Today we are going to talk about the stock market. Some people argue about what time or when was the first corporate stock traded. Some say it was the Dutch East India Company founded in 1602. Others believe that the first trade was ancient Rome. If you would have been alive in 1602 or if you could take a time machine back to that time of the Dutch East India Company it would have been good to invest in that company. The company paid an average dividend of over 16% from 1602 to 1650. That is pretty good.
If you do a quick keyword search on the best stocks to buy then you will quickly find articles filled with opinions of why you should buy this stock or that stock. In reality, no one has a crystal ball so no one really knows what direction a stock will go. I am not a stock picker. I have tried in the past but failed miserably. Today even though I am a failure at picking stocks I want to talk about how to find the best stocks to buy.
Best Stocks to Buy: Principles.
We need to buy on principles.
What is a principle?
A principle is a truth or proposition that serves as the foundation for a system of belief or behavior or for a chain of reasoning.
Today we are going to talk about paper trading. Before we start I want to say I hate paper trading. Why? Because it is boring. Now that I got that out of the way let’s talk about paper trading. When I became a new trader I started out paper trading. As I said I hated it because it wasn’t enough action. The money did not mean anything to me.
So, what does paper trading consist of? Paper trading is not real trading. Paper trading is trading without using real money. In today’s time, there are many stock market simulators that can be used but it is not a requirement. The advance of technology makes paper trading easy without having to put capital at risk. If you want to get the most out of your paper trading then you need to take it seriously. The trading that you do in paper trading should be done exactly like its real money. When paper trading it will be hard to trade with the same emotions that you have when trading real money. You can trade $100,000 like it’s no big deal. If you paper trade right when you switch to real trading the emotions will be the same. If it’s not then risk less you are risking too much.
Today we want to talk about two topics that could be detrimental to a trader. One is trading pride and the other is trading imagination.
First let me tell you a story of a woman who was having some problems. She went to her pastor and said I need help. The pastor asked her what is the problem? She told the pastor that she was dealing with pride. The pastor said tell me about how you are dealing with pride. She said well every time I walk by a mirror I’m blown away by my beauty. I can’t stop looking at myself. I can’t stop looking at my beauty. The pastor said to her what you described is not pride what you described is imagination. Now on a serious note how can pride and imagination effect our trading?
I saw a fortune-teller on the streets of New Orleans one time. People would walk by and she would tell their fortune. I often wondered why she was on the street if she could tell the future. Why didn’t she go to Wall Street make millions and retire? Why didn’t she go to the casino that was less than a mile from where she was sitting?
The obvious answer is that she could not tell fortunes at all. No one can.
The future is something unknown to all of us. So when we trade why do so many people trade as if they can tell the future? Why do so many risk their hard-earned money on a future that is unknown?
So why do you want to become a better trader. The obvious reason would be to make more money. For some you might want to become a better trader so you can start making money and stop losing money. Whatever the reason we can all get better. Today we want to share ways that will help you become a better trader. Our list is ranked in order of importance the way we see it.
The Market Engineer Top 7 ways to become a better trader List:
#7 Determine Your Goals
Someone has said that if you aim at nothing you will hit it every time. Everyone needs goals. Whether we are talking about trading or everyday life, you need goals.
In trading your number one goal should be to follow your trading plan or system. Your secondary goal should be how much money you make. How much money you make is dependent on your system. To follow your system you must have confidence in your trading system. If you lack confidence then it will be hard to follow your system. In order to have confidence in your system you must test your system.
Every systematic trader has done it. You put in a trade that your system tells you to trade. The trade hits your stop so you get out. Like any good systematic trader would do. Then the market moves in the opposite direction. That urge or regret or whatever feeling you have at that point is wrong if you are a systematic trader. The right feeling is I followed the system so I made the right trade. Many traders get discouraged by market direction. The direction of the market should not leave you feeling discouraged. If it does then you don’t have enough confidence in your system.
There are many markets in the world. You can buy stocks, bonds, or many other things. When you start thinking about buying a physical product it is a little different. Today we want to talk about how to buy gold.
Gold is a precious metal. It has been around since the beginning of time. Since that time it has had value. Precious metals are natural currencies. Gold is in that category. So how do we buy gold?
How to Buy Gold: Buy Physical Gold
We have all seen the commercials. The world is ending and you need physical gold. That is one way to buy gold. You can buy the gold in bricks or coins. There are companies that specialize in this. You can buy a big safe and stuff it full of gold if you want. Physical gold has value anywhere in the world. If you are going to buy physical gold you need to ask yourself how long do you want to hold it? If you buy a brick of gold you are not going to make any money if you sell it the next day.
Today we don’t want to talk about what the brokerage account considers traders. Many people that brokerage firms consider traders are gamblers. They have no clue what they are doing. We want to talk about how to be a good trader.
It’s important to ask this question to ourselves from time to time. We need to ask why is it that we are trading . If you look at people sometimes people will do things and it is important to ask the question why.
What type of Trader Are You?
A man will climb into an airplane and they will go up thousands of feet and jump out. I can’t understand why anyone would want to do that. Some say they enjoy the rush that they get.
There is another man who will go into a building filled with lights. This man is expecting to get rich. He doesn’t understand odds and that the odds are against him. He is looking to have a good time. Some get addicted to it and they feel like they are going to win in the next play of the game.
What is an Oil Trading System?
If you want to trade oil it is important to have an oil trading system. Oil is a commodity. It gets much attention in the news because of its movement. When oil moves people take notice. The reason is because everyone is affected. Oil has an impact on everything we buy.When people trade oil sometimes people do in a state of panic . A news report may send the oil market rocketing up or down. That is the reason it is important if you trade oil to use an oil trading system.
In short it is a systematic way to trade the oil market. Many times in life we do things by following our gut. In trading and especially with oil you need a trading system. Trading oil without a system is like swimming in shark infested waters.
Today I want to talk about The Market Engineer. Our website is themarketengineer.com. The first question you might ask is what is The Market Engineer? The Market Engineer is a trading system. There are a lot of sites on the web that offer stock picks. They flash things like make 400% in a week or massive gains by trading penny stocks. That is not what this trading system is that’s not what this website is about. That is not what we do. The Bible is a book full of wisdom. If you are looking for wisdom it is the best place to go. In Proverbs 28:22 it talks about the people who try to get rich quick. That is what a lot of the stock pick sites try to do. Here is what it says.
What is a currency pair? Recently there has been talk of a wall between the US and Mexico. This wall has been the talk of much conversation in the political world and on the news media.
Now you might be asking what does this have to do with currency pairs. We will get to that in a minute but first. Several years ago I was in Aguascalientes Mexico. There were several things I noticed as we flew into Aguascalientes. First there were people with machine guns at the airport. Second the people drive crazy. And third for one US dollar you could get 13 pesos. That has changed recently. Currently this currency pair is 1 for 20. So that means the Mexican peso has gone down against the US dollar. Now this currency pair has been in the news lately because of the political environment but it’s not the only currency pair in the world. If you go to futures website you will see the futures market for many currency pairs.
What are penny stocks?
Low priced small cap stocks are known as penny stocks. A penny stock is pretty much anything under five dollars.
I was watching a video on YouTube or the news I’m not sure which one it was. In the video a girl was looking at her cell phone. She was not watching where she was going. As she was walking she did not realize that she was walking towards a wishing well. She went into the wishing well and got soaking wet. She was diving for pennies.
If you trade penny stocks keep your eyes open or you might be like the girl in the video.
Today we are going to talk about trading vs investing. On a side note all of our systems are trading systems. They are not investing systems. With that in mind we will try to be as unbiased as possible and show the benefits and drawbacks of both styles without bias.
How To Invest
There are different types of investments but the most popular is mutual funds. Most 401k’s are loaded with mutual funds. In some plans mutual funds are all that the 401k will allow you to invest in unless special permission in granted.
I was looking at a house the other day. I was looking at it as an investment property. The house had foundation problems. The man who came to look at the house was a foundation repairman. When he got out of the truck my perception of him was that he probably was a man who had been working his whole life. He probably barely gets by. We talked and I asked him if you could make any money renting houses. He said to my shock I have 30. We talked for a while. In fact he has since become a friend. He is somewhat of a mentor to me in the real-estate world. In that initial conversation he said his houses provide 25k per month. This man educated me on money and how he makes money work for him. At one part of our conversation I asked him what he thought about the stock market. He said I got me a broker one time. He said after he had lost about 200k I figured out that a broker will make you broker.
What Is the Dow Jones Industrial Average?
Today we are going to talk about the Dow Jones Industrial Average. What is the Dow Jones Industrial Average? The Dow Jones is a stock market index. It has been around since 1896. The Dow Jones index shows how 30 large public companies trade during a session. The Dow Jones index gives an investor or trader a picture of what the overall United States market is doing on a particular day.
To give an example of how the Dow Jones works we will turn to the manufacturing industry. In the manufacturing industry a product is built. Many companies will have quality checks on a certain number of products. If they make 500 widgets in a day they may check 30 for quality defects. The 30 widgets are a sample. With a good sample size a manufacturing plant can tell what is going on with the widgets.
I remember eating with the family as a child. The news was on and they were talking about the stock market. My dad had money in the market so he was listening intently. The year was 1987 the date was October 19 and it was a Monday. It is also known as Black Monday. The crash began in Hong Kong then spread to Europe and then to the United States. The Dow Jones dropped 22.61%. The crash of 1987 was not the worst crash in history but it was a biggest one day percent loss in the history of the Dow Jones Industrial Average.
We have talked a lot in the past about trend following but how do we find market trends? We can talk about a method all day long but it would also be good if we talked about how to do it. Markets trend up and they trend down. How do we find those market trends?
To some people the market is like a rollercoaster. I’m not the type of person that likes rollercoasters. Sometimes when you go to the movie theater they put up a simulation of a rollercoaster on the screen. If I follow that close enough I feel like I’m getting sick.
What is An ETF?
An ETF or Exchange Traded Fund is a marketable Security. An ETF can track an index, a commodity, a bond, or a basket of companies. ETFs typically have lower fees than mutual funds. They trade like stocks. The price of an ETF changes throughout the day.
What is ETF Trading?
If you could come up with a fund that is perfect for the small trader it would be an Exchange Traded Fund. Mutual funds have been around for years for the buy and hold investor. Mutual funds offer diversification to the buy and hold investor.
ETFs have been around since the early 80’s but they have gained popularity just recently.
Range trading is a trading strategy that identifies stocks trading in channels. By finding major support and resistance levels with technical analysis, a range trader buys stocks at the lower level of support (bottom of the channel) and sells them near resistance (top of the channel).
I can remember watching the oil market over the course of several weeks. It was going up to a point and then falling back down every morning between 1:00 AM and 3:00 AM. The swings were thousands of dollars every night. I got in at 1:00 am and it went up. Just when it was starting to fall I got out. It worked like clockwork. The problem was that I did not have a system and I eventually gave it all back. That was my first introduction to range trading. We do not use range trading in our trading system but we realize that it is a type of strategy that can be used in trading systems.
What is the EEM ETF?
Ishares MSCI Emerging Markets ETF is an Exchange-traded fund.
The EEM ETF seeks to mirror results that correspond to the price and yield performance of an index composed of large and mid cap emerging market equities. The Index is designed to measure equity market performance in the global emerging markets. The Fund invests in a representative sample of securities included in the Index that collectively has an investment profile similar to the Index. The Fund may invest in securities of non-United States issuers that may trade in non-United States markets.
What is the DSLV ETF?
The DSLV investment seeks to replicate, net of expenses, three times the opposite (inverse) of the S&P GSCI Silver index. The index comprises futures contracts on a single commodity. The fluctuations in the values of DSLV are intended generally to correlate with changes in the price of silver in global markets.
So what is DSLV in English? DSLV is a three times short of silver futures. DSLV is a good way to get exposure to the short silver market without shorting actual futures contracts. We have found that DSLV tracks closely with the inverse of SLV on the daily price chart.
What is the GLD ETF?
The SPDR Gold Shares ETF (GLD) is an Exchange-traded fund. The GLD ETF seeks mirror the performance of the gold market. The GLD ETF offers investors a way of participating in the gold bullion market without taking physical delivery of gold. The Gold ETF makes it easier of the small trader or investor to buy gold.
Can a trader trade GLD Options?
When trading options some things are just not worth it. Options have high volatility. A trader might be up 20% one second and down 50% the next when trading options. This can be fool’s gold. The main problem with some options is the difference in the bid/ask spread. If a stock or ETF does not have much volume usually the options bid/ask is so wide that just a purchase of that option would put the trader at more that 10% loss. When the trader goes to sell they would lose another 10% on that trade. A trader would have to make 21% to just break even. The GLD ETF has enough volume that the difference in the bid/ask make it ok to use to trade options.
What is the Spy ETF?
The SPDR S&P 500 ETF (SPY) is an Exchange-traded fund. The SPY ETF seeks mirror the performance of the S & P 500 Index. The SPY ETF offers exposure to companies that are in the S & P 500 index. The Spy ETF does not seek to gain or lose money it seeks to perform just as the index that it tracks.
What is the S & P 500 Index?
The S&P 500 (Standard & Poor’s 500) Index is an index that is based on the market capitalization of 500 large companies having common stock listed on the NYSE or NASDAQ. Many people consider the S&P Index one of the best representations of the US stock market. Standard & Poor’s index began in 1957.
What is the ETF IWM?
Ishares Russell 2000 ETF (IWM) is an Exchange-traded fund. The IWM ETF seeks to mirror results that correspond to the price and yield performance of the Russell 2000 index. The IWM ETF offers exposure to small public companies. It offers access to 2000 small cap domestic stocks in a single fund. The IWM ETF is seeks long-term growth.
What is the Russell 2000 Index?
The Russell 2000 index measures the performance of the small cap segment of the US equities. The Russell 2000 index includes approximately 2000 of the smallest securities based on a combination of their market cap and a current membership. The Russell 2000 index provides a comprehensive and unbiased small cap barometer. The Russell 2000 index is completely reconstructed annually.
What is Risk Management ?
Risk management is the identification, assessment, and prioritization of risks followed by coordinated and economical application of resources to minimize, monitor, and control the probability and/or impact of unfortunate events or to maximize the realization of opportunities. Risks can come from different ways uncertainty in financial markets, threats from project failures, legal liabilities, credit risk, accidents, natural causes and disasters as well as deliberate attack from an adversary, or events of uncertain or unpredictable root-cause. There are two types of events negative events can be classified as risks while positive events are classified as opportunities. Several risk management standards have been developed including the Project Management Institute, the National Institute of Standards and Technology, actuarial societies, and ISO standards. Methods, definitions and goals vary widely according to whether the risk management method is in the context of project management, security, engineering, industrial processes, financial portfolios, actuarial assessments, or public health and safety. Everything that we do involves some level of risks.
What is the trading plan?
A trading plan is a set of rules that a trader follows in their trading. Without some kind of plan the trader will fail. In our opinion there are several different levels to a trading plan. When I first started studying trading I read a lot of books. In those books the authors would talk a lot about having a trading plan. The books would say this trading plan should be something that you should be able to give to someone else. They should be able to follow it without any problem. I really did not understand at first.
What Is The USO ETF?
United States Oil Fund
The United States Oil Fund (USO ETF) is an ETF designed to track the daily price movements of West Texas Intermediate (“WTI”) light, sweet crude oil. USO issues shares that may be purchased and sold on the NYSE.
The investment objective of the USO ETF is for the daily changes in percentage terms of its shares’ NAV to reflect the daily changes in percentage terms of the spot price of light, sweet crude oil delivered to Cushing, Oklahoma, as measured by the daily changes in price of USO’s Benchmark Oil Futures Contract, less USO’s expenses.
What is Volatility?
A statistical measure of the dispersion of returns for a given security or market index. Volatility can either be measured by using the standard deviation or variance between returns from that same security or market index. Commonly, the higher the volatility, the riskier the security.
INVESTOPEDIA EXPLAINS ‘VOLATILITY’ In other words, volatility refers to the amount of uncertainty or risk about the size of changes in a security’s value. A higher volatility means that a security’s value can potentially be spread out over a larger range of values. This means that the price of the security can change dramatically over a short time period in either direction. A lower volatility means that a security’s value does not fluctuate dramatically, but changes in value at a steady pace over a period of time.
What is Proprietary Trading?
Proprietary trading or Prop trading is a form of trading where the trader assumes his own position with the capital of the firm. Prop traders use the firms leverage to magnify returns. Here is an example to illustrate proprietary trading. Suppose a man comes to you with an offer. He will give you $100,000 to trade. You have to put up $5000. He takes a percent of the gain. You take all the loss. This is proprietary trading. Essentially the prop trader is trading someone else’s money. Usually the money belongs to a proprietary trading firm. The prop traders don’t have clients their job is to trade the firms capital.
What is the ETF QQQ?
The Power Shares QQQ ETF seeks to mirror results that correspond to the price and yield performance of the NASDAQ index. The adviser adjusts securities from time to time to maintain the correlation between the composition and weights of the securities in the trust and the stocks in the Nasdaq-100 Index. The composition and weighting of the securities portion of a portfolio deposit are also adjusted to conform to changes in the index.
What are the benefits of using the QQQ ETF?
One of the major benefits of using the ETF is that it tracks closely with the price of the NASDAQ. If you have a small account you don’t have to take the risk of buying a NASDAQ futures contract. One futures contract can be much more that the average trader has to trade with. When buying the QQQ ETF you can buy any amount you want. If you are a small trader you can trade the NASDAQ using this ETF. Trading the NASDAQ ETF allows a trader to incorporate a long term trading strategy in their trading system.
Today we are going to talk about short term trading. Short term trading can mean different things to different people. We are going to talk about short term trading the way we use it. The day trader would be considered a short term trader but that is not what we want to discuss today. We see short term trading as trades that take weeks to months to catch a trend. We see long term trading as trades that take months to years. We believe that a good trading system should incorporate both styles.
I ran track some in high school. The main reason is because I was forced to if I wanted to play football. I would run the mile and at the time I felt like I was going to die before I finished. It was painful. I always heard that a sprint is different than a mile. A runner has to train different. Now image if someone could train their body to be a long distance runner and a short distance runner all in one person. That person would bring home the gold in a lot of events.
What is Systematic Trend Following?
Systematic trend following is trend following with formulas. To understand systematic trend following we first need to understand what systematic is.
When someone says Systematic what does it mean to you? When someone says Systematic Trend Following what do you think of? The dictionary defines systematic as:
“acting to a fixed plan or system; methodical”
So systematic trend following is methodical trend following.
In trading there are many styles. Some are discretionary and some are systematic.
What is the ETF SLV?
SLV ETF is an ETF that seeks to mirror the performance of the price of silver. The SLV ETF generally seeks to reflect the performance of the price of silver. The SLV ETF also seeks to reflect performance before payment of the Trust’s expenses and liabilities. The SLV ETF is not actively managed. It does not engage in any activities designed to obtain a profit from, or to improve losses, caused by changes in the price of silver. The SLV ETF receives silver deposited with it in exchange for the creation of Baskets of Shares, sells silver as necessary to cover the SLV ETF’s expenses and other liabilities and delivers silver in exchange for Baskets of Shares surrendered to it for redemption.
Do you have what it takes to be a trader? When we watch sports sometimes someone comes along that defies what normal people can do. When the game is on the line they rise to the occasion. Some say they have a gut of steel. Look at old videos of Joe Montana or current players like Tom Brady. It seems that when the game is on the line these guys get better.
That’s what it takes in trading.
DEFINITION OF ‘TRADING PSYCHOLOGY’
Trading Psychology is emotions and mental state that dictate success or failure in trading securities. Trading psychology refers to the aspects of an individual’s mental makeup that help determine whether he or she will be successful in buying and selling securities for a profit. Trading psychology is as important as other attributes such as knowledge, experience and skill in determining trading success. Discipline and risk-taking are two of the most critical aspects of trading psychology, since a trader’s implementation of these aspects is critical to the success of his or her trading plan. While fear and greed are the two most commonly known emotions associated with trading psychology, other emotions that drive trading behavior are hope and regret.
Long term investing or long term trading can mean different things to different types of investors or traders. If you are a day trader then a strategy that trades weekly will be long term. Some define long term as holding an asset for an extended period of time. The time could be as little as one year and as long as 30 years.
Advisers usually advise to invest for the long term but the long term is subjective. A buy and hold investor may consider long term 5 to 10 years. While a day trader may consider long term investing 5 to 10 days.
What is the Stock Market?
The stock market is a market where shares of public companies are issued and traded. The companies are traded either through exchanges or over the counter markets. The stock market is also known as the equity market. Many time people complain about the stock market but the stock market is one of the most important components of a free market economy. The stock market provides companies with easy access to capital in exchange for giving investors ownership in the company. For the investor the stock market makes it possible to grow small sums of money into large ones. The stock market lets investors in companies participate in gains or losses of the companies whose shares they hold.
Price Action Trading
What is price? When I was young I came to my granddad and I said look at this baseball card it’s worth $5. He said it is only worth what someone is willing to pay for it. The price of something is what someone is willing to pay for it. When you look at a stock quote you see a bid price and an ask price. The bid is what someone will pay. The ask price is what someone will sell it for. The difference is the price.
What is price action trading?
Price action trading is a trading technique that allows a trader to make trading decisions strictly based on price changes. Price action trading relies strictly on price and ignores fundamental analysis. Price Action Trading focuses on recent and past price movements.
What Are Futures?
Investopedia defines futures as a financial contract obligating the buyer to purchase an asset (or the seller to sell an asset), such as a physical commodity or a financial instrument, at a predetermined future date and price. Futures contracts detail the quality and quantity of the underlying asset; they are standardized to facilitate trading on a futures exchange. Some futures contracts may call for physical delivery of the asset, while others are settled in cash. The futures markets are characterized by the ability to use very high leverage relative to stock markets.
Futures can be used either to hedge or to speculate on the price movement of the underlying asset. For example, a producer of corn could use futures to lock in a certain price and reduce risk (hedge). On the other hand, anybody could speculate on the price movement of corn by going long or short using futures.
What is Trend Following?
Trend following is a trading strategy that tries to profit from trends in the market. A trend follower makes money when they follow the trend of a particular market. Trend Following can be done by big time banks on Wall Street or by online stock trading of an individual. If you want to learn how to trade by following the trend then trend following is the trading strategy that you want to use.
Stock trading online has grown in popularity over the past decade. People trade but many lose because they do not have a trading system. In this article we will discuss trend following. Once you finish this article you should be able to determine if trend following is a strategy that is right for you.
We hear a lot of people giving their stock picks. Some post their stock picks on the web. Some scream their stock picks on TV. Today we are going to talk about the good and the bad of stock picks.
Stock Membership Sites
I was in the woods on a cool March morning. The market had just opened. My phone was not getting a very good signal. The email came through that said buy an option for a certain symbol. When I went to buy the option it was much higher than the suggested buy price. There must have been a delay between the time when they sent the email and when I received it. That was my first experience with a stock pick or stock membership website.
In 2013 Gallup’s American Workplace study 70% of those who participated described themselves as disengaged from their work. So if you are reading this article there is a 70 % chance that you do not like your job. Imagine this. We spend 40 hours per week at work. There are 168 hours in a week 56 of those are for sleeping. That leaves 112 hours. If you spend 40 hours per week working then 35% of your time awake is at work. So shouldn’t we enjoy what we are doing?
If you are reading this then you are at least someone that is interested in trading. Have you ever considered a trading for a living?
What is the goal of any business? To make money. When you watch the news we need to understand that they entertain so that they can make money.
Stock market news is no different.
The people reporting on the stock market are in the business of entertaining. It might be a man that screams at you for an hour per day. Those types of shows are just for entertainment. What if the screamers were forced to post their record once per month? How long would they last?
The media in today’s time is in the entertainment business. It could be deflated footballs, bird flue, swine flue, oil spills, or stock market news. Whatever the story might be the media will always make it bigger that it really is.
So the question on many peoples mind today is how much lower will gas prices go. Personally I never thought gas would get below $3.00 a gallon again. Just the other day I saw gas for $1.88 per gallon. It is crazy. So the question was posed to me the other day “is it time to buy oil?” The answer is no. Since I was asked that question oil prices have fallen another 10% or more.
-When will the fall end?
-When should I buy?
-Will Oil ever get back above $100 per barrel?
The answer to these questions no one knows. What we do know is that oil prices are in a downtrend and getting long now is to early.
What is Margin Trading?
When a trader trades using margin they are basically borrowing money to trade. Trading on margin can be very dangerous if you don’t have a good trading plan.
How Margin Trading Works
Margin trading allows a trader to trade more money than you have in your account.
Account value: $10,000
Available to trade: $20,000
So on this 10,000 account this trader could trade 20,000 in the above scenario.
Let’s say you buy 200 shares of aapl at $100. The values of that purchase would be $20,000.
You have enough in your account to cover $10,000. Let’s say that aapl goes from $100 to $50. How much is left in your account? Answer: $0
DEFINITION OF ‘TECHNICAL ANALYSIS’
A method of evaluating securities by analyzing statistics generated by market activity, such as past prices and volume. Technical analysts do not attempt to measure a security’s intrinsic value, but instead use charts and other tools to identify patterns that can suggest future activity.
We agree with most of Investopedia’s definition of technical analysis except the last part that talks about trying to predict future activity. No one can predict future activity. In our system we do not expect a loss or a gain we just take what the market gives us.
What is the TQQQ ETF?
TQQQ is the symbol for Pro Shares UltraPro QQQ. The ETF seeks to return 3x the daily performance of the NASDAQ. So if the NASDAQ goes up 1% the ETF seeks to move by 3%.
How does TQQQ work?
TQQQ is a leveraged ETF. Leverage ETFs use financial derivatives, futures, and debt to amplify the returns of the index that it is trying to match. It can be a good choice for trending markets but might not do as well in swinging markets. It is a good way to get more leverage in your trading.
If you use ETFs in your trading system you might want to add TQQQ to your list of symbols.
What is a trading system?
A trading system is a set of repeatable rules, that answers the following questions that a trader might have:
1) When should I enter a trade?
2) When should I exit a trade?
3) How much volatility is in the market?
4) How much should money I place the trade?
5) How much money should I lose on a trade?
A good trading system will answer those questions before a trade is ever placed.
The driver of any good trading system is the (buy and sell) signals. How do you know when to get into a trade? This is where technical analysis comes in. Technical analysis is an integral part of any trading system. Many tools have been developed by others to determine buy and sell signals some are below:
Trend Trading TQQQ
Trend trading is a strategy that tries to profit from market trends. In the past it has been used by the CTA industry to trade futures. In today’s time people have begun to use this strategies on stocks and ETFs.
One of the main components that help the success of trend trading in futures is leverage. Leverage allows a person to buy more than their account value to maximize gains. With stocks and ETFs the maximum leverage is much lower than futures contracts. While this maybe a good thing if you are trying to minimize risk it is bad if you are trying to maximize gains. To maximize gains leverage might be needed depending on your goals.
In 2013, an estimated 96 million individual investors owned mutual funds and held 90 percent of total mutual fund assets directly or through retirement plans at year-end. Altogether, 56.7 million households, or 46 percent of all U.S. households, owned mutual funds. Household ownership of mutual funds has remained steady over the past decade. Mutual funds represented a significant component of many U.S. households’ financial holdings in 2013. Among households owning mutual funds, the median amount invested in mutual funds was $100,000.
We track our accounts day by day against the back test results. If you do this and find big variance then there is a problem. The back test accounts for gaps so the only variance would be the entry or exit.
The trades made so far in September are following:
- 9/3 – sold APPL Long position from August
- 9/3 – bought more TQQQ to balance account
So far in the month of September in the tracking account we started the month with $17700. At the close on 9/19 this account had $20162.93. That is a 13.91% increase from the month of August.
Trading System Performance for The Market Engineer Trading System
When trading a system it’s always a good idea to keep a good trading journal. Some people use a journal to determine what they did wrong. We keep a journal to match our system with actual performance. Today we will talk about our trading system performance for August 2014. The two memberships we will talk about are the Gold Trading System and the 401K Trading System.
First we will talk about the trades that were made during the month of August then we will talk about the trading system performance.
My dad wanted bees. One day while at work my brother noticed that a group of bees had swarmed onto a tree outside. So dad and I developed a plan we would catch the bees and put them in his bee box and the six months later have honey.
That night we went up to the factory with a five-gallon bucket. The plan worked. I held the bucket and my dad raked them off the limb into the bucket with a brush. Now to most people this would have been unbearable and to some it would have been dangerous. We did not have bee suits on. I had bees on my face crawling all around. There were thousands of bees. I was only stung five times. That is a small price to pay for the big payout. The payout would be gallons and gallons of sweet pure homemade honey.
In this session of The Market Engineer Podcast we will talk about the 1%. Where did they come from, where did they get their money, and why do so many people hate them?
2-Month Challenge I challenge you to sign up for one of our systems. You will get 2 months free on any system you choose (the gold has all the systems included). Get an account that lets you paper trade or find an app on your phone, test the system, follow the system, then believe in the system. Do not trade a system that you do not believe in.
I’m always amazed at how a surfer stays on their board. There are many things a surfer needs to be a good surfer. The good surfer needs a board, good balance, and lack of fear. This is a must for a good surfer, but the number one thing that a surfer needs is a wave. Without a wave there will be no surfing.
Trading is the same way you need a good system and a lack of fear, but without the trend (wave) there is no trading.
Be patient the wave (trend) will come.
I stopped at the gas station the other day and realized that I am a creature of habit. I have filled my car up at this station for years. When I need gas that station is usually where I go. One day a couple of weeks ago I went and the pumps were broken. It was very annoying because it is not the first time it happened. I had to leave and get gas somewhere else. I said I would never go back. The next week I needed gas and whip in there, got out, and started pumping. I then realized that I was not supposed to stop there anymore. I got gas fine and the pumps worked but I realized that I am a creature of habit.
In this session we will talk about a type of trading style called day trading. Can money be made day trading? Is day trading realistic for the average trader? Do you have the time to day trade? What does it take to day trade?
2-Month Challenge I challenge you to sign up for one of our systems. You will get 2 months free on any system you choose (the gold has all the systems included). Get an account that lets you paper trade or find an app on your phone, test the system, follow the system, then believe in the system. Do not trade a system that you do not believe in.
What happens when we yell? It is a sign of panic. If you were in a burning building and it was on fire then you should yell. If you are at a football game and your team scores then you should yell. If someone yells stop as you cross the street you should stop.
In trading there should be no yelling. There should be no panic. Why do people listen to stock advisers who yell to get attention? The media knows that more yells equals more sells. That is the reason they yell.
Stop trading on fear and panics and get systematic about your trading.
The Market Engineer
Everyone knows that to be productive its good to have a list it’s good to have goals. Most people like a little spice in life. They like to be a little spontaneous. Everyone knows that there are times when you need to put the list aside and just have fun. Go for a walk with the kids. Play in the sprinkler in the back yard. We need to have fun. Life is different from trading.
Someone has said that good trading should be boring. It should not be a rush. It should not be fun. It should be systematic.
The Market Engineer
People hate math. People are scared to death of math. Why? It is because they do not understand it. One day I sat in math class and the teacher wrote equations on the board that I did not understand. I tried to figure it out and then the light bulb went off. I got it. It all became clear. When it became clear all math became easy to understand.
The same thing happened in trading. I tried to figure it out then one day the light bulb went off. In books they say you have to have a system. I did not understand. In videos they say you have to have a system. I did not understand. Then I developed a system from the math background that I talked of above. I then followed the system. I tested the system. Then I believed in the system. Belief is the final step.
What is the Whipsaw? Can we ever beat the whipsaw in trading? How can we minimize whipsaw? This week we will discuss the answers to these questions. In trading the whipsaw is a necessary evil that we can beat with a good system.
First let’s go back to the old days. There was a time when they actually used a whipsaw. What was a whipsaw?
The definition says that a whipsaw or a pit saw was originally a type of saw used in a saw pit. It consisted of a narrow blade held by a frame and called a frame or sash saw. This evolved into a two to three-meter stiff blade without a frame and a handle at each end. It was used close to the felling site to reduce large logs into beams and planks.
Black box trading is a derogatory term that many people use for successful traders. Some people don’t understand systematic trading so they ridicule the systematic trader. Let me give you an example.
A few years ago, when oil ran up to $100 dollars per barrel in 2007/2008 there was an outcry from the politician. What was the cry? The cry was that it’s the speculators driving the price. The word hedge fund was thrown around a lot. That word was considered a bad word by many. When an oil crisis comes or when a crisis like that comes do the politicians ever look at themselves?
Today we are going to talk about trading risk. What is trading risk? Risk can be how much you are willing to lose or it could be how much you are willing to put up on a trade. How do we determine how much to buy and where our stops should be? First let’s talk about stops.
Trading Risk: Stops
I have back tested good systems with many data points. When a trader risks more than 2% they are getting in very dangerous territory. Let’s do some examples.