Chat Room Lessons

Algo Lines (New): red D1, Option Liquidity: -2 ~ 15, Heavy Volume Today: 120 ~ 500, Stock < Prior Day Low

@Hariseldon Thanks. At first, I thought the system here mainly relies on price action alone. And that, for example, things like short percentage interest, unusual sweeps, and other bits of information would be considered extraneous and not necessary. So, I’m surprised to see you mention. If you see an unusual sweep, will that actually affect your strategy? 

Superpantz wrote:

Pete wrote:

I came up 100% dry on bullish lotto searches and I tried for a good 20 min to find one

when that happens it could be a sign that we’re not ready to move higher yet?

View Answer View Answer

@Hariseldon Honestly I felt terrible during the vacation. Like my house was on fire or something. Could not relax or unwind. Like time was running out. Part of it is that this is a slower month for my fitness training work and the first month in my entire adult life that we spent more than we made as a family. On paper we literally have years of living expenses but I think that turned me scared of losing, which wrecked the whole mindset. You saw me all week jittery as hell with my scratches all over the place

@Pete thanks for the kind words. Too much of my self worth tied up into the ability to provide for family and have work addiction. It’s a superpower when it works until it doesn’t Have a great weekend.

@lilsgymdan I get what you are saying – it is all on your shoulders – and right now there is a feeling of insecurity.  When business slows down, even if it is cyclical or expected, there is always the fear that the reduction in income will become permanent and not transitory.  That places heavier reliance on your trading – it it is something that you seem to feel you have to get right or you will let everyone down. 

@lilsgymdan to add – that is an unfair amount of pressure to place on something you have not yet mastered .  Emotionally you seem to be approaching your trading as if you have completed all training and are now at the stage where you should be producing profit and adding to your family.  Thus, when you lose you must feel like a liability, you are not only not adding anything, but you are taking something away – leaving your family worse off at the end of the week than they were at the beginning

@Hariseldon to the T

@lilsgymdan – ok well then let’s reframe that for a moment – You are dedicating yourself, your time and your energy to learning a skill that can provide a safety net for your family.   Rather than leave your families financial well-being up to the randomness of a client-based business and the economic gods which are mercurial at best you have decided to act on it.  What you are doing is something that very few people attempt, or even have the empathic foresight to consider the need for a back-up plan.   

@lilsgymdan your family is lucky to have you – you are busting your ass to do everything you can in order to make sure they have a better life, for one reason or another you have put all of that on your shoulders and feel completely responsible – their fortunes rise or fail based on your efforts.  Off the bat you are taking on 100% of the burden, and not only that but you are trying to ensure that no matter what happens, you will be able to continue to provide for them – even if that means spending two years studying and getting your ass kicked by the market day in and day out , emotionally dragging you on a roller coaster that you can’t even really share with anyone that truly understands it .  So understand this – what you are doing is heroic – and your motives are selfless.  You cannot also put the expectations of having the results that a full-time trader has before you are ready to be a full-time trader.  

@lilsgymdan I hope you read this again and again and truly internalize it and then perhaps you can stop kicking your own ass for a bit , god knows the market kicks it enough without you having to add to it!

Question @Hariseldon – on the rule around not going long when SPY is down – do you think this applies to hedges if a trader has multiple shorts on and maintain a net short exposure? View Answer

Question Is it a good idea to trade in the last 30 mins of the day using RS/RW or is it too chaotic for RS/RW to make sense? View Answer

@Pete Does 1OP work well even from a close on a Friday to the opening on Monday, having (I suppose) no data points in between -, and given the notorious differences between intraday timeframes last Friday? What was the late bounce on Friday due to: a. Only short-covering; b. Institutions rebalancing; c. Simply the effect of hedging options flows from market makers; d. None of these or maybe something else?Thanks.

Fishing is a lot like trading. You have to evaluate conditions and adapt. All of your skills come into play and you have to know the patterns of the fish and more importantly, the patterns of the baitfish. If you want to catch fish, you have to follow the bait. If you want to make money trading, you have to follow the money (relative strength).

Question for after hours…from a mental standpoint, how quickly can you reverse your thesis in the day.  I had a neutral/bearish bias and lost my first put of the day.  I managed the position well and saved face (selling against it into a spread, then legged out), but mentally it took a long time to come back from having tunnel vision looking for bearish plays all morning.  I find myself missing out on the bulk of moves on days when I get the thesis wrong and fail to recognize it and adapt.  Looking back on today (and last Friday where I was small green but missed out on so much), there were so many clearly strong stocks I could’ve ridden up (NFLX, META, TGT, etc) but I wasn’t in a place to do anything else until 3pm.  Thanks in advance for any insight. View Answer

@Pete I generally think in terms of less than 10 days for the purposes of this room.  (different from my long term and retirement accounts).  I have been working on win rate and am around 90% in the last 2 weeks, but I’m only taking 1-2 trades a day.  I have to keep telling myself the market will always be there and stop focusing on what I’m leaving on the table.  I will side with you for the cash over hedging and actively managing multiple theses on different time frames.  Mindset issues are always the hardest when you’re not a fully seasoned vet while trying to manage this and a full time job/family.

Question @Hariseldon when there is a compression breakout or trendline/algo line breakout or SMA break, do you ever wait for a retest or you would enter right away or wait a few bars? View Answer

Question Hari, why did you say you don’t like trading REITs? They keep showing up in my searches as weak. Is it because they have low volatility (although some seem to move) or is there something else? Thanks! View Answer

@Hariseldon I’ll ask for advice on what to do with this type of trade in the future. I entered a short on IP at $32.24 at 9:03 AM CST, and then added to double my size as it confirmed at $31.60 at 12:00 PM CST. My target on the trade was $31.11 based on a gap fill level on the daily chart. As you can see, the LOD on IP was $31.13, so I never hit that target. I wanted to give the position room to reach my target but it ended up gaining strength and I didn’t exit until $31.86 for a measly $0.07 on the position. When you have trades like this where you come really close to hitting your target and they reverse, do you manage them (i.e. via an adjustment of your mental stop or even a hard trailing stop)?

@Russ you’re right I got cst and pst confused – but yes, or when you saw the HA reversal at 1:40pm (est)

Question Is there an expectation for what comes after a doji sandwich?

Question @Hariseldon Another mindset question. I come from a scalper’s past and tight bid-ask spreads were highly critical to my stock picks. I never traded stocks that had spreads larger than 0.03 because if the stock moves against me, it could’ve burnt a hole in my p&L very quickly with a large spread. I see many tickers traded here have large spreads and i’m still not comfortable trading them. Do you even look at spread when selecting a stock to day-trade using the RS/RW method? Or just overlook it because you are confident with your conviction?

Question If you buy/sell a tech stock. Are you looking at QQQ or SPY for RS/RW or paying attention to one more than the other? I typically watch both but with tech I favor QQQ a bit more.

@Dave W @Hariseldon How do you know where to exit on a stock that is at all time high… with reference to FREY here

Question if I decide to only swing trade, what is the best timeframe to trade with?  I’m considering to switch over to swing trade primarily when my day job take too much of my attention.  5M would be too demanding during a busy work day.

Question follow up question.  This is something that I’ve been confused about for a while and I’ve been asking questions in different ways, but still a little confused.  If we lean on the daily when we day trade, how is it different than swing trading other than entering and exiting based on 5M and closing the trade during the day? I think I’m confused because I size my positions based on where I set my mental stop where some others have a specific share/contract count.  So if I’m daytrading and I’m leaning on D1, should I set my mental stop based on D1 structure or M5 structure? If I’m setting mental stop based on D1 structure, that would make any trade swingable, but it would also make sense to exit based on D1 as well since exiting on M5 would make risk way bigger to reward, but that becomes swing trading.  As of now, I’m using D1 to determine what stock to trade, entering and exiting based on 5M structures.

@Zander re institutional participation in options, volume & liquidity is obviously in SPX above all else, often as conjunction with part of their nominal exposure in equities (as hedge or leverage). vol fund guys are very very active in highly liquid retail names and they consider this the easier money than reliably farming SPX option inefficiencies

@st0rm Part of the time spread is selecting companies where the market has a strong historical tendency before earnings to over-estimate volatility and subsequently over purchase the post earnings options – you would need to know that the market has the same tendency pre-FOMC and I’m not sure it does or does not. I would also wager that due to the much greater liquidity of SPY options, that institutions would have more of an incentive to pay attention to inefficiencies like that than on the less-liquid options on individual equities, and any edge might be harder to find. Curious to hear thoughts on this from someone more experienced. 

@Zander yes

@Dave W Def should’ve stayed on the sidelines today, but I was trading 1/2 position size so was able to manage my risk somewhat. 

@Dave W I’m not trading for the sake of making a trade, I’m trading to learn. I’d like to get better at navigating these choppy environments, and I think the best way to do that is to trade with real (but reduced) capital. I risked what I was willing to lose, so I don’t feel too bad about it. After all, every red day is an opportunity to learn!

@A man the lesson is that not all days or times should be traded. I took three trades today, with high probability setups, got out quick, and have been completely in cash for about 70% of the day.

All – understand this – a consistently profitable trader is very rare – in fact, you will not find many out there offering advice, in any at all.  So when someone like Dave W. gives you advice or tells you his interpretation of what you are doing take it for the gold that it is.

@owensd that sounds like a great approach to getting paid on a day ike today

@Fox been employing it all month – best month trading so far!

Question When selling .10 delta weekly covered calls against a long position, do the professionals make any adjustments to this strategy during weeks like FOMC knowing volatility will be high? (e.g. avoid doing it, picking a different delta, etc.)

Answered View  are REIT’s reliable with the RS/RW method or are they more akin to some basic materials stocks, energy stocks, or ETFs where they are subject to other forces than just SPY?

@ican was it an issue with position size?

@ican first as an aside – likelihood is one word (I know that sounds obnoxious to correct, but figured it would help you if you use it in the future) – and I hear you and know the feeling – after awhile you actually get sick of the position itself and just want to be rid of it, and then you see it in profit – I had the same feeling with ENVX been holding it for a month and got it for around $9 a contract, averaged it down to about $6.75 – but it has been a stand out RED at the end of each day, and then today it finally went green , actually up around .75 a contract.  I wanted to close it, I really did – but I stopped myself and instead added two more contracts to my position.  And that is what I do now, when I get that urge to close the position that finally made it into profit, I add to it instead – that is the deal I made with myself and I stick to it.

@Hariseldon I think that describes my feeling very well. I just lost the patience with “this particular position” – not logical at all. Thanks, I will work on this. 

@ican another thing you can do is put an order in to close it, if for example it was at $11.30, put an order in to close it for $1 higher at $12.30 – if it hits your target, great, if not you still have it

Answered View For Dave/Hari/Pete, do you guys try to avoid swinging biotech stocks for exact reasons situations like ALT? Or is it just part of the game. I hadnt really thought about this before but it makes sense that a biotech stock is more likely to have a wild 50% swing that say AAPL would

Short TLSA 300/295 PDS for $1.90 – got the confirmation I was looking for the algo rejection and has lost all it’s RS from earlier.

@owensd are you currently shorting a stock up $9? Just checking is all 

@Hariseldon yes – but the algo rejection is more influencing to me. Also why I did the spread, to limit potential loss on an overnight swing.

@Dave W I’m in TGT and META as well, but didn’t post those entries.

Answered View  How do you handle short-squeeze rumors around tickers you might be holding short? I was holding CLAR short on 9/1 when it jumped (from 14.87 briefly to 17), then began to fall back. I held for a few days based on the D1, but then got scared when I noticed the ticker in reddit short squeeze comments. I sold immediately at a fat loss. Any lesson here? May be hard to answer. Thanks!

@Hariseldon So I should stop taking my daytrade picks from reddit? Seriously, that’s a very interesting study I will go find it. Thank you.

@st0rm if you find it, please link it here – thanks!

Answered View  Hi guys, I have a question regarding the CDS/PDS. It is always suggested to buy them with expiration in the same week. But on Friday, with so short expiration date, I would want to avoid buying lottos. So my question is if in Friday I could buy next Friday’s expiration and the strategy is still valid. 

Answered View  Is it ever OK to buy pds/cds beyond Friday? I like buying spreads for the safety it provides, but last week realized a mistake was buying pds that expire Fri when I should have bought calls further out. I allowed my desire for “safe” spreads to cloud my judgment and got myself trapped, instead of just buying longer-term puts. Thx.

One thing I’ve observed recently is a lot of people changing their bias on the same stock intraday (i.e. being long a stock and then wanting to flip short after taking a loss). That is something that should really only be done by professionals and is also very different from flipping your SPY bias from long to short or vice versa. Why? When you made your original entry, you should have looked at the daily chart, assessed it as strong, and then looked at the intraday chart, and saw it met all your criteria. Even if it falls apart on an intraday basis, or if you have an event on a daily chart basis (breach of an SMA or the 8-EMA), then all that should change is the stock going from a good long setup to a good no trade candidate. You need to see a significant reversal on the daily chart which you will not see in one day except in exceptional circumstances! The chances are if you are getting a desire to switch your bias on a stock, what actually happened is you either 1) Made a poor initial entry and the stock did not actually have the strong/weak daily chart needed to justify your original position or 2) You are trading emotionally because you just took a loss.

Can someone please elaborate on what it means to “Wait for confirmation”? Specifically, I was wondering 1) What kind of pattern formation do you look for after a trendline breach. 2) Do you have a resting order as you wait for price to come back to a “better” level, or do you jump in with a market order as soon as you have confirmation. 3) In the case of the resting order, what do you do if the price continues to take off after confirmation. For example, do you then decide to jump in with a market order, or do you consider it as a missed trade and move on to something else? Specifically, I’m trading on the larger time frame as more of a swing trader (anywhere between H1 to D1).

It means that the underlying has to move through the price point. If you are a swing trader, it need to close through it (not just trade through it). If you are a day trader, you need the M5 bar to close through it. Even then, I like to wait to see if the next bar follows through. If it instantly reverses it is a head fake and that does happen often at those price points. How the underlying approaches that price point matters. As I describe in The System under trendlines and MAs, we want it attacked. I never suggest using live orders (buy stops, sell stops). Alerts are much more effective. When they are triggered – evaluate. If all does not seem right, set another alert. You will notice in the charts I posted today that we had multiple new highs for the day. You want to make sure that breakout holds because it could be a head fake. Especially today where the trend strength was not very good and we were creeping up to those price points. It means you will miss a little bit of the move, but you will know for sure that the breakout is legit.

how do you set profit target for stocks at ATH or ATL

Without context it is impossible to answer this question. I am going to assume you are not talking about GME making a new all-time high. If yes and you are swinging it, you had better be using a CDS with limited risk and be willing to lose it all. If you are day trading it you would watch for compressions and retracements. You would also watch for bearish engulfing candles at the hod, bearish hammers at the hod. Is the volume heavy? Is it continuing? Is the stock still strong relative to SPY? Is this a normal stock like BJ? How did it get to the new high? Is it attacking it? How far did it have to travel during the last rally to get there? Are we swing trading it or day trading it? Every one of these elements matters. Please be very specific with your questions. Provide a symbol and your trade duration and we will be able to answer your question.

Following up on the last question, in general, how do you set your targets? Every book has a recommendation, like if it’s coming off a flag, your target is double the pole or whatever. However, this doesn’t seem to work well when SPY is going haywire. I’ve just been aiming for the next area of resistance or support to exit (horizontal support, trendline, etc.), although I don’t know if there is a better way. To give an example, TNK had a good morning and I set my target to the 8/11/22 then going way back to 4/28/20 since that was the next one back.

Honestly, I judge it from the price action – like with SPY today, I judged I could get a $1 but probably not more, same with GOOGL – that was based on how I felt the stock was moving and how the market was moving.

When you look at a D1 chart like ZI, notice how the candles overlap. “What does that mean?” It means the stock retraces a lot and you do NOT have to chase. I don’t even have to look at an M5 chart to know this.

@Hariseldon When D1’s show such large weakness like QCOM did, do you more or less ignore the M5 chart? I ask because at your QCOM entry it was showing a higher low on increased volume and SPY was still in it’s bullish cross. I’m thinking you thought it wasn’t worth waiting on M5 with such overall weakness. You’d rather get in the short and look for other opportunities rather than squeeze slightly more profit out of a slightly higher bounce. Am I on the right path there?

pretty close, yes -I am bearish on the market, bearish on tech, and QCOM was Bearish, so at that point it is just waiting for profit and whether or not I want to swing it

Btw – I recognize there seems to be an inherent contradiction here – on the one hand we say, “Have a thesis on the market!” and on the other whenever someone asks where the market is going they get told, “Doesn’t matter, just pay attention to what is in front of you!” – So which is it?
I think the best way I can explain it would be to use a dating analogy. Let’s say you are getting ready for a 1st date – you met the person online, and based on the profile and your conversations, you have high hopes for this one. You’ve been on enough previous dates to know that these things can go wrong pretty fast, plus that time you were Catfished by a rather large and elderly Armenian man, but still this one looks good. So here you have your historical information, and your set-up that is informing how you are going into the date – hence you have formed a “thesis” about it, and because you have high hopes you dress nicer than normal, and choose a nicer place for dinner than usual for first dates – your thesis is one of optimism. Now – once you get there though, you need to pay attention to the date in front of you – your thesis can be nullified pretty fast if they start talking about how they still live with their ex-boyfriend/girlfriend – In this example, the two notions are not contradictory – and that is how you need to think of it.

from view of options trader, i have a thesis on market direction in next 1-2 expiration cycles (absolutely no further than that). then structure my trades & balance them to align with that thesis but also not pay too much if the thesis fizzles out, and ideally a low probability low cost high pay out if there is a total reversal of thesis. tldr: i expect my thesis to be wrong at some point so try to give myself multiple ways to get paid on the trade

one of my bag of tricks is a low probability high reward low risk trade for intra-day reversal. E.G. just now i entered ITM put credit spread on NVDA at 139/140p for .90cr. Meadning if we get an end of day bounce and close above 139 i can close it for 0 ($90 profit). if not, max loss of 0.10 ($10). my overall book is bearish so i wanted something just to get a surprise upside whoosh into EOD which is always possible on pre-holiday light volumes. but not actually wanting to risk more than .10 on a reversal because catching bottoms is for idiiots on fintwit. Please only do [this] if you are consistently reaching the win rate & PF milestones. this is a step 12 out of 10 to trading for a living

I truly do not understand how to properly play stocks such as MEGL, ALT, NERV or any momentum play. I avoid trading stocks like that completely because in the past I have found myself losing more than winning on trades like that. So how do you size for those positions and how do you choose when to get in and out? To me when I see stocks like that all I see is chaos. To expand on that I trade leaning all my decisions on the D1 chart. I know if I cannot get my target today, more often than not I will get it another day. But with stocks that are borderline bankrupt like REV, I cannot justify holding something like that because the risk is just too much. So for me when the position goes against me I get out quickly to avoid a bigger loss. I just would love to understand how you and Dave play these because I see you guys make so much money on them.

You want the honest answer here? It is all price action. Playing these momentum stocks is the cherry on the trading sundae so to speak – after years of trading and experience, you get to trade these types of plays. Anyone that tries to trade these set-ups without the experience of knowing how to read pure price action is going to lose money – I don’t care how many 3-Bar method videos there are – the simple answer is – don’t play them until you are ready.

Alright thanks Hari I’ll just continue ignoring those stocks for the time being then. It’s just so frustrating when I can see just how profitable those moves are when we are in such shitty market conditions. But then again it’s not like anyone has ever became a profitable trader by being greedy and impatient so I’ll just continue to do what I’m doing then, thank you.

I get it – they move fast, and they are cheap – perfect combo. Here is the problem – one never knows when to get out – how far down is too far when you have stock that jump 20% in a single candle, if you enter at $6, and it is now at $5, do you bail? Even though you saw it go from $4 to $7 just an hour ago? Do you average down? Ahhhh….it’s volume you say? But wait….volume totally dried up and the stock sat there for two hours doing nothing, and then for no reason whatsoever volume exploded again….so what the hell….?? If you are in a stock like F or CLF and you are down .50….well you know it will take a lot to turn that slow moving grinder around, so the decision is pretty easy to bail – but a stock like MEGL that can go from $5 to $100 in an hour?? Yeah, that is a different story

When it comes to leaning on the daily chart to determine stop levels, it significantly increases my win rate as I don’t get stop out by intraday noise. However since the stop level is determined on the daily level it is usually further from my entry resulting in undesirable risk to reward ratio. Since it is a day trade, the profit are usually significantly smaller compared to taking a loss. Therefore even if I have 90% win rate, my profit ratio could be 1 or less than 1. For example, if I win 9/10 trade risking $100 each trade and on average make $10 each trade, that 1 loss would take all the earnings. Especially recently since there are a lot of sideway price action from SPY. How can I improve this situation? Am I doing something wrong?

Next time you are halfway to your profit target, increase your position by 50% – that will solve your issue

Better one safe way than a hundred on which you cannot reckon. A cat goes up a tree and gets away while a fox is caught trying to figure out what to do.
Better one safe way than a hundred on which you cannot reckon.

Once a Cat and a Fox were traveling together. As they went along, picking up provisions on the way—a stray mouse here, a fat chicken there—they began an argument to while away the time between bites. And, as usually happens when comrades argue, the talk began to get personal.
“You think you are extremely clever, don’t you?” said the Fox. “Do you pretend to know more than I? Why, I know a whole sackful of tricks!”
“Well,” retorted the Cat, “I admit I know one trick only, but that one, let me tell you, is worth a thousand of yours!”
Just then, close by, they heard a hunter’s horn and the yelping of a pack of hounds. In an instant the Cat was up a tree, hiding among the leaves.
“This is my trick,” he called to the Fox. “Now let me see what yours are worth.”
But the Fox had so many plans for escape he could not decide which one to try first. He dodged here and there with the hounds at his heels. He doubled on his tracks, he ran at top speed, he entered a dozen burrows,—but all in vain. The hounds caught him, and soon put an end to the boaster and all his tricks.

ADP revamped the way they calculate data. They stopped publishing their number in May and the first jobs report will be posted Wed. It might show weaker job growth just because of the way the number is calculated. It might not carry much weight for that reason. Initial jobless claims the last 4 weeks have been super steady. I am not expecting a bad jobs report. The BLS number is filled with seasonal adjustments (one reason I hate it) so maybe those will force it to be weaker. A strong jobs report could be bearish. Good news is bad news. Either way, the Fed is steadfast and as long as inflation is hot, one weak jobs report is not going to impact them. They said that taming inflation might come at the expense of economic growth and they are fine with that. This is why the reaction last Friday was so bearish.

What is the point – or the check boxes, that tells you to Leg Out of an OTM Bullish Put Spread, rather than just close it for a loss and how far out in time should one make that decision?

There are many moving parts (the market, the stock and time). Since it is a swing trade and it is OTM it is going to take a fairly big move for it to go wrong. I evaluate the spread near the close and I let it move around during the day. When the technical support levels for the stock are in danger I need to know the cause. Is it stock specific or market related. If it is stock related, I better check the news. I don’t worry about broker downgrades, but material news on the company or group will get my attention. Then I look for continued rel weakness in the stock. I need a market backdrop where the market is setting up for a drop and then I can leg out. If the stock is super weak it won’t take much of a market move, I just need to make sure the market is not going to rally. If the stock is breaking down because of the market, I need to know the market move is legit and that it will have follow through. Then I am a bit more focused on timing the market because the stock will follow it. With regards to time, if the spread has more than a week until expiration I am in no hurry. Assignment is not a factor and I will have chances to leg out. Spreads that expire in a few days and that are ITM are more dangerous because I don’t have the luxury of waiting for a good set-up. Once I buy back the short put, time decay is working against me on the long put. My confidence that both the stock and the market are going to drop has to be VERY high or I will just close the spread as a spread.

Pete discusses legging out of bull put spreads in this video: How To Leg Out Of A Bad Spread

Is there a particular logic to defer mostly to bullish vs bearish time spreads for earnings? Does this mostly have to do with the ones bias on the stock/market going into the earnings?

A time spread is neither bullish nor bearish – we use Calls because if the stock drops than you let the Call expire worthless and hold the long call for the next week. If we used Puts then you are hoping a stock that had a positive response to earnings is going to drop in the following week (if the result is outside the expected number). But a time spread is neutral on your hoped for direction.

I heard you said this today and last time on Twitter live; you said that setting stop level on 5M levels is consider momentum trading and is susceptible intraday noise and getting stopped out. I know we’re supposed to lean on the daily, but what exactly does that mean when it comes to determining mental stop for a day trade and not a swing trade?

On my day trades my stops are typically determined by the daily chart, not the M5 – on occasion I will use VWAP but that is dependent on the trade. The overall point was that people exit trades because of 5-Minute candles that are basically just noise and not really cause for an exit.

Thanks for the pep talk coach 🙂 The hardest part of this is where you remodel your identity and beliefs. When they are still new It’s a fragile house of cards that can fall over once in a while and needs a hand to prop back up.

You need to get three straight months of WR 75% and PF 2.0 or higher on paper trading, and then three straight months of the same thing with 1 Share – and only after that should you begin trading normal sizes. Any shortcuts around that never, like ever, end well.

should it be 75/2.0 for each of the those 3 months or on average across 13 weeks? Because I am EXTREMELY close

It should be consistent – so for each month. I mean if you are close, it really is a matter of how you feel – the whole point of it is not so much learning the method, but being able to maintain the mindset needed to be consistently profitable.

That makes perfect sense. This month I have felt very confident but not this week. Taking it very very very cautious just tons of fear in my head for some reason yesterday and today. I am scared of messing up my win% and PF now

Don’t be – they are just numbers – indications that you can mentally handle trading in a consistent way, that’s all. You’re a very good trader – but what makes you especially good is your ability to improve and learn, which I have certainly noticed. You will get there, and in fact, I agree – I think you pretty much are there – you have shown confidence, consistency, you’re finding great trades, you are also ignoring bad trades, and you are constantly improving. Have more faith in yourself – trust me, I know a good trader when I see one, and you will be an excellent trader.

@lilsgymdan mate your quality of picks & trades is visibly there or thereabouts. the difference between where you are now (trading ability CHECK) and where you want/expect to be is still a huge journey of personal growth & development. the rest beyond technique, which we have shown over and over to be simple, is all in the grey matter between your ears and it will take time. you will have great runs then have bad runs and think you just were lucky and are actually a total fraud and today your skillset has no value anymore. not only you need to be ok with that struggle but actually enjoy it. thats why we are all sick in the head and stay together as a bunch of nutters. Time at the screens. There’s a reason why prop desks give their junior traders at least a 1.5 year runway without any expectations other than follow the system and dont blow up.

There is no asset manager in their right mind that is looking at this market and thinking, “Yeah, I should buy here”

of course they all arent in their right mind

And that right there is the entire problem with the rational actor model – there just aren’t enough rational actors out there!

This is a rather important distinction here – Support and Resistance exist as guideposts during regular trading, buying and selling – rebalancing, retail, etc. However, they typical do not withstand either a news related catalyst or an market with a strong trend. When they do (as was noted with DASH ) you know that the catalyst was either recycled or not that strong. Also, not all S & R are equal – an Algo line that has had multiple tests against it is going to withstand a lot more than just VWAP will, if the stock has remained above the SMA 50 for several months with various failed attempts to breach it, that might hold against a news event but not something like missed earnings report, etc. Just like ATR is an important metric, but it is also important to note that most of the stocks you are looking to trade, by definition of all the boxes they check, will be acting outside its’ normal ATR range for that day. So how important is the SMA on AAPL ? If Powell came out right now and said it is going to be at least 75 BPS then that SMA is going to fall like it wasn’t even there.

@Hariseldon ATR is by its definition, going to be misleading on the days when the stock is in play (and why we would be trading it)

i think too much emphasis is given to ATR i only use it if i am doing a straddle or a strangle to judge what move i may get and if it will create a profitable range

I think of ATR as “the stock is running up/down the stairs two at a time”, I can make my profit goal with a small number of shares. Is there a better way to measure that besides eyeballing it? Your point is totally taken, ATR is useful until things explode and it’s not.

@st0rm All I look at it – does this stock normally move enough to make a trade off of and justify my use of buying power? Okay, if it normally moves a bit then if it is behaving especially RS/RW it should be enough to justify a trade. My view is that trying to optimize sizing/other factors specifically based on ATR or IV is not worth your time. Focus on the chart, and at what point would the stock reaching invalidate your thesis (put your mental stop there) and at what point do you think the stock can reach based on how it normally moves (recognizing it should be moving more than normal) and nearby support/resistance (put your limit take profit order there).

There are various ways you can look at it – for example, let’s say you have a max loss of $1,000 on a trade – no matter what you do not want to exceed that –
Ok, so that is your rule. Now there is a trade you want to take on a stock that is currently at $100 – you want to go long. Looking at the chart you notice that VWAP is at $99.45 and the SMA 50 on the daily chart is $98.20 – You feel the stock is bullish overall and the market is bullish, so you don’t want to use VWAP as your stop as you don’t want to get knocked out of a good trade just because of a .55 cent pullback. So you are going to use the SMA 50 – that stop is $1.80 away. That would mean you should size your trade to around 555 shares. If you hit your stop, that will be roughly a $1,000 loss, which it your maximum.

What’s the most efficient use of study time outside of market hours? Assuming you have a good understanding of the system here, if you hypothetically have 10 hours total on the weekends to study, what would the hours be spent on? Reading charts, reviewing trades, re-reading wiki, re-watching youtube vids, etc?

That all depends on where you are in your trading but I would suggest one of two things – either use the time to analyze your trading journal and review your trades of the past week, or use the time to set alerts and go through charts.

@Hariseldon DaveW I know you guys preach Tradexchange but what is the actual edge that this paid service provides? News is free and there are many sites like financialjuice that give all the economic reports as well. If a Bloomberg terminal costs 10s of thousands to get the news first and the internet has it free, where does tradexchange fit in? If we aren’t trading off the news either then why pay for this source? I’m generally interested because I haven’t used it yet myself. 

@Crux TradeXchange i use for getting early heads up on news and rumors that can have either a short term or longer term impact on a stocks price and option premiums. You have to be selective choosing the news that will impact the market. I get 3 to 5 trades a week of the information. Today MMM was a great example of a TradeXchange story that dramatically impacted a stocks price. It was material to the stock in a negative way and i traded it short using a pds and legged out for a beautiful profit. I made enough on the 1 trade to pay for TradeXchange for 2 years. Again you have to be selective, there is a lot of unusual options activity most of which can be ignored but some are significant. Free news is not going to give you any edge in your trading, TradeXchange does, at least for me 

@Crux Highly recommend TradeXChange. It only takes 1 news event to pay for it – MMM alone paid for my entire years service today. Their morning report is excellent as well. My morning routine involves reading their report, identifying stocks of interest from it and marking up the charts, then doing the same with selected Option Stalker searches.

@Crux i know my earlier response doesnt directly answer your question and you have a good point. If your strategy does not involve trading news events then it wont help but the way i see it, having such a news service would atleast let me know why the stock i am trading behaved that way and would give me heads up to bail out or double down.

@Pete I bought back 1/2 of the short puts and let the position run, then sold the other 1/2 of the long puts at EOD.  Still not scratched but better

@Izzy Good for you. You scaled out. It is not easy legging out of spreads because you are switching your bias on the stock and increasing your risk profile from neutral/slightly bullish to out right bearish. 

Hi all, I have thought long and hard about this but today is the day I finally call it quits on trading. I have been at this for about a year now and haven’t seen any significant progress towards profitability. I have had good months and bad months. I have tried trading RS/RW…couldn’t string together more than 1 green month. I have tried options (time spreads, debit spreads, credit spreads, etc.)…couldn’t find an edge/positive EV in that. I am now currently trading futures and made good progress this month with /MES only to lose almost all of the gains this month in one day.

I have tried countless strategies and tagged my setups in TraderSync, I have used tight stops and wide stops, I have tried scalping and swing trading, etc…I have gave it my very best. Spending hours at this every day and on weekends. Unfortunately, this profession is not for everybody and I have finally accepted that I am not good enough to call this a career. I will most likely finish out my Option Stalker subscription (which ends in a few months) and just observe you all in the chat but my time in trading is most likely done.

@Bez Ultimately it’s your decision, and if you’re done you’re done. But what I’m reading is that you’ve spent a year bouncing around between a dozen different strategies. If you want to give it a go, why not just focus on the strategy here, which has actually been shown in real time to be reliable, and shut out the other noise? You aren’t expected to be profitable until two years anyway.

@Hariseldon this is something I needed to hear I will return to papertrading starting tomorrow and wont return to capital until I achieved that benchmark 

@Bez Sorry to hear this. There are a few things you can do to help if you do wish to continue. First, I really think time off after an event like this is so important. I took a month off this spring and it really reset me. It allowed me to reflect from a more neutral stance on what I am doing and the reality of the situation. You may also realize that a year is not that long. Ive been trading for over 2 years and in 1OP for 15 months and feel like it was just recently I started to get a better feel for things. You can go back to paper trading to dial the system in while keeping cool mentally. One of the biggest things for me was market timing and preventing FOMO, as in not jumping in when everyone posts trades if it doesnt align with your SPY read and that means watching a lot of stocks fly by you.

@Bez Again, totally up to you. You may need a break. This may not be for you. But also, it seems you are about where you’re expected to be in your progress?

@Bez Taking a break and clearing your head for weeks or months is an enlightening experience. I like the idea of hanging out in the room for the rest of the year and watching trades. And maybe you aren’t so far away as you thought. Or maybe it’s not for you and that’s OK too – you will be a better investor/human for the experience you’ve had.

@Hariseldon But I’m special and different

@Ruddiculous lol, yup – everyone thinks they are – 

@A man putting aside the caveat I just wrote and that you should not be trading with actual money right now – tell me what happened, specifically…outline your trade(s), let’s see if I can help

@Ruddiculous you just hit on the crux of why it takes two years right there – because that distinction, that fine line, is extremely difficult to quantify and takes a detailed knowledge of price action, the stock itself and the market – but for the sake of discussion can you give an example of one that you feel could have gone either way

@Bez Trust is built over time and after almost a year you trust your instincts more than you trust my comments and the system. I wish I could have gained your confidence by now. Taking time off is a good thing. It sounds like you have done some reflecting. I’m not throwing in the towel on you and I will try to help you in any way that I can, but I can only do so much if you ignore what I teach. 

https://twitter.com/RealDayTrading/status/1562494968031195136?s=20&t=FHK_cLKl94bqVZ4JuH1tag

Harry48 wrote:

Question TSLA calls for 8/26 are $17 for 9/2 $27. I’m looking to sell a covered call. Willing to have some stock taken away. How do I compare the risk?

This balance has admittedly been a very tricky one to figure out, largely because it is so highly dependent on the unique story the charts are providing at that moment, and my specific market thesis at that time. Hari’s position swapping has been very helpful (focusing more on maintaining exposure to my favorite positions at all times and not being concerned about my exit price when a position is no longer a favorite), but every time I exit a position while the D1 is still valid I worry I am working against everything my walk away analysis told me. 

@Zander Would you say the bigger losses are still manageable with the all or nothing approach since you’re less likely to over-manage a position or turn winners into losers via not holding long enough? Walk away analysis allows you to take bigger wins, but also eliminate the medium losses that would be winners if you just held a little longer. Basically just by increasing your win rate and PF, the bigger losses are ok?

@Jared B To be honest, I haven’t been disciplined enough in trying/documenting one approach consistently enough in multiple environments to give you a conclusive answer to that question. My limited sample-size trade review suggests that the all-or-nothing approach (i.e. taking a position and sticking with it no matter what until it hits a target or breaches significant D1 levels) based on a basket of actual entries I’ve made would be profitable, but I don’t have a live track record to back that up. Why don’t I? Because I am very impatient and am prone to switching methods of managing trades when one doesn’t go my way for a day or two. 

@Zander Understood!

@Zander What you said about trying to figure out the fine line between Hari’s “swapping a loss for another trade method” vs trusting the walkway analysis is something I resonate with as well. I’m always working to increase my patience with trades so I feel that doing that method is tricky. WA shows most my losers would be profitable so if I wait they will likely be fine and if I start dumping them for a new trade then I am not actually trusting my trade’s thesis anymore. So far I havent figured out how to combine both these methods, both patience and efficiency. Any thoughts on that Dave?

@Zander That is also important. Something worth remembering is that even the best trade could be a loss. We have no way of knowing if the next trade will be a winner or loser but we can only take trades with the best setups for the highest chance of success. I try not to beat myself up on every loser. Sure, many of them had mistakes but some losers were great trades at the time that just didnt work for whatever reason.

That fear is something im still trying to shake off and this group has been like AA for me trying to detox me from my past bad habits.

@Hariseldon yes ive read up on them, its just for eg, if you talked about a stock last week , i couldnt go and look at the options today to get an idea of why you picked those strikes, because all of the values would change,  i know they might not move much.  I know you’ve mentioned HD in the past,even if you could do an example with todays closing option prices , then i could go look at ALL the options, see why you picking a certain strike price over another,(the Greeks,Volume.IV ect) just learn faster

flowbee wrote:

@Hariseldon yes ive read up on them, its just for eg, if you talked about a stock last week , i couldnt go and look at the options today to get an idea of why you picked those strikes, because all of the values would change,  i know they might not move much.  I know you’ve mentioned HD in the past,even if you could do an example with todays closing option prices , then i could go look at ALL the options, see why you picking a certain strike price over another,(the Greeks,Volume.IV ect) just learn faster

@SubZer0 you said it so well – that’s exactly what happens. I’ve avoided the hulk and revenge trading, and am on track in so many ways. But my “unlearning” the hyperactive instinct to watch every tick for a monster red bar reversal will take time. I’m doing walk-aways on all my trades now and am seeing the power of the D1 chart – this should help me stay calm when a trade seems to be getting away.

@st0rm I keep seeing “walk-away” referenced.  Do you simply mean to put on a trade, and walk away (ie dont watch every tick)?

Walk Away Analysis from RealDayTrading

@st0rm I have the same issue. But recently been able to trust the D1 more. I sized down and became more strict on my D1 criterias. I still have some bad trades but I have had better swings. Just having more and more experience with it gave me more confidence to hold. SPY yo yo-ing a few months ago gave me PTSD. I am finally now getting over that lol 

@BreakfastCrayons There is a very fine line between coming up with a thesis on the market and trying to out-think the market – having the former is essential, but the latter will crush you every time.

@Auto not losing money is making money

@Hariseldon the flies have been my bread & butter since May, the combination of credit spread & debit spread at a key technical level gives a few outs to adjust given new market information or just ride out time decay in a low proability market. sometimes i do wider on the credit spread side if its below a key level, and that can almost put the trade on for free or a smaller debit. also having a lot of fun with ratio spreads recently my WMT 137/135p ratio (playing gap levels) i put on for 0.01db and  closed for .30cr! not as margin efficient though

@Pete for identifying divergences, do you put more weight to the slope of the 1OP not matching the SPY direction or when the cross not matching the SPY direction?

@thiencly Movement (stacked candles) is always the priority. When we have movement 1OP will tell us when a trade is setting up. When the market is compressing, no indicator works well. Know that indicators (other than 1OP) lag. In a compression, other indicators will just be generating a signal and the move will be over and ready to reverse. 

@lilsgymdan It really depends on your market forecast. My forecast is for a pullback and some nervous jitters for a few weeks. I believe that is going to set up some excellent BPS, for longer term trades. How far we pullback and the speed with which it happens will help me gauge support. I suggested a BPS on LOW, but for all intents and purposes, that was just dipping my toe in the water on BPS. CCS at the high end of the range also make sense, but I would not enter as many of those because I liked the bounce and I feel support at the low of year is forming. For longer term swings, I want to keep my distance as much as possible. For short term swings we rely more on momentum and there I favor ATM PDS/CDS.

@lilsgymdan OTM CCS follow the same requirements as OTM PCS just reversed – so you’re looking for a chart like the one @Pete showed for WYNN – the stock can stay flat; go up or even drop some and the spread will be fine.  Whereas for a PDS you’re looking for a more immediate move down.   

Learning and trading well is not a straight line up, there are many many setbacks along the way 

@Dave W is absolutely correct.  I do not know what your expectations were/are but as I have been saying – it takes minimum 2 years – the real question is – How much tuition will you pay during those two years?  If you follow the ten steps I laid out, exactly the way I laid them out, then you aren’t paying that much “tuition” at all – but if you are using a fully loaded account while learning, then yes, you can expect to lose a lot of money during those two years.  So that is the first thing.