You don’t need a special gift or a secret to become a successful trader. You need hard work, passion and intelligence to come up with the right ideas and a plan to learn trading.

Trading is not magic, it’s only about following rules. I personally think that it’s not difficult to come up with a trading system which makes money over time. But it’s very hard to not destroy the inherent edge by yourself. If you cannot execute the trading system well, you will not be able to make money.

I personally differentiate 3 levels of edges in trading:

1. Basic edge like trend following with risk management: You buy a stock, apply position sizing and risk management and follow the trend until it turns around. That’s an edge because over a long series of trades, your winners will be much bigger than your losers and you make money. The edge is very small, but still ok.

2. Stock selection edge: You can add another edge on the basic edge like selecting the best growth and momentum stocks. You can see that growth stocks can outperform other stocks strongly in a bull market. With tested stock selection criteria, you can increase your basic edge.

3. Timing edge: If you have rules to select the best market environment and improve your entries and exits, you can increase your edge further.

Maybe there are other levels of edges. Now you ask yourself about: What’s about personal edges like discipline? I don’t think that this is an edge. If you are not disciplined you cannot realize all other edges. It’s maybe an advantage in comparison to other traders, but it’s not an mathematically edge.

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You can pause the video and set up your own screeners to look at the same stocks I look. But please make sure you are doing an in-depth analysis of every stock. A stock screener is not (!) a trading signal or trading system.

If the video is not loaded, use this link: https://youtu.be/NlEZ2uBqVLY

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• Close a half position if the stock falls back below the breakout level.
• Sell a half position if the price drops below your entry price.
• Close your position after the prices goes sideways directly after the breakout for more than 10 days.
• Sell a half position if the relative strength is going down or sideways although the price is going up!
• Close your position if important support levels are broken or it closed below the EMA 21 or EMA 65.

These are just examples, but they help you to remove emotions from trading.

I have a clear goal: I want a small average loss over all my trades. The smaller the average loss is, the larger my profit. If you sum up all your losses and divide that by the number of losing trades, you calculated your average loss. That should be much smaller than your average profit.

The opposite to holding losing trading positions is holding your winning positions. The larger the gains, the more you are tempted to take profits. But this is not the right strategy! You must have small losses and really big winners. That means: Letting your profits run!

My rule is: As long as the stock behaves right, does what I expected and no sell rule if fulfilled, I don’t touch it! If the stock reached new all-time highs, pulls back to natural reaction levels and shows high relative strength, I leave it alone. If the stock starts to show weakness, I am watching the price behavior closer. The more weakness a stock shows, the faster I sell it. Here is the link between selling weak and holding strong stocks.

To do this you need a different mindset and that will not appear over night. It takes many years to develop. You have to work on your mindset every day until it changed and became a natural behavior. Set up rules, backtest them to build up confidence and follow them with discipline. That help you to cutting your losses short and letting your profits run.

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7 things I am monitoring actively

1. I do my analysis of stocks and the general stock market everyday. I go trough my watchlists and ask myself: Are the stocks I am monitoring strong? Do they lead the market? If yes, it’s a good sign that my stock selection process is working.
2. How many stocks do I have on my watchlist? Am I adding new stocks to my watchlist everyday or every week? If I add a few stocks every week to my watchlists, it’s a good sign because the chances increases to catch a good winner.
3. How do the leading large cap stocks look like? Are they close to all-time highs or are they broken down without any recovery? If all charts look like a catastrophe it shows me that nobody is buying glamour, large cap stocks (like $AMZN, $AAPL, $NFLX etc.).
4. Do the indices show a bottoming pattern? If yes, it’s a good sign. Especially if the updays show higher volume.
5. Are the indices in a long-term uptrend? You can have a look at the weekly and monthly chart. If you have a solid uptrend, the odds are higher for a continuation instead of a reversal. Maybe a correction is just a small pause in a long-term bull market.
6. I monitor the % of stocks above the 50 MA and 200 MA. They gave me clues about the broad trend of the markets. In a strong bull market, everything is above the 50 MA and 200 MA.
7. Are the indices in synch with each other? You always want to see a broad market trend. That means small and mid caps should lead. Use the Russell 2000 for an analysis. This index should be in synch with the large cap indices like Nasdaq and S&P 500.

Make sure you look from different angles at the market. But most important for me is my own watchlist and my stock screener. If everything on my list looks good, the chances are high that I can make money. That’s my niche and I try to know my niche as best as nobody else.

Buy small test positions first

Don’t jump back into the market with both feet! Always buy small test positions and increase them if they show a profit:

• If you normally buy 10% positions, buy 5%.
• After they show a profit and moved up a few percent (f.e. 3%), add another 5%. Now you have the full position.

Of course you pay a higher average price, but see it from the risk side: If the market is ripe, you will save a lot of money because your losers are smaller. Often it takes multiple attempts to get back into the market and reducing losses is the key. Lose small!

Don’t underestimate the psychological side

As I wrote above, sometimes it takes multiple attempts to get back into the market. If you have 5 losses in a row it will have an impact on your confidence. The smaller the losses you have to bear, the less the damage of your confidence as a trader. Losing 0,5% of your capital is better than 1% or more.

Do everything to secure your “mental capital”. It’s much more important as your monetary capital. If the odds are increasing to make money, you must be able to pull the trigger again. In that situation your mindset must be in a good shape.

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First understand the chance-risk-ratio concept …

To identify low risk entry points you first have to understand the chance-risk-ratio. The concept is simple:

Possible profit / planned loss = chance-risk-ratio.

The possible profit is the money you will win if your trade works as expected. To get this number, you must subtract the target from your entry price. Example: $70 target – 50$ entry price = $20 profit.

The planned loss is the amount of money you are risking. It’s the difference between your entry price and stop loss. Example: $50 entry price – $45 stop loss = $5 planned loss or risk.

Now you have all you need. Here is your chance-risk-ratio:

$20 profit / $5 planned loss = 4.

If your trade reached the target, the return will be 4 times of your initial risk. That’s a good chance-risk-ratio.

Why is the chance-risk-ratio important?

You should only risk money if it’s attractive. Don’t place bets where you only get a small return. Of course it depends on the hit-rate but you want to calculate for the worst case.

If your hit-rate decreases, you need a higher chance-risk-ratio. Because it’s very difficult to maintain a high hit-rate over time, you want to consider this. Try to reach higher chance-risk-ration instead of having a high hit-rate. Then you have build-in a buffer for failure.

What’s a good chance-risk-ratio?

That depends on you and your trading style. If you are a long-term trader, you often have a higher average chance-risk-ratio. If you are a short-term trader, you mostly have a lower average chance-risk-ratio and a higher hit-rate.

The same is true for trading styles. Trend followers often have a high chance-risk-ratio because they are following a trade for a longer time. A swing trader often has a lower chance-risk-ratio because he works with targets.

I personally don’t work with targets. Instead I apply a more trend following style. If a trade will return 3-5 times my initial risk, it’s a good trade. My best trades will return 10-20 times my initial risk.

Paul Tudor Jones famously said, that he will at least aim for a 5 times chance-risk-ratio.

What’s low risk entry point?

It’s simple: The smaller your planned loss or initial risk, the lower is the risk at the entry point.

Don’t think that a trade with a low risk entry point has a smaller risk to fail. That’s nonsense. In the short term every trade has the same odds: 50%. It can be a winner or loser. Only over a large number of trades you will generate a hit-rate and edge.

Focus on trades where you can place a stop loss very close to the entry point. That’s only possible if you select an entry where you see quickly if your trade works or not.

3 examples of different entry points

How to select a valid stop loss level?

I could write a whole own blog post about selecting stop loss levels. But remember: A stop loss level should be your insurance. It should show you clearly that the trade is not working and you have to exit immediately.

I personally only select trades where my stop loss level is less than 7% away. Often I exit a trade or sell a portion of my position at a drop of less than 5%.

If I select a good entry at the right time, the price will never come back to my entry price. Therefore something must be wrong if a stock drops 5-7% after my entry. I give enough room for daily fluctuations but not for corrections!

A simple and clear entry signal and a technical level close to the entry price are important. I mostly use simple chat patterns like flags, triangles or multiple tested resistance lines. For a stop loss I used the last low or a moving average like 10 or 20. That’s it.

If a trade is not working, you can’t do anything. Get out and try it again at a later point. The more important thing is that you have a close stop loss. If the trade is working instead, you have a great chance-risk-ratio.

A low risk entry point needs discipline

If you select a value for your maximum stop loss level, you created a rule. Every rule needs discipline to apply it. If you don’t do that, the rules is worthless.

I personally stick to my rules. I never open a position where the stop loss level is more than 7-10% away. 10% is the maximum I only allow for very volatile stocks. If a stop loss is more than 10% away I skip the trade and wait for a better entry.

A low risk entry will not help you if you don’t have sound rules to select great stocks. You need rules to select potential winners which will generate a good chance-risk-ratio. If you created you rules for a maximum stop loss level, you can start to optimize your selection criteria for stocks. That will increase you hit rate over time.

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To be a successful trader means to find an approach with mirrors your own identity. That’s very hard, because the most traders start their career when they are young. Often they have not the needed self-awareness and are in the middle of the journey to find out more about themselves. How do you want to know what suits you at that point in time?

What’s my personality?

It all begins with some basic assumptions. Look into yourself and ask yourself:

• Do I have fun with analytics?
• Am I a solver of abstract problems and challenges?
• Do I like programming software or mathematical algorithms?
• Am I an artist and do I like music, arts or graphic design?
• Is economics and economic relations one of my favorite topics?

This is very basic, but a point to start with. You must find something which suits you and where you already have some experience with. From biologic point of view: Where did you already build paths in your brain?

In that situation books about success and self-improvement can help. They often contain methods to find your personal strengths.

If you don’t work on that topic, you will never become a successful trader because you will never find an approach which suits you.

Forget predefined trading methods

I am very sure that the most traders will fail if they use trading systems from other people. They don’t mirror your personality and that’s the point where you start to sabotage it.

It doesn’t matter if you use an automatic trading system or a discretionary trading approach. If you can’t accept the outcome and decisions you will start to sabotage it. That’s why it’s so important to find a compatible approach.

You must start the journey of finding your own approach. In that journey trading approaches of other people can be an inspiration. Sometimes they match your personality to a high degree and you only have to adjust just a small parameter. In other cases you have to develop a complete trading system by yourself to accept it completely.

There is no shortcut

Finding you own trading style is a difficult thing and there is no shortcut. Often it means to get familiar with yourself and your identify.

Mistakes are unavoidable on that path. But every frustration and mistake will bring you closer to your goal. It is important to reflect your mistakes and your actions to learn from them. And be sure: Your journey is never finished because your personality will change over time. I am sure that you will be a different trader in 10, 20 or 30 years.

There are some sources which helps a lot:

• Books and videos about success, psychology, motivation etc.
• Biographies of other people.
• Spiritual books, videos and courses.
• A good mentor or coach which helps you.

In a nutshell: Use everything which helps you to know more about yourself!

My personal experiences

If I look back I can’t say exactly where I started as a trader. My interest in trading got stronger over time until it started to be my passion.

At the beginning I struggled a lot and tried every approach and every trading instrument. One month I was a pure technical and the other I was a fundamental technical trader. The next months I traded stocks, the other I traded certificates (popular in Germany). I tried different subscriptions of German trader platforms and newsletter …

But when I look back, certain things always accompany my trading career:

• Cutting losses with a stop-loss order always made sense to me. Maybe that based on my thinking about a businesses. You must make bets, but the bets must be small enough not to lose everything you own.
• Trading stocks. Although I traded every trading instrument on earth, I tended always to trade stocks. I like to understand what the company is doing and I have a strong attraction to technology and innovation. I have a lot of knowledge in this field and can assess how important a special technology is.
• Technical analysis. I am a very visual person because I started in the graphic design business. That means I have a trained eye and can quickly find patterns inside a chaotic image. I also like music very much. That makes me familiar with patterns and rhythms.
• Rule based discretionary trading. Although I make some analysis, this is not my strength. I believe in experience, craft and rules. Rules helps me to improve my work and experience helps me to find rules. I can develop simple own screener and indicators, but I can’t develop automatic trading systems. That’s why I always used a rule based discretionary approach. I tried some more systematic approaches in the past but I can’t stick to them. It doesn’t feel right and was not compatible with me.

I never would say that I am at the end of the journey. I always have fields where I struggle with. In the last months I tried to find out how important fundamentals are in my approach. Today I can say: Not so much. But I am very sure that there will be some challenges in the future. As long as my personality growths and changes I will be in the journey to find my own trading style.

Recommended books

Here is a small list of recommended trading books about this topic.

[amazon box=”007174908X,1118273052,0062315005″]

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What’s a trading mistake?

A famous trader said that everything is a mistake until you follow your rules. Sounds simple, but it isn’t easy.

A losing trade is not automatically a mistake. Only if you broke your rules and the trade is a loser, it is a mistake. But winning trades can be a mistake, too. In that situation you only had luck.

In short: Trading mistakes are based on not following your trading rules. Besides that there are mistakes in order execution or technical mistakes. For example you can make a mistake while entering an order. But in that situation your process or routine is not good enough, because normally you should double check your orders.

Why reducing trading mistakes?

Mistake mostly cost money! It’s unimportant if it’s a losing trade or an execution error. If you reduce your mistakes, you will save money and improve your trading statistics.

In addition you will strength your mindset and improve your psychological situation. You gain self-esteem and you can rely on yourself.

10 tips to reduce trading mistakes

Here are a few tips how to reduce trading mistakes. They will help you to improve as a trader financially and psychologically.

1. Make mistakes transparent: Collect every trade in your trading journal and diary. Analyse them afterwards and find improvements.
2. Create a ruleset matching your personality: A lot of mistakes occur because the trading rules are not compatible with the trader. You have to change this! The rules must use your strengths and not your weaknesses.
3. Build and improve processes: Everything you do as a trader should be based on processes. Only if you have a defined process, you can repeat it again and again. Over time you must improve that processes with learnings and new information.
4. Use automation: You can automate a lot in trading, f.e. scanning for stocks, alarms or entering orders. This helps you to reduce mistakes.
5. Work on your mindset: A lot of mistakes are based on wrong imaginations or values. In example: If you think that a trader has to be in action all the time, you will force trades. Instead you could have a different picture of a trader as a focused and calm person.
6. Checklists: A checklist can help you to stick to your rules. It’s simple and very effective.
7. Use statistics to find mistakes: If you collected hundreds of trades in your journal, you can use this data to find mistakes. Often mistakes have something in common. Analyse your journal and find the commonalities of your mistakes regularly.
8. Score trades afterwards: If a trade is closed you should not only put it in your trading journal. Review the trade and score it: Was it a good trade? Was there a mistake? Were all rules fulfilled? Would you make this trade exactly again?
9. Review your trading journal with a second person: This helped me a lot! I sent my trading journal to a previous mentor and he reviewed my trades for me. He found a lot of things to improve and commonalities of bad trades.
10. Quality instead of quantity: Work on your quality everyday! If you improve your quality, it’s only a question of scaling to make a lot of money. Reduce bad trades, select the right time to trade and select only the best trading candidates. Then increase position size and use your edge.

Recommended books

Here is a small list of recommended trading books about this topic.

[amazon box=”007174908X,1118936817,0996307931″]

Der Beitrag How to Reduce Trading Mistakes: 10 Tips erschien zuerst auf Trading Blog - Julian Komar.

Huge profits don’t emerge from huge risk, they emerge from uncertainty. Millions of analysts analyze large and known companies like AT&T, Walmart or Apple. Of course those companies can grow and accelerate its growth, but often they will not disrupt markets (again). Because of this the potential is limited and the most CEOs try to smooth their stock prices to don’t scare investors.

What is a high potential or disruptive stock?

For me high potential means a potential for future surprises. A high potential company is mostly active in a sector with huge growth or a potentially bright future. There must be room for uncertainty that is filled by imaginations of investors and traders.

Disruptive can be high potential, but there is much more uncertainty. A disruptive company creates new markets, products or completely change them.

Most of those companies do not have any profits or a clear bright future. There are only imaginations by investors which drives the stock prices. It can be a startup which goes bankrupt the next day because their product failed or a company where a new drug is not approved.

High potential or disruptive sectors

If you want to find sectors with high potential you have to ask yourself: How will the world looks like in 3, 5 or 10 years? What are sectors which creates products which everyone will use future? Here are some examples:

• Medical: The developed countries have a demographic problem. This will help medical companies to create profits in future. In addition there will be new products, services and processes. The costs are exploding and new companies will help them to reduce.
• Internet: Common services will be replaced against internet based services. This touches every sector: Food, jobs, medical, banking and much more.
• Technology: You will find semiconductors in every product in future and every product is connected to each other. The Internet of Things will revolutionize every sector.
• Security: In the lasts years we saw a huge change of war tactics by terrorism. New companies and technologies will deliver the answer to this and help us to make the world more secure.

Examples of disruptive industries

The upper sectors are the most interesting for potential future growth. Inside these sectors we will find disruptive companies and industries:

• Biotech: This is one industry with a huge potential. Imagine what will happen if a company finds a cure for cancer or a therapy to extend peoples life.
• Medical cannabis: More and more companies created medicine with Cannabis. This is a complete new sector and helps to reduce costly normal cures.
• Machine learning and Artificial Intelligence: A lot of people know these buzz words. But this industry is currently at the starting point of a long journey. Machine learning will help us to create medicine, make our life more secure and creates new industries. Everyone can use such algorithms but it’s more important what a company does with it.
• Weapon detection: It’s the goal of our governments to make our life more secure. But you can’t control every pople at the metro or airport. A solution can be found in software and machine learning. Such a solution is fast and do not need a lot of security staff. You will see an example below.
• Blockchain: We don’t know if this technology will revolutionize industries or sectors. But there is a possibility that it will have a huge influence on the world trade and other markets. One thing I can say for sure: Known companies will not be the leader in this industry.
• Aerospace: Think about Space X and their mission. The space will be discovered one day and there will be companies which will develop revolutionary technologies for this. We need new rockets and space shuttles.

These are just a few new disruptive industries as examples. There are much more and sometimes they are hard to find.

Technicals are more important than fundamentals

If you analyze only fundamentals you will miss such companies. Mostly they do not have any earnings or sometimes they do not have sales. Because of this there is a high risk in such stocks. But if you look at the technicals of such companies you can find a next new leader.

A disruptive stock which explodes to the upside is telling the story: Capital is flowing into the stock and investors begin to believe the story behind the stock. That’s everything you need to know. You are not interested in the company itself, you are only interested in price moves.

Often a disruptive company surprises with news. Maybe a new technology finds first customers or is approved by an agency. Sometimes the whole company is bought by another one. Such news with drive the stock price higher and bringt a great profit.

Manage risk strictly

Companies which do not have earnings or sales are only driven by believes of investors. There is a huge risk that such a company will go bankrupt overnight or publish bad news. Because of this you have to manage risk more strictly than normal. Here are some tips:

• Be prepared for a 50% overnight gap. Example: If a biotech stock opens with a 50% gap and you have a 25% position, your loss is 12,5% of your whole capital. Make sure you limit your position size to 5-7,5% for biotech stocks.
• Never trade against the trend. If a disruptive stock is in a down trend, never trade them. That stock is not in focus of investors and traders. Only trade them in uptrends.
• Be prepared for higher volatility. Small caps and disruptive stocks can be more volatile. Make sure you don’t get stopped out with a 10% move against your position.
• Do not get crazy with disruptive stocks. If your disruptive stock shows a large profit you are maybe tempted to go all in. But that’s risky. Although you have a huge profit cushion there is a danger of bankruptcy or bad news. Limit your position size to 25-35% at maximum!

5 examples of disruptive stocks

Now you read a lot about what’s high potential or disruptive. The companies below creates disruptive product and you maybe never heard about them. But remember: A disruptive company means not that the stock chart looks great! Often it’s the opposite. But you want to monitor such stocks and one day the news is out and the stock is in focus. Then you are prepared to wait for a great setup!

$CRSP – CRISPR Therapeutics

Some of you maybe know this stock. It’s a biotech company which develops a revolutionary cure for cancer. The stock chart looks not bad and maybe a decent setup will appear soon.

$VUZI – VUZIX Corp

This company develops smart glasses. Think about what smart glasses can change in future: Maintaining machines, additional information in your daily life, entertainment … The stock charts looks really bad. But maybe one day a news is published and the stock explodes.

$SSTI – Shotspotter / $PTOTF – Patriot One Technology

Both companies are focused on new ways to detect weapons and shootings. The goal is to make our life more secure and they use machine learning to do this.

Shotspotter is focused on detecting shootings at universities and public areas. This is a technology every city and university is interested in! Maybe a story for high growth.

Patriot One is focused on detecting weapons and bombs. It uses software with machine learning and some hardware to do this. Imagine that every airport and metro station uses this technology. The stock charts looks not so good at the moment.

$WATT – Energous Corp.

Everyone knows wireless charging, but this company created a technology for real wireless charging. Go on their website and look at the videos! Every device is linked to each other and they are creating a huge network to charge their batteries. Imagine if you are taking the bus and your smartphone battery is loading automatically.

$WNDW – Solarwindow Technology

Solar technology is nothing new. But real solar windows are interesting and disruptive. The company is founded to develop this technology. The first customers are constructors of skyscrapers. They can use solar windows for the whole frontage of the building. But the stock chart looks really volatile.

I have some other companies for you: $IIPR, $TWMJF, $LUNA and $RKDA. Try to find out more about the companies and their stock charts.

Recommended books

Here is a small list of recommended trading books about this topic.

[amazon box=”0071469796,0071807225,1614271690″]

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Below you find my top 10 learnings. I collect that wisdom from my mentors, Market Wizards and other traders. They helped me to get better and better as a trader.

1. Chart your own equity curve

This is a recent advice I learned from Olivier Tischendorf. He wrote a great article about that: How To Profit From Charting Your Own Equity Curve.

If you chart your own equity curve day by day you will have a direct feedback of your trading. You know exactly how you perform, when it’s time to be aggressive and when it’s time to step on the break.

More information in my own article: Learn to manage your own equity curve.

2. Sell a trade quickly if it drops below the breakout point

I am convinced that a trade should be a winner directly from the beginning. All my huge winning trades shows that characteristic. If the trade instead is falling back below your entry point you should sell it quickly. Something seems to be wrong.

Such a radical trade management is not an approach for everyone. You must be very disciplined. But the good thing is you can lower your average loser a lot.

Learn more about it: An example in trade management – the breakout stop.

3. Trade only the strong stocks

There was a time in my trading career where I trade stocks which dropped and then started a new trend. You can name such stocks as reversal stock or turnaround stocks. There is nothing wrong with this approach but it’s not mine. I was never good in it.

Instead I learned to select leading stocks which are strong, printing new all-time highs and show strong volume characteristics. It helped me a lot!

4. Focus on a trading niche

Of course there are traders out there which are flexible and can trade any market. But that’s not me! I believe in focusing on a trading niche. That’s the only way you can gain a lot of experience.

I focus mainly on momentum stocks and leave other markets for other traders. Rarely I trade forex, commodities or indices.

5. Day traders, swing trades and scalpers do not make more money as other traders

A long time I believed that fast traders are making more money that slow traders. But always if I looked into a trade record of a day trader or scalper I noted that’s not true! In a lot of cases the long term oriented traders made more money. How is it possible? Simple: 5% a month is 5%. The approach to create 5% is not important.

That does not mean that there are no good day traders out there. It only means that you don’t have to be a day trader to make a lot of money.

6. Excessive risk-takers are mostly bankrupt

I always was blended by social traders which had accounts with profits of 400% or 1000% in a short time. I always asked myself: How did they do that?

One day I saw a social trading account of such a trader. It has a draw down of 90%! That’s pure gambling. Of course there is a possibility to recover from that. But in the most cases they close the account and start a new one.

7. Clean and simple charts are the best

If you believe you have to make complex technical analysis, you are wrong. I found out that the best trades have very simple chart patterns. There is no volatility and huge price swings. Follow Patrick Walker on Twitter and you will learn a lot about “clean and simple”.

8. Do everything to protect your confidence

Today I know how important confidence is as a trader. But there is not a universal truth what confidence means. Maybe for you it’s your rule-set and blindly follow them. For another trader it’s his ability to select good stocks. The only thing which all have in common is that they believe deeply in their principles. And that’s why you have to defend your principles and believes against any threat.

There are times when my equity curve shows high volatility. In such a time I start to close positions. Yes, sometimes they still fulfill all rules and maybe I am cutting potential profits, but my confidence is more important. If you have a deep draw down you don’t only lose money but mental capital, too! Ed Seykota said famously: You have to know when it’s time to break your rules.

9. There is intuition in trading

There is a myth in trading that you should act like a robot. There was a time when I believed this myth, too. But today I look differently on that thing because I read a lot about the brain and intuition.

Intuition developed with experience. The more you learn about a thing the more intuitive you get about it. It’s like driving a car or cooking. You know exactly what to do without thinking about it deeply. That same experience you can have in trading, too. If you look at hundreds of chats a week, you intuitive know which one looks good and bad.

10. Working on yourself is the best method to mastery

As I started to read books about motivation, psychology, self-development, philosophy and time management I not only got better in my job, I got better as a trader, too. The basing principles of success are the same in any job. You doing outside of your job influences your job.

I absolutely recommend not to read only trading books. Start to read books about self-development and -management, too. You will find a lot of inspiration and you can transfer a lot of methods into your trading world.

Recommended books

Here is a small list of recommended trading books about this topic.

[amazon box=”0735201447,1848549253,014312417X,0062315005″]

Der Beitrag The 10 Best Trading Tips I learned from other Traders erschien zuerst auf Trading Blog - Julian Komar.

I always try to combine 2 dimensions:

1. Technical strength and chart pattern.
2. Potential to surprise and create high demand.

Baozun – High potential China eCommerce stock

I never analyze fundamentals or try to interpret them. The reason: I believe that the fundamentals are always late and the price will move before. But I want to make sure that a stock has potential to surprise and attract money.

Baozun belongs to the China eCommerce sector. It’s a young company and the stock has only 2,5 years trading history. That’s good because the best price moves happens in the first few years of the stock. The reason is simple: The company is unknown and if it’s an attractive company, a lot of potential buyers are willing to buy. In addition a company will make an IPO if the fundamentals and growth are extraordinary good. So young stocks are always better than old stocks, where every detail is known and the company cannot surprise the market.

China is a huge growth market. It doesn’t matter how fast China growths. It’s only important that investors are interested in China stocks and see a bright future. That leads to increasing prices for stocks of that sector.

In addition Baozun is in the eCommerce sector. That is an additionally plus because this sector is growing fast and will revolutionize the traditional old retail sector. A company like Baozun can profit from that and maybe can grow faster than any other company. There is a huge potential for surprises.

You can see that Baozun has high potential: Growth from China, growth from internet sector. In addition the EPS growth is very high, also sales are increasing. The IBD rating for that stock is good.

Technical strength and potential

Now we come to the more important part in my opinion. A young stock with a high potential should trade on new all-time highs. Of course Baozun is doing that. Every new high is a new all-time high and there is no overhead resistance.

The stock rose 1200% from the low in August 2015 until today. Is this too high? No! Stocks with such a growth rate can reach much higher prices. Of course the P/E ratio with around 90 seems to be high, but the forward P/E ratio only reaches 26! I don’t work with P/E ratio, but you can see that there is a lot of potential to the upside as long as the company growths. Always have in mind that a stock can rise much, much higher if there is a high demand and a strong trend.

The trading volume of Baozun increases in May 2017. That shows that institutional money is flowing into the stock and the liquidity increased. Higher liquidity, a strong trend and good fundamentals means that more and more institutional traders will have that stock on their list.

I am not a big fan of price goals. I never use them. But I cannot see any reason why this stock should not go higher and trade at $100 or more.

The Baozun weekly chart

In the weekly chart you can see that this stock has not a long trading history. That’s good! Young and fresh stocks with less than 10 years trading history produces the strongest trends. You can see that if you go back in time in stocks like Apple, Amazon etc.

You can also see that the stock is trading at all-time high prices. That’s good, too! There is no one you needs to sell to close a past trading position at break-even. And there are no history prices which can be used as orientation marks for trader.

Look at the volume. It’s increasing which shows a higher interests in the stock. There are two big shakeouts which throw out all weak hands and leave room for new traders. In addition the volume is higher on strong weeks and lower in consolidation. That’s exactly what you want to see: Strong buyers and weak sellers.

Daily chart of Baozun

The daily chart shows perfectly the consolidation between September 2017 and February 2018. The trading volume dries up in that time which shows me that not a lot of stock holders are willing to sell. This is a good signs because the strong hands will hold their positions.

With the earnings in February 2018 the stock exploded and gapped up to a new all-time high. This is a very good sign. There is a lot of demand behind it! The buying continues the whole day and you can see the terrific trading volume at that day: 10 times the average 50 day volume!

Now the stock consolidates calmly and prepares the next move. When it’s time to enter? I don’t know, but you will see it if a new all-time high is printed with higher volume.

Of course don’t ignore other scenarios. The stock can gap down on bad news and destroy the whole chart situation. That’s why I only act if I see a strong breakout and new buying pressure.

Recommended books

Here is a small list of recommended trading books about this topic.

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Der Beitrag Baozun ($BZUN) chart analysis – China eCommerce stock erschien zuerst auf Trading Blog - Julian Komar.