Tag: Money management

The 3T’s of Trading

Posted on by The INO.com Team

Today I'd like you to welcome Geoffrey A. Smith, from Day Traders Institute. DTI has been a leading the way in trading education for years and I'm very excited to have Geoffrey, the lead instructor from DTI, join us today. Please take time and read the article below on "The 3T's of Trading", then visit the DTI to learn more about them as a company and how they can help you with your trading and investing.

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As a trader and instructor, one of the most frequently asked questions I get is “where to take profit”? When I first was asked this, my initial response was “when you are making money”. But after pondering the question for some time, I came to realize that many traders struggle with taking profit hoping that the market would go further in their favor only to get stopped out for a loss. So to help traders with learning to take a profit, we came up with the 3T’s of trading:

Tick
Trade
Trend

Look to trade in thirds, taking 1/3 of your position down at a time. When using the 3T’s, the goal is to first finance the trade and let the last third pay as much as possible. Wouldn’t it be nice to trade with someone else’s money? Well, initially we have to put up the cash to get into the trade and take on the risk of losing money. But if we take enough of the trade off and adjust the protective stop to a point that the trade cannot lose, this eliminates our risk in the trade, relieves the fear of losing, and allows us the legal right to let greed set in.

The first T is the Tick part of the trade. Really it is a scalp, only looking for a small amount. If trading stock, take 1/3 of the position off at $0.30. If trading futures like the Emini S&P, look for 0.50 to 0.75 of a point. This accomplishes two things, it reduces your exposure to the market, and also allows you to pay commission.

The second T is the Trade. Look for twice as much as you got on the Tick part of the trade. Again, if trading stock, look for $0.60 or so. This will elevate 2/3 of the initial position and lock in $0.90. If you adjust your protective stop back $0.50 from current market, then you are on a “free ride”. At this point, you have no more risk in the trade and can concentrate on making money.

Finally is the third T, which is the Trend part of the trade. This is the last 1/3 of the position that we hope will pay the most. Sometimes you will get stopped out on the last 1/3, but other times the market will continue to trend in the direction you are trading and can end up making your whole day.

These price targets are not set in stone but examples of what you might look for. On a stock that is trading at 50, you can’t look for as much profit as one that is trading at 150 because of the price movement. You will need to adjust your profit targets accordingly. I will look at the ATR (average true range) of the stock and set my first target at 10 – 15%, second target at 30 – 40%, and look for the whole ATR on the last third. Some days the stock will get there, other days it will not, but at least the trade was financed on the way.

Give this technique a try and see how you like it. It helps in reducing the fear of losing and allows you to take some profits as the market trends in your direction. It has been my experience that the first target is hit 85% to 90% of the time, with the second target getting filled about 75% to 80% of the time. Not every trade goes in your direction, however, if 1/3 of the trade has been taken out of the market, then the loss has been reduced as well. Remember as traders, we want to make are losses small and our gains big. The 3T’s is one technique to help us get there.

Good Luck!

Geoffrey A. Smith
Chief Instructor – DTI

How to remove your obstacles to being consistently profitable

Posted on by The INO.com Team

Today we have a chance to hear from Mo Christiensen of Trading Advice Blog. I asked Mo to teach us how we can do something that aludes even the greatest traders...stay CONSISTENTLY PROFITABLE!!

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We're receiving a lot of emails these days from people asking for guidance and help unraveling their trading. With all the variables involved, people want advice figuring out where they're going wrong, or where they can improve.

So here are some suggestions:

Start by taking this free self assessment. It will help you to evaluate your trading around some of the primary success factors for consistent trading.

Second, go through the list of success factors below step by step. Evaluate each one. You'll be able to either tick it off as 'satisfactory' or you'll want to dig deeper and find a solution.

Find a trading method you can be confident in

This is THE basic requirement for every trader. With everything else you need to focus on as a trader, you want to know that your trading method has positive expectancy. That doesn't mean each trade is going to be profitable- but it does mean that you can rely on a regular flow of signals that if you execute correctly will lead to overall profitability.

For new or struggling traders we always advise finding a system with simple entry and exit signals that don't rely on a lot of interpretation in the heat of things. Plain, no nonsense signals that say 'get in' or 'get out' are best. That’s the beauty of MarketClub's Trade Triangles - there's no guesswork involved.

Are you executing correctly?

Many new and struggling traders face the challenge of managing their emotions, which get in the way of precise and focused action when it comes to placing an order in the market. This is almost entirely fear based and is usually caused by a lack of confidence in the system they are trading. Second guessing is the mortal enemy of consistent profitability!

Again, this is where Trade Triangles excel - the signals are so clear that you can see with absolute clarity what you are meant to be doing. So if you don't take the signals, you know immediately that what you need to work on is your execution. Both MarketClub and Ino TV have a rich selection of videos with more on this subject.

Money management

Are your profit targets appropriately balanced with your risk? In other words when you analyze your trades, and compare the profitable ones to the losing ones, does the amount of each profitable trade exceed the amount of each losing trade - preferably by 2 or 3 times?

This is important. Many new traders make the mistake of thinking that their consistent profitability will come about by having more winning trades than losing trades. They get despondent when they have a string of losing trades and begin to doubt their system. Yes ideally your system will have more profitable trades than losing ones. However even if you have 10 winning trades and 10 losing trades, or even 5 winning trades and 15 losing trades, if each of your winning trades is significantly more profitable than your losing trades, then you will be consistently profitable over time. The reverse is equally true, so make sure your winners are bigger than your losers.

Manage those emotions

What's your favorite? Fear, greed, jealousy, guilt? They're all bubbling away in there somewhere and affecting the way we think and act. Here are two pieces of counsel for traders:

The first is clear, clear, clear and clear. Find a method that you can use to clear your emotions! This may sound a bit touchy 'feely' to you, but believe me it will translate into such significant improvements in your trading, and in your life in general, that you'll forever consider it to be one of the most practical things you ever did for yourself. We recommend two methods that are particularly effective.

Second and in closing this post, I want to come back to MarketClub. Adam recently recorded a video on the number one account killer: emotion in trading, and what he says is spot on. Trading Triangles will help you take the emotion out of your trading. Even if you have challenges managing your emotions, if you can just marshall your focus and use the simplicity of the Trade Triangles, over time you'll build the confidence that will allow you to succeed.

Mo Christiensen is co-editor of the popular tradingadviceblog.com which specializes in trading advice for new and struggling traders.

Gold follow up ... was it a good or bad trade?

Posted on by The INO.com Team


Hello,

I am not sure if you watched my earlier video on gold, but I wanted to put together a quick follow-up video in light of what has taken place in the last 24 hours.

A few days ago we released a new video on gold. It showed that we had a sell signal using our "Trade Triangle" technology. I thought it would be interesting to follow-up on this video as this signal did not work out as we expected it to.

Now many of you may think this was a bad trade. I happen to think it was a good trade and here's why...

One of the keys to being a successful trader is to be disciplined and follow your trading plan, or in our case follow the "Trade Triangle" technology. While our last signal resulted in a loss, our previous "Trade Triangle" signals resulted in a very large profit.

I want to share with you a trade that did not work out and show you how you should react when in a negative trade.

It is a very short video, but I think it will teach you a valuable lesson about trading and how the markets really work.

Every success in life and in trading.

Adam Hewison

Co-founder MarketClub.com

How to avoid the most important mistake most traders make everyday ...

Posted on by The INO.com Team

Getting the direction of the market right is only part of the challenge you face as a trader. The other has to do with money management.

Managing your capital or the deployment of capital is one of the most important items on your trading list. Yet it somehow falls between the cracks for most traders.

In this Traders Whiteboard lesson we are going to focus on STOPS!!!!!

There are three ways to use stops to protect your capital and lock in profits from a trade. These three money management techniques can be used in stock, futures and forex trading. The important rule is that you do use a real stop in the marketplace. A friend of mine once joked with me that he had never seen a "mental stop" filled in the pits. It's true, for stops to be effective they must be in the market in the form of an order.

If the market is good your stop will not be hit. If the market is bad or changing direction then you'll want to be stopped out of it anyway. That is why stops are so crucial to trading success.

Here are the three most commonly used types of stops. Which one do you use?

(1) Dollar stop.
(2) Percentage stop.
(3) Chart stop.

If you chose (1) you'd be correct, but, you would also be correct if you had chosen 2 or 3. All three are money management stops and are used to either lock in profits, or more importantly to protect capital.(1) A dollar stop, is when you set a predetermined dollar amount on any trade. Let's say you want to risk $500 on a grain trade or $750 on a stock trade. Once you get your order fill back from your brokerage company, you simply subtract out from your purchase price the amount of money you have determined beforehand that you wish to risk on this trade. The reverse would be true if you were shorting the market.

Pros: Easy to implement and use.
Cons: Can place stops too close in a volatile market

(2) Percentage stop is a very simple way for you to place a stop on a position. Here's how it works. Let's say your trading account is 100,000 dollars, and let's say you only want to risk 1% of your total portfolio on any one trade. You simply take a $1,000 risk which represents 1% of your over all portfolio. This can help enormously in avoiding BIG LOSSES. A 1% loss is easy to absorb. A 30% or 40% loss is an account killer, that can, with this strategy be avoided.

Pros: Easy to implement and use.
Cons: Can place stops too close.

(3) Chart stop, a chart stop is where you place a stop that is either above or below a crucial chart point. The good thing about a chart stop is that this level is often used by other traders. That can be both a good thing and a bad thing, here's why. Using either stop (1) or stop (2) only you know where your stop is. With a chart point, a great many traders/brokers know where the stops are. In an illiquid market this type of stop should not be used as many times brokers gun for the stops. "Traders Tip," avoid thinly traded markets like the plague.

Pros: Very easy to implement and use.
Cons: Can't be used in thinly traded markets.

So there you have it. Now you have all three ways to manage your money and protect your profits at the same time.

Use stops... put them to work for you today