A Complete Guide to Passing the ToroChallenge

Transcription

1 T2B Day Trading Plan A Complete Guide to Passing the ToroChallenge

2 Welcome to Trader2B! We are excited you joined us. Day trading at Trader2B offers an exciting way to make a lot of money and the freedom to enjoy life that few people have. Here at Trader2B, we want you to succeed as a day trader, so we give you the training, coaching, and technology you need to have a great career as a day trader. Whether you joined the ToroChallenge or Live Evaluation, this guide will help you on your journey to becoming a successful trader by giving you the insights and tips on how to get funded by Trader2B. It s not easy to get access to money from a prop. trading firm. You must develop your own consistent and proven strategy in order to become a part of an elite group of prop. Traders at Trader2B. To be a successful day trader, you need a plan. You need a road map that will help you arrive where you want to go. Guessing when it s time to buy or sell in the heat of the moment does not work for most day traders, especially in the beginning. Day trading is too fast and too complicated for guessing. That is why Trader2B offers extensive training and coaching, so you can learn what you need to know as quickly as possible. Then Trader2B funds your account and monitors your progress. To ensure that you have the best chance of succeeding, Trader2B is offering a complementary coaching and consultation session to all those who enroll within the ToroChallenge. This free evaluation with our trained coaches will provide you with the proper guidance and mentoring you need to navigate the complex world of stock market trading! Contact us now and book your session! coaching@trader2b.com We look forward to working with you. Sincerely, Trader2B Coaching Team

3 First 3 Goals Let s begin our discussion of day trading by reviewing some basic concepts. Day traders with Trader2B should keep these first 3 concepts in mind at all times: 3 Rules for The Day Trader Be Flat at The End of The Day Finish Each Day with A Profit Keep All Loses Small This means that you exit all positions before the stock market closes each day. The market closes every day at 4 PM Eastern time. You should exit all trades by 3:50 PM. Sometimes stocks make volatile moves in the last minutes of trading, so it is best to exit by then. Keep an eye on the clock and set an alarm if you need to. Not holding positions overnight limits risk of bad news coming out when you the market is closed and you can t exit the trade. The market opens at 9:30 AM Eastern time each day. Your goal at Trader2B is to finish every day with a profit, no matter how small. Even if you have a $40k account and end the day with a $10 profit, you met your goal. When you start as a day trader, this is the most important goal. The amounts will grow larger when you get experience and are ready to trade more shares. Be disciplined and strictly follow the Stop Loss price that you have chosen. DO NOT RATIONALIZE when the stock hits your Stop price just exit. You should never allow a losing trade to get away from you. Exit quickly you can easily get back in. Remember, one big loss can wipe out days of hard work and many successful trades.

4 The Key to Day Trading Success The key to success as a day trader is to only allow these 4 options on every trade: 4 Allowable Trading Outcome Break-Even Small Gain Small Loss Large Gain NEVER ALLOW A BIG LOSS! This usually happens when a trade moves in your favor enough for you to move the Stop to break-even. Then the stock goes back to your entry price and you exit the trade. You will move the Stop to break-even in just a few minutes on some trades, while others will take more time. Typically, the Stop is placed at your entry price and does not include commissions. If you do have a large enough profit in the trade, you can adjust the exit to include commissions. If a day trade moves against you, you want to take as small a loss as possible. A typical Stop Loss for day trading is one-half of 1% (or.005) from the entry price. A small gain may be a quick scalp of one-half of 1% or more when a stock makes a sudden move in your direction and you lock in the profits. Taking a small profit is also a good decision when time is running out before the Close. This happens when you make a precision entry and catch a substantial intra-day price move. Stocks make long-range moves about 1 of 5 trading days. When you catch these, they can be very profitable.

5 Where to Place Stops for Day Trading Placing your stop loss at the right price will help you immensely to control losses as a day trader. Where should you place your stops? The 0.5% Risk on Day Trades This is very important to get right. If you place your Stop Loss too close, you are increasing the odds of getting stopped out, including trades that would have been big winners. If you do this, you will slowly but steadily lose money in your account. On the other hand, if your Stop is too far away, you lose too much on your losing trades. Trader2B has determined that the best location to place Stops for most stocks is 0.5% (.005) or a little less, away from the entry point. With a precise entry point, you are giving the trade enough wiggle room to work while limiting potential loss. Stop Loss is Easy to Calculate 0.5% is half of 1%. If you are trading a $36 stock, you simply move the decimal point to the left 2 places to get 1%. Then divide in half: $36.00 $3.60 $0.36, then divide in half, which is $0.18. Your Stop Loss is $0.18 Calculate your Stop Loss on a $22 stock: $22 to $2.20, to $0.22; then take half of that, which is $0.11.

6 Capturing a 0.5% move in day trading is relatively easy, so making up for a 0.5% loss is very do-able. The average daily move for many stocks is 2-3% per day, so even 2 or 3 losses at 0.5% can be made up for with one winning trade. Trading With vs. Against the Trend When you place a day trade, you need to pay attention to whether you are trading with (in the same direction as) the intra-day trend, or against the intra-day trend. 2 Types of Trends Trend Continuation Counter Trend & Reversal This means trading in the same direction as the stock. You find an existing trend and jump on board. If you can catch a long range, high volume moves in the direction of the trend this is where the big money is made. Sometimes these trends will continue all the way to the close. Trends can be a great way to capture profits. The problem is that trends don t last forever. Sooner or later, they reverse. The longer a trend has been in place and the faster and higher it climbs, the more likely it is to reverse. Instead of entering a trade at the end of a trend, a sharp day trader will look to trade the reversal when the stock changes direction. Even if a stock is not ready to reverse the main trend, no stock moves in a straight line. Good profits can be made on counter moves to the trend (mean reversal).

7 Only Two Ways to Become More Profitable There are only two ways to become profitable as a day trader: your winners must be larger than your losers, and/or you must have more winners than losers. Anything you can do to increase the number of winners and have bigger winners than losers will increase your profits. The Edge in Day Trading More Winners Than Losers Bigger Winners Than Losers You should always make precision your goal as a day trader to achieve more winners than losers. Be precise as to where you enter a trade and when you take profits. Look at the typical daily range of the stocks you trade. If you use a strict 0.5% Stop Loss rule on all trades, then you want the profit target to be at least 1% to 1.5%. This is a reasonable goal since the average stock moves 2-3% per day. A long-range day can be 2 or 3 times that much. 5 Things That Cut into Profits Keep in mind the following 5 things will cut into your profits. Day trading commissions at Trader2B are very small, but they are still a cost of doing business. Traders who trade excessively will find that commissions add up and cut into their profits. Otherwise, commissions should not be a consideration when deciding whether to enter or exit a trade.

8 This typically happens when your Stop Loss is hit, but the price slides farther before you can exit. Stop Loss orders should be Stop/Market orders, meaning as soon as the Stop price is hit, then the order turns into a Market order to exit the position immediately at the best price available. This usually happens when you aren t paying attention and you place an order. For example, you buy 100 shares when you wanted to sell short 100 shares. Pay attention when you place orders. The number and size or your Stop Outs will affect your day trading profits in the long run. Be strict with using a 0.5% Stop on your trades. If you find yourself hoping and rationalizing, you re in big trouble. Exit at your Stops. Avoid a runaway trade at all costs. Constantly be on guard so this NEVER happens! This is when you don t strictly follow your Stop Loss rule. It happens like this: First, the stock moves just a little past your Stop, but you don t exit. You let it go and watch, hoping it will come back. But it doesn t. It just keeps getting worse and worse. Finally, you exit the trade with a big loss. You have a sick feeling in your stomach because you lost big on just one trade. This is how day traders blow out their accounts, lose all their money, and end their trading careers. Trader2B doesn t want that to happen to you! Before You Enter Trades Before you place a trade, you should already know where to place the Stop, what is the Profit Target, and that the Potential Profit (Reward) is at least 3 times the Potential Loss (Risk). If you know this, enter the trade. Right after you enter the trade, enter the Stop Loss order in the software After entering your initial Stop Loss order, determine at what price the stock must go for you to move the Stop to Break-Even. Write it down if you need to. When to Take Profits Many day traders don t know when to take profits. Sometimes you will get into a winning trade that pulls all the way to your entry point and you exit with a small gain, wishing you had sold near the top. This can be very frustrating.

9 Consider These Ways to Take a Profit The stock hits your Profit Target & you exit The stock moves quickly in the right direction. Exit when momentum slows down or stops Use a Trailing Stop Manually change the Stop to new level of support, as shown by the horizontal dotted line in the chart below In the chart above, you buy 100 shares of a stock that quickly gains 1%. You could take profits on half the position and move up your Stop on the other 50 shares to half of your profits. When you see the stock consolidating sideways, you can move your Stop Loss below the new Support level. As the stock climbs the trend line, you can move up your Stops to lock in more profits. Exit when the stock breaks the trend line. The Basic Idea is: Give the trade room when it is moving in your direction; Play it tight when it s moving against you. Focus on Your Daily Profit Target Your goal each day at Trader2B is to reach a daily profit target. Having a realistic goal to work toward every day will help you to focus, and give you a sense of progress when you achieve it. Initially your goals will be $10 profit each day. Focus on precise entries and exits: that will sharpen your skills and help you reach your goals. Be quick to exit losing trades.

10 Master Fear and Greed Emotions can get in the way of day trading and cause you to take the wrong actions at the wrong time. This can be difficult to overcome most people are emotionally involved with money. Fear and Greed are the most common emotions that can distort your ability to trade correctly. Trader2B wants you to be aware how they can negatively affect your trading: Fear of Missing out on a trade. This can cause day traders to hurry and enter trades without knowing the Profit Target and Stop Loss first Being wrong. I know the stock will keep going up! This can cause traders to give back profits to the market. Or, I know the stock I just bought will turn around and go up. This can cause traders to hold onto losers too long. Taking a Loss. This can cause day traders to fear entering any trades, known as analysis paralysis or holding on to a losing trade too long. This can also cause day traders to exit a winning trade very early or not follow their trading plan. Greed I want more money from this trade! This can cause holding on to a position for too long & giving back profits. I am excited! I want to day trade now! This will cause you to jump into trades too early, not setting up the trade correctly, and not following your plan I m going to trade 500 shares when I should only be trading 100 shares. We don t allow you do this.. I just hit my Daily Drawdown, but I know I can make it back so I ll keep trading. You won t be with Trader2B very long if you do this one. I m long 100 shares and my stock is falling, but it must bounce! I ll buy more. This is a classic day trading mistake. Never do this. Only add to winners.

11 Create Your Day Trading Plan A good day trading plan should consist of the following: An Edge Entry Rules Exit Rules Risk Ratios Money Management Rules Keep a Trading Journal Get an Edge What is an edge? It means having an advantage. Day traders at Trader2B need a strategy that increases their odds of a profitable trade, not just randomly choosing stocks to trade. For example, trading the same 2 or 3 stocks for several years gives traders an edge because they know exactly how those stocks trade. I have heard of day traders who have made millions of dollars trading just a few stocks. Knowing how a stock moves in different situations is an edge. Knowing how a stock moves when news comes out is an edge. Knowing how a stock moves related to a change in oil prices, or interest rates, or a weakening U.S. dollar, or a technical indicator any information that helps you see where a stock might go can give you an edge. Trader2B will help you as much as we can, but you must create a day trading plan that is right for you. You must decide what strategies you will use in your trading. Day traders must make decisions in the moment. Stocks can move fast. A trading plan will help you know what trades to look for, and give you rules when to buy and sell. Then you must strictly follow the plan. There are many strategies that can give day traders an edge. In addition to our training, you can discover them through observation or search for them online but DO NOT trade them until you have researched them for yourself to see if and how they work. I have found many strategies online and in books that simply don t work, or worked in the past but don t work now, or work well but only under certain conditions.

12 Knowing when a strategy works or doesn t work is the difference between success and failure. Entry Rules Whether you know it or not, you will enter trades by responding to something you see where you think, now is the time to enter a trade. New traders have a tendency to enter trades at the wrong time due to not knowing how stocks move in certain situations and not having a plan. They get caught up in guessing instead of taking trades planned out in advance. Trader2B wants you to enter trades based on your plan. You want to know how far stocks move to plan entry and exit points. Use strategies that give you an edge. You want to use strategies that you have researched and know how they work, why they work, and where to place the profit target and stop. No strategy works all the time, so you will have confidence to stick with your plan if you know it works, even if it doesn t work on a particular trade. Here are some entry rules you should follow: Look at a daily chart of the Dow Jones Industrial Average, the S&P500, or SPY to see the market s trend after the Open. Begin trading at least 15 minutes after the Open after a trend has developed. Trade in the direction of the market s trend. Trades in the direction of the trend will go further and have higher odds of success. If the trend of the stock is up, look to buy. If the trend is down, look to sell short. If the trend is sideway or choppy, don t trade as much and take small profits. Stocks follow the overall market as shown by the Dow Jones Industrial Average, the S&P500, or the SPY. You set up the trade correctly by looking for trades in the direction of the market trend over the past minutes. But you also want to know how the market is moving after you place a trade. If you buy a stock and the market starts to fall, it will likely bring your stock down with it, even if everything you did was correct. Few stocks will continue up if the market trends down intraday.

13 Every stock moves a certain distance on a typical day before reversing. It is easy to look back at any stock for the past 2 weeks and see that the average intra-day move is $0.50 or $1.00 before a reversal occurs. If you capture at least half of the move, you re doing great. Don t worry no one buys at the exact bottom and sells at the exact top. I have maybe done it once since 2001, so don t be upset with yourself if you can t do it on a regular basis. No one can. Your entry rules will be based on your strategy. They should be clearly defined so you know when to place a trade. For example, these are good entry rules: a. When I see a Gap Up of at least x% and the stock is in the top x% of today s range 20 minutes after the Open, I will buy 100 shares. b. When I see a Gap Up of at least x% and the stock is trending down 15 minutes after the Open and the stock is down at least x% from the high, then I will sell short 100 shares. c. If the market is trending up and I see a stock that was up this morning and flat during lunch, I will buy 100 shares after 1 PM if I see it start to climb again. d. If I see a stock climb then pull back x% in the morning, I will buy 100 shares if it climbs back x%. Entry rules are poorly designed if they are unclear when to place the trade or are not based on a strategy with an edge. They should be based on observations of how the stock has moved lately. GOOD TRADING IS NOT GUESSING! The statements below are not good entry rules. They are just guessing: e. ABC stock is going up, so I ll buy it f. John is buying Tesla, so I ll buy some, too g. The stock has fallen 2% since the Open. It can t go down any more, so I ll buy some. h. The stock is up, it s time for a reversal, so I ll sell short

14 Don t second-guess yourself in the middle of a trade. That is not the time to change your trading plan. Follow your plan, then analyze and change it later when you re not trading. Exit Rules There are 3 potential outcomes to every trade: Profit Loss Stock is Not Moving When should you sell a winning trade? Knowing how far the stock moves each day will help answer that question. The best trades will hit your profit target and then you exit. But that doesn t always happen, so here are some rules that will help you. Don t Give Back More Than 50%. After your trade is in the money, the general rule is: don t give back more than half of your profits. You need to give your trades a little wiggle room at the start you can t expect your trade to immediately move in the direction you want just because you entered the trade. But after you are half of the way to your profit target, don t give back more than half. For example, let s say you enter a trade with a $1.00 profit target. Once you get to $0.50 in profits, exit the trade if the stock drops back to $0.25 in profits. Take a Winner and look for the next trade. Don t Let a Winner turn into a Loser! This is one of the biggest mistakes of trading. The trick to managing a trade is: knowing how much Wiggle Room to give your trade. Wiggle room is how far a stock a stock moves up and down without changing the direction of the trend. Some stocks will move up and down $0.05 during a steady trend up that lasts for 1 hour. Other stocks may wiggle $0.50 or $1 during a 15 minutes trend. Knowing how much room a stock needs will help you see when the trend is over so you know it is time to exit the trade. It will also help you decide where to place a Stop Loss.

15 Do Not Be Too Confident! Don t be sure you know which way a stock will go, or how your trade will work out. Accept whatever happens in the market. Be open to being wrong! Over-confidence will cause you to stay too long in losing trades and lose too much money. Make your trading decisions only based on what is happening in the market right now. Learn to take small losses in trading that is good trading. You need to learn how to take small losses, because if you don t, you ll end up with large losses. Learn how to take a Small Loss. If you don t, sooner or later you will end up with a Big Loss. Initially when you place a trade, the stock should do one of two things: it will either reach half way to the profit target, or you exit the trade at your Stop Loss price called getting stopped out. Give your trade some time to do one of those two things. If it reaches at least half way, don t give back more than half. If you get stopped out, go on to the next trade. You place your Stop Loss order immediately after you enter the trade. Don t rationalize and change your Stop Loss price. Finally, sometimes when you place a trade the stock just sits there. It hardly moves at all. I really don t like staying in trades like this for more than 15 minutes when I can be looking for other trades. Also, I get so bored watching a stock not move that my attention and judgment go out the window. It s best to just exit the trade and look for another trade. Or take a break and get something to eat.

16 Reward vs. Risk Simply stated, whether trading or investing, we want to risk a little to make a lot. First you have a strategy with an edge to increase your odds of success. Then you take only those trade s where the reward is at least 3 times the risk. Now the math is in your favor. Look at the numbers: 40% odds of reaching Profit Target Full Profit 4 of 10 trades = $1,200 20% odds of exiting at 50% of Profit Target Profit 2 x $150 = $300 Reward is 3 times the Risk of Loss, 3:1 Loss 4 of 10 trades = ($400) $100 Risked per trade over 10 trades $1,500 subtract $400 Total Profit = $1,100 You can see that only entering trades that have a Reward to Risk ratio of at least 3:1 is important to your success as a trader. Money Management Trader2b will help you with money management. There is no need to lose a lot of money as you learn to trade. First of all, know this: if you can t profit by trading 100 shares at a time, you won t profit by trading with larger size. You will only lose more money. First learn to trade with 100 shares; then you will get to trade with more shares when you are consistently profitable. Be patient: traders usually need at least a few months to become profitable. There are only two ways to lose a lot of money in the stock market: 1) trading too many shares, and 2) holding a losing position too long. Since you are only trading 100 shares, the first one won t be a problem. You need to learn how to exit your winners with a profit and accept your losers at the Stop Loss price.

17 Maximum Drawdown The most you can lose during your trial period is $300 or $700 depending on what plan you signed up for. If you reach the Maximum Drawdown, you will not be able to trade again during your trial period. You will still be able to study the videos, speak with the coaches, enter the chat room, and use all the other services you signed up for. You should know if you reach the Maximum Daily Loss every day, you will reach the Maximum Drawdown long before your trial period ends. If you are reaching the Maximum Daily Loss often, then obviously something you are doing is not working. You should slow down or stop your trading completely and speak with a Coach to review your trades. Don t keep making the same mistakes. Have Your Own Rules You should also have your own rules when to stop trading. Stop trading after 2 or 3 losing trades in a row. Take a step back and analyze what you did wrong. Typically, this involves poor entry points, especially in the first 15 minutes of trading. Remember, professional traders are very good at getting people to buy stocks at the wrong time. Keep a Trading Journal Traders who are serious about improving their skills will spend an hour or more a day analyzing the day s trades while they are still fresh in their minds. They keep a trading journal with details about what trades they made, which stock and strategy they used. They write down what they were looking at that caused them to enter the trades, the results of the trades, and what they did right and wrong. After several days, you will start to see patterns. Do you trade better at certain times of the day? Are you trading well with certain stocks but not others? Why? How well is your strategy working? Are you holding Winners too long? Not long enough? Are your Stops in the right place? Are they too close or too far away? Are you following your trading plan or your emotions? Are you holding Losers too long or exiting before they hit your Stop?

18 Finding the answers to these questions will help you improve your trading skills. Discussing this with your Coach will help you see where you can improve. Plan of Action Choose 2 trading strategies Become very familiar with them how they work Write down your trading rules for Entries, Exits, & Stop Losses. Follow the Plan Keep a Trading Journal & evaluate daily Analyze results with your Coach Remember that we succeed when you do, so we will do everything we can to help you become a profitable trader as quickly as possible. Come prepared to learn as much as you can and you will be on your way to a great career with Trader2B. Please answer the Questionnaire on the last page and send to your coach. (The Trading Plan is for your own use and does not need to be sent in) Strategy #1 Describe the Strategy: (EXAMPLE) Trading Plan Gaps. I will look for stocks with a Gap Up or Gap Down of at least 5% change in price. Then I will check for news to see if anything is causing the gap that might cause it to continue in the direction of the gap. I will watch it for 10 minutes until 9:40 AM.

19 What is the Buy or Sell Short Signal? If it makes new highs I ll buy and sell short if it makes new lows since the Open. How do you determine the Profit Target? I will let momentum get me out. When I see the stock reverse with a candle above previous candle on 1-minute chart, I m out. Or if I see the stock slow down and go sideways for 3 candles, I m out. How will you find these stocks? I will check the highest % change in the Stock Watch list window in the lower right What will be your Stop Loss? I ll start with 0.25% and try that. Later I may make that smaller or larger as needed. Strategy #2 Describe the Strategy: Pullbacks. I will find the strongest stocks when the market is up. I will wait until the stock hits the high then pulls back. Must be after 9:45 AM. What is the Buy or Sell Short Signal? When the stock pulls back then goes sideways for at least 3 1-minute candles and starts to climb again, I ll buy. I m looking for new high above sideways action over past minutes. How do you determine the Profit Target? As soon as price action goes sideways again or I see a large red candle (1-minute candle) that is not quickly returned to the uptrend, I m out. How will you find these stocks? In the highest % change in the Stock Watch list window in the lower right corner. What will be your Stop Loss? $0.10 below Support, Max $0.15 Loss. All stocks traded will be $10-40 range.

20 Trader2B Trading Plan (for your own use) Strategy #1 Describe the Strategy: What is the Buy Signal? How do you determine the Profit Target? How will you find these stocks? What will be your Stop Loss? Notes:

21 Strategy #2 Describe the Strategy: What is the Buy Signal? How do you determine the Profit Target? How will you find these stocks? What will be your Stop Loss? Notes:

22 Questionnaire Strategy #1 1) Which stocks will I trade? Note: These stocks are in the recommended $10-50 range: AAL, BAC, ABX, AMAT, AMX, AZN, BSX, CF, CMCSA, COP, CSCO, EBAY, FCX, FLEX, GE, GM, HAL, HPE, JCI, JD, KMI, KO, MS, MU, PFE, SYMC, T, TWTR, VRX, VZ, WLL, WMB 2) What strategy will I use? Please describe your strategy. (See Strategy Guide: Breakouts, Breakdowns, Momentum, Reversals, Pullbacks, Gaps, Follow the Leader, Relative Strength/Weakness, Technical Indicator, other?) 3) What Profit Target will I use? (Based on price, %, or other) 4) What Stop Loss will I use? (Based on price, %, or other) 5) What time will I trade? 6) What is my signal to enter a trade (Long and Short)? Strategy #2 Same as above. Look for stocks for this strategy if you don t see any for Strategy #1

23 ToroChallenge TM T2B Day Trading Plan Version 1 5/23/2018 ADDRESS 2297 Guenette St, Saint-Laurent, Montreal, QC, H4R 2E9 Canada TELEPHONE ADDRESS coaching@trader2b.com ADDR info@trader2b.com