I wanted to share a collection of notes that our very own @NVDA_trdr has sent me. These are from his years being a member here at daytraderbootcamp, basically a collection of “Goatism’s” I really enjoyed reading this, as I am sure you will too.
General:
* he used EMA's in bull markets and MA's in bear markets
You need to sell resistance and buy support, those are the only areas where you get the best returns…you’ve got to buy weakness and sell the rips…the script never changes.
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Bond/Stock ratio http://gtotoy.com/people-often-ask-me-what-will-it-take-for-you-to-get-bearish/
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The cross on the bond/stock ratio is not necessarily the point to start initiating positions but rather play the extremes
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Most times the market will drip bleed during the lull lunch hours 11:30 to 2:00 est with low liquidity
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June and July are usually the hardest months to trade because there usually isn’t any trend. When you’re in a low volume environment (summer trading) it always favors the bulls. Labor day is usually the time when summer trading stops and volume picks up.
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Frydays are never really good days for trading. you’ll get a couple good ones here and there but for the most part you are just in cruise control watching your existing swing positions.
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Two ways to get bearish is if the market first goes down to the first retracement(fib ratio 38%) and then fails that. Or gapping up and then closing lower than the previous high
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Consumer confidence just came out, said it takes sometimes a couple of minutes to find out where the market wants to react to the news. Usually the first move that the market makes after a big econ news release is not the correct move…need to wait it out to see where the market really wants to go. On FOMC announcements don’t panic on the first spike up or down…usually those will be the low/high of the day
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Doesn’t like a big run up into earnings season, would prefer a sell off before the earnings run
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Have to get close to gaps for them to act like magnets
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At tops he uses a guide of 5, 7,10,15, and 20% corrections as guides for where the market could pull back to
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Easiest way to determine the trend of the day is using the SPY on a 5min chart and where it is to the 20ema
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On the VIX he likes to use stochastics to find overbought/oversold areas
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Considers short % over 10% as being high
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Usually during market tops there is a lot of takeover chatter
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The most important trading day is Monday and will tell you a lot about where the week is headed. don’t miss monday
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Doesn’t like trading when indices are at multiyear highs. prefers trading after big dump downs that have potential kirby setups
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The key in trading is to anticipate moves before they happen. Don’t trade the stock after the move has already happened.
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Great traders anticipate breakouts and sell into them
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Don’t touch IPO’s for at least a year(in reference to Facebook)
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You’re going to lose money in trading, you might as well lose it on your best ideas. If it doesn’t work out, onto the next. Were in the moving business not the storage business
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Indicators are useful but if thats all that you use to trade you will fail in the end. You need to be one with the market and to do that you need to study the price action and use pattern recognition to be in step with the market. One of the most critical things is knowing support and resistance to project where the market will go.
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If the Vix is under 20 on the stochastics its not worth watching until it breaks that higher
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Not a good idea to buy stocks when Vix is below 15
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He’ll add an HL after one day of action but its subject to change since its so new
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Keeps an eye on his swing positions but doesn’t like to watch them constantly because he is more likely to do something with them if he watches them like a hawk
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Its a good idea to have some sort of an alert on when the tick chart reaches extremes(+/- 1000)
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Big ATR(average true ranges) expansions 9 times out of 10 lead to a dump, need to keep an eye on it
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If a stock breaks through its 10 ema on daily then it should provide more follow through in that direction
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Stocks always move to their support/resistance, you will have no idea what type of demand will show up when it gets there though and you need to watch it when it gets to that support/resistance area. If you start buying support and selling resistance you will start becoming a consistent trader. Stop buying supply, and shorting demand
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The horizontal lines(support/resistance) will be right more times than your gut, if you’re in a trade and its working and it gets to one of the HL’s then peel some off
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The third time price breaches an HL then it usually breaks for good
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In topping patterns you have to reduce your size and take your profits quickly.
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The longer the market takes to correct the steeper the correction occurs.
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When you’re first starting off its best to keep it simple and do just one style of trading, this will be difficult because it involves a lot of discipline and there will be days that you won’t put on a trade. but as you mature as a trader then you can branch out and do more styles of trading
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Contrarian trading against the market as a whole is generally not his style
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Its ok to marry one stock(i.e. ride the losses bigger than normal) as long as theres 1 of these max in your portfolio and you are doing it with a quality name(AAPL,GOOG, PCLN etc) don’t do this on a low float name
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Volume footprints of the institutions are key to know market top and bottoms
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If a gap is filled within the first hour of the trading day it will usually continue to trend in that direction for the rest of the day
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Momentum stocks do not reverse course after one day of trading, they take time to change direction
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Stick to your plan and let the market tell you what to do. Don’t panic when there are big gap downs(or gap ups if short)
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in Bull markets, they can be so strong that they leave gaps behind and don’t fill them completely
Stops:
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He sets a maximum of 8% loss on swing trades…thats his Max Pain on the trade. Even if he adds to a losing position he will still use the same max pain exit for the entire trade.
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How big his position is dictates how far he let it go negative
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You can have one gaping wound in your portfolio but no more than that(referencing his position in PCLN that he was down 20 points in – 7/12/12)
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On high priced, volatile stocks(like PCLN, CMG) you need to give room on the stop for the trade to play out. On a stock like PCLN you have to give it at least a 5 point stop or more. if you keep taking $3 to $4 losses on high beta/high priced stocks you won’t be trading very long. you need to give them more room. use ATR as a guide for the size of the stop
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If you’re in a losing position and the trade gets back up to flat, you need to reevaluate the position and decide what you would do if you were to get into that position new right there. If you would exit then get out if the stock looks setup then keep it on.
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You can’t trade GOOG with $2 stops, you have no business trading it if you can’t let it go $10 against you
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Having hard stops in between 11 and 2 pm eastern standard time is tough because liquidity has dried up. if you’re an experienced trader you can trade without stops but you have to have your exit points in mind. He is not a fan of stops on because you can easily get stopped out by one penny. If he has a longer swing trade on he likes to put on stops so that he doesn’t have to watch it as much, but if its a short term daytrade he prefers to not have a hard stop in there and manages it accordingly. He likes bracket orders for daytrading
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The larger the price target the larger your stop has to be on it. Don’t be cheap and put your stop too close to try and save money. Do a minimum of a 2 to 1 (reward to risk) on swing trades
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Doesn’t like to use trailing stops, 99% of time they get hit. Traders get greedy and don’t take their profits when they are supposed to(but in some circumstances they could be good…like if you’re away from the market and can’t watch it)
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Let price take you out on a stop. don’t overthink it and try and get out thinking it will hit that price soon. set and forget it type trading
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Usually about once a year he’ll get stung bad trying to buy the bottom or short the top. It happens to everyone, you have to get used to getting hit hard every once in awhile.
Entries:
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In order for him to trade a stock he has to be familiar with it, he won’t start trading it without knowing its history. He sticks to about 200 stocks that he knows. he doesn’t like cheap garbage stocks. he likes stocks that move with huge ATR’s(like PCLN) you won’t see him trading MSFT, CSCO that don’t go anywhere(the risk/reward is pathetic with those stocks). you’ll never see him trading a stock with average volume of 200,000 or less…needs more volume than that.
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Look for the bulls on the 10ema daily first, then the 20 and 50ema’s on 30min, they are going to be sitting on one of them. If the 50ema on 30min is lost then get out of the way.The 50ema on 30min is the most important.
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On the first touch of 100ema on the Daily chart its always good for at least a fade daytrade for a quick fast trade.
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All daytrades are taken from a swing setup and all swing trades are initial daytrades until they prove themselves to be held overnight.
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On heavy distribution days(like CMG today -6/28/12) you want to first see some signs of institutional support(like breaking a key resistance level) before jumping into a trade
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On big gap down days he looks to get long. These present some of the best trading opportunities. Odds are in your favor for a bounce and this has one of the best risk/reward setups.
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He’ll try to catch a knife(buy a stock that has dropped significantly) multiple times on a stock, but if he is stopped out 3 times then he is done trading that stock for the day. In falling knife plays he likes to jump in when it hits the first major support area, if it comes back to that area again then he suspects if that support will really hold
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Wouldn’t advise buying any stock 15 minutes before the close on a huge rally.
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If a level of resistance is broken you should first look for the next area of resistance, same if support gets broken…look for the next area of support
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Fibonacci lines are good to find levels of retracement after a big rally
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Premarket highs and lows are good areas to watch for resistance/support
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Usually does 3 hours a night researching stocks to prepare
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He doesn’t trade biotech stocks…they are too volatile and you need to do a ton of research to know what the news will do to your stock. you need to hold onto your few huge gainers for a long time to ride out all the other losses that you’ll incur trading biotech stocks
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After a stock gets crushed on EPS he usually likes to wait 5 to 7 days to see how it acts before jumping into any new positions with it.
Exits:
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He has a bracket order set up most times(on both day and swing trades) to take ½ the position off if it reaches $1 in gains. On more volatile stocks or better trade setups he will look for more before taking ½ off(for example, when trading PCLN he’ll sometimes wait for it to hit $4 gain before taking the first part off).On AAPL its usually a $1 target to take ½ off.
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He’ll exit a trade before the stop is hit if the stock doesnt move when the market starts to go. For example, he was in an AAPL long and the market started to rip today and AAPL didn’t go anywhere. Based on the weak price action he bailed on the trade.
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Potential targets are always based on where supply is
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Uses Fib levels in conjunction with kirby levels for targets
Position size:
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You need at the bare minimum of 50k to start trading. Leverage is what kills new traders(options, margin, futures). do only 1 or 2 day trades a week starting off
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Usually does 1000 shares on a trade but can get up to 3000 or 4000 based on the trade setup
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If he adds to a position its usually a one time add and for 1000 shares
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7 or 8 is the max amount of positions he will have at any one time, any more than that he won’t have the necessary focus he needs for each position
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Snowballing(adding to a losing position) is one of the quickest ways to blow up an account and should only be done by traders with many years of experience. This should only be done maybe 1 out of every 10 losing trades(if that). Snowballing is a tool that is within the traders toolbox. it can be used but don’t abuse it. There should be a max of just 1 snowball going at one time…never do more than 1 snowball
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He doesn’t just add to a losing a position, he waits for a support level to add more shares. He looks at the stock from a neutral standpoint(if he wasn’t in the position already) and only adds if he would normally enter into the stock at that point
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On big gap ups don’t trade with large size if you are trading in the direction of where it gapped. If you are fading the gap then its ok to go with size if that is a part of your strategy.
Layout:
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The two platforms he uses are ThinkorSwim and Esignal
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Uses 6 monitors to trade, he feels anything less is not enough to keep an eye on the market and trade multiple stocks simultaneously
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Uses mainly the 20, 50, 200 exponential moving averages on the intraday charts(30min, 5min), and uses the 20, 50, 200 simple moving averages on daily
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He doesn’t use moving averages on the 1min chart. The 5min is important though for moving averages. The 50 and 200 moving averages on the 5min for spy is extremely important
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Uses tradethenews.com for about $300/month, likes to have real time news to just get out of positions if there is a surprise news alert…uses as a insurance policy really. Its good to know what the news really is when a big shock happens in the market. he tried flyonthewall but found out tradethenews is way better.
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Finds all the moving averages, vwap…everything more reliable with the afterhours data turned off
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The dotted green lines on his charts are the kirby pockets. After time they may seem that they are in the middle of nowhere and that is because price action has traded through them since they were put up on the chart
Options:
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A quick way to lose your money, doesn’t like to trade them because you’re giving up the gift of time to let the stock work. With options they generally have to work right away or they won’t work at all. Time/patience is one of the greatest assets a trader can have.
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Doesn’t mind going $10 to $20 out of the money in options for a swing trade.
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If you’re daytrading options you should be trading weeklies and only in the money options…you want high delta options for daytrading
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Wouldn’t really do options on PCLN, CMG because of low liquidity….stick to AAPL, AMZN for options
Currencies/Commodities:
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Doesn’t trade currencies.
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Looks mainly at the U.S. dollar and the AUY/YEN(both highly correlated to the US equity market) for possible tells on the market
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Don’t ever chase gold, always have to buy blood. you need extreme patience to trade it. you have to buy it when nobody else wants it
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The IYR(ishares – Real estate) is a phenomenal tell on the market, its movement usually precedes the movement in the SPY. It can be a canary in the coal mine if it starts acting weak when the market hasn’t broken down yet
AAPL:
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AAPL usually shakes 3 weeks prior to earnings but then will start moving(usually to the upside) 2 weeks prior to earnings
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AAPL is one of the best stocks to use the 20,50 and 200 emas on the 30min
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Sometimes he’ll buy AAPL calls for an earnings play and wont micromanage it. He uses small size for it and considers it sunk cost if it doesn’t pan out.
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It takes days to digest a big gain in AAPL sometimes it takes weeks
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If you’re going to short a stock like AAPL, wait for it to have a huge run first then short it…don’t short it at the lows(won’t have a good r/r). Wait for it to get back up to an EMA(like 10EMA) on daily chart that it hasn’t touched in a while
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Normally buys AAPL with a 1k block(1000 shares)
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Looks at time and sales to see if there any big blocks going through to get a feel of where the stock is heading
Psychology:
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The most important things during the trading day are discipline, and control of emotion
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Gtotoy quote – New traders have got to stop trying to make money. It is sort of like that girl you know who really wants a boyfriend.The harder she tries to get one, the more she obsesses about landing one, the worse her chances. We all know we meet the people we were intended to be with by just living our lives.Trading is about skill development and discipline. Great traders make money because their trading playbook is stacked and they are constantly expanding and improving it. Money, P&L, is just an outgrowth of a killer playbook.
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When you can learn to separate money from trading your P&L will start to get better. Stop focusing on the money and do your job. money will come later…do your job to the best of your ability
