Profits

Trading has end goals that are different for everyone.  Some look at it as a way to keep score, others as a way to prove ego, and others still as a means to an end.

Regardless of the goal, everyone has a goal to make profits.  The thing about a goal like that however, is because it’s so open ended, most people never get the big profits they really wanted in the first place.

It’s easy to say I bought FB at $20.  It’s a lot harder to say I’m still in FB from $20 when it’s now over $170.

How do you handle the swings that come with holding a trade for bigger profits?  Whether it’s taking a trade from 1:1 to 2:1 or taking a trade from a double to a triple, to make real profits, you have to be willing to give it back without willing to go underwater on a massive winner.

The key to making larger profits is you must learn how to only trade house money.

It’s easy to say I’m in at $20 and my stops at $25 so since the stock is currently at $30 I’m home free.

However, if tomorrow the stock comes out with news that sends your stock gapping 50% premarket (EFX anyone?) and you aren’t covered then that stop does you no good.

A stop market order only means that you will be taken out at the market price if your number is reached.  A stop market order does not guarantee you will be taken out where you want.

 

A stop market order does not guarantee you will be taken out where you want.

So back to our example.  If you are in a stock at $20 and it’s up to $30 you’re up around 33% at the minimum.  

If you’re stop is moved to $25 you’ve locked in a $5 gain and are up at least 20%; excellent job.

However, if the next day something happens that causes the stock to gap around and take a 50% bath, what will your stop end up doing?

Your stop market will simply trigger at market price once $25 or lower is reached.  That means if the market opens at $15, you’re out at $15.  

This doesn’t happen very often under normal circumstances, but if you’re in profits and holding a stock through earnings, FDA news, or just unlucky, you better believe it can happen.

Stop Markets are helpful, and they are used by us regularly especially starting out.  The potential for these types of black swan events are rare and if you truly understand trading it’s simply exchanging risk for potential reward.  Which is why a trader clicking a mouse for 30 minutes can make more than most who work 40 hours when it’s done right.  

That being said however, once the trade gets enough into profit to start using house money, there are alternatives that work even better than stop markets.  Enter Box Trades.

Once the trade gets enough profit to use house money; there are alternatives better than stop markets.

Box Trades using Options

A box trade requires 3 parts.

  1. Equity Shares
  2. Call Options
  3. Put Options

While it can be done from the start, it is recommended to not pursue until the trade is in enough profit to cover the cost.  Doing this beforehand will eat away at profits and is only recommended under extreme circumstances.

However, lets go back to our example above.  (Note: The video below shows a live example if you’d prefer video over reading).  In the above example, the stock was purchased for $20 and was currently at $30.

If the same goal of $25 stop was desired, instead of using a stop market which has risks, the trader could look to purchase $25 puts roughly 1-3 months out on a long term setup or 2-4 weeks out on a short term setup.

Whatever the cost of the put, the trader would sell calls on the other end to offset the balance.

Tip: Never sell naked calls/puts. Only sell 1 contract for every 100 shares you own and round down.

 

Let’s say the $34 calls cost the same as the $25 puts.  Noticing the calls are more expensive than the puts from the get go may be an excellent indicator where markets believe this stock to be heading.

In this example let’s assume the trader has 300 shares purchased at $20.

They want their stop to be at $25 to lock in profit now that the trade has reached $30.

By selling $34 calls and using the profits to buy $25 puts they have created a risk free box.

If the trade gets above $34 before expiration, the shares are taken away for a $14 profit or 70% Return.  

If, however, the trade has a black swan event where the stock gaps against, the stop market order would result in a net loss regardless of where the stock was the day before.

The puts however would profit anything under $25 theoretically locking in profits at a $25 level or $5 per trade.

The difference between a covered call and a box trade is a covered call is used for slow stocks looking to collect extra premium, the box trade is used for aggressive stocks where you are looking for insurance.

The downside to this is that if the stock gets past $34 you’re out the shares and no longer have a position.  If, however, you are doing this short term and the options expire worthless you can look to put it back on every few weeks or months and simply hold until taken out from the calls.

This is only one example of how to protect profits, but hopefully it can help shed some light on ways to protect profits other than simply adjusting a stop and hoping the news doesn’t hurt you.

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Why Shorting with your Head can take away your Balls

EFX or Equifax made national headlines when it disclosed it’s massive data breach.  Everybody was reading about the failure of this company on a massive scale.  This seemed like a goldmine in the making.  

EFX takes 5 days to fully digest the news and the shorts but it pays off in spades going from the mid $120s down to just under $90.  Not a bad payout for the bears over a 5 day stretch.

Everybody that missed the first run down was eager for round 2.  Price runs up, and they start lickin their chops.  They’ve got the fib levels in play, they know the headlines are all bad, they like the round numbers, and they start hitting it short.

Price might be making new 20 range highs on the 30 and 60 minute, but this trade is a disaster.  This company is the next Enron, their entire businss core has been shifted.  Traders make compelling statements to themselves and talk themselves into getting larger, doubling down, and doing everything they shouldn’t have done because this company has done something so bad it has no choice but to drop.

No Matter How Bad the News is; the Market can always price in what it wants to. Nothing ever HAS to happen.

These traders took logic, and used it to get into a trade that was turning to the upside.

Long term this trade definitely has more going against it than for it, but will the trader that went all-in at $100 because it was a 10% correction from the lows and that psychological number was huge, will that trader be around to take another shot at it?

By using their heads, traders out there got themselves burned so badly that they won’t have the balls to pull the trigger next time.  The worst thing a trader can do is be right but so early that they take themselves out of the game before it even starts.

When building a case for the bears, few companies seem as out in the open and flawed as EFX right now.  Remember what happened to CMG after they were found to make people sick?  Their stock lost over 50% over the course of a year.

Logically, EFX definitely has potential to follow suit.  But does that mean it will?  If there’s no one left to buy, a stock can roll over.  If there’s no one left to short, a stock can explode.

Start building yourself a case for entry.  Doing this properly can help you determine between what makes sense in your mind (logic) and what can produce profits in your account (edge).  Because if you don’t, you’re going to hurt yourself mentally until you lose the nerve to take the trade that should be taken.  

Building a case for entry in trading is the difference between logic and edge. Only one Succeeds.

If you were to build a case short on EFX, what timeframe would you be looking at? 

Let’s assume for this example you like the 30 minute as it’s a 1-5 day hold using this timeframe on average.

What would your answer be to these questions?

  1.  What are the moving averages telling me about this stock?
  2.  What is the 20 range high/low telling me about this stock?
  3. Where is the last area that price respected strongly?
  4. Where did the last breakout/breakdown come from?
  5. What is my primary reason for taking this trade?

Now look at EFX since it broke out to a new 20 range high on the 30 minute and decide what would your decision been?

Can you be opposite in the short term when the long term says something else?

Can you be patient enough to wait for the proper signal?

Do you have a signal at all that should get you in?

These are the questions you have to start asking yourself in trading.  Regardless of the stock, trading is a personal process.  There are always traders looking at the opposite side of your trade, whether retail or professional.

There are always trades you can do everything right on, have your edge present, and still come out losing.  So you better make sure that you are 100% convicted on the trades you DO take.  

Yes, EFX made sense to short it.  Yes, EFX went long in the short term and is easy to call out in hindsight.  But, now that you see a potential case for entry and have an idea on some questions to start asking, what do you see going forward?

This video may help show the way as well, but remember, every trade is a winner and a loser depending on who you are.  The trick is to keep your head in check so you don’t lose your balls, because if you don’t have the guts to pull the trigger when it counts because last time you got burned, you’re done.  Build the Edge, Follow the Edge, get Paid by the Edge.  It really can be this simple. 



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Counter Trend Trading Hack

Picking the top in a trading range is one of those setups that every trader has tried at some point in their career.  It always goes something like “If I can short it at 100 and cover at 80 I’m going to retire in a week and my risk is only a dollar so it fits the risk/reward that the pros are doing.  It’s a sure thing”

The thing about trading is it’s never a sure thing.  Everything can fail.  Even if your risk/reward is strong, if the edge is weak, it still may be the wrong setup to take.  Yes, the pros look for high rewards vs risk, but they also make sure there is an edge present.  You can bet a million dollars on 11 in roulette and make $30 million, but that doesn’t mean you should.

The thing about trading is it's never a sure thing.  Everything can Fail.

Traders see a setup that looks over extended and decide the payout is so strong they can be wrong half the time and still come out ahead, so they take the shot.

Then, the strength keeps going, taking them out along the way, and they see another opportunity just a little higher up, and they take it again.

Taken out a second time, they are now down 2R but see an excellent opportunity to try again and get back everything they’ve lost plus a little more.  Taking it here requires a 2:1 payout just to get back to even minus spreads and commissions, but the reward is still easily 10:1 so it’s worth the risk, they take shot #3 and lose.

By this point they are so fed up with the stock that they move on in disgust, refusing to even look at this symbol anymore.

Just when the trader ran out of money to fade, the stock starts to turn.  The trader, already staring again at the stock and breaking their own vow they had just made, now sits in total disgust as the trade goes 3R in their direction while they ran out of money to trade.

Their plan said 3 shots and done for the day, yet if they only would have taken that 4th shot they would have gotten everything back and then some.

Next time, they won’t follow their plan so much because it was the wrong call.  Next time, they will crush it.  Next time, eventually becomes the last time, if there is no trading edge.  They will continually blame other parts of their own plan until eventually they simply stop following any plan and blow up.  Edge plus Positive Reward to Risk equals success long term.  Everything else is just a trader trying to outsmart everyone else and hoping they aren’t the dumb money at the table.

Next time, eventually becomes the last time, if there is no trading edge.

So how can you find an edge in counter trend trading?

By using a 20 period range high/low break.  This indicator is completely free on most trading platforms.  All it does it take the highest high and lowest low of the last 20 bars (not counting the current bar) and plots it.

This forms a range that can be extremely helpful if used properly.  This is not a catch all by any means, but it is an excellent question to ask yourself before taking a trade.

It works as a fade, which was discussed above and will be discussed in the video that follows, it works as a trailing stop, and it also works as a continuation indicator.

The key to all potential CTP Hacks is this–it should be used correctly, as quickly and efficiently as possible, and is only used to help strengthen your own plan.

Let’s take a look at it as a continuation indicator.  

 

This was NVDA on 9-25-17.  Notice it is simply a 2 and 5 minute chart.  No daily, no ticks, no mid term strength.  Simply looking at the immediate trend with a 20 period range (white lines above and below price on the 2 minute).

When price runs back up to the 50ema on the 2 minute, the 20 range high is still dropping.  When the 2 minute stalls out just below the 20 range high, it shows you this is an excellent shorting opportunity.  

For those that wish to buy NVDA because it’s over extended to the downside and at a rising daily 20sma, it should also show you that not even the 2 minute chart agrees with you yet.

That does not happen until near 12pm when a new 20 range high is made for the first time all day.

This does not guarantee a winning long trade by any means of the imagination, but it does show you how to look at the trade differently.  If you want to buy it long, what timeframes agree with you?  If you don’t have any, how strong is the edge?

 

The video should help explain this even further.  In closing, just remember that everything works and everything fails.  The key to success is not trying to avoid all losing setups, but to look for patterns in your losses and look to adjust those patterns to a different way.

Hopefully this helped your trading style.  Feel free to comment below and let us know what style you like to trade, and if you have noticed a 20 range break as being helpful or not in any of your past wins or losses.  Don’t forget to pass this forward and share it with anyone looking for some help in trading, and until next time, remember to trade your own plan.

Ben from CTP

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SNAP vs FB on a Long Term Basis

Everybody loves to look at charts and go back and pick the perfect entry price.  That’s what’s called hindsight trading.  It does you very little good in the bigger picture to stare for perfect entries.  This does little more than grant ego a bit of a boost.

However, going back to look at old patterns, old % changes, and other statistics that you can use going forward in other trades is a very different thing entirely.

Today, we’re going to do just that with FB and use it to look forward at SNAP.

FB had an ugly first few months.  Price has a high of $45 and drops all the way to $17.55 while the lockup was going on.  For those who don’t know, a lockup is what IPOs have to prevent employees, VCs, etc from unloading on day 1.  By forcing them to wait it out a bit, the market can handle the earliest days of trading a little easier.

The yellow shaded area is where the lockup ends.  Not sure on exact dates but it’s somewhere in this range.

From Peak High to Peak Low, FB retraced 61%.

 After that, the weekly trendline breaks and price runs up to around $32 before stalling out and running back down to near $23.  

Just think about that.  Any trader who bought in the $18s saw their price almost double and return 100% in under 3 months, only to watch it pull all the way back to only being up around 20%.

How do you stomach that?  By accepting that position trades are not in it for 100% but for 500%, 1,000%, or simply the long haul.  

Trading is where you make outsized returns in a short period of time. 

Investing or Core Trading is where you will hold a position for a long term outlook (typically anything over 12 months), knowing that the end justifies the means.

Imagine you sold out of FB at $25 because it made you 50% from your $18 investment.  Now how do you feel today?

You’ve got to trade your plan, but if you’re looking at FB as a core, you’ve got to accept going in that a 100% is nice, but if it’s not your number, don’t adjust the stop to feel safe.  You’ll take yourself out before it’s finally time to do so.

Holding from $20 to a recent high of $160 would be over an 800% return in 4 years.  This is not the norm, but this is the power of core trading when done properly.  In the mean time, there were some violent 30% drawdowns, but it all comes back to what’s your reason.  If it’s a core setup, this really shouldn’t be completely out of the realm of possibilities.

Now that we've understood the Past, Let's Look to the Future

This is SNAP.

SNAP had a high of $29.44 and just recently had a fresh pivot low of $11.28.  This pivot low matched up with the lockup expiration which happened in the yellow shaded box.

From Peak high to Peak low SNAP had a retrace of 61.68%.

Notice the weekly trendline is still in tact.  The 20 simple moving average is not even close to bullish, and price has not given a higher low and high helping to confirm the low of $11.28 will hold.

That being said however, there are some STRIKING similarities between FB at the start and SNAP.

Going forward, if we can see the weekly trendline break to the upside, price to give higher lows and highs, and perhaps some other reasons that our plan requires to find an entry, then this has the makings of a strong core position.

What does that mean?

It means don’t bet the farm.  Everything works and everything fails.  

It means don’t risk more than 20% of your capital on this trade.  Even core positions fail.  The quickest way to broke is putting it all on black and praying it doesn’t come up red.  No matter how good it looks, size yourself accordingly.  You’ll sleep better this way.

It means you don’t trail the stop until much further down the road.  Remember, this is a weekly chart.  It took FB 4 years to reach 800% returns.  This is not the time to be thinking stop to break even after 4 weeks in the trade.

 

In conclusion, SNAP can easily fail, but so can everything.  If we simply look at the past to predict the future (technical analysis) then SNAP has a high probability starting to form that it’s FB 2.0.  

It’s not there yet, but it should be on your watchlist.  

What does your plan say? Do you have a setup to take this? Do you want more training and ideas like this one? Then Join the CTP Group today!

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Max Losses & How to Handle Them with an Edge

First we took the Loss.

We took a Max Loss on 8-8-17.  If you don’t know how to handle a loss, you can look to hold on longer than you should and make it even worse.  There’s a reason you plan for max losses, so that when they occur, you can take it like a pro.

Next, we stuck with the Plan.

That allowed us to take the trades the day presented instead of being distracted by yesterday’s losses.  Once all of our trades were live, we walked away.  We went to the gym, we studied other charts.  There’s no advantage to sitting at the desk and staring, your results are the same, your mental psyche is drained if you sit and stare.  There’s a better way.

Finally, We made it all back and then some.

This is how you trade like a pro.  Focus on the setups, focus on the system.  The results WILL take care of themselves over the long haul.

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The 10R Day

When I woke up today, I didn’t plan on making 10R intraday trading.  Considering my typical day is closer to 2R-5R this didn’t even seem to be possible.  However, that’s the beauty of a trading plan.  Sometimes it just comes together just right to allow you to absolutely crush it.

We kept it simple.  One failed breakout and 4 CTP Pullbacks.  The video will explain it best, but it’s important to remember two takeaways from this.  

  1.  This isn’t the norm.
  2. You don’t have to risk $1k to make $1k in day trading. 

Everything works and everything fails in trading.  Whether you swing or intraday trade, this isn’t the only way to do it.  I simply wanted to show you that if you have a plan and follow it; great things are possible.  Pay attention to the fact that I not only planned the trades, but had a process of how to protect myself as I improved.  A complete trading plan requires so much more than buy and sell rules.  

We’re in the process of building that training, but for now, hopefully this video teaches you a few things and gets you excited to work on your own custom trade plan.

 

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Understanding Multiple Timeframes the right way in 2017.

Ever wonder why you take a trade that looks perfect on your trading timeframe and within minutes you are taken out at a loss?  Losses are part of the process but understanding the higher timeframes can really help in this situation.

Using Multiple Time Frame or MTF as an analysis technique is an excellent way to only trade the best setups.  Hope this video helps.  Drop us a comment and let us know what you think or sign up for the CTP Group to get weekly emails of posts like this and more training for free.

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How to Analyze a Stock and Day Trade It The Right Way

We called out AMZN Long Premarket on 7/28/17.  It had earnings that took it lower but we saw reasons it should be a fade.

Join Us on Stocktwits Here to get daily stock calls like this.

After we called it, we waited for an entry and took it long just like we talked about for a 3R winner.  Join the CTP Group Today to learn this exact pullback strategy we used and learn how to make it your own.

Once you’re a member of our Group, drop me a comment.  Let me know how you traded AMZN today or stocks like this recently and why.  Are you staying consistent?  What can we help you do better?

Ben from CTP

Why You Must Focus on Rs and Not the Dollar Amount

If you’ve ever YouTube’d Day Trading one of the first things you see are videos of things like watch me make $5,000 in one hour or learn how I make $200 a day trading or any other nonsense that is only there to sell you.

The truth is, without knowing how much they were risking to make that, you don’t have all the facts and cannot POSSIBLY consider their strategy legitimate for anything more than selling purposes.

When looking at any trade result, any strategy, or any plan, the secret to success is all in the R.

R or Risk Factor is how much you’re willing to risk per trade.  Typically, the logic goes that you should not risk more than 2% or less per trade.  Many times you’ll hear this in swing trading but not as often in day trading as even that amount can be substantial.

Regardless of what the amount is, the key is understanding why it matters.

If a “guru” risks $1,000 and makes $1,000 and posts a video of it online, it’s impressive to an extent but it’s no different than someone risking $10 to make $10.  They just had a larger account to begin with.

However, if the same guru posts a video that shows $1,039 day come see how at my site” then you’ve been hooked into believing you can start making $1,000 days yourself if you just follow along.

The truth is your dollar amount return is completely dependent on your account size.  If you are only supposed to risk 2% per trade then to risk $1,000 you must be trading a $50,000 account.

This isn’t that large a number in the grand scheme of things, but when you’re struggling to come up with the $500 to pay this “guru” to show you how to make $1,000 a day, be very aware of how much it costs to copy him in all aspects; not just the profit part.

Another important reason of R value is for data comparison and trade management.  At the end of the day if you pull in $300 it is a nice day.  If you have a monetary daily goal as your main focus point (not recommended) and you reach it; then you exit all and call it.) 

But if you want to double that monetary goal, what do you have to do?  Hold twice as long?  Risk twice as much?  By tracking Rs instead of $ amounts, you can quickly see which management style produces the best Rs over the long haul and then simply make the Rs match the goals instead of trying to make the money match the goals.

If you want to make $5,000 a month, you can risk $1,000 a trade and hit it with 5 trades or you can risk $500 a trade and make it with 10R.  They do the same thing but they handle themselves entirely different.

One final point; ever wonder why casinos make you trade in your cash for chips?  Because you can handle yourself better with chips.  If you are carrying around 20s and 100s and playing with them, the money is too real, you’ll play differently.  Trading should be the same, by focusing on Rs and not the $s, you can trade the right way and hit targets whether you’re trading $25 an R this month or $200 an R next month.

Let the Rs show success; stop chasing the $$$.

If you need more help with this, we offer plenty of free training through our blog and email group or we offer a premium service with custom built management and tracking if need be.

What Makes A Trader Professional?

How many different professional traders are really out there?  If you do a google search for professional trading; you’ll get all sorts of results.

From people to strategies to everything in between.  Professional Trading has become extremely blurred and it’s time to clean this mess up.

Level 1: Professional.  The first stop on this list is the true professional.  How can you tell if the person you’re looking at is truly professional?  They must be licensed.  Whether it’s series 7, series 13, CMT, or otherwise, a true professional trader is licensed and governed by outside forces.  If they offer their name, google it and look for a license.  If they offer a company they mainly stand behind, it’s fairly easy to say they are not professionally licensed.

Pros: These are the people that handle large trading for firms.  Training from someone like this gets you true inside access.

Cons: Some of the licenses here can cost thousands into the mid $20,000 range.  They are not doing this for bragging rights, it’s the cost to handle large accounts.  A 1% fee on a billion dollar account is easily enough to cover the startup fees.

However, if you see an ex trader who used to work for a large bank suddenly decide it’s time to share that info with the world for $50 or even $1,500–you’re at the wrong place.  

This is just my personal opinion, but if a trader at that level comes down to a retail level asking a few hundred dollars for a course, I would not believe that they were ever truly at the level they claim.  You would never buy a mercedes to help someone else drive a kia.  Again, just my personal opinion, but I see this alot and I truly don’t understand why.

Level 2. Retail Professional.  Full Disclaimer: This is our Level.  

This is the level for those that taught themselves how to do it and look to teach others as well.  The main reason (at least our reason) that we are not professionally certified is we do not need outside money.  

Spending the fees to become licensed and doing nothing with it simply does not make sense.  If there ever comes a point that we look to grow beyond our capabilities and require outside capital, CTA would be our license of choice.  However, at the present time, the money is not needed, and therefore neither is the license.

Pros: They’ve learned what it’s like through experience, and through a normal sized account.  The main advantage over large accounts we have is that our stops will not disrupt the system, our exits will not take away our profits in the process; our smaller size is one of our biggest edges.  This goes for the Professional Retailer as a whole group, not just CTP.

Cons: Anybody can write a good salespage and it really comes down to gut feel with the training.  We tried 3 different courses ourselves during our learning curve.  It can be extremely frustrating learning everything only to realize they are no better off than you and you must start all over.

(This is why we don’t publish our P&L or account % increases.  If we did, it would either make you think this is too easy, too hard, or be a sales trick.  All of the above are the reasons Account Returns are usually posted, but it truly does not help do anything for the end user, only sell the system.  We fell for that trick ourselves early on and as a result simply decided it will not happen on our site).

Level 3. Everyone Else.  If you aren’t a professional and you aren’t a professional retail trader, than you’re just part of the everyone else category.  I’m talking about the gurus here, not the traders and investors trying to succeed here.

These are the types that offer services that make a million dollars, 200k, 100k a year with doing nothing more than following along.

News Flash.  Insurance companies collect millions in premiums with the goal of collecting more than they pay out.  Don’t you think companies whose sole job is making more than they lose would look into these $300-$10,000 systems if all it took was a computer program?

It’s a lie.  The worst ones are those that work for the main person by entering in first and then letting the hundreds to thousands of followers, the other ones are just as bad but take less time to figure that out as no one’s winning.

Either way, stop looking at trading like a get rich quick scheme and start looking at it like a real business.

Whoever you decide to follow; make sure they match up with your style, your goals, and will work with you to help you get there.

There are lots of incredible trainers and traders out there.  CTP of course, but there really are others.  Some do it for the money, some do it for boredom, and others do it for company.  It really is a lonely career if you don’t do something about it.

Just make sure before you invest any of your money into any form of education; you understand who they are.