Monday, June 29, 2015

A Great Trending Day For The S&P500

As a trend follower, you only make real money when the market trends. Today was one of those days where we were able to not only make some money, but protect ourselves from larger losses. I've included a screen capture and will continue to do so moving forward so that not only can you see the value of a good trend following indicator, but also visually see where we were wrong and where we were right. Today was a winning day but I also have a lot of losing days. The trick is to ensure that when looking long term, your winning trades end up being much larger than your losing trades.



At 9:30 EST (When the American markets officially open) I took the first buy signal because I had a blue bar trading above the larger red dots (larger trend sell signal). Price popped up, hit the upper bollinger band and then slowly reversed until we got out of the trade when the blue bars turned to red. I'm a conservative trader so I always only sell the market only when the close of the red bars drop below the bottom of the large red dots. I sold the market @ 11:06 EST and followed the market all the way down until exiting @16:00 EST (when price action generally slows down because of the impending close of the market).

The S&P500 has been moving fairly choppily upwards for a long while now when looking at the daily chart. Hopefully volatility will start to pick up again so we can get back to making more money. Where it goes from here I have no clue but like always, everyday I just mindlessly take buy and sell signals, waiting for the market to give me what it can.

Friday, June 26, 2015

Weather The Storm, One's Right Around The Corner



With any trend following approach, there is something called drawdowns. A drawdown in trading is simply a measure of how much an account has lost until it begins making money again. When in a drawdown, traders often panic and worry until they give up on any progress they have made. I'm amazed at how little information there is on drawdowns when looking at any trend following method being advertised in books, courses, online, etc. The reason a trader needs to understand and expect these occurrences is so they can remain calm and confident when they inevitably do happen. Weather the "storm" until the sun comes back out again. Because we follow the market, when the price action stalls and gets choppy, it's unlikely your account will go up in value during these times. Losses will out number gains because we are simply working with what the market gives us. Once the market picks up steam, you will be there to reap the rewards once again. As a trend follower, you are not trying to predict the future. All you're doing is entering the market with systematized buy and sell signals, then following the market up or down along the way, setting stops at key resistance levels in order to protect yourself which eventually leads to profits.

I've used many methods in trading over the years and this is the only one that has stood the test of time, almost guaranteeing long term success. At the same time, rainy days will come and it's your job to be prepared and once the storm is over, be there to enjoy the sun once again.

Thursday, June 25, 2015

Stop Being A Rebel, Swim Downstream


Looking back on my first trade I ever made with real money, I had the right idea. I bought the Canadian Dollar against the US Dollar in July of 2007. Why did I take this trade? Well because the US Dollar's value fell for weeks and each day it kept moving lower and lower. Naturally I looked at the market and simply followed the crowd. Before I knew it my account was up just under 200%. I was flying high but then the market turned on me eventually and not only did I lose the profit I felt I had made, I also lost more than 70% of my original capital. I can smile about it now but it wasn't fun at the time. What I lacked was any sort of exit strategy or knowledge on how to protect myself. The point is, the trend was clear and I just followed it and for a short while, it paid off. I was effectively listening to the market.



If I were standing on the side of a stream in a forest and I threw a twig in the water and closed my eyes for a minute or so, when I open my eyes should I expect to find that twig somewhere upstream? Of course not. That would be crazy right? But traders do this very often and that's why over time, all they're left with is little to no money. They look at the "stream" and say, I'm going to outsmart it. All they end up doing is getting hurt, even when mother nature herself screams... "I'm not going that way!".

The whole notion of buy low, sell high should die a horrible death in the world of trading. This will have you sitting on the sidelines waiting for the right opportunity to get in the game while the market makes its move and continues in one direction without looking back. It's those moves that are your bread and butter. Sure you will take losses when the market gets choppy but if you can minimize your exposure and are patient, those big moves (which statistically happen only 20% of the time), will greatly increase the value of your trading account. This is why when the market is choppy and moving no where, I typically take small loses and have small wins that generally break even, sometimes what seem like forever. When the market begins to resume its volatility again and makes those big moves, that's when it almost seems as if money is being printed.

Don't fight the obvious. Simplify your trading and be a good follower. It pays off in the end.



Wednesday, June 24, 2015

DON'T Fight The Current

The trend is your friend. We as traders hear this all the time but it's really the truth. One should internalize this mantra and make it his/her own. So often traders try and impose their views on what SHOULD happen next in the market rather than what IS happening. You should not worry yourself on projecting where the market SHOULD go next. Only concern yourself with where the market IS going. Current price action is all the information you need to make an informed decision as to what your next move should be. Take it from an ex-Elliottician, prediction in the markets will get you killed, eventually. Instead, only observe what the market IS doing in the present moment in order to gain profit.

Markets are erratic and almost completely unpredictable. The best you can do is follow the trends and let nature take it's course. Sure, you will be wrong at times, but when the trend picks back up and moves in a big way, your profits will definitely be higher than your losses.


Tuesday, June 23, 2015

The Good Follower

I've spent the last eight years of my life studying everything I could about the business of being a financial trader. I've studied almost every discipline, every doctrine, and listened to every finance guru I could and you know what, most of it was complete garbage. I can say that with confidence because I have put my time in, I have seen what doesn't work, I have gone through many tough times, it's cost me tens of thousands of dollars, it's frustrated me to where I wanted to give up, multiple times, and finally, after eight years, I've gotten to a place where I can confidently say I've figured out what works and how to win.

Now this is going to sound very simple and a bit stupid but here is the revolutionary idea. When a market is going up, buy that market. Conversely, when the market is heading lower, sell the market. That's it. That is the revolutionary idea behind greatly increasing one's chances at being right in the game of trading. When one can give up on the notion of "buy low, sell high", he/she is ready to follow the market. That's why I chose this web address. When making decisions in the markets as a Trader, it's good to be a follower; stop trying to be a leader. Trying to be the first one out the gate in the financial markets is suicide, eventually. Basing your decisions on what the crowd is doing is the best way to increase your chances of success. If they are buying, you buy. If they are selling, you sell. Now if you are constantly waiting for a trend to be clearly evident, you are never going to buy at an absolute low or sell at an absolute high, and that's okay. You want to put yourself in a position where you are just trying to take a large piece of the pie, rather than trying to eat the whole thing.

A good follower waits for a trend to be clear, he/she buys or sells in the direction of the trend, and periodically raises or lowers their stop levels towards the current price, to comfortably reduce exposure and eventually lock in profit. Following a market isn't as sexy as picking tops or bottoms, but it's the method that will always prevail as most effective when crunching the numbers over a long period of time.



When testing, looking at my personal trading performance for Crude Oil, trading only one futures contract at a time from Dec 2014 - June 2015, you can see I wasn't exactly right a whole lot. My winning rate was only 41.5%. There was also a period of time where my account lost as much as $4901.83 USD before starting to make money again. I share this because a lot of novice traders feel they need to make money over 50% of the time and if they take more than three or four loses in a row, they need to change their whole approach. As you can see, I had losing streaks of 6 trades in a row at times and still I was able to profit close to $17,000 USD, even after commissions and fees. This is because I would cut my losers short and let my winners run. Simply following the market, not knowing how high or how low it would go, but at the same time, getting in the game and raise or lower the stops until the market itself loses steam and eventually hits that stop.

In the posts to follow I plan to share more information with you by keeping a personal trading journal of sorts, of my method, performance, and tips in order to share the real truth behind financial markets and maybe I'll end up motivating another trader, like yourself, to become a good trend follower.