Mike Baghdady

Transcription

Mike Baghdady

Trade what you see, not what you think™
Mike Baghdady
[email protected]
www.trainingtraders.com
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Copyright Training Traders Ltd Jan 2012
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Welcome to SpyGlass Trading
Trading
V
Investing
Copy Right Mike Baghdady 2000-2009
What is Trading?
•Trading is a Psychology – Yours & Theirs
Its is not a E= MC2
•Trading is one thing ……Investing is another
The making of an Investor vs. a Trader
Investor buys actual stuff for the long haul with the idea they would appreciate in value.
“He does not care if the market “price” doesn't reflect the value of the stock “ Buffet”
•Positive Approach a Good Foundation
• Understand How Money is Made or Lost in the Market .
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Copyright © Training Traders Ltd January 2012
90%
10%
90%
Retail
100%
Market
Professional
10%
The Million $$ System
How to become a Great Trader?
There is a major misconception that being a Good Analyst would
make one a Good Trader
A good trader can become a Great Analyst
How Money us Made ?
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Being an Analyst
A Trader should not ignore key economic reports or political
events that can and often do move markets.
Fundamental analysis is more of an educational pursuit-- data is
sifted and interpreted to determine the future direction of price
movement.
Time lag and Discretionary information are
important factors to be considered.
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Fundamental Analysis
Reality Gap
Because a Fundamental analyst focus on what the market should be doing based upon what
is logical and reasonable as determined by the mathematical models
And neglecting or overlooking what is actually happening in the market
Creates a between
Reality Gap
“What should be”
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---------------
“What is actually Happening”
Technical Analysis
Technical analysis
Has become the ? of adding indicators to a chart
”
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Today’s Technical Analysis
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Technical Analysis
Technical analysis
Has become the ? of adding indicators to a chart
”
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Mike Baghdady’s
Price Behaviour Methodology
Today, more and more traders and sophisticated investors use some type of
technical application that he or she use in their investment or trading
decisions. Trading has become a function of taking “buy” and “sell” signals off
technical indicators rather than applying the basic principles of Technical Analysis
and the study of Price Behavior chart structure
Price Behavior and analyzing Price Structure are some of the most important
aspects of Technical Analysis and of trading, and yet they are the most overlooked.
Understanding Price Behavior and Chart Structure will put the ODDS on the
trader’s side so that he can make better decisions, trade more successfully and
with better results.
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Mike Baghdady’s
Price Behaviour Methodology
We are trying to determine the most likely direction in which prices will
move.
Reflects the immediate psychology
 Everything that is known is reflected in the price at this moment.
Supply and Demand
With proper implementation and interpretation a chart can reveal very
powerful price patterns
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What do we need to do to become successful
and consistent Traders?
A well defined set of Rules we have to be consistent
Apply these rules
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Copyright Training Traders Ltd Jan 2012
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Only Two Responsibilities
•
Identify high probability trades
• Identify and quantify risk
• Select low risk entry points
• Identify possible profit targets
• Develop a systematic approach
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0
The Ability to Multitask
• Collect all the data
• Analyze the data
• Make a decision
• Act upon that decision
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To Be a Good Trader
In order to trade successfully:
Think like a Fundamentalist
Trade like a Technician
It is imperative that we understand the fundamentals driving a trade, but also that we understand
the market's technical's.
When we do, then, and only then, can we or should we, trade.
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Today’s Technical Analysis
The Term TECHNICAL TRADERS
DO NOT USE
I
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Chart Anatomy
A Way of Thinking
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Think in Probabilities
Each trade could possibly be a loser or a winner
Instead of trying to Predict the Market direction FOCUS on Methods where the
PROBABILITIES are in your favor and on you side you want a
SUCCESSFUL OUTCOME OVER THE LONG RUN.
Consistency : is KEY , all signals should be taken as no one know which
trade will make the pay off , you do not want to miss the big Trade.
Trading is simple but it is not easy.
It takes a great deal of time and study before one realizes just how simple trading is, but it takes many
years of losing before most traders come to grips with how hard it can be to keep things simple and not lose sight of
the basics
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Psychology
“Human emotion is both the source of opportunity in trading and it is
Also Its Greatest Challenge”
–
Markets are made of individuals ,all with hopes, fears and greed .
As a trader we are looking for opportunities that arise from these
human emotions
•
Successful Traders know that someone else’s error in judgment are opportunities
and they understand how these errors manifest themselves in price action
•
Winning traders make money
patterns of other traders
•
Price Behavior works and continues to work because it is based on the market movements that result from
the systematic and repeated irrationality that is embedded in every person
by exploiting the consistently irrational behavior
Copyright © Training Traders Ltd January
2012
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Trade with an Edge
Elements of an Edge:
Positive Expectation so that one can continue with their methods during periods of
drawdown which every trader will have.
•Expectation is one way of defining your edge , Do not judge the rule by its outcome
• Expectation: Quantify your edge
•Loses are to be viewed as a cost of doing business
•Portfolio Selection : What markets to trade
•Entry Signals :To find an edge , you need to find an entry where there is a greater than normal
probability that the market will move in a particular direction within a desired time frame.
•Exit signals : Pair it with an exit strategy designed to profit from the type of move which the entry is
designed .
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Trading is a Business of Risk
High Risk , High Rewards
“ A mature understanding and respect of risk is the hallmark of the best
traders”
Traders Trade Risk
Traders trade Price , they are buying and selling “Risk”
Markets are groups of traders that interact by buying and selling from each other
The markets developed to allow the Transfer of risk from one party to the other
Controlling Risk
The Art of keeping your risk of ruin at acceptable levels while maximizing your profit
potential
“Minimize
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risk and maximize Size”
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3 Components of a Trade
Rules to Follow
Clear & Precise
Portfolio Selection
=
Statistical Edge
= Choosing What to buy ?
Timely Execution
2012
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What is Price?
What Moves the Price?
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What is Price?
What Moves the Price?
The Price movement is a result of the Collective perception of buyers and sellers in the
market, when the collective perception changes, the prices move
At the Lows ,If sellers are no longer willing to sell at the current price and they are
demanding a higher price and the buyers are willing to pay the new higher price , Prices
will move up.
At the Highs , if buyers refuse to pay the current market price but they are only willing to
buy at a lower price and at the same times the sellers are willing to sell it at that lower
price than the Prices will fall.
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This Collective perception can take a life of its own and thus move the markets to
extreme
Collective Perception
is a
Function of Human Emotions
An understanding of mass psychology is often more important than an understanding of economics.
Markets are driven by human beings making human errors and they are also making super-human
insights.
In order to be able to trade successfully we need to understand the human mind.
People always behave in the same way , and under pressure they make the same errors in judgment ,
they rarely make completely rational decisions , they poorly assess their risk or the probable market
directions and thus they get caught in bad situations where they have to pay to get out of them.
These Human Emotions manifest themselves in the price action and on the charts they are a great
source of opportunity for the successful trader .
A traders success depends on his ability to understanding how these emotions would affect the price
action and knows how can he take advantage of these opportunities.
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Human Behaviour
Successful traders are always looking for these opportunities that arise from these
human emotions and from other traders errors in Judgment .
These Human emotions and irrational thinking is what creates the repetitive patterns that
we can identify , gauge and give us money making opportunities
That is why Price Behavior works and will continue to work because it is based on
the market movements that result from the consistent and repeated irrationality
that is in every one of us
“The Edge”
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Price is EVERYTHING
• To determine the most likely direction in which prices will move.
• Reflect the immediate psychology.
• Everything that is known is reflected in the price at this moment.
• Supply and demand.
• With proper implementation and interpretation, a chart can reveal price patterns.
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Technical Analysis Theory I
 Everything that is known or knowable about a financial
instrument is reflected within the price action of its chart.
 The Market is a discounting mechanism - events are
usually discounted in advance by movements which are
likely the result of the so called “Smart Money” or the
“informed” buyers and sellers.
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Discounting Mechanism (continued)
Market prices acts as leading indicators of the fundamental or
conventional wisdom of the moment.
 While the known fundamentals have already been
discounted and priced “in the market”…
 Current price action is now reacting to the “Unknown
Fundamentals”.
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Technical Analysis Theory II
Prices Move in Trends
Trends in Motion will continue in the same direction until
a major event causes a change in direction.
It takes a great deal of time and effort to produce a trend
change.
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2012
Technical Analysis Theory III
•
History Repeats Itself:
 History repeats itself in such a way that markets move in fairly predictable, or at
least quantifiable, patterns.
 Human beings will do the same things and repeat their mistakes over and over
again.
 Human beings have a tendency to respond to developments in the same way as
they have done in the past.
 A trader who is winning or losing money will likely react to market changes in the
same way that other traders have reacted to similar changes in the past.
The Trading Masses will leave their tracks on the Price chart .
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Price Behavior & Chart Structure
An UP Trend is a Series of Higher Highs and Higher Lows
The higher lows are in CONTROL
When each intermediate rally (advance in price) rises above the high of
the prior rally (higher highs), and each correction down or secondary
reaction stops is above the low of the previous correction and price
reverses back up (higher lows), the Primary trend is up. This is bullish.
A DOWN Trend is a Series of Lower Lows and Lower Highs
The Lower Highs are in Control
When each intermediate decline (decrease in price) takes prices below the low of the previous
decline (lower lows), and each rally or secondary reaction up stops below the high of the
previous rally and price reverses back down (lower highs), the Primary trend is down. This is
bearish.
Price Behavior & Chart Structure
The Simplest Fact !
Price never moves in a straight line .
Just by accepting the simple truth that prices
NEVER move in a straight line, a trader will stop trying
to pick tops or bottoms and will view the correction as an
opportunity to take a trade in the direction of the trend.
Price Movement
Prices are always
in between the
all time high and
the all time low.
In between there
are several
Trading Ranges
of a lesser
degree.
These Trading
ranges are tied
together by
connectors.
Trends
Prices Move in Trends.
Trends move in Waves.
We have “Impulse Waves”
in the direction of the
trend,
Followed by “Corrective
Waves” better named as
countertrend moves.
Trends in Motion will
continue in the same
direction until a major
event causes a change in
direction.
It takes a great deal of
time and effort to change
a Trend.
Trends
Trends are created by
an imbalance in supply
and demand and this is
what moves prices.
Prices will alternate
between areas where
prices have been
marked up to a new
higher level or marked
down to a lower level.
After a big move in
either direction prices
will consolidate at that
new price level.
Usually, movements in
the market tend to
have a relationship
to each other.
We must first identify the market
condition
• Here are some questions we should be asking ourselves
Before placing a trade:
1. What is the market condition?
a)
Trending or consolidating?
2. Is momentum increasing or decreasing?
3. What is the major trend?
4. Do we have a Trend changing pattern and /or buy /sell Climax?
5. Where is Support & Resistance? How are the price reacting at the
significant price points – Structure
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Here are some questions we should
be asking ourselves after we take a
trade
1) What is my expectation?
2) Is the price action acting according to my
expectation?
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Let’s try to apply the rules and
answer the following questions:
1) What is the market
condition? Trending or
consolidating?
2) Is momentum increasing or
decreasing?
3) What is the major trend?
4) Do we have a Trend
changing pattern and /or a
buy /sell Climax?
5) Where is Support &
Resistance? How are the
price reacting at the
significant price points –
Structure
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1)Yes the market is trending up,
series of higher highs and higher
lows.
2) Yes, momentum was
increasing all the way to the top.
You can see that the blue price
bars have bigger ranges and are
more explosive in the direction of
the trend, the magnitude of the
price swings are bigger in the
direction of the trend than the
corrective swings; thus indicating
that higher prices will follow.
3) The major trend is up
4) Yes, at the top, we do have a
buy climax followed by a failure
of prices to make higher highs,
prices then gapped down taking
out support. That would be
our first signal that the trend has
changed and we should go Short.
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Let’s Examine the
Reversal
Taking it from the Top– we had a buying Climax
followed by a failure to make higher highs and
then prices broke down through support. The
market is now trending down.
Momentum is increasing to the downside
evidenced by bigger down swings and red price
bars. The final push down, as you see, is
indicating a loss in momentum – but that does
not indicate a trend change – it could be a profit
taking area for us – and we would be still
expecting a new lower low to follow .
The trend is Down – Lower highs and lower lows
The next swing down made a higher low and
consolidated at an area marked with low
volatility and price coiling. A breakout followed
to the upside with an increase in momentum
indicating
a new trend to the upside.
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Let’s Do the last swing together
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1)
What is the market
condition? Trending
or consolidating?
2)
Is momentum
increasing or
decreasing?
3)
What is the major
trend?
4)
Do we have a Trend
changing pattern and
/or a buy /sell
Climax?
5)
Where is Support &
Resistance?
6)
What is the High
Probability Trade?
7)
What is my Risk?
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Here is the answer !
?
?

Mike Baghdady

Transcription

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