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2023, 10:51 TeachTrade - Technical Analysis and Market Commentary By Traders For Traders

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April 18, 101
Every trader has a system. Whether you base your decisions
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on news events (known as discretionary trading) or technical
and receive all the analysis (using market prices), you use some criteria for your
benefits of trading decisions.
TeachTrade
TRADER It may be as simple as buying a stock when it drops to a certain
EDUCATION price or every time the market hits a new low. A system could
• The Ten even be flipping a coin, although no one (we hope) would follow
Commandments that strategy.
• Devising a Plan
• Risk and Reward The important thing to know is that when you follow certain
• Law of Averaging criteria for making a trade, you are following a system.
• Stop(s) and Go Obviously, the better the system, the better your chances of being
• Margins and a good systematic trader.
Leveraging
Systems for short-term trading (or day trading) are usually based
• Capitalization and
on three key elements. Price. Momentum. Time. If you're day-
Expectation
trading a stock, it does not matter to you who the new CFO is or
Trading with a
what the break-up asset value of the company is. Your only
System
concerns are key price points – such as support and resistance –
• What Happens to
for that stock or futures market.
John Q.
Public's Order This is the essence of technical analysis. One school of thought
• OPTIONS - The within technical analysis is price-pattern recognition, analyzing
Fundamentals price patterns to determine certain key points in the markets.
• Strategies
• Delta and the The other school of thought is rule-based technical analysis,
Greeks which uses a sequence of market events to trigger a trader. (For
• Psychological example, "If Condition 1 happens, Condition 2 happens and then
Profile Condition 3 happens, it's a buy…") Additionally, rule-based
• Trading Facts systems can be static – meaning the logic they use never changes
• Book Preview – or adaptive – meaning the logic adjusts to the current market.
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12.09.2023, 10:51 TeachTrade - Technical Analysis and Market Commentary By Traders For Traders

OTHER Some advanced rule-based systems use entropy spectral analysis

FEATURES (the same methodology used to analyze radio waves) to
• Put/Call NEW! determine if the market is in a trend.
• Market Calls
• Stock Picks Whatever technical analysis you use, it can become the basis of a
• Bios Trading System, which enables you to automate your trading. A
• The Weekender system might use a basic mathematical algorithm or the latest in
NEW! artificial intelligence and fuzzy logic that enable a computer to
• My Account "think" and "learn."

When traders adopt a systematic approach, they inevitably go

through certain phases. The first is the "Indicator Fascination"
stage. They become fixated on various indicators that accompany
the latest trading software that they just purchased.

Then comes the "Info Junkie Stage," at which traders subscribe

to EVERY newsletter, goes to EVERY seminar and EVERY
trading course they can find. The result is often "information
overload." Traders may find it difficult to sort through all the
data to define a system that works for them.

Your system could be one that you buy "off the shelf," and then
adapt for your own criteria. Or it could be completely customized
for you, based on your demands.

Whatever system you use, the benefit is to be able to "back test"

it using historic data. That way, before you risk one dime of your
own capital, you can determine the strategies that have
consistently reaped profitable results and those that do not.

Suppose you want to determine the profit potential of a system

that buys a stock based upon certain parameters – for example, if
the opening price breaks above the 23-day moving average and
volume is 35% above the 10-day average. And let's say you want
to sell 15 days later. Instead of wondering what the results could
be, or worse yet to use your capital to test the plan, you can find
out by backtesting with historic data.

There is no single approach, because while there is only one

market, it has many personalities. Perhaps the market today is
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12.09.2023, 10:51 TeachTrade - Technical Analysis and Market Commentary By Traders For Traders

range-bound, or has a strong directional bias, or is set up for a

reversalÉ Using a variety of systems that analyze the market
differently enables you to find a "consensus" point at which your
systems indicate a buy or sell.

Systematic trading, when followed strictly, minimizes the impact

your emotions have on the decision-making process. Experience
shows that the most common trading errors can be traced to
following emotions. Fear may keep you in a losing trade longer
than you should be, hoping to at least break even. Greed might
prompt you to hold onto a winning trade long after you should
have taken a profit, only to have the market turn against you
suddenly.

No system is 100 percent accurate. But using a system – or a

combination of systems – may help you to keep your emotions in
check and to take a professional approach to the market.

Put Call | Market Calls | Stock Picks | Education | Bios | Weekender | My

Account
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