Teach Talk Trade Day Trading & Technical Analysis

Trading Tips in this Volatile Market….

 No matter what the trading  environment that you are in, all good traders know that the key to staying in the  game is maintaining a good risk & money management strategy. While most traders will simply define risk management as “loss control”, there is really more to it. Risk management should be the constant modulation of risk exposure to a constantly changing market. What is this exactly?

Most traders will set their entire risk management strategy to setting and adhering to “stop losses.” But this falls far short of what risk management really is. Risk management strategy just using simple stop losses would be equivalent to saying “I am safe in my car because I have brakes.” Needless to say, the “brakes” are only part of an entire system of managing risk in a constantly moving environment such as street traffic. The markets are similar to the streets. There are far more actions we can take to minimize risk besides the brakes: there is steering, controlling the throttle, the path you take, “your trip preparation,” mapping your route, the times you drive, the amount of driving you do, not driving while “under the influence,” there are so many factors that affect risk levels, that we cannot possibly reduce the entire risk control strategy down to “brakes,” or in the case of trading, “stop losses.”

How we make and lose money is the end result of our interaction with the market. If we do not interact, we neither win nor lose. If we interact too much or too little, we assume higher levels of risk. Risk management should be the constant “adjustment” of our risk exposure based on market conditions and our very own performance.

How can you modulate your risk exposure? There are 3 primary ways:

* SIZE: How large or small our positions are, based on our account values. The more we expose our account, the “larger” the exposure.
* FREQUENCY: How often we are in-and-out of the market. The more frequent we trade, the more we are exposed to the markets motions over time, the more risk we assume. Also, commission costs become a factor that significantly affects risk levels as we increase frequency.

* DURATION: The longer we are in each trade, the more opportunity the market has to travel, the higher our risks will be.

To properly modulate your risk you have to assess and adjust all three areas of exposure - size, frequency and duration. As you increase one, you must compensate by lowering another.

The biggest single error most traders commit is to place too much of an emphasis on one area of risk exposure while ignoring the other areas. In the end, by ignoring some of the other exposure areas, a trader is left watching his trading account dwindle in size as the losses mount.

Please take advantage of the FREE 7 DAY TRIAL to The Morning Call ( we discuss 21 futures, ETF’s, E-minis, NASDAQ & Solar & Alternative Energy issues ) & The Mechanical Monkey where we discuss our mechanical trades.

The ideal trading system would be one that trades without emotions.  This means that you have to develop a systems that gives you the odds, in the long run, to have a profitable trading system.  Online trading systems that take the emotion out are called mechanical trading systems.  I think that you still need some emotion in trading but  the great traders channel this emotion into competitiveness.  Most are very competitive in nature and these traders work on their systems, their risk management and work their online trading plan.  They keep their emotions out of the plan they have developed and follow the plan.  Teach Talk Trade has mechanical plans that help take the emotion out but many still try to second guess the plan.  These traders try to justify their reasoning once in the trade to take a smaller loss or lesser of a profit.  You can not and will not influence the market.  The market will do what it is going to do, you need to continually assess the markets and put the probabilities in you favor with your online trading plan.  You will have losing trades as part of you online trading plan, and if you don’t then  I will tell you that your online trading plan is pie in the sky.  Accept losses as part of the business, this is difficult to do, and learn from them.  You will not eliminate losses, so embrace them, learn from them, and know that the profitable trades are around the corner.

Please take advantage of the FREE 7 DAY TRIAL to The Morning Call ( we discuss 21 futures, ETF’s, E-minis, NASDAQ & Solar & Alternative Energy issues ) & The Mechanical Monkey where we discuss our mechanical trades.

Online trading can be a lonely experience for the beginning trader. You will be searching for knowledge and will feel isolated. You will soon have the feeling that you just might have no ideas what you are doing. Online trading can be addictive also. You find yourself glued to the screen for 8 hours or more. Try this for a few weeks and you will see that it is draining. If you end up like most people, they will gravitate to an online community for companionship and education. In the future, the Teach Talk Trade Live Trading Room will let you interact with other experienced traders. We have the whole array of traders in our community, from beginner to advanced trader. We are all their to learn and to give support. You will find that being in a trading room like this one, you learn a great deal by watching and listening to experienced traders as well as asking questions and interacting. You will get to see the different styles of trading , thus being able to decide on which style may fit your personality. You should be exposed and explore the different methods of online trading - swing trading, position trading, day trading ect… Loneliness will rear its ugly head especially when you are experiencing losing trades. Boredom can also cause a lack of focus as well as overtrading. That is when many start to abandoned parts of their trading plan which begets more fear and losing trades. Your emotions start to take over your rational trading plan based upon probabilities and you start gambling trying to make up the losses. Teach Talk Trade can help you will all these issues.Please take advantage of the FREE 7 DAY TRIAL to The Morning Call ( we discuss 21 futures, ETF’s, E-minis, NASDAQ & Solar & Alternative Energy issues ) & The Mechanical Monkey where we discuss our mechanical trades.

Monday, 31-Dec-2007

Wednesday, 02-Jan-2008

Thursday, 03-Jan-2008

Here I will talk about risk management in developing an online trading plan.  One area is position sizing.  Yes position sizing, do you hear me POSITION SIZING!  You have heard in real estate, location, location, location, well one mantra in online trading is position sizing.  In working your online trading plan, you will back into this area.  If you plan is realistic in its overall scope, your position size will be determined by  the plan and not some size out of your head.  When your position size is too large relative to your account size, you will engage on an emotional roller coaster.  Your online trading plan will crumble fast.  By limiting your  position size so that you are risking only a small fraction of your online trading portfolio on each trade, you are managing the emotional impact of profit and losses as well as managing your risk.  This is a part of money management also.  Many online traders are under capitalized and trade sizes that are too large for their portfolios.  They do this to generate income, their trading plan is most likely not thought out.  The emotional ups and downs will eat the trader alive, thus causing poor risk management which leads to lossesPlease take advantage of the FREE 7 DAY TRIAL to The Morning Call ( we discuss 21 futures, ETF’s, E-minis, NASDAQ & Solar & Alternative Energy issues ) & The Mechanical Monkey where we discuss our mechanical trades.

Most people do not know where to start in writing an online trading plan. I believe the that most who are entering the market should first start with education. They need to learn the markets. It is so easy for any one to start an online trading account these days. It should be like any other job. The typical person who wants to be a plumber, usually starts out tinkering with plumbing as a child, learns by watching a family member or friend, then starts an apprenticeship program and schooling , gets his/her plumbing license and becomes a plumber. A typical trader has some interest in the market, plays hot tips and loses money. You should approach the markets with an interested first, then education and apprenticeships and then you are ready to trade on your own. Here at Teach Talk Trade, we help you build that solid foundation of education, offer areas where you can apprentice and then trade with us on your own. Well back to that online trading plan you should write. Get familiar with the markets and get some education first. Online trading is available to virtually anyone. It is then that you will get a sense of the markets and see what might work for you. You will better understand your strengths and weaknesses and realize what might work for you. At this point you can start writing a trading plan, and yes it is important to write it down. You will be best served to write a plan from the top down. From what your yearly goals are, to monthly, weekly and then daily. You will need to write down what markets you will trade and how you will trade them. Teach Talk Trade has many articles that can help you with the process as well as training sessions.
Please take advantage of the FREE 7 DAY TRIAL to The Morning Call ( we discuss 21 futures, ETF’s, E-minis, NASDAQ & Solar & Alternative Energy issues ) & The Mechanical Monkey where we discuss our mechanical trades.

We get a lot of questions about various complex money management (MM) formulas and our preferences. We don’t comment on this subject very often because money management is such a personal issue that it would be impossible to give any universal advice that would be specific enough to have value. Everyone seems to have different goals and tolerances for risk, not to mention varying amounts of capital for trading. However we do have some basic thoughts and opinions that might be helpful in picking a suitable MM strategy that will help you to become a winner.

Be careful about trying to use formulas that are designed to optimize the returns. In my experience I have found that the most successful traders, over the long run, are not seeking to maximize their returns. The best traders are always seeking to carefully control their risks and to achieve as much consistency as possible. They look for methods to achieve consistent returns with low drawdowns and they are willing to accept smaller returns in the process. My policy has always been to worry about the risk and the consistency first and then to accept whatever returns that prudent approach will allow. I’m sure I will never win any trading contests and I have never bothered to enter one. In my opinion, no one should ever trade like the winner of a trading contest. I apologize for getting off on a different subject here. Lets get back on track and talk about trading in the only contest that matters - the trading that you do every day.

In recent years the strategy of risking a small percentage of capital on each trade has become quite popular and deservedly so. This MM strategy, often referred to as fixed fractional trading, reduces our dollar amount of risk as we experience losses and increases our risk level as we earn profits. The possibility of ever going to zero with such a strategy is virtually nonexistent. However this strategy has an inherent weakness that tends to constantly work against us. If we assume an equal number of winners or losers in a sequence this popular strategy produces net losses if the winners are not larger than the losers. To keep things very simple lets just look at a series of five wins followed by five losses with the wins being equal to the amount we risk. Lets also keep the math really simple and begin with starting capital of 100 and risk 5% of our current capital on each trade. I think that most traders would assume that if they had five losers followed by five winners they would be even. Unfortunately that is not the case.
Please take advantage of the FREE 7 DAY TRIAL to The Morning Call ( we discuss 21 futures, ETF’s, E-minis, NASDAQ & Solar & Alternative Energy issues ) & The Mechanical Monkey where we discuss our mechanical trades.

Every trader wants to make money, that is why were are in the game. Even the very best traders realize they will have losing trades. Losing trades is part of the business and you need to get your head around this. If you are playing baseball, would you expect to get a hit everytime at bat, of course not. Very good hitters have a batting average in the 300’s. Just think what is considered very good in baseball, getting a hit 3 out of 10 at bats, 30% of the time, would be considered terrible in trading. But wait, could a 30% wining record be good in trading?

Well lets see, if you had a system that had a probability of 30% wins and 70% losers could it be a great system. This would be a hard sell to most people. But if you think in probabilities and odds it just might be a good system. Lets say your wins produced an average of $3000 for each win and a loss of $1,100 on each losing trade. Well this system over the long run would produce a gain of $130.00 for each trade, not bad. You see though, you would need the fortitude to emotionally lose most of the time and have losses of $1,100 each time. This would be difficult for the amateur trader. A trader with a $5,000 starting account could not even think of using this system since it may wipe the trader out before a profit. Even a $10,000 account would be too small in my opinion, the capital at risk would be too large.

This trader could experience 11 losses before a win also. Losing trades are part of the business. Teach Talk Trade can help you develop a system that fits your
style. Teach Talk Trade can show you the tools you need to be successful. TTT educates you, we teach you how to develop and test for yourself. There is no Holy Grail, no system that is 100% successful. After a long testing period, every trader should evaluate their statistics to find their edge. What percentage of trades are profitable? What is the average winning trade? What is the average losing trade?

What is the average profit per day? What is the equity curve? What are the potential drawdowns. Testing a trading system is a gradual and painstaking process. By paper trading, the trader can develop his/her skills and evaluate a trading system. The next step is trading minimum size positions and testing system results. You need to keep well within your risk tolerances at this stage so that you can learn the system, and control your emotions. Keeping a trading diary and tracking performance as the system develops can establish the system’s edge and odds of success. Keeping a journal is a MUST on Teach Talk

Trades list of successful things to do. By keeping a trading journal, the online trader can assess the trades and performance which will help you become a professional trader.Please take advantage of the FREE 7 DAY TRIAL to The Morning Call ( we discuss 21 futures, ETF’s, E-minis, NASDAQ & Solar & Alternative Energy issues ) & The Mechanical Monkey where we discuss our mechanical trades.

Monday, December 10, 2007                            

10:00 AM ET. Oct Pending Home Sales Index (previous +0.2%)

Tuesday, December 11, 2007                           

7:45 AM ET. Dec 8 ICSC-UBS Chain Store Sales (previous +2.0%)

8:55 AM ET. Dec 8 Redbook Retail Sales Index (previous +0.3%)

10:00 AM ET. Oct Wholesale Trade Inventories (expected +0.6%; previous +0.8%)

5:00 PM ET. Dec 9 ABC/Washington Post Consumer Confidence Index (previous b24)

N/A Dec FOMC meeting; interest rate decision expected around 2:15 p.m. EST

Wednesday, December 12, 2007                         

7:00 AM ET. Dec 7 MBA Mortgage Application Survey Refinancing Index (previous +31.9%)

8:30 AM ET. Oct Trade Balance, in dollars Deficit (expected -57.5B; previous -56.45B)

8:30 AM ET. Nov Import Prices

                      Import Prices (expected +2.4%; previous +1.8%)

10:30 AM ET. Dec 7 US Energy Dept Oil Inventories

                      Crude Oil Stocks (in barrels) (previous -7.9M)

                      Gasoline Stocks (in barrels) (previous +4M)

                      Distillate Stocks (in barrels) (previous +1.4M)

2:00 PM ET. Nov Federal Budget, in dollars

                     Budget, on year (expected -83.6B; previous -55.6B)

Thursday, December 13, 2007                          

8:30 AM ET. Nov PPI

                      PPI (expected +1.5%; previous +0.1%)

                      PPI Core (expected +0.2%; previous 0%)

8:30 AM ET. Nov Retail & Food Sales

                      Overall Sales (expected +0.6%; previous +0.2%)

                      Sales, Ex-Auto (expected +0.7%; previous +0.2%)

8:30 AM ET. Dec 8 Jobless Claims

                      Weekly Jobless Claims (expected 335K; previous 338K)

                      Weekly Jobless Claims Net Change (expected -3K; previous -15K)

                      Continuing Jobless Claims (previous 2,599,000)

                      Continuing Jobless Claims Net Change (previous -59K)

10:00 AM ET. Dec 1 DJ-BTMU Business Barometer (previous 0%)

10:00 AM ET. Oct Business Inventories

                      Total Inventories (expected +0.3%; previous +0.4%)

10:30 AM ET. Dec 1 US Energy Dept Natural Gas Inventory

                      Natural Gas Stocks (in billion cubic feet) (previous b88)

Friday, December 14, 2007                            

8:30 AM ET. Nov CPI

                      CPI (expected +0.6%; previous +0.3%)

                      CPI Core (expected +0.2%; previous +0.2%)

9:15 AM ET. Nov Industrial Production

                      Industrial Production (expected +0.2%; previous -0.5%)

                      Capacity Utilization (expected 81.75; previous 81.7)

Using and Understanding Trailing Stops

Once you get in a trade you hope the price immediately starts moving in your favor.  If so, you need to execute your plan, and if this includes trailing stops, then put your plan into action.  there are a couple of ways to do this.  With online trading it is easy to use a trailing stop that is continually modified according to the price action.  Lets say your trading plan calls for a $.50 trailing stop.  When you enter the order you will initiate the trailing stop which will be $0.50 below the entry price, As the price moves up your trailing stop will also move up.  In the purest sense, you would just leave this stop in until you get stopped out.

If your trading plan includes moving a stop up to a breakeven level after a certain profit level, then you would put in an initial stop and move it up manually following the price action.  You will never be hurt taking a profit or breaking even.  You have to be careful since taking small profits will not make up for the losing trades with larger stop losses.  If you place your stops too tight then you will be stopped out will very little profit.  The overall  game plan is to cut your losses and let your profits run.

If I am day trading in my online account, one of my plans is to lock in a breakeven level as quick as possible and then watch and trade off the candle formations in different short time frames like the five, ten, 30 and 69  minute time frames.  If I see that the trend is breaking down I will lock in a profit or smaller loss.
There are many ways to use trailing stops and there are ways to reduce risk with multiple contracts and using trailing stops.  Teach Talk Trade will educate you in these type of trading methods and philosophies.

Please take advantage of the FREE 7 DAY TRIAL to The Morning Call (we discuss 21 futures, ETF’s, E-minis, NASDAQ & Solar & Alternative Energy issues with analysis)  &  The Mechanical Monkey  where we discuss our mechanical trades & give you entries and exits.