Tape Reading-Introduction

What is tape reading?
Tape reading is the art of studying pure price action in real-time, based on the data fields in the Level II box. Using the tape you are able to gauge player’s psychology and imbalances in supply and demand to formulate trades. Tape reading is a leading indicator because it analyzes current: bids, offers, and volume transacted at a given price (collectively known as “order flow”) as they happen, unlike charts and studies, which are derivatives calculated from order flow data and displayed after the fact. Bids, Offers, and actual transactions are what happen NOW. Charts, MACD, RSI, are created later. They are the history of price action.
Because you see the characteristics of buying and selling as it happens, developing this skill will improve your entries and exits, minimizing your risk and maximizing your reward by allowing you to catch larger moves using smaller stops. Tape reading is a tool that will put you ahead of many other traders who think technical analysis is the only skill they should know, giving you access to more plays that charts simply don’t show you. With tape reading you will be able to determine where the stock is going to move 70% of the time.

Why is tape reading important?
Because it gives you an edge, an additional tool to improve your entries, exits, and trade management.
Back before charts were actively used, most intraday traders would trade by using their skills of reading the tape, and reading the tape only. There were no charts or indicators for them to use. The last thing tape reading gives you an edge to combat the algorithms and HFTs prevalent in today’s trading environment.

What can you se e on the tape that you can’t see on the charts?
Bar/Candlestick charts depict a range of price action defined by the open price, range, and close price, over a specific interval of time, or in the case of tick charts the price action over a specified number of transactions. What the individual bars don’t tell you is how bids and offers acted at a given price, or the specific volume transacted at a price, within the time-frame (or transaction count in the case of tick charts) of the individual bar. By reading the tape you can see the active buyers and sellers and see what levels they are participating at by watching the supply and demand they seek. You can follow a certain buyer and recognize the pattern in which he is accumulating the stock. The same goes for sellers. With tape reading you can feel how the market is taking your orders and have a sense as to whether a certain stock is weak or strong. For example: if a stock looks weak on the chart but it is very difficult for your bid to get hit then that is a clue that there is not that much selling happening, so the stock might not be that weak after all… but more on this later. Finally, charts are showing you past data… granted charts are valuable, but when you mix tape reading and technical analysis you will have an edge many intraday traders do not possess.
How tape reading is an art and not a science Tape reading is not a science. It is not like learning how to do an experiment, and then being able to repeat the experiment with success adinfinitum. Because trading is a probability driven activity, and different stocks have different “personalities,” tape reading is something you learn over long periods of observation and personal experience. The more you watch the tape, the more you will be able to identify certain patterns. The basics of tape reading are very simple, but after you understand the foundation of tape reading you will only get better over time.

How doe s tape reading affect efficiency with entries and exits?
We defined the difference between the tape and charts in an earlier question. The granularity of real-time data on the tape, because it allows you to analyze “intra” bar data. It also allows you to choose entries and exits, with finer granularity. You don’t have to wait until the next bar on the chart to make a decision, which could both reduce your profit potential and increase your stop risk. Here is an example of using the tape to get long at a great entry:


In this chart, you can see that GMCR gapped up big on news over the weekend. By using just the charts, your entry would have been long at $34.15 when it broke the high or even $33.96 when it broke the mini range. By using the tape to find an entry you would have noticed there was a held bid and accumulation around the $33.50 level. You could have gone long at $33.51 with a stop at $33.44 (or when the bid dropped and offer held below 50c). That would have been a great entry and tighter risk using the tape instead of getting long at $34.15 or $33.96 risking about 50 cents. Also, your risk reward ratio is heavily skewed in your favor using the tape.

How doe s tape reading lower risk?
A good example is the one above on GMCR. By using the tape you can spot accumulation (held bids) or distribution (held offers) and go long (just above a held bid) or go short (just under a held offer), using a break of the held level as your stop. If you are looking to buy in an uptrend, or add to your position, but do not want to chase you can look for a held bid to get in, and the subsequent failure of the held bid to get out, keeping you from taking on unnecessary risk. Below is an example of lowering your risk while finding great entries and exits:

ASTM was in play after a trading halt, and subsequent re-opening, moving down sharply, we don’t usually play stocks that are/were halted but this presented a great risk reward situation to enter a trade. Although ASTM is a cheap stock (we don’t usually trade sub $10 stocks either) there was a great opportunity to trade it. ASTM opened up after the halt and dropped sharply. We looked for a great entry to short while keeping our risk low. ASTM bounced and started to hold an offer around $3.60. Also, when the offer was being held another big offer showed up. You can’t see that on the chart, but you can, if you know what you are looking for, see it on the tape. We got short and waited for the offer to get filled to get out. Our risk was about 3c if we saw the order decrement quickly we would have hit it also and not waited for it to get filled. Some of the order got filled but not quickly then the stock dropped. The stock kept dropping and the offer kept stepping lower. Finally the remainder of the order was filled around $3.15 where we exited. Not a bad trade risking a few pennies to make about 45 cents.

How doe s skill at tape reading improve understanding chart patterns?
Tape reading will improve your understanding chart patterns because you will be able to see the supply and demand dynamic in real time. A prime example of this is GMCR from above. GMCR showed some technical support and you saw there was accumulation on the tape, a great set up to get long while keeping your risk tight. Also, with tape reading if a stock reaches a significant long term technical level you can spot on the tape how it’s reacting to it and play it from there, all by seeing what the buyers and sellers are doing real time.

How do you improve tape reading skills?
Improving your tape reading skills will take time. You will only get better by watching the tape. You will understand and see more things on the tape 3 months from now than you will see today. To help accelerate the learning curve you can watch video recording of your trades or watch video tape from the Bidhitter.com library of trading tapes. It is easier to spot something on the tape when you are not in a trade and the market is closed. As I said before, the best thing to do to speed up the improvement process is to screen record your trades, and then review them after the close when you are not under the stress of the trading market, and to tap into the Bidhitter.com video library of recordings.Trading the ope n with only reading the tape Trading the open with just charts is difficult because actionable levels for the day have yet to be defined.
Granted, you have previous technical levels from other days and time-frames but your edge on the open will most likely be on the tape. Intraday traders make most of their money on the open and the close because those are the times when the market and individual stocks move the most and have the most volume during the day.
By knowing the Market Maker box you can find key levels, almost predicting where the chart will go, and find good entries for longer-term trade s.
With the Market Maker box you will be able to find key levels where significant volume has been done and trade off those levels while keep your risk tight. If a certain level has done a significant amount of volume and doesn’t break it, then you have spotted a great entry to trade with a core while scalping around it to lower your risk and make some quick chops when you spot them on the tape.

 

Tape Reading in Day Trading

Tape Reading, reading from the tape, it’s one of daytrading strategies, which deepening can help in maximization of your profits and to reduce losses. It is trading strategy, which is well-suited in day trading investments on the stock markets.

It is worth to emphasize that reading from the tape enables to capture specific setups (systems, which it is possible to compare to the formation from technical analysis) up to trading, both long and short positions. Analysis of the tape is also useful in the decision making to close the position earlier (than e.g. it would result from technical analysis).

On which markets it is possible to use Tape Reading?

Tape reading is possible on markets, which provide so-called market depth. Market depth shows what orders are on the value, at what prices and in what sizes of position.

The best examples are stock exchanges, where using reading from the tape is possible. The largest stock exchanges in the world are US NASDAQ and NYSE. And similar to them are European stock exchanges: NYSE Euronext, LSE or German XETRA.

What tools are used in Tape Reading?

In order to use Tape Reading, the trading platform must provide tools used in this strategy: window of quotings (so-called Level II) and transaction window (so-called Time and Sales).

Time and Sales – transaction window

Transaction window, i.e. so-called Time and Sales Window, called by traders a tape or pass, is a basic sources of information about concluded transactions on the market.

Amongst information concerning individual transactions we will read:

  • transaction time

  • price

  • size of orders

  • on which ECN was concluded transaction

Below I present the transaction window:

Tape reading

Level II – market depth

Market depth, i.e. so-called Level II, informs us about the prevalence of demand and supply on a given instrument. Analysis of appearing orders enables to support the investment decision. The study of placed orders on Level II window enables to search for repeating setups. It is possible to compare it to finding formation of technical analysis on the graph; in the same way we seek repetitions on Level II window, which in a determined period had appropriate effectiveness of profits.

Below I present the market depth:

Tape reading

What information can be read from the market?

Taking into account the data, which it is possible to read from tools mentioned above, the foundation of decision making is based on a price and volume of the transaction. These two factors, combined with determination of the probability level of determined setup recurrence, enables to effectively increase the number of successful transactions. And the effectiveness of transaction decides about your success on the market.

Traders focus on analysis of tools mentioned above in terms of evaluation:

  1. Size of orders

  2. Prices of placed orders

  3. Spread, and consequently the risk with entering positions

  4. Volume

  5. Execution of orders

  6. Size of executed orders

  7. Time of placing orders

Analysis of above factors, allows for proper selection of companies in terms of opening the position. An aim is to reduce the risk only to those companies, where specific strategy that uses tape reading is most likely to occur, with limited risk associated with opening the position.

Summary about tape reading

As in all trading strategies, also in tape reading, the basic features are most important for trader, i.e. patience and consequence. Waiting for a specific play on the market often is gripping, which may constitute a problem for active traders, who hate situations when don’t have opened position on the market. This leads to situation, when trader tries to warn building setup, so he enters the market in a bad moment or the entry turns out to be completely bad (because of final setup use). In every strategy, it is necessary to act very precisely and scrupulously. It is no different in Tape Reading.

Reading from the tape in quite strong harmonizes with using basic formations of the technical analysis, i.e. supports and oppositions in connection with volume rate. Most of information, which result from analysis of the tape, it is possible to relate to analysis of supports and oppositions on the graph; however they allow with prejudice to find these levels, before it will occur on the graph. Peculiarly, this regards lower intervals: 1, 3 or 5 minute candles.

Analyzing the tape in the initial period of this method can be quite frustrating. Transactions on US stock exchanges, where tape reading is the most effective (due to the level of liquidity and the number of companies listed on US stock exchanges) are concluded very quickly. Compared with the Polish stock exchange, often it is possible to be under the impression that these transactions are carried out as an accelerated video cassettes. This fact, in the first period of behavior analysis may discourage. However, it is necessary to remember that in every profession, a time and practice are needed in order to draw conclusions and to make quick decisions based on what can be seen and read from the tape.

In the next section of articles, I will present ways to using Level II and TAS during trading on stock exchanges. There will be also described ways of reading the information from the market.

Trading with an Efficient Market Filter

The probability of our long term success as traders increases when we trade with the prevailing market trend. This means when trading stocks we should be buying when the overall market is rising and / or shorting when the overall market is falling. In order to filter trading opportunities therefore, we need an efficient way of determining the current market regime. In this article we’ll focus on defining a market regime filter for use when trading large cap US stocks, so our proxy for the overall market will be the S&P500 Index.

When defining a market regime filter, we’re looking for a measurement with the following characteristics:

  • Ability to discern a bull market from bear market
  • An indicator than can oscillate between the two regimes
  • Reactive enough to signal bear markets early and to identify bull markets quickly
  • Stability, in that it doesn’t whipsaw too often
  • Low number of false positives
  • It should also conform to the KISS principle.

So, as you might be able to tell, any oscillator which is able to measure and switch between the market being bullish or bearish will be a candidate for the job. There are of course many indicators that would fit that bill, but we have to start somewhere, so here’s three that we’ll try.

  • Index close price against a simple moving average
  • Dual moving averages crossing
  • Moving Average Convergence Divergence (MACD) against its zero line

And here’s our ground rules for testing:

  • Simulate a Buy in the index when the filter turns bullish
  • Simulate a Sell in the index when the filter turns bearish
  • Apply to the S&P500 Index ($SPX)
  • Weekly timeframe
  • In-sample period 2001 – 2010 inclusive
  • Optimize for Compound Annual Return to Maximum Historical Drawdown ratio (CAR/MDD)

Simple Moving Average

Possibly one of the widest known methods of filtering for market regime is checking whether the close price is above or below the 200-day simple moving average. It’s reputedly even used by many professional fund managers, but how does it really stack up?

The first thing to recognise is that the period on the MA is going to be key. Here’s a 40-week MA (in green) [approx 200-day] compared to a 120-week MA (in blue). You can see the 120 period is more stable, but slow to react, whereas the 40 period is much faster to react but is more choppy and creates many more false positives.

MA40-120

 

So we’ll run an optimization on the lookback period and see what comes up best. Here’s the result of looking at all lookback periods between 25 weeks and 120 weeks, against the CAR/MDD produced.

SMA Test

The first thing to notice is the very low numbers and the very high numbers produced the worst results. But there is a range of decent results in the 70-95 range. Notice 40-weeks, the one supposedly most discretionary traders rely on, is one of the poorer results.

When selecting a value to use, we rarely want to select the number one best result from the optimisation, as it’s often an outlier and the result of getting lucky, so we’ll take one of the nearby results that has other similar level results around it. For the purposes of this test, I’m going to use 75-weeks and compare it to a Buy & Hold baseline.

SMA Results

Clearly it has done a better job than Buy & Hold (yes the index really did make a loss over the 10 year in-sample period!). In particular the filter has managed to minimise drawdown, which is always desirable, and it has done so with a low number of turnovers which is also good.

So, let’s now move on and see if the other methods are any better or worse.

Dual Simple Moving Averages

By using dual moving averages crossing, we will be eliminating some of the noisiness of using the bare close price in the above test. That you would think should lead to a more stable indication. The question of course is whether the cost of any increase in stability will be a decrease in responsiveness and more lag. We’ll run an optimisation on a range of values for both MAs and compare the results. This time because we have two parameters, the chart becomes three dimensional.

dualmaopt

Clearly the results themselves are quite noisy, with a number of sharp peaks, indicating outlying results. So, again we’re looking for an area of stability, or so-called “high plateau” where there are a group of similarly good results nearby. The area I’ve highlighted with the white circle is about the best pick of the bunch, so we’ll select a pair of parameters from in there. I’ll select 10 and 53. Let’s see how that compares to the previous method.

table 3

As you can see it produced the same max drawdown as the simple moving average, but with less gain and more turnover, leading to a (slightly) lower return to drawdown ratio.

MACD

The MACD is well known as an oscillator, so it could be ideally suited for our purpose. It is also made up of two underlying moving averages, so it’s already smoothed. We’re not concerned with the MACD Signal Line here, we’re only interested in the MACD line being above or below zero to signal bull or bear market conditions respectively. The two inputs to the MACD are the lookback periods on the Fast and Slow EMAs that make it up, so let’s optimise for both those numbers.

macdopt

This time we have a reasonably smooth result. There are still some outlying spikes, but also some stability across a range of parameter values. This is encouraging. The results are zero in the back corner, but this is because the Fast EMA period has to be less than than the Slow EMA period to register any result at all. There does appears to be a good spread of similar values in the white circle, so let’s pick a pair from there and compare that to the other methods. Let’s take 20 for the Fast EMA and 34 for the Slow EMA.

table 4

Here you can see it turnovered fewer times than the first two methods, and although it picked up the highest return, but the additional lag meant it also incurred the largest of the drawdowns, leading to a lower CAR/MDD.

Side-By-Side

Here’s a side-by-side comparison of the in-sample outcomes against $SPX for the chosen parameter pairs for each of the methods.

in-sample

As you can see on the chart and in the results, they all do a reasonably similar job, so before deciding, it might also be worth taking other considerations into account, such as consistency of results for example.

Finally, we’ll take a wider look at the best candidate, ie being long when the SPX weekly close price is above its 75-week MA.

smachart

On a chart as you can see it would have kept you on the long side for most of the recent bull market, although there have been a few false positive crosses to the downside along the way.

Looking at how the performance of the index would have gone applying the SMA filter:

oos

Clearly it wasn’t fast enough to react to the 2011 market correction, and so it’s maximum drawdown has increased in the out of sample period, but otherwise it would appear to have performed in line with expectations.

Summary

Just based on this limited test, it appears something as simple as a single simple moving average can be useful as a market filter, although as we have found, using the common 40-week lookback period has been sub-optimal historically. Longer lookback periods it would seem, appear to work better. However, the out-of-sample performance perhaps does raise some concerns about the filter’s ability to protect against a more volatile market.

There are of course many more indicators we could look at, and you should do so before deciding on which is the best filter for your own purposes. For example other types of moving averages, EMAs, WMAs etc. or other types of oscillating indicators, such as RSI or Stochastic could be considered. What about even the MACD Histogram? If you have any ideas of your own, leave it in the comments below and we could test them in a future article.

Remember of course, this is not a trading system in itself, merely a building block that could be used as part of a system.

  • About Author :- Alan Clement is a Certified Financial Technician, Quantitative Analyst, Trading System Designer and Private Consultant with over 20 years experience in the financial industry. More on this http://bettersystemtrader.com/063-market-regimes-with-alan-clement/

Remote Trading on US Stock Markets

What’s the difference between Remote Trading and a job in the prop trading offices

Remote Trading is still trading for the proptrading company, but in this case to own financial risk and without the owner of the branch. You trade directly for the head office of proptrading company with the own financial security.

You trade directly for the head office of the company or subgroup, which cooperates with it. Such subgroup is Global Markets www.tradingglobalmarket.com. In each of these cases you are sure of receiving a great payout. In case of subgroup dedicated to the given market (in this case us) you have a full support in local language and a lot of extras .

However, the key is that as a remote trader you take the financial risk. You have your security in a form of “performance bond”. In case if you lost in a unique situation more than you have on performance bond, you will have to cover this difference.

Although, in those companies are departments of the risk management, which guard maximum level of performance bond, there may appear unpredictable situations.

What the prop trading company provides?

There are certain differences between what the proptrading offices provide, and what do you receive as a Remote Trader.

  1. Trading Capital – so-called buying power

You have good trading strategies, but for example you don’t have a capital. Buying power offered by the proptrading company will provide it for you. Buying power, i.e. capital, which you can use in trading. Here I emphasize that this aren’t the customer’s money of the company, etc. The company doesn’t accept any deposits from people from the outside. Therefore, you don’t manage money of third parties.The remote trader provide a certain amount as risk capital(usually small) to cover future losses and technology costs.

  1. Commission rate

You are an active daytrader, carrying out a few/several or dozens of transactions within a single session. In such a case you start calculations. Where it will be cheaper? In case of Remote Trading – commission level depends on the volume generated by you.

  1. Payout split

In case of Remote Traders, payout split is usually on a level of > 80%. Everything depends on whether you have a trading history. Your average monthly profit is significant and on it the offer is based, which you can receive for the given moment.

  1. Charges for data/platform

Traders in proptrading companies are treated as pro traders, i.e. they pay for stock market data in a professional form. Therefore, all quoting cost about 300$

  1. Trading position

As a Remote Trader for trading position you must take care yourself. Apart from the computer you must pay attention to stable Internet connection.

  1. Development/trainings

Remote Trading is directed above all to experienced traders. Therefore, companies don’t offer trainings or courses for people who wish to open an account.

Do you want to be a Remote Trader?

Remote Trading is not for everyone. In case of companies, which offer a possibility of remote trading – most requires interested parties – so-called track record i.e. trading history.

Alone for a few years I did similarly in my group. Then I decided to open also to completely green persons. I stated that if somebody strongly wants, and succeeds – why not to give him a chance?

Not everyone has so close to the proptrading offices, in which they can start. In such case, the possibility of trading as a Remote Trader is perfect. However, remember that being a remote trader – you are your own boss. Hence, no one will stand over you with a whip and guarded whether you are cutting losses out, whether you hold on to your assumptions. Through this stage you will have to go alone.

Somebody may say that Remote Trading takes traders from proptrading offices. Yes, it’s true. But such is the market. It’s the same as traders change accounts in brokers, because one has a better offer from another. It’s similar on this market. In my perspective – I traded for a few years in the office, I let the company earn. For me transition to remote trading or trading at the broker it is the only option for definitely better payout i.e. profit distribution.

What is the difference in payout split

Thanks to prop trading, traders are able to receive payout up to > 90% of results, rather than 30-50 % as in proptrading offices. I provide this level from 80% with a lack of trading history. A considerable difference, isn’t it?

What agreement is concluded in Remote Trading?

It is usually so-called Trading Service Agreement. You sign it directly with the proptrading company. Based on this agreement, you receive conditions that you negotiated on the basis of your experience. Formalities in addition to signing the contract apply to signing the next “Exchange agreement” for quotes and access to markets. After all that remains transfer – and expectation for your account activation.

Settlement of taxes

In proptrading offices the owner usually employs traders on different type of the agreement. In case of remote traders, the agreement is signed directly with the head office of the company. All settlements are on the head of trader. He must take care of tax settlements. Most often remote traders have their business activities.

Remuneration

Remote Trader earns only % from generated profits. Companies don’t pay the base salary.

You have experience in U.S. markets

In this case, the terms of cooperation may be even better. Personally, when I receive so-called track records (i.e. history of trader results) I see clearly – what are the trader’s slides of capital, risk and stability. In case of good track records, we negotiate even better deal for trader.

Remember that proptrading companies differ from brokers, that they are interested in traders. The aim is to take the last cent provided that you carry out turnover. The most valuable are traders who generate profits, best stable. Do you see the differences in relation to the broker?

You don’t have experience in U.S. markets

In this case, I think that it is worthwhile for beginning to reduce the risk. Learn to trade; develop your strategy – with smaller risk. Don’t try to earn a lot of money right away.

It is not a casino.

Start with 100 shares, which constitute the minimum size of position. Reduce your daily losses to e.g. 50$, or maybe to 30$.

Reduce the risk – do not trade on expensive companies, with high volatility, high spread.

In this case, the terms of cooperation can be standard on the start. In relation to the fact that you don’t have trading history, the company isn’t able to determine to determine the risk to which you expose them and your potential.

How much time is it worthwhile to devote when you don’t have experience?

Everything depends on how much loss you can afford and how much free time you have. Just as in the proptrading offices, I think that a period of 4-6 months is appropriate, maximum 8 months. If at that time you won’t start to generate profits, you should find yourself a different job or try on other market.

It happens that I beginning the cooperation with remote traders, who give up after a few sessions or 2 weeks. In my opinion, it is too short period to check and assess own potential.

As a Remote Trader must I pay some funds?

Yes, as remote trader you have your own financial security. The same as when you open the account at the broker. However, you don’t trade with these funds, they constitute so-called performance bond. This is security up to obtained Buying Power – i.e. real funds, which you can trade on the stock-market.

Is it only daytrading? Whether they are possible overnights?

In case of Remote Trading, there is possibility to use overnights. However, in this case a greater financial security is required. Such a possibility is usually offered to traders, who have already experience and trading history.

If you don’t have an additional agreement, which enables you to use overnights, in such a case when unhappily you won’t manage to close the position – you must be aware that payment for leaving position overnight will be charged (rather small) and the company takes over the entire profit, but the loss is on you.

 Pattern Day Trade Rule

Trading as a part of Proptrading Company, we avoid Pattern Day Trade Rule. Thus, trader is not forced to hold the capital of min. 25 k$. Of course, this doesn’t mean that such or larger security traders a part of proptrading company don’t have. However, at the beginning it is possible to start from 2 k$, which in relation to 25 k$ constitutes a big difference. More to this subject you can read in the article: Pattern Day Trader – what consists of and how to avoid it.

want to be a day trader….Do you have what it takes?

A guideline of how to make it as a trader as a profession. It will take hard work and patience in your journey.

Step 1. definitely start studying anything and everything about the market. The more you learn the more you will find you don’t know. The market is every changing and you have to adapt as the market changes.

Step 2. try to find a program or mentor that you mesh with that will keep you motivated along your journey. There are many out there. Make sure whomever you choose that they don’t boast a guarantee of their product to make you profit. Everyone learns differently and everyone has to find a strategy that works for them.

Step 3. Determine how much time you can honestly devote to trading. This might be something you will be doing part time to start as you are still working you 9 to 5 job.

Step 4. Once you know who you want to work with and how much you can devote then study up, and start your paper trading. I highly recommend paper trading to find your strategy. It is much easy to pay $30 a month to practice than lose your hard earned money. Remember that if you need to paper trade for a year that is roughly $360 versus thousands you could lose in your first account (I speak from experience on this one…I blew through a $6k account in a couple months not knowing)

Step 5 Once you have consistency and confidence in your personal fingerprint strategy. It is time to open your trading account. Depending on where you are in the world there are different brokers that you can use.

Step 6. Journal you trades from the moment that you begin trading a free site is Profitly

In trading you are not in competition with anyone else. Everyone learns at a different pace and your goal is to be profitable. Trading the right setups at the right time will help you be profitable. The more you keep track of your trades and your emotions in entering the trade and exiting the trade you will understand your trading pyschology. You are your own worst enemy in trading.

Step 7. Continue to grow in your trading. As your real money profits begin growing remember there are 4 outcomes: Big Wins, Small Wins, Small Losses and Big Losses. If you simply get rid of big losses and learn to let the Wins grow then you should be able to continue growing your account.

When you mess up know it is part of the trading journery and use it as a learning experience. If you need to step away from trading and don’t take it out on the market. Trade with a clear head.

This blog is for information purposes. We are not a registered securities broker-dealer or an investment adviser. The information here is not intended as securities brokerage, investment or as an offer or solicitation of an offer to sell or buy, or as an endorsement, recommendation or sponsorship of any security or fund.

Credits:- This blog was written by Airplane Jane. To know more about her visit https://seejanetrade.com/

Lightspeed Trading Platform for Indian Trader

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Lightspeed Trader is the ideal software for both day traders and investors with our flagship trading platform offering equities and options routing to over 100 destinations.
See a detailed list of features below.

  • Advanced multi-threaded, multi-core processing                
     
  • Optimized Level II quote messaging
  • Low latency execution
  • Historical intraday chart data
  • Order routing destinations
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  • Block ticker alert and ticker alert
  • Fully customizable
  • Access to many dark pools
  • Special Lightspeed orders for accessing Dark pools.

Key Lightspeed Trader Features

  • Direct Market Access to ALL exchanges & ECNs
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  • Real-time Profit & Loss
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How do you cut losses?

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I’ve been always wondering how to cut losses, I know I should do what the market tells me to do, I’m not looking for that kind of answers. Here is the scenario:

Assume I buy reversal according to oversold and a few other indicators (or other trading strategies), I had a good setup and entered a long position, but the price continued dropping and my loss had reached my maximum loss per trade, I should close my position according to my trading rules. But, on the other hand, it’s more oversold and I have a even better setup, I should buy more instead of cutting losses. This is a dilemma.

What do you do and why?           318178829_c5863b5c15a.jpg

Well there will be many answers to this questions including some harsh one which you do not want to listen (believe me i have heard them, Not good..). But here are a few informative one

bottom fishing

1). I think you should stick to your rules and cut your losses…but learn as much as you can about reentering to catch that eventual reversal. Markets can decline far more than anticipated…you don’t want big losses! Many will say your crazy for trying to pick a bottom…those traders will be the trend followers. It sounds like your best bet is to follow a good plan of cut your losses and maximize your gains…so, cut those losses!

FYI…Hardly 5% trade like any of the above but hey who i am kidding. They are those who make money.

 

2) It’s good that you set a max loss per trade. I would sell at my sell signal or stop loss and move on. No sense crying over it…. Just move on to the next trade. Just because something is oversold does not mean it will revert to the mean or reverse. If it’s a strong down trend it can remain oversold for a long time. And if you think the market HAS to revert because it SOOOO OVERSOLD and it just CANT stay this oversold that long then that too is poor thought process. The markets can remain irrational a lot longer than you can remain solvent. Don’t try to argue with the market or believe you can control the market or even understand the market. Just follow what it is telling you. No matter how irrational it may seem.

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I think it’s good that you have determined a max amount of loss per trade but I can’t say whether you have chosen an appropriate stop loss. You could have a stop $0.10 away and have 10,000 shares which represents a $1000 max loss or you could have a stop $1 away and have 1000 shares also representing $1000 loss. Your max loss (in this example $1000) may have been achieved with both trades but which if either had the better stop loss chosen???

 

3) I don’t recommend being in the top and bottom picking business especially for a beginner but as to losses, know where you want to get out if the trade goes the other way before you enter. Hard stops or mental limits are personal choice but there needs to be a defined point where you cut bait.

 

Well whatever the method is , they say “every penny saved is a penny made”. Market always have opportunity to get in and out and make profit. What a trader (Poor Fellow ! ) can do is wait and make the same mistake repeatedly, Zillions of time till he learns to do the right thing. And there should be some money left to enter the market and make mummy proud !

Flat background with hand and money bag. Money making. Bank deposit. Financials. Vector illustration.

Proprietary Trader- Self employed Day Trader

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Retail trading vs Prop-house trading

For a start, when many people think of being a self-employed day trader, they may think of someone that is in a room on their own, has their setup at their house and looking at charts in their underwear. These are called ‘retail traders’ (not specifically those that trade in their underwear) and are generally considered part of the retail market. In other words, they access the financial markets through online brokers.

 

But in fact, many traders at institutions are also self-employed. These are called ‘prop-traders’ and the places that they trade at are called ‘prop houses’.

Now, it is not that black and white; not all those that trade at home would be considered part of the retail market – you can get institutional setups at home. But for the purpose of this answer, and introducing people to the life of a self-employed trader, we’ll start by generalising a little.

There are pros and cons for both:

Trading at a prop-house

Firstly, you are subject to the costs of running a business. You have have to rent your desk space, news and data feeds and trading software. All of this can be of a starting cost from £2000 per month. This means that you have to make at least £2000 to even make break even in a single month.

However, this cost is not for nothing – you will generally get excellent execution times and cutting edge software. The only thing to consider is that the technology gap and execution speeds between what is available at the retail level and prop/institutional level is  closing fast- if it hasn’t closed already.

The great thing about being a prop-house trader is the fact that you are immersed at a physical level.

When you are trading at home and you are by yourself, you may have squawk boxes and other notifications of breaking news. However, nothing can substitute the building of energy that occurs when something ‘breaks’ in the market.

You can feel the buzz of people talking, discussing trading positions and you can develop a sixth sense when someone else put on a trade – you can benefit from simply being there.

Trading at home

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That is not to say that you can not build an environment at home that allows you to trade with others – you can, and it is highly recommended that you do. You can find online groups on Skype, communities and forums, as well as trading rooms  – all where you can share information with others.

However, there are a number of things that you will need to take into account. Firstly, you will have losing days. You know this, you have experienced this if you are trading already and you think that it’s no big deal in your current setup. But think about a losing week!

When the markets are simply not playing ball, it is difficult to keep up morale and motivation and not resort to psychological influences. Imagine taking the tenth setup only to see the markets whipsaw you out of your position again!

A week can seem like a long time and so it would be advisable to build a fail-safe into your planning. Who are you going to speak to and how are you going to manage your psychology when you need help? This is where online communities and online coaching sessions help – simply because you can be in contact with others.

The software for retail traders is powerful and simple

 

As already discussed, the technology available to retail traders is becoming more sophisticated and easier to use everyday. In fact, some prop-house traders sometimes prefer the tools available to the retail markets, simply because of the usability of it. Also more often than not, the software is provided free by a broker and can be customised to suit the the trader.

This also means that the cost of doing business is very low, as you do not have to pay for a professional setup and maintain it each month.

Maintain contact with the outside world

 

 

Life as a day trader on your own can be tough and you need to make sure that you have adequate contact with others. This may be laughable as you think how simple this is, but ask anyone that works from home for a living. They will tell you that the most difficult thing is lack of contact with other people. It’s easy to go a full week without meeting and talking to people; most people that work in an office take this for granted.

This is compounded as a trader, because you never know what the end result of your efforts will be. Day trading, like any other trading, is a game of probabilities and you never know how your month is going to end, how much money you will make and how big of a drawdown you may get. You need to make sure you can get things off your chest, otherwise things can be very difficult.

However, you must also make sure you talk about your trading to other traders. Your friends outside this trading world will not understand where you are coming from. They may encourage you to give up, telling you its too difficult. You need contact with those that have been through the pain barriers and have come out on the other side.

This is why is it very prudent to make sure that you become part of a forum or go to live coaching webinars where you can interact with other traders.

Part time

 

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Being a day trader does not mean that you are glued to the screens all day long either. Many people make the mistake thinking that to be a day trader means that you are looking at charts all day long.

The fact is that many day traders may look at a set of charts every hour, 4 hours or just once a day. You are still a day trader, but instead of taking many small trades that last for a short period of time, you take far fewer trades that last for a few hours, days or even weeks. Their interaction with the financial markets is actually quite minimal.

This means that you have plenty of time to do other things. Perfect if you are a free-lance writer, self employed plumber, electrician, work in a retail shop or hospital where you have shifts – any situation where you need to weave your chart time into your normal daily routine.

This also means that you can relieve the burden of having to make your money through trading alone. The advantage to this type of day trading is that you lighten the pressures of having to pay for your rent, food and other essentials in the face of having a possible losing month.

And this leads to the next point – being properly financially setup .

Have more than one source of income

When you are self-employed, you need to make sure that you (and also your family if you have one) can eat at the end of the day. Having a losing month can lead to a downward spiral as you constantly try and fight the markets and make subjective trading decisions.

If you do decide to become a self-employed day trader, you need to make sure you have a primary income other than trading; at least in the beginning. This way, a winning day, week or month becomes a ‘nice to have’, not an essential.

Scalping the markets

That is not to say that your destiny may not ultimately result in becoming a scalper ( a trader that scalps the market for trades that last for a matter of minutes or even seconds). Scalpers that trade for a living can literally be in and out of the markets in an instance.

Imagine getting up at 7:30 am, scalping money out of the markets and hen going for breakfast at 8:00 am. Sounds too good to be true? Well, you know what they say. The fact is that there are traders that do scalp and there are traders that do actually make their money by 8 am. But this is very hard to do and you need to have a very good understanding of probabilities and the markets. And always bear in mind, those traders that scalp money out the markets and are in and out in a matter of seconds, may still be looking for a setup for a few hours.

This requires intense concentration.

It wouldn’t be advisable to be doing this all day either. Many scalpers find an optimal time to scalp – say, at the open of a market, such as a forex trading session, and they do it for a short period of time. Scalping requires attention and focus and so those that scalp for a living seldom keep up this level all day.

The right approach

In summary, day trading can be a horrid slog or the best job in the world with financial freedom at your fingertips.

Which side you fall down on simply depends on your approach and whether you get into it in the right way. The right way is to look at this is as starting a business.

To start any business requires starting capital. Expect to deal with expenses and costs, as well as considerations on how advanced you are in your trading knowledge to be able to do it for a living.

Education is everything

 

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You need to know what you are doing and so your education is extremely important and you shouldn’t rush it – especially if you are entering the self-employed trading world from a non-financial institution/background and have learned everything from self-study.

As long as you approach it right, and you have the right setup from the beginning then the answer is easy:

What is it like being a self-employed day trader?

It’s the best job in the world!