Leonarbull Trading Journal: "Only price pays"

Wednesday, November 19, 2008

"Only price pays" - Brian Shannon

Source: afraidtotrade.com

This picture of the S&P today just show that only price pays. Even though, pre-today action showed a very positive divergence on the bottom indicator (indicating a rebound), ultimately it is PRICE STRUCTURE that determines the direction of the market. Notice the BROKEN SUPPORT, the failure to break the CONTINUATION OF THE NOVEMBER DOWN TREND LINE, and the severity of the BEARISH CANDLE + INCREASE IN DOWNWARD VOLUME leading to today's action. NO INDICATOR is more power than price.

Now the broken 850 level will become resistance and it would be difficult to break that.

RULES (RISK MANAGEMENT = JOB # 1)

"Where has the stock come from and where does it have the potential to go?" - risk/reward - Brian Shannon
Trading is about trading one-good-trade repeatedly while having a positive expectancy. It should never be about money. It should only be about the process of making one good trade at a time.
a level is like a mattress - keep sizing and emotion in check
Learn the right moments to sit in cash and you learn how to become consistently profitable. No points are handed out for over-trading - DanZanger
Price patterns/consolidations/trends = size; no patterns/morning before 10am/non-trending = small size & scalps only
Keep loses/stop losses to a fixed dollar amount everytime
Morning/First 30min only for scalping and opening drive plays. Then look for bigger trend plays after
Always give benefit of doubt to the CURRENT trend in the timeframe you are trading. Prior resistances/support are only points of reference for concern
No pattern or consolidation = scalp trades only
What are the important levels/inflection areas? Always and ONLY trade off of important levels.
Stay away from non-moving/non-active/unclean looking names
Never gamble on earnings (technical analysis only works best when there's less unknown external variables)
You only need one setup to be a profitable trader - most of all you need to apply your method CONSISTENTLY.
i can always get in again
get out when: 1) trend breaks; 2) level breaks/reversal bar
when trade hits stop get out, period! a predetermined stop is non-negotiable
trade with the trend; only scalp with small size on counter trend moves; trend change should be preceded by distribution/accumulation patterns before committing bigger size
be patient and let the setup/price pattern show itself first
other's opinions are only IDEAS at best. Enter on your own intuition uninfluenced by others
always think in terms of "if..then" statements
be objective. trade what the price is telling you.
it's all about the entry; always have a plan in terms of risk/reward before entry; aim for at least 3 reward to 1 risk
Short into short spikes of a continuation pattern (vice versa for long) See "Akam short" post. Get out immediately if price violates last high. Keeps losses small and builds positions in the direction of main trend.

Trend Breaks:

Higher probabilitity if price is over extented from vwap + showing reversal patterns + hitting resistance
Ask: where does price needs to breakthrough and hold for trend to show signs of weakness and ACTUALLY breaks down. Keep basic trend definition + topping/bottoming patterns in context
a level is a mattress - keep sizing and emotions in check
scale into (small size) momentum wicks just above the candle of 1st green candle for momentum reversal trade
A trendline break doesn't mean price is going down. It may consolidate and go higher. Know your stops and risk/reward
More size in the direction of the main trend; scalp with small size if counter trend
Only at key inflection points after price has turned. React, never anticipate
REMEMBER: you always get back in again! MANAGE RISK
Share size depends on importance of inflection point. Half immediately at breakdown or price showing weakness/strength. Half on retracement to breakout/down area
Get in/add on first retracement; Scale out more when price becomes steep
Stop at prior high before breakdown/low before breakout. Or price consolidates in wedge against your position.
Always draw new trendlines.
Scale out into strength/weakness; 1st scale to make the trade a breakeven trade

the bookshelf

7 Commandments of Stock Investing - Marcial
Ahead of the Market - Zacks
An American Hedge Fund - Sykes
Contrarian Ripple Trading - McNamara, Brozyna
Encyclopedia of Chart Patterns - Thomas N. Bulkowski
Essentials of Financial Analysis - Friedlob, Schleifer
Extraordinary Popular Delussions and the Madness of Crowds & Confussion de Confusiones - Mackay, De La Vega
Financial Analysis - Harrington
Fire Your Stock Analyst! - Domash
Full of Bull - McClellan
Getting Started in Technical Analysis - Schwager
High Probability Trading - Link
Hit and Run Trading - Jeff Cooper
How to Make Money in Stocks - O'Neil
How to Make Money Selling Stocks Short - O'Neil
Japanese Candlestick Charting Techniques - Nison
Liar's Poker - Lewis
Mad Money - Cramer
Market Wizards - Schwager
One Good Trade: Inside the Highly Competitive World of Proprietary Trading - Mike Bellafiore
Real Money - Cramer
Secrets of Successful Traders
Sell & Sell Short - Elder
Short-Term Trading in the New Stock Market - Turner
Stay Mad for Life - Cramer
Stock Market Wizards - Schwager
Super Stocks - Fisher
Technical Analysis Explained Fourth Edition - Pring
Technical Analysis From A to Z
Technical Analysis of Stock Trends - Edwards, Magee
Technical Analysis Using Multiple Timeframes - Shannon
The Alchemy of Finance - Soros
The Disciplined Trader: Developing Winning Attitudes - Douglas
The Great Game - Gordon
The Intelligent Investor - Graham
The Investor's Guide to Technical Analysis - Renz
The Neatest Little Guide to Stock Market Investing - Kelly
The New Day Trader Advantage - Markham
The Secret Code of Japanese Candlesticks - Tudela
The Warren Buffett Way - Hagstrom
Tools and Tactics for The Master Day Trader - Velez, Capra
Trade to Win - The Psychology of Mastering the Markets - Ari Kiev
Trend Following - Covel
Understanding Corporate Annual Reports - Stanko, Zeller
Understanding Wall Street - Little, Rhodes