Day Trading Authority Podcast Episode 3 Transcript Part 3

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Brian Short: Well, I do have something that we're actually pretty excited to talk about. And Mark and I both have been looking at a different way of analyzing price flow and the volatility of that flow to trade the markets. And so we're in the very beginning stages of looking at that and so I would encourage you maybe to do some digging, if you're listening to this. And maybe by the time you listen to it, we'll have more information. But at this point, I'm just going to give you a teaser and say that it's something that will be coming in the next few months from us and we're very excited about a potential approach to the market that measures price flow. And you get in and out of the market based on that. No indicators. It's strictly on, you know, who's buying, who's selling, and what we found is that can have -- give you an edge in the market basically and a different tool in your trading toolbox. So we're really excited about that possibility and I'm going to be doing some more research and we'll get more information out to everybody very, very soon.

Mark Soberman: Yeah. Because we're -- you know, we're very visual-based traders. We like to have things on the chart. I like to be able to see colors, see places to get in and get out. It's much easier when you're having to respond in real time, like when Brian was mentioning the craziness in silver this morning. I mean, if it's not a visual and you got to do a bunch of other stuff to try to figure out what's happening, it's so stressful any way when you're trading. So this is all about making that whole order flow, you know, who's buying, who's selling, a completely visual on the charts so you no longer have to sit there and try to somehow figure out, you know, who's on the bid, who's on the ask, very cool. So it's a great tease and we'll have more for you soon on that.

All right. So this portion of the podcast, we'd like to sort of get our guest interview and we're going to have an excerpt here from a longer interview that we did with Anne-Marie Baiynd. She's the author of "The Trading Book: A Complete Solution to Mastering Technical Systems and Trading Psychology." I read the whole book. It's very, very good. It's a nice real primer with some definitely hard-hitting, here's the technical indicators I use, here's the markets I use, here's how I approach the markets, which is great. But then she also does a really nice job of sort of, you know, talking a lot about the other things that you have to incorporate into your trading, things that we always talk about, right? So we're almost tired of hearing it, but it's true. Trading discipline, trade psychology, money management, kind of the hard stuff in trading, but it's really important. So it's a real good overall from a successful trader, of her story of which she went through, and we basically have a part of the interview coming up. And then, of course, you can hear the rest of the interview, just go to our trading tips blog. We've got the full replay there as well.

So with that, Brian, I guess let's go ahead and cue the interview.

[Music]

Mark Soberman: Got it. Now, I know you're primarily a technical trader, and if I understand correctly, some of the major indicators that you use are the exponential moving average, the simple moving average. I know you talk a lot about moving average crossovers. I think it was Bollinger Bands and you use Fibonacci a lot. Does that still kind of make up the Anne-Marie trading system?

Anne-Marie Baiynd: It does. What I've had to do, you know, to clean the charts a little bit since people watch me trade all day, it just gets a little messy form if there -- if they're newer. So I will leave the Bollinger Bands off and then, you know, focus on them. Frankly, you know, price is so important that you can work with the Fibs. Here are the primary things that I use. If I'm looking at super short timeframes, I will look at the 50 and the 200, simple moving averages. And I love the stochastic momentum index. I think it's a fantastic indicator. Not a whole lot of platforms have it, but Thinkorswim does and it's a very, very good indicator of what's on the horizon.

And here's the thing, if a moving average is flat and I see my price drifting further away from that moving average, it's got to bounce into it. So I'm always looking for that relative area of support which I'm going to find with my Fib and I'm going to know, "Hey, listen, I'm coming up to test that 50 today, right?" At least once a day, sometimes twice, we test the 200 on the five. And so those two moving averages, nice and easy, just so long as we have those parameters of where it's relative support and resistance, those things really need only to focus on definitively. And so, short answer, yes, those are still the core things that I use, maybe Bollinger Band a little bit less, stochastic momentum index a little bit more. It really depends on the day. If I look at the stochastic and it's not behaving well or it's sitting in a neutral zone, I'm not going to -- not sweat it at all.

Mark Soberman: Sure. I mean, one thing you point out in the book is that, you know, trading is not a cookie cutter and a lot of people try to come into it, that's really what they want. I think I've got like the quote, you said, "The day is never as simple as the if-then statement. If you're looking for that kind of roadmap in trading, your search will be exhausting, never-ending and, oh, by the way, an exercise in futility." So it sort of sounds like you are a -- you adapt to the day to -- what the chart is showing on that given day. I mean, you got your core indicators, of course, in your core system, but it sounds like you have to be flexible day to day.

Anne-Marie Baiynd: That is very true and I think that is the most difficult thing for folks because it seems to have so many moving parts, they want -- see, in the end, we all like things to be stable, right? We don't want a friend that's a Looney Tune that does things and we go, "Okay. Where did that come from?" We want things to be stable. We want our chairs always to work when we sit and then we want our computers to work. And so we sort of force that mentality into the trading space where really it's like a river full with fish. They're not always going to sit in the same place -- well, that's not exactly true if you're a trout fisherman, you're going to know that they sit in a certain place all the time but you know what I mean.

Generally, they're going to be here, there or wherever and you've got to say, "Well, wait a second. What's the wind? Is it overcast?" And I am a big fisherman which is why I'm using this analogy. So you've got to be a little bit more flexible in terms of what you're looking at and so many of us just don't know what we're looking at, but that seems almost impossible to do.

Mark Soberman: Right. I mean, I know you point out how important the slope is in trading, especially if you're doing any kind of momentum-based trading. I guess that has -- it's the same thing, being able to look at a market to determine that, you know, the slope of the move up or down isn't there. And even though your indicators might be firing a trade, they're not going to stop firing trades. I guess…

Anne-Marie Baiynd: Correct.

Mark Soberman: …pulling back and not be in the market is something you need to do but obviously quite difficult for people.

Anne-Marie Baiynd: Exactly. That's really true. And you've actually put -- stopped on a point that is incredible. We think that because we look at the markets and because we look at the charts, that we have to be in a trade. And that is just simply not true.

Mark Soberman: Yeah. I mean, I think people feel like, "Hey, I'm trading from 8:00 to 10:00, that's what I'm here for. I'm supposed to have five trades, you know, no matter what the market's, you know, doing even if the sea is about to come out or whatever and it's not moving, I'm going to get my profits, and unfortunately, it doesn't tend to work that way as much as you wanted to. With the Fibonaccis, I know that's very key for you in trying to sort of determine what's next to happen and the structure of the market. And I remember you mentioned there were few key levels. And you pointed out some percentages. I think you said like the 100% level…

Anne-Marie Baiynd: Uh-huh.

Mark Soberman: …the 200% level are almost always, at least, temporary reversal points. Then you also mentioned like your golden ratio, the 61.8. I know we got some Fib people so maybe you can talk about this a bit, so kind of what your favorites are.

Anne-Marie Baiynd: Sure. For Fibs, here's something very interesting. If you take a look at the ZB which is a 30-year Treasury Bond Futures, right? You'll notice that it really pays attention to a 50% Fib which is why I say, "Hey, listen. Focus on a stock. Take a look at it. Understand it because it's going to have a trading personality based on all the algorithms that are trading that they're in pockets, right? So the people that trade in the ZB aren't necessarily trading Google, right?" And so there's a different kind of temperament associated with that.

That being said, overall, here's how market formations work. If something is in a trend and it's in the middle of a pull back, if it pulls back lightly, it will pull back to 38.2 and then begin to move forward again. If that 38.2 level holds and it begins to bounce, you know that the trend that you're moving in is very strong. The deeper the retracement levels, the weaker the overall trend is, or the more conflicted the traders are in that particular chart.

So you can see that in terms of saying, "All right. Well, I'm in a bit of a conflicted chart. It's retracing 78.6% every single time, so I'm going to have to be careful about where I put that stop level." So it's about paying attention to what's happening in the formation specifically. So let's say, we're looking at Google right now. Google is in a very important space. It broke out over that 618 a few a days and it's continuing to power forward. It's using a 61.8 retracement level because it's doing so well moving forward. That's the standard, "Okay. I'm going to take a breath to hear and move forward."

There's a very specific pattern called the ABCD pattern. A lot of folks use it in Forex, but I find it works tremendously well in the general market and it assumes a 61.8 pullback and then a 1618 projection from the initial wave. And so when we look for that, everything is nice and structured. So if we are fortunate enough to see something pullback to that 61.8, we see it's in an uptrend. We don't see anything breaking down underneath. We can project out to that 1618 which I love.

Now, if I'm working with the futures, we have the Globex high and low. And as we move out through the day, here's something very interesting happens 95% of the time. If we come into the open within two points of the Globex high or the Globex low, we will rapidly accelerate away from it, either in the positive way or the negative way, right? It's going to move. So watch those moving averages and then watch those Fibs associated with the Globex high/low. If it projects over, like it breaks out of the Globex high, it's going to come back and retest, more than likely. Sometimes it takes two hours to do that and so you could chase it out. But sometimes, it will do it in 15 minutes and you can bounce right back, it'll go into the 127.2. If it holds 127.2, it's going into the 1618. Clockwork, day, day, day, day.

Now, the problem is the retracement levels that we've been forced to stomach over the last weeks, they are so long and the weeks are so hard and so heavy that it's almost like a bunch of stop hunters are out there looking to blow us out which, luckily, I use mental stops so that doesn't normally get me, until, you know, the mental stop really does kill me because I'm having to chase it out of the trade because it's just gone crazy in the other direction. But those are the kinds of things that I look for. But in the futures, 127.2, 1618. In the general trending stocks, I'll look for that 61.8 and 161.8.

Mark Soberman: And I guess that's why, like you mentioned earlier, it's really important to get to know a limited set of markets because you're sort of describing some behaviors that these markets seemed to have fall on a regular basis. And I'm sure that comes through observation and you're sticking with these certain markets.

Anne-Marie Baiynd: Very true.

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