As the year winds down…
Santa Clause rally is in full swing with a large number of stocks leading the advance. The strength should continue in the year end.The year has been largely dominated by don’t fight the Fed theme. Every time there was even a minor correction in the market the Fed aggressively intervened either through policy or verbal intervention. That put a floor under the market and made life difficult for the short sellers.As the year comes to end it is time to reflect on what really matters in the market. While Fed is important, at individual trader level it does not matter. What matters most is having a setup and well though out method and shutting out the macro noise like Fed and most of the BS …
via stockbee:
The year has been largely dominated by don’t fight the Fed theme. Every time there was even a minor correction in the market the Fed aggressively intervened either through policy or verbal intervention. That put a floor under the market and made life difficult for the short sellers.
As the year comes to end it is time to reflect on what really matters in the market. While Fed is important, at individual trader level it does not matter. What matters most is having a setup and well though out method and shutting out the macro noise like Fed and most of the BS that is written about the economy.
What you make money out of is a setup idea with ability to give you positive return over large number of trades. If setup works you make money. There are many possible setups a trader can trade. The most important thing is is your setup profitable.
Let us look at two setups ideas I traded this year: one was based on earnings breakout and the other is a breakout setup. The earnings breakout setup looks for stocks with neglect that had surprisingly good earnings and buys on day of earnings. This is a setup I have extensively described on this site and has been trading for over 13 years. The breakout based setup is primarily a swing trading setup that looks for momentum bursts of 3 to 5 days and 8 to 20% magnitude. The average holding period in this setup is 3 days.
The earnings related setup has in hypothetical 100k account has 8.45:1 ratio of profitability. Or in simpler term average profitable trade has been $3417 and losing trade has been $404. Largest loss on any trade was 600 dollar and the largest profit was 24500 dollar. 73% of the trades were profitable. Only 17 trades were taken under this setup in the year. This is a very infrequently traded setup and has currently has open trade in FB from a price of around 33.4 and XIV from around 24.5 price, so final profitability ratio might be much higher than 8.45:1. The setup by year end given current prices on open positions would give returns upwards of 40% with extremely conservative position sizing. Those who risked higher per trade have much higher returns for the same number of trades. This setup is primarily focused on Working People who do not have time to do active trading. Most positions are held for months or weeks.
This is a setup idea which does not depend on Fed action or any other macro variables. Every year you will find stocks with months or years of neglect that will suddenly surprise the market and go on to make big move. If you understand the setup and develop process flow for trading this you can find a profitable method that you can exploit for years. If you are serious about making money in 2014 and beyond then a setup like this can offer you life long profitable opportunities.
The swing trading related setup based on momentum bursts is a frequently traded setup and produces hundreds of trades in a year. By its very nature it is a short term setup so its profitability per trade or profitability ratio reflects that.
The ratio of Average Winner to /Average Loser in the setup was 2.26:1 for the year as of today no counting open trades. In dollar terms average winning trade produced profit of 818 dollars while losing trade produced loss of 362 dollars. Win/loss ratio was 50% (50% of trades were profitable). This kind of setup requires taking hundreds of trades. More trades you take in this kind of setups the better it is as that increases profitability through compounding.
None of these setups or many other setups used by profitable traders are like this. They produce profit over sample of trades , in this kind of trading approach individual trade does not matter as long as you keep following your setup. Profit happens because the setup works.
If you are new to trading or struggling, the most important thing that will make you profitable is to shut off all noise like CNBC, Stocktwits, Twitter , Yahoo Finance message board, or newsletters and so on and just focus on mastering one or two setups. If you focus on setups you will have profitable 2014 , but more than that you will have many profitable years. Setups once mastered become your tool to extract money from the market for rest of your life.
If you are serious about making money then don’t look for stocks picks and hot tips but look for profitable setup ideas. There are thousands of newsletters, gurus, blogs , and sites offering you hot stock tips, but what you need is a setup and not tips. Because once you learn setups you can generate your own hot picks.
Most important thing in trading is setup selection. ….
Have a Merry Christmas…..
For more info: As the year winds down…
As the year winds down…
The post As the year winds down… appeared first on FX FOREX.
via WordPress http://www.evvi.net/3800/trading/as-the-year-winds-down.html
Trading, average, christmas, clause, count, finance, market, setup, setups, tool, trades, trading
Nessun commento:
Posta un commento