Rules OF Successful Tradig

Todd Mitchell’s 20 Rules for Trading Success

1. Always use stops.  Risk control is the true measure of a good consistent trader. If you lose all your capital on the lemons, you can’t play when the great trades set up. Consider cash as having an option value.
2. Don’t over trade.  This is the number one reason why individual traders and investors lose money. Look at your trades of the past year and apply the 90/10 rule. Dump the least profitable 90% and watch your performance skyrocket. Then aim for that 10%. Over trading is a great early retirement plan for your broker, not you.
3. Don’t forget to sell.  Date, don’t marry your positions. Remember, pigs get slaughtered. Always leave the last 10%-15% of a move for the next guy.
4. Don’t chase the market.  If you do, it will turn back and bite you. Wait for it to come to you. If your miss the train, there will be another one along in hours, days, weeks, or months. Patience is truly a virtue in this business.
5. When I put on a position, I calculate how much I am willing to lose to keep it.  I then put a stop just below there. If I get triggered, I just walk away. Only enter a trade when the risk/ reward is in your favor. You can start at 2:1. That means only risk a dollar to potentially make two.
6. Always be willing to go Long (Buy) and Short (Sell).  You have to be flexible and dynamic in your trading…one minute I could be long the market and the very next minute I may be short the market.  You need to be able to flip flop and be quick and nimble in your trading.
7. You don’t have to be a genius to play this came. If that was required, Wall Street would have run out of players a long time ago. If you employ risk control and stops, then you can be wrong 40% of the time, and still make a living. That’s little better than a coin toss. If you’re wrong only 30% of the time, you can make millions.  If you’re wrong only 20% of the time, you are heading a trading desk at Goldman Sachs. If you’re wrong a mere 10% of the time, you’re running a $20 billion hedge fund that the public only hears about when you pay/invest $100 million.  And if someone tells you they’re never wrong, as is often claimed on the Internet, run a mile, because it’s simply impossible!
8. Trading is hard work.  Trading attracts a lot of wide eyed, naïve, but lazy people because it appears so easy from the outside. You buy a stock (futures contract, forex, option, etf, etc.), watch it go up, and make money. How hard is that? The reality is that successful trading and or investing requires twice as much work as a normal job. The more research you put into a trade, the more comfortable you will become, and the more profitable it will be.
9. Don’t confuse a bull market with brilliance.  When the market goes straight up (i.e. 1995 to 2000) anybody and their grandmother can make money.
10. John Maynard Keynes, the great economist and early hedge fund trader of the thirties,  once said: “Markets can remain illogical longer than you can remain solvent.” Hang around long enough, and you will see this proven time and time again.
11. Don’t believe the media.  Look for the hard data, the numbers, and you’ll see that often the talking heads, the paid industry apologists, and politicians don’t know what they’re talking about.
12. Sometimes the conventional wisdom is right.
13. INVEST like a fundamentalist, execute like a technical analyst.  (Swing) TRADE using technical analysis…then by understanding basic fundamentals will make you even better.
14. Technical analysis…knowing how to read charts like a daily newspaper is key to successful trading.  That said, learn what an “outside vertical bar” is, and who the hell is Leonardo Fibonacci.
15. The simpler a market approach, the better it works (the ‘KISS’ method).  Everyone talks about “buy low and sell high”, but few actually do it. All black boxes eventually blow up, if they were ever there in the first place.
16. Markets are made up of people.  Understand and anticipate how traders think, and you will make a lot of money.  The market is made up of peoples fear and greed…it’s all psychological…learn how to read people and you’ll certainly be ahead of everybody else.
17. Understand what information is in the market and what isn’t and you will make more money.
18. Do the hard trade, the one that everyone tells you that you are “Crazy” to do.  If you add a position and then throw up or feel sick afterwards, then you know you’ve done the right thing.
19. If you are trying to get out of a hole, the first thing to do is quit digging and throw away the shovel – exit your trade asap. A blank/neutral/flat position can be invigorating.
20. Making money in the market is an unnatural act. We humans are predators and hunters evolved to track game on the horizon of an African savanna. Modern humans are maybe 5 million years old, but civilization has been around for only 10,000 years. Our brains have not had time to make the adjustment. In the market, this means that if a stock has gone up, you believe it will continue. This is why market tops and bottoms see volume spikes. To make money, you have to go against these innate instincts. Some people are born with this ability, while others can only learn it through decades of training

Downward Move To Continue: Heading for 4727 to test

A temporary Bottom Formation @ 4827 Expected

5050 is Crucial: Below 5050 A free Fall Expected.

NIFTY VIEW AND TECHINCAL FACTOR:

During the week under review NIFT lost 4.94% while Sensex lost 4.90% compared to previous week. A real blood bath observed and violation of important bottom support of 5180 is on card. During the week NIFTY violated support of 5177/5195 trend line during trading hours but closed above 5195 levels. On the other hand Sensex violated 18295/17314 support area and closed below that giving clear downward breakout.

Considering sentiment, overseas market and other technical parameters in weekly range 5050 is must to achieve and once that level is breached 4827 will be the next levels.

Short term trader can buy aggressive near 4827 area. On the higher side above 5230 maximum 5325 can be observed to try the Friday’s GAP filling. Look at the chart once Nifty closed below the yellow horizontal line then “descending triangle” pattern will convert in to “downward channel” marked with RED color.

As per “medium term” and “long term” chart do not buy NIFTY unless it trades above 5555 levels.

The weekly Fib-range for the week is 5282 in normal behavior, 5334 if some buying from FII or DII observed and 5389 in extreme good condition. So surpassing of 5555 is most difficult task for next 3-4 weeks time frame.

In short bias is –ve and toward testing of 5023 area before 12^th of August and 3727 around 29^th August.

    

The other indices turned weak and expected to be weaker are as under:

Ø  Bank NIFTY 10354 is weak and may give rally up to 10499, 10607 where fresh selling is anticipated. Downward TGT would be 10017 which is 10^th Feb low.

Ø  FMCG: 9967: Turned fresh weak during the week any rally up to 10046 or 10150 is a best chance to go short. Probable TGT would be Rs 9617, 9328.

Ø  IT is heading for another strong down weave. Likely to test 5348 levels. Current close is 5911 level on last Friday.

Ø  CNX Junior NIFTY: 10542: It has formed a “M” formation as a continuation pattern. This indicates that a further damage is expected. It should trade below or test 10037 low and then only reversal could be anticipated.

Ø  Pharma: 4710: During the week under review this indices has rendered clear sell signal. SELL stock on rally falling under this stock.

Ø  Realty: 251.20: Likley to continue its downward journey and will reverse only and only if it trades above 300 levels.

Ø   world market will lead Indian market to panic. Here at domestic front selling is anticipated not on account of some problem at domestic front. It will be a selling of FII’s which they were selling just to clean up their mess at home town business. Any way this is going to create real panic in the market.

Precious Metal:

Gold: 24026: Highly over bought status in daily as well as weekly. No Fresh buy. Hold long if any is there with SL of 23840. Close below 23710 will turn in to fresh weakness.

SILVER: 57105: It is turned –ve and rendering bearish signal for extreme short term. SELL on rally with SL of 60300 as your nearest SL. Trading below 56590 during the weak will be a next short sell signal. In fact it has retraced previous decline exactly by 50% and turned weak. Since short term oscillator and Elliott both are pointing downward so any kind of rally observed should be used both to exit long and create short position.

A correction is offing

FOLLOWNG IS THE VIEW FOR THE COMNG WEEK FOR 11^TH JULY TO 15^TH July 9, 2011

MARKET TOPPED DUE TO DOWNWARD TREND LINE AND 200 DAY SMA.

ALSO SHORT TERM OSCILLATOR ENTERED OVERBOUGHT AND CORRECTION NEEDED TO MAKE HEALTHIER.

UP MOVE STARTED FROM 5180 LOW HAS ADDED 578 PTS AND ENDED AT 5670 IS NOW PONTING DN FOR SHORT TERM. NEXT WEEK IS LIKELY TO BE BEARISH AND TRADE SHORT IN A WEAK TONE AFTER MONDAYS OPEN.

NOTE: THE OVERALL TREND IS TURNED BULLISH SINCE 5180 LOW. WE CAN CALL IT AS IMPULSE AND IT HAS JUST COMPLETED 3^RD WAVE OF LARGER 1 ST IMPULSE. SO THE COMING CORRECTION WILL BE A CORRECTION WITH THE MAIN TREND (WHICH IS UPWARD). HENCE AFTER THIS CORRECTION MARKET WILL MOVE TO NEW RECENT HIGH. The pattern, economic scenario and other sentiment condition reveals the classic chart eristic of wave I which is as under:

Wave one is rarely obvious at its inception. When the first wave of a new bull market begins, the fundamental news is almost universally negative. The previous trend is considered still strongly in force. Fundamental analysts continue to revise their earnings estimates lower; the economy probably does not look strong. Sentiment surveys are decidedly bearish, put options are in vogue, and implied volatility in the options market is high. Volume might increase a bit as prices rise, but not by enough to alert many technical analysts

 

PRODUCT	CLOSE	DIRECITON	SL	TGT
NIFTY	5672 FO	Up matured Down started	5720	5539 and 5470 before 22nd
BANK NIFTY	11278	Up Matured Short –term down	11460	11026 and then 10895
REALITY IND	296.50	Turned up in weekly May correct mild in daily correction	277	318 to 325 in 2-3 weeks time. Accumulate stock in this sector.
FMCG	10302.55	DOWN started	10500	Sell fresh below 10280 for TGT of 10000 to 9800
INFRAST	3146.80	NEAR RESISTANCE AREA	3190 FOR SHORT TERM FOR LONG 3080 SUPPORT	EXPECT GOOD OLNLY ABOVE 3133 SUSTAINS.
MIDCAP	8112.90	LOOKS MORE STRONG BUT YET TO RENDER BUY SIGNAL IN WEEKLY.	8026 IS KEY LEVEL TO WATCH FOR MID CAP	ABOVE 8200 EXPECT 8600 +
AMBUJA CEMENT	126.10	DOWN	133	115 TGT
AXIS BANK	1306.55	DOWN	1340	1286 OR 1270
CENTURY	365.95	DOWN	378	355 OR BELOW TO BUY
LIC HOU	216.55	DOWN MATURED NEAR PR BOTOTM.	BUY ON DEEP BELOW 211 OR LOWER	BUY BELOW 211 OR LOWER OR ABOVE 226
SOBHA	285.40	UP	270	310 OR EVEN HIGHER
GMDC	159.00	UP	150	167 AND 176
SAIL	136.10	DOWN	144	128 OR LOWER
HCC	34.05	32.30	UP	39 AND 44

Some of the companies i like and should be under scan are

*VA Tech Wabag Ltd Buy on declines this technology focused company for target price of Rs1800 in medium term.

*Bliss GVS Pharma Ltd Excellent growth in the last two years and good prospects makes the stock good medium term investment for target price of Rs35.

*Elder Health Care Ltd. More upside expected

*Grabal Alok Impex for short term gains.

*SSPDL (erstwhile Srinivasa Shipping),

*Vadilal Enterprises and Ador Welding on the radar of savvy players.

In Next 24 Hours Market Will Give Direction.

Some time it becomes difficult for me and most of the analyst to identify incoming trend. Lets took the recent scenario. Market moved up smartly from 5195 low to 5705 high in just eight day. The move was aggressive fast and intensity was so high that before anybody can think of making entry move got over. Now it is taking rest. Just cool down process is on.

Ø  Certain price pattern must develop which lead to the specific trade actions I recommend to enter or exit a market. Given our current “forecast” we are in the target zone for a culmination top in overall stock prices. Our next step is to stay abreast of any potential sell signals which could be given based upon our “trading rules”. To repeat, in order for us to recommend a trade action, a buy or sell signal can only be taken if it occurs in tandem with the market having reached a projected target zone base upon a forecast.

PRICE PATTERNS WHICH PROVIDE SPECIFIC TRADE ACTIONS.

HEADING FOR SUDDEN DROP IN PRICE.

·         When I select my swing trading and along with dynamic time zone tool it gives me more clear thought on my analysis.

·         Let evaluate the present condition now.

·         Now once again if you look at the last 10 days started from 5195 then you will notice that one swing terminated at 5706 high and then it has made a twice at 5609 area and then top is lowering. In other words bottom is flat and top is declining indicates clear change in trend and violation of 5610 is offing. As I was insisting that below 5600 we will be observing fast decline up to 5555, 5531 5477 are the 3 important support of Fibonacci zone.

Ø  

·         The down swing started from 5944.45 to 5195.90 with perfect down 5 wave and swing reversal took place upon surpassing 5377 level. The retracement value for the same was 5665 for 0.618% but some time it can retrace even 0.72% in most aggressive market condition. The rally lasted for8 days and 9^th was a turning day. So using time zone it should correct 3 to 5 days time. Nifty is consuming more time in correction. Now I know one thing that it is most difficult to trade when correction is on. 

·         According to my calculation NIFTY made an advancement of 511 points so by virtue of low it has an authority to correct 0.382% i.e. 5566 but it is now going below 5600 lvl. Now it will try to misguide you I am sure it will go below 5600 and it will make all of you to panic selling and sudden chance will be observed. According to me considering “ABCD” pattern “A” and “B” is completed while “C” is in progress. Then another round of 500 points expected after formation of “C’ classification. So in that case I can say that if it turns from 5566 then add 511 to that will give TGT of 6077 as the next tentative TGT upon surpassing 5710. So wait and watch for the market to give signal. You can buy aggressively above 5710 for the TGT of 6077 levels.

On the downside PSR is at 5429 while mid point of cradle is at 5450 with ADX in bullish mode

My NIFTY trading view is as under.  



POSITION TRADER: EXIT LONG(suggested yesterday) > SHORT TERM OSCILLATOR RENDERS SELL and Risk taker can sell with SL of 5710.  FRESH SHORT BELOW 5600.  After short cover the same at 5566 and 5511 area. In any case no sort below or near 5511.

RISK TAKER CAN SELL NOW WITH SL OF 5680 SPOT FOR TODAY AND 5713 FOR POSITION.

RE-ENTER FRESH LONG ONLY ABOVE 5713 IS SURPASSED.

Ø  Technically: Nifty topped at 5702 level this is 3^rd day it remained within the range of topping day. (i.e. between high low when market topped). This is again a unique phenomena as EMA is rising and +ve, PSR rising and +. ADX is progressing in +ve while RSI and STK shor spand time period is overbought and rendering sell.

Ø 

Ø  Conclusion: Some time it remains in side wasy after smart rally or some time it remains in side ways and then suddenly turns weak. In our case weakness will come below 5605 lvl is breached.

Ø  Cash segment is rocking but be cautious in selection.

Indicators are Liars! Creating an Edge with Support and Resistance

Most if not at all traders, be they day, swing or buy and holders have come across technical analysis. You know what I’m talking about! Those squiggly lines all the gurus seem to have on their charts! They consist of patterns like the famous ‘Head and Shoulders’, age old equations seen across nature like ‘Fibonacci’, even historic wave movements measured by ‘Elliott Wave’.
As great as the names may sound, most if not all these methods and the many others boil down to one key technical principle ‘Support and Resistance’. Support levels are where demand overtakes supply and Resistance levels are where supply overtakes demand. Most technical analysis methods serve the single purpose of helping traders identify Support and/or Resistance, however the areas these methods predict can vary from method to method.
Within the technical analysis group are two subgroups we call Proactive and Reactive.

Proactive technical analysis methods are based upon a calculation derived from price and include Elliott Wave, Fibonacci, Pivot Points and Trend lines and in many cases identify Support and Resistance areas where price has never been before. These methods are predictive based upon the cyclical nature of markets and use this nature to highlight potential areas of price inflection.

Reactive technical analysis methods are the polar opposite they are derived directly from price action and include Price swing highs/lows, Volume profile and Open Gaps. These methods are based upon the direct action of price, levels that were actually traded be it yesterday or 30 years ago. Reactive technical analysis relies upon ‘market memory’ that traders will recognize or respect past areas of price inflection.

Now following on from this logic, if most technical analysis methods are used to identify Support and Resistance, why are there so many different methods? Well one of the main reasons for these adaptations is market personality; the market can go through many distinct personalities or phases. This is why a trading style that’s been profitable for you for the last 3 months may become a loser now that the market ‘phase’ has changed. Markets can go through bullish, bearish, sideways, high volatility, low volatility and every other phase in between.

The Schizophrenic nature of evolving market environments mean that in given phases certain types of technical analysis work better than others. This is where the concept of technical confluence can offer a great edge. Technical confluence much like a rope consisting of multiple strands is the combining and intertwining of multiple technical analysis methods both Proactive and Reactive to create a ‘community’ view. This community view includes ‘market memory’ (reactive) and a cycle based prediction (proactive), these 2 analysis groups offer great insight and confirmation for the savvy trader.

So practically what does this mean? Say for example we analyze a EURUSD futures chart using a few of these methods and find a 50% Fibonacci retrace at 1.4441. a price swing low at 1.4451 and a Low Volume Valley at 1.4445. Based upon the confluence of these methods and the differing trading groups who will be viewing that area, the odds of a reversal in the 1.4441-1.4451 area are stacked in our favor.

Why does this work? Combining multiple methods means combining multiple groups of traders, so more ‘eyes’ on that area. Furthermore the combination and confirmation from multiple methods both reactive and proactive helps traders adapt to changing market phases with more confidence. Probably the most important reason to use Technical Confluence is the dreaded P-word ‘Psychology’. Technical confluence as a psychological edge cannot be emphasized enough, if you are confident and firm in your reasoning for a trade you are much more likely to manage that trade to fruition.