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How t o Mak e MoneyTrading Par t T im eHow t o Mak e MoneyTrading Par t T im eBy Chr i s Perrunay Chr i s Perruna
NYC Trader s Ex po
Februar y 2011
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As a rule, you CAN!As a rule, you CAN!
Can you really make money tradingpart time?
Can you really make money tradingpart time?
HOW?HOW?
Lets findout
Lets findout
Where t o BeginWhere t o Begin
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Case St udy Ex am plesCase St udy Ex am ples
Moving Average Reversal Breakout: Buy or Sell?
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In t roduc t ionIn t roduc t ion
Successful Investing through Education
Books & Mentors
Psychology of Trading & General Rules
Essentials of Fundamental Analysis
Master Technical Analysis Screening for Stocks
Making a Watchlist
Money Management Position Sizing
Expectancy
Case Study Examples
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Educat ion
Requi red Reading
Educat ion
Requi red Reading How to Make Money in Stocks (4th edition) by William J. ONeil (1988)
Reminiscences of a Stock Operator by Edwin Lefevre (1923)
The Nature of Risk by Justin Mamis (1991)
Trader Vic: Methods of a Wall Street Master by Victor Sperandeo (1991)
Trade Your Way to Financial Freedom by Van K. Tharp (1999)
The Battle for Investment Survival by Gerald M. Loeb (1935)
Martin Zweig's Winning on Wall Street by Martin Zweig (1986)
How to Trade in Stocks by Jesse Livermore (1940)
Market Wizards: Interviews with Top Traders by Jack D. Schwager (1988)
When to Sell: Inside Strategies for Stock-Market Profits by Justin Mamis (1994)
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"Rule No.1 is never lose money. Rule No.2is never forget rule number one."
- Warren Buffett
"Profits always take care of themselvesbut losses never do."
- Jesse Livermore
Youhavetolearnhowtolose;itismoreimportantthanlearninghowtowin
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Psyc hology o f Trad ingPsyc hology o f Trad ing
General Trading Rules
Develop a working SYSTEM Preservation of capital
Consistent profitability
Cutting losses short
Superior returns
Understanding You: What is your general personality?
What influences your decisions?
What is your lifestyle?
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"If you spend more than 13 minutes analyzingeconomic and market forecasts, you'vewasted 10 minutes."
- Peter Lynch
The only function of economic forecasting isto make astrology look respectable
- John Galbraith
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Essent ia ls o f Fundam ent a l Analys isEssent ia ls o f Fundam ent a l Analys is
Earnings Per Share % Change in Latest Quarters EPS vs. Same Quarter Prior Year
% Increase in Next Years EPS Estimate From Prior Years Actual EPS Annual % EPS Growth Rate of Last 3 Years
Sales/ Revenues % Change Latest Quarters Sales vs. Same Quarter Prior Year
% Change Latest Reported Fiscal Year Sales vs. Prior Year
Annual % Sales Growth Rate of Last 3 Years
Relative Price Strength
Market Capitalization & Share Price
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Successful traders always follow the line ofleast resistance follow the trend thetrend is your friend
- Jesse Livermore
In order of importance to me are: (1) the longterm trend, (2) the current chart pattern and
(3) picking a good spot to buy and sell.- Ed Seykota
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Mast er Tec hnic a l Ana lys isMast er Tec hn ic a l Ana lys is
Candlestick Charts Weekly Charts
Daily Charts
What to Look for:
Properly Forming Bases Major Moving Averages
Volume, Volume, Volume
Pivot Points
Breakout Areas
Point and Figure Charts
New Highs vs. New Lows Ratio
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Candlest ic k Chart sCandlest ic k Chart s
Weekly Chart
Daily Chart
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Poin t & Figure Char t sPo in t & Figure Char t s
General MarketIndividual Stocks
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New High New Low Rat ioNew High New Low Rat io
2003 Turning Point
2009 Turning Point
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Sc reen ing fo r St oc k sSc reen ing fo r St oc k s
Quality Stocks making New 52-week Highs
Quality Stocks with a new IPO within the past two Institutional Sponsorship Increasing
Quality Stocks that are trading within 15% of 52-week
Highs
Quality Stocks within 10% of the 200-day MovingAverage
Quality:
Earnings Per Share (EPS) Rating: From 60 to 99
Relative Price Strength (RS) Rating: From 60 to 99
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Sc reen ing fo r St oc k s
Sam ple Sc reen New Highs
Sc reen ing fo r St oc k s
Sam ple Sc reen New Highs
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Sc reen ing fo r St oc k s
Sam ple Sc reen IPOs
Sc reen ing fo r St oc k s
Sam ple Sc reen IPOs
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Mak ing a Wat c h l is tMak ing a Wat c h l is t
Key selection criteria:
Filter stocks up 1% or more Volume greater than average by at least 50%
Seek stocks that are making multiple screens
Technical criteria:
Identify trend (up or down)
Recognize base
Identify pivot point or breakout area
Establish support and resistance levels
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Case St udy Ex am plesCase St udy Ex am ples
Moving Average Reversal Breakout: Buy or Sell?
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Money Managem entMoney Managem ent
Position Sizing:
Understand how much money to trade on each position
Know account size & available funds
Determine maximum risk per position
Expectancy:
How much to make (win or lose) for every dollar risked?
How many trades - how much opportunity?
Expectancy = (Probability of Win * Average Win) (Probability
of Loss * Average Loss) (0.4 * $2,500) (0.6 * $625) = $1,000 - $375 = $625 per trade
(40% * 20%) (60% * 5%) = 5.00%
100k account, $12,500 per position or 1% risk:
Win 40% of time, 20% ave gain, 5% ave loss
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Manage Risk w / Posi t ion SizeManage Risk w / Posi t ion Size
The golden rule of trading is to keep losses at a level of 1 R as often aspossible and to make profits that are high-R multiples. - Van K. Tharp
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A trading philosophy is something thatcannot just be transferred from one personto another; its something that you have to
acquire yourself through time and effort- Richard Driehaus
The way to build long-term returns isthrough preservation of capital and home
runs- Stanley Druckenmiller
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Case St udy Ex am plesCase St udy Ex am ples
Moving Average Reversal: Buy or Sell?
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Case St udy Ex am plesCase St udy Ex am ples
Moving Average Violation: Buy or Sell?
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Case St udy Ex am plesCase St udy Ex am ples
Higher Highs and MA Support: Buy, Hold or Sell?
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Case St udy Ex am plesCase St udy Ex am ples
Moving Average Violation: Buy, Hold or Sell?
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In Clos ingIn Closing
Trading Rules to Live by:
Cut Losses Ride Winners
Keep bets small and manage risk
Follow the rules without question (your proven system)
Hattip:EdSeykotaviaMarketWizards
Theelementsofgoodtradingare:(1)cuttinglosses,(2)cuttinglossesand(3)cuttinglosses. Ifyoucanfollowthesethreerules,youmayhaveachance.
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