I am more or less writing this post to help sort out some confusion or difficulty I have been having with integrating the various indicators to time an entry.

 

The process has been a little frustrating... maybe that's born out of a state of general perplexity, and with that a feeling of discomfort. If so, I need to deal with that, because as the saying goes, "growth lies outside your comfort zone." 

 

There have been a string of great webinars lately, but I am starting to get a sense that a lot of it is relative. I mean zero disrespect to the wonderful mentors and traders in this community by laying this out there, but a lot of this seems to rely on feel and experience. Tim always says it is not an exact science, and I think I am now starting to appreciate how true that statement is. My hope by getting all of this down on "paper" is to tie the loose ends together or to connect the dots in a more concrete way. To move from a sense of situational relativity to understanding the reality of a situation when it presents itself.

 

So, I want to try to stitch together some of the criterion for finding a play. Obviously the goal is an A+ set up. Chances are these are rare, and you will likely deal with B's or even a C+. But again, there is some issue here as the ability to feel out these plays is based on experience which is based on trades and screen time (building the knowledge account). This is why I see real value in the advice to paper-trade, but struggle with it too because you'll want/need real-time data. Otherwise, your fighting a hindsight bias the whole way. And there's the issue of slippage on execution and the emotions attached to dealing in real money. On the other hand, trading very small size to learn is expensive--tuition comes in terms of commissions paid--$20.00 a round trip kills your gains and punctuates losses. Can be demoralizing, but you have to consider it as a cost of doing business--think of yourself as a venture in start-up mode (new businesses are rarely profitable right out of the gate). A lot of this is mindset, and can be overcome, just pick a direction and start moving.

 

<= Small cap. This essentially could mean anything under a billion(?) in market cap. Focus on shares outstanding as market cap is price x shares outstanding. However! shares outstanding is not so simple, but I guess if a ticker ticks the right boxes you can revisit that. For now proceed to...

 

Price action. % change, daily gainers, whatever you want to call it. Price action needs to be in focus, because it's likely that more eyes will be on a play that does well vs one that does not. Both long and short traders perk up like meerkats, and both see potential opportunity--you should too. Price action needs to be in focus and it needs to coincide with...

 

Catalyst. Some sort of news/event. But the the outlook (good or bad news) is not confirmed until the price action dictates it, but not WITHOUT the volume. So, no anticipating? Unless, based on experience, and intuition, that you've seen x play y times so it's "likely" to do z. Therefore scale in? Consider a size appropriate to risk. How do you quantify risk based off of intuition? Knowing what to play is difficult for me, as a newbie, to integrate because the answer to should I make a trade here registers as definitely sometimes, maybe. Ok, we need more indicators.

 

Volume (as mentioned above). Pretty basic. No buyers, or sellers, no movement--no momentum. This is a bit of a paradox. Volume begets volume, but don't play until there's volume. But, I guess the surfer doesn't consider the gravitational forces between the moon and earth to generate tidal action and waves. The surfer just catches the wave. Don't get tangled in the weeds. BUT! you need to know how to read a wave--maybe this analogy sucks, but I am reaching to tie in a reference to the float. This kicks back to an understanding of shares outstanding--knowing who owns what (from what price levels) and how quickly it could be sold, if at all. The potential selling pressure representing the crest of the price action. Not sure if that registers, but now I want to learn how to surf.

 

[Sidebar] low float is not the same thing as small or microcap. As I have learned today, a low float is something approaching <=15 M of shares available to be publicly traded whereas a "'x'-cap" refers to total shares. It makes sense that a lot of these companies would appear in the small/micro/nano cap space BUT, not all of these companies are low float.

 

Key Levels. knowing the key levels is also one side of calculating risk--unless I have been doing it wrong, ha! Where are the key levels? Where does the chart show signs of support and where does it struggle to break through (resistance). How far is the price off of those levels? They are potential risk points. Where is the reward? Ultimately... who knows. There is no sure thing. And I have really struggled to wrap my head around this because you should aim for 2r or 3r (r being $/share at risk). So, if you risk $0.10, ideally your reward level is $0.20-0.30.share. How can you be sure of that? You can't. But you can be reasonably sure that the price won't move against you if you can get your thesis right on price action with volume confirming the catalyst and enter the trade near key level that has proved itself as a move is taking place.

 

[Sidebar] But, don't wait too long to enter, because if you play in traffic you will get run over. It's easier to jump on a moving train as it's starting to move, not as it's reaching full speed. Which loops us back into...

 

Price action. Maybe tape is more appropriate? What I am talking about is looking at the level 2, the time and sales, and occasionally other market sentiment indicators (such as indexes, averages, the president's twitter feed *face palm*, etc.). The chart is usually a visual representation of this type of information, but does not always give the big picture in real-time. Depth of market can help confirm the location of a key area on the chart as support or resistance by displaying buy/sell orders at or near the key level(s).

 

Pattern. Price action can also take the form of a pattern. Chart reading reflects sentiment and captures price action so it may be presented in a visual format. An understanding of technical analysis helps with identification of some patterns. Whether it's Tim's 7 patterns, Croock's gun chart, a type of candlestick pattern (which I will lump FRD and FGD into), a Wolf/Huddie reverse-split, or a Grittani-eque OEGD, all of these can be identified as patterns on a chart.

 

How important is each indicator? How do you quantify each one to come up with an end score or grade? How reliable is that going to be? Again, experience. Tim has cut this short with the SSR system. Hard to keep top of mind as your going through the process. The window of opportunity on some of these plays from set-up to chase is . <--- that narrow, so by the time you [me], as a newbie, has gone through the process the trade is missed. But, throwback to the growth line from earlier. Persistence builds experience which builds intuition, and refines processes. Pick a direction and keep moving. As Tim says, "it's not a sprint it's a marathon."

 

My next direction is back to trader checklist and how to make millions dvd to review the indicators and continue to refine what's mentioned above.