How To Day Trade Using Level 2 - UVXY Trade

MARKET PREDICTION FOR MONDAY

ProtraderMike's 10 Rules Of Day Trading Explained

Rule Number 1:

Always wait for the setup: No Setup-No Trade.

Trading is a business and we do not trade just to trade or for fun. Commissions and fees add up so it is important to place high probability trades to achieve a high score rate. Example – Trading UVXY I wait for certain large stocks to sell off and the market to follow. I scale into UVXY building a position of 1000 shares at various prices.

Rule Number 2:

Never buy just once – scale in and out

Scaling into a trade is very important to create an average buy just above your last buy. In the above example – the market spiked and is now selling off – I entry buy 100sh UVXY 31.42 and 100sh 31.40 and 100sh 31.35 and 100sh 31.28 and 600sh 31.30 to have average 1000sh at 31.33 – now the stock rebounds up as market sells off and start scale out for profit at 31.42 where original buy was. Now at that point your up .11 on the trade instead of being even (which would have happened if you bought at just that one price 1000 sh)

Rule Number 3:

THE BEST trades work almost right away.

With the above example I look to exit the trade as I scale out at higher prices. I sell the first 200sh 31.45 than 200sh 31.55 and 200sh 31.65 and 200sh 31.75 and 100sh 31.85 and 100sh 31.95 (if possible)

Rule Number 4:

Never take a big loss. If it doesn't 'feel' right. Sell it!

Be patient with winning trades: Impatient with sketchy trades. – Listen to your inner person – when your profitable and you say to yourself the stock is going higher THAT IS YOUR SIGNAL TO SELL HALF THE POSITION. When you feel you are in a bad trade YOU ARE SO SELL IT AS $200 LOSS BETTER THAN $1000 LOSS.

Rule Number 5:

Always trade with the size that makes you unemotional.

If you trade with $100,000 trade $10,000 to $20,000 per trade with a 1% to 3% stop loss in place.

Rule Number 6:

DISCIPLINE to follow your plan is the key to winning in trading.

Stick to the Rules!

Rule Number 7:

Never get emotionally attached to trades.

Small losses are ok. If you trade with a score rate of 80% and you lose on 2 out of 10 trades – control the losses on the 2 and you will be a winning trader.

Rule Number 8:

Keeps things very simple and don't over-think your trading methods.

With so many stocks and charting tools it’s easy to get distracted. Keep focus on trading what you’re comfortable with and follow the rules.

Rule Number 9:

Always perfect your craft and sharpen your skills.

Keep a journal of your wins and losses this will help you become a better trader. Keep track of your equity balances and trading costs on a daily basis.

Rule Number 10:

Be confident in your trading mode and Stay humble at all times.

The market can hurt you as bad as it rewards you.

10 Important Day Trading Rules

If you are going to day trade, it’s essential to have a set of rules to manage any possible scenario. Even more important, you must also have the discipline to follow these rules.  Sometimes, in the heat of battle, traders will throw out their own rules and play it by ear — usually with disastrous results.

Although there are many rules, the following are the 10 most important:

1. The three E’s: enter, exit, escape

Rule No. 1 is having an enter price (buy in a series of buys as the strong stock dips), an exit price (a series of sells starting a certain price higher scaling out of the position), and an escape price (monitor stops to approx. 1% - 5% of trade dollar amount) in case of a worst-case scenario. This is rule number one for a reason. Before you press the “Enter” key, you must know when to get in, when to get out, and what to do if the trade doesn’t work out as expected.

Escaping a trade, also known as using a stop price, is essential if you want to minimize losses. Knowing when to get in or out will help you to lock in profits, as well as save you from potential disasters. Do not be Greedy or you will be punished more than rewarded.

2. Avoid trading during the first 15 minutes of the market 

Those first 15 minutes of market action are often panic trades or market orders placed the night before. Novice day traders should avoid this time period while also looking for reversals. If you’re looking to make quick profits, it’s best to wait a while until you’re able to spot rewarding opportunities. Even many pros avoid the market open. Wait for the opportunities to present themselves to you.

3. Use limit orders, not market orders

A limit order, lets you control the maximum price you’ll pay or the minimum price you’ll sell. You set the parameters, which is why limit orders are recommended. Can always set price below the bid to get out.

4. Margin can be your friend or foe

When you use margin, you are borrowing money from your brokerage to finance all or part of a trade. Full-time day traders (i.e. pattern day traders) are usually allowed 4:1 intraday margin. For example, with a $30,000 trading account, you’ll be given enough buying power to purchase $120,000 worth of securities. Overnight, however, the margin requirement is still 2:1. Using a prop firm to trade with pro traders get 10:1 leverage trading with $300,000 in buying power from the same $30,000 account.

When used properly, margin can leverage, or increase, potential returns. The problem is that if a trade goes against you, margin will increase losses.

If you have the ability to trade with a mentor than can show you the WHAT, WHY & HOW trades happen would be invaluable resource so you do not learn to trade on your money.

5. Have a Selling Plan

Before you enter the market, you need to know in advance when to exit, hopefully with a profit. “Playing it by ear” is not a selling strategy, nor is hope. As a day trader, you’ll set a price target as well as a time target. DO NOT BE GREEDY – SELL ON THE WAY UP. IF YOU THINK IT”S GOING HIGHER SELL HALF AND RIDE THE REST ON THE HOUSES MONEY AND RAISE THE STOP SELL PRICE HIGHER AS THE STOCK CONTINUES TO CLIMB.

6. Keep a journal of all your trades

Many pros swear by their journal, where they keep records of all their winning and losing trades. Writing down what you did right, or wrong, will help you improve as a trader, which is your primary goal. Not surprisingly, you’ll probably learn more from your losers than your winners. Keep track of your daily equity and commissions so you know at all times what your costs of trading are.

7. Practice day trading in a paper-trading account

Although not everyone agrees that practice trading is important, it can be beneficial to some traders. If you do open a practice account, be sure to trade with a realistic amount of money. It’s not helpful to practice trade with a million dollars if the most you have in your account is $100,000. Also, if you do practice trade, think of it as an educational exercise, not a game.

8. Cut your losses & Bankroll management

Managing losing trades is the key to surviving as a day trader. Although you also want to let your winners run, you can’t afford to let them run for too long. It’s more art than science to get it right, but learning how to control losses is essential if you are going to day trade. Once again, never forget the three E’s: (enter, exit, and escape). Bankroll management – try to put 10% of your account into each trade. If you trade an account with $100,000 in buying power you should put $10,000 - $20,000 in each trade with a 1% to 3% stop loss.

9. Be willing to lose before you can win

Although many traders can handle winners, controlling losing stocks can be difficult. Many rookies panic at the first hint of losses, and end up making a series of impulsive trades that cost them money. If you’re day trading, you must be willing to accept some losses. The key: know in advance what you’ll do if you’re confronted with losses.

Although anyone can learn to day trade, few have the discipline to make consistent profits. What trips up many people are their emotions, which is why it’s so important to create a set of flexible rules. Your goal: follow the rules to help keep you on the right side of any trade.

10. Be well rested and in a good frame of mind

You will trade your best when you are well rested and confident.

AMD Overnight Hold & Analysis

AMD finally showed green bar 2 days ago then small red then bigger green today and was strong all day to high of 2.15 and ran there at the EOD. Traded up .01 in AH even though AAPL earnings came out and market turned negative fast. MU was up .60 today and INTC up too - both are semiconductor companies and that why AMD sparking up. AMD is in a vulnerable place and is ripe candidate for a buyout of a larger company - like one of their biggest competitors possibly - INTC that is - anyway all these bottom crushed stocks are coming back to like with big green spikes - AMD may be next  look at these charts - 

Trading Opportunity of a lifetime

What made me think and predict this big breakdown in the stock market 3 weeks ago?

I have actually been waiting for this since earlier in the year - see below email I sent to friend on January 23,2012 and the charts of GOOG, PCLN, CMG at the time. I just knew we were in fro a correction at some point to come. I've seen it before and knew from common sense things don't stay up like that forever. 

I was inspired last year after watching Bloomberg TV when they hadon  the most successful people. There I met Michael Burry - 

From Wikipedia, the free encyclopedia

Michael Burry is an American hedge fund manager and physician. He is the founder of the Scion Capital LLC hedge fund, which he ran from 2000 until 2008, when he closed the fund to focus on his own personal investments. Burry was one of the first investors in the world to recognize and invest in the impending subprime mortgage crisis.[2] Author Michael Lewis profiled him in his 2010 book The Big Short: Inside the Doomsday Machine, and he was featured in Gregory Zuckerman's 2009 book The Greatest Trade Ever: How John Paulson Bet Against The Markets and Made $20 Billion. Kip Oberting, of KVO Capital Management, has described Burry as "a risk-avoider".

Investment career - Burry left work as a Stanford Hospital neurology resident to become a full-time investor and start his own hedge fund. He had already developed a reputation as an investor by demonstrating astounding success in "value investing," which he wrote about on a message board beginning in 1996. He was so successful with his stock picks that he attracted the interest of such companies as Vanguard, White Mountains Insurance Group and such prominent investors as Joel Greenblatt.

After shutting down his web site in November 2000, Burry started Scion Capital, funded by a small inheritance and loans from his family. The company was named after The Scions of Shannara, a favorite childhood book. Burry quickly earned extraordinary profits for his investors. According to Lewis, "in his first full year, 2001, the S&P 500 fell 11.88 percent. Scion was up 55 percent. The next year, the S&P 500 fell again, by 22.1 percent, and yet Scion was up again: 16 percent. The next year, 2003, the stock market finally turned around and rose 28.69 percent, but Mike Burry beat it again—his investments rose by 50 percent. By the end of 2004, Mike Burry was managing $600 million and turning money away."

In 2005, he veered from value investing to focus on the subprime market. Through his analysis of mortgage lending practices in 2003 and 2004, he correctly forecast a bubble would collapse as early as 2007. Burry's research on the runaway values of residential real estate convinced him that subprime mortgages, especially those with "teaser" rates, and the bonds based on these mortgages would begin losing value when the original rates reset, often in as little as two years after initiation. This conclusion led Burry to short the market by persuading Goldman Sachs to sell him credit default swaps against subprime deals he saw as vulnerable. This analysis proved correct, and Burry profited accordingly.Ironically Burry's since said, "I don't go out looking for good shorts. I'm spending my time looking for good longs. I shorted mortgages because I had to. Every bit of logic I had led me to this trade and I had to do it".

Though he suffered an investor revolt before his predictions came true, he earned a personal profit of $100 million and a profit for his remaining investors of more than $700 million. Scion Capital ultimately recorded returns of 489.34 percent (net of fees and expenses) between its November 1, 2000 inception and June 2008. The S&P 500 returned just over two percent over the same period.END

It is amazing when you can foresee something happening - get into position to take advantage of it so you are on the benefiting side and not the victim side. When APPLE dropped big few weeks ago the moon and stars started to align for me. I saw Panera Bread (PNRA) get crushed and also Chipolte (CMG) - which both today got murdered. I said what stocks are left at teetering highs - the ones left were Google and IBM - so I called them for days putting out the NOVEMBER 700 PUTS which were around $5 at the time - today they are $27.75 - http://finance.yahoo.com/q/op?s=GOOG&k=700.000000

IBM dropped 11 points

CMG down 43 points

PNRA down 8 points

AAPL down 23 points

So these opportunities come once or twice in a lifetime of trading and this week was that week.

Here is my email time stamp

from:		Michael Rich
to:		richlender@gmail.com
date:		Mon, Jan 23, 2012 at 2:27 PM
subject:		Market Plummets Time

Hot Stock Charts for Thursday 10/18

Hot Stocks for Thursday below - Congrats to all that followed my OREX post from last night and for those in my trading room great job today with DNDN, ARNA, KCG and UVXY of course (traded that 3 times) makes it 117 for 117 correct trades in UVXY.

Closed Positions today for accounts traded -

Hot Stock for Wednesday - 10/17 - OREX

Stochastic Oscillator - Great for trading UVXY

In technical analysis of securities trading, the stochastic oscillator is a momentum indicator that uses support and resistance levels. Dr. George Lane promoted this indicator in the 1950's. The term stochastic refers to the location of a current price in relation to its price range over a period of time. This method attempts to predict price turning points by comparing the closing price of a security to its price range.

The indicator is defined as follows:

where H and L are respectively the highest and the lowest price over the last  periods, and



In working with %D it is important to remember that there is only one valid signal—a divergence between %D and the analyzed security.

The calculation above finds the range between an asset’s high and low price during a given period of time. The current security's price is then expressed as a percentage of this range with 0% indicating the bottom of the range and 100% indicating the upper limits of the range over the time period covered. The idea behind this indicator is that prices tend to close near the extremes of the recent range before turning points. The Stochastic oscillator is calculated:

Where

 is the last closing price

 is the lowest price over the last N periods

 is the highest price over the last N periods

 is a 3-period exponential moving average of %K, .

 is a 3-period exponential moving average of %D, .

A 3-line Stochastic's will give an anticipatory signal in %K, a signal in the turnaround of %D at or before a bottom, and a confirmation of the turnaround in %D-Slow. Typical values for N are 5, 9, or 14 periods. Smoothing the indicator over 3 periods is standard.

Dr. George Lane, a financial analyst, is one of the first to publish on the use of stochastic oscillators to forecast prices. According to Lane, the Stochastics indicator is to be used with cycles,Elliot Wave Theory and Fibonacci retracement for timing. In low margin, calendar futures spreads, one might use Wilders parabolic as a trailing stop after a stochastics entry. A centerpiece of his teaching is the divergence and convergence of trendlines drawn on stochastics, as diverging/converging to trendlines drawn on price cycles. Stochastics predicts tops and bottoms.

Interpretation
The signal to act is when there is a divergence-convergence, in an extreme area, with a crossover on the right hand side, of a cycle bottom. As plain crossovers can occur frequently, one typically waits for crossovers occurring together with an extreme pullback, after a peak or trough in the %D line. If price volatility is high, an exponential moving average of the %D indicator may be taken, which tends to smooth out rapid fluctuations in price.

Stochastics attempts to predict turning points by comparing the closing price of a security to its price range. Prices tend to close near the extremes of the recent range just before turning points. In the case of an uptrend, prices tend to make higher highs, and the settlement price usually tends to be in the upper end of that time period's trading range. When the momentum starts to slow, the settlement prices will start to retreat from the upper boundaries of the range, causing the stochastic indicator to turn down at or before the final price high.

Stochastic divergence.
An alert or set-up is present when the %D line is in an extreme area and diverging from the price action. The actual signal takes place when the faster % K line crosses the % D line.

Divergence-convergence is an indication that the momentum in the market is waning and a reversal may be in the making. The chart below illustrates an example of where a divergence in stochastics relative to price forecasts a reversal in the price's direction.

An event known as "stochastic pop" occurs when prices break out and keep going. This is interpreted as a signal to increase the current position, or liquidate if the direction is against the current position.

$AEGR - Breakout Potential above 16.15 - volume key

$LXRX - Lexicon Pharmaceuticals - Target if breaks 2.76 to 3+

CLWR - Traded the first 10,000 shares of the day at 7:30 am - pretty cool & 2401 profits

Trades 9/27 & 9/28 - 20 for 20