I have been actively trading the markets for about 20 years. I took an interest in trading at a very young age and my passion to learn and improve has grown with each year. Success in the markets does not come easy. However, over the years, I have learned countless valuable lessons as I have strived to find my own style. It is these lessons that I hope I can share with others to shorten their learning curve and help them become successful market participants.
HOW I TRADE
When I first started trading I was constantly in search of a company whose stock was undervalued and waiting to be discovered. I’d scan for stocks with the best fundamental profile I could find that I believed had good growth prospects. Almost always, a low price earnings ratio was one of the first things I looked for. I never looked at price action as I had no knowledge of technical analysis and the only materials I had read at the time often suggested technical analysis didn’t work or was some kind of voodoo. I’d buy “value” stocks only to see them sit stagnant or worse yet go down and I’d buy more (bad idea!). It took a lot of time and lost money for me to finally realize this wasn’t for me. There was a great opportunity cost by holding these loser stocks while others I didn’t own were going up.
It took years but I eventually started to educate myself on technical analysis. It’s like a light bulb went off and this was the piece I was missing. Technical analysis is no crystal ball and like anything takes practice. However, after years of studying and actual trading experience I found focusing on price action to be extremely helpful in risk management and determining the path of least resistance. I’ll occasionally view company fundamentals, but every buy or sell order I place in the market is determined by my interpretation of price action.
When trading, I only enter positions that I believe have favorable risk / reward characteristics. Quantifying the risk is my primary concern when I view a chart I like. That is why the concept of support and resistance is absolutely paramount in my trading. I want to make sure if I enter a position and it goes against me I know when I will get out, reevaluate, and look for other opportunities. Big loses kill a portfolio and are hard to bounce back from. Think about the math behind losses. It takes a 100% gain just to break even after a 50% loss. Protecting large losses is my first consideration when entering any trade. Next, I want to make sure the trade is worthy of my time and capital. To do this, I want to ensure price appears likely to move in the desired direction and there are no obstacles (i.e. overhead resistance) that may limit my gains.
I always examine multiple time frames before entering a trade. My primary decision making is typically based on longer-term weekly charts going back a few years. This gives me the big picture look and helps determine the longer term trend. I then use shorter time frames (i.e. daily charts) to determine levels of entry and exit. I will sometimes trade around my core position, but strive to keep the majority of my initial capital invested as long as the trade is working.
The majority of my trades are either based on chart pattern breakouts or the re-testing of these breakout areas. I try to keep my charts and analysis simple and clean so I can focus on the most important data point we have available to us as market participants – PRICE.
I live in the suburbs of Indianapolis with my wonderful wife and our two children. Hanging out with my family is my favorite thing to do. I am extremely passionate about the markets and helping others become better investors. In a past life, I was a pretty good golfer.