Linda Raschke's Market Thoughts

The Dow, SP, Russell have had well defined downtrends on both the daily and the weekly time frames. Currently, the weekly charts are correcting an oversold condition which should lead to further upside. However, it would take an incredible amount of work to turn the daily time frames, as well as the weekly time frames from downtrends to uptrends. That is unlikely to happen in the next few months, so on these indexes at least, you are still looking at a corrective rally in terms of structure.

Watch to see what type of volume comes in over the next week. Naz has already had a clean upside breakout. So - that is my two cents worth - the market can still have upside potential from here, but much of it is coming from rotation, which never supports a sustainable long term rally.

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Linda Raschke Interview Notes

On June 5 I participated in an interview / conference call with Linda Raschke. Raschke is likely most known for her excellent track record as a short term S&P 500 futures trader. I took some notes during the call and have done my best to make sense of my scribbles below

Two additional sources of great information on Linda can be found here:
1) “Linda Bradford-Raschke’s 5 trading patterns” (PDF document)

2) The New Market Wizards: Conversations with America’s Top Traders by Jack D. Schwager (Amazon Link)

Below are my notes on her thoughts:

WHERE SHE TRADES:

95% of profitability is on futures
Have a game plan before the market opens
ABC setups
120 Minute flags

HOW TO BECOME A PROFESSIONAL TRADER:

1) Practice - similar to golfer or musician
2) Do it, model, after 2-3 years hope to see some improvement and proficiency and find a niche that works for you
3) Make trades. 1 trade, 100 trades, 1000 trades, 5000 trades. After 5000 you should hopefully have a level of proficiency.

FAVORITE BOOKS:

Favorite money management book:

Kenneth Grant - Trading Risk: Enhanced Profitability through Risk Control. (Amazon Link)
Book addresses the importance of maintaining an active trading rhythm - feel it when the door opens and more volume comes in

Favorite other book:
Roy Longstreet - Viewpoints of a Commodity Trader - 2 pages in there are particularly helpful.
90% of the time most professional traders trade with 50% of their line or less.

PSYCHOLOGY:

A) Look into sports psychology books - $20 bucks buys you a great book

B) Emotions - less emotional the better - even temperament - get more even tempered with more experience

The best traders don't beat themselves up and don't let it go to their head if / when they are making big money

THINGS A BEGINNER NEEDS TO DO:

A) Get experience executing - 3 months of practice just getting out in 1 tick. Execution becomes automatic.

B) Newer you are to trading the shorter your holding period should be. The less time you are in the market the less risk you have. Longer you are in a trade the more objectivity you will lose

Could she recommend one strategy for a beginner to start with?

Take 2 time frames - 5 min and 15 minute use the two together and look for a pullback on the 15 min time frame in the direction of the trend but wait for the divergence on the 5 minute to trigger your entry.

Divergence - can give you a level of an absolute stop - shouldn't take out the last high or low. Don't want to fade the trend. Don't short a sell divergence when there are new highs being made daily.

WHAT IS SHE DOING NOW?

1 trick pony - does the same thing over and over but with bigger size. That's really the big secret. Find a niche. Find what you are good at and just learn to do it bigger size.

BOOKS MENTIONED:

Linda Raschke - Live Interview today at 1:30

Found this a few hours ago and thought it sounded interesting so just passing it along. I don't have any association with Rasche or TradingMarkets.com:

Click here to register - it's free

I'm signed up and going to give it a listen. Should be interesting.

Here is Raschke's bio from the site:

For those of you who are not familiar with Linda Raschke’s work, she began her professional trading career in 1981 as a market maker in equity options. Raschke is probably known mostly as a short-term S&P 500 futures trader, but she is active in several time frames, markets and trading styles.

Raschke has been a full-time professional trader for over 20 years. She began her trading career on the Pacific Coast Stock Exchange and later moved to the Philadelphia Stock Exchange. Linda was written up in Jack Schwager's book, The New Market Wizards and in Women of the Street by Sue Herera.

The Mental Aspect of Trading - Linda Bradford Raschke

Linda Bradford Raschke on the mental side of trading: "The Mental Aspect of Trading"

OK. Realistically, every trader has made a stubborn, big losing trade. What do you do if you're really caught in a pickle? The first thing is to offer a "prayer to the Gods". This means, immediately get rid of half your position. Cut down the size. Right off the bat you are taking action instead of freezing up. You are reducing your risk, and you have shifted the psychological balance to a win-win situation. If the market turns around, you still have part of your position on. If it continues against you, your loss will be more manageable. Usually, you will find that you wished you exited the whole position on the first order, but not everyone is able to do this.

Linda Raschke's Basic Rules for Swing Traders

Linda Raschke is a trader I've followed since coming across her interview in Jack Schwager's Market Wizard series. Below is a snippet I've had saved in my email box for years detailing some of her rules for swing traders.

Basic Rules for Swing Traders

Because of the short-term nature of this technique, swing traders must adhere to some very basic rules, including:

• If the trade moves in your favor, carry it overnight--the odds favor follow-through. Expect to exit the next day around the objective point. An overnight gap presents an excellent opportunity to take profits. Concentrating on only one entry or one exit per day relieves the pressure.
• If your entry is correct, the market should move favorably almost immediately. It may come back to test and/or exceed your entry point a little, but that's OK.
• Do not carry a losing position overnight. Exit and play for better position the next day.
• A strong close indicates a strong opening the following day.
• If the market doesn't perform as expected, exit on the first reaction.
• If the market offers you a windfall of big profits, take them to the bank on the close.
• If you are long and the market closes flat, indicating a lower opening the following day, scratch or exit the trade. Play for better position the next day.
• It is always OK to scratch a trade!
• Use tight stops when swing trading (wider stops when trading trend).
• The goal always is to minimize risk and create "Freebies."
• When in doubt--get out! You have lost your road map and your game plan!
• Place your orders at the market.
• When the trade isn't working, exit on the first reaction.
• ANTICIPATE!