your odds of catching a trend. You may with skill be able to get an edge, but it won't be much.


As such, just for example purposes to generate "synergy" we will consider it a RANDOM market. Can you beat it? The answer is yes... with synergy (and no commission trades).

The solution in the hypothetical random market with only stocks and cash and no options MUST be that you hold 50% cash and 50% stock. If the stock doubles in price due to randomness, consider it a gift. If you have $1000 in cash and $1000 in stock, now you have $2000 in stock and $1000 in cash. "Rebalance" your portfolio, by selling HALF and now you have $1500 in cash and $1500 in stock. Now if the stock cuts in half back where it started, you have $750 in stock but $1500 in cash for a total of $2250. $250 more than you started.

We Could demonstrate why this works even if the stock oscillates and eventually ends up below where it started IF there was enough time and volatility, but the point is, that if you owned simply the stock, you would be back where you started and have only a 50% chance of a profit in ANY condition. You could do NOTHING else to beat this market as the long odds wipes everyone out who is GAMBLING. It is only with SYNERGY that you can create the balance that keeps your account growing as time goes on.

The real market would require that you wait for enough of an oscillation to where you can afford the fees once it "normalizes" but were this market entirely random and no fees, you would rebalance as often as possible. Since avoiding fees becomes so important, using a 30+day rebalancing period using commission free trades (which require at least 30 day hold before you can sell) is a great way to take advantage of this more frequently.


For this same reason, holding 25% stock ETF 25% commodity ETF 25% cash and 25% Bond ETF and maintaining that relationship every now and then will produce very good gains in the "real market".

EVEN if you do not reblanace, this strategy still catches the monetary expantion as it expands and goes SOMEWHERE. Even if there is some deflation your cash is worth more and can buy more. Over the long run this strategy works very well.

Now this is not meant to promote a permanent portfolio strategy of 25% of each, but instead to show the value of correlation. Take for example a look at what we call the correlation matrix of this portfolio with...
EEM(stocks) GLD(gold) TLT(bonds) and UUP (cash)


 

The average correlation of the assets is -.085 over the last 6 months, AND if you sum the individual correlations divided by the number of asset pairs and then sum up. Add in USO (oil) and you currently get the correlation to under 1%.

We will discuss correlation more in the future. For now just understand that a negative 1 correlation means as one goes up the other always goes down and that a correlation of 1 means as 1 goes up the other goes up. A zero correlation means that basically as one goes up, the other either goes down 50% of the time and up 50% of the time or stays the same. Thus a zero correlation means each bet is "independent" and will offer plenty of opportunity to gain on it's own. A zero or negative correlation strategy works well because the probability of all assets declining at the same time are very slim if the past corelation holds into the future. In other words, you very often have an area which to both add to and reduce from to rebalance and maintain the allocation balance required to profit using that strategy.

What Aspects are Involved in Money Management?

1)Knowing well in advance how many positions you will have at one time at a maximum.
2)Knowing which style you are going to use for each trade
3)Based upon the style knowing your actual EXPECTATIONS of gains (a close estimate works)
4)Also Knowing your win probability for that particular method
5)Calculating the amount to risk according to the method, and according to your current risk tolerance determining what percentage of that "suggested amount" to actually risk
6)Identifying the setup using the method that provides a good low risk high reward entry in the first place
7)Identifying the actual numbers of risk and reward.
 8)Knowing when and by how much to deviate or at least take some profits and all profits as well as cut some risk or all risk
9)Knowing YOURSELF***
10)IF you know yourself to have troubles not taking on a trade as it comes to you putting safeguards in place to prevent yourself from trading just for the rush.
11)Having a strict regiment if necessary to go through a routine or checklist that ensures you don't violate any of YOUR own agreed upon strategies, thereby keeping integrity with yourself.
12)Experience to actually show to yourself hat you are capable of managing money and making trades and building and growing account first by putting in the hours in paper/demo trading (thinkorswim on demand is great for that).

There are many more things. Another big one is knowing what is "correlation", and what it has to do with trading. What is risk/reward and how it impacts your returns AND your win rate? What is win rate vs win ratio? How does risking more or less change how your overall bankroll is built over time? What is drawdown and what does it have to do with trading and how to determine what your % of a 20% drawdown is over 100 trades based upon your odds and more?

This journal may not get to all of this, but it will try to go over everything eventually. The actual individual setups also help. Knowing what certain things relate and knowing certain strategies... everything is important.

What You Must Learn To Trade Well

There is a secret that all experienced expert successful traders do and the novice does not. There is one thing that connects every single successful trader who makes it in this business in the long run.

Is the Secret being a contrarian?
Finding the trade where everyone has already priced in and gone one way and going the other is advantageous, it may often pay to be a contrarian, but not when it comes to this. How on earth can this "secret" be a requirement be in a world where being the "contrarian" is so often right?

Because this secret dictates what happens between the successful trades and prevents those who "go the other way" from being wiped out.

If you haven't guessed it by now, the answer to this secret is Money Management.

I know, so much excitement and build up for what seems so boring to so many novices. But I guarantee you, if you don't get this down pat when you start it won't matter if you can hit a 100% return or even if you can hit MANY of them. If you manage your money poorly, the other more experienced traders out there end up managing you.

It seems so simple, but it actually can be improved by EVERYTHING that you do.

Trading is not about THIS trade or even THE NEXT TRADE....

It is about NEVER having a "risk of going broke" and ALWAYS about your entire career of trades.

ESPECIALLY if you are starting out with "minimal funds".

stay tuned for more details about how to achieve this in practice

Welcome To My Trading Jornal

There are a lot of things I will cover in hopes of educating the life of a stock trader. I have over 7 years of stock trading experience and many more as a manager of money. Let's get started.