30 Days To Master Part-Time Swing Trading Challenge Archives | Bulls on Wall Street

Day 4: Managing Risk and Setting Stops

Day 5: Managing Risk on a Macro Level

Day 6: Managing Risk and Taking PROFITS

Day 7: The Reward to Risk Ratio

Day 8: Stochatic Indicator

Day 9: Case Study Webinar Replay

Day 10: 5 Keys To Trading With Volume

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Important Links
Link to YouTube Live-Stream on June 26th

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How to Trade Overbought and Oversold Conditions with the Stochastic Indicator (10 Days To Master Part-Time Swing Trading Challenge Day 8)

Paul Singh — Mon, 11 Jun 2018 21:06:46 +0000

In day 8 of the 9 days to master part-time swing trading challenge as I show you how use the stochastic indicator to trade overbought and oversold conditions in stocks and the overall market.

The Concept: Overbought and Oversold

As swing traders, our favorite stocks and market are those that show strong momentum (rate of change in one direction).

However, in momentum markets there usually comes a point where the momentum becomes so strong and outside of the normal trading range that the rate of change in price action becomes unsustainable.

This is known as an overbought or oversold condition.

An overbought or oversold condition is where price is likely to consolidate or reverse.

However, there is no guarantee that this will happen.

In fact, in some supercharged markets, overbought or oversold levels can persist for a long time without a reversal or consolidation. We will talk about in later challenges, but for now let’s work on identifying overbought and oversold levels.

Stochastics

As you develop as a trader, you will be able to identify overbought and oversold conditions without any indicators, just by analyzing the price action. That being said, the best objective way to analyze overbought and oversold levels is to use the stochastic indicator.

The stochastic indicator measures the rate of change, or acceleration, of a stock.

That’s the extent of what we need to know.

While there is a formula for it’s calculation, all we need to know to trade effectively is how to use it (you don’t make any money by knowing the formula and plugging in the numbers!).

Here are the keys to using the indicator

Set the indicator at 5,3,3
Classify a stock or market as overbought at 70+
Classify a stock or market as extremely overbought at 85+
Classify a stock or market as oversold at 30 or less
Classify a stock or market as extremely oversold at 15 or less.
If the indicators reverses sharply, expect reversal
If price action stays in the overbought or oversold zone, expect trend to continue.

Remember, we are not going over any setups today.

Instead we are learning how to use the indicator.

Keep in mind that these classification are just a guide, and not actual buy or sell signals. Buy and sell signals take into account many factors along with these levels.

Watch today’s video for a more in depth analysis with charts on how and why we use stochastics.

The Day 8 Exercise

Pull up the charts for SPY, QQQ, NFLX, AMAZN, FB and GOOGL.
Identify every overbought and oversold condition over the past 2 years.
Note where they because overbought/oversold and where levels became extreme.
Study price action and patterns after these levels were hit.

Day 1: Getting Started

Day 4: Managing Risk and Setting Stops

Day 5: Managing Risk on a Macro Level

Day 6: Managing Risk and Taking PROFITS

Day 7: The Reward to Risk Ratio

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Note that this coupon code will only be valid for another 2 days before it expires. Use coupon “SWING50” at checkout to get 50% off!

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Managing Risk On A Macro Level (10 Days To Master Part-Time Swing Trading Challenge Day 5)

Paul Singh — Thu, 07 Jun 2018 01:14:41 +0000

In day 5 of the 10 days to master part-time swing trading challenge I show you how to manage risk on a macro level.

In other worlds, we need to not only manage risk for specific trades, but also our overall account.

The Concept: Managing Account Risk

Why do we manage risk for specific trades?

It’s because that trade does not exist in a vacuum.

It’s part of a bigger story.

That story is the growth of your account, and that growth can’t happen if your risk digs to deep of a hole in your account.

The Mistake Traders Make

Most ametuer traders almost exclusively focus on risk per trade.

For example, they decide that why will risk 1% per trade and think that’s enough.

Sure, it’s true that 1% risk per trade is a good rule. You can lose 10 trades in a row and still only lose 10% of your account. That’s great.

However, what if you are in 10 similar long positions and the market takes a nose dive. Not only that, but let’s say the market gapped down, making each trade blow through your stops so that your average loss is 1.5% per trade.

Now you just lost 15% of your account in one day.

If you have a $100,000 trading account, you are now down to $85,000.

That’s not acceptable.

You will blow up your account this way.

The Fix

Here is how you correct this mistake.

Decide on a max risk range for you account at any one time (I like to keep it between 4-8 percent).
Analyze the market and according to market conditions, decide which side of your max risk range to be on.
1. In strong markets at the beginning or middle of trends, you can go toward the higher side at 7-8%
2. In strong but overbought markets, you must be cautious of a reversal and lower to 4-7 percent.
3. In weak markets, say toward the lower range.
4. In weak but oversold markets that are strengthening, you can increase risk.
Add and subtract positions, and position size according to your overall risk parameters.

Watch this video for more on hanging overall account risk.

The Day 5 Exercise

Now that you’ve watched the video and understand why managing risk is so important, complete the following exercise

Go to February 2, 2018 on the SPY chart.
Pick 10 stocks on that day and assume you had entered before that day and position sized and set stops according to 1% risk. (for example, AAPL, FB, GOOGL, AMZN, NFLX, NVDA, GS, X, FCX, TSLA).
Calculate how much you would have lost with that overall 10% risk in place.
Now adjust the account for better overall risk management.

Day 1: Getting Started

Day 4: Managing Risk and Setting Stops

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Managing Risk and Setting Stops (10 Days To Master Part-Time Swing Trading Challenge Day 4)

Paul Singh — Tue, 05 Jun 2018 19:25:26 +0000

In day 4 of the 10 days to master part-time swing trading challenge I show you how to manage risk and set stop losses.

This is one of the easiest trading concepts to learn, but one that too many traders ignore.

This often leads to huge losses or even blown up accounts. So do yourself a favor and take this day’s lesson very seriously.

The Concept: Managing Risk

Risk management is the most important aspect of being a professional trader.

In fact, it’s so important that when I get asked “what do you do”, I often answer that I am in risk management.

Risk management is so critical that I argue that if you did not know anything about the stock market, technical analysis, setups or stock picking, you could beat most traders just by understanding how to manage risk.

What do I mean by risk?

I am talking about the probability of losing your trading capital, which is the lifeblood of any trader.

In other words, it’s how much you can potentially lose.

I think of risk in two ways: on a macro basis, and a micro basis.

The macro is how risk impacts your overall account.

The micro is how risk impacts a specific trade (which in turn impacts your overall account).

Today we will focus on the micro, setting stop losses for individual trades.

Tomorrow we will discuss macro risk management on a macro level.

After talking about protecting the downside, we will then focus on rewards, or profit targets on day 6.

Finally on day 7 we’ll put it all together with the concept of “reward to risk” ratios.

How to Effectively Set Stops to Protect You Account

A stop, or stop loss, is the spot where you will get out of a trade and take your mask loss.

For example, if I buy 100 shares of NFLX at $367, I could potentially lose a maximum of $36,700 (my total position cost) if the stock went to zero. Obviously, we would never let that happen.

Instead, we place a stop at the level we are willing to lose. If we set a stop loss at $347, we would lose a total of $2000 (100 shares X $20 = $2000).

When placing a stop, we need to think about three different things:

The maximum we are willing to lose on this trade
Where the stop makes sense in the stocks price action and chart
If the position sizing makes sense for us to take the trade.

The max you are willing to lose on a trade depends on your account size and your risk management on a macro level (we’ll discuss this more tomorrow, but for now let’s assume we are willing to lose 1% of our account per trade).

The stop placement on the chart depends on price action support and resistance levels, and areas that aren’t in the stocks’ natural volatile movements.

When thinking about position sizing, think about how much the reward needs to be to make this trade worthwhile (we’ll talk about reward on day 6, but for now it usually should be at least double your amount risked).

Watch this video to learn how I use moving averages, then move on to the Day 4 exercise.

The Day 4 Exercise

Now that you’ve watched the video and understand why and how we set stop, pick 5 different stocks and do the following:

Using an imaginary $250,ooo account, identify how much you can risk for the trade if you risk 1% on a trade.
Assume you entered NFLX on April 4, 2018 at the closing price of $288.94.
Now set your stop and position size assuming your are risking 1% of your account. Think about where it makes sense to place your stop on the chart as well.

Day 1: Getting Started

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How To Use Moving Averages (10 Days To Master Part-Time Swing Trading Challenge Day 3)

Paul Singh — Mon, 04 Jun 2018 00:48:16 +0000

The topic for day 3 of the 10 days to master part-time swing trading challenge is moving averages.

We briefly touched on the topic yesterday when we learned how to analyze the market.

The Concept: Moving Averages

Everybody uses moving averages. If you are reading this article, I’m sure you’ve experimented with them and have them on your charts. There are many different ways to use them, and I’ve tried just about all of them. After years of testing, I’ve discovered only three main uses for moving averages.

We’ll get to those in a second, but before we do that let’s have a quick refresher on what moving averages actually are.

Moving average show you the average price of a stock over a given period of time.

For example, if you are using the common 50 day moving average, at any given day on that moving average line, you will see the price of the previous 50 day average.

Moving averages can act as support and resistance levels. However, remember that moving averages don’t give us “real” buying and selling levels like price action does. They only work as support and resistance because many traders are using them. Thus, I call it a secondary S/R indicator, lagging behind true price action importance.

Now that we have a good general idea of what moving averages are, let me s how you how I use them as a trading tool.

How to Effectively Use Moving Averages

Here are my three favorite ways to use moving averages

To identify trends: Moving averages help us identify markets and stocks that are in uptrends, downtrends and rangebound.
1. Uptrend: The moving average will show a steady rising trend line
2. Downtrend: The moving average will show a steady declining trend line
3. Rangebound: The moving average will flatten or continually rise and fall
4. Trend Reversals: The moving average will form a pivot and got from flat to the opposite direction.
To identify stocks that are overbought or oversold
1. Many traders like to use rate of change indicators like RSI and stochastics to measure overbought and oversold levels in stocks and markets. My favorite method is to analyze the appropriate moving average for the time frame I am studying.
2. Trends will usually start with the stock near the moving average. As the stock becomes extended, you will see a gap form between price action and the moving average.
3. The wider the gap, the more likely you will see a “snap back” or “reversion to the mean”.
To enter trades based off pullback entries
1. Moving averages provide support for pullback entries.
2. Strong stocks will hold or “remount” moving averages when tested.

There are many other ways to use moving averages, but these are the 3 most effective ways that I’ve tested. They are my only three uses for them.

Watch this video to learn how I use moving averages, them move on to the Day 3 exercise.

The Day 3 Exercise

Now that you’ve watched the video and understand the 3 ways I use moving averages, you are ready for the day 3 exercise.

Pull up the FANG stocks (FB, AMZN, NXT and GOOGL) an study the last 2-3 years on the chart.
Add the 9ema, 50ma, and 200 ma to your charts.
Identify the trends for each stock
Mark where you see overbought and oversold conditions in the stock based on moving averages, and check to see if the stock reversed at these levels.
Identify all of the potential pullback entries.

Day 1: Getting Started

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