Trading is an art

Once, there were two farmers who lived in the desert. Both desperately needed to acquire water so they could survive the desert and support their families. After working together to search the area, they concluded there was water somewhere in the area but they were not sure where. So, they set out to find a water well. They started digging in similar locations between their properties. After they both dug for several days, the second farmer finally struck water. As soon as this happened, the first farmer could see it from a distance and ran over to the second farmer. Seeing that he had stuck a huge water well, he asked the farmer, “You and I had the same tools for digging and have been digging in similar locations. How did you find water and I did not?”

The second farmer asked him, “How did you dig for water?”

The first farmer responded, “I went and dug 50 holes 1 foot deep trying to get maximum coverage of my area. What did you end up doing?”

The second farmer replies, “Oh! That is very interesting. I dug one hole, 50 feet deep.”

Many traders set out on the path of trading and do exactly what the first farmer did – they dig 50 holes 1 foot deep. If you are going to strike water, gold or oil, you will have to dig one hole, 50 feet deep. The reason for this is a matter of mastery. To be a master at anything, you have to become so familiar with it, know how it works inside and out to the point you understand every aspect of what you are doing.

Think of Michael Jordan. He was one of the greatest basketball players ever. Regardless of his athletic ability, when he started playing baseball, he struggled immensely and that was after having playing experience all through high school. Today, he plays golf and is considered to be just below the level of a professional player. He has amazing talent at almost any athletic endeavor he sets out to do, but regardless, he was only able to master basketball. He practiced the game so intensely that everyone around him had to work harder just to keep up. He would come early and stay after practice. Why? Because he knew that to be a true master of the game of basketball, he had to dig one hole, 50 feet deep and not 50 holes, 1 foot deep.

If you are not digging your hole 50 feet deep, but are relying upon several methods, systems and tactics that are likely disconnected, you will never master trading. Do you really think institutional traders trade
5 or 10 systems all at once? Do you really think a sniper becomes an expert marksman by learning how to use 50 weapons or mastering just a few? All experts in any field subconsciously know that to be a master at anything, you have to dig your 50 foot hole.

SELF ESTEEM

Does your self-esteem rise and fall with your account equity? If so, your probably in for some difficult times ahead with you’re trading. For some traders, a trade is more than a trade, it can represent how successful they are as a person, how much status they feel, etc. When your self-concept is closely tied to your trading outcomes the result is a yo-yo effect in terms of your self-esteem and your internal state. And our internal state has a lot to do with how well we trade.

Trading already involves a lot of uncertainty, and tying one’s sense of self-worth to the ups and downs of trading is unnecessarily adding emotional volatility to the picture and is usually not a good idea.

Most traders need to work on being more resilient in the face of disappointment. Trading will always involve disappointments, its part of the territory. A delicate balance between being fully engaged in the trade with a ‘watchful curiosity’ and without being overly attached to the outcome, is how many successful traders describe their internal state.

Interview with Jim Rogers doing a question and answer session with Lew Rockwell and Ludwig von Mises

* Protecting yourself with sound currencies and hard assets / real assets
* Learn from history
* Rice, Silver, Gold, Farmland, Timberland, Bonds, Paper Money
* Why he moved to Singapore —> Education + Learning Mandarin
* Debtor nations vs. creditor nations
* Conventional wisdom
* The US going the same way as the UK when it was an Empire
* Leaving the US and seeking opportunity elsewhere
* Why children in the 21 st century must learn at least a second language
* Giving up American citizenship and implications on paying taxes
* Rare Earths and China
* Austrian Economics
* Brazil and its natural resources
* European Union and the likelihood of EURO disintegration
* Canada will do better than the US
* Renminbi might replace the US Dollar as reserve currency
* Ben Bernanke monetizing debt
* Fort Knox and the Fed should be audited

HOW YOU TRAT THE TRADE? TIMEPASS OR MONEY

Rule #1
Be data centric in your approach. Take the time and make the effort to understand what works and what doesn’t. Trading decisions should be objective and based upon the data.

Rule #2
Be disciplined. The data should guide you in your decisions. This is the only way to navigate a potentially hostile and fearful environment.

Rule #3
Be flexible. At first glance this would seem to contradict Rule #2; however, I recognize that markets change and that trading strategies cannot account for every conceivable factor. Giving yourself some wiggle room or discretion is ok, but I would not stray too far from the data or your strategies.

Rule #4
Always question the prevailing dogma. The markets love dogma. “Prices are above the 50 day moving average”, “prices are breaking out”, and “don’t fight the Fed” are some of the most often heard sayings. But what do they really mean for prices? Make your own observations and define your own rules. See Rule #1.

Rule #5
Understand your market edge. My edge is my ability to use my computer to define the price action. I level the playing field by trading markets and not companies.

Rule #6
Money management. Money management. Money management. It is so important that it is worth saying three times. There are so few factors you can control in the markets, but this is one of them. Learn to exploit it.

Rule #7
Time frame. Know the time frame you are operating on. Don’t let a trade turn into an investment and don’t trade yourself out of an investment.

Rule #8
Confidence and conviction. Believe in your strategies and bet wisely but with conviction. There is nothing more frustrating than having a good strategy work as you expect, yet at the end of the day, you have very little winnings to show for your efforts.

Rule #9
Persistence. It takes persistence to operate in the markets. Success doesn’t come easy, and if it does, then I would be careful. Even the best strategies come with losses, and they always seem to come when you get the nerve to make the big bet. Stay with your plan. If you have done your home work, the winning trades will follow.

Rule #10
Passion. In the end, trading has to be about your bottom line, but you have to love what you do and no amount of money is worth it if you aren’t passionate about the process. No matter how much success you enjoy, in the markets you can never stop learning.

Rule #11
Take care of yourself. No amount of money is worth it if your health is failing or you have managed to alienate yourself from family and friends in the process.

Always Rememeber these Points :

-Analyze the people, not the stock.
- Trading is a dictators game; you can not trade by committee.
- The best traders are the ones who do not care about the money.
- Do not think you are smarter than the market, you are not.
- For most traders, profits are short term loans from the market.
- The stock market can not be predicted, we can only play the probabilities.

-The farther price is from a linear trend, the more likely it is to correct.
- Learn from your losses, you paid for them.
- The market is cruel, it gives the test first and the lesson afterward.
- Trading is simple but it is not easy.
- The easiest time to make money is when there is a trend.

ACTION

1. "Accept all possible losses before entering the battle." McCall says that the samurai accepted death as a possible outcome of battle. That gave them the confidence to act boldly, without self-doubt. If you know you are going to die, you might as well go down fighting.

Recognize and accept that each trade could be a losing one, and plan accordingly. That will give you the confidence to make the proper choices.
2.

"Center yourself in mind, body and spirit." McCall explains that deep breathing exercises tend to calm the nerves and may help overcome excessive excitement or fear. I do that before a radio interview to help calm me down. If I don’t pass out from hyperventilating, then I’m good-to-go.
3.

"Trust your inner skills and intuition." Often I find a voice telling me to exit a trade because price will turn down. When I act on those instructions, I do well. Ignoring them or second guessing them and my trading suffers.

McCall says that you not only have to trust the tools you use but also your intuition. If you mistrust your system, then tear it apart and explore how it works until you understand and trust it. If the system is suffering bad results, then perhaps it is time for a tune up. Do what it takes to make sure that the tools you use are working properly. Include yourself in the mix. If you cannot hear that voice talking (intuition) then paper trade until you do.
4.

"Imagine victory clearly." This is a recurring theme in many psychological articles that I have read. Another way to express it is to think positively. Imagine a positive outcome and that is what you will get. Sure, it may take three years of losses before you win, but keep hoping and keep trying.

Knowing that the trade is going to be a loss not only makes you unhappy, but you may find yourself sabotaging your potentially profitable trades as well. If you believe that this trade will end in a loss, then get out or don’t get into it in the first place.
5.

"Only exist in the present to conquer fear." McCall says that fear leads to over-analyzing, something I didn’t know but is probably true. This second guessing plays havoc on your finely tuned system. Have confidence in your skills and tools and that will diminish the self-doubt, hesitation, and impulsive behavior that makes trading so difficult.

Focus on the trade as it unfolds, not on what might or might not happen. You cannot control what will happen, but you can have the confidence to handle what is happening. I guess it is a lot like the fear of flying. If you concentrate on yourself being spam in a can, then your goose is cooked (to mix a metaphor). Focus on the good ending, that after the plane crashes, your ex-spouse won’t get a dime from your estate!
6.

"Never stop a course of action once you have begun." Again, this is a recurring theme. Successful traders love to complete projects. If you have the courage to enter a trade, then play the tape to the end. Plan your trade (and you do have a plan, don’t you?) and trade your plan. If you have doubts about a trade at the start, then don’t trade. Just don’t use that as an excuse to avoid trading. Know that this trade will be the big winner you have been waiting for, and then let it happen.

Those are the six maxims of a samurai and how they can improve your trading. Be prepared for losses. Remain calm when trading. Trust yourself and your tools. Imagine a winning trade. Focus on the trade and not what may happen. See the trade to completion. Focus not on the money but on how well you traded, and you will become a successful trader.

4 Skills Every Trader Should Master

The mental (emotional) aspect of trading is hands down the toughest hurdle between aspiring traders and consistent success. For sure our technical nuts & bolts portion is vital. It goes without saying that we need some type of method, system or approach for trade entry, management and exit parameters that create a defined edge. The truth is there are countless ways to create such a viable "edge" over the long-term, but human management of such is the weakest link in that chain.

Out there in the real world we are taught to set tangible goals. Timelines, limits, targets and objectives are all part of the path to success. Need a roadmap to get where you're going in order to get there, right? At some point in our career we realize trading is a whole lot different than any other mainstream profession. Most of the rules that apply elsewhere are null & void in our world. Fiscal goal-setting is one of those. It's natural for traders in general and day traders in particular to set structured daily goals. We work a defined set of hours in our given shift... our time is exchanged for monetary reward expected. The people that we know have similar expectations. "How much did you make today?" "How were the markets today?" I see on the news that stocks
went up (down) big... how did you do today?"

The word "today" is sprinkled into every question we hear. Yesterday is history, tomorrow remains a mystery. The only measurement of success is today... one day at a time. But in reality our profession is nothing more than a series of wins and losses strung together over (hopefully) long periods of time. There is no way to eliminate risk or loss, because risk is an equal part to reward in our equation. Focus on keeping loss controlled is a very different aspect than fixation on avoiding all losses, period. One is a normal part of operation, the other is a path to failure.

Many times we'll read somewhere and/or hear about traders who never have a losing day. It is said they string together weeks, months or years worth of stretches with nothing but wins in the end. We've also heard about bigfoot sightings all over the world for over a hundred years now. To my knowledge no one has ever produced a physical specimen of the latter or real-money proof of the former. Perhaps traders who never lose and sasquatch each exist, I wouldn't rule either completely out. A little bit of solid evidence would be nice.

Meanwhile, those of us in the real world approach each trading day with one overall goal in mind: perform our functions correctly, follow our script and let the law of large numbers work our mathematical edge in favor. That includes taking valid trade signals after a string of losses. That includes letting the fourth trade work towards its intended profit objective following three straight controlled losses prior. That includes trading through some adverse sessions where nothing we can do results in net-profit for the day.

Punching Clocks Through Wins And Losses

Just because markets are open at a set time every day does not mean similar opportunities for profit and loss exist. Some sessions make it seem like money falls from the sky between both bells. Other times the morning or the afternoon is generous while the other half is stingy. There are days, sometimes several of them in succession where it appears the market is closed for business. Price action goes nowhere, there is nil chance to make money and nothing can be done about that fact.

Traders revel in those single days where favorable price movement results in profits that would normally reflect an entire week or even month's worth of effort. With the human-nature outlook of exchanging time for reward, we readily accept those occasions without a second thought. Such windfall but infrequent sessions are outside the norm, just like a true choppy or whipsaw congested session where it's all but impossible to avoid stiff losses let alone make two dimes of profit. But we view those impossible-to-profit event differently. Whereas investing one day's worth of effort for a week's average profit result is just fine, investing a second day's worth of effort for one day's average net loss is not fine. To some it is downright terrible.

Patience & Discipline

The worst trading sessions are often followed by the best. Dull, flat, volume-less sessions usually lead to high volume and range expansion the next day. If there are two or three dead sessions back to back, that period usually resolves with several days of hyper-active price movement. Stored energy is released, released energy eventually exhausts movement. It's a fundamental part of financial market behavior. Knowing this cycle exists and expecting it to repeat as usual is important. When we struggle to make headway for a day or two, better get ready for some very active tapes ahead. It's coming.

Obviously we'd all love to have every trading day result in new all-time high profits. None of us would ever opt to experience a net-loss session again. That's just one of numerous human emotions in the mix. Reality is, wins and losses distributed intraday and likewise day to day are all part of the natural course. Traders with gambling tendencies or ultra-competitive personalities tend to struggle with accepting loss as part of our profession. They take various small to extreme measures in fighting the natural process. Sometimes the result is benign, other times career ending.

Personal Pursuit

There are four segments one needs to harness = master before consistent success is possible. They are:

#1 - Ability to read charts/markets and determine whether price is more probable to go up, down or continue sideways from any bar forward. We need to know whether visible clues give odds of probability for pending direction, or not. We need to know this information inside all market conditions: low volatility, normal volatility and high volatility. Intraday traders will commonly face all three varied conditions one or more times daily. We especially need to know when we cannot know what is probable to happen next. When price movement goes from favorable to unfavorable per your method or approach, we need to know that through the shift of change.

#2 - Ability to determine where high-odds trade entry locations exist. Mastery of step #1 makes this process possible. There are no shortcuts... no red arrow/green arrow, no automated systems, no blind following dual indicators, no shortcuts exist to overcome ignorance of reading market action. Everything the market knows at any moment in time is reflected in its chart(s). The ability to weigh = measure = read that collective information determines our ability to identify exactly where long or short entry signal locations with greater than 50% odds to succeed exist in front of us.

#3 - Ability to determine your own method of trade management. I can promise you this: no one on earth can teach you how to manage your trades when your real money is live in the market. When your real money is ebbing & flowing in your account, anything else that anyone tells you will be forgotten. The only thing that will matter to you is making yourself feel good about the end results of that individual trade. That is not an opinion... it is an absolute law of human-nature fact.

#4 - Ability to manage yourself through all aspects of reading market action, determining trade entry and managing live trades from entry through execution to exit. That includes self-honesty of admitting when price action appears measured and predictable versus unruly. Honoring and acting on trade entry signals when confirmed, instead of succumbing to trigger-shy hesitation and/or chasing trade fills well past ideal entry locations due to fears of loss on both counts. Holding stop-loss orders to contain risk at predetermined levels based on logic and reason rather than crowded too close or pulled to avoid loss out of emotional fear.

Those are the four separate legs of our profession that overlap but stand apart. The first two aspects can be taught by someone to others. Managing live trades and managing ourselves through the entire process are learned on your own, because they can't be taught by anyone else.

Survival Instincts

The very moment someone places a live trade in their account, mental = emotional mode shifts from objective gathering of information to tunnel-vision focus on outcome results of the trade. All else ceases to matter from there as survival mode instincts kick in. Voices are tuned out, text is ignored and advice doesn't even almost begin to reach closed minds. The only thing that trader cares about then is exiting this trade in a manner which makes him (her) feel good about the whole experience. That's it... all about the feelings. Any type of profit beats any type of loss, obviously. The measures a trader will take in managing or mismanaging their trade is directly related to emotional comfort needs at that stage of their development.

For these core human instincts, any attempts for one trader to follow another through the process of trade management and exit verbatim will always fail to meet the objective. No two traders, let alone any group of traders will ever hold all of their trades through the same curve of stop management and exit for profit or loss result. Never has happened, never will happen, cannot happen until nature repeals the human nature of survival instincts.

Summation

Too many traders never get past the shallower thinking levels from the point where beginners begin. Yes the technical nuts & bolts aspect of trading is important. Fancy charts filled with arrows, pointers and text instructing someone on where to get in a trade and why always hold everyone's attention. And for good reason. But then what? What do you do once that trade, the next trade and the next ninety-eight to follow all behave somewhat differently from one another? That is where the real measure of success or failure begins to unfold.

TradingTruth

“Show me a trader with good records, and I’ll show you a good trader.”

- Dr. Alexander Elder


“The fruits of your trading or investment success will be in direct ratio to the honesty and sincerity of your own effort in keeping your own records, doing your own thinking, and reaching your own conclusions. You cannot wisely read a book on ‘ how to keep fit’ and leave the physical exercise to another. “

- Jesse Livermore


Risk Management

“Risk comes from not knowing what you’re doing.”

- Warren Buffet


Money Management

“It’s not whether you’re right or wrong that’s important, but how much money you make when you’re right and how much you lose when you’re wrong.”

- George Soros


“If you have an approach that makes money, then money management can make the difference between success and failure… … I try to be conservative in my risk management. I want to make sure I’ll be around to play tomorrow. Risk control is essential. “

- Monroe Trout


“Every winner needs to master three essential components of trading; a sound individual psychology, a logical trading system and good money management. These essentials are like three legs of a stool – remove one and the stool will fall, together with the person who sits on it. Losers try to build a stool with only one leg, or two at the most. They usually focus exclusively on trading systems. Your trades must be based on clearly defined rules. You have to analyze your feelings as you trade, to make sure that your decisions are intellectually sound. You have to structure your money management so that no string of losses can kick you out of the game.”

- Dr. Alexander Elder


“The most important advice is to never let a loser get out of hand. You want to be sure that you can be wrong twenty or thirty times in a row and still have money in your account. When I trade, I’ll risk perhaps 5 to 10 percent of the money in my account. If I lose on that trade, no matter how strongly I feel, on my next trade I’ll risk no more than about 4 percent of my account. If I lose again, I’ll drop the trading size down to about 2 percent. I’ll keep on reducing my trading size as long as I’m losing. I’ve gone from trading as many as three thousand contracts per trade to as few as ten. “

- Randy McKay


“All traders make mistakes, great traders, however, limit the damage.”

- Unknown


“My trading style blends both the risk-oriented and conservative personality of my personality. I take the risk-oriented part of my personality and put it where it belongs to : trading. And, I take the conservative part of my personality and put it where it belongs to money management. My money management techniques are extremely conservative. I never risk anything approaching the total amount of money in my account, let alone my total funds. “

- Randy McKay


“I’m more concerned about controlling the downside. Learn to take the losses. The most important thing about making money is not to let your losses get out of hand. “

- Marty Schwartz


“I’m always thinking about losing money as opposed to making money. Don’t focus on making money, focus on protecting what you have.”

- Paul Tudor Jones

This is the Mindset of a Successful Trader

Your psychology and beliefs will be a major determining factor in your trading results. Consider this example, where the same successful trading approach is used by a hundred traders and usually no two of them will trade it exactly the same way. Why? Because each trader has a unique belief system, and their beliefs will determine their trading style and their trading results. That is why even with a profitable and proven trading approach, many traders will fail. They do not have the proper belief system to enable them to trade well. In other words, they lack "The Trader's Mindset."

When you encounter psychological issues it is best to recognize the issues, just be aware of them and don't deny they exist. In order to "fix" psychological issues, we must first become aware of the issues that are causing the problems in order to heal. This is much of what psychoanalysis is all about. The psychologist or psycho- therapist tries to get the patient first to recognize issues that are causing their problems. The patient must believe that these issues are causing the problem in order for the patient to heal. The reason this process can take so long, perhaps even years, is because the patient needs to not only recognize their problems, but must accept that there truly is a problem. They must take responsibility for their problems to heal. As traders, we must take responsibility for our trading results in order to make changes and be profitable.

Success in trading is a direct result of a sound trading system, sound money management, proper capitalization, and sound psychology. All of these must be in sync to be successful in your trading. The only area where you may need additional help once you have mastered your trading skills is your psychology.

Mastering your psychology is an ongoing process that really never ends. To master your psychology to be a profitable trader can take time, and the amount of time will be different for each trader.

Here is a list of common psychological trading issues and their causes:

1. Fear Of Being Stopped Out Or Fear Of Taking A Loss: The usual reason for this is that the trader fears failure and feels like he or she cannot take another loss. The trader's ego is at stake.

2. Getting Out Of Trades Too Early: Relieving anxiety by closing a position. Fear of position reversing and then feeling let down. Need for instant gratification.

3. Adding On To A Losing Position (Doubling Down): Not wanting to admit your trade is wrong. Hoping it will come back. Again, ego is at stake.

4. Wishing And Hoping: Not wanting to take control or take responsibility for the trade. Inability to accept the present reality of the market place.

5. Compulsive Trading: Drawn to the excitement of the markets. Addiction and Gambling issues are present. Needing to feel you are in the game.

6. Anger After A Losing Trade: The feeling of being a victim of the markets. Unrealistic expectations. Caring too much about a specific trade. Tying your self-worth to your success in the markets. Needing approval from the markets.

7. Excessive Joy After A Winning Trade: Tying your self-worth to the markets. Feeling unrealistically "in control" of the markets.

8. Limiting Profits: You don't deserve to be successful. You don't deserve money or profits. Usually psychological issues such as poor self-esteem.

9. Not Following Your Proven Trading System: You don't believe it really works. You did not test it well. It does not match your personality. You want more excitement in your trading. You don't trust your own ability to choose a successful system.

10. Over Thinking The Trade, Second Guessing Your Trading Signals: Fear of loss or being wrong. Wanting a sure thing where sure things don't exist. Not understanding that loss is a part of trading and the outcome of each trade is unknown. Not accepting there is risk in trading. Not accepting the unknown.

11. Not Trading The Correct Position Size: Dreaming the trade will be only profitable. Not fully recognizing the risk and not understanding the importance of money management. Refusing to take responsibility for managing your risk.

12. Trading Too Much: Need to conquer the market. Greed. Trying to get even with the market for a previous loss. The excitement of trading (similar to Compulsive Trading).

13. Afraid To Trade: No trading system in place. Not comfortable with risk and the unknown. Fear of total loss. Fear of ridicule. Need for control. Fear of another loss. No trust in your trading.

14. Irritable after the Trading Day: Emotional roller coaster due to anger, fear, and greed. Putting too much attention on trading results and not enough on the process and learning the skill of trading. Focusing on the money too much. Unrealistic trading expectations.

15. Trading With Money You Cannot Afford To Lose Or Trading With Borrowed Money: Last hope at success. Trying to be successful at something. Fear of losing your chance at opportunity. No discipline. Greed. Desperation.

These are by no means all the psychological issues, but these are the most common. They usually center on the fact that for one reason or another, the trader is not following their chosen trading approach or system. And instead prefers to wing it or trade their emotions which in trading will always get you in trouble.

Our goal as traders in regards to psychology is to maintain an even keel so to speak when trading. Our winning trades and losing trades should not affect us. Obviously we are trading better when we are winning, but emotionally we should strive to maintain an even balance emotionally in regards to our wins and our losses.

Obtaining "The Trader's Mindset" takes time. It will happen when it happens, and when you achieve this level of mental ability; it will come after working long and hard on yourself. It may even happen without you even knowing it. It usually happens when you least expect it.

Below is a list of what one feels after acquiring "The Trader's Mindset."

1. Sense of calmness

2. Ability to focus on the present reality

3. Not caring which way the market breaks or moves

4. Always aligning trades in the direction of the market, flowing with the market

5. Not caring about the money

6. Always looking to improve your skills

7. Profits now accumulating and flowing in as your skills improve

8. Keeping an open mind, keeping opinions to a minimum

9. Accepting the risk in trading

10. No Anger

11. Learning from every trade

12. Winning and losing trades accepted equally from an emotional standpoint

13. Enjoying the process

14. Trading your chosen approach or system and not being influenced by the market or others

15. Not feeling a need to conquer or control the "market"

16. Feeling confident and feeling in control of "yourself"

17. A sense of not forcing the markets or yourself

18. Trading with money you can afford to risk

19. No feeling of ever being victimized by the markets

20. Taking full responsibility for your trading

When you can read the list above and genuinely say that's me, you have arrived!

Focus on winning the game

Prepare, be confident & be decisive
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Follow my trading rules without exception
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Plan every trade with profit exit, stop exit and risk/reward ranking
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Trade only when you have time AND you have an edge
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Formulate and write down a trading/investing plan
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Exit a position at my stops and not “hope” it will recover tomorrow
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Trade the market I actually see, not the one I think I will see
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Focus more on what’s actually happening rather than what I wish would happen
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Learn to prevent my skepticism and opinion over the economy from keeping me from making good trades
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Have a plan every day to trade the market and to not let my opinions of the market interfere with my trading
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Concentrate on rule based trade management and not the outcome of the specific trade
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Follow price action as opposed to listening to the fundamental “experts”
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Listen to the market signal rather than market noise
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Don’t be afraid of making mistakes
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To pay more attention to technical signals to determine purchase/sell points rather than emotion & personal reasoning
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Have more confidence in my trade ideas and believe in myself more often
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Do not have a bias but instead let the charts be the guide
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Have the discipline and fortitude to stick to my trade plans
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To improve my organization of stock lists and automation of stock alerts
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Do not over-leverage
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Select only the most favorable setups
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Try not to over analyze every potential trade
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Lose less when I am wrong
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Spend less time reading words and more time reading charts
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Stick with winners and sell the losers
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Allocate 2-3 hours each day & 5 hours every weekend to finding attractive setups
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Increase position size and be in the market more
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Develop and improve two separate automatic trading systems using different trading strategies
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Be much more selective with trades
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Write a set of trading rules, but keep it simple. Really simple. Keep a log
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Be more flexible
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Control the urge to trade based upon an emotion or a hunch
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Be more zen about the market, sitting on hands if there are no good opportunities
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Set up and stick to a consistent personal routine everyday
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Never buy overbought stocks in an overbought market – pick your entries more carefully
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Don’t force trades & trade less
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Without fail, honor your stops
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Focus on multiple time frames including placing more value on weekly versus daily time frames
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Try to find more base hits in my trading instead of supposed home runs
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Stop taking those stupid trades ahead of key economic reports
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Focus only on low risk – high reward situations
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Quit waiting for perfect entries and instead go with trend on minor pullbacks
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Don’t be impulsive
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To let my winners reach the profit targets I see and not sell them at the first profit that comes my way
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Look at my percentage gain not the $ amount
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Maintain a positive attitude when (not if) everything goes wrong
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Act and trade more consistently
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Leave the ultra ETFs alone
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To take more losses. My profits were cut down because of waiting for profits to occur in stocks that I have already purchased
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Do the opposite of what my analysis tells me
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Stop exceeding overall risk limits — specifically number of positions open at the same time
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Always have a cash cushion
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Develop a plan and implement it; I made money in 2009, but I was lucky
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Prepare and maintain watch lists to address differing possible market scenarios
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Devote more “prep time” prior to the opening bell
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Stay open minded. Be decisive when risk/reward present an opportunity
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To become more disciplined and less emotional about my trades
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Define strategy. Execute strategy. Analyze results. Modify strategy if required
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Be more consistent in position sizing
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To make more detailed notes about the trades I make and the technical situation surrounding each trade
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Trade smaller sizes and trust what I see on the charts
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Stop overtrading
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I won’t outsmart or out-think the signals my system generates for me
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Have a little more patience on entries and exits
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To master the psychological game
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Set performance goals every week, month, and market while recognizing that market conditions will play a significant role in overall performance
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Follow tried and true systems and ignore the inner voice which says things it can’t possibly go higher without a correction

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FOCUS ON WHAT

Simplicity and focus is the mother of success. “You need to start as small as possible and then gradually allow yourself to grow into greater and greater amounts of market information. What you want to do is become an expert at just one particular type of behavior pattern that repeats itself with some degree of frequency. To become an expert, choose one simple traing system that identifies a pattern. Your objective is to understand completely every aspect of the system. In the meantime, it is important to avoid all other possibilities and information”

The hardest thing to master as a trader once you understand Market Rhythm is not the market, it is YOU. Emotional trading will break you fast.

Trading is not hard, it is mastering your emotions that is. Trading will teach you more about your human short coming than visiting a psychiatrist. As a trader, you must learn the discipline of waiting for proper market set-ups. That is hard!

Your EMOTIONS are screaming for you to jump in or you will miss out. NOT TRUE!! If you miss one trade set-up, the market is generous and will give you another. Learn to trade in harmony with your trend and with proper signals.

The emotions that are deadly to your trading success.

REVENGE, we all know it and have done it. It happens when you are tricked by the market and decide to take another trade before looking at the big picture, then BAM you are on the wrong side of the trade again. Pissed off and refusing to move while your money is going further down the drain. Scared to let go for fear that you are going to get tricked again.

PANIC, that is when you lack the confidence to enter or ride a profitable trade. This happens when you have taken some hits and now you lack the confidence to trade profitably.

IMPATIENCE, this happens when you can’t wait for a proper trade set-up and jump on a price hiccup/retracement, often finding yourself on the wrong side of the trade.

ANGER, you know that feeling that comes over you when you have taken a hit or two and you want to kill your computer.

Replace bad thoughts with good ones

If you have watched the film Flatliners, you probably recall a scene where Kiefer Sutherland and Kevin Bacon are sitting outside a beer joint on the back of their vehicle just after Sutherland dies and recovers. Sutherland says something like, "You can hear the hum of the street lights." He is picking out one sound from the maze of noises around him. You can do the same with sounds and then visualize what is making those sounds.

A mother might close her eyes upon hearing her newborn giggle, and picture the baby with a wide smile on his face. The dad might imagine that the child is grasping his finger with tiny hands for the first time, hanging on.

You can think of positive images for your trading, helping bad thoughts fade and bringing alive those which picture a successful trade. In this way, you can zero in on happy thoughts and push aside those thoughts and images of price dropping off a cliff or another bill coming due in the mail.

Here’s how to use imagery in your trading.

A picture of a bearded iris.

* Recognize when the problem occurs. When contemplating a trade, you may find thoughts of arriving late to the trade, that price has already moved, so you hesitate. Another thought may come that if you buy this now, it will turn into a losing trade. Still other thoughts admonish you for entering a trade too late, exiting too early, or buying the silly thing in the first place.

If you find these thoughts recurring as you contemplate a trade, or after you enter or exit a trade, then you have discovered the trigger that causes these thoughts to occur.

If you know when these thoughts will likely occur, you can prepare yourself. Don’t let negative thoughts color your trading perspective.

Focus on an image of a winning trade, on a positive outcome and negative thoughts and images will fade into the background. Positive messages will change your attitude about trading and those negative thoughts and images will recede and eventually fade away entirely.

When I find myself having the same argument in my head over and over, I just switch to a scene I described in the epilogue of my Getting Started in Chart Patterns book, that of a gazebo perched atop a hill overlooking a "rolling carpet of pines etched between hills." The image short circuits the argument and the recurring thought stops. And if it comes again, I just imagine sitting back in the gazebo and taking another sip of my cold drink as I watch a hawk circling overhead, flying carefree on thermals carrying him higher. I can become that bird and look down on tranquility below.

You can do the same thing with your trading. When a negative thought arrives, replace it with an image of what you want to happen. See price moving in the direction you seek, candle by candle, reaching for your target.
* Focus not on the money but on technique. If you focus on how much money you have made then that could cause you to exit trades before you should. I had this problem. As soon as I closed in on $2,000 profit, I convinced myself that it was time to exit, that I had made enough money. Sometimes I was right and sometimes not, but I found that such thoughts limited my income. I was too focused on how much money I was making instead of executing trades properly.

Instead, I focus on technique. When is the right time to exit? At what price? Where is support and where is resistance? Those are the questions I focus on now. The answers to those questions determine how I trade, not on how much money I earn. Whether I make $2,000 or $20,000 on a trade, it does not matter as long as I traded it well.
* Imagine success. What will success in trading do for you? Will it buy that new boat you have had your eye on? Perhaps it is time to move into a larger place, one with a helicopter pad so you can commute in style. If you trade properly, you can afford it.

These types of images and those that represent success to you should replace concerns about what other traders think of you. They are not thinking about you. They do not care if your current trade is a winner or a loser. They are just concerned with making the next house payment because they are in debt up to their eyeballs. Focus not on what a losing trade will do to your self esteem, but on exiting the trade at the proper time. Then dream of what to do with those riches.

Closing Position

From the myriad images and thoughts swirling around inside your head, visualize how you want the trade to proceed. Visualize success at the end of the trade. That will give you the confidence to push yourself beyond your comfort zone. By selecting a positive image of success, the other negative thoughts fade into the background. Like Sutherland did with the street lights, you do with your thoughts. Pick out the good ones and let the bad ones fade.

If you are trading a chart pattern, then visualize it completing and price breaking out in the direction you expect. Then imagine yourself jumping into the trade, watching price move in your favor and exiting the trade just before price reverses.

Focus not on how much money you are making or losing but on technique. If you are trading well, then the money will tumble in.

If you practice using images to visualize where you want your trades to go, over time (at least 3 weeks for the subconscious to believe what you are telling it), it will help you become a better trader, one that can push past fears, past the boundary of your comfort zone and into the realm of greater wealth.

Wisdoms of Trade

“Wall Street people learn nothing and forget everything.” Ben Graham

“ Buy on the cannons, sell on the trumpets.” Old French Proverb

“A stock broker is one who invests other people’s money until its all gone.” Woody Allen

“It is fortunate for Wall Street as an institution that a small minority of people can trade successfully and that many others think they can.” Ben Graham

“Wall Street indices predicted nine out of the last five recessions!” Paul Samuelson

“ There are two kinds of investors, be they large or small: those who don’t know where the market is headed, and those who don’t know that they don’t know. Then again, there is a third type of investor –the investment professional, who indeed knows that he or she doesn’t know, but whose livelihood depends upon appearing to know.” William Bernstein

“The point is, ladies and gentleman, that greed, for lack of a better word, is good. Greed is right, greed works. Greed clarifies, cuts through, and captures the essence of the evolutionary spirit. Greed, in all of its forms; greed for life, for money, for love, knowledge has marked the upward surge of mankind.” Gordon Gekko

“It’s not whether you’re right or wrong that’s important, but how much money you make when you’re right and how much you lose when you’re wrong.” George Soros

“October: This is one of the peculiarly dangerous months to speculate in stocks. The others are July, January, September, April, November, May, March, June, December, August and February.” Mark Twain

“If past history was all there was to the game, the richest people would be librarians.” Warren Buffett

“Wall Street is the only place that people ride to in a Rolls Royce to get advice from those who take the subway.” Warren Buffett

“A market is the combined behavior of thousands of people responding to information, misinformation and whim.” Kenneth Chang

“The four most dangerous words in investing are “This time it’s different”. John Templeton

“Money can’t buy you happiness but it does bring you a more pleasant form of misery.” Spike Milligan

“If you don’t follow the stock market, you are missing some amazing drama.” Mark Cuban

“The average man doesn’t wish to be told that it is a bull or a bear market. What he desires is to be told specifically which particular stock to buy or sell. He wants to get something for nothing. He does not wish to work. He doesn’t even wish to have to think.” Jesse Livermore

“In this business if you’re good, you’re right six times out of ten. You’re never going to be right nine times out of ten.” Peter Lynch

“ Markets can remain irrational longer than you can remain solvent” John Maynard Keynes

“The markets will return to rationality the moment you have been rendered insolvent.” Dennis Gartman

“Risk is good. Not properly managing your risk is a dangerous leap” Evel Knievel

“Sometimes your best investments are the ones you don’t make.” Donald Trump

“The most predictable thing about the stock market is the number of experts who take credit for predicting it.” Dave Weinbaum

“I have probably purchased fifty ‘hot tips’ in my career, maybe even more. When I put them all together, I know I am a net loser.” Charles Schwab

“Money talks… but all mine ever says is good-bye.” Anon

“Don’t gamble! Take all your savings and buy some good stock and hold it ‘till it goes up, then sell it. If it don’t go up, don’t buy it.” Will Rogers

“Give me a stock clerk with a goal and I’II give you a man who will make history. Give me a man with no goals and I’II give you a stock clerk.” James Cash

“Never make forecasts, especially about the future.” Samuel Goldwin

“Stocks are bought on expectations, not facts.” Gerald M. Loeb

“Your success in investing will depend in part on your character and guts, and in part on your ability to realize at the height of the ebullience and the depth of despair alike that this too shall pass.” John Bogle

“You make most of your money in a bear market, you just don’t realize it at the time.” Shelby Davis

Before Buying

* Check the markets and trade in the direction of the prevailing market trend.
* Check the industry. Are other stocks in the same industry moving the same way?

* Are they showing signs of topping out or bottoming?
* Which stock leads the pack? Study it for clues to future price direction.

* Check industry relative strength. Make sure the industry is top ranked. See Industry Relative Strength
* Look at the weekly scale (or the next higher scale) for any threatening chart patterns.

* Is the stock trending in the same direction as on the shorter time scale?
* Do you see any existing chart patterns?
* Do you see underlying support or overhead resistance?
* Draw trendlines to see where price may intersect them.

* Score the chart pattern. See my book, Trading Classic Chart Patterns (pictured on the right) to gauge how likely the chart pattern will work. I have a taste of the scoring system here.
* Historical review. Find another chart pattern in the same stock and see how it performed in the past.
* Check your favorite indicators. What are they telling you?

* Relative strength index (RSI): I use this for divergence and as an indicator of overbought (too pricey) or oversold (too cheap).
* Bollinger bands: When the bands narrow (low volatility) that tells me price is going to make a big move. Price often bounces from one band to the other, especially when the band is horizontal and price touches it.
* Is the stock price diverging from the indicator?
* Is the indicator signaling a trade?
* Check for failure swings, little M or W shaped patterns that may signal a short-term reversal.

* Review the industry relative strength. How is this industry doing compared to others? You’ll find that industries performing well will continue to do well, usually for months.
* Is the stock trending up? Why buy a stock today when it will be cheaper tomorrow? Wait for price to turn up before buying. View the stock on the weekly scale (or higher time scale) to help decide the trend.
* Is the stock trading near the yearly high? Buy stocks showing chart patterns near the yearly high, preferably breaking out to a new high. When the breakout occurs, price coasts higher on momentum, so you can raise your stop. You do use stops, don’t you?
* Get a quote before trading. Delay buying if the quote is lower than the last time you checked.
* If the stock is up too much intraday, skip the trade. Don’t chase a stock higher.
* Look for overhead resistance. Where is price likely to stall or reverse?
* Look for underlying support. How far down is the stock likely to go?
* Place that stop with your broker.
* Will a throwback or pullback happen? Prices return to the breakout price usually in about a week. Consider initiating or adding to your position once price resumes the original breakout direction. Statistics show that chart patterns with throwbacks or pullbacks perform worse than those without throwbacks or pullback, so keep that in mind.
* Check for DCBs. Avoid any stock showing a dead-cat bounce within the last six months. Why? Because one dead-cat bounce tends to follow another.
* Prices don’t trend forever. If you are about to buy a stock that has been trending upward for several days in a row, count on price reversing just after you buy. The same goes for a consecutive declining price series. Wait for the turn then trade.

How to sell?

* Use a stop. Raise the stop as price rises. If you can’t make money in the markets, chances are you don’t use stops.

When to sell?

* The stock is about to hit your stop. Sell it now! Why wait for price to hit your stop if you know that it will?
* A bearish chart pattern has broken out downward. Sell now! If price turns around, it’s a pullback and the stock will soon head back down.
* The stock has closed below an up-sloping trendline. This is the first indication of a trend change. The longer the trendline the more reliable it is. Switch to the weekly (or higher time) scale and check the trendline again. Use the log scale for earlier exit trendline signals.
* Stock falls more than 62% retrace. Measure the retrace after an up move. A retrace larger than 62% means the stock is going down. Period. Sell it.
* Price has hit the target. If this is a short-term trade, then sell it. If not a short-term trade, then raise your stop.
* The averages are dropping. If the market is taking other stocks down along with yours, it’s time to sell. Flip to the weekly scale. If the trend is still down, then sell.
* Stocks in the industry are topping out. Any bearish chart patterns in stocks in the same industry are warning bells. Consider selling. Rare is the stock that can swim against the current for long.
* Look at the weekly scale. New chart patterns, trendlines, support and resistance all appear on the weekly chart. Use them as sell signals.
* The market is up but the stock is down. If the Dow is up 100 points but your stock is down, find out why. This intraday price divergence is a warning signal. Sometimes there is a good reason for the divergence – a hurricane approaching oil rigs for example.
* Historical price review. What happened the last time the stock made a new high, shot upward in a straight-line run, consolidated, dropped a few points in just days, or stalled at an old high? Past behavior can give you an indication of how well the stock will behave in the future. However, the more you rely on past behavior, the more likely the stock will surprise you.
* Check the indicators. Are your favorite indicators saying sell? What does the best indicator say -- price? Is price rising or falling? Is price trending up or down? Don’t know? Then switch to the weekly scale and ask if price is rising or falling. If it’s falling then sell.
* Indicators are diverging from price. This is usually a reliable sell signal, but not an automatic one. Price can diverge from indicators for months before the stock turns down, if it turns down at all.
* Indicator failure swings. These M and W shapes in the indicator can call short-term turning points accurately.
* Overhead resistance. Has the stock hit overhead resistance and is now heading down? Sell.
* Is a throwback or pullback happening? Throwbacks and pullbacks happen often after a breakout. Initiate or add to your position after a throwback once price resumes the move up. For a pullback, it’s often your last chance to exit a stock before the decline resumes. Take the sell signal and get out

Not everyone can be a successful trader

Not everyone can be a successful trader, one that makes a living by trading the markets. Based on research, Bill identified three factors that are key to trading success. Before I describe what they are, let’s take a quiz by answering yes or no to the following questions.

1. Do you worry a lot?
2. Do you remain calm and relaxed in tense situations?
3. Are you a trusting individual?
4. Do you drive at or below the speed limit most of the time?
5. Are you a perfectionist?
6. Do you work on a project from start to end before beginning another one?
7. Do you like to complete projects?
8. Did you score well on your SATs, that is, do you possess above average intelligence?
9. Do you like math or are a good problem solver?
10. When driving and the stop light turns green, do you accelerate faster than the car next to you?

Score one point for each "Yes" answer except on the first (#1) and last (#10) questions. Those should be "No." Add up your score. The higher the score the more likely it will be that you can become a successful trader.

The following describes the qualities that successful traders possess.

1. Emotional stability. You don’t have to be nuts to trade, but it helps! That is a joke, of course. Emotional stability is grace under pressure. A successful trader must be able to remain calm in difficult situations. Traders that rank very high on the emotional stability scale have very low anxiety levels, remain calm, relaxed, and have a low suspicion level. They tend to be trusting individuals and are not paranoid. You won’t hear them blame the market makers for forcing the stock to hit their stop and they take responsibility for their actions. Successful traders tend to be well grounded.


2. Discipline. Successful traders are ones that can follow the rules. They are the guys that drive the speed limit. They tend to be perfectionist and take pride in their work. They like to take a project from start to finish and get joy from completing it successfully. Pilots, trained to follow checklists, tend to make good traders. An impulse oriented individual will have difficulty achieving the discipline to become a successful trader.


3. Intelligence. Bill says that successful traders tend to be intelligent. They need not have the IQ of Einstein but they are above average in intelligence. They tend to be good problem solvers and good with numbers, such as statistics. They understand that trading is based on probability, that not every trade will work as planned.

Can you learn to become a successful trader? Yes. But sometimes if you don’t have what it takes, try another profession.

Trading Should Be Effortless

* Money comes in bunches.

That one says it all. You can’t force trades. You can’t simply work harder in order to be ‘in sync’. Sometimes you are, sometimes you are not. You simply have to accept that as being part of the trading business. What you can do, is to closely monitor if your performance is in sync with the market’s performance. If the markets make new highs and your overall portfolio is going down something is wrong. You need to address that issue. Fast. The best way is to step aside and drastically reduce exposure and risk. That’s what I did.

* Trading should be effortless.

A true piece of wisdom. In my experience when I trade well it is like shooting fish in a barrel. Almost everything works. I don’t need to be overly patient with positions. The money comes in very fast. That’s exactly how trading should be. The exact opposite was the case during the first 2 months of this year. So I did what I had to do. I recognized the situation for what it was and admitted my efforts were not leading my portfolio anywhere. It was like folding when you are dealt a bad hand in poker. So I folded. Now I am waiting for the next hand. If it is a bad one I fold again. If a series of trades start to really go my way I push it hard and increase exposure and trade aggressively.

* When in doubt stay out.

This one is key. That’s how I interpret the adage: It doesn’t mean you don’t trust your instincts or your methodology. As a trader you should adapt to new situations. You constantly analyze the markets and your performance. Then you adjust your trading. Then you compare your expectations with the actual outcome. Then you adjust your trading. Then you repeat the process. At times things simply do not work. That’s when doubt creeps in. You know something is not ‘feeling right’. Your job is to protect your capital. Your job is not ‘to be right’. Put another way: You should be able to exit or reduce exposure without the need for explanations. The markets usually give you those explanations at some later point in time.