10-Year Treasury Yield, 30-minute Chart

Once you get the basic technical trading principles down, you can trade anything that is liquid and active. Here’s the Yield Chart for the 10-Year Treasury Notes. (You can trade options on US Treasury securities at the CBOE.)

So let’s go through the steps that I’ve hammered home in 90+ lessons on Stock Trading for Dummies.

1) Is the Yield trending up or down? It’s trending down obviously.

2) Do we want to get short or get long? We want to get short, either by buying puts or selling calls.

3) Where’s a good spot to enter a position while limiting our risk? Beneath the closing price reversal UP bar in the morning at 4.264. If the trade goes bad, we will exit the position at 4.283.

4) If the trade goes in our direction, and yield falls to 4.245, we will tighten up the initial stop loss to reduce our risk.

The wrong way to play it would be to attempt to “pick a bottom,” or fade the market; blindly enter short without waiting for a good spot; getting short without setting a stop, etc. The list of errors goes on and on, but people mainly make those three big mistakes.

Traders who know themselves, who have common sense, who are disciplined, and who have the ability to keep it simple will do just fine. Remember that many people in the market are either uneducated or uninformed. And most of the few who are educated and informed waste their time building “scenarios” and end up defeating themselves by trying to outsmart the market.

Nanogen, 30-minute Chart

Questions:

1) Why would you be paying attention to this stock on Thursday, December 4?

2) Is the trend up or down? Would you be looking to get long or short this stock?

3) Where would you get long/short this stock on Thursday, December 4?

4) Where would you put the initial protective stop?

5) When would you stop trading for the day?

6) Where would you exit the position?

Answers:

1) Because it was unusually active, and very volatile.

2) Up. You’d be looking long.

3) Long at 5.89 on a buy stop above the 10:30 inside bar.

4) Initial Protective Stop: 5.70. (max. 3.23%)

5) Right after you enter the position or lunchtime, whichever comes first.

6) End of day. Could sell half, carry half, or just close it all at once.

The sentiment was positive in the morning so I was looking long. And once again the sellers came out after lunch and drove most longs down into the close.

NGEN gave a nice spot to get in with fairly small risk; 2500 shares was a good size position to put on given my risk tolerance. And just like the previous day, the 11:00 AM bar was an expanded range “blast off” that allowed me to tighten the protective stop quickly.

The stock closed at $6.15 (I sold a bit above there) for a gain of 4.41% from entry, which was pretty darned disappointing considering it had moved nearly 20% above the entry in the morning. Reward to risk was lousy from the initial stop, but decent from the tightened stop.

I thought it was going to be a big day expecting a close around $7, but it didn’t happen and I have to be content with the relatively small gain that I got.

Screen capture of my intraday Watch List:

Nanogen, 30-minute Chart

Questions:

1) Why would you be paying attention to this stock on Wednesday, December 3?

2) Is the trend up or down? Would you be looking to get long or short this stock?

3) Where would you get long/short this stock on Wednesday, December 3?

4) Where would you put the initial protective stop?

5) When would you stop trading for the day?

6) Where would you exit the position?

Answers:

1) Because it was unusually active, and very volatile.

2) Up. You’d be looking long.

3) Long at 5.29 on a buy stop above the 10:30 down bar.

4) Initial Protective Stop: 4.74. (max. 10.4%)

5) Right after you enter the position or lunchtime, whichever comes first.

6) End of day. Could sell half, carry half, or just close it all at once.

Sentiment was once again positive in the morning so I was looking long. And once again there was a huge burst of selling in the afternoon which made it difficult for the longs to stay strong into the close.

NGEN set up nicely but the initial risk was so wide that I only bought 900 shares. As the 11 o’clock up bar formed I moved my stop up to $5.06 to get the risk down to a more reasonable amount, and before leaving at lunchtime I uncharacteristically moved my stop to breakeven.

The stock closed at $5.74 (I sold a nickel above there) for a gain of 8.51% from entry giving a negative reward to risk ratio off the initial stop, which stinks. If I were less hard on myself, I would call it a 2 to 1 reward to risk winner from the tightened stop, but that wouldn’t be terribly honest.

Altair Nanotechnologies, 30-minute Chart

Questions:

1) Why would you be paying attention to this stock on Wednesday, December 3?

2) Is the trend up or down? Would you be looking to get long or short this stock?

3) Where would you get long/short this stock on Wednesday, December 3?

4) Where would you put the initial protective stop?

5) When would you stop trading for the day?

6) Where would you exit the position?

Answers:

1) Because it was unusually active, and very volatile.

2) Up. You’d be looking long.

3) Long at 2.55 on a buy stop above the 10:30 down bar.

4) Initial Protective Stop: 2.40. (max. 5.88%)

5) Right after you enter the position or lunchtime, whichever comes first.

6) Scratched during the noon bar.

ALTI put in a nice hammer reversal at the midpoint and I bought 3000 shares at $2.55 with an initial stop at $2.40. The stock was doing OK until it started to falter in the reversal zone… it didn’t feel right and I scratched out at $2.56. My instincts (also known as luck, lol) were good, since the stock crumbled in the afternoon.

I’ve been trading since 1995 so when I talk about “feel” it’s something that one develops over time. There are people who have been trading for 20+ years (Linda Bradford Raschke is a good example) whose market instincts are so finely tuned that it’s almost uncanny how good their reactions are.

If you’re just starting out trading, you should expect to lose money for several years before you even begin to understand things. Most people don’t have the time, money, energy, or fortitude to make it through of course.

Another reason why so many fail is distilled by that great line from George Goodman (a.k.a. ‘Adam Smith’): “If you don’t know who you are, the stock market is an expensive place to find out.”

Screen capture of my intraday Watch List: