Short-Term Trading System

The Seven Considerations:

1)  Ascertain the probability of the overall market continuing its trend or reversing.

• Is the general market going up or going down, and for how long has it been doing so? More than 3-5 days in one direction is unlikely & risky.
• The general market stochastic (14/3) must be heading in the right direction (long/short).

2)  The trade itself must be aligned with the overall market –congruent and directional.

• Up market for an up trade (long) ↑, down market for a down trade (short) ↓. Don’t go long in a down market, nor short in a market upswing. The macro environment and the individual stock must line up.
• The ideal trade is to go long/short at the precise moment when the overall market has turned your way.

3)  You must have a plan before each trade. Quantify the accepted risk ahead of time - the point at which you’ll agree to quit – your stop loss –before you act. 1% is a common rule.

4)  Research the trade:

• What are the fundamentals?
• What are the technicals? Do they support the fundamentals? What is price saying?
• Is the stock on the right side of its consistent moving average? If it’s on the wrong side, don’t touch it.
• Look to M/A crossovers for confirmation.
• Many trades will not ‘line up’. That’s ok. Consider only those that meet your criteria and thus increase the probability of success.
• Choose leadership for longs, weakness for shorts.

5)  At the time of the trade, look for extremes, or rather, wait for them.

• The entry point is critical
  
• The lows and the highs are the most important: the lower the buy on an intraday level, the safer the trade will be and the tighter the stop. The same (but inverse) is true for shorting.
  
• Buy in tranches. The 1st trade must be profitable and have a stop beneath it before entering the 2nd trade, and likewise the 3rd.
  
• The goal is to raise or lower the stops to the stock’s original purchase price, and let it run. If the stop ends the trade – there’s a negligible loss. It if runs, there will be a profit.

6)  The princess in the fairy tale kissed a lot of frogs til she found her prince. It’s the same with trading. One good trend $ will make up for a dozen small mistakes. Several good trends will add up to many nickels in the jar.

• Each day there are at least two or three good opportunities.
• The subconscious is able to find them and recognize them. Trust it. There is no need to force a trade.
• Part of being a trader is being a whole person: healthy, active, and at peace in other areas of life.

7)  The Ultra Proshares - such as URE, USD, UYM, UXI, ROM - are superior to stocks for trading, especially at market turning points. These ETFs offer a lot of movement without the news-risk inherent in individual stocks.