Trading Naked Price Action

Trading Facebook groups, Discord rooms, Reddit, you see it everywhere. Traders posting screencaps of vibrant charts with 25 different indicators obscuring the space around and on the actual price action. I’m not saying technical indicators don’t have their place, but to use them to that scale and to place too much trust in them can be dangerous.

I’ve experienced the pain they can potentially cause first hand. I used to be a firm believer in trading by the VWAP. I won’t lie, a lot of the time those trades went my way. So often in fact, I developed a bit of an overly trusting relationship with that particular indicator. What I discovered in the end was that a symbol might ignore your indictor completely and without any logic, or it might follow it fairly closely but make its move your way a small percentage outside if your allowable stop according to what the indicator reads. The former can’t really be helped, the latter becomes a big issue if you’re using what the indicator is telling you down to the penny (or tick, etc).

Of course while these are being used, ultimately one should use them as a helpful tool that provides some possibly levels to consider. Using them for more than that can definitely lead to some bad situations.

I mentioned earlier that I used the VWAP and traded according to it pretty faithfully until I got burnt a few times. At which time, I removed it as well as the 9, 20, 50, and 200 EMA’s off of my chart. You know what I discovered? As far as technical, my eyes are telling me everything that those indicators were drawing for me, minus the pinpoint accuracy. And that’s how I’d prefer to think about it. “This area is where I’m expecting X to happen.” For me, the pinpoint accuracy of the indicator lines was a big problem for me because I would inadvertently take it too strictly, too literally.

I’ve had all of my indicators off for over a year now, and have honestly traded better without them. If you’re experience frustrations with yours, I recommend trying to lose them and see how much you really lose (as far as interpretations of price action). It’s worth a shot!

Trade safe!

Tips on Building a Day Trading Watchlist

As day traders, we seek stocks that are highly volatile and likely to give us enough movement during the intraday to capture profits while minimizing risks. Most traders have a watchlist they build either during pre-market hours or even after the previous day’s market close. While everyone has their own custom criteria for building their watchlist, we’ve put together some basic guidelines to help you get started on your own.


When a symbol has a relatively large price gap between its close price on the previous trading day and its open price the next day, it will provide trading opportunities. These symbols often produce violent movement after the opening bell. Sometimes they end up trending, sometimes they consolidate. Either way, these gapping stocks should be studied and reviewed for watchlist potential. One can google terms like “biggest pre-market movers” and the like to find free resources that list gappers, or you can configure your scanners to identify them. One word of caution: sometimes these gaps are caused by buyouts. If so, chances are slim that the price action will move enough to take any trades. You can look up news on the symbols to verify this. You can generally identify them by their flat-line price action.


Major news stories pertaining to a publicly traded company will of course affect the price of its stock. A news story of great importance can drive a major move in a ticker and provide an excellent opportunity to capitalize on that move. Some examples of such stories include: a tech company announcing a data leak or a breach or privacy, a pharmaceutical company announcing promising results on a new drug trial or FDA approval, a company undergoing FCC or IRS investigation with rumors of fraudulent activity, etc. Be cautious when choosing a direction to take on these stories, as the market/price action isn’t by any means required to move in the direction that a news story would lead you to believe. Quarterly earnings reports can also have a major impact on short-term volatility, and it’s therefore a good idea to have a bookmark to a page or website that has an earnings report calendar.

Relative Volume

Gapping stock prices are often indicative of a news story, earnings report, or other catalyst. Another important factor in adding a ticker to your daily watchlist is volume. Stock prices need an extraordinary amount of volume compared to its average to make extraordinary movement in price. Nearly all scanners include relative volume as a search criteria option. As a day trader, you’re generally looking for a relative volume score of at least 2-3 (200%-300%) to add a name to your watchlist. Without ample volume, there’s a strong possibility that the majority of the move is done already, or that there won’t be one at all.

We hope these basic guidelines for criteria help you get started building your own watchlist. As you trade, you will customize and mold your watchlist and preferences to your particular style of trading. Until next time, stay classy San-Diego!

Avoiding Emotional Trading by Sizing Down

Experienced traders will tell you to avoid emotional trading. You can find it listed in many, many “do not” lists out there in trading guides. I wholeheartedly agree with this philosophy, and I will go one step further and say that you should avoid emotional trading whether the emotion be good or bad.

That’s not to say that you shouldn’t be happy after you make a good trade. You should be! But only if you’ve followed your plan. If you’ve made money on a foolish gamble, if you’ve not followed risk to reward ratios, or used way too much size, you should be aware that you’re lucky you got away with the trade and landed in the green. Elation and euphoria emotions should not present themselves if you’re trading with a position size that’s responsible for your account size, nor should depression or dark moods. If you’re trading with proper size, following your plan, and sticking to your rules, a profitable day will be one that you can walk away from proudly and with confidence. A proper loss day will be exactly the same, but with a small, manageable loss rather than a profit. You should still be proud of protecting equity, guarding against risk, and following your plan. By sizing down and taking out the heart-throbbing excitement, you’re trading logically rather than emotionally, and your trading expertise will guide your trades instead of anxiety and nerves.

Once you’ve zeroed in on trading strategies that work for you and have minimized your emotional trading, consistency will build equity, and you can begin to take small steps up in position size. If you feel sweat starting to bead up while waiting to see if a symbol moves a few cents against you, you know you’ve take too much size and can readjust.

Happy Trading!

Getting the Most Out of Simulated / Paper Trading

If used correctly, simulated/paper trading can save you stress, turmoil, and thousands or even tens of thousands of dollars. Many brokers offer a trial period to learn their software while paper trading with live market data. Others offer a more permanent paper trading option with either monthly fees or as an add-on to a live account (InteractiveBrokers and
TD Ameritrade’s ThinkOrSwim offer those services, respectively). ThinkOrSwim even lets you play back historical market days and trade them at will!

Once you sign up on one of these accounts, you’re generally able to start paper trading that same day or the day after. You’ve signed up, your software is installed and configured, and you’re watching live price data stream in on your platform. What now? Do exactly what you would do if you were live trading! Sounds easy? It isn’t. In a loss-free environment you have to hold yourself to the sames strict standards you would if you were live trading. That means you need to create a watchlist based on your parameters, study the fundamentals / technicals to note important levels, formulate trading plans for each symbol, and determine a realistic and safe size to trade with.

This last step is one that is ignored frequently during simulated trading. You may start off with a realistic size, but after a small loss or two, you give into the temptation to increase the size to try and make back what you’ve lost. When that doesn’t work, the process just repeats itself with bigger and bigger size. Maybe that last time, finally, the trade goes your way. You make your money back and call it a profitable day. Great, right?! No! This does nothing for live trading skills, and it is therefore a bad strategy to practice. This is how live accounts get ruined in a single day.

The other mistake is taking massive, unrealistic size from the get go. With so many shares, you can hold a position just long enough to capture a few cents of movement and call it a day with a good profit. But could your real account handle a trade of that size if it went against you? Chances are that with such an enormous position, one losing trade would be an account closer. This type of carelessness while paper trading instills bad habits and is more or less just a waste of your time.

There’s a huge advantage offered to those who do keep their paper trades as close to real trading as possible. Once you do that, you’ve made a big step towards a successful trading career. The same emotions of live trading should be mirrored in paper trading. Losses should be small and stopped at predetermined stop out levels. Winning trades should be ridden and scaled out of for maximum profits. Once you’ve become consistently profitable for an extended period of time (preferably months), you’re ready to start live trading with small size. Paper trading is an invaluable tool for those who are willing to put in the time and effort to do it realistically. We hope you can take advantage of it!

Top 5 Mistakes to Avoid as a New Day Trader

The failure rate of new, would-be day traders depends on the source, but you’ll notice that most sources indicate 80-95%. With that in mind, in this article we’ve attempted to identify some of the primary contributing factors of theses failures. With some awareness of these pitfalls and a little discipline, you can make your own concrete set of rules to help mitigate these account killers!

#1 Trading without a plan

If you’re quickly flipping to view a chart on symbol for the first time during the day, and within a few seconds you say to yourself, “this is going up!” and then you click to buy, chances are that your day-trading career will be short lived. Successful day traders take the time to see what symbols are in play for the day and then analyze those symbols one by one while noting important price levels, potential entry prices, potential take profit prices, and potential stop prices. Before entering a trade, there is already a plan in place to minimize risk and maximize profits. This is a trading with a plan. Trading without one can be reckless and put a premature stop to your trading career.

#2 Trading with too much size

We’re all anxious to get the ball rolling and start bringing in super fat paychecks from our day trading profits, but with this mentality, many new traders take over-sized trades. Taking too many shares in relation to one’s account size is a quick way to blow up a new trading account. Part of a successful trading plan includes deciding how many shares you can buy/short while being able to tolerate the planned stop loss if the trade goes against you. If you take a position of such size that your heart-rate goes through the roof with every tick of the price, you’ve taken too much size and are now trading with more emotion than logic. Aside from adding undue stress to your life, this mistake is a sure way to end a trading career before it has a chance to get off the ground!

#3 Letting losing trades run

“It’s going to turn around soon!” “I’ll stay in just a bit longer!” “Surely it can’t keep going this way…” These are last words before a forced exit on a losing trade, and often before an account gets blown up. There are often times a variety of factors, including lack of an exit plan, too much size, and a violent move of the price in the wrong direction, that contribute to a person freezing up during a loss on a failed trade. You’re caught in the middle of a massive loss wondering how it got this far, and thinking there’s nothing to do but wait until the price turns around, but it doesn’t. Eventually you’re forced to exit the trade with a large part of your account gone. The market ha no biases, no feelings, and it absolutely does not care whether you are winning or losing. Follow your preset plan and get out of your position at your predetermined stop-loss level to minimize the damage the market can do to you. Take the small loss and live to trade another day!

#4 Revenge Trading

After taking a loss on a trade, it’s a natural reaction to be emotional. Maybe you’re confused why the same setup works every time you don’t take the trade, and now that you’ve tried it, it behaves oppositely. Or even worse, you get stopped out on the trade and immediately the price starts going the direction you wanted. It’s annoying and frustrating. You decide to take another position, and it goes against you again. Getting attached to a symbol like this is a losing game. It’s called revenge trading, and it spins out and turns what would be one or two small losses into a massive red day. It is best to move on to another symbol or wait for a better setup, or even another day altogether. Again, it’s about minimizing losses on red days and growing, or at least preserving, your account on better days!

#5 Cutting Winners Short

We’ve talked a lot about minimizing losses, but on the other end of the spectrum, cutting winning trades too early can also be a huge problem for new traders. Naturally, after taking some beatings on a few trades, seeing a trade turn profitable is going to create emotions that scream “take profits, now!” Instead, stick to your plan! Maybe scale out and take some profits, but leave some of your position unless a clear signal is given by the price action that the trend is changing. You’ve made a good trade. Let it work for you and maximize your profits. Holding losing trades and dumping winning ones is human instinct. Practice, practice, practice against this. Trading pure price action without emotions is the path to success.