Steve Burns and Holly Burns
Simply realizing that any trade can be a losing trade, and using stop losses to limit the damage, will put a new trader ahead of many competitors. (Location 110)
Profitability comes from consistently trading with an edge over time, not big trades that can just as easily turn into big losses. (Location 130)
To be successful, you must learn to take your initial stop loss. Following this important rule will give you faith in your abilities. You will prove to yourself that you will always stop a small loss from becoming a big loss. (Location 220)
Set your initial stop loss. It is crucial to set the stop loss at a price level that proves you were wrong about the trade. One of the biggest reasons for unprofitable trading is taking big losses when wrong. Know how much you are willing to lose and stick to it. (Location 223)
.The art of the stop loss in trading is like the art of the fold in poker; it is the key to winning. (Location 236)
Four things that can help you find your edge: -Historical entry points on chart patterns -Using Technical indicators rather than opinions -Trading a backtested system -Letting winners run and cutting losers short (Location 265)
One of the simplest lessons to ensure long term success, is to never risk more than 1% of your trading account on any one trade. (Location 543)
The 1% rule means that you never lose more than 1% of your total trading capital, by implementing proper stop loss and (Location 548)
correct position sizing on each trade. (Location 549)
1% rule in action (Location 567)
Honor the 1% rule. Never risk more than 1% of your trading capital on any one trade, and you will limit your risk exposure, and improve your odds of success. (Location 624)
A new trader has to decide what time frame they will trade before building their trading plan and developing their system. Each time frame has a unique use of charts, entries and exits, as well as support, resistance levels, and breakouts. As a new trader, your goal should be to understand and apply winning principles for your chosen time frame. (Location 670)
A swing trader’s edge is that they buy dips to support levels when others are selling out of fear. They also sell short into resistance levels when others are buying out of greed. Swing traders do best in range bound markets with well-defined support and resistance levels. (Location 697)
Swing traders can be profitable in trends by finding key pullback levels, or by using oscillators like the RSI. (Location 700)
Trend Following The key to trend following is having trades positioned on the right side of the market, over the long term. Trend followers create systems for longer time frames. (Location 702)
Trend followers tend to have low winning percentages, but small losses and large winning trades over time. Trend following is for long term capital appreciation of money, and is usually not suited for those that are trying to trade for a living, or need high winning percentages and consistent profits with minimal drawdowns. (Location 708)
Position Trading Position traders enter and exit long term trades in the markets over weeks, months, or in some cases, even years. (Location 715)
-How will you exit a winning trade to lock in profits? Money is only made in the exit. Trailing stops and profit targets enable you to exit a winning trade while the money is still yours to take home. (Location 804)
“The 10 day exponential moving average (EMA) is my favorite indicator to determine the major trend. (Location 820)
A great formula to use is a 3:1 risk/reward ratio. (Location 855)
If the trader wants to trade the $SPY and their entry signal is a break over the 50 day simple moving average at $200, and their stop loss is a 2% loss of the 50 day back to $196, with a loss of $4 a share then the trader can trade 250 shares of $SPY. $100,000 Account 1% Risk = $1,000 Stop Loss of $4 to $196 Position Size will be 250 shares at (Location 873)
$50,000. We calculate the position size by taking $4 as the dollar stop and dividing by $1,000 as our maximum loss, this equals 250 shares. If each share losses $4 the total loss would be $1,000. The stop is based on the 50 day being lost by 2% of the asset to prove to the trader that the 50 day break out signal failed. $200 - $196 = $4 divided by $1,000 = 250 shares (Location 876)
Your goal as a trader is to develop ways to capture trends inside your timeframe through quantified methods, based on (Location 908)
proven principles, and backtested market studies. Price behavior is the best guide for entries, exits, position size, and showing the actions of buyers and sellers in the present moment. (Location 909)
-Moving averages are powerful tools, and they show key levels for support, resistance, and entry and exit signals. They act as an unbiased trend indicator, while trend lines are subjective, moving averages are quantifiable. (Location 977)
The 21 day moving average will act as a filter for price action, keeping a trader on the right side of a short term trend. (Location 981)
The next step is developing a way to lock in profits as the trend over extends beyond the moving average. This can be accomplished by adding an oscillator to lock in profits near the 30 RSI, signaling oversold. (Location 984)
This is the ultimate dividing line between Bear Markets and Bull Markets. Major downtrends tend to happen after prices drop below the 200 day moving average. One of the first signs of the start of a Bull Market is price breaking and closing above the 200 day moving average. The price in relation to the 200-day moving average is a signal of whether we are in a bull or bear market cycle. (Location 991)
Moving average crossover systems Some traders use systems that give buy and sell signals when a shorter term moving average crosses over a longer one. Legendary trend trading pioneer Richard Donchian used a five and twenty day moving average crossover system for buy and sell signals. (Location 1015)
Your trading time frame and backtests determine which moving average best suits your trading vehicle, time frame, and methodology. Short term moving averages can generate false signals before catching a trend, and generate more signals than systems with longer moving averages. Longer term moving average crossover systems can give back profits before the exit is triggered. (Location 1021)
Exits- The exit after a chart breakout will determine the profitability of the trade. Trailing a stop loss using a short term (Location 1063)
moving average, a stop loss with a close below the previous day’s low, or having a price target, are three ways to exit with a profit after a good entry. (Location 1064)
The RSI is a technical momentum oscillator that compares the amount of recent gains to recent losses to try to read the overbought and oversold levels of a market’s price action. The RSI has a range of 0 to 100. A market is supposed to be overbought with a reading of 70. For traders, (Location 1078)
this is an indication that it may be time to sell their long positions at this level. The RSI at 30 is supposed to signal that an asset is starting to be oversold, and may present a good risk/reward ratio to go long at that level. (Location 1080)
The traditional use of the RSI for swing trading is best used in stock indexes. The 65-70 range indicates overbought and time to exit longs. The 30-35 range indicates oversold and a potential buy signal. (Location 1083)
In this chart, you see that Apple broke out above the 10 day EMA, then the key resistance level, and finally the 70 RSI. Any of these three breakouts could have been a signal to go long on this chart. The trailing stops could have been a loss of the 10 day EMA, or a drop back below the 70 RSI as examples of trade management. (Location 1107)
The MACD This is a technical indicator that attempts to measure momentum of a markets price action. (Location 1113)
The MACD is primarily used for trend trading signals on crossovers of the MACD line over the signal line. The MACD is not useful for identifying overbought and oversold markets as it is a measurement of convergence and divergence of two moving averages around a ‘0’ line. (Location 1122)