Weekend Big Picture Review: Earnings Breakouts and a Missed Opportunity

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Every weekend I go “macro” and review the past trading week. I analyze my own trades, review went on in the market and what I expect heading into the new week. I do this before zoning in on a more in-depth sector analysis, scanning and watchlist building approach.

This big picture habit helps keep the market in proper perspective, and keeps me learning without actively trying.

I accomplish this big picture learning by using the “good, bad and key takeaways” approach, making sure not to shy away from what went wrong or opportunities missed. We learn from our mistakes and are less likely to repeat them once they are identified and discussed.

In this week’s big picture review, I discuss the following:

  1. Winning trades
  2. Earnings breakouts
  3. Missed opportunity in biotech
  4. A missed short opportunity
  5. New entries in UA and X
  6. Gap Down Setups
  7. Day trading
  8. Precision entries and how to avoid them
  9. Key sectors going into the new week.

As you can see, I went over a lot. All from my fortress of solitude, Sunset Cliffs. Along with watching me almost fall heading toward the edge of the cliffs, you’ll witness my fear of large groups of birds that started when I read Hitchock as a child.

7 Important Reasons I No Longer Use Trading Indicators

simplicity-indicators-picI once loved trading off indicators. They were the holy grail to big profits. Let that stochastic hit overbought conditions while piercing the bollinger band and I was taking that short signal while already counting my profits.  It didn’t matter that the stock was part of the hottest sector in the market, I went with what the holy grail indicators were telling me.

Needless to say I was in for a rude awakening and some big losses.

Indicators seduce beginning traders into thinking there is a magic formula that can predict what a stock will do with pin point accuracy. Indicators create the facade of precision and control. However, it is an illusion. A crutch traders blindly hold onto because they do not truly understand the relationship between momentum, volume and price action.

Buffet of Trading Indicators

When I started out trading my charts looked like a map of the Los Angeles freeway system. In other words, a jumbled mess. I literally had over 11 indicators on my charts.

No, I am not joking.

At my height of my own indicator-mania, my charts were cluttered with bollinger bands, two stochastics indicators, two RSI indicators, on balance volume, MACD, Chaikin Money Flow, Volume by Price and one proprietary indictor that I spent hundreds of hours developing.

Needless to say, these indicators left me more confused than ever and losses mounted. Like most beginning traders, I quickly learned indictors were not a magic formula to 100 percent win rates.

7 Reasons Not to Use Trading Indicators

  1. Information overload: Trading is a decision making game. Good decisions come from clear signals and simplicity. Indicators do not simplify. Rather, they increase the amount of data that a trader must process.
  2. Price action inaccuracy: Traders are beholden to price action. At the end of the day, it is the only thing that matters. You do not make money from indicator movement, but from price movement. Many times your indicator is not consistent with price action signals.
  3. Support and resistance levels:  Most indicators either ignore support and resistance levels, or inaccurately factor them.
  4. Lack of higher level thinking: Striving for simplicity does not mean traders do not analyze price action at a deeper level. Indicators keep traders focused on surface level thinking.
  5. False entry signals: While indicators can be a decent guide, they do not give good entry signals. For instance, oversold stocks can become more oversold. Entering at oversold levels often is a losing proposition without higher level thinking.
  6. Mixed signals: The more indicators you add to your charts, the more mixed signals you will get. There is not worse experience in analyzing your data than having one indicator telling you to buy while the other tells you to sell. Analyzing price action and volume on it’s own gives one signal.
  7. Irrelevance: Once you take the focus off indicators and master price action, volume and trading setups, you will no longer need indicators. For instance, I still keep 1 stochastic indicator on my charts but rarely even look at it. Price action tells me when the stock is overbought or oversold, not the indicator.

How to Get Rid of Trading Indicators

Use this  7-step approach to decrease your reliance on indicators.

  1. Take all indicators off your charts
  2. Make a list of 1000 charts.
  3. Study each of these charts over a given time period
  4. For each chart, ask yourself where the stock is overbought and oversold according to price action.
  5. Next ask yourself what volume is telling you.
  6. Finally study optimal entry levels.
  7. Take notes for each chart and study the patterns

After completing this exercise, you will no longer need to use indicators and will have a deeper understanding of price action and the characteristics of the stocks you trade. Better results should follow.

Weekly Trading Reflections #9: Big Tech, Biotech and Solar

I have been talking about the rotation out of tech since the November presidential election and am happy to say it is over. The market is just more fun when the technology and biotechnology sectors are moving.

It started with big tech, as old stalworths like APPL, GOOGL, FB, AMZN, and NFLX started remounting key levels after deep pullbacks. Then TSLA and the other mid caps joined the fun. Now it seems like solars, biotech and cyber-security are taking a rid on big tech’s coat tails.

In today’s weekly reflection, I talk biotech and review my early 2017 trading live from Pacific Beach, California (with a fantastic mocha from PB institution Kono’s Cafe).

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51 Trading Tips For A Profitable 2017

These 51 trading tips are full of actionable strategies and tactics based on lessons learned trading the past year.

51 Trading Tips for 2017

As we head into the new year, take some time to reflect upon the past year and turn those reflections into strategies with tactics that supercharge your trading results.

The following tips are a mix of current market specific tactics and strategies that should always be in the trading arsenal. They were developed after a fantastic year of trading in 2016. Without further ado, here are 51 trading tips for a profitable 2017.

51 Trading Tips for a Profitable 2017

    1. Ride the trends. It was the year of the trend. Specific trends. Know what trends are in play and don’t give up on them early.
    2. Make a list of key ETFs and monitor them daily. This will give you a pulse on the market and what’s moving. It simplifies the process. Heading into 2017 key sector ETFS include: SPY, XLE, XLF, RSX, SMH, IBB, IWM, QQQ, USO.
    3. Monitor key setups and assess if they continue to work. I have a basket of setups and go to what’s working. In 2016 the goto setups were continuation setups, breakouts and parabolic shorts.
    4. Build a strong watchlist. The stronger the watchlist, the stronger the trades. It’s as simple as that.
    5. Watch the 9-ema closely in momentum markets and stocks. Lately momo stocks trade around this key moving average. Watch for holds that lead to continuation moves, and breaks that lead to reversals.
    6. Create daily habits and routines. A trader who does not have daily habits and routines is trading like a chicken running with it’s head cut off. As a swing trader, create specific process for actions like scanning, watchlist building, market analysis and reviewing trades. Do the same things every single day.
    7. Meditate 5 minutes before the open. If you are like me you experience a rush at the open, which can lead to bad trades. Five minutes of quiet meditation helps slow things down. If you don’t meditate, listen to calming music or read a few pages of a book.
    8. Never micro-manage your positions. You’ve done the hard work of analyzing the stock, entered on the setup trigger and planned risk and trade management post entry. Now stick to it. I don’t know one successful trader that regularly deviates from the trading plan.
    9. Use Twitter wisely. Twitter is great for gauging market sentiment, community and even finding a few stocks that you missed during watchlist building and scanning. However, do not fall down the rabbit hole and get sucked into using it as a primary trading tool. There is just too much bad advice and manipulation.
    10. Always stick to the plan. We touched on this in our micro-managing discussion. However “the plan” is more that just part of the the trade. Stick to your macro plan as well, as it pertains to your trading style, time frames, routines and setups. Do not jump around from macro-plan to plan just because a few trades don’t work or you are in a drawdown.
    11. Position size like a grinder. Winning traders grind over time and manage risk like their lives depend on it (your financial life does!). Do not get greedy and make big bets. You may win one or two, but over time the big bets will crush you.
    12. Journal every single trade. Humans learn from the past. You must journal every single trade you make so you can study your trading patterns and improve as a trader. Don’t procrastinate and tell yourself you’ll journalperis your trade tomorrow, because there’s always another tomorrow and pretty soon you’ve gone 100 trades without journaling.
    13. Review your trades monthly. Study the patterns. Tag your setups and find out what’s working and what’s not. Figure out what you do well and replicate it. Find yours trading leaks and fill them. Devote more time studying your own trades than studying setups or reading trading books.
    14. Analyze the trades you didn’t take. Business people talk about the “opportunity lost” and it’s no different in trading. Every trade you take means there’s a trade you did not take. Study stocks from your watchlist that ran and ask yourself why you didn’t take the trade. You will learn a lot from this analysis.
    15. Apply setups to the optimal market. We have a big toolbox of setups. These setups are proven and effective, but only if you know how and when to use them. Many focus on the how, but few on the when. Trade the setup only under optimal market conditions.
    16. Do not waiver during drawdowns. Traders trade probabilities with slight edges. There are very few 90/10 probabilities. Most breakdown as slightly above 50/50 to 65/35 split. Even high probability trades will lose 4 out of 10 trades and the wins don’t always come in a nice 6 to 4 ratio. Sometimes trading correctly still puts you on the wrong side of the probabilities and you go through a 8 out of 10 trade drawdown. Do not waiver. If you are trading correctly you will get back on the right side of the probabilities. Short term thinking crushes most traders.
    17. Control your emotions. In poker it’s called tilt. A player plays correctly, loses and gets angry. No longer is he playing the odds or his opponent, but instead for revenge or to satisfy his emotions. Never trade on tilt. Remember you can’t stop the emotion, but you can control it.
    18. Exercise, sleep and eat right. Trading is a decision making game. Optimal decisions are made when the body is rested, primed and fueled. Almost all of the successful traders I know make it a point to exercise, rest and eat healthy.
    19. Be your own mentor. You have acquired vast amounts of trading knowledge. You are reading this so I know you’ve learned from the best! Now use this knowledge to coach yourself. Write in a journal everyday. Create 3 columns for the good, bad and key takeaways. Don’t be afraid to be hard on yourself, but also praise your wins and try to replicate them.
    20. Check the market trend and what’s under the hood. Do not trade in a vacuum. Understand not only the market trend, but also what’s going on under the surface, at a deeper level. I call this being “at one” with the market. Once you’ve reached this zone, setups no longer matter because the entry is not as important as knowing where to be in the market.
    21. Take partial profits. The exit is the most subjective aspect of trading. It’s where traders feel the least control and where most “mental game” issues like micro-managing come into play. Combat this by taking partial profits. This keeps you in the game if a bigger trend move is in play.
    22. Trust the process, not short term results. Our talk of drawdowns and probabilities applies here. Trust the process. That’s what you focus on in the now. Results are examined longer term. A good process leads to good results over time. A winning trade is not necessarily a good trade if it was not traded correctly.
    23. Never trade hope. If you are in a trade because you hope it works out, get out right away. Trade setups, markets, trends and probabilities. Never hope.
    24. Never complain about the market. Try this: do a 30 day experiment and don’t complain about the market or stocks even one time. I am willing to bet you will be in a better frame of mind and you will see improved trading results.
    25. Trade around support and resistance. This keeps your risk ratios in check, helps with trade management and keeps you from chasing. That’s the power of support and resistance.
    26. Don’t be afraid to re-enter positions. Mr. Market is keen on faking us out before making the big move. Don’t miss out on a momentum trend because you were stopped out the first time and were afraid to pull he trigger that second time.mar
    27. Know pre-market highs and lows for intraday trades. This was my big day trading takeaway from 2016. Big moves are made when those -remarked levels break.
    28. Turn FOMO into an advantage. How can a trading leak turn into an advantage? By understanding it and flipping it. Ask yourself what the dumb money is doing and wait for that next setup after the FOMO stage. You will turn into the smart money.
    29. Gauge market sentiment. This is especially important when the market is overheated or in panic mode. Use sentiment for counter trend trades.
    30. Know your catalysts. Understand the “why” of the move. A stock that’s moving because of sector rotation is likely to move much further than a stock breaking out on a rumor.
    31. Smile more. I’m serious. I make myself smile during the trading day. It puts me in a better mood and make me trade better.
    32. Keep a positive attitude. Glass-half-full traders stay the course and are less likely to deviate from winning strategies. A negative attitude leads to negative results.
    33. Walk and reflect. Many of the tactics  in this post came from reflections during my daily hike.
    34. Do not chase trading goals. This is a big one. Daily or monthly PnL goals lead to poor results. Instead of trading the market or setups, you will trade your own profit targets.
    35. Learn from failure and put it behind you. We have focused on drawdowns that occur when you are trading properly. However you will make trading mistakes. Even the best traders fail to trade perfectly. Learn from bad trades and move on. Don’t dwell on the bad.
    36. Remember that you love trading. When in the grind sometimes it’s easy to lose site of why you live trading in the first place. Take a step back and appreciate the trading game.
    37. Continue to monitor key momentum industries, including steel, coal, commodities, oil, energy, biotech, defense, airlines, finance and semiconductors. Apply toolbox setups to stocks in these industries.
    38. Pay attention to how the market reacts to new rate hikes. Specifically, how does it impact trading, housing, building materials, finance and real estate.
    39. Know the 2017 headlines. With Donald Trump as President, you can bet there will be plenty of stock market over reactions to many of his off the cuff  and strategic statements. There’s no need to read articles or become a news junkie, but know the headlines.
    40. Analyze price action response to the headlines. Price does not always react to news as we expect. Know the headline, but trade the price action.
    41. Keep it simple stupid. Trading in 2016 illustrates the importance of simplicity. Trends are not complicated unless you make them more complex than they need be.
    42. Adapt to changing market conditions. I guarantee there will be some major surprises in 2017, just as there are every year. Adapt to unpredictable events by digging into your toolbox and pulling out the tools that work under the changing market conditions.
    43. Use earnings season as a market gauge. While we trade earnings setups, earnings season also is used to get a feel for the health of the market. If good news is met by selloffs, you know the market is weak.
    44. Monitor the FANG stocks. The new “four horseman” (Google, Amazon, Facebook and Netflix) did not lead in 2016. Historically, all four of these long term momentum stocks come back with vengeance after slow periods. Stalk them for the beginning of the next momo move.
    45. Look for bottom formations in beaten down sectors. Solars and gold are beaten down but will eventually bottom. Look for signals.
    46. Scan breakout continuations. A ton of stocks will break out in 2017. Most will end up falling to the wayside after initial bursts. Spot the continuation moves and ride them.
    47. Think volume before price. I always look at the volume pattern of a chart before price. Volume often predicts price action, and confirms once price makes it’s move. Understanding volume will up your gains by at least 10 percent.
    48. Do not forget the time frame you are trading. When swing trading, it’s easy to get caught up in faster time frames. Usually this is just “noise” for you trade. Ignore the faster time frames and stay focused on the daily.
    49. Continue to learn. Trading is not static. Strategies and tactics are always changing. For example, 5 years ago the 9-ema was not significant for my swing style and timeframe. Now it’s the moving average I monitor most closely. Learn by spending at least a half hour every day looking at the market in new ways and by analyzing patterns you see in your own trading.
    50. Experiment by paper trading. I always paper trade. It’s how I develop, study and implement new strategies. I do not use real money on new strategies until they pass the paper trade test.
    51. Study one new thing in 2017. I do this every single year. I pick one area that is new to me for mastery. In 2016 it was premarket trading. This coming year I am working on 2 specific options strategies. Investigate an area in trading you feel could be profitable that  you’d like to master and attack it.

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7 Strategies To Master Trading Countertrend Setups

How many times have you heard the trading cliche that you should never trade against the trend?

My guess is enough times that through osmosis this bad advice has unwillingly seeped into your subconscious and stopped you from trading profitable countertrend setups with the frequency that you should be trading them. Let’s correct this major problem right now.

In this article I am going to quickly lay out the problem and hand you a solution that will make you a countertrend master. Do not mimic most lazy traders by nodding your head and then forgetting about everything you read today. I want you to put the strategies into practice, track your results and show them to me once you have a good sample size.

Fear of Trading Countertrend Setups

Most traders fail at countertrend setups because they are bad traders who are too lazy to truly understand the setups. I know this is a harsh statement, but the harsh reality is most traders don’t know enough to effectively trade. The truth is the setups are strong and profitable. It is the traders who are not.

Bad traders are afraid to trade the countertrend setup because they have been burned time after time by making a combination of the seven cardinal sins for trading countertrend setups. Bad traders guess the entry without a signal, trade too big, exit without a sound plan, add to the position when it goes against them instead of stopping out, ignore the stock after it doesn’t work the first time and lack understanding of the initial trend catalyst.

Consequently, losses derived from these common mistakes make them think trading against the trend is dangerous, when in actuality it’s just bad trading. These traders should stop blaming the setup, blame themselves and fix the problem.

Following the seven strategies laid out below makes it almost impossible not to win at trading countertrend setups. If you put these rules into practice, countertrend trading will become and important tool in your trading arsenal and supercharge your profits.

7 Strategies for Trading Countertrend Setups

  1. Understand Price Can Go Higher Than You Think. Keep in mind that a stock up 100 percent can easily move much higher than you think. For instance, stocks that show parabolic momentum have no business pricing at these insane levels, but continue to go up as shorts continue to squeeze out of the stock. On the flip side, stocks in free fall often fall until the last of the sellers all sell together, created in “capitulation” selling event.Wait for price action to tell you the move is over and never guess that the move is over.
  2. Wait For Precise Entry Signal. Building on the first point, patiently watch all those shorts get squeezed out of their positions and only enter once the stock gift wraps you one of the specific entry signals we look for in a countertrend setup. This is dependent on the setup, however we are usually looking for a reversal candle pattern or failure of a key level.
  3. Risk Less. Countertrend setups are seductive, giving traders visions of hitting the lottery on the reversal. While you can make big gains, never forget that you are going against a powerful established trend. Even with a great entry signal, the trade doesn’t always work. When it goes against you, it sometimes is off a big gap that can crush your trade. For that reason, go on the defensive and trade smaller.
  4. Don’t Guess The Exit. While we’ve focused on the entry, the exit is actually the hard part. How far will the countertrend setup go? The truth is we don’t truly know. To stop us from guessing and likely taking small profits that keeps us from trading the setup optimally, use logical support and resistance levels as targets and scale out of the trade. This keeps you in the trade when there is a big move.
  5. Never Average Down. If you don’t follow this rule, you will crush your account. Notice that I did not say “might”, I said will. Many traders add to a losing countertrend position because “it has to reverse at some point”. Don’t give in to the temptation. If your hope does not pan out, it’s too big of a loss to come back from. Instead, stop yourself out with a small loss and follow the next tip.
  6. Re-enter The Trade. When you stop yourself out for a manageble loss, don’t be afraid to enter again if the stock becomes even more extended and again gives you an entry signal. Too many traders feel burned by that initial small loss and take the stock off the watchlist. Everybody is watching the first trade, and the weak hands leave once it doesn’t work out. For that reason, it’s often that second move that’s the big win. Some of my biggest wins have come after I lose out on the first trade.
  7. Understand Why The Stock Made The Initial Move. The setups and patterns we trade are based off market structure and human psychology, not because the pattern looks pretty or shows geometrical symmetry. Take the time to understand they “why” of the move. This will give you insight into how to trade it. For instance, if the move was based on a likely short-lived news event and has a high short interest, you know the odds are in your favor that once the event is over the stock will tumble down. However if the company blew out earnings and shows monster growth, your countertrend short opportunity might now be quite as possible.

The Countertrend Setup Trading Challenge

If you follow the 7 rules for trading countertrend setups, you should see explosive growth in your profitability trading against the trend.

Now I want you to put these rules into practice by doing the following.

  1. Scan for the most overbought and oversold stocks in the current market.
  2. Put them in a watchlist.
  3. Monitor the watchlist daily for strong setups.
  4. Paper trade them based on the tips listed in this article

Track your results and post them here in the comments, on my facebook page or via e-mail to paul@pauljsingh.com.

Live From Torrey Beach: Overbought Sectors | Big Picture Weekly Reflections

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Did you ever play hot potato as a kid?

For those who didn’t, you pass a hot potato around as fast as you can until someone yells “hot potato”. You lose if you get stuck with the hot potato.

That’s what the steel sector is like right now. As the market gets hotter and hotter, the long trade is the hot potato and soon someone will get stuck with a big loss.

In today’s Weekly Big Picture Reflections (recored live on my hike at Torrey Beach),  we talk about extended sectors like steel and shift our perspective as we approach the trade.

This approach already started late last week when I entered the $X short trade (see bullsonwallstreet.com)

Big Picture Weekly Trading Reflections

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Reflections

The old me was living this quote (watch weekend reflections); a fledgling trader blindly jumping from trade to trade and doing a ton of research, but never truly learning anything.

Then ten years ago I started doing a simple weekly “big picture review” that focused on reflection and key takeaways from my trading.

This helped me immensely and now I am sharing them every week with you.

In Big Picture Reflections: Periscope 3, I discuss my aggressive energy entries, how I handled Thursday’s ugly drawdown, along with key takeaways to put into practice this week.

While you’re at it watch the first two Periscopes as well. Although this week’s was from my office, I normally do them in a place where I can be reflective, like the beach (Sunset Cliffs in San Diego is my favorite spot) or in the middle of a hike.

Periscope 1 from Sunset Cliffs in San Diego (recorded at the edge of a cliff on the Pacific Ocean)
Periscope 2 from La Jolla-Scipps Institute of Oceanography (La Jolla Pier nearby)

Visit my youtube page and bullsonwallstreet.com for more trading content.