Learnings

I've been more apt to learn from traders who are trading successfully, and if I can relate to how they trade, that makes it even better. So, I'll share with you some of the things I've been learning the past 2 weeks about trading.

1. Compression patterns are beautiful. You can use these to set your stops as well as to enter trades. Compression patterns (or consolidation) are rectangles, ascending/descending wedges, pennants, flags, stairsteps.

Example: I played AAPL earnings by jumping into the trade as soon as I saw a direction at the opening. It looked like it was going up. My stop was at the low, about 134.90. As time went by, it began consolidating into a rectangle. If you use Bollinger Bands, this is known as a "Squeeze Play" where the BB's began pinching. At that time, I should've moved up my stop to $136. If it broke below this pattern, then I needed to get out of my AAPL Calls and switch to puts.

I didn't do that and waited until it went below $134.90. This defnitely cost me more money and I think I was doing something else at the same time, so when I got out, it was actually probably around $131. Not good and this was definitely a bigger cost than it should've.

2. Trade Neutrally. There is no up is good and down is bad. Learn to play both directions or even sideways movements. If your criteria is met to get into or out of a trade, execute it. But, your criteria better make good sense.

3. Moving Averages. I'm starting to use these more now, especially intraday. Another super trader shared with me that he uses the 20, 50, 200 EMA. I also use the 10 EMA. You have to play with this on various timeframes to see how this goes. I've been trading BIDU and find that it likes to use the 200 EMA to bounce off of for an uptrend and to come up against in a downtrend.

Now, don't go taking that and doing exactly that. I also look at volumes and know how to read a price chart, so you have to take these things into account and where you are (meaning where the stock is trading).

4. Volume. This is very important. If you're at a support, volumes are high on selling but the stock cannot seem to go lower, perhaps you're at a support. It might be a great time to get out of your puts or shorts and begin buying calls. Once again, some common sense has to be in place. For resistance, I've noticed that volumes decreasing, and the stock's inability to push higher. That may be a good indication of resistance being reached.

Remember, this is all relative with the timeframes you're using.

5. Timeframes. In intraday trading, I like to use the 1 min, 5 min, 10 min, and Daily. Sometimes I will use 3 min. Daily gives me a big picture of what is happening. The moving averages look different in each timeframe and you need to understand how your particular stock moves with these.

6. Market Orders. In stocks that move a lot in a short amount of time, like BIDU, GOOG, CME, if you want to quickly get in, use market orders. Don't screw around with getting in the spread, though the spread can be quite wide.

Example: I took 1 contract on BIDU at open today for market. Not sure how much that was at the moment. Got in immediately. It just really took off from 275 to 297 within the first 45 min. of trading. Not sure what price I got in without going back to my trading account, but guessing it was about 277. My target was 300 and then 310 (this is based on the pattern of BIDU trading). I didn't feel like 297 was enough for BIDU from how it trades, so I thought it could go for 300, as that's so close.

As it began pulling back at 297 and getting close to where the 10 and 20 EMA were crossing on the 1 min, I figure that was a good time to get out. Since it rose $22 in such a short amount of time, a pullback seemed reasonable and I just wanted to take my profits off the table. My position, which I think I got the Feb280C around $25/contract had about $1200 profit. That was just near 50% in less than an hr on my ROI. But, because I wanted to get in the spread, that took a few minutes and by the time I realized it was going down too fast, I just got out at market finally. Made $700, but it cost me $200-350. Yes, I would've gotten the worst price at market, but that would've been about $40-80 depending upon what the spread was at that time.

Here's a situation where wanting to save $20-40 or so dollars per contract cost me $200-350 of potential profits. Doesn't make sense, does it?

So, if there is a lot of action going, just suck it up and do market orders to get your fills quickly with fast moving, high priced stocks.

I did do this right with getting out of my 2nd trade for BIDU for the day.

7. Backtesting. Practice what you actually want to trade in the timeframe that's right for you. If you want to daytrade, daytrade real time in a real trading account with papermoney. Don't use real money. I can't begin to stress this enough.

8. Focus. This one has been a biggy. What I'm finding out is that it's a challenge to trade many stocks and to trade them well. For now, I'm just going to trade ONE stock and that's going to be BIDU. The movements are huge often and even within a $10 range, if you buy ATM (at the money), you can make good money on 1 contract. Today I got to just make enough money on 1 contract to equal 4 days as a senior level engineer. That was 2 trades. And, that's not playing the trades perfectly. If I had, my profits would've been more than double.

There's more to share, but my son is tossing things around the house and a big distraction.
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