Of course there are numerous methods to make money from the markets, but few have been known to work across different markets and different generations. The approach being described here remains secretive to training module of some proprietary firms. The chief reason it did not become popular was 1. Less commercial gains for the person promoting it 2. It requires absolute focus and hard work, rather than a ready-made formula to be spoon fed. It rather assures that a person *learns* tape reading.
Only a very brief summary is given here, please note how the course emphasizes on trading versus market analysis. There are three stages to work out, and passing the first one leads to the next.
Stage I- The Clueless Trader
Benefits: Allows the student to know what is meant by tape and tape reading. Learns the concept of auction, supply and demand. Appreciates market risk, his time frames and their limitations.
Time required: Three to eight weeks.
Preparation: First a watchlist of about 30 stocks is prepared. These should be the one which are thinly traded or with decent volumes, but certainly not high volume stocks like YHOO or C. Also they should make intraday range of more than 2%.
Before market open the time of all vital announcements should be noted. Only the time of announcement is important. For eg., if Wholesales Inventory data will be released at 10:00 am the student does not bothers about the expected figures or the anticipated impact on prices. He assumes the tape to tell about the impact, though the time is important for his trades.
The student needs plain line charts, updated tick by tick, that’s all. No technical studies, or even volumes on the chart. Also no access to live news feed.
Methodology: Important levels are marked in a notebook, day in and day out, like day's high etc. Watching the tape and charts all day long the students starts trying to anticipate the current trend of prices. He observes few patterns like when a stock trips 50 cents in half a minute, and feels like betting real money. Simulation trades get in handy. The student shall learn now the difference between scalping and tape reading, and starts to appreciate his holding period... which usually the market decides… and can be anything from few seconds to few hours. He notes how a 60$ stock may give a bigger (catchable) move than a 120$ stock.
Stage II- The Struggling Trader
Benefits: Allows the trader to survive in the markets... that is not loosing. Discovers his primary trading style, develops an understanding of the markets and focus for sizing (scaling). Old Wall Street sayings now don’t sound like granny’s words but start running with blood.
Time required: Three to eight months.
Preparation: The trader is now allowed to use candlestick/bar chart with volumes, as per his wish, but no other technical studies. Again no access to live news feed. He may now include or exclude tickers to his original watch list of 30 stocks at the end of each weekend, with no restriction on the category of stock.
Methodology: Now trading with real money, the trader learns about the functioning of the markets, and the reactionary behavioral patterns of various market participants. He develops tape reading skills, and few consistent patterns, which take care of his mistakes so that the trader has some money to take home each month.
Stage III- The Consistent Trader
Benefits: Allows the trader to discover his ‘edge’ in the market and define his system.
Time required: Four months to two year.
Preparation: The trader shall now have access to full computer power, again as per his wish. He may use any technical/quantitative studies to assist his trading. He has access to live news feed to use at his discretion. Of course the cost of technology equipment shall not outweigh monthly P/L.
Methodology: The trader shall quantify his decisions and many observations. He starts working towards system development by defining goals, expectancy and downside risk. He learns when to play on intuition versus counter-intuitive trading. The trader understands very well his risk appetite and trading style, and so shall be in peace with the markets. Done.
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7 comments:
I see that it requires the trader to turn profitable in stage-2 without using technical analysis. Can you please tell why is this restriction and how it can be done?
Thanks.
Well, the restrictions are so that people first learn TA in its crude form; that is identifying trend, pivots, tops and bottoms. Line charts take care to do away with a lot of misinformation on TA.
Tape reading isn't something esoteric. Many methods of tape readers can actually be coded as technical indicators. It's rather a generic name.
A wizetrade is a daytrade. That probably doesn't make sense, but you if you're looking to become a day trader, you have to know your way around the market, and that starts with getting wize. You need to educate yourself with as many books and programs as possible, and make sure you paper trade until you see atleast 3-6 months of consistent positive gains.
Nice to read that. One need to refrain from stuff like Vendor Alexander or TG-VSA.
With a demo account (paper trading) its easy to make 1000s daily trading GOOG. Execution isn't the trouble then. Currently holding the view that its better to trade with a mimimum size then paper trade, after an initial short phase.
Could you please elaborate on how to go about various patterns on line charts in stage-2. Thanks in advance.
Sushant, a whole book on the subject may be insufficient. The objective in this short article was to highlight key aspects of successful day trading. Among others,
1. Energy: Never seen the successful ones exhaust like a regular 9 to 5 worker. Each moment is equally interesting and challenging.
2. Intensity: Day traders need to be very intense at their job, like an eye specialist about to perform a surgery.
3. Dedication: They put up really a lot of hard work. "Every battle is won before it is fought".
Good to read a experienced perception about daytrading. Nice to read the comments as well.
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