Subjective: Based on or influenced by personal feelings, tastes, or opinions. Proceeding from or taking place in a person’s mind rather than the external world. Subjective traders are intertwined emotionally with their trades. Their signals are generally entering out of greed and exiting based on their own fear. They believe in their opinions more than the actual price action. They base entries and exits on whether they are feeling good or bad about a trade. A subjective trade comes out of the imagination of the trader, from their own beliefs, opinions, and what “should” happen in their view. Many times reality is not even cross checked as a reference, and the subjective traders can end up seeing what they want to see instead of what is really going on. Their compass is their emotions, opinions, and ego and they can have internal goals other than making money. They value being right and predicting the future over everything else. They love making a good call or being right and making money may not even be the main goal in their trading. Objective: A person or their judgment is not influenced by personal feelings or opinions in considering and representing facts. Having actual existence or reality. Objective traders have a quantified method, a system, a plan, rules, and principles they trade by. They know where they will get an entry signal based on facts, and where they will get out based on price action. Objective traders have a written trading plan to guide them. The guides of the objective trader is historical price action, chart patterns, probabilities, risk management, and their edge. They react to what is happening in reality in quantifiable terms that can be measured. They go with the flow of price action not the flow of internal emotions. Summary: Be objective in your trading, do not let the subjectivity of your emotions and ego interfere with the reality of price action. Don’t be attached to your trade emotionally and don’t attach your ego to it. Be the trader that witnesses the trade from an emotional distance with curiosity. If you can find that space within that is between you and your trading results your trading will become very different and probably more profitable. There should be valid reasons for entering a trade based on signals that can be shown to have an edge and money management that gives the opportunity for big wins and small losses. When you can approach the results of your trades with equanimity whether they are wins or losses then my friend you are at the next level.
Only 14 stocks have created 20% percent of all stock market wealth since 1924. These are companies that dominated entire industries: communication, automobiles, software, retail, drinks, oil, and consumer products. They owned their niche if not an entire sector. These are the stocks that grew in size, stayed up to date with technology, had a better business model, crushed the competition, and ran their business model with discipline and focus. They also had great people as leaders that kept them on track or got them back on track when they strayed. These were market leading stocks for decades. Here are my picks for the top 10 monopoly stocks for any watch list: Communications: Facebook is the leader in social media which is the primary mode of communication in the 21st century. They combine Facebook, Instagram, What’s App and Oculus for a dominant position with a visionary founder and CEO who knows how to win. They have many of the most popular apps in the app store with Facebook, Messenger, Instagram, and What’s App. They also have the most targeted advertisement in history on their platform. Consumer discretionary: Apple is the leader with mobile devices, Mac computers, and most importantly the App store with the most popular apps and games, and they are a leader in music with iTunes. Retail: Amazon is the dominant force in easy and affordable retail for books, electronics, groceries, and everything you could need delivered to your door. They also do billions in Web services and have Amazon television and music. They have crushed brick and mortar retail. They are also the most popular search engine people start with for purchases. Jeff Bezos is one of the greatest entrepreneurs of our generation. Entertainment: Netflix first knocked out Blockbuster with their mail order rental with no late fees then went after live television itself with their streaming platform and won. More people watch television on demand now than live television. Netflix wins as their model is a subscription model for one low monthly fee and original programming. Internet: Google is where people start online to find what they are looking for. They are the starting line for the internet itself and never stop creating new businesses and finding ways to monetize the internet itself. They are literally the verb for searching online and know how to monetize. Manufacturing: The Shopify platform has put industrial creation in the hands of anyone that uses their platform to create products to sale. Wholesale: Alibaba connects wholesalers around the world with retailers around the world. Travel: Priceline is the leading platform for travel. Energy: Tesla with Solar City are the future of energy with battery operated cars and solar energy. Elon Musk is a visionary and leader that comes around one in a lifetime for his relentless pursuit of advancement of technology. He may be the next Bezos. Financial: PayPal is the go to international payment platform. Before Bitcoin there was PayPal. Of course this is just a watch list these stocks must still be trend traded using moving averages and only held if they are going up in price. If you can find the right monopoly stock soon enough and trend trade it then it could change your life.
1.All signals still remain bullish at this point. 2.Friday $SPY pressed new highs on good volume. 3.With all time highs, only profit taking is putting selling pressure on the S&P 500 index with all buyers sitting on a profit here. 4.Price is above all moving averages. 5.With RSI at 66.57 we will not likely see much of a strong uptrend continue until after price builds a new base and the overbought level is worked off. We should even see a return to the 10 day EMA next week before we go higher. 6.$SPY remains under a bullish MACD crossover. 7.The volatility and trading range continues to drop. A $VIX at 10.17 is incredibly low from a historical stand point leaving put options very cheap. 8.It is very bullish that the market fails to go down on all the scary North Korean missile news. Even with one going over Japan. 9.People should stop calling for a crash when we can’t even get a decent pullback. 10.This year has rewarded the bulls and there is no reason yet to think it will not continue to do so.
1.SPY stays bullish near all time highs. 2.SPY is above every moving average. 3.The 50 day SMA continues to slope upwards. 4.The volatility on the average trading range continues to fall to 1.21. 5.The MACD is under a bullish crossover. 6.The RSI is at a bullish 64.61 with more room to run until it is overbought. 7.Short term odds favor more sideways movement before higher to build a price base and work off the higher RSI. 8.Volume has declined into the recent run to all time highs. 9.The rally in energy $XLE last week helped $SPY make new all time highs. (6% energy allocation in SPY). 10.VIX is at a historically low 9.59 showing a lack of fear in the markets even with the North Korea rhetoric. Very bullish current chart patterns here. I am currently long small caps, energy, tech, and $AAPL.
1.All bull signals are a go here as the uptrend in price continues over every moving average. 2.The 10 day ema has provided end of day support for 22 straight trading days. 3.The trading range and volatility continues to fall creating the most calm September trading in history. VIX falls to a historically low 9.51. 4.$SPY is at rare overbought air at the RSI 70.47. This does not mean we will necessary go down but that the uptrend likely slow and go sideways as the overbought conditions are worked through with a price base. 5.The stock market reacted well to President Trump’s tax plan, with small caps, micro caps, and financials leading the way. 6.$SPY continues to have a bullish MACD crossover it was under a bullish cross for all of September. 7.This market rewards buy and hold investing and quick dip buyers. Crash callers that remain short continue to miss the gains and lose money fighting the trend higher. 8.Many leading stocks pulled back and rallied off lows, $AAPL $FB $AMZN $NFLX and $GOOGL. 9.Volume increased on the biggest up days last week. 10.The $XLE rally continues helping $SPY go higher with its energy holdings. I am still long $UWM and $ERX from weeks ago and added $QLD in Friday.
1.$SPY is currently under all bull signals. 2.$SPY has had six trading days of higher highs and higher lows, this is what an up trend looks like. 3.The market has trended higher on good volume. 4.Price is above all key moving averages. 5.$SPY is near all time highs. 6.RSI is parabolic with a 77.61 overbought reading. Over 70 RSI has been a momentum signal since the U.S. presidential election, this is very unusual behavior for indexes historically to remain so overbought for so long but is the current pattern. 7.MACD remains in a bullish crossover. 8.The average trading range continues to trend lower now at 1.14 ATR. 9.The $VIX remains historically low at 9.65. 10.Stocks as an asset class are currently under accumulation and there is currently no reason to sell short or expect a correction or crash until there are bearish signals. I am still long $UWM $ERX $QQQ and recently $SHOP at $97.35.
1.$SPY continues to make new all time highs. This is the most bullish signal. 2.$SPY is above all moving averages. 3.$SPY is under a MACD bullish crossover. 4.RSI remains overbought at 74.55 which has been bullish over the past year. 5.The trading range continues to fall to an ATR of 1.04. 6.VIX trended down last week to 9.61. 7.Volume was low last week during the new all time highs. 8.The past year has been a great up trending market. 9.Buying the dips in price or trading with the trend higher has been the winning trades for a year. 10.Leading stocks look great in the market with Amazon and Google at $1000 and Netflix pressing $200. I am still long $UWM, $ERX, and $QLD here in longer term trend trades.
1.$SPY has broken out to make new all times. 2.Price is over all moving averages. 3.Extremely overbought RSI at 81.22. This is one of the most overbought markets in history. 4.MACD remains under a bullish crossover. 5.Small increase in the trading range with ATR Friday after the gap higher. 6.Last week volume started low but increased as the market slowly went higher. 7.$VIX closed the week near where it opened the week at a historically low 9.97. 8.The tech sector has lagged the market with leading tech stocks not making new highs with the S&P 500 as a whole. 9.The financial sector ETF had a strong gap and go in price Friday. $XLF 10.Transports are strong and near new highs. I am still currently long $UWM and $QLD.
A good trade is one where you followed your process regardless of whether you made money or not. A bad trade is one where you didn’t follow your process regardless of whether you lost money or not. Amateur traders make one big mistake at the beginning. They get all wrapped up in their trading results each day, sometimes new traders will even be watching their results each hour. They judge their trading by whether they make money on each trade. A good trade is when they make money and a bad trade is when they lose money. They are results driven; they may not even have a process. They have it all backwards; it is having the right trading process that will make you a profitable trader in the long term. Trading results can be random in the short term. New traders can focus too much on making money in the short term while professional traders are focusing on making the right decisions so they will be profitable in the long term. Many times new traders see everything in black and white at the beginning; they can judge the quality of their trading by money and results. A trend trader can step back and judge the quality of their trading by whether they followed the process by trading their system with a plan. If a trend trader is in a drawdown they are able to understand that the market may not have been conducive to their system in the short term. If you are a trend trader and the markets you are trading are not in trends for a few months then of course you will likely not be profitable. A new trader that is results focused will jus thing that the trend trader’s process does not work. A trend trader is just trading their process waiting for the next trend to bring capital gains. A trend trader understands that their part in the trading process is to develop and back test a trading system and then trade it with discipline using risk management and a trading plan. Once they enter a trade they can’t control whether it is profitable or not. A trend trader can control his entry, position size, stop loss, and trailing stop but not the price action. Process centered trading is where a trader judges the quality of his trading by how well he followed his process. Process oriented trading can result in long term success if the trader has a winning system. Trading a process lowers the levels of stress and confusion in trading. It focuses the trader on simply executing what they already know is a valid system that should lead to long term profits. Results centered trading judges the quality of the trading on whether money was made or lost. The problem with results oriented thinking is that bad trading can result in short term profitability but in the long term a trader was just experiencing luck or a specific market environment that made them profitable. Big wins can also be just the results of risking too much capital but being on the right side of a move, the results could also be a blow up if it was bad risk management with position sizing that lead to those gains. When good results come from a bad trading process the results do not stay good long term. Bad results that happen while following a good trading process are usually only in the short term. A process oriented trend trader has five core beliefs: · The edge that they have in their system will result in profitability in the long term. · They do not let their emotions or egos get caught up in short term results. They understand the randomness of results on shorter time frames. · They understand they only have control over systematic trading execution not trading results. · They are not trying to predict what the market will do in the future they can only control what they will do in the present moment. · They do not get euphoric with winning trades are depressed with losing trades. A process oriented trader’s job is not to predict, have an opinion, or prove anything. Their only job is to stick to their rules, take their signals, and follow their process. Trend trading tips: · Once you have a trend trading system your job is to follow it . · Focus on the trading process not the trading results. · Focus on what you can control. · Do not become emotionally moved by wins or losses. · Trade position sizes that enable you to follow your trading process without overwhelming stress or emotions.
1.$SPY is at all time highs, there is no greater bullish signal than this the majority of the time. 2.Friday made new all time highs on good volume. 3.$SPY price is in an up trend and over every moving average. 4.Near term support in$254. 5.Last weeks dips were bought very quickly intra-day showing eager buyers. 6.RSI is overbought at 71.32. This has been a bullish signal since the U.S. presidential election as overbought has become more overbought with little pullbacks. 7.The average trading range has been expanding over the last two weeks. 8.$VIX plunged back lower last week to 9.80 showing a lack of fear for a crash lower. 9MACD is under a bearish crossover due to the recent sideways action in October. 10.Earnings started well last week with $AMZN, $GOOGL, and $MSFT leading the way in the tech sector and benefitting $SPY. I am still currently long $QLD, $UWM, and bought $TSLA Friday near the 30 RSI / 200 day SMA dip in price.
1.The bullish signal of new all time highs continue. 2.Price is bullishly over all moving averages. 3.The 10 day EMA has been a key short term support level. 4.The RSI at 70.66 shows the momentum to trend through overbought price levels. The RSI over 70 has been a momentum signal since November of 2016 in one of the most overbought markets in history. 5.$VIX is near an all time historical low in volatility at 9.14. Creating very cheap put options on $SPY as fear is very low at these price levels. 6.The ATR continues to increase giving traders more of an intra-day trading range. 7.The MACD is under a bearish cross showing signs of a market losing momentum. 8.Volume trended lower last week as prices pulled back and then went higher. Volume remains healthy. 9.$XLK Tech sector has been the leader for $SPY going to higher prices with $FB $AMZN $GOOGL, and $AAPL leading the market higher. 10.The winning strategies in this market have not changed, buy the quick dips or buy and hold long and follow the trend. I remain long $QLD and $UWM here.
1.SPY remains bullish near all time highs and above all key moving averages. 2.The 10 day EMA has stopped being intra-day support leading to more of a range bound market than one in a sharp up trend day after day. 3.Opening low and down and finishing higher is bullish. During downtrends the market generally opens high and ends lower. 4.Last week down days in price were on higher volume than up days in price. Showing some distribution. 5.SPY MACD remains under a bearish cross under as the market starts to go sideways. 6.The price trading range continued to expand last week giving day traders more room to work intra-day. 7.RSI remains bullish at 63.50 with room to go higher. 8.VIX started making some higher highs and higher lows last week and ending at 11.29. 9.The leading stocks in the $SPY ETF are all in strong momentum up trends: $AMZN, $AAPL, $MSFT and $GOOGL. 10.Many signals are currently pointing to an expanding trading range and a potential short term pullback next week.
A trend trader’s goal is to systematically ride the waves in price action for as far as they will go. There are two different types of traders: discretionary traders and systematic traders. Discretionary Traders… Will attempt to trade the flow of information, like the news. They are trying to anticipate what the market will do. Discretionary traders are subjective; they read their own opinions and past experiences into the current market action. They trade what they want and have loose rules to govern their trading. Discretionary traders are usually emotionally engaged in their trading and taking their losses personally because their opinion was wrong and their ego is hurt. Discretionary traders are known to use many different indicators to trade at different times. Sometimes it may be macroeconomic indicators, chart patterns, or even macroeconomic news. They are looking for something in the market to base their entry off of. Their interpretation of a chart pattern, trend lines, news, volume, open option interest, or another objective reason for their trade. Discretionary traders many times trade for reasons that are hard to quantify into a subjective system. Systematic Traders… Trend traders systematically trade the price flow. Trend traders are systematically participating in what the market is doing. Systematic traders are objective. They have no opinion about the market and are following what the market is actually doing, i.e. following the trend. System traders have few but very strict and defined rules to govern their entries and exits, risk management, and position size. Traders that use systems can be unemotional because when they lose it is simply that the market was not conducive to their system. They know that they will win over the long term. Systematic traders consistently use the same parameters for their entries and exits. They do not change them suddenly for emotional reasons. Trend traders can have positions in many markets using their technical system based on prices and trends so they do not need to be an expert on the fundamentals. Some traders trade at their own discretion and others trade systematically. A trader could be 100% discretionary using their own opinions, beliefs, predictions, chart reading skills, and experience to enter and exit trades. Traders can also be a discretionary trader but trade inside the context of their own rules. There are also systematic traders that are almost completely mechanical in their trading decisions. They have a defined process for their trading entries, exits, and position sizing that takes out their own discretion. There is a huge difference between traders that rely on their instincts and chart reading abilities and those who are pure system traders. Systematic trading removes the weakest element in a trading system, the trader themselves. A trading system will remove the fear, the greed, and the ego of the trader and replace them with signals and parameters for capturing trends. You can remove much of the emotional problems in trading by simply becoming systematic. No need to second guess yourself because your job is system implementation not making the right decisions to predict the next move. Your job changes to being an implementer of the system that you have created not a predictor of the next direction in price action. It is a much better job and should be a promotion for most traders from the daily stress of figuring out what to do. A trend trader’s job is to create signals that tell them when to get in to a market because price action is signaling that price direction may have changed. When a new direction in price may be emerging your system should have signals to get you on the right side of the trend. Trend traders use systematic trading to gain an edge over other traders. Systematic traders use their discretion during their system building process but they are very mechanical in their actual trading once the system has been fully quantified. While discretionary traders are busy trying to digest what fundamental news and information mean, systematic traders are taking the signals they are getting from actual price movement in the market. Systematic traders are not thinking and predicting what the market is going to do, they are reacting to what the majority is doing based on their predetermined system’s entry signals. For the average trader being a mechanical systematic trader usually maximizes the chance of success in the markets, especially if you are using a historically tested profitable system. If you are removing the emotions and ego out of your trading and are controlling your risk of ruin with proper trade size and stop losses, then you have the probability of success on your side of joining the consistently profitable traders in the market. What is a trading system? A trading system is a set of rules that quantifies buy and sell signals, as demonstrated by successful backtesting on price history. A trading system is the specific kind of data used to execute the trading method, based on price action inside of a specific time frame. These signals are triggered by price action or quantified technical indicators. Trading systems have specific parameters relating to position sizing that manage risk and increase the probability of profitability over time. A trading system has at least eight quantifiable elements: Entry signal Exit signal Potential winning percentage Potential risk to reward ratio Position sizing parameters Expectations for frequency of trading opportunities Average expected annual return Maximum expected drawdown A trading system quantifies the parameters for how you will execute your entries and exits based on your study of historical price action. The system tells you what to buy, when to buy it, how much to buy, what to do with it after you buy it, and how to manage your positions as the price action unfolds. The price action signals of trend traders systems is usually kept simple with entries being a breakout in the high or low price for a certain number of days and trailing that entry with a stop of a new low in a set number of days. Multiple moving average crossovers are also used to create entry and exit signals based on quantifiable price action. Trend trading systems can also have filters for volatility to adjust position sizing. Trend trading systems tend to keep position sizing small to avoid any big losses and be able to hold an entry through for the duration of a trend and not be shaken out due to small averse moves against the position. Now what sort of trader do you want to be? Trend trading tips: System trading can remove most of the emotions and ego from your trading experience. Your job as a trader changes from predicting the next move to taking signals. A trading system should keep you safe with position sizing parameters based on volatility. A trading system will tell you when to get in to a trade and when to get out. A trend trading system should make you money when the market trends.
1.Price remains near all times high. 2.Price is above all key moving averages. 3.$SPY is beginning to transition from an uptrend to a trading range with $255.63 as support and all time highs is resistance. 4.The 10 day EMA failed to hold as end of day support last week as the market began to go sideways. 5.RSI is at 56.67 and remains bullish. 6.Down days had more volume than up days last week showing profit taking at higher prices. 7.MACD remains under a bearish cross over. 8.The trading range continues to expand as measured by the ATR. 9.Volatility continued to expand and then contract ending at a 11.43 $VIX. 10.These mixed signals are pointing to another week of trading inside a price range on a likely low volume holiday week.
1.Price continues to be within striking range of all time price highs. 2.Price remains bullish above all moving averages. 3.RSI at 73.57 continues to show momentum at these over bought levels. 4.The intra day trading range continued to expand last week. The ATR is as high as it has been since April. The strong reversal off Friday’s lows could be a bullish reversal signal. 5.The MACD remains under a bullish cross. 6.Last week traded on increasing volume on both the rallies higher and the big reversal Friday. The volume looked to be bullish in bias. 7.VIX closed last week at 11.43 after reaching as high as 14.58. More volatility and risk being priced slowly into the market. 8.Strong rallies in the Energy $XLE Consumer staples $XLP and Financial $XLF sectors last week. 9.The tech sector $XLK has pulled back strongly from recent price highs with leading tech stocks under pressure. 10.The stock market is still intact. Pullbacks are still buying opportunities and the easiest path to profitability remains in simply holding long positions in this uptrend.
What does the greatest investor of our time have to say about the Bitcoin mania? Bitcoin breaks all the rules in Mr. Buffett’s methodology for buying cash flowing businesses at a great price that have a moat around their business model. He missed growth stocks Amazon, Tesla, and Google because they did not fit into his methodology as wise investments. He was almost ruined with his original value investment in failing textile company Berkshire Hathaway but was able to pivot and create an insurance company and corporate conglomerate out of it that became one of the most successful companies in history. Understand that Warren Buffett’s time frame is the long term so he always plays the long game looking at where things will end up in valuation over decades not what a price moved in the last month or year. In 2014 Buffett praised the cryptocurrency as an effective way of transferring money, and you can do it anonymously and all that.” but said it is a terrible investment. “Stay away from it. It’s a mirage basically,” Buffett said on CNBC in 2014. “The idea that it [bitcoin] has some huge intrinsic value is just a joke in my view.” “You can’t value bitcoin because it’s not a value-producing asset.” “People get excited from big price movements, and Wall Street accommodates,” he was quoted as saying. Describing bitcoin as a “real bubble”. A check is a way of transmitting money, too. Are checks worth a whole lot of money just because they can transmit money?” He said it wasn’t possible to determine how high it will trade for. According to him, there’s “a real bubble in that sort of thing.” NOTE: Warren Buffett missed the Dot Com bubble & Bitcoin but still did okay for himself.
1.$SPY continues to make new all time highs. No more bullish signal than all time highs. 2.The 10 day EMA has been the end of the day support since November 16th. This shows a market with momentum. 3.The chart remains under a MACD bullish crossover. 4.$SPY broke out to new highs in price with the highest volume in 10 days. 5.RSI remains overbought at 73.42 over 70 RSI shows momentum and the potential for a parabolic move higher. 6.The average trading range trended lower last week. 7.$VIX was stagnant last week closing near where it opened at 9.42. 8.The tech sector ETF $XLK, consumer staple ETF $XLP, and the consumer discretionary ETF $XLY made new highs last week leading the $SPY to new highs. 9.Leading stocks are making healthy price bases and setting up for moves higher. $FB $AAPL $AMZN $NFLX and $GOOGL. 10.This is a bullish market for stocks and the most successful strategy has been buying and holding and trend following the long side.
1.A winning trading system must either be designed to have a large winning percentage of trades or big wins and small losses. There are two paths to profitable trading, accuracy of winning trades or size of winning trades. If your winning trades and losing trades are the same size then you must have more wins than losses to be profitable. A trading system with equal size wins and losses simply has to have more wins than losses to be considered a winning system. This seems like common sense, however high win rate systems can quickly become unprofitable when losses are allowed to get out of hand and become large. Too many high win rate systems give losing trades too much room to run and they achieve their high win rate by holding long enough for the trade to come back to even or become a winning trade. When a market environment changes from range bound to trending this no longer works and losing trades do not always bounce back. A high win rate system has to be built on the accuracy of an entry and the probability of it being a winning trade not in the hope of holding losing trades until they come back. It is crucial to cut losers short even in high win rate trading systems so one big loss does not give back a large amount of previous profits. High winning percentage systems have to be built on the odds that the profitable price target is reached or the trailing stop is hit for a profit before the stop loss is reached in the majority of cases. The old Wall Street saying “You can’t go broke taking a profit.” is not true. If you take a bunch of small profits all it takes is a few large losses to break you. On the other side of the fence are the trading systems with less wins than losses but are profitable over the long term because the losses are kept small and the size and scale of the winning trades are far bigger than the losing ones. Lower winning percentage systems are primarily used by long term trend followers, breakout traders, and option buyers. The bigger their winning trades are the lower their winning percentage can be and they are still profitable. The key is capping the downside risk when you are wrong but leaving the upside profit potential open, in essence the old saying: “Cut your losers short but let your winners run.” A stop loss is your insurance against having any big losers and your use of trailing stops instead of profit targets leaves your upside profits open so you can let winning trades trend as far as possible capturing those out sized moves that are not expected and are outside the normal bell curve of normal price movements. When other traders are on the wrong side of an out sized trend you are on the right side or stopped out if you were on the wrong side as it begun. When traders that do not use stop losses are holding a large loss you are making a large gain letting a winner run and trailing a stop loss behind in case it reverses. The key to being profitable in a low win rate system is you want to risk every $100 for the chance to make $200, $300, $500, or more. If you are wrong you accept that and exit losing each $100, but if you are right you are going to make $200 or more for each $100 you risk. You don’t have to be right every time you just have to right big and wrong small. You have a set ante into the pot that you are willing to risk for the chance of winning the whole pot. If you are right you stay right for as long as possible, if you are wrong you get out with a small loss and wait for the next opportunity. The error of cutting winners short at the beginning of a trend and letting a loser run on the wrong side of a trend are the two biggest causes of unprofitability in the financial markets. A 1:1 risk/reward ratio requires a greater than 50% win rate for profitability. A 1:2 risk/reward ratio requires a greater than 33% win rate for profitability. A 1:3 risk/reward ratio requires a greater than 25% win rate for profitability. A 1:5 risk/reward ratio requires a greater than 17% win rate for profitability. The bigger your wins are the less of them you must have to be profitable. The more accurate your entries and exits the less losses you have to take. You can be profitable with fewer big wins as long as losses are kept small or the majority of your trades being a win with a smaller percentage of them being small losses, however big losses are the fastest path to being unprofitable regardless of other factors. Check out 38 more of the world’s most powerful stock market rules in my best selling book
1.$SPY remains bullish over all moving averages and within striking distance of all time highs. 2.$SPY traded in $2 trading range last week with $266.69 as support and all time high resistance at $268.60. 3.The 10 day SMA has provided end of the day support since November 16th. This is a sign of a very strong uptrend. 4.Trading volume remained steady in the new higher price range. 5.The average trading range has been steady in December with a tight trading range. 6.The MACD remains under a bullish crossover. 7.The RSI remains at 70.95 showing a parabolic uptrend continuing. 8.$VIX remains low at 9.90 and was also range bound last week. 9.The majority of SPYDER sector ETFs are near all time highs with the energy sector leading the market higher with $XLE having an explosive move higher after breaking out. 10.Trend followers and buy and hold investors continue to be rewarded with there long positions.
Your trading system must be built on quantifiable facts not opinions. Very few new traders take the step from trading opinions and predictions to trading actual price action and signals. Amateurs take trades based on feelings while professionals have fact based reasons. A signal is a quantifiable reason to take a trade based on its price action, a technical indicator, a trend line, or a price pattern. Even trading the psychology of the market requires price to arrive at a level that aligns with the fear or greed of the masses that the trader is trying to profit from. “Buying a dip” is not a signal while buying a pull back in the S & P 500 Index to the 50 day simple moving average or prices reaching the 30 RSI on a daily chart inside an uptrend over the 200 day simple moving average is a signal based on quantifiable facts. Also any signal should be researched on historical charts or back tested to see the historical profitability of trading off the signal. Historical price patterns tend to repeat over and over and create tradable signals for capturing trends and reversals. Other types of signals are more discretionary and can rely on pure price action and buying breakouts of price ranges, trend lines, and chart patterns. Trading breakouts of ranges, lines, and patterns are quantifiable but leave a lot of discretion with the trader and are also are difficult to back test. Traders have to stay consistent with how they draw trend lines and identify chart patterns so they do not start seeing what they want to see or read price action is a biased manner to fit their preconceived beliefs. This type of breakout trading is simply trying to capture the beginning of a new trend as price leaves the previous trading range and signals a potential change in trend. Having a reason for taking a trade is still far better than simply trading off a hunch, a belief, a feeling, or a prediction. I personally prefer using more quantified trading signals like price support and resistance levels, moving averages, MACD, and RSI to take out as much of my opinions as possible from my trading decisions. In trading it is always important to have a specific reason for entering a trade that will put the odds in your favor for potential winning percentage, risk/reward ratio, and a great chance to be on the right side of the trend in your time frame. Trading without quantifiable signals puts your trades at no better than random and on the side of the majority that are trading their internal beliefs instead of the external realities of the price action of the market. You want to replace as much of your discretionary trading as possible with quantifiable signals that give you a specific reason for entering a trade. Beliefs and predictions about what the market will do, should do, or can’t possible do is not a trading system, quantified entries and exits that express a winning trading system is the path to profitability. This is rule #2 from my