My Tricks Of The Trade

  • July 17, 2001
  • Don Miller

I’m
posting this a bit earlier than
normal today due to some midday dental work, which I enjoy about
as much as trading flat-lined consolidations. Thus far, I continue
to look to the 13-minute 15 MA which has been in place since late
Friday. Of all my charts and studies, I view the three-minute
15 MA and 13-minute
15 MA as the two most
important indicators as to the current trend and longer term (for
a daytrader anyway) view.  As
I write this, the three-minute chart has shown some stochastic
strengthening which resulted in a price cross at 10:19am EDT. 
As such, I’ll be looking to the three-minute 15 MA as we move
forward, to determine whether we have any sustainable strength,
and will look to pullbacks as potential entry opportunities. The
three-minute 15 MA was solid resistance for much of yesterday and
early this morning, so I expect it will be key as we move ahead.

Tuesday 
July 17, 2001  10:15 AM EDT

Yields

I mentioned yesterday that I’ll be sharing some of my views on
trade management. Let’s start by talking a bit about yields. (No,
this isn’t a bond column. I can spell bonds, but that’s where any
insight quickly ends.) So what the heck are yields and what
are they doing in an equity trading column? Suffice it to say that
in the world of trade management, I really dislike the term
“stop,” which despite its incredible importance, can
lead to some poor trade habits, simply based on the term. Pick
another term: pause, time-out, break, intermission, whatever. I
seem to have simply settled on the term “yield.”

So what bad habits can develop simply based on a silly name? Well
my trading records over the years, particularly in the early times
and even a few in recent years, clearly show that my largest
trading losses and perhaps more importantly, missed opportunities,
were typically the result of poor trade execution where I took a
stop which was precisely that: stopped, done, out of trade, done, kaput,
see you later. (“Can
you say ‘stopped HLTH 120 without a reentry?’ ” he asks, in
his best Mister Rogers voice.)

Having said that, here are a few of my personal rules that I’ve
adapted over the years with respect to yields.  There’s
certainly no pride in authorship, as some have been long-known and
well-published trading rules, yet I’ve added a few twists, based
on my own experiences and beliefs.

  • Taking a stop is “yielding” to the market’s
    right-of-way.

  • Yields will preserve your trading capital and life.

  • My yields are premise-based and not price-based. 
    If the signal triggering my entry disappears, I’m out…for the
    moment.

  • I won’t enter a trade where I can’t control my loss
    (e.g., no overnights or IPOs).

  • Trade work and focus continue and intensify after
    yielding to the market.

  • Yielding is merely executing a business plan. 
    The market will move in one of two directions after each trade
    entry…and the probability of either is always less than 100%

  • Any realized losses resulting from yields are a
    necessary cost of doing business

  • Despite frequent intraday trades and ending in cash
    every night, I view a “trade” as a day, week, and
    month as one “trade” with many components, to help to
    reinforce the yield concept.

As with any trader input, take it for what it’s worth and
incorporate what works for you. I will say that refining the list
did cost me some nice tuition over the years, and I hope the
different twist helps provide an improved perspective.

Good trading and wish me well at the dentist.

Don Miller