8/31/2016

Why you should focus on setups

In your trading journey you will have significant breakthroughs once you learn the language of setups. Profitable traders think in setup language while novices think in individual stock term.

Setup is a set of conditions that needs to be present for a stock to be considered for trading. A setp definition includes what kind of stocks to trade, when to enter them, where to put stop, where to exit , and how to manage the trade during its lifetime. 

If you see many trading blogs or services they talk about  several tickers without setup context. You should just ignore them unless setup behind that ticker is clear and can be explained in plain English.
If someone just  highlights a ticker grill them about their setup and process.

Setups and processes can be learned and duplicated.

If you understand and perfect a setup you do not someones stock picks. If you know the setup you can find and trade same stocks as the other person without relying on their pick. 
Many traders are secretive about setups as they know if setup is shared then why would anyone pay for their picks. 
But if you want to be independent and profitable trader you must focus on setups and ignore all stock picks. Once you learn a setup idea you can find your own picks.

Do a systematic hunt for setup. Most commonly used setups have survived for hundreds of years.
Look for and study most commonly used setups and learn the basic market structure behind them. From those setup ideas select few and focus on them. 
Setup oriented thinking is process based thinking. It involves series of steps to be followed with logical reasoning for the same. 
It is how do I find this kind of stock again and again kind of thinking. It is about ways to catch a  fish.

Setup selection is key to successful trading.

Setup selection allows you to condition your behavior.
It allows you to develop your procedural memory. It allows you to automate your thinking.
Lot of people think psychology is most important, but it is not unless you have right setup. If it was all about psychology , then most successful traders will be psychologists.

When it comes to setup selection your time frame is very critical.

A setup that is good for day trader may not be good for swing trader. A swing trading setup may be extended setup for position trader.

The steps in trading expertise development are:

Vehicle selection
+
setup selection
+
procedural memory development
+
self efficacy beliefs
+
situation awareness
+
risk management
+
right psychology
=
Profitable trading

If you want to make millions trading , first find a good setup idea.

8/30/2016

Bullish Anticipation Setups for August 30, 2016

As the market is going sideways for a month or so , many stocks are also going sideways and setting up for possible breakout if market breaks out to the upside.

As of now I have over 150 stocks in anticipation watch list. The market consolidation is the main reason for such a huge number.

REN RICE ERF ECA EXEL SM EROS PE ININ GRPN ERII MTZ CRUS KEYW DKS GIMO SPNC TASR VIV FN XIN COHR UPLMQ ETSY URBN CPA TTMI LPI EBIO AROC CTRL CWST OFG EXAR CGNX KMT CNQ MELI QEP FET HPE IDCC DECK YNDX NR OSK PRTY CR VAC FICO WING MKSI PN NTRI DNB AMH NTAP XPO MCHP CVLT JEC SPB MUR FFIV TRMB TXN PH CHRS BGFV DXPE SMG CSOD SON QCOM MAS ANW CHTR SPGI GLW NSIT SCSS VSAT TEN NWL CAT NCI AZPN TKR BEL CVG INN MIDD MRK PFPT ETP ODFL WWE BABA CYTK SNCR FLT PAYX ACGL DE ENLC LHO OME OXLC IRBT IILG GNTX TPX DXCM SREV BLOX TSEM LOCO DSW TNET ICE AWH CERN MXIM ENLK ANGI AMGN MHO STT MSFT CHGG GOOGL FL GOOG AAPL AIG XXIA STRZA GS UIS C JBL HAR CTB ASNA LM FF AAL ABCO IMPV OMF EGRX RUN


8/22/2016

Work on procedural memory to improve your trading


Procedural memory is memory about how to perform procedures.
We have as an adult thousands of procedural memory. We perform these processes without thinking.
Driving a car is about procedural memory. We drive effortlessly without thinking. We are not even conscious of the process unless something happens.
Shaving, brushing your teeth, washing dishes, cooking, and many other things are stored in brain as procedural memory where we can do them without thinking.
The day you realize trading success is about developing procedural memory specific to a setup or style of trading , you will be on path to success. You will do things that will enhance procedural memory.

Trading success is about developing expertise. When you try and develop expertise you train your procedural memory.

As a trader you need to develop a setup specific procedural memory. If you are trading 4% or $ b/o , you need to develop procedural memory specific to that setup.
Same way if you are going to trade anticipation setup and want to buy first viable setup on stock with momentum, you need to develop procedural memory about it.
Procedural memories are implicit memories. They allow us to lower cognitive load. They are learned intuitions.

Procedural memory is memory about how to do a process. It is stored in memory as one schema.

A process containing say 32 steps is not stored in memory as 32 discrete step but as one sequence of step. When performing that task the brain efficiently recalls all those steps simultaneously so you can do the task effortlessly.
Procedural memory helps free up the brain to do other things.
It frees the brain by reducing cognitive load. We have thousands of procedural memories developed over our lifetime. They make our life easy.
As a infant we have very few procedural memories but we quickly build them as we grow and they become part of us.
For example take a simple skill like swimming your teeth, it is a procedural memory once you develop it you can perform it without thinking or without focusing on a step by step sequence. But it takes us some time to develop.

Same is true of trading . If you read about trading or buy trading manual you will not develop procedural memory. You develop trading related procedural memory by doing actual trading . If you do a process thousands of time you develop procedural memory.

How many hours and tries are required to learn to swim or perform dance or gymnastic. It is same for trading.

If your setup is fast setup requiring fast entry and exit like say day trade , then procedural memory is even more important. You have to perform the task at speed without thinking too much.

New traders spend too little time developing procedural memory.

Before they can develop procedural memory they switch to new ideas and setup.
One day they ride bike for few hours struggle, next day do few hours of swimming and give up because water enters nose and ear, next day they try something new. In the process they do not have procedural memory for setup.

Stick with a setup for six months to a year to become good at it.

Procedural memory also allows us to do vast number of day to day tasks. Imagine if you had to learn to drive everyday, or learn to walk everyday. Life would be impossible without well developed procedural memory.
Same things happens in trading. As a trader you develop hundreds of procedural memories to make your trading effortless.

Where to enter, where to exit, where to abandon a setup without waiting for stops to hit, how to determine risk are all procedural memories developed through practice.

Finding anticipation setup is procedural memory. Once you develop it , you can quickly go through 400 to 500 stocks and identify those 5 to 6 good setups. No amount of instructions and manual can make you learn that skill unless you do it daily for say 90 to 100 days.
Most successful traders who survive the market for many years have developed a procedural memories specific to a style of trading or a setup.
They can instinctively trade those setups without thinking about individual processes or steps involved in that setup. They are not conscious of the steps.
A novice watching them trade many times do not understand their decisions. Many times they get out of a trade just before it hits a pothole or avoid certain trade that novice will take.
Lot of it is instinct developed as a result of procedural memory development. It is like a driver instinctively hitting breaks at sign of something on the road.
For discretionary trading it is all about procedural memory development on a specific setup.
If your efforts at training procedural memory to trade a setup or style are successful then you will become efficient in trading that style.
Once you learn a setup it become relatively easy to develop procedural memory on related style or setup.
But it is difficult to develop procedural memory on another instrument or style. That is why you will see many successful traders focus on very narrow niche in the market.
Some focus on growth investing , some focus on value, some on options, some on futures, some on currencies.
Within that they focus on very niche setup. Some trade say growth stock as swing trades, some trade them as position trades. These two setups require distinct procedural memories.
Most successful traders learn by trial and error that sticking to their setup is best because when they do it the procedural memory automatically kicks in.
As against that novice traders are ambitious, they want to trade as many setups as possible. They don't want to miss out on any style or instrument like option or futures. So they try and simultaneously develop procedural memory. That obviously leads to failure.
If we know that the key to discretionary trading success is procedural memory then why is it difficult to develop procedural memory?
To develop procedural memory you need highly structured environment.
When you learn to drive, it is done under structured environment. You learn it in step wise manner under close supervision. There is someone sitting next to you closely supervising every step and also ensures you don't get killed.
Every month you will see some young kid getting killed in car accident, and the reason is largely to do with lack of well developed procedural memory and bravado.
As against that much of learning to trade on your own is unstructured and unsupervised process unless you join a trading firm or a Wall Street trading house or bank.
You are your own instructor and you need to create your own structure and you need to give yourself correct feedback and you need to ensure you do not get killed by blowing up your account. And more importantly you need to persist for months in learning stage still it becomes effortless exercise.
If you want to develop trading procedural memory and make thousands or millions the first step is to put all your effort in developing procedural memory.
It is not about trying thing once, it is about the 500th attempt and the thousandth and three thousandth attempt that makes you effortless. That is what develop procedural memory. You can not do it in 15 days.
If you read the classic Wall Street books like How I made 2 million dollars in stock market by Darvas or Reminiscence of a Stock operator, you will see that much of the struggle depicted in those book is about trying to find a setup and a process and sticking to it.
Once Darvas found his setup and developed a process it was easy. In Livermore case he went from setup to setup and from day trading to position trading before making big money.
It is the same thing that happens on Stockbee site hundreds of novice join every year. Some give up in few months , those persist for months , six month, a year at some stage develop procedural memory and then they develop their own setups .
Some still stick around , because they find the environment enriching and motivating. They like learning from others and continue to improve.
Some become very good at particular style or time frame like day trading . They start their own site.
Some are scared of sharing their setup and secretive, they spend time talking in riddles. Some do not want to help others. But that is what makes the world interesting . Not everyone is motivated by helping others.
The Stockbee site fosters such ecosystem and survives the process as new traders bring in new ideas and new energy . And some old traders here take on mentor ship role to guide newcomers.
As a novice trader if you understand the role of procedural memory in trading you would approach the task differently. You will set process goals as against monetary goals.
You will focus on well developed setup idea with step by step instructions.
You will try and find someone to supervise your process and ensure you do not get killed during the earning process.
In most procedural memory development situation a apprentice model has shown to be most effective for learning.
When you attempt to develop procedural memory on your own, unless you are extremely motivated and driven (or the correct word according to psychologists is you have very high self efficacy beliefs) the task is difficult. That is why you will see few extremely motivated individuals make it in this field.
This is the reason most ordinary and less motivated traders fail before they can achieve profitability.
They blame markets or other things for it but in many cases the fault lies with failure to train procedural memory.
In order to develop procedural memory for any given time frame or style or set up first you need to start with well defined setup with clear step by step process led out with clear explanation for each step.
For example if you were to decide to trade a swing trade setup, you need clear well defined highly structured process that you can follow and master till you can do it on your own without supervision. That is why I and many other traders here repeatedly share processes, setup and repeat things till people get it.
That is why this site puts so much focus on becoming process oriented. The daily posts like Night Time is right time, Good Morning Wall Street, Anticipation as your tool box and so on are designed to drive the importance of procedural memory.
Develop process flow and develop procedural memory. Once you do that you are on your own.

8/08/2016

Stockbee 50: New entrants 08/08/2016


The Stockbee 50 is a list of fastest moving stocks in the market. These are stocks with above average momentum.
Stocks with good momentum keep going up. If you are serious about making money, it is a good idea to keep an eye on the stocks in the Stockbee 50 list.
Momentum ranking is relative and so stocks that gain momentum move up the rank and those that lose momentum drop off.
There 25 new entries in the Stockbee 50 list this week. The new entries at some point will setup again. Once they are ready, they can be entered as an anticipation trade or as a breakout trade.
There are 30 that dropped from the list this week. It is also a good idea to keep an eye on these as well as they might set-up again for a second leg up.

List of New Entrants:

EGLE SINO AMBR HTBX SHIP GLBS ADXS BVX SNMX HEB NVCN FMSA MGN HSC BNSO GEVO NAK PCMI HCLP QUAD DELT EMXX ETSY ABEO ADVM

List of stocks dropping rank

LNTH TRCH BEBE ALIM TCK PBYI GNMK LOGM N BIOD DRRX HTWR SGNT S CDTI ROKA OPGN LEDS HL SSRI ASM CCCL FSM VGZ PVG TGD PTN MUX XRA XCOM
From the list that has dropped ranking
PBYI LOGM
are looking good.

8/02/2016

Bullish Anticipation List

Stocks to watch for breakouts
DV JBL SWK EBAY DPZ KMX ITW

IPO Anticipation List

CHUBK BNED PEN HRI CHUBA PFGC PLNT

Stockbee50 Anticipation List

TSRO CLF PEN PLNT HSC