Trader Mike

I got this question the other day:

When you short a stock at 30.00 and you want to place a stop limit in case it jumps up past your max loss of say, 31.00, how exactly is that order entered (everytime I try to do this, it sells (Ed: he means buys) my stock immediately - I’m doing something really wrong). Do I put a limit price of 31.00 and a stop price above that, i.e. 31.50 (thus saying it’s ok to repurchase any shares between 31.00 and 31.50)?

This is one of the trickier orders to place. In that situation you would want to enter a buy stop limit order (buy on stop with a limit). The …

SD Trader wanted to know:

Mike, I was hoping you could look at SBUX for today’s trading session and show me how you would trade this stock. I got in today at the $36.25 breakout but my stop was too tight (ts.05) and I got stopped at $36.38. Specifically, provide when you would change your TS.

First, if I was trading according to my rules I would not have bought SBUX Friday morning because I was looking for shorts at that time. If I remember correctly the advance/decline line was still negative and my moving averages were still bearish. They didn’t cross over to a bullish posture until after 12:00 and since I don’t like to initiate …

I’ve had several people ask me for more details about my trading process and the software that I use. Hopefully this post will answer those questions. Please leave any other questions n the comments section. I’m going to run through the hardware and software that I use as well as how I manage the actual trades.

What I’m Trying to Accomplish

As you know on any given day there’s a ton of market data to process. I try to get the computers to do as much of that work as possible. My focus is first on identifying the ‘tone’ or direction of the day — bullish (up) or bearish (down). Once I’ve done that the computers help me to find the best setups for the market conditions.

What a coincidence (do coincidences actually exist???) that just as I’ve been thinking more about money management Worden has had a run of users writing in about money management. Here are some of those letters which were published in the Worden Report (emphasis & links added by yours truly):

(Edit: You may also be interested in my article detailing how I trade as well as my hardware and software setup.)

I’ve been exclusively day trading for almost three months now. The switch from swing trading has been quite an experience and I’ve had a few ‘light bulb’ moments along the way as you’ll see below.

These are short term plays (probably 3 to 5 day moves). By no means will I trade every stock on the list. When an alert fires I’ll examine the intraday chart to see if there’s still a good entry point. If a stock gaps through my entry I may very well just let if go or follow Rule #1. The same holds true for stocks that run hard at the open. If the market is weak on a certain day, I may ignore any longs that trigger and vice versa.

Long entries are generally when the stock trades above the previous day’s high. My initial protective stop will be either at the current day’s …

MaoXian gives an excellent illustration of how the market hunts for stop loss orders. And I love the quote he references — “Trading is the toughest way to make an easy buck.” Truer words have never been said.

A friend just e-mailed this article to me, so I thought I’d also pass it along: My Best Trailing Stop Techniques. Exits are one of the most important aspects of investing/trading, yet far too many people plan how they’re going to get out of a stock. Trailing stops are a great way to manage exits. Here’s just a part of the article (emphasis added by me):

Most investors and traders spend far too much time focusing on how to enter a stock, and far too little time focusing on how to best exit a profitable position. What is particularly interesting regarding this neglect is that most traders make the vast majority of their profits in a …

For a while now I’ve been meaning to explain who I am and how I trade. After reading Dr. Steenbarger’s blog today, I’ve been inspired to do it, so here goes. It appears that my trading philosophy is very similar to that of Dr. Steenbarger. I’ll attempt to use similar headings so you can compare & contrast.