Trade For Life with Oliver Velez
When Two is Better than One
From the Trading Desk of Oliver L. Velez
Today was an exceptional day in the markets, right into the close. While a good part of my morning was spent flying (more like sleeping on the plane) to my Ft. Lauderdale office, I did manage to squeeze in some trading time and would like to share with you my last trade of the day, which happened to be on Ebay (EBAY). The theme of this trade is based on the Mighty Double Bottom, but a quick glance will show you that this stock offered both Double Bottom buy and Double Top sell opportunities. See chart below for details.
For the most part I will let the slide (visual) speak for itself, but I will be recording a very detailed podcast to accompany this post over the weekend. So for now, review the slide and the annotations that accompany it and try to be patient for the podcast that will soon follow.
As a final note, I want each subscriber to this Blog to make sure they individually "subscribe" to each separate post, so that all comments and answers by me get automatically sent to you. Many of you have been greatly enjoying the posts, but if you have not been reading the follow-up Q&As to each post, you are missing 80% of the educational value of my efforts here. I make sure most answers I provide are very detailed and specific. But in order to get them sent to you, you must separately subscribe to every new post I make. I know its an extra step, but I promise you, it will be worth the extra effort.
Happy Trading.
How to Net More Than You Gross
From the Trading Desk of Oliver L. Velez
Hello my fellow traders. I'm back from my mini hiatus. It was a wonderful holiday season for me, which offered a much needed break in my busy schedule, although most would not classify my breaks as being restful. But it was, and I hope the season brought you the same joys that I experienced. It's back to "full throttle" now, however, and it's good to be back.
Professional Trading Versus Retail Trading
Many people who have entered the wonderful world of trading vaguely understand the fact that there is a difference between professional traders and novice traders, or what the industry calls "retail" traders, but they are usually not all that certain about what those differences are. It's really quite simple. There is only one distinct difference between a pro trader and a retail trader: A professional trader is paid to trade the market and a retail trader is charged to trade the market. It's as plain and as simple as that.
How the Market Pays Pro Traders
Many retail traders trading with firms like E-Trade, Schwab, Interactive-Brokers, Scott Trade and the like are bewildered when I explain to them that my VCM Traders actually get paid not only by the gains they make from their trading, they actually get paid an extra fee for placing those trades. That's right. You read me correctly. Professional traders receive a fee for placing certain types of buy orders and certain types of sell orders, and that's before any gains occur as a result of the movement of the stock. This is why many VCM Traders net more than they gross. Let me explain by showing you a two day record of one of my VCM Traders in training.
The above diagram shows the summary report of a VCM Trader's trading activity over two days. Most of the categories should be self explanatory, but I'll provide a brief explanation of all columns to ensure that you have a full understanding of how to read one of the numerous reports our traders can run from our system.
Symbol - All stocks in which transactions took place that day
Fills - These are not actual trades, but rather how an order or orders got executed. For instance, one can actually place a single buy order for 1,000 shares of a stock, and get filled 10 times in 100 shares lots. The number of fills are quite irrelevant to our traders as it has no bearing on costs. It makes no difference if an order got filled in one shot or in 10 shots.
Qty - This represents to total number of shares executed. This is important as it has a direct bearing on the trader's cost. VCM Traders get charged commissions on a per share basis. As of this writing, we have over 560 traders and do an enormous amount of volume each month. As a result of our size and high volume, we enjoy one of the lowest commission rates in the U.S. Our traders are charged 2 cents for every 100 shares traded. A round-trip of 100 shares (100 shares bought and sold) would cost our traders 4 pennies. A round trip of 1,000 shares would cost 40 cents. Today, commissions have become a non-issue for professional traders. It's an entirely different story for retail traders who are getting taken to the cleaners. They come out clean, alright. Clean of money that is rightfully theirs. Sad!
Gross Realized - This is usually regarded as the most important column because it reveals how much the trader made or lost from each trade, before any commissions or fees.
Commissions - This should be self-explanatory. This is the direct commission charged for each trade, which as you know is only 2 cents per every 100 shares for VCM Traders.
Fees - This column shows two types of fees: a) fees charged to remove liquidity from an ECN (Electronic Communications Network); b) fees received for adding liquidity to an ECN. Herein lies where and how professional traders get paid by various exchanges for placing certain types of buy and sell orders. For some orders they get charged just like retail traders do. For others they actually get paid. I'll explain in more detail below.
SEC - This is a small fee/tax levied on traders by the Securities and Exchange Commission. SEC fees are the biggest for trading NYSE stocks.
TAF - This is a small tax levied on traders for placing trades in the OTC market.
Net Realized - Of course, everyone knows what the net column reveals. It shows how much the trader made or lost after all costs (fees and taxes). It is this column that will reflect if a trader has actually collected more fees than he was charged, resulting in a net that is larger than his gross.
Now, let's take a look at the day of January, 4, 2008 for this trader. As you can see he only traded one symbol the entire day, which is something I train traders to do, to "specialize" in one to three stocks. I believe that if one becomes intimate with a single stock and its players, an added edge is obtained, which leads to greater success. Note that despite trading only one symbol, he grossed more money than he did the prior day when he traded three symbols and more total shares. His gross on the 4th was $834.00. But it's the Fees column that I want to focus on, which will explain how pros get paid for certain types of orders.
Adding Liquidity Versus Removing Liquidity
There are primarily two ways to buy a stock and two ways to sell. One way is to buy on the bid, or what pros call, "joining the bid." By attempting to buy a stock on the bid you are trying to save the spread which exists between the bid price and the ask price. There are other traders trying to buy at the bid price as well, so you in effect "join" them or get in line with them in an attempt to get filled at a cheaper price than the ask or offer price. The other way to buy is to simply pay up and "take" the asking price. When you simply want in and don't want to risk not getting filled, you usually opt to "take" the price being offered, which is to "hit" the ask price, to use another popular phrase. Most novice traders take the ask when buying and hit the bid when selling. They pay up, in other words. When you want out, you either try to sell at the ask by joining those trying to save money on the offer. If you want out right away, you simply hit the bid as I just mentioned. Just remember, when you hit the bid, you are removing an existing bid, so you are removing shares from that price. That's called removing liquidity, and pros get charged extra for that.
You see, the various electronic exchanges vie for volume. Volume is king on Wall Street and because the markets are fragmented into multiple exchanges and ECNs, there exists fierce competition between each one to get the most volume. The exchange with the greatest degree of liquidity will get the most business. So, to encourage traders to place their orders on their exchange instead of another, many of the exchanges will pay a trader for "adding" liquidity to their exchange. On the other hand they will charge a trader for "removing" liquidity. You remove shares from the books of an exchange whenever you hit the bid to sell or take the offer (hit the ask) when buying. Market orders are liquidity removing orders...always.
Payments for Adding Versus Fee for Removing
Now, most ECNs have become uniform in their fee structure although not exactly. They are close enough today, so I will give your the current basic payment our traders receive to add shares versus the fees they get charged to remove.
To Add: A rebate of $2.00 per 1000 shares is paid. So on a 1000 share buy at $20.00 bid, the trader pays 20 cents to execute, but gets $2.00 for joining the bid price, for a net gain of $1.80. If the trader then immediately sold the shares at the ask price (joining those selling at the offer) of $20.01, another 20 cent commission would be levied, but another $2.00 rebate would be received, for another $1.80 net. But wait, let's not forget the gain on the 1 penny difference. That's $10 (1 penny gain on 1,000 shares). So without the price really moving, the trader netted $13.60 ($1.80 + $1.80 + $10). Wow! Without a movement. Now imagine this on hundreds of thousands of shares. My top trader does between 2 million and 4 million shares per day, most of which is placed by adding liquidity.
To Remove: A fee of $3.00 per 1000 shares is charged. So on the trade above, this transaction would be radically different. The cost would amount to a total of $6.40 ($3.00 to buy at ask + $3.00 to sell at bid + .20 +.20), and that's assuming the price to buy and sell was the same, add a penny loss to this and the cost goes up by $10, making it $16.40, for being wrong a penny. Quite a difference right? This is why in my live 5-day Trading Lab, I spend a lot of time practicing execution. the drills are numerous and frequent. By the time the 5-days are over, the traders can place the right orders with their eyes closed.
Let's look at the trader in the diagram above again. Note that on 1/4/08, the trader traded a total of 33,000 shares of JNPR. As you can see by the Fee column, most of his orders were of the "adding" variety. How can you tell? He has a negative amount in the fee column, which means he was owed back that amount. A positive number would represent what he was charged. If the market owed him money, his Fee column would be negative, which is the case here by ($48.00) Now, when you move over to the Net Realized Column, you will see that the net number is higher than the Gross column, because the rebates for adding liquidity were added to his gross totals.
Better Than Trading for Free
This trader is not only trading for FREE, he's being paid to trade, on top of his trading gains. How nice it is to be an elite VCM Trader. I love it!
Are you Retail? If so, I'm sorry, but perhaps it's time to step up your world. Don't you think? If you'd like to give it a shot, I'm waiting for you
.
The Mighty Power of Reversal Signs
From the Trading Desk of Oliver L. Velez
The Only Three Things That Matter
Trading is not as complex as people often make it out to be. Stocks go up; they go down and sometimes they go sideways. Only these three simple movements exist, period! What’s so complex about that? If one were to learn how to handle himself in each one of these three movements, or trends as they are often called, would not most, if not all, of the market’s activity be covered, be understood? Yes. Looking at the 2-minute chart of Charles Schwab (SCHW) above, can you clearly see the three major movements I just wrote about? I’m sure you can. Look at the chart and point out the down move. Now identify the sideways move, then the up move. How did you fare? I bet you did superbly. Congratulations!
Simple But Not Easy
Simple? Yes. Easy? No way. Not when the bars are moving. Why? Because understanding does not always easily translate into right action. Aaaaah! Therein lies the rub, my friends. Knowing what to do, is no guarantee that we do it. This is why no training or education is ever complete without a period of real, live, supervised trading. Educational mastery is not enough without some level of experiential mastery, and this I accomplish by putting each one of my traders through five rigorous days of live trading, with real capital on the line…my capital. Those five days are critical to the trader’s future success because they serve as the necessary training ground for transmuting the intellectual knowledge of “what to do” into the highest form there is, experiential knowledge. When something becomes known and understood through experience, it’s yours forever.
Two Days Can Change Your Life
So something can be simple, but not easy, such as hitting a little white ball sitting between your two feet into a hole in the ground only 4 feet away. Simple but not easy. But let's thank our lucky stars that trading is not difficult to learn and hard to pull off. If that were the case, the already small number of traders who make it would have even fewer cohorts. Because of the simplicity of how markets work and move, it only takes me two days of instruction to teach a student all he/she ever needs to know to trade for a living. My 2-day seminar, Trade for Life™ - A Complete Guide to Trading for a Living, is divided into 24 sections. Of the 24 sections, I consider the one that deals with the Power of Reversal Signs to be the most important, by far. All my traders learn that there are only seven signs that clearly indicate that a stock is about to change its direction. My students not only learn how to identify each one of these seven signs, they learn how to exploit them each day for consistent profits.
Almighty Tails – The Master Key to Timing Reversals
Of the seven powerful reversal signs, the one which commands the greatest potency and accuracy is the almighty Tail. Tails come in two varieties, Bottoming Tails (BT), which have bullish implications and Topping Tails (TT), which have bearish implications.
Here are a few facts that will help you understand the power of Tails as a reversal sign and their proper use. After reading the below points, a full understanding of the chart above should be the result.
Read and reread the above points three to five times. The full and complete understanding will help you master one of the most potent signs of a playable reversal. Tails are so reliable that I have traders who earn their entire livelihoods from their use. They rely on nothing else. To help further your understanding, I will soon add a podcast to this article. So stay tuned.
Happy New Year and Happy Trading!
One VCM Trader's Monthly Record
From the Trading Desk of Oliver L. Velez
Dear Traders:
In my last post, I decided to show the monthly result for one of my Black Boxes, which as you now know, is an algorithm, programmed to trade the market each day without any human intervention. This robotic form of trading is truly the new area and will increasingly become a more important part of every professional trading firm's operation. As I revealed to you, I intend to grow my current number of 14 Black Boxes exponentially. After all, these robotic systems are traders too. What's more, they never slack off, leave for lunch, complain, get the Hollywood complex, and they never, ever want more. They just do their job, day in and day out...nearly flawlessly.
Humans Still Rule
But let's face it. Human traders have their positives too. In fact, the positives are and will always be much larger and more plentiful than those possessed by the robotic ones. This is why I have an aggressive plan to grow the human side of my trading operation to 1,000. Imagine this for a moment. Imagine 40 traders, all trading one pool of money (one account), averaging just $500 net per day. That's no a big feat, as I'm sure you'll agree. How much is that per day? That's right! That's $20,000 net per day. Not bad, right? Now, imagine 1,000 traders averaging a conservative $500 net per day. That's $500,000 net per day... half a million dollars...per day.
My Grand Plan
Do you see where I'm going with this guys? Collectively, my team of traders can make more money, take advantage of more opportunities because of our collective power. Collectively we are stronger than we are individually. From our commission rates, currently the lowest in the USA, to our software fees, to our access to key information first. These are just a few of the many benefits that a collective approach creates for its members.
And who knows..I may not stop at 1,000. My initial goal was 500 traders worldwide. That goal was set in March of this year, only eight months ago. Well, I now how over 400 traders trading my money, worldwide. The growth has exceeded my every expectation and has revealed to me in the most glaring way that my dream was way too small. I underestimated the dream's power and allure. So, I've adjusted to 1,000 traders as the new goal. Right now we are bringing on new traders at the rate of 60 per month. It may not take too long to get there. We'll see.
A Human VCM Trader's Monthly Record
With my grand plan now out of the bag, I'd like to show you the last month of trading activity for one of my human traders, to show what the real potential is for many of you not yet trading at this level. I've decided to show a very good trader, but not my best trader. I've done this for several reasons, but the most important is to ensure that the record shows achievability. A trader with $8,000,000 of my money to trade is not in the normal category and would relate to very few readers of this blog. For the same reason, I wanted to show a trader who was using about the same amount of money that I give to each one of my beginner traders ($50,000.00). Despite not being the best, I think you'll all agree that this trader's record is still quite impressive. Any time you can take a $50,000 trading account and more than double it in a month on a net basis, you're doing something right. Wouldn't you agree?
Just keep in mind that I normally don't allow a trader to have such big daily draw downs, as is revealed by some of the daily losses in this report. But we've been operating in an excessively volatile market as of late, and as a result, I've had to loosen up the daily loss limits for some of my more established traders.
Enjoy the review, and DARE, my friends. Make this the holiday season you muster up the courage to dare. Dare to be truly independent. Dare to be unique. Dare to be a trader. And then think about taking the ultimate dare, to be one of us, an elite VCM Trader, if you're not already, that is. Happy Trading!
A Month of Trading History Revealed
From the Trading Desk of Oliver L. Velez
Question: Which former post of mine do you think has won the popularity contest so far? In other words, which one do you believe received the greatest number of comments, questions, and inquires? Answer: The most recent one, entitled, A No Lose Trading System. Of course. I'm not surprised. Are you? Well, you shouldn't be. Anytime someone uses catchy phrases like "No Lose," "Money Back Guarantee," "100% Accurate," etc., they draw a lot of attention. Should it be this way? No. But we are a gullible species. There is no other way to put it.
When I titled the piece below, it was not meant to be taken literally, mind you. Can there ever be a trading system that truly CAN'T lose? Of course not. But can a system, like the one I detailed below, come close to being a No Lose one? Can it make money ALMOST every single day? You bet, and I'm about to prove it.
Because I got so much interest in my trading system and the mention that I have numerous black boxes (automated trading algorithms) that profitably trade the market every day with no human intervention, I've decided to break with precedent and show a month's worth of trading history for just one of my black boxes.
Below is the trading record of one of my boxes for the period starting October 23 to November 23 of this year. Each column should be self-explanatory with the exception of a few, which I will explain in advance:
1) Fees - This column details the ECN fees levied on all traders, but if you look carefully the fees are negative here. This means that instead of being charged, my box was paid by the ECNs to add liquidity. All my professional traders get charged to remove liquidity from ECNs but they get paid to add liquidity. In this case, this box was designed to add liquidity nearly 100% of the time. I teach all my traders how to add extra income this way in my 5-day Live Trading Lab.
2) SEC & TAF Fees - The Securities and Exchange Commission charges professional traders a small fee to trade listed stocks and there is a small tax to trade NASDAQ stocks (TAF).
Note the starting cash in the account ($53, 689.78), just about what I start funding each trader. $8,508.31 in net profits in one single month without a single losing day and without lifting a single finger is not bad, wouldn't you say? I have 14 such boxes like this, and that number will only grow. I regard these black boxes as my traders as well. I train (program) them, just as I train (program) my human traders. It's all about proper "programming." Never forget that. Enjoy your review!
A No Lose Trading System
From The Trading Desk of Oliver Velez
There are several facts about trading systems that are highly unrecognized by traders. And when they are recognized, they are rarely believed. Let’s look at two of these facts:
1) Your trading system or method does not have to win more than it loses to make a lot of money. Its wins simply must be consistently larger than its losses. Some of the most profitable systems ever created only won about 38% of the time. The losses were greater in number, but the profitable trades were much larger than the losses. Quality is key, not quantity. What’s the moral here? Make sure your system’s average winning trade is at the very least 1.5 times the size of your average losing trade. That means if your average losing trade is $1.00, your average winning trade must be at least $1.50. Many refer to this as the risk to reward ratio. A 1.5 to 1 risk reward is acceptable, but a 3 to 1 risk/reward is even better. This would mean that you could win only 1 out of every three trades and still be in the game, baring commissions, taxes and fees, of course.
2) The way your system selects stocks is less important than how it protects you from big losses. Everyone is overly focused on picks. They’re reading analyst reports, subscribing to newsletters, buying scanning products, attending seminars and listening to Jim Crammer, all in the hope of becoming a better stock picker. I say this focus is lopsided, not wrong but disproportionately idolized. This is not to say that a “method” has no importance. It does, but far more important is how systematic the stop loss portion of trading system is. I’ve always taught that stops are more important than profits and deserve the vast majority of a trader’s attention. The trader who has initiated a trade does nothing to make a stock move in the desired direction. But the trader must always do something if and when the stock moves in the opposite direction. This something is the supreme act. It possesses the greatest importance because it is the sole determinant of how successful one becomes as a trader. Many actually believe the reverse is true; that success relies more on how successful one is at finding winning plays versus how successful one is at cutting losses short. This could not be further from the truth. One can be incredible accurate at finding winning plays. But it only takes one big, unchecked loss to wipe out weeks, months and even years of consistent gains. Many a market hero has been undone by the failure to realize this. And to think that there are some firms in existence today who actually teach would-be traders that stops should never be used. Criminal. That’s the only word that appropriately describes that negligence in my opinion. When stocks (like employees) fail to produce, they should be fired instantly. You may not always be right in the end, but you’ll always live to play another day.
You also need to know when and how to adjust your stops. This is more art than science, admittedly, but the system I outline below can be the basis for a solid trading system that mathematically cannot lose. Yes! You’ve heard me correctly. I’m telling you that if you were to adhere to this system that I’m about to outline or any system close to it, it would be impossible to lose money in the market over time. So sit back and read carefully. What you are about to absorb may just change your trading life…forever.
One of Oliver's No Lose Trading Systems
The below rules create the basic parameters of the trading system. Keep in mind that the numbers I use can be changed to fit your style of trading, but the ratios should remain close to the ones I use. For instance, I may use a 10 cent stop for micro-trading but a swing trader may want to use $1.00 and a core trader $10. The actual number is not as important as the ratio of wins to losses, which you will understand shortly. But I will say that my use of this system and several like it has been applied far more frequently to short-term, intraday, based trading than swing and core. In fact I’ve got several “black boxes” (automated trading algorithms) that automatically trade the market with no human intervention each day. They are responsible for 26 million shares of my firm’s monthly volume and are literally profitable almost every single day. You too can achieve success with the system if you apply it with rigor and discipline.
My last reminder is that the method, by which you select your stocks, while less important than the system itself, will have some bearing on the level of your success. Of course, my elite VCM Traders would use the tactics I’ve taught them in our 2-day Trading Seminar to apply the system to. Are you ready? Here we go.
Rules for Selecting a Universe
1) Select stocks that trade between $25 and $65 per share;
2) Average Daily Volume of each stock should be 2 million shares or better;
3) Maximum Bid/Ask spread should be 3 cents.
1) Select stocks that trade between $25 and $65 per share;
2) Average Daily Volume of each stock should be 2 million shares or better;
3) Maximum Bid/Ask spread should be 3 cents.
The Trading Rules
Initial Stop: Always 20 cents – You must be willing to lose 20 cents on each play, but the goal will be to narrow this 20 cent loss potential rather quickly, as you will see.
Initial Stop: Always 20 cents – You must be willing to lose 20 cents on each play, but the goal will be to narrow this 20 cent loss potential rather quickly, as you will see.
Adjusted Stop: Narrow the initial stop by 10 cents after the stock has moved 10 cents in your favor.
Breakeven Stop: Move stop to breakeven after the stock has moved 20 cents in your favor. Now you’re playing with the house’s (market’s) money. It’s primarily a free trade. So Relax and enjoy!
Minimum Target: 60 cents – This means that a profit can only be taken or locked in if the stock achieves a 60 cent gain or more. It does not mean that profits of 60 cents must be taken. It’s the minimum profit that can be taken. Profits of 59 cents or less are not to be taken. Note: Some traders will decide to take all off the table after a 60 cent gain, others will take part of their position off the table and yet others will continue to let the whole position ride based on the rules below.
Profit Stop 1: Once a 60 cent profit has been achieved, moved stop to protect 30 cents of your profit.
Profit Stop 2: Once a 65 cent profit has been achieved, move stop to protect 60 cents of your profit.
8ma Stop: From here on out, the trader can sit back and use an 8 period moving average (8ma) as a constant moving trailing stop. Any violation of the rising 8ma would be cause to bail on the whole remaining part of the position.
Summary
So there you have it…the near perfect mechanical trading system. Over time, it should yield some nice gains for you, especially if you only play stocks in sync with their 8 and 20 moving averages. This system uses a proper risk reward ratio; a solid time based stop principle, as well as the benefit of a moving average based technique, which as you may know is unrivaled in a strong trending market. Keep in mind that the numbers can be changed or altered up or down, but try not to tamper with the risk/reward ratio built into the system.
So there you have it…the near perfect mechanical trading system. Over time, it should yield some nice gains for you, especially if you only play stocks in sync with their 8 and 20 moving averages. This system uses a proper risk reward ratio; a solid time based stop principle, as well as the benefit of a moving average based technique, which as you may know is unrivaled in a strong trending market. Keep in mind that the numbers can be changed or altered up or down, but try not to tamper with the risk/reward ratio built into the system.
Try it. I dare you to prove to me that this does not work over time. I dare you! Happy Trading!
Lose Your Way To Trading Success
From the Trading Desk of Oliver L. Velez
Most active market participants (we'll call them traders) are ceaselessly looking for certainty, albeit in the wrong places. They are looking for more certain techniques, information that is more certain, systems that deliver more certain results, reports that offer more certain assurances, analysts that spit out more certain predications, etc., etc., etc. All of this searching, while admirable, is really for naught, because the only thing certain in this world of ours (besides death and taxes) is LOSS. And even death and taxes are a form of loss, as I'm sure you can see.
Big profits are not certain, but losses are. Right decisions are not certain, but losses are. Wealth is not certain, neither is income but, yup...you guessed it, losses are. Now I know this may seem a bit dark and discouraging, but it's really not. Give me a few moments and what I'm about to explain will change your paradigm in a way that could positively change the way you trade...for life.
Lose Right And You'll Win Big
Most traders trying to find their way in the markets are focused entirely on the wrong thing. Their objective is all wrong. They are seeking the ability or skill to profit, to gain, to win, when in fact they should be seeking the ability or skill to lose. Let’s me explain.
If you bought a stock at $20 and the stock rallied to $26 to deliver a $6 gain, what did you do to produce that gain? What did you do to help the stock rise the $6? NOTHING! Besides a silent prayer or a little bit of hoping perhaps, you did absolutely NOTHING. The stock rose all by itself. It did not need your help. It took care of the gain without you. Now, let’s take the reverse scenario. You bought the same stock at $20 and instead of rising, the stock dropped to $14, delivering a $6 decline, but you sold out at $18, to suffer only a $2 loss. What did you do to incur only a $2 loss? Ahhh! Do you see where I’m going here? You rose to the occasion to cut the neck of the stock off. You sold it, killed it, murdered it, eliminated it, fired it, tossed it, removed it, erased it, and you did it quickly. Had you not acted, your loss could have been as much as $6. The point is clear, my traders. “Profits take care of themselves. Losers never do.” Remember this!
No Skill Required
There is no skill required for a gain. Please think about this, people. I know it’s bold and almost sounds preposterous, but I’m here to tell you that what I’m saying here could not be more true. Some of the stocks you chose will move in your favor and others will not. Plain and simple. I don’t care what super-duper stock picking method you use, I don’t care how gifted or even psychic you are, the fact will always remain that some of your picks will go in your favor and some will not. The key to success does not lie in your stock picking method as much as it lies in your ability to kill the picks that move against you so that they don’t choke off or cancel out the ones that do. You will always get your share of wins, no matter what your method or skill level. And you’ll do nothing to get them or deserve them, either. The wins will happen all by themselves. But so will the losers. However, when the stocks you chose move against you, you must be as intolerant as Mr. Scrooge would be of an ineffective, money-squandering employee. Whenever you buy (or short) a stock, you are in effect hiring an employee to do one job and one job only…to swiftly move in your desired direction. The moment it fails to do that, the stock should be fired! No questions asked. If you gain the skill of quickly firing the dudes, you’ll never have to worry about being profitable, because through no effort of your own, the market will hand you your fair share of rosy wins. No skill required! so throw darts, roll dice, call the psychic hot line or even better, listen to Jim Cramer. It makes little difference. The fact is, some of your plays will go in your favor, despite your approach. Just make sure you quickly kill the plays that don't. It's as simple as that.
Loss Your Way To Success
So the goal is to be a professional loss taker. Practice it. Make it your number one focus, and greater levels of trading success will be yours. Stop this nonsense of working on better picks, better plays, better this and better that. Stop the nonsensical search for the Holy Grail. It does not exist. Just focus more on killing the weeds, so that your roses can grow. If you do that, as I said before, you can throw darts at a stock page and the results will be favorable over time.
In my 5-day Live Trading Labs, my students and I will practice the “art of losing” by literally doing hundreds of live trades with real money designed to lose. In fact, I will purposely put the traders in losing trades to see how effective they become at exiting with speed and agility. I’ll say something like, “O.k. traders, WXYZ is about to breakout above $40. Short the stock at $40.01 and exit for exactly a 5 cent loss. I do not want to see a 4 cent loss. Neither do I want to see a 6 cent loss. Your job is to bring me back a perfect 5 cent loss.” Its drills like these that hone and perfect the most important skill of all…the skill of losing professionally.
If you learn how to lose properly, my friends, the winners will take care of themselves. Remember this. In my next installment, I will outline a trading system that is simple, yet powerful and mathematically impossible to lose money over time. Did you hear that? I said this system will never lose money over time. It’s mathematically impossible, no matter what your stock selection criteria or method is. Don’t believe me? Then stay tuned and watch me prove it. In the meantime, have a great Thanksgiving. We all have much to be thankful for.
Happy Trading!
The Power of the 200ma
From the Trading Desk of Oliver L. Velez
Those who have followed my work for even a cursory period of time know that I am not a big fan of using a ton of indicators to analyze stocks. Money Flow, RSI, Stochastics, Momentum, On-Balance Volume, MACD, Bollinger Bands, Gan Lines, Fan Lines and the like, while not entirely useless, really do more to confuse traders in my opinion, rather than help. Some traders look at so many indicators that they can no longer see the underlying stock they are analyzing. How productive is that? Their computer screen looks more like a picture of spaghetti and meatballs than a clear picture of price action. Whenever I see that, I know I'm in the presence of a trader who is in search of some magic formula that does not exist. I call them Holy Grail Traders, and they all consistently lose money but they're usually very good at explaining away their many losses by moving the blame from themselves onto one or more of their silly little squiggly lines. This is sad but good at the same time. After all, don't we need others willing to take the other side of our trades? So the more the merrier, I say. Let them keep clouding their screens up.
Price is the REAL Thing!
Let's forget about those who are lost for now. Let's talk amount ourselves for a moment. It has always been my contention that price and perhaps volume are all a trader needs to read and play the market effectively today. And even volume, which is far less important than it used to be, is an overrated item in today's vast world of trading. After all, isn't it price and price alone that ultimately dictates your wins, losses and most indicator movements? Yes. So if price movements even dictate what other indicators do, why not cut to the chase and focus directly on price? Why leave the source? Why turn your attention away from the very thing that causes all the other things (indicators) to move? For everything else is nothing more than a derivative of what is real. And what is real is price. Period! My traders are taught that price and price alone is the dictator of their actions, not some man made squiggly line created by an academic in search of perfection, which as we all know, does not exist in the market. The real thing is always price. Remember that.
The Exception
But get this. Moving averages are the exception. These special indicators are not to be grouped with the rest. They help a trader visually remove the noise inherent in many price charts. They clearly identify the trend for us. They help us spot key entry and exit points and help us ride our winning plays for all they're worth. These are just a few of the many benefits derived from the use of key moving averages. Their power and use is simply undeniable as far as I'm concerned, and they should be a permanent part of every trader's analytical process. Price, Volume and several key moving averages. That's all you ever need. Simple. Pure. Sweet.
A Modern Day Fallacy
Now, I am aware that there are some so-called experts of late who claim that moving averages don't mean anything. They believe that price support and resistance based on prior highs and lows and former areas of price congestion have an exclusive hold on what dictates price reactions, not moving averages. Well, I don't entirely agree. Yes, I'll admit that all the above can and often does cause some form of price reaction. I teach my traders to use all these to look for predictable reactions. For instance, a stock that has rallied back to a former high (peak) from which a sharp pullback ensued will often serve as an area of price resistance, for sure. But so will an over head flat 200 period moving average without the prior high, or a declining 20 period moving average without former congestion. What's more, these so-called experts miss the most significant point of all. They either have forgotten or failed to understand that moving averages ARE prices in an of themselves. They represent the "average" price of the stock over a period of time and therefore ARE representing former areas of support, resistance and congestion. What is a flat 200 period moving average (200ma) other then a visual that represents a former area of price congestion? They are identical, but the moving average has the added benefit of visually keeping the relevance of former price congestion in front of the trader at the current moment.
The 200ma is King!
If all this sounds confusing to you, don't worry. I'll make the use of moving averages quite simple for you in subsequent posts. This post will be dedicated to the almighty, the all-powerful 200 period moving average. It's significance, its reliability, it's sheer, unadulterated power makes this single item an absolute must to incorporate into your trading plan. In fact, the 200ma is so meaningful, in all time-frames, that an astute trader can make his/her entire living exclusively from its use.
What to learn how? Then stay tuned and be on the lookout for the upcoming podcast that will soon accompany this post. Make sure you subscribe to the left so that you won't miss when each new post is added.
Happy Trading!
Wide Range Bars & What They Reveal
From the Trading Desk of Oliver L. Velez
Wide Range Bars (WRBs) come in two varieties: 1) Igniting WRBs and 2) Ending WRBs. The above chart demonstrates the former. Igniting Wide-range bars represent one of the clearest indications that a stock is highly likely to continue moving in the WRB's direction...by a substantial amount.
Let's not forget that institutional buying and selling still account for roughly 85% of the market's daily volume. And in order for us (regular individual market participants) to profit, we need a healthy degree of institution money flow to come into a stock after we have established our position. Let's face it...for most of us, it's not our neighbors causing multi billion dollar advances (or declines) in stocks. It's the large pension funds, mutual funds, hedge funds and money management firms that have the substantial, lasting effects on stocks, and knowing when they have just begun a major buying (or selling) spree can give us just the edge we need to pull large amounts of money out of the market. WRBs do just that!
The above 1-minute chart of KLA Tencor Corp (KLAC) shows three powerful WRBs, each of which subsequently lead to higher prices. But what makes these three the igniting kind that tends to forewarn of more gains, versus the ending variety, which tends to lead to reversals?
Well, I explain fully in the podcast below. Listen carefully and be sure to take notes, because this is one of the events that our traders use to pull money out of the markets every single day. They are plentiful; they are reliable; they are real! Enjoy!
Download | Duration: 00:21:14
10 Insights For Professional Traders
From the Trading Desk of Oliver L. Velez
This upcoming December will mark my 21st year as a trader. When I look back, it amazes me how fast this long period of time sped by. When I was a child, I seemed never to be able to stick to anything for any considerable period of time. Initially, a spark of interest would feverishly drive me head-long into a particular activity. I'd devour every book I could find on the topic, read every article, tap every resource and speak to every person even remotely associated with it. I dove into everything with all I had.
And then it would happen...every single time. Boredom! It would begin to creep its way in, robbing me of my new interest little by little. Eventually the crescendoing effort would gradually give way to a stall in momentum, which in turn would transform into complete and utter disinterest. And just like that, it would be dropped, like it never happened....the books, the articles, the people and all. Such is the life and times of most teenagers in today's day and age, but I was particularly aloof and unattached during my early years. And that's the way things went year after year for me.
But that all changed when I found my true love...trading! It was not until I stumbled across the stock market that I began to appreciate the joy of being truly "hooked" on something. It didn't matter that I was horrible at it, either (and boy was I ever horrendous). The fact that trading was so hard is precisely what captivated me. I loved it. Do you understand what I'm saying? Not the kind of love one has for pizza or cars, the movies or roses. No, when I use the word love here, I speak of that "agape" type of love...the love that is synonymous with the term Life! Trading was IT for me. I embraced the hardships it brought, enjoyed the successes, accepted the sacrifices (and there were many) and surrendered to all its demands.
Why am I sharing all of this with you? To tell you that after all the ups and downs of trading over two decades, making fortunes, losing them, only to make them again, I've managed to collect a few truths, devise a few rules, and establish a few guidelines that have been greatly enhancing the daily lives of my traders and students the world over.
Below I share a small sample of the many insights that have come from a lifetime of intimately being with the market. I hope you find this sample as enriching as others have. Just keep in mind that many of these points will not apply to casual traders or investors as much as they will to those who trade actively for small but consistent gains. So click on the pod cast below, sit back and listen to me expound on each one of the 10 Insights for Professional Traders.
10 Insights for Professional Traders Only
1) Be willing to lose money on every trade;
2) Give a stock at least two chances to reward you;
3) Don't be patient when going against a stock's trend;
4) Always buy the first dip after a strong breakout;
5) Stay with winning stock plays;
6) Focus more on charts than the Level II screen;
7) Trade with a keyboard; Not a Mouse;
8) Be familiar with the stocks you trade;
9) Don't focus on too many stocks;
10) Don't be a P&L Trader
There are countless other realizations, laws, epiphanies, truths and such that have emerged from my many years of trading, but this should be a good start. Keep these 10 reminders close to you each day until they become yours. Right now, they are my insights. They need to become your insights before they can begin working their magic for you.
Download | Duration: 00:30:36
Running with the Bulls Using the 8ma
A wise man was known for frequently saying, "Finding the right stocks to play each day is 80% of the battle." Well, my traders will automatically tell you that I'm the author of that statement, as it is one of my most repeated axioms.
Consistently pick the right horses (stocks), and the wins happen automatically. In fact, one does not even need a good deal of trading skill to win more often than not if the right "stocks in play" are chosen. So make no mistake about it. It's more about the stocks you choose, and less about the method or tactic you employ that determines long-term success in this game. Don't believe me? Oh no? Well, I'll prove it to you.
If a very power river with strong currents was flowing to the right (eastward), and because you also wanted to go to the right (eastward), you jumped in, what direction would the current take you? To the right.....right?
Now, what if you tripped and fell into the same river by mistake. What direction would the river take you in then? Huh? To the right....of course. The method of your getting into the river matters less than the river itself, correct? So, when you pick the right rivers with the right currents, the rest becomes easy, my friends.
The 1-minute chart of Morgan Stanley (MS) above shows one of the currents (stocks in play) I rode for a while today. Even a cursory glance at the chart will reveal its power, its strength, its potency. Take a few moments to listen to the pod cast above which details exactly how Morgan Stanley and I ran with the bulls.
Trade for Life and the World is Yours
This is our educational division's new logo. It's based on three key themes which are expounded on below:
1) The World - Traders who earn the skill that allows them to Trade for Life truly have the world at their feet. This activity we call trading is the last bastion of total freedom and independence. With just a laptop computer (I trade with one on my travels all the time) and a high speed internet connection, you're in business from anywhere in the world. That could be poolside at your favorite Four Seasons Hotel and Resort, to your bedroom; from the log cabin that sits on the highest mountain in your favorite ski resort, to the wired cabana sitting on the shores of the Ritz Carlton's beach in Cancun, Mexico; from the Club House Restaurant on the 18th hole of your country club's golf course, to the special hideaway that your home office serves.
The globe-like image, in this case, also signifies the worldwide community of traders VCM is growing in all four corners of the Earth. With plans to open training/trading facilities in Moscow, Tokyo, Seoul, Shanghai, Mumbai, Cairo, London, Montreal, Sao Paulo, Buenos Aires, and Mexico City, our growing international community of traders will be connected by one common goal, to Trade for Life.
2) Life - Since time immemorial the tree has stood as a shining symbol of "Life." it has also served as a time-honored icon for "growth." Our tree above stands for both Growth and Life and is mirrored to symbolize the need for solid roots. For one's foundational roots dictate the manner in which one grows and develops, which in turn establishes the kind and quality of Life one ultimately achieves. I've dedicated most of my professional life to providing traders with the foundational needs required to grow into Master Traders. Those foundational needs include the right training/education, the right tools/technology and the right trading experiences. I call these three things the Financial Trinity or the 3Ts. These three things can truly lead to a wonderful life, the life of a Master Trader.
3) Time - The magic elixir that brings about growth and maturity in any endeavor is Time. Nothing worthwhile is every accomplished without it. Trading mastery is no different. Sophistication as a trader, as a market participant, is going to take time. Make no bones about that. And those who dedicate ample time to this endeavor increases his/her odds of truly being able to Trade for Life. So, this logo's colors are in honor of all those who, from dawn (yellow) to dusk (dark blue), trade, think about trading and/or studies trading. The colors symbolize those who use the time between dawn and dusk to move them one baby step closer to being smarter than they were the day before, more sophisticated than they were, more intelligent, more knowledgeable, more skillful as a trader. If some portion of the hours between dawn and dusk are used to this end, each day, ruling he markets (instead of the markets ruling you) is ultimately assured. How you spend your time now, determines how time will treat you in the future.
I hope you like the logo!
The Lows And What They Reveal in Downtrends.MP3
From the Trading Desk of Oliver L. Velez
In this podcast, Oliver reveals how to guage the potency and strength of the sellers in a downtrend.
Download | Duration: 00:06:55
Lows and What They Reveal in Downtrends
This 5-minute chart of Nvidia Corp (NVDA) displays several items that we regard as absolute musts:
1) Color Coded Volume - While volume today is lkargely an overrated indicator, at specific times it is a very power sign of a shift or change in ownership of a stock. And as all VCM Traders know, a change in the ownership of a stock leads to a change in the direction of the stock. I like the color-coded variety which makes it visually easier to identify the volume associated with up, down and neutral bars.
2) Color-coded Candlestick Bars - This type of chart simply accentuates the part of each bar that represents the space between the opening price of the bar and the closing price of the bar. If the close is above opening price (green), then the bottom of the body (the accentuated or fat part of the bar) is the open and the top of the body is the close. If the close is below the opening price (red), then the top of the body is the open and the bottom is the close. In essence, candlestick charts are little more than color-coded boxes drawn around the open and close, strictly for emphasis.
3) 20 Period Simple Moving Average (20ma) - This is by far the most used MA of VCM Traders. The 21ma is the truest moving average to use, based on Fibonacci theory, but rounding to the 20ma is what we do most of the time. This ma when rising serves as support and when declining serves as resistance. When flat, it is usually ignored.
4) 200 Period Simple Moving Average (200ma) - This is the big one, the moving average that is watched and used by virtually every trader on Earth. If the 20m is the most powerful when rising or declining, the 200ma is the most powerful when flat.
Many VCM Traders derive their entire livelihood in the markets from these two major moving averages. A great many the trading tactics I teach incorporate them, and if you are not viewing them in all your times frames, be it intra-day and/or end-of-day, trust me, you are operating at a distinct disadvantage.
Note: All of the charts that will be displayed in this blog will feature most of the above items and more. The explanation of each will not be repeated, for the cake of brevity.
Please listen the the associated Podcast above for a detail explanatioin of how the lows of each decline in a downtrend can reveal what's likely to happen next.
The Japanese told us a long time ago that "a picture is worth a thousand words." Well, in my world, a chart can potentially be worth a $1,000....or more. How's that for oneupmanship?
Download | Duration: 00:00:00
Trade for Life - A New Beginning
Welcome VCM Traders and all others:
Today marks the inauguration of Trade for Life with Oliver L. Velez, a daily financial blog that will be dedicated to my market insights, inspirational messages and trading education. Over time, it is my hope that this blog will provide some of the most profound and provocative wit and wisdom offered in the professional trading industry. While trading and anything associated with money is a serious topic, I do aim to provide a dose of humor throughout the blog, in the spirit of keeping things light.
Most entries will likely be short and to the point. Ernest Hemingway once remarked, "You lose it if you talk about it." I'm not quite sure I'd go that far, but I am of the mindset that if you talk about something too much, you run the risk that your readers and listeners lose it. With that being said, please don't mistake the brevity of the posts for a lack of value. Each post will contain something to "keep" as they say. And I believe that those who "keep" the most, stand to profit in the markets the most.
The posts I will make each day are likely to fall into one of the following categories:
1) Inspirational Post - We all need to be inspired from time to time and traders need that inspirational lift more often than most. As an employer of more than 300 traders (as of this writing), believe me when I tell you that I know and appreciate the need for an encouraging word or two, an uplifting thought or a firm but kind motivational push. The readers of this blog are likely to get a healthy share of this.
2) Educational Post - Over the past 14 years, I've dedicated most of my professional career to training and educating traders the world over. This is what I do...it's who I am, in fact. Educating is my passion, and while I have always educated those who desire my knowledge for a monetary benefit (I'm a trader and a capitalist; what can I say), I'll ensure that the readers of this blog will find a plethora of posts that contain a wealth of trading education. This education will likely have a revolutionary impact on the way markets are seen and played by some, for life!
3) Market Post - My view of the market, in whole and/or in part, will likely make up the better portion of the blog's posts. After all, I'm a trader and have been so for almost 21 years. As I've mentioned, I have over 300 traders trading my own capital, every single day. We live and breath the market and as a result, it is the only thing in life I possess the ability to ramble on about without much thought or effort. At times I wish that were not the case, as I tend to be an absolute bore outside of this topic; but we are what we are, right? And trading is my life. So count on the posts being heavily weighted in this area.
4) Q&A Post - Many of the posts I make will be spurred by your questions and inquisitive inquiries. For the record, I encourage them. While my market related posts will drive the blog's major trends, your questions will largely dictate the length and depth of those trends. So by all means, ask away. I will do my very best to provide an intelligent answer to all the relevant questions and at the same time I'll do my best to ignore the irrelevant ones. Life is just too short and precious to spend on things that don't matter.
5) Podcast Post - Finally, this form of post represents the most exciting medium for sharing thoughts and information. The internet has revolutionized the way we live, talk, walk, breath and learn. Podcasting, the act of recording internet based information into audio files has revolutionized the internet. The Trade for Life Blog subscriber will find these mini recordings the next best thing to having my thoughts and teachings spoken to them live.
Lastly, this blog is intended to be maintained by me daily, and for the most part, I imagine it will. Just know that at times this will simply be impossible for me to do. In addition to heading up a professional trading firm (www.vcmtrading.com), overseeing a foundation, authoring books, and conducting frequent speaking tours, I'm completely owned by a beautiful wife and totally manipulated by six truly amazing children. Enough said.
"Sleep, riches and health to be truly enjoyed must be interrupted."
Johann Paul Friedrich Richter, 1763 - 1825
Today marks the inauguration of Trade for Life with Oliver L. Velez, a daily financial blog that will be dedicated to my market insights, inspirational messages and trading education. Over time, it is my hope that this blog will provide some of the most profound and provocative wit and wisdom offered in the professional trading industry. While trading and anything associated with money is a serious topic, I do aim to provide a dose of humor throughout the blog, in the spirit of keeping things light.
Most entries will likely be short and to the point. Ernest Hemingway once remarked, "You lose it if you talk about it." I'm not quite sure I'd go that far, but I am of the mindset that if you talk about something too much, you run the risk that your readers and listeners lose it. With that being said, please don't mistake the brevity of the posts for a lack of value. Each post will contain something to "keep" as they say. And I believe that those who "keep" the most, stand to profit in the markets the most.
The posts I will make each day are likely to fall into one of the following categories:
1) Inspirational Post - We all need to be inspired from time to time and traders need that inspirational lift more often than most. As an employer of more than 300 traders (as of this writing), believe me when I tell you that I know and appreciate the need for an encouraging word or two, an uplifting thought or a firm but kind motivational push. The readers of this blog are likely to get a healthy share of this.
2) Educational Post - Over the past 14 years, I've dedicated most of my professional career to training and educating traders the world over. This is what I do...it's who I am, in fact. Educating is my passion, and while I have always educated those who desire my knowledge for a monetary benefit (I'm a trader and a capitalist; what can I say), I'll ensure that the readers of this blog will find a plethora of posts that contain a wealth of trading education. This education will likely have a revolutionary impact on the way markets are seen and played by some, for life!
3) Market Post - My view of the market, in whole and/or in part, will likely make up the better portion of the blog's posts. After all, I'm a trader and have been so for almost 21 years. As I've mentioned, I have over 300 traders trading my own capital, every single day. We live and breath the market and as a result, it is the only thing in life I possess the ability to ramble on about without much thought or effort. At times I wish that were not the case, as I tend to be an absolute bore outside of this topic; but we are what we are, right? And trading is my life. So count on the posts being heavily weighted in this area.
4) Q&A Post - Many of the posts I make will be spurred by your questions and inquisitive inquiries. For the record, I encourage them. While my market related posts will drive the blog's major trends, your questions will largely dictate the length and depth of those trends. So by all means, ask away. I will do my very best to provide an intelligent answer to all the relevant questions and at the same time I'll do my best to ignore the irrelevant ones. Life is just too short and precious to spend on things that don't matter.
5) Podcast Post - Finally, this form of post represents the most exciting medium for sharing thoughts and information. The internet has revolutionized the way we live, talk, walk, breath and learn. Podcasting, the act of recording internet based information into audio files has revolutionized the internet. The Trade for Life Blog subscriber will find these mini recordings the next best thing to having my thoughts and teachings spoken to them live.
Lastly, this blog is intended to be maintained by me daily, and for the most part, I imagine it will. Just know that at times this will simply be impossible for me to do. In addition to heading up a professional trading firm (www.vcmtrading.com), overseeing a foundation, authoring books, and conducting frequent speaking tours, I'm completely owned by a beautiful wife and totally manipulated by six truly amazing children. Enough said.
"Sleep, riches and health to be truly enjoyed must be interrupted."
Johann Paul Friedrich Richter, 1763 - 1825