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Month: January 2024

Short Selling

Posted on by Ophira Top

Introduction

Short selling is a fascinating and often misunderstood practice within the stock market that allows traders to make gains from market volatility during both uptrends and downtrends alike. Simply put, short selling consists of speculation that the price of a stock (or any other assets) will go down in the future and selling that stock rather than buying it.

But how do you sell something you don’t own in the first place?

Well, you are about to find out.

In this article, we’ll dive into the concept of short selling while explaining how it works and its importance for the stock market.

Ready?
Let’s do it!

What is Short Selling?

Short selling, (or “shorting”) is a trading strategy that allows investors to profit from the decline in a stock’s price, from an entire market downtrend, and even from a period of economic recession.

In traditional investing, the goal is to identify companies and stocks with a strong potential for growth, buy them, and wait for the price to go up; in other words, “buy low, sell high”. Short selling, however, managed to turn this simple concept on its head creating the opportunity to speculate and make profits on either direction of price movements.

To achieve this, short sellers have gone from buying low and selling high to “selling high and re-buying low”

Yes, I know, it may all sound a bit confusing at first but don’t worry, it really is rather simple.

Let’s try to explain it all a little more clearly

How does short selling work?

When traders predict a decline in a stock’s price and decide to take advantage of it by short-selling that stock, all they’ll have to do, in most cases, is click on the “sell” tab of their broker’s platform. Behind that single click, however, there is a slightly more complex process.

How short selling works

Behind the scenes, the broker lends the trader the chosen amount of shares and then sells them at the trader’s selected price (limit order) or immediately (market order).

Once the sale is made, traders will wait hoping to see price descending to the desired level and, if it does, they will be able to buy back the stock at a lower price than they previously sold it for.

When the short trade is closed – either manually by the trader or by a SL/TP order, the stock is automatically re-bought and paid back to the broker, but, for traders, it is again just a matter of clicking a tab or two.

The difference between the price at which a short seller initially sold the stock and the price at which they bought it back represents the profit (or loss).

Key Notes

  • Short selling allows traders to profit from declining stock prices..
  • The automated process of short selling includes borrowing stocks from the broker, selling them, buying them back, and returning them to the broker.
  • Short sellers aim to sell stock and buy it back cheaper at a later time.
  • The difference between the revenue from the sale of stock and the price paid to buy it back makes the short seller’s profit or loss.

 

Short Selling

Importance of Short Selling

The benefits that the possibility of shorting stock creates are not limited to traders and traders’ profit; short sellers play a crucial role in the stock market for several reasons.

For example:

  • It helps to provide a more accurate reflection of a stock’s true value.
    Short sellers tend to target over-valued companies, leading to a more balanced and accurate market representation.
  • It allows investors to hedge their long positions.
    By shorting stocks, investors can protect their portfolios from potential market downturns.
  • It increases liquidity in the market.
    Short selling provides an additional source of securities available for trade, thereby increasing market efficiency.
  • Short sellers often identify market bubbles before they burst.
    By taking short positions in these stocks, they can help to prevent unsustainable market growth and contribute to a more stable market environment.
  • Short sellers’ research often helps to bring to light fraudulent companies and behaviors in the market.
    This has happened several times in the past with examples such as Enron, Valeant Pharmaceuticals, Wirecard, and Lumber Liquidators, all being discovered and  “taken down” by short sellers.

Key Notes

  • Short selling benefits the market in many ways including increasing liquidity and effective edging.
  • Shorting is often misunderstood and this makes it one of the most controversial financial practices.
  • Short selling could potentially be used for market manipulation and, for this reason, is very tightly regulated.

 

ttp - a prop firm for stock traders

Challenges and Controversies

While, as we just said, short selling can be immensely beneficial for market efficiency, it does come with a good dose of controversy.

Critics argue that short selling contributes to excessive market volatility and, in some cases, may even be used to manipulate the market.

In addition to the fact that there are some ethical concerns about profiting from a company’s bad days (or even total decline), there are other more important concerns regarding the spreading of exaggeratedely negative news and information on certain companies by short sellers trying to ensure or speed up their decline.

Regulatory bodies closely monitor short selling and short sellers to prevent abusive practices and market manipulation.

In some cases, short selling restrictions may be put in place by the authorities to stabilize markets during times of extreme volatility.

All in all, criticisms apart, short selling is a beneficial and essential component of the stock market ecosystem. Short selling has the potential to contribute to both market efficiency and trader’s profit.

Understanding short selling can provide investors with valuable insights into market dynamics and risk management strategies and with twice the chances of gaining from price volatility.

But, as a trader, all you need to know is that by mastering a short selling strategy, you’ll be able to make money when price goes up as well as when it goes down. It’s a double bubble for you!

Hope this helps and wish you all happy trading!

Day Trading Rules Book

Posted on by Ophira Top

Introduction

Statistics show that virtually all successful stock traders have one characteristic in common: discipline.

In stock market terms, discipline is a trader’s ability to establish, follow, and stick to a set of predetermined rules governing methods and timing of his trades, even in situations of stress and emotional turmoil.

By creating their own “Trading Rule Book” – and adhering to it – traders can establish in advance actions and behaviors that will help them navigate the ups and downs of the market with more confidence and without letting emotions get in the way. This is why traders of all kinds should follow a rulebook and why successful traders do.

For day traders, following a rulebook is even more important. They operate in the most dynamic and fast-changing environment and it is easier for them than anyone else to fall into the trap of decisions dictated by stress and emotions – such as extreme greed and extreme fear. Furthermore, day traders’ rulebooks can often also contain rules related to timing and maximum loss-per-day which are not always essential for swing traders and longer-term investors.

In this article, we’ll present you with the three key concepts that will guide you and help you create your very own Day Trading Rules Book.

Key Notes

      • A trading rule book provides traders with clear instruction without emotions involved
      • A trader’s discipline is his ability to follow his rule book
      • Successful traders have good discipline and follow time-tested rules

Create Your Own Day Trading Rules Book Now

Whether you are a new day trader or a more experienced one, having a set of trading rules can be crucial to your success and, in most cases, it can make all the difference.

Some of the rules contained in successful traders’ rule books are dictated by pure common sense (i.e. do not risk your entire account on one single trade) while others originate from each trader’s experience, research, and learning. However, all such rules are effectively an integral part of a trader’s strategy. Without rules, there would be no strategy.

If you want to experience the difference that a good day trading rules book can make to your trading, you can start creating your own based on these 5 key concepts:

    1. Rules on Capital

      Set rules on the maximum amount of your own money you are able and willing to allocate to trading.

      Day trading is an activity full of potential benefits and satisfactions. But it requires capital and – we ought to remember – trading does present some risks.
      The first thing you will have to decide as a trader is how much money you will allocate to your trading account. Unless you are going to be trading for a company – either as an employee or as a prop trader – you are going to have to decide what amount of your own money you are willing to risk.
      Once you have decided what your budget will be, you must make sure you stick to it unless your financial situation changes.

    2. Rules on Risk

      The second vital concept you must consider when setting your trading rules is risk and it includes three different components: “Risk Tolerance”, “Risk Management”, and “Risk/Reward Ratio”.

      Risk Tolerance rules

      Set rules on how much of your trading capital you are going to risk on each trade.
      Your balance is bound to change continually – sometimes very rapidly  – but your risk-per-trade (RPT) should always reflect that. It is for this reason that it is advisable to set your maximum RPT in percentage terms rather than as an amount of money. For example, “I will risk no more than 2% of the account balance on each trade” is a much better rule than “I will risk no more than $100 on each trade”. A hundred dollars lost on a trade from a thousand-dollar account would seem and feel very different from the same loss on a $100K account, don’t you think?

      Not having (and not following) rules on risk tolerance could lead you to put too much money at risk and potentially lose too much on one single trade, or – on the other hand – not taking a large enough exposure and missing out on some potential higher gains.It is up to you to set your RPTat the level you think it’s best. Your trades, your rules.
      It’s a decision you will have to make based on how aggressive or prudent your trading style is and on the confidence you have in your trading strategy. Generally speaking, however, a 2% RPT seems common among stock day traders.

      Once you have decided on your RPT, set the rule, write it on your rulebook, and follow it.
      ttp - a prop firm for stock traders

      Risk Management rules

      Set rules on measures to put in place to ensure your RPT and RPD are not breached.
      Now that you have rules regarding your max RPT, you are going to have to set rules on how to protect it from being ever breached.
      For most traders, this often includes the use of Stop-loss and Trailing Stop-loss orders. However, you must ensure your stop-loss is always set according to your RPT.
      By being executed automatically, Stop-loss orders guarantee that the losses are contained within the RPT without any emotional interference.

      Some traders also like to include “risk-per-day” (RPD) rules in their rulebook.
      If you would also like to set a maximum loss for each trading day relative to your trading balance, you would need to ensure that all the Stop-loss orders on each of your open positions are set in such a way as not to cause a loss larger than your RPD even if breached all at the same time.
      For example, if you set rules for your RPD to be at max 6% and your RPT at 2%, it would mean you would only be allowed to open no more than 3 positions, each with a stop-loss at 2% of your account balance. Alternatively, you could choose, for example, to open 4 positions instead, each with a stop-loss at 1.5% of your balance.

      See more about risk managementon on our “Top Techniques From Top Traders on How to Manage Your Trades Effectively” podcast:

      Risk/Reward Ratio rules

      Set rules on the relation between the risk and the expected reward of each trade.
      Many traders choose to adopt rules that only allow them to enter trades that meet pre-set criteria based on potential risk versus potential gains.
      Traders who set a rule for the risk/reward ratio to be at 2, for example, would start by analyzing the chart of the stock they intend to trade and establish at what level they would intend to place a Take Profit Order (TP) based on their analysis. Then, once SL and TP are highlighted, the trader would check and verify that the potential profits up to the TP are at least twice as large as the potential losses caused by the SL being breached.

    3. Rules on Trading

      Your “Trading Rules” section is at the heart of your rulebook and is its most technical component. It derives from your research, back-test results, learning, and experience, and, ultimately, will be what you call a “trading strategy”.

      It too contains different components: “Opening Positions”, “Closing Positions”, and “Contingencies”.

      Rules on opening positions.

      Set rules on the necessary conditions that MUST be met to open a position.
      In simple terms, this section of your Day Trading Rules Book includes instructions on deciding what positions to open and when.

      Let’s just simplify it to the extreme for the sake of an example
      A day trader could set some of his trading rules on opening a position as follows:

      – A stock is to be bought – when and only when:
      1) Price is shown as over-sold by the Bollinger Band
      2) Price has been in a downtrend for at least the last 3 weeks
      3) And only once the third consecutive candle on the 30-minute charts has closed above the MA8.

      Rules on closing positions.

      Set rules to determine when and how a position MUST be closed.
      Once you have your rules on opening a position all setup, you will need to establish rules on closing those positions too.

      Some traders close their entire position as soon as price hits their profit target and in that case, your rules on closing position will probably be focused on deciding where the profit target should be.
      Other traders chose to close only part of their position once the take-profit is reached and then set a trailing stop order on the remaining. Either way, this should be clearly indicated by their – and your – trading rules.

      Whether you choose to use a technical indicator, the ATR, or any other means to adopt as your exit signal, remember to make it a rule and make sure you always stick to it. If your exit signal has not been triggered, do not close your position and vice-versa.

Note

These are the three key concepts you’ll need to consider while building your Day Trading Rules Book and, while it will already make a difference in your trading success as it is, it is not the end of it.

In addition to these three concepts, most traders adopt other trading rules targeted and contingent on their own trading style. Timing, edging, scaling in and out of trades, and news trading, for example, can all be aspects that you might want to consider to create further rules.

Well, I hope this post can help you create your own Trading Rule Book for 2024 but remember, it’s not enough to just set rules, you’re going to have to stick to them too!

Have a great emotions-free trading day!

This Is What Got Me Funded With $160K

Posted on by Carlo Aguinaldo

“Trade the Pool is filling a void in the trading community”

Tom W., 22 years old, from Germany.

Tom has successfully passed our Extra Buying Power program, and he is now TTP’s funded trader managing a $160K account, or as we call it, he is a true “Stock Star”.

Every time he reaches 5 consecutive winning days, we will boost his buying power and max exposure.

We spoke with Tom about his trading plan, insights, and lessons gained while trading in the markets and our platform as a funded trader.

Tom’s evaluation statistics

Q&A With Tom

Tell us a little bit about yourself

My name is Tom, and I am born and raised in Germany. My biggest Passion is Trading and Self-Improvement. I started trading when I was 17 right after finishing school and been on the journey to becoming a great trader ever since. I like to read a lot and exchange ideas with other like minded people and especially traders. In my free-time I am also studying for my University Degree.

How long have you been trading?

Four years

Briefly describe your trading plan and how it contributes to your success

I am a Short Seller only and focus on Hard to Borrow Small Cap Tickers. My Trading Plan revolves around the Technical Analysis Aspects of these Tickers to analyse their Daily-Setups and Intraday-Setups and find Risk- and Entry-Points. Additionally, I utilize Fundamental Analysis to Confirm my Short-Thesis because my main Thesis always revolves around the Concept of Dilution and thus the creation of overhead Supply. From a quantitative Perspective, I apply a systematic approach to my Strategy as well, using the Statistics of my Setups to gauge the past, present, and expected future performance of my Setups.

Share with us a challenge you faced in your trading career and how you overcame it?

My biggest Challenge in the past 4 years where unexpected Cycle-Shifts in the Market that i am trading in. The Small Cap Market tends to have shorter Cycles in general and quicker Cycle-Shifts than the bigger Markets which meant that i had to adapt and adjust my Strategies constantly. In the beginning this was a big challenge and i usually entered smaller Drawdowns because of that. To overcome this challenge i developed a discretionary and statistical Routine that gave me the opportunity to analyse the Cycle-State more objectively. That combined with the experience that i have collected in the past 4 years helped me to overcome the challenge and be more proactive for Cycle-Shifts.

How did you adjust risk management to your trading personality?

I have strict Rules that are based on money and frequency of Entries. The Money Part revolves around set rules for Max. Daily-Loss, Max. Ticker-Loss,… and the Frequency of Entry Part revolves around set rules for the maximum Attempts that i give myself to find an Entry. Based on my Personality i apply a Wide-Stop Approach because i am naturally more patient and usually take time to scale into a Position, using a wider stop to give the Ticker room to unfold and not get caught in small Traps.

Describe a key moment in your trading career

The Key-Moment in my Trading Career was when i introduced quantitative Analysis and thus statistics into my Playbook. This enabled me to get a quantitative understanding of the expectancy of all my Setups and created room for a dynamic sizing approach and a clear segregation of Setups when it comes to “quality” of a Setup (A+ Setup, A Setup, B Setup). Because of the Data i was able to understand what is actually working and not working in my Playbook and helped me to only focus on the good and worthy Setups.

How long did it take for you to become a consistent trader, and what aspects did you change for that?

I became a consistent Trader 3 years into my career. The biggest aspect that i changed to become consistent was switching from the Long-Side to the Short-Side. I used to trade both Sides but 80% of my Losses were created on the Long-Side so i cut it out completely and became consistent with my Short-Setups.

What is your mental/psychological strength, and how did you develop it

My strength is my patience and the fact that i am willing to stay cash for more than 1 day if i do not see any worthy trades to take. This strength developed alongside my own journey as a trader. Approximately 2 years ago i started to understand that “Cash” is also a Position in the Market and because of that i started to be more selective in the trades that i would take. Combined with the Data, i know that if i just stick to my criteria i will be profitable over the long-term so there would be no need to take 50/50 trades where conviction is lacking.

What was your strategy for successfully passing the evaluation phase?

My Strategy was to only trade the A+ Setups in my Playbook and ignore the lower quality Setups. This meant a lower Frequency of Trades but because of it i was able to use more Size and take less unnecessary losses

How has Trade The Pool improved your trading?

I combined my own Risk-Rules with the Rules of TTP and adjusted them to the new Size i am trading with. So in terms of Risk-Management there is no difference. What i like is that i now have more access to more capital which makes discipline even more important. This makes me an even more disciplined trader than if I would be trading for myself.

What would you recommend to someone who is just starting with us?

Have a Strategy and proof that you are already profitable before starting a Evaluation. Do not think that just because you have access to more capital that you will become automatically profitable, it is the other way around. Proof to yourself first that you are profitable and then proof it to TTP in the Evaluation.

Share online resources that were/are significant in your trading development.

Twitter and Youtube were my only Sources and 80% just tracking my own Data.

What Is A Stock Screener?

Posted on by Ophira Top

Introduction

As you all know, stock day trading is one of the fastest-paced and most competitive fields of work out there. It requires traders to assimilate new information, think fast, and make quick and rational decisions.

It’s no surprise then that traders welcome any help available to work in such a fast-paced dynamic environment and having the right tools at their disposal, sometimes, can be all the help they need. One such tool that is becoming more and more popular among day traders is the stock screener.

In this article, we will explain what stock screeners are, learn how to use them, and discuss the one that so many traders believe to be the best.

Key Notes

    • A stock screener can help you find the best trading opportunities
    • Retail traders can become more efficient when using stock screeners
    • A great tool to use is Finviz, where you can filter more than 60 parameters
    • We have created 3 stock scanners for you to use

What is a Stock Screener?

A stock screener is a software or online tool that allows traders to filter stocks based on specific preferences and criteria.

find the best stocks
The main function of a stock screener is to help traders narrow down the thousands of available stocks to a manageable list that matches the setting chosen by the traders using it. The several settings available in stock screeners reflect the different criteria traders might be interested in at any given time; they include fundamental and technical indicators such as price, volume, market capitalization, trading range, sector, financial ratios, and, sometimes, much more.

What are the benefits of using a stock screener?

The reason why the use of stock screener is so popular is the several benefits it offers. The following are only a few of many:

Identifying Trading Opportunities

The capacity to recognize possible trading opportunities is the number one and most important of the advantages of using stock screeners in day trading. By setting their preferred parameters according to their trading styles, strategies, and risk tolerance, traders can swiftly find stocks that meet their requirements and have the best potential for profitable price movements.

For example, a trader can configure their stock screener to only show stocks that have a high relative volume, positive earnings growth, and prices above a particular moving average, and the result he would get is an immediate list of stocks that perfectly match those requirements. It is easy to see how this would give traders a limited number of well-selected possible trades to choose from. And who wouldn’t like that?

ttp - a prop firm for stock traders

Better Time Management Efficiency

Another significant advantage of using stock screeners is the time they save!
Instead of manually searching for stocks that fit their criteria, traders can take full advantage of the stock screener’s automated process. This is of course a benefit of great importance for those trying to improve their time management efficiency which, in turn, will allow for more time to be allocated to other important aspects of their trading strategies, such as conducting research, analyzing charts, or developing new risk management plans.
By utilizing a stock screener, traders can quickly scan the market for potential trading opportunities and immediately spot stocks that meet their specific criteria. Furthermore, this efficient use of time allows traders to keep up with the market, stay ahead of the competition, and take advantage of time-sensitive price movements.

Minimizing Emotional Biases.

Although it should never be the case, many trading decisions are still frequently heavily influenced (if not dictated) by emotions. Fear of losing money, or FOMO (Fear of Missing Out), can impair any trader’s judgment and cause rash and unreasonable trading decisions. Stock screeners are another useful tool for reducing emotional biases.

A stock screener looks at and compares data objectively, and this allows traders to ignore their feelings and make informed decisions instead of letting their emotions get in the way.

news on finviz

Want to try a great stock screener now? Go FinViz!

As stock screeners go, FinViz is without doubt one of the best and most popular among traders.

Just like one would expect of a quality stock screener, Finviz (Financial Visualizations) is a powerful tool that allows traders to quickly filter stocks based on their chosen criteria. It includes an extensive set of customizable features and – although it might take a little getting used to at first – a clear and well-organized interface too.

One of the key features of Finviz is its advanced filtering capabilities. Traders can apply all sorts of filters based on fundamental metrics such as market capitalization, price-to-earnings ratio (P/E), dividend yield, and financial strength, as well as technical indicators like moving averages, relative strength, and volume.

finviz heat map
These filters allow investors to focus on stocks that meet their specific preferences rather than having to constantly monitor the entire stock market.

Also, in addition to filtering by fundamental and technical criteria, Finviz allows traders to screen stocks based on sector, industry, and location. This is particularly useful for traders who want to concentrate their positions in specific sectors and industries or have a preference for stocks from certain countries in particular.

One of the features that helps FinViz stand apart from many other stock scanners is its advanced charting capabilities.
Users can access a variety of chart styles, including line, bar, and candlestick charts, and can overlay several technical indicators to aid in technical analysis.
The interactive charts enable users to visualize price trends, support and resistance levels, and other important patterns and signals.

Amongst other things, Finviz can also provide real-time data and news updates. Traders can access the latest market news, press releases, and SEC filings, for example, directly through the platform itself.  This way, traders can remain up to date with any developments that may affect their trades.

…and there is more!

Finviz also offers a range of additional tools and functionalities such as a portfolio tracker, backtesting, and a heat map.

The portfolio tracker allows traders to monitor the performance of their investments, the backtesting feature enables them to test their investment strategies against historical data, and the heat map provides a visual representation of the market status and performance, allowing users to quickly identify stocks or sectors that are outperforming or underperforming.

All in all, Finviz is a great stock screener. Its vast range of features and customization possibilities make it a popular choice among traders looking for an easy and quick way to research and identify potential investment opportunities.
Why don’t you give it a try today?

Simple Stock Screeners

We have created 3 simple stock screeners for you to use on Finviz. You can just “copy/paste” them to your user.

Small cap screener

v=111&f=ind_stocksonly,sh_price_u10,sh_relvol_o2,sh_short_o5

Earnings screener

v=161&f=earningsdate_thisweek,ind_stocksonly,sh_avgvol_o750,sh_curvol_o750,sh_price_o10,ta_averagetruerange_o1&o=earningsdate

Short squeeze screener

v=111&f=ind_stocksonly,sh_curvol_o750,sh_price_o10,sh_short_o20,ta_averagetruerange_o0.75&ft=3

How to implement it

Go to “Screener”

Finviz screener
Click on “Edit Screens”

finviz screener

Copy/Paste the screeners above

All right traders, I wish you the best of luck and hope this helps.

Merry Xmass. Happy New 2024 Year