Friday, 22 May 2015

What is Time Stop?

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I've mentioned the term "Stop Loss" in previous post. It is a predefined price level at which you will cut your losses and move on to the next trade. It is an important concept that every trader should follow and be discipline about it.

But there is also another stop loss strategy that I use in my plan but have yet to have a chance to actually exercise it. The concept is known as "Time Stop".

You do not necessarily need to wait for the price to hit your stop loss price to get stopped out. Time stop is with regards to the duration of the trade. There will be some trades that hit your take profit level really quickly, like in a matter of days. But there will be some that will take like what seems forever.

If the trade is ranging around a certain price and not really doing anything, I will exit my position whether or not it is at a profit or loss. The opportunity cost of holding on to that position which is going nowhere exceeds the cost of exiting the position.

I usually give my trade a maximum of about 7 to 8 weeks for it to work itself, if it doesn't, then it is time to get out.

I personally have not had a chance to use to stop because my trades have never taken that long before. I will update you when it does so that I'll have a good example to show you.

As always, happy trading.

Cheers.

Wednesday, 20 May 2015

Monday, 18 May 2015

Sunday, 10 May 2015

Saturday, 9 May 2015

3 Invaluable Tips For Trading

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Today I will be discussing 3 tips that I think would really change your trading success rate. I started out trading without utilising them and often entered bad trades, but after these minor tweaks, I was in a whole different world.

Tip #1: Don't Trade Immediately

I always trade 1 hour after the market has opened. For example, the NYSE opens at 9.30pm GMT+8 (Singapore Time) and the prices of the stocks will be fluctuating like crazy because of the big players such as investment banks are adjusting their positions.

So... why don't I trade these volatile periods? I always set an entry price for a trade. These volatility in the stock's price can cause me to enter a trade that isn't necessarily the true consensus of the market. Therefore, I always enter my order about 1 hour after the market has opened.

Tip #2: Don't Over Trade

When I first started out trading, I always felt like I had to take a position; I either had to be long or short. This made me enter a lot of trades that did not work out and that meant losing money. You have to realise that not trading is also taking a position. If you feel like the market is ranging or it is against your strategy, you can always choose to not trade and wait for a better opportunity to present itself. Choose to focus on a few good trades instead of having the need to enter every time an opportunity presents itself.

Not earning money beats losing money every time. 

Tip #3 Always Check Your Order

I don't really want to admit it, but a mistake as careless as this can cost you a lot of money. Always double check your order quantity (how many stocks you are going to buy) as well as the order price. Not only that, the other figures that are crucial is the stop-loss and the take-profit price and quantity. 

If for some reason you entered the wrong quantity, there is no one else to blame except yourself. The market isn't going to give you a chance because it was a careless mistake. You will have to bear that loss. I remember making that mistake once, and it was once too many. 

Say for example, you enter a trade at $11 for 1000 shares. You want to place a stop-loss price of $10 for 1000 shares. You enter $10 as the stop-loss price but you made the mistake of entering 100 shares due to carelessness. This means that if the market moves against you, you are supposed to lose a maximum of $1000. 

But since you entered 100 shares only, you lose $100 and the remaining loss will still be in your unrealised profit. If the market continues to move against you, your loss will be significantly more than $1000 dollars. 

Not only that, you incur more commission cost because each trade you take (buy/sell), you have to pay a certain amount of money. Lets say each transaction cost a minimum of $10. The trade above should cost you $20 in total (Buy and Sell). But because you entered the wrong quantity and have to sell it again, you will incur a total of $30 (Buy, Partial Sell, Partial Sell).

So you incur not only more loss, but more commission cost. Remember to ALWAYS check your order.

As always, happy trading.

Cheers.
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