January 9, 2016

How to Trade Breakouts

Disclaimer

  In this post, I'm going to discuss the importance of breakouts and how to trade them, but first I want to discuss a few principles that are key to successful trading. Everything I do in trading is aimed at achieving one goal:

A state of flow

  Why is a flow state so important? For two reasons: 1) because it's essential to becoming consistently profitable at trading and 2) because it's essential to enjoying our short lives on this little planet in this small universe likely among many universes. The second reason probably sounds more controversial and provocative, and I hear you, just bear with me and let me know if you feel the same way after I reveal some compelling evidence.

  First, let's go to the creator of the psychological concept of flow himself, Mihaly Csikszentmihalyi, and watch him explain what the concept of flow. In his TED talk, Mihaly (pronounced "me-hi" if I'm not mistaken) provides an example of someone achieving flow--a music composer: "My hand seems devoid of myself, and I have nothing to do with what is happening. I just sit there watching it in a state of awe and wonderment. And [the music] just flows out of itself."

  Mihaly also discusses how flow is essential to happiness in life. I thought the example of Lockheed Martin's CEO resonates with a lot of people, "My definition of being successful is contributing something to the world...and being happy while doing it...you have to enjoy what you are doing. You won't be very good if you don't. And secondly, you have to feel that you are contributing something worthwhile...if either of these ingredients are absent, there's probably some lack of meaning in your work."

  Now obviously Mihaly isn't a trader but I found it striking that so many of the most successful traders I follow repeatedly make the same references to achieving a state of flow in order to become successful. Here are just a few examples:

January 3, 2016

How to Trade Simple Chart Patterns

Disclaimer

  Before focusing on chart patterns, I recommend checking out the fundamental principles of the market. It's very short and provides the "why" behind trading and investing.

  Lastly, I recommend reading how to perform technical analysis. It's very simple and focuses on the best indicators.

  Chart Patterns:

How to Trade Breakouts

How to Trade Bull and Bear Flags (aka channels) (in progress)

How to Trade Rectangles (aka trading ranges) (in progress)

How to Trade Triangles (in progress)

How to Trade Wedges (in progress)



January 1, 2016

How to Perform F2G Technical Analysis

Disclaimer

I use technical analysis instead of fundamental analysis to take as much money from the markets as possible for several reasons. The most important reason is that a stock's price chart reveals areas where I have a higher probability of making money. A close second reason is that "Only price pays" -Brian Shannon aka @AlphaTrends. Everything else is noise in my opinion. Lakai (the most successful futures trader I follow) and many other successful traders (especially Tim Grittani) taught me to keep things simple and master your trading niche. These lessons helped me crush the trading competition at work by turning $100k into $214k in just two weeks! The closest competitor to me turned $100k into $169k!

But back to why technical analysis is so essential to extracting money from the markets. For example, Apple could crush earnings and for some reason the stock sells off. This happens to many stocks every quarter, year in and year out. Why not cut out the noise, simplify your process, and focus on the wealth of valuable information on a price chart? Mike Bellafiore and Steven Spencer at SMB Capital taught me trading is hard enough and that the best traders focus on what works for them and to cut out what doesn't.

So how do you perform technical analysis of a price chart? There are many ways to perform technical analysis and there are hundreds of indicators you could choose to analyze. I prefer to focus on what a majority of market participants do because that increases the likelihood of my analysis being accurate. That's why I only focus on identifying support and resistance, simple chart patterns, and breakouts (something ModernRock emphasizes). Let me explain: