This post was contributed by a guest author, and does not necessarily reflect the views of Richard or MovetheMarkets.com

So I had a trading identity crisis today in VMW. I sized it up on the 15 min chart, seeing a gap up, retrace and then a high volume green candle. I thought it could get to $79.50 with some luck and a good uptrend day (alas, it was not to be):

My entry was poor. Far removed from the 5-ema, I was chasing rather than taking a conservative entry. I got lucky that I didn’t top-tick it and it went up more. I took my 15′ target and used a $1.00 stop, and watched on the 5 min chart:

This chart shows my late entry. Once up 1R, I moved the stop to breakeven. My $1.00 initial stop was sized to allow me a significant swing. I was setting up for an all-day trade, if it took that long to hit my target. Then, I got punchy watching that 5 min chart and seeing the NR7 candle at 11:00. I thought that we might be stalling out. Did I sell there? NO. I raised up my stop to $76.50 like some kind of schizophrenic dual personality patient. I wanted to play it like a momo scalp on the short timeframe by raising my stop, but also like a long-term intraday swing trade by letting it retrace a bunch. Instead, I got out pretty near the worst-case price that VMW offered during my trade.

My trade would have turned out better if I had either taken it all at the pause in momentum (a break of the low of the NR7 candle) or if I would have just held with my stop at breakeven. I would have gotten a better exit price either way. However, my position was small since I was playing with that $1.00 initial stop, so I should have stuck to that plan. If I was scalping, I should have taken a much tighter stop and a bigger position, and got out at the NR7 when price paused. Or, if I were intraday swinging, I should NOT have trailed my stop but left it at breakeven.

My takeaway is that it’s easy to mix up and change timeframes during a trade based on what we see, or think we see. The best thing to do is formulate a trade plan, and STICK WITH IT. As a trader, if you’re mechanically scanning for setups and simply taking the signals and executing a defined system, it’s easier to execute and stick to it. But if you trade in a discretionary manner, you have to triage every stock you come upon, and come up with a plan on the spot. Trade it, or not? Which direction? What timeframe? Size the position. Exit criteria / target? What type of move are you shooting for? Then, as the trade progresses, you have to check and recheck according to this plan, and change and adapt as necessary. It’s easy to let your initial triage diagnosis and prescribed action get modified, especially if you watch a different chart than the one that your decisions were based on. Note that watching the stock for symptoms and taking appropriate action is different than changing the plan. If I were momoscalping, I should have watched for a stalling, and bailed. The swing should have been watched if it reached the target or not. But the nature of the move I was stalking shouldn’t have changed! I hope that is making sense…

All of this has to occur very quickly, in a matter of seconds sometimes. You have to make a decision and act. The ability to do this right comes with experience. It can’t be studied or book-learned. So my advice to newer traders is to stick with one timeframe chart for a trade. If you pick a setup on the 1 min, stick to it. If you see something on a 15 min, watch only that chart. Then you will be less likely to change your strategy based on a change in paradigm, rather than a change in actual market circumstances. It’s best if total newbies trade a mechanical system, watching and learning about price action in the meantime, IMO.

This post was contributed by a guest author, and does not necessarily reflect the views of Richard or MovetheMarkets.com

This post was contributed by a guest author, and does not necessarily reflect the views of Richard or MovetheMarkets.com

Last week I tried trading without my training wheels. I removed everything but volume, and tried to determine what the market was doing. I had mixed success, but didn’t blow up or anything.

On Thursday I was searching the net for information on the Darvas Method. I ran across one of the more thoughtful posts on ET.

To quote Duref Mudgins, “NOTHING FUCKING WORKS ALL THE TIME. WHEN IT WORKS, YOU USE IT. WHEN IT DOESN’T, YOU LOOK FOR WHAT IS WORKING.”

The main reason the training wheels worked for me was that it kept me on the right side of the trend. So this week, I did my best not to fight the trend. Let’s see if next week, I can do a better job of riding it out.

This post was contributed by a guest author, and does not necessarily reflect the views of Richard or MovetheMarkets.com

This post was contributed by a guest author, and does not necessarily reflect the views of Richard or MovetheMarkets.com

A physical phenomenom embodying both these formulations of the Drunkard’s Walk is the meandering of a river. Looking at the aerial photograph of any river in the world, you can see that there are places where the river path is more or less random and other places where the meanderings have a distinctive wavelike pattern. The explanation for these patterns is that the river is attempting to maintain a constant slope on its path to the sea, following the path of least resistance for the conservation of energy. The river attempts to maintain the constant slope by weaving to and fro in a manner similar to a skier maintaining a constant speed as he comes down the mountain. Taken in aggregate, the meanderings are not related to each other and are, therefore, random. However, if you are in a boat on any given meandering, it appears to be coherent and you can pretty well predict where the river is headed for a short distance.

THE IMPORTANCE OF PHASE

How does this help us see a Trend Mode? Easy. By reverse logic. In a Trend Mode, there is no cycle, or at the very least, a very weak one. Therefore, there is no rate change of phase. So, if we compare the rate change of measured phase to the theoretical rate change of phase of the weak dominant cycle present in the Trend Mode, we get a correlation failure. This failure to correlate the two cases of the rate change of phase enables us to define the presence of a trend. Because we know that we have a trend, it is easy to set our strategy to a simple buy-and-hold until the trend disappears.

This post was contributed by a guest author, and does not necessarily reflect the views of Richard or MovetheMarkets.com