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Basic Trading 101

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Basic Trading 101

Courtesy of Allan

For me, trading is not a hobby, not a game of chance not some intellectual odyssey filled with clashing egos and chest pounding pissing contests. No, for me, trading is a way to make a living, doing something I love and am good at. So my approach is a little different then some of you may be used to.

Yet every so often a communication from one you impacts me with frustration and dismay. By now I would think that if you have been with me for six months, or a year, or longer, you would be making money trading, using some ideas and techniques that I have described over the months and years of writing AllAllan. But I hear something else from these communications, I hear that many of you are not getting it.

Today I am going to present to you three ways to trade using the simplest of strategies based on end of day prices and a minimal of necessary hardware or software. I am going to use an unleveraged ETF and remove all of my more sophisticated (read: expensive) tools, using only Market Club Triangles and 3 Line Break Point charts, both very similar in their construction and entirely objective in their application.

You can trade this going forward on XLF and probably not need anything else to be successful month to month, quarter to quarter and year to year. But it is my hope you will instead, glean from this the very basic premise of a simple rule-based system that can be applied and tweaked to any number of tradables, a simple trend following trading system from which anything is possible if you only have the discipline and desire to make it work.
 

XLF – Market Club Triangles -Daily Chart
 

market club charts
Their are actually two systems shown on the chart:

(1) Enter trades on appearance of WEEKLY TRIANGLES and exit on appearance of reversing DAILY TRIANGLES. If flat, RE-ENTER on appearance of DAILY TRIANGLE in direction of most recent WEEKLY TRIANGLE;

(2) ENTER/EXIT on appearance of WEEKLY TRIANGLES (disregard DAILY TRIANGLES).

The third system is based on the 3 Line Point Break chart and nothing else.

Here is the chart:

XLF 3 Line Point Break – Daily
 

trading chart

This strategy is simply to ENTER LONG OR SHORT in concert with 3 Line Point Break Chart. I’ve annotated the four trades, year-to-date, on the above chart.

All of the signals generated on the three trading systems are summarized and analyzed in the table below:

Trade Summary

trading stocks 101

This table lists each trade going back year-to date. The most complicated of the systems, first described above, returned 45.64% (no leverage) in six months. It’s sister system, trading only Weekly Triangles, returned 54.62% in the same six months. Finally, the 3 Line Point Break System, the simplest of the three (come on, all you have to do is look at a chart), returned 55.15% for the period, yes, the simplest technique had the best return.

I am well aware of the shortcomings inherent in such a small sample size, so feel free to spend hours back testing these over the course of decades, if that is what it takes to build some confidence in these matters. This is what the market and the XLF is doing NOW and it is working NOW.

That’s it. Your introduction to successful trading in it’s rawest form. Scoff at it’s simplicity, but if you find anything that works as well and that doesn’t cost and arm and a leg or is knee deep in esoteric bullshit interpretations and/or indicators, bring it on. We’ll make that our advanced course, Basic Trading 102.

 


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  1. Can I borrow some of your magic triangles or do you want some money first?


  2. I assume that a 3 line point break chart is a proprietary chart included in the Market Club membership?  


  3. gohp and sunco -  I think the 3 line point break chart is from an expensive software program for trading, but I’ll ask Allan to answer your questions directly because I’m not sure. Allan’s a career day-trader and has expensive software systems which he uses for intraday trading.  Also, he frequently presents updates on his blog regarding his charts’ indicators for longer term market moves(more than one day). So he won’t post each day trade as the market goes up and down, but when his charts indicate a longer term trend or trend change, he’ll typically post that for free on his blog. – Ilene


  4.  The triangle trades are based on a 3 period breakout system that is embedded in the Market Club java charts and the 3 Line Break charts are found in any kind of decent charting program, including stockcharts.com.  I don’ charge for my observations………although I should.  


  5. Hi Allan, one more question, which is the expensive software program you use?


  6. Blue Wave Trend, about $3K 
    &
    Advanced GET, about $3K