Estimated Duration:  2 Days

Notes:  Be very familiar with our definitions.  They are unique.  Use this page as a reference point in the future as well.

Having Proper asset allocation is critical to having success trading the market.  This concept usually suggests that by properly allocating your monies amongst sectors, you should able to achieve in line Market results. 

This is NOT what we mean by asset allocation.

We mean....

The monies you are using to trade with in Day Trades or Swing Trades should be aimed at aggressive growth.  With that said, even these assets need allocation.  This means that you need to determine how much of your monies will be allocated to Day Trading, and How much for Swing Trading?  Once you do this you should open separate trading accounts for Day Trading and for Swing Trading so you don't combine these monies.  These accounts should be margin accounts, but you should not expect to use margin often.  You should evaluate these accounts every quarter.

Further, when you have funded your account(s) you need to determine how many shares that you will trade with per/position. 

You need to be able to trade 4 positions at all times.

Therefore, you need to divide the cash that you have allocated to your account(s) by 4 (DO NOT INCLUDE YOUR MARGIN BUYING POWER).  When you do this you will get a $ value representing the amount of money your can use for each trade.  From there, you determine how many shares to trade with by dividing the $ value by the average price per share of the stocks that you follow for trading purposes every day.

Here's an example:

You have $100K in cash.  $100K/4 = $25K per/position.  Assume that an average price of the stocks you follow is $50.  $25K/$50 = 500 shares.  In this example you would trade 500 shares every time that you make a trade no matter what the share price was (so long as your average trade continues to be with $50 stocks over time).

In essence you will have allocated your assets per trade.  This is what we mean by asset allocation and it is a requirement in our opinion in order to achieve success trading with our program.

Balance is an important element when using technical analysis.  Technical analysis tries to define turning points in the Markets.  However, this is not an exact science, and sometimes defined support or resistance levels break.  When breaks of support or resistance levels occur though, we often need to balance a prior trade with a position in the opposite direction of that prior trade in case the Market move against us.

Here's an example:  If we bought a stock near a Market support level, and the Market began to break lower, we would have to balance the long position with a short position to protect yourself in case the Market continued to drop.

Quite simply, balance means that we stabilize our trade by offsetting it with a position in the opposite direction if a Market Parameter Breaks.

Balance only takes place around a stated Market Parameter.

Never use the same stock to balance a prior position.

Day Trading is one of the 3 unique trading styles that we offer advice for at Stock Traders Daily.  It is also a main topic of a later tutorial, so this description will be rather brief.

Day Trading is an aggressive trading approach.  Trading is typically very active.  You need to accept small stops and small gains all of the time.  However, the small profits that are achieved by Day Trading tend to add up over time. 

Day Trades never last longer than during the day that you initiated them.  This means that every day you end in cash.  This, in turn, limits your risk to the trading session in question.

This strategy requires you to sit at your computer at all times and monitor your trades. 

Tight stop losses are required on every trade

Entry targets will always be provided to you in the trading plans offered through the Focus List

An entry target is the level at which you are willing to enter a trade.  This will always be a stated support or resistance level for the stock which you are considering for trade.  In order for an entry target to be close enough to execute a trade, the stock must be within .05 of the entry target without breaking that entry target. 

Here's an example for a long position near support where the support level for the stock in question is $50:

Entry Target = 50, stock = 50.1, no trade is triggered and another stock might need to be considered unless the stock dips to 50.05

Entry Target = 50 stock = 50.03, initiating a trade is OK so long as it is not more than 50.05

Entry target = 50, stock = 49.98, trading this stock is NOT OK unless the stock moves above 50 again.

Here's an example for a short position near resistance where the resistance level for the stock in question is $40:

Short Entry Target = 40, stock = 39.9, no trade is triggered and another stock might need to be considered unless the stock increases to 39.95

Short Entry Target = 40 stock = 39.97, initiating a trade is OK so long as it is not less than 39.95

Short Entry target = 40, stock = 40.02, trading this stock is NOT OK unless the stock moves below 40 again.

The focus list has filters associated with it which allow you to find stocks which are trading with the market.  This allows you to correlate the stocks that you are considering for trade with the trading patterns in the Market.  This is what we have referenced in the Summary section of these tutorials.  These filters are the tools which allow you to find stocks which are correlating with the Market at the touch of a button.

For example, if you are looking for long day trading positions when the market is trading near support levels, you would go to the focus list and you would filter the list for long day trading ideas near support.  What you would get would be a list of the stocks in our focus list which were trading closest to their respective support levels for day trading purposes.  All of these stocks would have exact trading plans associated with them as well.  The order of the stocks would be based on how near they were to their respective support levels.  The closer (in %) the stock was to its support level, the higher up on the list it would appear.

These are extraordinary tools, but they require 1 simple discipline: 

YOU CAN ONLY FILTER THE FOCUS LIST WHEN TRADING TRIGGERS PRESENT THEMSELVES. 

The list does not recognize the concept of 'when.'  The filtering tools simply filter the focus list when you tell it to filter the list.  Therefore, if you direct the filters to filter the focus list at the wrong time, you will NOT find stocks that correlate with the Market.

However, if you filter the focus list at the right time, you will achieve Market correlation.

You are told when to trade by the Trading Parameters, or Triggers, that are offered for the Markets every day.  When a trigger presents itself, filter the focus list, and you will have achieved successful correlation.  If there is no trigger, do not filter the list.

The 5-Point Rule ONLY comes into play AFTER we have balance.

That means that only after we have a long and a short around a given trading Parameter do we incorporate the 5-Point rule.

The 5-point rule tells us that ONLY after the NASDAQ has moved 5-Points below or above a trading Parameter around which we have balance do we add a long or a short respectively depending on the direction of the market move.

Example:  We have balance around 2000 in the NASDAQ (which was a stated trading Parameter).  This means we have a long from just over 2000 and a short from just under 2000.  If, after having balance, the Market moves to 2005 we would add a long to overweight longs because the market is 5-points above the stated parameter.

The 5-point rule is a critical element and it needs to be incorporated in order to achieve accurate Market Timing in association with our strategy.

The Focus List is a confined list of stocks that we monitor closely for trading ideas every day.  The focus list comprises approximately 100 different stocks from all sectors.  The objective of the list is to find stocks which move along with the Market every day so that when there is a trading signal from the Markets, we can efficiently find stocks to trade within the focus list.

At the same time, because this list is confined, we can keep a close eye on the universe of stocks which we follow.  We know what news events are affecting our stocks every day.  We are never chasing the hot stock of the day.  We become familiar with the trading patterns of the stocks on the Focus List.  And this helps us maintain our discipline as traders.

Requirements:

1. The trading price of every stock on the list must be over $10 to be considered
2. The average daily volume of each stock must be over 2 million shares/day to be considered.
3. The stock should move along with the Markets most of the time.

With this, the focus list is comprised of highly liquid, tradable stocks which tend to move along with the Market.

Inflection points are very similar to 'Parameters.'  The difference is that inflection points are more important turning points in the Markets.  We can have trading Parameters to signal trades every day, some of which are more important than others.  Inflection points should be considered the more important of those Parameters.

The idea is that any test/break of an inflection point should be much more technically important to the Market than other tests of Parameters may be.

A good example would be tests of longer term support levels.  Anytime a longer term support level is tested it is important to the Market.  Therefore, typically, longer term tests of support would be considered tests of inflection points. 

We will tell you, through our trading analysis, when inflection points are present.

Long positions are buys. 

The term 'go long' means that we made a buy of a stock.  So, if we 'went long' at 50, we would have bought the stock @ $50. 

Long positions are triggered in 2 ways:

1. When tests of stated support Parameters occur
2. When breaks above stated resistance Parameters happen.

We will always tell you where these stated support or resistance Parameters are .

IMPORTANT:  We ONLY buy when one of the 2 circumstances listed above occur.

MARKET TIMING:  Also, in order to achieve accurate Market timing, we ONLY establish long positions when one of the 2 items listed above occur in the Markets and in individual stocks at the same time.  Only when these circumstance correlate do we achieve accurate Market timing in long positions.

Long Term Trading is one of the 3 unique trading strategies that Stock Traders Daily offers to its clients.

Long Term trading signals occur only a few times a year however, and therefore longer term trading activity is much less frequent than day trading or swing trading are..

The objective of long term trading is to find stocks which we can hold for a number of months or years.  This means that we need limit our choices to the best of the best companies.

Yes, technical analysis is going to tell us when to buy, and correlating technical analysis gives us ideas about what to buy just like it does for day trades and swing trades, but longer term trades require 1 more step.

WE MUST INCORPORATE FUNDAMENTAL ANALYSIS INTO ALL LONG TERM TRADES.

Stock Traders Daily does not offer fundamental analysis, but we can tell you when to engage longer term trades, and we can give you ideas to consider.  But you must do you own fundamental research for longer term trades.

We are normally not concerned with fundamentals when we trade, but longer term trading are not trading positions.  They are longer term holds.  That means that we take positions in these companies, and that means that we need to make sure that these are good companies with attractive prospects.

Consult your financial advisors to access their fundamental research of any companies that our correlating longer term technical analysis provides you.

We rarely issue short recommendations for longer term trading.  Longer term trades are meant to be bought and held in our opinion.

To find longer term trading signals review the Longer Term Trading Analysis page which contains the longer term trading parameters, and only make longer term trades when these Parameters are tested.

Overweight ONLY comes into play AFTER we have BALANCE.  Please review the description of BALANCE above if you are not already acquainted with it.

We initiate balance around a trading parameter because the Market is testing that trading parameter.  From there, after that test, we would expect the Market to move up or down, to either the next support parameter, or the next resistance parameter.  Typically we would expect this to be a good sized move.

Because we would expect the move to be more sizeable, when the Market begins to move in that respective direction, we should be willing to overweight our position in the direction of that move.  That means that, if the market is headed lower, we should find an additional short.  On the other hand, if the Market moves higher, we should find an additional long.

WE NEVER OVERWEIGHT A LONG OR SHORT WITH THE SAME STOCK.

We should always find a new stock to trade when we decide to overweight a position.

Consider overweight positions as attempts at achieve 2 things:

1. We want to take advantage of the next Market move.
2. We want to offset the balanced position that is in the opposite direction of the Market move.

Example:  We have 1 long and 1 short around NASDAQ 2000 (which we had identified as support).  The Market begins to move higher, and an overweight long positions is triggered.  We would then have 2 longs and 1 short.  All of our trades have stops associated with them though, so, we should expect to take a small loss from the short.  This small loss, we hope to offset with the gain from the second long as we wait for tests of the next level of resistance.

We always use the 5-point rule when overweighting positions.  The 5-point rule tells us that when the Market moves 5 points away from a parameter after we have balance, we should overweight the position in the direction of the Market move.  In the example above that would be 2005.

Paper Trading is the act of making trades on Paper AS IF you were making them with real money.

The objective is to practice trading without the risk of losing money.  You should do this until such time as you begin to make money on paper, and ONLY then should you begin trading with real money.

We recommend paper trading to everyone who first begins to use our system.

Our trading strategies are unique, and they do have a learning curve.

By Paper Trading your learning curve should be accelerated.

Trading Parameters are defined support and resistance levels which we use to guide our trading activities every day.

The trading Parameters of the Market tell us when to initiate trades, and they are the key factor behind achieving accurate Market Timing. 

Trading Parameters are data points.  These data points are derived from a term specific review of the charts.

Trading Parameters are used to do 2 things:

1. To find long trading signals/ideas
2. To find short trading signals/ideas

We never know what type of signal we will get until such time as the Market tests one of the stated trading Parameters during the trading session for which the Trading Parameters have been supplied.

We will always tell you where the Trading Parameters lie for the Markets so that you are prepared to trade well before trading signals present themselves.

A set of Trading Parameters always has more than 1 support and resistance parameter associated with it.

Here's an example:

Initial Swing Trading Parameters exist between 1994 - 2016

If 1994 breaks lower expect 1970

If 2016 breaks higher expect 2100

Otherwise expect 1994 - 2016 to hold

These Parameters are telling us to trade the Market as follows...

The price Targets that we use take 2 forms:

1. Price targets for the individual stocks
2. Price Targets for the Market

The price target that we offer for individual stocks present themselves in the trading plans that we provide for individual stocks.  If you use our site strictly to find trading plans for individual stocks, and NOT to achieve Market Timing, you would use the price targets in those trading plans to tell you when to exit your trade.

The price targets that we offer for the Markets override the price targets for individual stocks though. 

If trades have already been triggered based on the trading Parameters for the Market and we are waiting for the price target in the Market to be reached, but beforehand the price target in the trading plan for the stock we are trading is reached, we do not exit our position, but instead we hold that position through its respective price target until such time as the Market's price target is reached.

Price Targets are always defined support or resistance levels.

Price Targets are always known before any trade takes place.

Price Targets, when they are reached, also usually signal a new trade, as well as signaling the closing of a previous trade.  This is because the Price Targets are defined support or resistance levels, and when support or resistance levels are tested trading signals present themselves.

A profit stop, in the simplest sense of the phrase, is a stop loss that is intended to secure the gains that you may already have in an individual stock.

For example, if you had a $1.5  gain in a trade that you made in EBAY and you didn't want to lose it, you could set a profit stop that would close your position if the gain dropped to below $1.  Thus securing a profit of $1.

Profit stops can be physical, by implementing them into your trading platform (which should be supplied and supported by your broker), or they can be mental.  Mental profit stops require you to watch the Market intently and to act immediately.  More importantly, they require you to be disciplined, no matter what happens.

We recommend the use of profit stops in different ways for swing trades and for day trades.

Swing Trading Profit Stops:  We use a 1-point gain as a signal that we should start to consider profit stops for swing trades.  For example, if we initiated a long position in EBAY @ 50 and the stock was at 51.25, we should consider putting in a profit stop at 50.99

Day Trading Profit Stops:  We use a 0.50-point gain as a signal that we should start to consider profit stops for day trades.  For example, if we initiated a long position in EBAY @ 50 and the stock was at 50.6, we should consider putting in a profit stop at 50.49

Profit stops are designed to secure you gains, and they should be used as a forced discipline which prevents any profitable trade from turning into a stop because you failed to take profits in the position when gains were available.

Resistance is a term we use to identify the ceiling, or the upper limit that we believe a stock will reach before it begins to turn lower.  Consider resistance as a signal that the Market, or a stock, may begin to experience trouble moving higher once tested.

Here's an example:

We have a stated resistance level in the NASDAQ at 2000, and the Market is trading at 1980.  When the market gets closer to 2000, we should expect it to have more and more trouble moving higher. 

When resistance levels are tested we should always expect them to hold.  In addition, when resistance levels are tested, short signals present themselves.  Therefore, when resistance levels are tested we should always consider short positions with the expectation that the Market, or the stock in question, will begin to decline.

What happens if resistance levels break higher though?

If resistance levels break higher the opposite happens.

In other words, if resistance breaks higher, we should expect the Market to continue to increase to the next level of resistance.  A break above resistance also triggers a long position.  In other words, a break above resistance should trigger a long position with a target of the next level of resistance.

As you can see, resistance levels are used as trading triggers.  We execute trades when resistance levels are tested (and support levels too).

We will always tell you where resistance levels are, and we will always give you downside Market targets when resistance levels are tested.  On the same note, we will always give you upside Market targets when resistance levels break higher.

Here is an example:

Initial Swing Trading Parameters exist between 1994 - 2016

If 1994 breaks lower expect 1970

If 2016 breaks higher expect 2100

Otherwise expect 1994 - 2016 to hold

These Parameters are telling us to trade the Market as follows...

Short Positions are trades that are made with the goal of having the price of the security in question decline.

That means that we sell high and buy low, in that order. 

Short Positions make up about 50% of the trades which we suggest and they are an integral part of trading the Market.  If you don't know how to execute short positions using your trading software call your broker immediately, RIGHT NOW, and ask them how to do this.

Short Positions allow us to make money in any Market environment.  The Market could be falling off of a cliff, and we could be making money hand over fist at the same time.

Short Positions, without a doubt, are a REQUIREMENT.

Short Trades are suggested at 2 different times:

1. When the Market tests levels of resistance.  At levels of resistance we assume that the Markets will stop going higher, and at the same time we assume that the market will start heading lower.  This, clearly, would be an ideal time to initiate short positions.
2. When levels of support break lower.  When support levels break we always assume that the next level of support will be tested.  Because this involves additional declines, this too would be an excellent place to initiate short positions.

We will always tell you when to initiate short positions and we will always give you trading suggestions.

Short Positions are closed by being 'COVERED.'  This refers to covering the short.  You cover a short position by buying it back into your account.  This is ideally done at levels of support (remember when we short at resistance we target levels of support for example).

If you don't understand short trading do it on paper until you understand how to do it, and once you become familiar with it, begin to use real money to execute your trades.

A Stop Loss is a tool which we use to manage our risk.

We incorporate stop losses into every trading, and we have a trading plan for every stock we recommend.

We expect that these stop losses will always be followed.

NEVER LET A STOP LOSS PASS.

Here's an example to explain why:  We buy near levels of clear support because we expect the market to increase from levels of support to levels of resistance.  However, because sometimes support levels break, we need to incorporate a tool to balance our risk (to get us out of a bad trade if the Market begins to break).  If we don't do this the Market could fall to the next level of support and leave us holding a losing trade, which we never want to do. 

We have very tight stop-losses associated with our trading plans because we expect our entry points to be relatively exact, and that means that any breaks of such usually are negative indicators.

Stop losses for our 3 trading strategies are as follows:

1. Day Trading Stop Losses are always $0.20
2. Swing Trading Stop Losses are always $0.25
3. Long Term Trading Stop Losses are always $0.25

Stop loss recommendations are always provided to you.  You need to incorporate them into your actual trades though.

However, if the Market is moving against you, or at least in a direction opposite to your trade, but your trade does not stop, do not exit your trade until either a trading Parameter is tested or until it is stopped.  The idea is that the type of situation referenced suggests that the stock you are in is resilient to the direction of the Market and you could (this is not normal) make money from a long position in a declining Market for example.

We normally would not expect this, but we always want to maintain the opportunity to have this happen to us, and because we have such tight stop losses associated with our trades, letting the trades work until one of the 2 exit strategies referenced above occur should be acceptable.

Support is a term we use to identify the base, or the lower limit that we believe a stock will reach before it begins to turn higher.  Consider support as a signal that the Market, or a stock, may begin to experience trouble moving lower once tested.

Here's an example:

We have a stated support level in the NASDAQ at 2000, and the Market is trading at 2020.  When the market gets closer to 2000, we should expect it to have more and more trouble moving lower. 

When support levels are tested we should always expect them to hold.  In addition, when support levels are tested, long signals present themselves.  Therefore, when support levels are tested we should always consider long positions with the expectation that the Market, or the stock in question, will begin to increase.

What happens if support levels break lower though?

If support levels break lower the opposite happens.

In other words, if support breaks lower, we should expect the Market to continue to decline to the next level of support.  A break below support also triggers a short position.  In other words, a break below support should trigger a short position with a target of the next level of support.

As you can see, support levels are used as trading triggers.  We execute trades when support levels are tested (and resistance levels too).

We will always tell you where support levels are, and we will always give you upside Market targets when support levels are tested.  On the same note, we will always give you downside Market targets when support levels break lower.

Here is an example:

Initial Swing Trading Parameters exist between 1994 - 2016

If 1994 breaks lower expect 1970

If 2016 breaks higher expect 2100

Otherwise expect 1994 - 2016 to hold

These Parameters are telling us to trade the Market as follows...

Swing Trading is one of 3 different types of investment strategies for which Stock Traders Daily offers advice. 

Swing Trading envelopes the concept of holding a stock position for more than 1 day, but usually for less than 1 week (using our strategies).  Sometimes, however, swing trades will only last 1 day, but that's not normal, and whenever a swing trade is engaged it should be expected to be held overnight.  A swing trade only lasts 1 day when the Market-Target that is suggested for that trade is reached the same day the trade is initiated.  This typically only happens in fast moving Market environments.

With that understood, because swing trading involves overnight holds, an additional risk is assumed which needs to be understood before any swing trades are made: overnight news surprises can cause price fluctuations in swing trades which make the stop losses which we so ardently adhere to impossible to achieve.  Therefore, from time to time (and this is not normal either) we may have to take a bigger than expected stop-loss in swing trades if the Market gaps against us in the Morning.

Swing Trades always have a 0.25 stop loss associated with them.  If, for some reason, we cannot get .25 and the stock moves against us in the morning we should exit the stock at the soonest possible moment and consider new trades based on the trading parameters associated with swing trading.

We offer specific entry points for swing trades based on specific Market levels through our Website.  You can find these Parameters in the Swing Trading Analysis Page.  These Parameters guide your decision making process on entry an exit levels and they are what allow us to achieve accurate Market Timing within this trading strategy.  They tell us when to buy and sell.

ONLY after a trading signal has come from the Swing Trading Parameters do we consider executing a swing trade.

To find a swing trade we go to the Focus List (again after a trading signal occurs) and we filter the list appropriately.

For example:  If the Market has dipped to a level of support (we always buy upon tests of support), then we would filter the Focus List for Long Swing Trading Ideas near Support when the Swing Trading Parameters told us to, but not before.

 Swing Trades require less effort than Day Trades but they assume more risk because of the uncertainty of overnight holds.  However, they also, typically, provide greater per trade returns.

Swing Trades require adherence to Balance as well.

However, because all of the data is provided to you, following swing trades should be relatively easy, and, if you are comfortable with the risk associated with overnight holds, profiting from swing trades should be consistent over time.

Target and Market-Target are often used interchangeably.

Whenever we have a trading plan we always have a Target.  A Target level is the level at which we plan to exit our trades.  This level is always a defined support or resistance level and it is always provided to you in the Trading Analysis Pages so that you know what it is before you enter any trade or trading strategy.

We offer Market Targets so that you can take advantage of accurate Market Timing, but we also offer stock-specific targets in case you choose to ignore our Market Timing Strategies (We don't recommend this).

Assuming you are following our strategies, the Market Targets will always override the prices targets in the trading plans of the individual stocks in question.

Foe example:  If we bought a stock near a Market Trigger of 2000 with a Target of 2020, and the market was at 2005 (not near 2020 yet) and at the same time our stock had already reached its target, we should continue to hold that stock (assuming it will pass its target) until such time as the market tests its target of 2020, and at that time we should consider taking profits.

Target are extremely important and, before you enter any trade or trading strategy, you MUST know what you target is going to be.

A Trading Plan is required before any trade is entered.

A trading plan consists of 3 elements:

1. An Entry Price
2. A Target Price
3. A Stop Loss

Trading Plans are offered for every stock that we recommend trades for.  They will take the following form:

Trading Plans take 2 forms:

1. Support Plans
2. Resistance Plans.

Support Plans are simply Trading Plans that have triggers which are at support levels.

Resistance Plans are simply Trading Plans which have triggers which are at resistance levels.

You should always know what your trading plan is before you execute your trade, and as you can see above, we offer trading plans to you so that you know what your plans should be in advance.

A Trigger is often referred to as a Market-Trigger.

A Trigger is a level in the markets at which we execute a trade in order to achieve accurate market Timing.

Triggers are always defined support or resistance levels and they are always offered to you in advance so that you know where they are, and so that you can prepare before the said trigger is tested.

Triggers are provided to you in the Trading Analysis Pages.

We never know if a support or a resistance level will be a Trigger.  It depends on which way the market goes.

When a Trigger is hit we have a trading signal.  And ONLY when we have a trading signal do we execute a trade (this assumes that you want to achieve accurate Market Timing).  This means that we only go to the Focus List to find a trading idea AFTER a Trigger presents itself.

Here's an example:

If the initial Parameters in the market are 2000-2050 and the market was at 2025, we would not have a trigger (and therefore we would not execute any trades) until the Market came near 2000, or until it came near 2050.  ONLY when one of those levels were tested would a Trigger present itself.

The example above refers to the NASDAQ.  Please make the following notes:

A trading trigger in the NASDAQ occurs when the market is within 3 points of its trigger.  In our example that would be either 2003 or 2047 (3 points away from each).

If you  were following the DOW or the S&P instead you would make the following adjustments:

1. The trigger for the NASDAQ = 3 points near a Parameter
2. The trigger for the DOW = 15 points near a Parameter
3. The trigger for the S&P = 1.5 points near a Parameter.