The financial markets over the past year have attracted a lot of new traders and speculators, some of them looking to turn their day trading hobby into riches. Peter Reznicek, the head trader at ShadowTrader.net, which provides advisory services to traders since 2006, has been at the short-term trading game for years and joins the ETF Think Tank to give his views on how traders can be more successful in the current marketplace.
Reznicek got into actively trading stocks around 1999. He began by shorting during the heights of the tech bubble and ended up paying the price. He realized that he needed to become more educated and spent a lot of time watching charts. He soon realized that there was an information lag between what is happening fundamentally and what is happening technically. He began filling up journals with his trading notes and observations and credits this activity with making himself a better trader.
While there has been a great deal of change in the trading environment over time as information moves much faster than ever before, Reznicek says that technical analysis has not really changed. It’s all about trying to understand what people are thinking in real-time by focusing on momentum and trendlines. He does not really deal with fundamental research or macro analysis because of the information lag and its openness to interpretation. Trading data is much more objective.
What’s Reznicek’s secret to becoming a successful trader? He says get educated, develop a trading plan, anticipate outcomes and react accordingly. “Peter’s Premarket Perspective”, his daily morning market report, is designed to help people plan their trading day and organize their thoughts before the market opens. Traders are “75% of the way there to making money” if they develop and stick to their plan. People should think about 1-3 different scenarios when they make a trade, develop a plan of attack for these scenarios and follow through on the setup.
He says that traders should always think about what their mindset is going to be if the markets move against them. It is enticing to think about positive outcomes, but traders should be prepared for negative outcomes and look for ways to limit downside risk. For people who trade VIX futures contracts or leveraged ETFs, those products “could tear your head off if you’re on the wrong side of it.”
How does Reznicek assess what he is seeing on Robinhood? He comes back to the idea of having a trading plan or system, which he doesn’t believe many people on Robinhood do. Trading without a plan is a problem because it promotes wrong thinking. Following someone else’s price target makes no sense because you do not know what that other person’s trading plan is, if they’re even using one at all, and shouldn’t be a reason to be bullish on a stock. Some of the trades he’s seen may be successful, but they seem more lucky than educated.
In terms of what he likes, Reznicek is a fan of pairs trades, retracement signals and signals that a large swath of people are wrong and obviously wrong. In the latter scenario, that means a lot of people will need to reverse positions and probably do so quickly. The shorts who are in trouble are not waiting for anything to get out, whereas longs might wait for a better price.
Reznicek highlighted one principle that he says is worth remembering. “It’s not about me beating the market, it’s about me beating myself.” Risk is OK as long as it’s part of your trading plan and you execute appropriately on it. “Don’t buy anything that’s going to affect your sleep. Sell it down to your sleeping point.”
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