Episode 3 Transcript: Before You Jump In

For those of you who would rather read this past episode, or who want to follow along as you listen, we offer transcripts of all our podcasts. Enjoy this transcript of the third episode: The Day Trading Authority Podcast’s Episode 3 – Before You Jump In:


Coming from NetPicks headquarters, it’s The Day Trading Authority with Mark Soberman and Brian short.

Mark Soberman: All right. Hello. Welcome, traders. This is Mark Soberman with NetPicks and welcome to another edition of The Day Trading Authority. Joining me again today is Brian short. Are you with me, Brian short?

Brian short: I’m with you, Mark, and excited to be back and doing another edition.

Mark Soberman: Are you truly excited to be back to doing another edition?

Brian short: Well, if you don’t hear the excitement in my voice, it’s because I am suffering from a little bit of a cold, but I am truly excited.

Mark Soberman: I’ve got to — you get sick a lot because I think in podcast number one, you were sick as well.

Brian short: My voice was pretty shot in podcast number one. I said the same thing to my wife the other night. I said, “Oh, great, we got to do another one of these and my voice was going to be kind of, you know, iffy,” but, hey.

Mark Soberman: What can you do? Actually, they probably think it was somebody totally different from Episode 1 and I should kind of used a whole different name here for you joining me today. But with that, enough of that, let’s go ahead and move on to why people probably are listening, and that’s to talk about trading and day trading, and things that have come up and come to mind.

So we’ve been getting some great feedback on the first two podcasts, and if this is the first listen, you can definitely go back and listen to episode 1 and 2, and hear just how Brian sounded in episode 1. And the way you can do that is you can go on iTunes and you can actually subscribe to the podcast, and whenever we get around to doing another one, you automatically will have it pushed into your iTunes and onto your device, if that’s how you like to listen. You can also go to netpicks.com, N-E-T-P-I-C-K-S.com/podcast. All lower case and that’ll get you to a page where we also replay online and you can also download the MP3s there are well. So whatever works for you. Whether you like to listen to it on the go or at your computer, either way, we got the different formats for you. And don’t forget, if you can, if you’re on iTunes, definitely leave us a review, if you don’t mind. If you’re getting a lot out of this or learning a little bit of something each time, it’s definitely good for Brian’s ego. And it’s his motivation to continue on, if he sees those positive reviews. And I know how you get Brian.

Brian short: Yep, I got to have them.

Mark Soberman: There you go. Now, something that comes up a lot we get asked is what are you trading? There’s always a lot of curiosity, what we’re involved in. Obviously, there’s more choices out there than we kind of know what to do with, so sometimes people feel — like if we’re not trading a certain market, they question it or they wonder if it’s no good for them, or maybe there’s something wrong with it and it’s simply not the case. There’s just almost so much bandwidth that you have as a trader and there’s only so much you can do at one time. And really, as a day trader, I kind of find when you’ve got about two markets going at once, you are pretty near capacity and three is definitely pushing it if it’s an active market. So you can imagine we have to make some choices based upon what works for us.

One of the markets, not the only market, but one of the markets that I do personally like to trade is crude oil futures on a day trade basis. I don’t personally swing trade it. It’s not to say that it can’t be or shouldn’t be; it just doesn’t work for me. And when I say it doesn’t work for me, just sort of doesn’t fit my personality and how I like to trade. But as a day trader, I am a big fan of crude oil futures. You probably need at least $7500 in an account or more to safely trade a contract. I mean, your broker will probably be more than happy to go maybe less than that, depending upon the broker. But when you figure 2% risk, that’s $150. Every tick is 10 bucks, so that kind of only allows about 15 ticks for a stop, which on a day trading timeframe, that’s probably pushing it a little bit. You may sometimes be even a touch above that, so that’s why I say that’s kind of like the borderline of acceptable. If you’re below that, don’t really bother with that market yet until you move on further.

A couple little quick tips, just so you know, the one thing to always look out for is that weekly inventory report. It’s typically on Wednesday at 10:30 New York time, but it trips you up because on days if there’s a federal holiday in the U.S. on Monday, they almost always push to Thursday and Thursday at 11:00, and I can’t tell you how many times over the years I’ve forgotten that there is a holiday on Monday, and I have not traded on Wednesday for a certain reason. And I realize after the fact that, “Oops, I should have traded Wednesday because the report’s actually on Thursday.” So always check that economic calendar, like we’ve told you in the past podcast.

One final thing and then Brian will kind of jump in here and tell you what — one of the markets he likes to trade, that he would suggest you look at. At the end of this podcast, I’m going to give you a link where you can get a free guide to trading to crude oil futures. It’s basically seven tips to success in crude oil futures, a really good guide. It’s free, which is the best price of all, and it gives you some of this insight, for instance, on the weekly inventory report, best time of day to start trading, best time of day to stop trading, and a whole host of other neat stuff, if you’re at all interested in market or want to learn more about it, hang on to the end and we’ll cover that.

So, Brian, with that said, it’s all you.

Brian short: All right. Well, I’ve got two markets that I really like to trade, so I’m going to go with two instead of just a single.

Mark Soberman: Oh, so you have to beat me. You have to one up me here.

Brian short: I have to one up you. That’s exactly —

Mark Soberman: All right. I have two more once you’re done here.

Brian short: Okay. I’ve been a big fan of the metals for a long time, I’ve actually owned the physical metals, gold — I’m talking about gold and silver way back in the early 2000, owned quite a bit of it, in fact. And that’s the one way that I invested back then, more of a longer-term trade. But since then, I’ve done more intraday trading with gold and silver, and specifically I like to start at 8:00 in the morning, that’s about 20 minutes before the pit open, and go for two hours. And I do use…

Mark Soberman: That’s New York time, right, Brian?

Brian short: — That is New York, yes, to be —

Mark Soberman: Okay.

Brian short: Thank you for that clarification. So that would be New York time. And the — both of those instruments have been very, very good as far as a lot of good price action, with the exception of January. January has been a little bit tricky in some of the markets, as price has contracted, volume has contracted to levels that are low, you know, the lowest in the last two years. And so we’ve had to adjust how we look at things and how we trade a little bit, not going for as big a target, and that seems to be working well. And then once things will pick up again, obviously, we’ll stretch our stopping target out again.

But again, those are my two favorite instruments to trade at this point and I would encourage you to take a look at them, and see if it might fit into your trading. The thing I like is I can get started early, 8:00 New York time, and be done by 10:00, and I’ve got the rest of the day to, you know, to do other things.

Mark Soberman: I would say, too, Brian, that they should realize that silver, if you trade on the full size-contract…

Brian short: Oh, yeah.

Mark Soberman: …is going to take quite a bit more capital. I mean, you’re probably talking $25,000 for a contract…

Brian short: Yep.

Mark Soberman: …even though your broker, right, will probably take less. It’s just, you know, 10 ticks is 500 bucks, you know, and that’s not a huge — or say 10 cents which is 20 ticks, but that’s probably — yeah, at least that much in a normal day trade and it’s $500, 2% means $25,000 gold is going to be a lot more like crude oil.

Brian short: Right.

Mark Soberman: Or 2%, probably, right, would be like that, $7500 to $10,000.

Brian short: Exactly, that’s a great point. I did forget to mention that, so…

Mark Soberman: And you know what, sometimes the dollars amounts scare people away and maybe it should because, you know, really that’s — you want to be capitalized enough in trading. It doesn’t mean you cannot day trade with less capital. These are just some markets that you’re not going to want to bother with initially. There’s certainly futures markets that you can start with $5,000 and there are forex markets that — well, not in the futures area, but in the forex where you can even start with $1,000. I don’t recommend typically going too much lower than that, but there are options available to you.

All right, so appreciate that, Brian. So let’s move on to our next topic. So every podcast, we like to discuss either a current event or a really great article that happens to be in our trading tips blog. The trading tips blog, if you’re not familiar, is available at netpicks.com/trading, a little hyphen, and the word “tips,” plural. So trading-tips. And you can kind of see all of the various articles that are written by myself, by Brian but even more importantly by our crack trading coach team. And we have a great team that posts inside the trading blog. Once again, it’s all free for you, and there’s a lot of great stuff in there. I kind of stumbled on to this one when I hadn’t actually been in there in about a week or so, and there’s an article by Shane Daly, one of our coaches up in Canada. And the article is titled — and I really suggest you read this one — it’s called “Before You Jump Into Day Trading.” In particular, if you have not yet jumped into day trading, right, this should be an article to definitely read.

And what’s interesting — even as I read it, I was like, well, there’s a lot of good top-level points here,” even if you have been trading for a little while, in particular maybe if you haven’t had the success that you’re looking for. And I’m going to give you like a really quick sort of a skeleton rundown here what’s covered in there. But he really sort of takes you from the beginning, fundamental analysis versus technical analysis, and the recommendation is definitely to use technical trading systems if you want to be a day trader. You know, his real point there is as much as we all love to interpret economic news, you know, Brian, myself, when we’re trading, you know, we chat about a report and whether it was stronger or weaker than expected, but I can’t tell you how many times, personally, I’ve been completely wrong with how the market reacts based upon the news. It tends to do exactly the opposite what you think it’ll do and it has a lot to do with expectations.

So with technical analysis, his point is, you know, the belief is that everything is kind of cooked into price and you’ve got this massive crowd mentality, and rather than you trying to, you know, be an economist, you can just sort of let the chart tell you what’s going on. And there’s, you know, variety of indicators you can use, Fibonacci, Stochastics, MACDs, on and on and on, you know. Or you can, you know, certainly purchase a trading system that’s fully developed like the ones that NetPicks offers, where it’ll come with indicators but more importantly all the rules that you need to use the indicators. Because it’s not just good enough to have indicators, you have to have a whole rule set and a trade plan that goes along with that. But, you know, he kind of moves on to something that’s always sort of near and dear to our hearts, which is, you know, back-testing. I know, Brian, you always talk a lot about the importance of back-testing.

Brian short: Yeah, there’s a lot of benefit that can be gained from that. First of all, you reinforce the method that you’re looking to apply to your trading. And then secondly, it gives you a very good feel for how the method performs and what you can expect going forward. And so it’s a very key and critical piece to the process that a lot of traders skip over. I mean, I understand, we get excited when we see a new method, it’s like that bright shining new toy that you want to get out and play with right away, and a lot of traders just dive right in. But back-testing really is an important key component. I would encourage every trader out there to take that exercise to heart and work through it.

Mark Soberman: And we should probably clarify when we say back-test, we don’t mean you hit that button that does the automatic back-testing in a MetaTrader or TradeStation. We literally mean it’s like a walkthrough where you walk the charts or even better, if you kind of hit the little scroll bar like you were doing it in real time, and record your trades and make decisions like you would in real time. I mean, there’s always going to be the guy listening here. He’s got his arms folded and saying, “Oh, back-testing doesn’t work and it’s not like real-time trading,” and you’re right. I mean, it’s true. But if you can’t do it in hypothetical back-testing, walking through your selling never going to be able to do it in real time, which kind of brings up the next point that Shane made, which is, you know, you need to do a forward test before you really dive in there with, you know, your hard-earned dollars. A forward test means you go live in the markets and it could just be you’re trading a demo brokerage account. It could mean you’re trading a very small, tiny, you know, account, use a micro account in Forex. But you have to do something where truly you can’t cheat because what happens is, as much as you think you’re not cheating, you don’t intend to, all of us do this, even when we back-test, we tend to peek a little further ahead or we don’t even realize in our minds, we change our minds. “Oh wait, I would have gone in there. I would have actually adjusted my entry, and let me erase that loser,” right? You just do that. It’s just — but when you’re live, you can’t do that. You can’t cheat. Cheat yourself and obviously cheat the system.

He then goes on to talk about something called positive expectancy and this is a really important formula. It’s probably not a great idea if I give it here because you almost want to see the article, but it has to do with you sort of just take your winning percentage and how much you make when you win, and then your losing percentage and how much you lose when you lose, and you come up with this number. And you want this to be really positive, the higher the better, and what happens is, a lot of times, people start trading. They think they have a winning system, and actually when you do that formula, it ends up being a negative number. And if it is, you got to stay away from that, you’re going to lose money, guaranteed, and it’s a really great number to look at. It’s the number a lot of people don’t look at in their trading. They look at the winning percentage. They see 85% and they’re like, “I’m golden.” And then they only realize that the losers are a lot bigger than the winners and a lot of things go into that. This formula will really kind of guide you on how solid your system is. I mean, you could have a 35% winning system and you may have a brilliant, positive expectancy. And a 90% winning system could be terrible and that surprises people sometimes. You make sure to do that.

And the final thing he ends up with is how important money management is, certainly trade psychology because that’s going to be really tough for most people, but, you know, he definitely talks about, you know, no matter how good your trading system is, you’re going to blow it if you don’t use just halfway responsible, you know, risk management. I know, Brian, that trade psychology and risk management is always near and dear to your heart.

Brian short: Yeah, it’s really two legs of the three-legged stool. You know, if you want to think of it this way, we — there’s three legs on a stool. The first leg is the method. That’s the one area that most traders focus on, is the method they’re going to approach the market with. And a lot of times, the other two risk and trade psychology, don’t get any of the attention when they really should. All three get equal attention. And so if you think of it that way and apply yourself accordingly, balancing all three of those, will make for, you know, the ingredients to successful trading.

Mark Soberman: Yeah. I think that’s definitely and true. So again, my recommendation, read the whole article. I’m just sort of sketching some of the things. When I read, I was like, “Yep, yep.” The whole way down, I was in complete agreement. So grab it on the trading tips blog from Shane Daly. He’s got some other really nice articles on there. James Kessick also put some great ones on there, so it’s a great, free resource, you got to work at this stuff. I mean, I know all we do sometimes in the podcast is give you more work, you know, “Read this,” “Go here,” “Watch this video,” “Listen to this interview.” But that’s the reality of trading. You know, we’re trying to make a lot of money. There is no push button profit system, so it’s really important that you put in some of the time and it’s well worth it. And hopefully, your passionate about this which is why you’re listening, and this is really interesting and intriguing to you. If it’s not, this is probably not a profession that’s for you. It could probably save you a lot of time and a lot of effort, and probably a lot of money along the way if this doesn’t intrigue you.

[Music — “Tales from the Stupid”]

Mark Soberman: All right, so it is definitely time for Tales from the Stupid, as you heard. And in this case, Brian and myself, we try to have a bit of a little confession and talk some really dumb things that we’ve done recently in our personal trading. We do this so you guys realize that we all do dumb things in trading and, you know, it’s one, kind of fun to laugh at after the fact, but it’s certainly not a lot of fun when you’re actually doing it. But it’s important to sort of address what you did wrong and fix the behavior for next time.

So I can tell you, for me, the thing that I did recently here and it was actually today, so it’s still a little bit raw, my emotions about this, but I didn’t pay attention to my trade plan on the Forex. I trade the Euro-US Dollar, and I trade from 8:00 a.m. New York time to 10:00 a.m. New York time. And I have a rule that I’m looking for typically max trades three, and I want to do something I call power of quitting which basically means I need to end positive and it’s something that we always teach. And I’ve got this cutoff at 10:00, for whatever reasons is kind of slow this morning and I ended up with my first trade loss, and my second trade was a winner, so it’s definitely taking a third trade. What I didn’t realize is I took the third trade after my 10:00 cutoff because I was very distracted in the other markets that I trade.

And I mentioned crude oil futures which happen to have the inventory report today. So I had two different times today I was trading at. I was also trading the Russell eMini during the same time. Brian mentioned the metals that he trades, et cetera. So a lot is going on but no excuse, that’s kind of why I blew it, but I literally missed the cutoff, and let me just ask you, how do you think that trade turned out? Did I make money on that trade? And you know the answer is always no. I mean, of course, there was a full stop out.

The reason that my cutoff is there at 10:00 a.m. is I know my odds go way down on my winning percentage. So I completely blew it. I basically just gave money to somebody else in the market by taking that trade. So my — you know, the moral here is reread and reread, and reread your trade plans, make sure you kind of just go over some kind of mental checklist with yourself. No matter how many times you do the same thing, you think you have this thing nailed, it’s amazing after all this time, I can still make as basic of a mistake as that.

So that’s my Tale from the Stupid. Hopefully next time, I won’t have one for you and I’ll be perfect. But, Brian, I’m sure you’ve always got some for us.

Brian short: Why would you say that? I mean —

Mark Soberman: Oh, no, I’m just saying because you want to — no, just because you want to contribute. That’s all, you know.

Brian short: Oh, okay. Well, actually —

Mark Soberman: Did you trade this week? Is that —

Brian short: Unfortunately I do have one and —

Mark Soberman: Ah, I knew it.

Brian short: Yeah. And there’s probably a theme here. We’ve probably mentioned this before, but it’s important. And the message that I want to get across today is you have to eliminate distractions.

And in the last few days of trading, I don’t remember exactly the day, but it was a couple of days ago. You know, I trade from 8:00 to 10:00 and my daughter happened to be — she was late going to school that day, I think there was a delay, and she came barging into my office and right in the middle of a trade that I needed to pay attention to, and she had something that was important that she needed to talk to me about, but the point there is I really didn’t — it was an inopportune time. I needed to make a key critical decision on a trade and it was a little bit stressful going back and forth with her. My point there is, eliminate those distractions. If you have to put a note on the outside of your door that says, you know, “trading in session,” like “on air,” you know, don’t interrupt-type thing, then you need to do that.

And the other distractions that are out there, too, that can cause problems, you know, when the market’s slow, the temptation is to multitask and do other things, try to maximize your time. Let me just kind of suggest, you don’t do that. I had a situation this morning where we had two trades in silver that the setup printed and I had very — like a split second to get that order in. And by the time I put the order in, in one case, it had popped through the price and then back up, and we had to make a decision on what to do and through the target very quickly. In the second case, it popped through my entry, it filled us, and to target within a — you know, within seconds.

And so again, eliminating those distractions, paying attention to the chart is key because there will be times when the action picks up and goes very quickly, and you want to make sure you have everything in your favor, that you’re using your method the way it should be used, and you don’t want there to be mistakes. That’s the bottom line. So eliminate those distractions, whatever they might be — I’ve listed a couple this morning — and resist the temptation to multitask.

Mark Soberman: Now, would you say locking your children in a closet while you’re trading? Would that eliminate the problem?

Brian short: Did you hear me say that?

Mark Soberman: I’m just asking. It’s just a…

Brian short: No, I —

Mark Soberman: …a question because I —

Brian short: I don’t think I can recommend that. I’m not sure what agency would be at my front door if I…

Mark Soberman: Okay.

Brian short: …condone that, so probably not.

Mark Soberman: Okay. I was just curious. So the other thing, if you don’t want to lock your kids up in a closet is you can, of course, lock your door. That would always be an option as well.

Brian short: True, I could.

Mark Soberman: Okay. Just saying. Yeah, I’m in total agreement with that. The only other thing that probably bothers me about this is I have to remember that trading question where your daughter barged in and we lost some money. So when is she going to send me that $500?

Brian short: I’ll talk to her about that tonight.

Mark Soberman: You know, because you were good, you kind of covered up. You actually never said that it was your daughter. You protected your family there.

Brian short: I did. Now you know.

Mark Soberman: But now in this confession, you have to come clean.

Brian short: Because of this interview, now you know.

Mark Soberman: Okay, all right. Okay. I’m going to collect. I’m sending an invoice.

Okay. So now, our, I guess, more favorite part of this is when we can actually talk about our genius, some of the things that we do potentially that were actually smart, not so stupid.

[Music — “Genius”]

Mark Soberman: And for me, personally, Brian mentioned this in the beginning, he talked a lot about — we’re recording this, January 2012, and I realize some people sometimes come back to podcast six months later, so we do our best not to make anything dated in these. So it’s — you can always benefit no matter when you listen. But at this time, we’re kind of in the cycle where volatility and trading range has gone down, gone down, gone down from, literally, probably October was great and November was pretty good, and it started to, you know, go down into December that you expect — but you know, everybody thinks, “Oh, January, New Year, it’s going to go crazy,” and it’s been interesting almost every year, the first weeks of January tends to be the exact opposite. Though I fully expect now, it start — to start moving, start, you know, clicking in. We start to get quarterly estimates and things start to happen that are more interesting.

But we use range bars a lot and I don’t really have — it’s not the perfect format here to teach about range bars, but they’re basically thick-sized bars. So you can imagine, if you’re using technical trading systems and all your bars on the chart are the same size, and suddenly the range of the market you’re trading is cut in half, something’s got to give. And usually what gives is your profits and that’s definitely something that we’ve seen. So what we do is we always make sure that our trade systems are dynamic. What I mean by that is, as the trading range and the volatility goes down, the size of the range bars that I use, goes down. So if I’m trading crude oil futures, and back in November, December, I’m using bars that are, let’s say, 10 cents or 11 cents in length, right now, I got them down to 7 or 8 cents, basically, to behave the exact same way that they were when we developed the system, you know, whether it was months ago or years ago, that’s really important to do.

And I know a lot of you don’t use range bars, maybe you use time intervals. But if you’re using one-minute charts, five-minute charts, and I’m going to tell you, I don’t like those for day trading, but if you do, you can only imagine, more than likely, your targets are way too big and your stocks are probably, you know, in this case, you know, more than likely too big as well and you need to tune those up because the markets aren’t going to go the distance that they’ve been going.

So I recommend people use something called Average to Range, ATR. It’s in virtually every charting platform. At the very least, put ATR on your daily charts at the markets you’re trading and see is ATR going up or is it going down. That’s a really good measure to you of whether you should really consider raising targets and stops or lowering targets and stops. So you have to start getting to the point where your trade system is dynamic. Otherwise, what’s going to happen is you’re going to have a couple of good months and then it’s going to basically implode on you. This happens all the time with trade systems. So that’s my genius. It’s really been the thing that’s kind of helped us get fine tuned here in January. If we weren’t doing that, it would be a complete mess.

Brian short: All right. I’m taking them up next.

Mark Soberman: Yes, you are.

Brian short: All right.

Mark Soberman: We want to hear your genius. We didn’t hear anything, so I wasn’t sure if that meant you didn’t have anything.

Brian short: Well, I do have something that we’re actually pretty excited to talk about. And Mark and I both have been looking at a different way of analyzing price flow and the volatility of that flow to trade the markets. And so we’re in the very beginning stages of looking at that and so I would encourage you maybe to do some digging, if you’re listening to this. And maybe by the time you listen to it, we’ll have more information. But at this point, I’m just going to give you a teaser and say that it’s something that will be coming in the next few months from us and we’re very excited about a potential approach to the market that measures price flow. And you get in and out of the market based on that. No indicators. It’s strictly on, you know, who’s buying, who’s selling, and what we found is that can have — give you an edge in the market basically and a different tool in your trading toolbox. So we’re really excited about that possibility and I’m going to be doing some more research and we’ll get more information out to everybody very, very soon.

Mark Soberman: Yeah. Because we’re — you know, we’re very visual-based traders. We like to have things on the chart. I like to be able to see colors, see places to get in and get out. It’s much easier when you’re having to respond in real time, like when Brian was mentioning the craziness in silver this morning. I mean, if it’s not a visual and you got to do a bunch of other stuff to try to figure out what’s happening, it’s so stressful any way when you’re trading. So this is all about making that whole order flow, you know, who’s buying, who’s selling, a completely visual on the charts so you no longer have to sit there and try to somehow figure out, you know, who’s on the bid, who’s on the ask, very cool. So it’s a great tease and we’ll have more for you soon on that.

All right. So this portion of the podcast, we’d like to sort of get our guest interview and we’re going to have an excerpt here from a longer interview that we did with Anne-Marie Baiynd. She’s the author of “The Trading Book: A Complete Solution to Mastering Technical Systems and Trading Psychology.” I read the whole book. It’s very, very good. It’s a nice real primer with some definitely hard-hitting, here’s the technical indicators I use, here’s the markets I use, here’s how I approach the markets, which is great. But then she also does a really nice job of sort of, you know, talking a lot about the other things that you have to incorporate into your trading, things that we always talk about, right? So we’re almost tired of hearing it, but it’s true. Trading discipline, trade psychology, money management, kind of the hard stuff in trading, but it’s really important. So it’s a real good overall from a successful trader, of her story of which she went through, and we basically have a part of the interview coming up. And then, of course, you can hear the rest of the interview, just go to our trading tips blog. We’ve got the full replay there as well.

So with that, Brian, I guess let’s go ahead and cue the interview.


Mark Soberman: Got it. Now, I know you’re primarily a technical trader, and if I understand correctly, some of the major indicators that you use are the exponential moving average, the simple moving average. I know you talk a lot about moving average crossovers. I think it was Bollinger Bands and you use Fibonacci a lot. Does that still kind of make up the Anne-Marie trading system?

Anne-Marie Baiynd: It does. What I’ve had to do, you know, to clean the charts a little bit since people watch me trade all day, it just gets a little messy form if there — if they’re newer. So I will leave the Bollinger Bands off and then, you know, focus on them. Frankly, you know, price is so important that you can work with the Fibs. Here are the primary things that I use. If I’m looking at super short timeframes, I will look at the 50 and the 200, simple moving averages. And I love the stochastic momentum index. I think it’s a fantastic indicator. Not a whole lot of platforms have it, but Thinkorswim does and it’s a very, very good indicator of what’s on the horizon.

And here’s the thing, if a moving average is flat and I see my price drifting further away from that moving average, it’s got to bounce into it. So I’m always looking for that relative area of support which I’m going to find with my Fib and I’m going to know, “Hey, listen, I’m coming up to test that 50 today, right?” At least once a day, sometimes twice, we test the 200 on the five. And so those two moving averages, nice and easy, just so long as we have those parameters of where it’s relative support and resistance, those things really need only to focus on definitively. And so, short answer, yes, those are still the core things that I use, maybe Bollinger Band a little bit less, stochastic momentum index a little bit more. It really depends on the day. If I look at the stochastic and it’s not behaving well or it’s sitting in a neutral zone, I’m not going to — not sweat it at all.

Mark Soberman: Sure. I mean, one thing you point out in the book is that, you know, trading is not a cookie cutter and a lot of people try to come into it, that’s really what they want. I think I’ve got like the quote, you said, “The day is never as simple as the if-then statement. If you’re looking for that kind of roadmap in trading, your search will be exhausting, never-ending and, oh, by the way, an exercise in futility.” So it sort of sounds like you are a — you adapt to the day to — what the chart is showing on that given day. I mean, you got your core indicators, of course, in your core system, but it sounds like you have to be flexible day to day.

Anne-Marie Baiynd: That is very true and I think that is the most difficult thing for folks because it seems to have so many moving parts, they want — see, in the end, we all like things to be stable, right? We don’t want a friend that’s a Looney Tune that does things and we go, “Okay. Where did that come from?” We want things to be stable. We want our chairs always to work when we sit and then we want our computers to work. And so we sort of force that mentality into the trading space where really it’s like a river full with fish. They’re not always going to sit in the same place — well, that’s not exactly true if you’re a trout fisherman, you’re going to know that they sit in a certain place all the time but you know what I mean.

Generally, they’re going to be here, there or wherever and you’ve got to say, “Well, wait a second. What’s the wind? Is it overcast?” And I am a big fisherman which is why I’m using this analogy. So you’ve got to be a little bit more flexible in terms of what you’re looking at and so many of us just don’t know what we’re looking at, but that seems almost impossible to do.

Mark Soberman: Right. I mean, I know you point out how important the slope is in trading, especially if you’re doing any kind of momentum-based trading. I guess that has — it’s the same thing, being able to look at a market to determine that, you know, the slope of the move up or down isn’t there. And even though your indicators might be firing a trade, they’re not going to stop firing trades. I guess…

Anne-Marie Baiynd: Correct.

Mark Soberman: …pulling back and not be in the market is something you need to do but obviously quite difficult for people.

Anne-Marie Baiynd: Exactly. That’s really true. And you’ve actually put — stopped on a point that is incredible. We think that because we look at the markets and because we look at the charts, that we have to be in a trade. And that is just simply not true.

Mark Soberman: Yeah. I mean, I think people feel like, “Hey, I’m trading from 8:00 to 10:00, that’s what I’m here for. I’m supposed to have five trades, you know, no matter what the market’s, you know, doing even if the sea is about to come out or whatever and it’s not moving, I’m going to get my profits, and unfortunately, it doesn’t tend to work that way as much as you wanted to. With the Fibonaccis, I know that’s very key for you in trying to sort of determine what’s next to happen and the structure of the market. And I remember you mentioned there were few key levels. And you pointed out some percentages. I think you said like the 100% level…

Anne-Marie Baiynd: Uh-huh.

Mark Soberman: …the 200% level are almost always, at least, temporary reversal points. Then you also mentioned like your golden ratio, the 61.8. I know we got some Fib people so maybe you can talk about this a bit, so kind of what your favorites are.

Anne-Marie Baiynd: Sure. For Fibs, here’s something very interesting. If you take a look at the ZB which is a 30-year Treasury Bond Futures, right? You’ll notice that it really pays attention to a 50% Fib which is why I say, “Hey, listen. Focus on a stock. Take a look at it. Understand it because it’s going to have a trading personality based on all the algorithms that are trading that they’re in pockets, right? So the people that trade in the ZB aren’t necessarily trading Google, right?” And so there’s a different kind of temperament associated with that.

That being said, overall, here’s how market formations work. If something is in a trend and it’s in the middle of a pull back, if it pulls back lightly, it will pull back to 38.2 and then begin to move forward again. If that 38.2 level holds and it begins to bounce, you know that the trend that you’re moving in is very strong. The deeper the retracement levels, the weaker the overall trend is, or the more conflicted the traders are in that particular chart.

So you can see that in terms of saying, “All right. Well, I’m in a bit of a conflicted chart. It’s retracing 78.6% every single time, so I’m going to have to be careful about where I put that stop level.” So it’s about paying attention to what’s happening in the formation specifically. So let’s say, we’re looking at Google right now. Google is in a very important space. It broke out over that 618 a few a days and it’s continuing to power forward. It’s using a 61.8 retracement level because it’s doing so well moving forward. That’s the standard, “Okay. I’m going to take a breath to hear and move forward.”

There’s a very specific pattern called the ABCD pattern. A lot of folks use it in Forex, but I find it works tremendously well in the general market and it assumes a 61.8 pullback and then a 1618 projection from the initial wave. And so when we look for that, everything is nice and structured. So if we are fortunate enough to see something pullback to that 61.8, we see it’s in an uptrend. We don’t see anything breaking down underneath. We can project out to that 1618 which I love.

Now, if I’m working with the futures, we have the Globex high and low. And as we move out through the day, here’s something very interesting happens 95% of the time. If we come into the open within two points of the Globex high or the Globex low, we will rapidly accelerate away from it, either in the positive way or the negative way, right? It’s going to move. So watch those moving averages and then watch those Fibs associated with the Globex high/low. If it projects over, like it breaks out of the Globex high, it’s going to come back and retest, more than likely. Sometimes it takes two hours to do that and so you could chase it out. But sometimes, it will do it in 15 minutes and you can bounce right back, it’ll go into the 127.2. If it holds 127.2, it’s going into the 1618. Clockwork, day, day, day, day.

Now, the problem is the retracement levels that we’ve been forced to stomach over the last weeks, they are so long and the weeks are so hard and so heavy that it’s almost like a bunch of stop hunters are out there looking to blow us out which, luckily, I use mental stops so that doesn’t normally get me, until, you know, the mental stop really does kill me because I’m having to chase it out of the trade because it’s just gone crazy in the other direction. But those are the kinds of things that I look for. But in the futures, 127.2, 1618. In the general trending stocks, I’ll look for that 61.8 and 161.8.

Mark Soberman: And I guess that’s why, like you mentioned earlier, it’s really important to get to know a limited set of markets because you’re sort of describing some behaviors that these markets seemed to have fall on a regular basis. And I’m sure that comes through observation and you’re sticking with these certain markets.

Anne-Marie Baiynd: Very true.

Mark Soberman: One thing that I notice you talked about quite a bit and probably some of it has to do with, you know, the ability to sort of, you know, create some structure in the markets, maybe with the Fibonacci, is you do a lot of scaling in and scaling out. I think you mentioned that you don’t typically go in with, you know, full margin when you’re initially, you know, establishing a position and you seem to actually even try to sort of sell into some strength on a buy and then re-buy it on a pullback. So, I mean, is that still the philosophy you follow? And would you say you’re a scale in, scale out, scale in, scale out type trader?

Anne-Marie Baiynd: Absolutely, I am. Absolutely, I am. Here’s the reason. My goal — because I learned how to lose a lot of money, my goal is, “Hey, listen. First and foremost, how can you minimize your risk and maximize your profit?” And again, that’s all around framing the trade, getting your Fibs in the right space and so on and so forth. But for me, depending on how many conflicting signals I might have sitting around or how much overhead resistance is sitting, I will say, “Okay, I’m going to go half size or I’m going to go quarter size.” When it gets into a particular space, if I’ve gone half size and it starts looking a little weak, I’ll go back down to quarter size, clean profit off the top. Right there, my money is out of the market and I’m sitting in that one space. If it fails and it comes into support, I’m out flat instead of down, for the most part. If it bounces, what I’ve done is give up an opportunity cost of having twice the size because, as my original position, which was initially half size, I gave up a little bit of that, but now that it’s holding steady, I can add back to the position. And once it gets into a formation event where I see the crest, I go, “Okay, I’m going to get out. It’s time to pull back.” And then I’m going to wait for that floor.

Now Google, typical example this morning. I’m doing a premarket report. I go listen. Google is going to run today. It’s going to run and so what we have to do is realize that it’s going to go up easily into that 634 level. And what we want to see is we want to see it come back into maybe the 15-minute low or yesterday’s high. Fill a little of that gap and then we’ll go in. Well, I had to reboot my system. I came in three candlesticks later. It’s already blown out to my end target, 635. And so I look at 636 and I go, “All right. You’re just going to have to sit and wait on this one because it’s going to come back and it’s going to come back to test that 50 on the five because stocks do that.” It was way too extended. So I sat there for two hours, literally, almost two hours — maybe an hour and 40 minutes — before it came into the 50 on the five and I said, “All right. I’m going in,” and took it to the 632 level because I was getting ready to come in here. What I’ve left part of it on, as I see it coming to 634, that’s what I want to see. And if it holds that level, it’s going to go, you know, back up to 636 and then continue moving forward, so, yeah.

Mark Soberman: Yeah. I think, you know, in the NetPicks world, we call them in our systems, you know, add-on trades. We have reentry trades and we have something called “Get BoB” trades which is basically just Get Back on Board and so definitely big believers in that as well. It’s almost like you’re asking the market to prove itself before you’re, you know, kind of willing to go in full bore. But at the same time, like you mentioned, I think you also talked a little bit about trailing stops and how you’re not a huge fan. I think I read that, right…

Anne-Marie Baiynd: Yes, not a big fan.

Mark Soberman: …of trailing stops, more of a scale in, scale out. I guess what’s the — what did trailing stops ever do to offend you?

Anne-Marie Baiynd: Well, here’s the thing about the trailing stop. Not long ago — long ago — a couple of years back, maybe 2009, 2010, the trailing stop wasn’t that bad, but we live in an environment where the market is so volatile that if you’ve got a trailing stop, you’re sure to get blown out of your trade. Trailing stops are arbitrary, and real stops that work are based on significant lines of support and resistance. So if you want to use something arbitrary to make your trades, then you’re actually saying, “No, sure. I am all for arbitrary results.” But if you are not for arbitrary results, then you don’t need to use something arbitrary like a trailing stop. Use a stop that makes sense. So many folks use stops to go, “Well, you know, 75 cents, that’s it.” Well, does that actually make sense? What’s the low of the candlestick that broke the level, which is what I always say, “Hey, listen, you broke a level, look at the low of the candlestick that created the break. Look at the low of the wave that created the move. How strong is it? Where is it? Your stop needs to be above it or below it.”

You can’t have something arbitrary like trailing stops. And now, we choose arbitrary trailing stops because we don’t understand the nature of our stock maybe or it’s just plain easier. And easier never really points to better results. It’s something harder in terms of analysis and using all the informations being presented to you is really always going to reap the greater reward.

Mark Soberman: Yeah. I would — I think we totally agree with that because we always teach, you know, using dynamic stops, dynamic targets. I haven’t really ever met somebody who uses, you know, stubborn targets and stubborn stops is ever successful, you know, in the long run. If you say, “always on my TF trades, I’m going to go for two points target, you know, one and half points risk,” it could work for a while, but it never holds up, you know.

Anne-Marie Baiynd: No, it never does. It never does. It’s — actually, that is just terrible. I hear people saying, “not all the time.” I really have to go, “Okay. How’s that worked for you?” Because it really doesn’t. It does not prove itself out to work.


Mark Soberman: All right. So that was very informative. I really enjoyed that interview. I hope you guys got a lot out of it. We got a lot of feedback when we did that. You know, some people were talking about how — I remember a couple that we got like, “Geez, I could, you know, sit there and just learn and listen form her all day.” So I hope you got something out of it. I would really recommend you listen to the entire interview. It’s well worth it and consider looking to that book as well, just, you know, hop on Amazon.com, “The Trading Book: A Complete Solution to Mastering Technical Systems and Trading Psychology.”

And, yes, I’m reading that. I have not memorized that. So, Brian, we’re at the end of the podcast. But before we go, we’ve got a couple of quick things. We always like to answer a question or two from some of our loyal listeners and we’ve got one today from Rafael J. And it was a really long-winded question. He went on and on and on. And the question was, “Forex or futures?” So — and it’s a great question. It’s very difficult maybe to easily answer this. But I’m going to tell people, I think — look, if you have less than $5,000, you’re going to be a Forex trader. That’s where you need to be. And you can learn all kinds of great technical trading skills in the Forex markets, and they will carry over into futures and vice versa. So there’s nothing at all against moving from one to the other or even doing both. So I always tell people, “Look, the money is going to sort of dictate a little

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