Lessons from the Pros

Questions and Answers – Things You May Want To Know

It’s been a busy few weeks but I do have a little break in my schedule. I am going to use this time wisely and take that trip to Foolsville. I was able to reschedule my meeting with the Foolsville Mayor and the finance board so I will get some questions answered and report all this to you soon. When I called to make my travel arrangements, they suggested an airline I never heard of before. When I checked prices, I realized that this was the most expensive way to get to Foolsville. I quickly called my Foolsville contact and asked them why I would want to take that airline if they are the most expensive. He said "because that’s the airline we all use." This is going to be a strange trip but I am really looking forward to it. By the way, thanks for all the great emails about the Foolsville article, they were fantastic and very funny.

Today, I thought a question and answer piece would be beneficial. Let’s go over some frequently asked questions from your peers.

Hi Sam,

I wanted to start trading FESX so I can trade the gap fill at 11pm CA time. Where can I learn more about the market? For example, is there a pre-market or does it just open at 11 CA time with no premarket?

And, if so, is there a way to pick levels before the open?

thanks,

Andrea

San Diego

Andrea – Great choice! The FESX (Euro Stocks 50) is one of the best Futures markets in the world to trade in my opinion. This market is a Eurex product. More information can be found on the Eurex website: www.eurexchange.com. We also cover this market often in the XLT – Futures Trading class. FESX does not have an overnight session so it does actually close for a period of time each session, much like the U.S. stock market. This creates a unique benefit for Futures traders as almost each day, FESX has a gap. As astute market speculators, we love gaps. The price point in this market is ideal, as well; each point has a value of 10 Euros. Spend some time on the website and email any questions you may have.

Hi Sam,

I have read your newsletter today and would like to ask you a question regarding that AAPL trade you have described. Looking in the chart I am seeing three potential shorting opportunities that you have highlighted – area A, C and D. One could think that if you sell near A and price moved high – it is very likely that price will not move above C and then not above D.

So, why not to keep short position at A and take another short position again at C? Then cover both positions when price drops to the target level. I see that kind of set up pretty often – would it be considered adding to loser position, but some people may call it scaling into the position? I am kind of confused what makes the difference between adding to a loser and scaling into the position. Please clarify.

thanks,

Alex

Alex, great question. The answer is all about your trading plan. I think your question/suggestion for scaling into the position is great, it’s a very smart thing to do but here is the most important part: Make sure you have a plan for this. It will only work if it is built into your plan. I have one strategy I use that has me scaling into a position for entry and it works well. The "plan" is key because you have to know exactly how you are going to manage the risk. If you scale into a position without a clear plan, you run the risk of digging a deep hole on the risk side. You have to figure out where the entries will be and exactly where your protective stop will be placed. Then, you will be able to figure out your position size so that you are not risking more than you’re willing to lose. To answer the part in your email about "adding to a losing position," this action would only be adding to a losing position if it was not planned in my opinion. Lastly, when scaling into a position, don’t think you need to add in equal parts. In fact, I add larger size the closer I get to the protective stop. Just some thoughts to keep in mind if you decide to go this route.

Hope all is well -

Quick question for u – I think I have a good feel for how to find (1) intraday buy and sell points (2) swing buy and sell points.

What do u do differently to find "Position" buy and sell points?

Many tx.

Kind regards,

Philippe

Philippe – Like all your emails, good question. The answer is really simple, "nothing." When we buy and sell anything in any time frame, we are looking for price levels where demand and supply are out of balance. We are looking specifically for these imbalances that are also associated with large profit margins. When you are looking for "position" buy and sell points, you are looking at larger time frames, that is the only difference from intraday and swing trading. To keep it low risk, high reward, and high probability, make sure you are looking for LARGE profit margins. Think of some of the British Pound trades we have taken in the XLT, the S&P buying opportunity we found in March, and others you have found and sent in email. The key piece they all had in common was "large profit margins".

Sam,

During your swing trading class your workstation uses the VIX as an indicator. Since I don’t have that data I cannot get a VIX chart. Is there another indicator I can use instead?

Thanks,
Sam

Hi

The VIX (CBOE Volatility Index) is a great "odds enhancer" for short and longer term trading. It offers much needed insight into the current fear and greed in the stock market. When the VIX is high and reaching a supply (resistance) level, and the stock market is low and reaching a demand (support) level, odds are strong that the stock market is going to turn and trade higher. Conversely, when the VIX ix low and reaching a demand level, and the stock market is high and reaching a supply level, odds are strong that the stock market is about to decline. The VIX really shows us who is buying protection for their long biased positions in the stock market. What happens is that the masses don’t buy the "insurance" until after the car accident which is too late. As astute market players, we can take advantage of this by monitoring the VIX chart. If you don’t have the feed in your platform, you can always Google "VIX chart." I just did and found a nice chart of the VIX on yahoo: http://finance.yahoo.com/q/bc?s=%5Evix. This free chart is delayed but that’s fine, we are not looking for perfect entry points on this chart. Instead, you should take a look at this chart once a day if you’re a day trader and once a week if you’re a swing or position trader to time your entries.

Hello Sam!

I really appreciate all your great instruction!

I’m a Swing Trader and have been taught to look at Support and Resistance and number of touches in the past days, weeks, months, to determine the strength of the S/R. In listening to you, Michelle and Steve, it seems you are only concerned with the most recent Supply and Demand levels to the left of price and do not look back any further than that to see if there are any S/R levels that fall between the most recent Supply/Demand. Is that correct and if so why are historical S/R not important?

Thank You Much!

Cheers!
Joe

Great question Joe. I don’t look at recent supply and demand levels as better levels that those found in the past. The key for us at Online Trading Academy is to find the "fresh" levels. These are levels that have NOT been revisited since they were formed. Often, these will be recent levels but sometimes we have to look very far back to find "fresh" levels. I would argue that levels found farther back in time are better and there is a reason for this. First, I have the experience from many trades over the years but even if I didn’t, think the simple logic through. If price is revisiting a "fresh" demand or supply level from long ago, that means the price is really far out on the supply and demand curve, way out at an extreme in other words. The rubber band is very stretched so to speak… This means that the odds are stacked in your favor for these opportunities. Often, levels found from long ago will warrant a little more risk for me in my personal trading as the probability of success and profit margin associated with a distant level are so ideal. Hope this was helpful.

- Sam Seiden sseiden@tradingacademy.com