The Art of Trend Trading - Parness Michael

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(I was one!) want to be promoted at some point; they don't aspire to be a bank clerk forever. I just was rarely, if ever, given positive encouragement. The only time I recall being given such feedback was when I played baseball and pitched. That was the one, and only, thing I recall being confident about…until I blew my arm out at 15 and was never able to throw the ball again with any real purpose. It blew my mind up, because I had no self-esteem about anything else. I got very depressed when I couldn't do the one thing I loved as a child. So, listen, I get it if you are a low-esteem/low-confidence individual. Unfortunately there are too many of us who were given that message and who were taught to believe it. I'm here to tell you that it's not true; if you're reading this book, then it's likely you have the innate ability to grow, learn, and excel. The belief in that will come in time. For now, I need you to focus on your real Achilles' heels, and one of them just may be your lack of focus, or your negative attitude that nothing will ever work for you.

      I've heard clients from around the world at times tell me they can't succeed, they always “take the losers” and it'll “never change.”

      Yeah, you know what? It won't…unless we can get you to keep, as I said in Step 2, faking it' til you make it!

       Step 4: Analyzing the Data

      So, now that we have a good grasp on your strengths, the things you aspire to and what your flaws are, we can analyze that data and figure out a game plan on your best path to success.

      Here's how we do that: Take your top three in each step, the three best attributes, the three things you most aspire to, and the three most deadliest of flaws you have. You there? Great, write them all on another separate Step 4 page(s).

      Take the three top flaws from Step 3, your top Achilles' heels, and cross out the ones that relate to your Step 1 attributes. Leave the ones that don't apply. You may have none left, or all three; it's okay. There is no right answer. Most of you will have all three left I suspect since these are your top three positives and your top three challenges to overcome. If you do have some crossed out, then my guess is you haven't dug deep enough on your Achilles' heels and I'd start that process again – digging even deeper!

      Now take all that's left and cross-check it with the things you aspire to, Step 2. Here you should start to see some scratch-offs – but don't scratch these off! Just put check marks next to each of the things you have as flaws that are covered by what you aspire to.

      Now, I want you to add any of the things you aspire to – use the entire Step 2 list, not just the top three – that you didn't list in Step 3. I suspect many of you will find at least one or two or more traits you aspire to that aren't under your Step 3.

      Add those to Step 3. Now you should have a pretty complete idea of all the things we need to work on. You have the top challenges, and you have the lesser ones.

      How the Steps Work

      STEP 1 – Take 15 minutes and WRITE DOWN all your strengths – be as thorough as possible!

      STEP 2 – Now, pretend you are interviewing for a job and you are trying to sell yourself – WRITE DOWN all the strengths you aspire to have, or others have told you that you have but you aren't as secure in them as you would like.

      STEP 3 – WRITE DOWN all your WEAKNESSES – your Achilles' heels! ALL OF THEM! Don't be shy; no one else should see this unless you want him or her to!

      STEP 4 – ANALYZE the data using the blueprint I map out in the Step 4 section. Let's get as accurate a “selfie” as you can of yourself!

      Okay, so now here's what I want you to do – the Step 3 items that are not on your Step 2 items you aspire to – add them to Step 2.

      You need to aspire to them.

      You now have a very good idea of what you need to do to improve your trading, whether you are a newbie or a seasoned pro.

      Chapter 3

      Breakout City and Riding the Horse to Gains

      The horse spirit guide is representative of speed, adapting to change, grace, and swiftness. There are tons of legends regarding the wisdom of horses, and in fact one of the fastest and newest types of therapy (for humans) is equine therapy. Don't laugh if you've never heard of it, or even if you have, I've done it many times. I found it quite illuminating at times, and what is useful to us as traders is that horses have a unique ability to read the emotions of those around them. They can sense when we are fearful, or nervous, or angry – or calm and at peace.

      One of the easiest trends to play really embodies the animal spirit of the horse. It's so simple that anyone with any level of experience, or lack thereof, can take advantage of, have a huge edge and trade it effectively – and profitably!

      In the simplest of terms, we call them breakouts and breakdowns. It's self-explanatory; we search for stocks that are making new highs or new lows. It really is that simple, except we break down these breakouts and breakdowns in several tradable manners.

The 10 a.m. Intraday Break

      Oftentimes, the market changes its directional trend intraday. It'll start out one way and then take a turn and reverse. There's what I dub the “10 a.m. rule” that I've tracked for 15 years, and it's a high percentage winner, but – as I'll detail in this chapter, it's not ultimately the best breakout/breakdown trend we have. It is very easy to play and valuable for those of you who either do, or want to trade the market intraday. Basically, we are simply using the time frame of 9:30 and 10 a.m. EST to bracket the high and low during that time frame.

As you can see in Figure 3.1, FB Gaps up and then craps out, falling consistently for much of the rest of the day. You could have faded the gap, shorting FB at the open, or using our 10 a.m. rule, which I'll detail more upcoming, you can see a really nice entry near 10 a.m., which scored a nice profit to the short side!

Figure 3.1 Intraday Breakdown 9:30 a.m.

      If we take the high and low from 9:30 to 10:00 a.m. EST, we then use that to guide us on which direction we play the break, or to stand aside because neither range is breached at any point.

      Typically, this play is tradable until roughly 2 p.m. EST on any given day.

The Play

      At 10 a.m. EST we now have the official bracket, so we take the high and the low of that half hour, and if the stock breaks below the lows of that time frame/bracket, we can short it. If, on the other hand, it breaks above the high of that time frame/bracket, it is a candidate to take long.

      So, for example, if EBAY opens at 9:30 a.m. at $57.39 and between 9:30 and 10 a.m., it trades with a low price point of $56.92 and a high price point of $57.63, a break below $56.92 after 10 a.m., but before 2 p.m. EST would indicate a trigger to short EBAY. So, to be precise, if EBAY trades at $56.91, you'd be short the stock. If, on the other hand, it trades above $57.63, or at $57.64 or above after 10 a.m., but before 2 p.m. EST, then it triggers long. The cool thing about this play is that your stop loss is defined clearly. You can adjust it according to your risk tolerance and other factors you decide, but the simple stop on EBAY if you end up shorting it would be a break in the opposite direction above the 10 a.m. high! So, if you enter a short on EBAY at $56.91 and it ends up moving against you, your stop is at $57.64.

      If you enter a long on EBAY on the long price trigger, your stop loss is the opposite; it's defined at $56.91. This is about as simple a trade as we can make intraday. It's a day trade only! This is not a trade we hold overnight, and in fact in the Power Trading chapter I'll discuss further how you can manage a trade such as this using time frames, but for now, let's keep it simple and say that you manage it using the parameters above, and let's throw in this factor:

      Your range for EBAY based on the 10 a.m. rule is $56.92 and $57.63; that's a range of $0.71 between the high and low. That is what you use to trail your stops and that is what you use as your first target to take profits. You want your trades to be at least one-to-one

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