| Day trading is both art and science. When operating | | | | Too many traders make the mistake of trading the |
| your stock trading business you will eventually get to | | | | same share size all the time, regardless of conditions |
| the point where you can use your gut or instincts. | | | | or risk points. I often hear "My share lot is 1,000 |
| When you are just starting out however you should | | | | shares per trade." Wow this is a huge mistake. To be |
| rely on very specific paramters to enter or exit a | | | | a consistent stock trader you need a predefined plan |
| trade as well as how to manage risk in each trade. | | | | for how you will acquire the shares for a trade. |
| Identifying Significant Reference Points | | | | Simply put, if you want to get to 1,000 shares for a |
| When trading stock for a living, you obviously want | | | | trade scenario, how are you going to get them? |
| to know what you are going to do next in a given | | | | We recommend two strategies. One is building a |
| price action scenario. The key to maximizing profits | | | | position in a strong trend the second is entering a |
| and minimizing risk lies in being able to anticipate | | | | small portion of your intended total position and |
| where other traders are probably going to take | | | | adding to it only when the position has moved in |
| action. | | | | your favor. |
| Using charts in your day trading, your objective is to | | | | In order to build a position you must have confidence |
| locate areas where you believe traders will initiate a | | | | in the strength of the trend. If your goal for example |
| position or exit a position. Once you have identified | | | | is to have 1,000 shares of a stock, you would buy |
| those areas, you MUST begin to form if-then | | | | the 1,000 shares in pieces as the stock pulls back or |
| scenarios about how other stock traders will react if | | | | pauses in the trend. You may do it in two or three |
| the expectations they had about the trade are met, | | | | pieces, for example 400, 300, 300 for a 1,000 share |
| or just as important, if they are not met. | | | | total for the position. |
| What I mean by this is simple, while you are trading, | | | | I can hear what you are thinking, why is he telling me |
| you should always be prepared for any scenario, | | | | to average down? Averaging down means you |
| meaning what needs to happen for me to initiate a | | | | wanted 1,000 shares, got 1,000 shares, the trade |
| trade or exit a trade. Most traders are looking at the | | | | moves against you and you go get another 1,000 |
| same intra day information, once you understand fully | | | | shares. That is like marrying the same woman you |
| what you will do under any circumstance, you will | | | | got divorced from, getting more of what is not |
| have a much better idea how the majority will react. | | | | working. To build a position like this you will need to |
| If you are in an uptrend and get long, what does | | | | identify a window where you would expect the |
| price action and volume need to look like in order for | | | | pullback to stop, we teach in our Equity Trader 101 |
| you to no longer to want to be in the trade any | | | | course to use the 20SMA as the area we anticipate |
| more? Now here is something I hear very often | | | | the pull back to stop. Stop loss will be based on the |
| from traders who are disciplined, "I am getting stop | | | | full size position. |
| loss to death. I am correct on most of my trades | | | | The second method is price confirmation. Using this |
| and make no money." | | | | method you will enter one third to half of your total |
| How do you solve this dilemma? The first technique | | | | position. When and only when the position moves in |
| is asking yourself two simple but very important | | | | your favor you will add to it. Using this method it is |
| questions. Did the circumstances for my trade | | | | common to scratch a few trades, take a few small |
| scenario change or is this move just noise? How do | | | | losses and small profits until you finally feel |
| you know the difference? The answer is simple, pay | | | | comfortable that you have a good head start on the |
| attention to the tape, the volume printing in time and | | | | trade in your intended direction. |
| sales. Did significant volume hit the tape that would | | | | Obviously re entry is a big part of this method. Think |
| tell you large traders have an urgency to buy or sell | | | | carefully about what this method is allowing you to |
| shares? Or did price move without many shares | | | | you to do, you are wrong on the fewest shares and |
| trading hands? If price moved but few shares traded, | | | | correct on the most shares. It is terrific money and |
| your original idea is still probably valid! Stick with the | | | | risk management. It will prevent you from being in a |
| trade. | | | | position where you will need to be perfect on your |
| The second method to earning "what you should" | | | | entry, you will gain valuable information based on how |
| when your call on the trade scenario is correct is | | | | "easy" or difficult it was to get filled. |
| utilizing time tested order entry techniques. | | | | If you would like some help with any of the topics |
| Order Entry Techniques | | | | covered in this newsletter, please feel free to send |
| Understanding how to manage share size is crucial to | | | | me an email and we can work on it together. If you |
| your success as a trader. Money management is how | | | | are trading remote and not taking advantage of the |
| much capital you will allocate to a particular trade; risk | | | | leverage and competitive fee structure available from |
| management is how you will manage that capital. Risk | | | | Keystone Trading Group, please send an email to to |
| scenarios will include stop los parameters and share | | | | inquire about rates or extra intra day buying power. |
| size allocated to the trade based on stop loss points | | | | Please be sure to put in the headline the subject for |
| and risk per trade as defined by money | | | | the email so that it can be directed to the proper |
| management. | | | | department. |