Tag: Stops

Watch Now: A New Look At Exit Strategies

Posted on by The INO.com Team

Some of the most frequent questions we are asked on the Trader's Blog and within MarketClub relate to exiting the market. Today we want to share the newest addition to our free video trading service, INO TV.

As one of the most recognizable names in the world of trading, veteran  trader Chuck LeBeau has years of experience and success in the markets. In this recorded seminar, "A New Look At Exit Strategies," he shares the tactics that have helped him to not just get into a winning trade, but more importantly to exit at the right time to take profits.

WATCH NOW: Click here to start watching Chuck LeBeau's, "A New Look At Exit Strategies"

We hope you will take advantage of this free video while its available provided to you courtesy of INO TV.

Enjoy,
The INO TV Team

Trader’s Whiteboard: Lesson 4

Posted on by The INO.com Team

As traders we tend to think the most important part of trading is making money. This is what we all want, but sometimes we don’t pay enough attention to what is really important and that is protecting our money.

You’ve heard the terms “stop-loss” and “money management” over and over. Most of us are familiar with the basics of a stop, but did you know that there are three different types that you can employ to protect your capital?

Today Adam is going to explain the three types of stops and their respective pros and cons. We invite you to click here and watch today to find out which will work for you and your trading style.

Enjoy!

The MarketClub Team

Parabolic Trading System

Posted on by The INO.com Team

Last week I invited Mark McRae from SureFireTradingChallenge.com, to come and break down support and resistance..and did he ever! Check it out HERE if you missed it. After the post went live we received a ton of feedback with regard to the post AND Mark's project, SureFireTradingChallenge.com, and all the feedback was positive!

So I wanted to give you the chance to learn from Mark again. This time I asked him to go into the Parabolic SAR and the trading system that goes with it. Adam is a HUGE fan of the SAR, as you know, and I think this post will help you see why Adam and Mark both use it. Don't forget to swing by SureFireTradingChallenge.com and give Mark your feedback there.

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This particular technique has been around a long time and is still widely used by many analysts because of its adaptability to most markets.

History

The parabolic time/price system was first introduced by J. Welles Wilder Jr. in his book 'New Concepts In Technical Trading Systems'. It is very often referred to as the SAR system meaning stop and reverse. This means when a stop is hit the system reverses so it is permanently in the market.

The actual point at which the system is reversed is calculated on a daily basis (or whatever time period you are looking at) and the stop moved to create a new reverse point. The SAR point never backs up.

In other words if you are long the market the SAR point will increase every day. The same is true for short positions. This is the time part of the system.

The other important part of the system is the speed at which the SAR point moves. If the market is moving fast the SAR point will move slowly at first and then increase as the market moves higher, this is the price part of the system. The rate at which the system increases is called the acceleration factor.

It is beyond this lesson to give the exact calculation of the acceleration factor and it is not really necessary to know the formula as most charting services now incorporate the system in their indicator range.

Example of what SAR looks like.

My Use Of SAR

So far so good. The system is simple to trade and is very visual so it's easy to know when you should be short or long. If the SAR point (dots) are above the market you should be short and if they are below the market you should be long.

Here's the problem! It doesn't perform very well in the markets I have tested it on nor do I know any traders who trade it as a stand-alone system. Maybe in the markets of the past it would have worked well but not so now. The problem is there is just too much whipsaw.

Now you may be asking if there is too much whipsaw why mention the system at all? Good question and here are two reasons I find a good use for the system.

* The system can be very effective if a filter of some sort is used. In the example below of the eur/jpy I have used a MACD as a filter. If we were long the market then only long signals would be taken and the short signals ignored as long as the filter (MACD in this case) remains long. If a short signal is triggered but the filter still remains long you could close the position and wait for the next long signal. The reverse is true for short positions. You could use any oscillator you feel comfortable with or even trend lines.

* Sometimes it can be very difficult to find a good place to put your stop. With the SAR system you will always know exactly where to place a stop and it will increase everyday to help lock in profits. It also gives the move enough room for market corrections without taking you out of the position. I like this particular method if I have a long-term position which; I only want to check on once a day. I can quickly check how the position is and then move my stop accordingly.

I am sure you can find many other uses for the SAR system and its well worth playing around with the parameters to see if it can be added to your trading arsenal.

Good Trading

Mark McRae

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Be sure and visit SureFireTradingChallenge.com to learn more about Mark and the contest!

5 Major trading pitfalls you must avoid at all costs!

Posted on by The INO.com Team

5 Major Trading Pitfalls you must avoid at all costs!

What every investor and trader MUST AVOID to succeed.

Pitfall #1. Betting the farm. Let's be realistic. Not every trade is going to be a winner. Here is a simple rule for you to remember. Never commit more than 10% to any one position. When I was trading in the pits in Chicago I heard for the first time about the "RIOTRADE". Simply put, you take a huge position in the market. If it works out, you are a hero. If you lose, you leave home and head for Brazil. Again, NEVER BET THE FARM ON ANY POSITION.

Pitfall #2. Planting too few seeds. This one goes hand in hand with the first pitfall. The key here is diversification and following several markets. Ken watches 30 markets and looks for profit opportunities in each one as they occur. PLANT MORE SEEDS AND YOU CAN ENJOY MORE WINNERS.

Pitfall #3. Jumping the gun. Patience, patience, patience. This is perhaps one of the toughest things for traders to remember, particularly after they have taken some good money out of the market. JUMPING INTO A MARKET BEFORE ALL INDICATORS ARE POSITIVE CAN CAUSE UNNECESSARY LOSSES.

Pitfall #4. The hope trap. This is one of those pitfalls that goes completely against human nature and it is the biggest account killer. What I am talking about is hanging onto a losing position in the desperate hope that it will turn around. A SIMPLE SOLUTION IS TO ALWAYS PLACE A STOP ON EVERY MARKET POSITION AND DO NOT CANCEL IT!

Pitfall #5. Leaving the barn door open. Don't let your profit evaporate. Once you are in a profit situation continue to move your protective stop to lock in a profit. STOPS ARE IMPORTANT TO BOTH PROTECT INVESTMENT CAPITAL AND LOCK IN PROFITS.

Adam Hewison

President, INO.com

Co-Founder, MarketClub

The 4 Characteristics of Strong Breakouts

Posted on by The INO.com Team

For today's Guest Blog post, I've asked Harry Boxer to come and teach us a little bit about what makes a breakout a STRONG breakout...and MUCH more! Harry's been a contributor on CNBC, CBSMarketWatch, WinningonWallStreet, Stockhouse, DecisionPoint and more. If you're eager to learn more about Harry Boxer and his methods, check out TheTechTrader. Enjoy the post.

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Breakouts of long bases on strong volume are frequent harbingers of continued price appreciation. Another harbinger, after the initial up-leg, is a low-volume, orderly pullback towards support.

An analysis of the Converted Organics (COIN) chart illustrates this strategy. As the daily chart indicates, COIN in October 2007 broke out of a base pattern that extended back since its IPO in late February. Some traders who missed entering early may have given up on the stock when it rose 50% from around 2 1/2 to 3 3/4, but a closer look at the chart shows why it had more room to move.

COIN's pullbacks were orderly, coming on lower volume and holding near its moving averages, a key sign of more upside to come. Not once did its pullback break beneath the 40-day moving average, and most pullbacks hugged the 21-day moving average.

The pattern was breakout (mid-October), flag, breakout (early November), flag, breakout (late December), flag, and then breakout in mid-January, where it closed on January 15 at 12.58, more than 5 times its pre-October breakout price. Volume on each pullback was a small fraction of the level of the breakout, and a shallow decline just grazing the moving averages suggested a continuation of the uptrend.

As a stock in a rising pattern pulls back, look for several factors to portend the continuation of the pattern.

1. First, look for very low volume on the pullback between 10% and 25% of the average volume of the last 90 days. Second, watch for the decline to flatten near the 21- or 40-day moving average on the hourly charts in a quiet, narrow flag-type formation.

2. When the breakout comes, buy on the initial thrust out of this flag pattern. This means a sudden dramatic change in price accompanied by heavy volume. The price doesn't necessarily have to rise above the top of the flagpole (i.e., the previous rally high prior to the consolidation), but only needs to be a price bar that is at least several times the size of the previous several bars on the chart.

3. Wait to add to the position until the stock takes out the top of the flagpole, which is key short-term resistance. This will protect against a head fake, which is a move that starts out dramatically but quickly fizzles price- and volume-wise after just a bar or two and has no follow-through and, in particular, does not make it through the top of the flagpole.

4. Set a stop below the bottom of the lowest level reached during formation of the consolidation or flag pattern out of which it has broken. When COIN, for example, in its November upmove exceeded the top of its October flagpole around 3.75, that was one signal to get in or add to the position. Another signal came in the second week of January at around the 8 level, when we first highlighted it for our subscribers.

We saw COIN having consolidated and tested its 8.70 triple-top resistance over the previous 3-4 sessions, and noted that if it broke through that level it could initially head to 10 1/2-11, and then beyond that to our next target of 12 1/2-13, where it last resided, as mentioned, on January 15. The COIN example illustrates the potential that chart patterns like high-volume breakouts from long bases and low-volume flags can have in predicting price appreciation.

Harry Boxer is an award-winning, widely syndicated technical analyst and author of The Technical Trader, which features a real-time diary of Harry's minute-by-minute trades and market insights, plus annotated technical charts & stock picks, based on Harry's 35 years experience as a Wall Street technical analyst. You can find out more about Harry's work at TheTechTrader.com.