I prefer momentum day and swing trading because I like instant technical feedback in my trades.
Training In Trading
Ken Calhoun, the president of Daytrading University and StockTradingSuccess.com, has provided online training to active traders from more than 32 countries since 1999. He is an internationally published trader who’s earned industry awards for his professional trading systems and has trained more than 31,000 people in more than 147 companies worldwide. Calhoun trains traders on how to trade using one-minute candle charts, sector breakouts, gaps and market indexes using advanced tape reading, and real-time candlestick trading techniques by using live market examples.
A former corporate statistician and quality engineer, Calhoun has been featured in a variety of leading trade publications and events and brings a wealth of analytical experience to the markets using real-time chart patterns to help his 8,100 traders spot entries and exits.
Technical Analysis of Stocks & Commodities Editor Jayanthi Gopalakrishnan and Staff Writer Bruce Faber interviewed Ken Calhoun via telephone on January 10, 2011.
Ken, how did you get interested in trading, especially technical analysis?
I first got started with short-term momentum trading back in the late 1990s during the Nasdaq tech bubble. I was interested in how fast you could make money when a stock ran three to five points in less than an hour. Technical analysis was, and continues to be, absolutely critical to my success, using micro-indicators like cup patterns, volume breakouts, tape reading, sector divergence, using the Trin and Vix, and tape reading.
During the tech bubble, you would hear about the markets all the time. It was in the news, it was all over the place, and there were all these commercials of people buying islands — that kind of thing. Those got my attention because I realized that there was a lot more to it than what was visible.
So you got started at a bullish time in the markets. Were you trading mostly equities?
Yes, I was only trading stocks back in the late 1990s. I had traded longer term, with Sep Iras and mutual funds for many years before that, but I had never done tick-by-tick momentum trading until 1999.
What type of markets do you prefer to trade?
I’ve made the most money in my stock trading, so that’s why I like trading equities the most. I still prefer stock day and swing trading as my primary trading style, because there are gaps and other high-percentage technical trading patterns that only exist in stock charts. Although I’m primarily an equities daytrader, I also trade the emini, the ES and currency pairs. Recently, I have been trading the dollar–yen.
You seem to like momentum trading. How do you actually identify markets that have momentum?
That is a good question. You’re right in that I prefer momentum day and swing trading because I like instant technical feedback in my trades. I don’t want to wait weeks or months to see a trade work out.
The top technical signal I use is the premarket spiders (Spy) and Qqqqs, and premarket futures, both the Nasdaq futures (Naz) and the S&P futures (Spoos) to see if there’s a wide gap or trading range before the opening bell. So the two primary things I look for are directional moves in the Naz premarket futures and the direction of the gap in the Spy starting at 7:30 or 8:00 am with premarket charts.
What does that tell you?
The primary go or no-go signal, which is: Are they gapping at or near the previous day’s range, or are they breaking out of the previous day’s high-low range? If they are gapping, I am going to put on more size. So to identify breakout trades, I always prefer “out” days and patterns, meaning I always put on more size when the broad market is outside of the prior day’s high-low range. That’s critical because out days are where the algorithmic traders, who are also known as algos, and the high-frequency trading (Hft) programs kick in more.