Saturday, September 26, 2009

Learning to take my foot off the brake

My last post, “Simplicity”, explains that my trading plan is finally finished after 2-1/2 years of trading it, and watching it run otherwise in real-time. It will not be tweaked or added to anymore as there’s no point in it. All improvement at this point must come from my execution of that plan. Assuming you have a time-tested plan it becomes pretty evident that the trader himself is the weak link among the two. I am into serious thought here as to what I need to do to quit riding the brake pedal and let the real potential of the plan come to fruition. It’s not hard to sit here and imagine where I’d be today if the person executing the plan were as good as the plan itself. Think about that one in your own trading life.

Oh yea, it’s the psychology that works against us we’ve all heard about a thousand times over. Blah, blah, blah. Cut to the chase. It’s the fear part of “fear & greed”. It’s surely not that I’m (as some psychologists like to throw in the mix) “afraid of success” and so I’m sabotaging myself. Hell no. I’m just afraid of losses. And it’s gotten really, really stupid. My stats show I pass on about 3 out of every 5 legitimate setups for one reason or another. Sure, some setups are “clean” and some are “messy”, but they are setups still. It’s a very true fact in trading that many of the best opportunities come when the charts are devoid of many signs of confirmation. If I wait until it’s “so easy that even a caveman can do it” then I’ll be dropping the ball on a lot of potential gains. We ALL know this is true, don’t we. That’s not a question.

If you ever want to solve a serious problem you have to be darn sure you’re asking the right questions first. I really believe I know why I ride the brake pedal too much (but I’m not getting into that in detail here.). Here are a couple things I know as facts though…….

I am a fairly meticulous record keeper (i.e. my post “Make the letter R work for you”) so I KNOW what the average risk (drawdown) is on a legitimate setup. Even though this is a fairly new stat for me the sample size is now about 710 setups as of today. And I know what the Won/Loss record is for trades. It has a pretty good sample size backing it up. So these two stats mean I truly do know some FACTS -- not just assumptions or worthless theories. (Now don’t jump in and remind me how naïve it is to count wins and losses. I do it mainly for the psychological value).

This is a fight between the LOGICAL side of me and the SUBCONSCIOUS (imagination) side. Logical is what I believe out loud. The other is irrational and created in large part by the “baggage” we (I) bring to our trading careers. I know it’s irrational because I know the facts stated above. But there’s no handle I can just turn to shut off the irrational thoughts. If I know my subconscious is acting irrationally then it seems that I can override it with logic. And I’m sure I can…with time and effort. Based on the facts I know, here is what I must ingrain in my mind to shut down the senseless thoughts that are keeping me from pressing the accelerator pedal…..

1) The big picture matters, not the little picture. That is, my results for the week matter, not the results for the rest of today. In this CORRECT sense the next trade - win or lose - is relatively unimportant. And then so is the one after that. Ultimately, this is TRUE. I have enough opps throughout the week to know that no single trade should matter.

2) There is NOTHING wrong with having a losing trade. Only chronic losing is wrong. What is the likelihood of me having 3 losers in a row? Very small. So what then is the likelihood of me becoming a chronic loser? Very, very, small (as long as I follow my plan and don’t become reckless. I won’t.). Ultimately I believe this to be TRUE.

3) What is the likelihood of me having a catastrophic loss? A simple stop order, automatically placed when I enter the trade, virtually ELIMINATES THE POSSIBILITY of a “too big” loss. This is the TRUTH. This same stop-loss in fact ensures that any loss is kept relatively small. My plan won’t let me enter if the stop size is too big (again, on the assumption I will follow my well-laid out plan and not cheat on it).

If it weren’t for that fact that I’ve done my homework consistently over time then none of the above 3 points would hold water because they wouldn’t be based on time-proven facts. One assumption though is that I won’t, as mentioned, become reckless and get outside of the parameters of the plan which are designed to keep me relatively safe.

I need to make a mental shift from fear (which is constrictive and mentally draining) to abundance (the feeling that all my dreams are now coming together such that I wake up with a smile on my face everyday because of it). Ultimately I need to be a trader….

A) ….who is able to COMFORTABLY take a loss. There is nothing to “get over”. No anguish or moping around and negative self-talk. Instant amnesia follows.

B) ….who wants the money ….really wants it; more than I care about the risk of a measured loss. The last part of that sentence is key. Some people say you should look for reasons NOT to trade. I guess so, if you’re a careless gunslinger by nature. I know who I am, and I should NOT be looking for reasons not to trade. More trades, not less.

Most fears of all types are groundless. I think almost all of us would agree with that statement if we think about our own situations over the years. Most of what we worry about will never happen. A little fear can be a good thing … but only at the right time. But it can’t be allowed to gain irrational status. A long time ago I first heard the saying, “If you knew how much fear controlled your life -- it would scare you.” Emotions will always be part of trading because emotions are part of being human. It’s a fool’s game to pretend we can become machines, IMHO. To change those emotions to my BENEFIT is my goal. In one of my first posts I said “You are only as good as the chances you take”. I’m taking too few chances. I need some greed. Yes, I need the GREED!

Facts don’t lie (i.e. my extensive record keeping). So I need to quit lying to myself by letting imagination (negative thoughts about the outcome of a potential trade) override the logic of what is reality. And so I am starting some mental exercises that emphasize those facts as presented in points 1-3 above so that REALITY can then become points A & B. It will take a LOT of repetition because I’ve read enough about trading psychology (and have lived long enough in the real world) to know that between imagination and reality, imagination is the one that wins out almost always. It’s time to get rid of the stinkin’ thinkin’. There is too much at stake here.

As to what I’ll specifically do isn’t important because there’s no magic in it, just like there’s no magic indicator. It’s some symbolism combined with a heck of a lot of drill-like repetition designed to re-wire my brain so that logic and imagination are team-mates and not enemies. I need to press that accelerator.

(P.S. This is my 2nd post today. If you are interested in health then check out the one just prior to this one). Have a great weekend all.

You have a trading plan, how about a HEALTH plan?

Do you pay a health insurance premium just hoping you'll get a chance to "get your money back" someday? Are you anxiously awaiting the day you'll get to say, "Ha! I've got you now Mr. Insurance company. Here's a bill for $100,000 from my hospital to pay for my chemotherapy. And you thought you'd get to keep all those premiums I've been paying you over the years!"

E-Mini Player said he wouldn't mind another health post in his blog. This is the last one. If it's of interest please copy and paste it. This is from my files. I did not write it. It's at least a few years old.

Cancer Update from John Hopkins:
1. Every person has cancer cells in the body. These cancer cells do not show up in the standard tests until they have multiplied to a few billion. When doctors tell cancer patients that there are no more cancer cells in their bodies after treatment, it just means the tests are unable to detect the cancer cells because they have not reached the detectable size.
2. Cancer cells occur between 6 to more than 10 times in a person's lifetime.
3. When the person's immune system is strong the cancer cells will be destroyed and prevented from multiplying and forming tumors.
4. When a person has cancer it indicates the person has multiple nutritional deficiencies. These could be due to genetic, environmental, food and lifestyle factors.
5. To overcome the multiple nutritional deficiencies, changing diet and including supplements will strengthen the immune system.
6. Chemotherapy involves poisoning the rapidly-growing cancer cells and also destroys rapidly-growing healthy cells in the bone marrow, gastro-intestinal tract etc, and can cause organ damage, like liver, kidneys, heart, lungs etc.
7. Radiation, while destroying cancer cells, also burns, scars and damages healthy cells, tissues and organs.
8. Initial treatment with chemotherapy and radiation will often reduce tumor size. However prolonged use of chemotherapy and radiation do not result in more tumor destruction.
9. When the body has too much toxic burden from chemotherapy and radiation the immune system is either compromised or destroyed, hence the person can succumb to various kinds of infections and complications.
10. Chemotherapy and radiation can cause cancer cells to mutate and become resistant and difficult to destroy. Surgery can also cause cancer cells to spread to other sites.
11. An effective way to battle cancer is to starve the cancer cells by not feeding it with the foods it needs to multiply.

a. Sugar is a cancer-feeder. By cutting off sugar it cuts off one important food supply to the cancer cells. Sugar substitutes like Nutrasweet, Equal, Spoonful, etc. are made with Aspartame and it is harmful. A better natural substitute would be Manuka honey or molasses but only in very small amounts.
b. Milk causes the body to produce mucus, especially in the gastro-intestinal tract. Cancer feeds on mucus . By cutting off milk and substituting with unsweetened soy milk cancer cells are being starved.
c. Cancer cells thrive in an acid environment. A meat-based diet is acidic and it is best to eat fish, and a little chicken rather than beef or pork. Meat may also contains livestock antibiotics, growth hormones and parasites, which are all harmful, especially to people with cancer.
d. A diet made of 80% fresh vegetables and juice, whole grains, seeds, nuts and a little fruits help put the body into an alkaline environment. About 20% can be from cooked food including beans. Fresh vegetable juices provide live enzymes that are easily absorbed and reach down to cellular levels within 15 minutes to nourish and enhance growth of healthy cells. To obtain live enzymes for building healthy cells try and drink fresh vegetable juice (most vegetables including bean sprouts) and eat some raw vegetables 2 or 3 times a day. Enzymes are destroyed at temperatures of 104 degrees F (40 degrees C).

12. Meat protein is difficult to digest and requires a lot of digestive enzymes. Undigested meat remaining in the intestines become putrefied and leads to more toxic buildup.
13. Cancer cell walls have a tough protein covering. By refraining from or eating less meat it frees more enzymes to attack the protein walls of cancer cells and allows the body's killer cells to destroy the cancer cells.
14. Some supplements build up the immune system (IP6, Floressence, Essiac, antioxidants, vitamins, minerals, EFAs etc.) to enable the body's own killer cells to destroy cancer cells. Other supplements like vitamin E are known to cause apoptosis, or programmed cell death, the body's normal method of disposing of damaged, unwanted, or unneeded cells.
15. Cancer cells cannot thrive in an oxygenated environment. Exercising daily, and deep breathing help to get more oxygen down to the cellular level. Oxygen therapy is another means employed to destroy cancer cells.

1. No plastic containers in microwave.
2. No plastic wrap in microwave.

Dr. Edward Fujimoto, Wellness Program Manager at Castle Hospital (Hawaii) was on a TV program to explain this recently. He talked about dioxins and how bad they are for us. He said that we should not be heating our food in the microwave using plastic containers. This especially applies to foods that contain fat. He said that the combination of fat, high heat, and plastics releases dioxin into the food and ultimately into the cells of the body. Instead, he recommends using glass, such as Corning Ware, Pyrex or ceramic containers for heating food. You get the same results, only without the dioxin.

So such things as TV dinners, instant ramen and soups, etc., should be removed from the container and heated in something else. Paper isn't bad but you don't know what is in the paper. It's just safer to use tempered glass, Corning Ware, etc. He reminded us that a while ago some of the fast food restaurants moved away from the foam containers to paper. The dioxin problem is one of the reasons. Also, he pointed out that plastic wrap, such as Saran, is just as dangerous when placed over foods to be cooked in the microwave. As the food is nuked, the high heat causes poisonous toxins to actually melt out of the plastic wrap and drip into the food. Cover food with a paper towel instead.

Tuesday, September 22, 2009

Simplicity. (No, not another long post!)

If you would have seen my trading plan back in 1998 you’d have laughed. I was a new trader let loose on the world. I was going to swing trade stocks, using daily bars, with TC2000. My plan was so complicated (combining both technicals and fundamentals), with so much confirmation built into it that it’s a wonder I ever took a trade. When you only look for one trade every 3-5 days you have lots of time to prepare. And boy was I taking advantage of that time. Nobody could confuse me with a reckless gambler. To create that plan I read lots of books (10-15), scoured the internet for tricks of the trade (I even bought a course by that name), played with various software (including VectorVest and some weird Elliott Wave predictor software), bought some “how-to” courses, and gobbled up Investors Business Daily newspaper. If you read my post “The Scourge of the Holy Grail” you now know the origins of that post.

I mention this because yesterday I taped to the top of one of the sheets of my trading plan the words “The Final Sheet” (in BOLD). Down lower I typed, “This one sheet replaces every other book, every plan … everything!” I’ve drawn the line at the silliness.

Silliness? I love trips to the bookstore so I can drink their $3.00 coffee, check out the latest issue of TA of S&C, and browse the business section for the latest trading books. My trading plan for the mini-Dow has actually been in effect for 2-1/2 years now, but I’ve made minor adjustments over time. No more. Done. As each day of trading, observing, and learning from my charts goes by it becomes more obvious to me the silliness of even reading another issue of TA of S&C …or another trading book ….or of scouring the internet looking to see what methods others are doing. Some of you may say I’m wrong; that I need to “continue to improve”, or that it’s silly to close my door to other ideas since “times change and we have to change with them.” That’s all great conventional wisdom. But another piece of wisdom is “ignore conventional thinking”. Plow your own road.

Over the years I’ve become an expert. Yep, an expert. If you’ve read some of my posts you know I always put that word in quotation marks to make fun of anyone who calls themselves an “expert” in this business. But what I’m an expert of is me. Trading teaches you a lot about yourself and I’ve learned lots about me. I’m a certified expert on “me”. I should probably get one of those fake diplomas and confer upon myself a Ph.D in “me”. Fully accredited by The School of Hard Knocks.

My trading plan is 6 sides of paper. To some that may sound like a lot. I’ve heard before that if your plan takes up more than one side of paper it’s too long. But to be more specific, 2 sides are just drawings of some simple price action patterns you can get out of any $12 beginners book, another 2 sides contain some psychological reminders and tips. The actual plan is 2 sides of paper. For the last 2-1/2 years I have read and studied, over and over (with the exception of the little adjustments I mentioned) the same words and same sentences a thousand times over. Many parts I can repeat from memory (see my previous post on “The 3 R’s”). I don’t make this stuff up folks.

The first paragraph on the sheet that is now titled “The Final Sheet” says:

“IT’S ALL IN THE CHARTS! Everything I need to learn is seen in the charts. Study them all day. The charts will tell me what works and what I need to focus on. The charts will show me the TENDENCY of the market for any period of time, whether it be for the next 10 minutes, hour, or for the whole day. It could be that the tendency is just to form a box, or a triangle. One pattern leads to another. Is it boring at times? Yes. Is it required? Yes. When I take a setup I have to see that the market is supporting a move in that direction … at that time. Thus every small thing must fit within the view of the bigger market. This is why I say PA is always the best indicator. I need to watch for signs of DB/DT … HL/LH … triangles and boxes … breaks and failures at the S/R … and newly formed “edges”. This is the key to success.”

The particulars of my plan then just add a few things about getting in front of the TENDENCY of the market (entering in the right direction at a good time), and setting up the support/resistance levels.

What else do I need? Execute the plan. Period. There is nothing better out there for me. This is the best trading plan in the world .... for me. Execute. Execute. Execute (or be executed). Believe and Achieve, or doubt and die. Am I starting to repeat my prior posts? You bet.

There is only so much to say about the market; about psychology, IMHO. It is between YOU and the MARKET you trade. The answers to your questions are inside YOU. I watch 3 timeframes in order to enter on the smallest. Regardless what the market is doing now, next week, or next year, my job is to learn to play the time frames I have. No others. Your charts will tell you everything you need to know. That was one of my own “ahaa” moments. In my early days I spent too much time in books and not enough in the charts. It was all there, right in front of me. Observe and absorb. Everything I may say from now on may be just a rehash of stuff I’ve already said because to me there is nothing else. Simplicity. Not simple for you the first time around, but a worthwhile goal may be to see how much stuff you can keep stripping off a plan until it gets to the point of your definition of simplicity.

I know others can read this and find fault somewhere. This is a blog, not a course on trading. It’s a personal thing about me that maybe will provide a hint or two you can use yourself.

If you happen to wander into Barnes & Noble this weekend, or any other, and see me with a copy of a trading magazine, or the latest guru’s book in my hand, you have my permission to take that $3.00 café mocha out of my other hand and pour it on my head.

Monday, September 21, 2009

More on staying healthy

"driven" asked me a question about the top pills and substitutes for health, in response to my prior post. The only place I can squeeze in an answer is in a blog post. It's not my intention to change the subject from trading to nutrition, but a couple posts are worth it. I'm not big on pills and substitutes because they are expensive and often times short-lived regimens (mostly because of the expense and becoming a pill-popper). There are so many fancy multi-vitamins and singular vitamins and minerals out there that the cost can get out of control easily. Trying to balance one against another is an exercise in futility. As far as vitamins, just a basic "One-A-Day" type is good enough for me. Trying to eat healthy is more my interest, and for that I'll post my own "Top 15 Foods" list here.


1) Broccoli and Brussel Sprouts…………. These are the cruciferous veggies; potent cancer fighters. Broccoli is packed with the best of the best anti-oxidants: quercitin, indoles, glutathione, vitamin C, beta-carotene, lutein, sulphoraphane. Has very high anti-cancer activity; helps ward off breast, colon, and lung cancer. Eaten raw is best. Lightly cooked is next best. Stir frying, microwave, or steam is OK. DO NOT BOIL. They must retain some crunch! Broccoli sprouts are much better than spears.

2) Raw, Red Onions…… The #1 strongest antibiotic food. Great for immune system and blood sugar levels. Helps ward off stomach cancer, raises good HDL cholesterol. Contains 3 anti-inflammatory compounds that strike at the cause of asthma. (Red are better than “white” or “yellow”, but yellow is acceptable). White contain no quercitin “one of the most powerful anti-cancer agents ever discovered”.). Because they are so strong, they may cause heartburn.

3) Garlic …....The #2 strongest antibiotic food. Contains at least a dozen anti-oxidants. Always near the top of the list of the National Cancer Institute’s list of potential cancer preventative foods. Affects release of serotonin in the brain producing calmness and promoting sleep. Garlic’s sulphur enhances the function of the NK killer cells, the body’s first line of defense which seeks out and kills cancer cells before they can develop into tumors.
Raw and chopped is best. Crushed or chopped should sit for 10 minutes before cooking, to preserve its benefits. Do NOT microwave or roast, that makes it useless. Lightly cooked is OK. Garlic powder is useless. 3 cloves per day is a bit excessive and borderline “too much”. NOTE: Onions and garlic may be too strong for people with low blood sugar, or are hypoglycemic (also cayenne pepper). These tend to plunge blood sugar levels dramatically. Aged garlic however will not do this.

4) Carrots ……..Contains beta-carotene, one of the top 3 anti-oxidants. Raw is best. Juiced or cooked is OK. But it’s a high glycemic food, so limit to 1 a day if diabetic prone.

5) Tomatoes and/or Watermelon ……. The only reliable sources of lycopene, which is almost as powerful as beta-carotene. Lycopene helps preserve mental functioning and reduces risk of cervical, stomach, pancreatic, and colon cancer. Cooking does not destroy lycopene, so tomato sauce as in spaghetti sauce is a great source. Concentrated tomato sauce is even better than raw tomatoes. Lycopene needs a little fat to be absorbed, so dab some olive oil on the food. In addition, watermelon (along with avocado) is the richest source of glutathione, called “the most valuable detoxifying agent in the body”, and “no other antioxidant is as important to overall health as glutathione” (The Immune System Cure, Vanderhaeghe). Watermelon is a high glycemic food.

6) Oranges and Pink Grapefruit………Oranges are a complete package of every class of natural anti-cancer inhibitors – carotenoids, terpenes, and flavonoids. Helps ward off asthma, bronchitis, breast and stomach cancer, and artery disease. Grapefruit has glutathione, a super anti-oxidant. It is the grapefruit PULP that matters; there is little benefit to just the juice. The pulp cantains pectin. Pink grapefruit is better than white.

7) Green and Black Tea / Red Wine (just one glass per day) / Raisins & Plums (Prunes) / Red or Purple Grapes ……. Tea has been called the most potent health drink ever. It can help prevent clogging of arteries, lower the risk of various cancers, wipe out viruses, and help ward off arthritis. It blocks absorption of iron (that’s good). Keeps gums healthy, fights cavities. Drink with meals and it will neutralize cancer-causing compounds in food. (NOT herbal tea, bottled, or instant tea). Green tea has an edge, it has EGCG (an antioxidant that stimulates the body to burn calories) Tea is a high oxalate, meaning it can lead to kidney stones in people prone to that. Grapes have over a dozen anti-oxidants. Red and purple are much better than white or green.

8) Spinach and/or Kale / Asparagus…….Spinach has beta-carotene, lutein (good for eyes), and folic acid (a brain and artery protector.) Spinach also has lipoic acid, one of the highest regarded anti-oxidants and vital for increasing glutathione levels. Steamed is best, lightly cooked is OK. Asparagus is one of the best sources of glutathione and folic acid. NOTE: Spinach oxalates attach to calcium and make it useless. 1-2 times per week is most you should have it. The oxalates can also lead to kidney stones in people prone to that. So spinach may be bad for your bones but good in other areas. Make sure you do other things that are good for your bones.

9) Blueberries / Cantaloupe / Strawberries / Fresh or frozen. Blueberries are anti-oxidants that help fight the risk of Alzheimer’s and Parkinson’s disease. They are also a great anti-aging food. Strawberries are antiviral, anti-cancer. Cantaloupe is rich in potassium, and also good for beta-carotene and Vitamin C. Only fresh and frozen fruits have high levels of nutrients.

10) Cabbage…is another cruciferous veggie, as is cauliflower. Cabbage seems to help deter stomach, breast, and colon cancer. A specific anti-oxidant in cabbage, indole-3-carbinol, accelerates disposal of a harmful form of estrogen that promotes breast cancer. Is anti-ulcer and antiviral. How to fix: raw, or in cole slaw. NOT sauerkraut (cooking destroys most or all benefit).

11) Salmon…. is a high omega-3 fatty acid fish, that’s good (omega-6 is bad). Omega-3 fights virtually every chronic disease known. Good for your brain, heart, arteries, and joints. Best sources for omega-3 are fresh and canned salmon, fresh tuna (canned is only a moderate source), mackerel, fresh and canned herring. Omega-3 is also anti-inflammatory (good for breathing). Omega-3 will slightly raise bad LDL cholesterol level, but not much. Wheat germ oil, canola oil, and walnuts are a lesser source of non-seafood omega-3. Also purslane, a veggie, is good.
Baked or poached is best. Canned or fresh, it doesn’t matter. Frying will decrease benefits a little. 2-3 times per week MAX due to LDL drawback and fish oils may cause some insulin resistance.

12) Oat Bran and Wheat Bran…. Dean Ornish’s Reversal Diet (his most effective plan to reverse heart disease) is high in both soluble and insoluble fiber. Wheat bran is a major insoluble fiber (increases bulk and gets food through you quickly). Soluble fiber forms a gel that delays absorption of certain foods, including cholesterol. Oat bran, rice bran, rolled oats, carrots, pectin in fruit, psyllium fiber, and guar gum found in beans, are soluble fibers.

13) Sweet Potatoes / Yams A major source of beta-carotene, a highly rated anti-oxidant. One of the highest rated veggies by Center For Science in Public Interest. (The only other potato to consider is “round, red”. “Instant potatoes” have little or no value and are high glycemic.)

14) Non-Fat Yogurt with live cultures. Boosts immune system by stimulating production of gamma interferon. Is anti-bacterial/anti-viral because it spurs activity of natural killer cells that attack viruses. Helps prevent yeast infection. No aspartame (aka “Nutrasweet” allowed). Yogurt has a high sugar content though, so look for ones with less than others.

15) Kidney Beans / Navy Beans / Black Beans / Lentils / Lima Beans…..Beans are loaded with fiber and protein. A good source of folate (the natural version of folic acid). Fiber helps keep insulin in check, which means it helps prevent diabetes. Beans are “protein without the saturated fat”. Some have iron, too, that’s not good for most men. Having iron is OK for some women. (Iron is an oxidant, meaning it causes oxidation in the cells.…the very thing anti-oxidants are designed to prevent)

Mind you, this is my personal opinion based on reading lots of books. I'm not a doctor or clinical researcher offering medical advice and I'm not saying anything cures or prevents anything, so don't go there with that. I'm rehashing what many researchers and nutritionists have already published in commonly available books.

Sunday, September 20, 2009

Feed your brain and stay on your game

I’m going off on a tangent here today. But it’s a very important one (nothing more than life or death). If you click on my name you’ll see my interest in health and nutrition. I first became interested in this after getting out of college. It has served me well. In my adult life I’ve only filed a medical claim twice, and both were for minor accidents, not illnesses. No prescriptions. No doctor visits. Nothing. (Yet I continue to get ripped off by insurance companies every time a premium is due.) And I’ve mentioned before that I’m older than probably everyone reading this. Maybe I’m lucky. Luck can have a small role in lots of things. But I do more than just “talk the talk” as well.

You younger traders may think you will live forever in great health. It’s a common delusion of youth. Don’t be so naïve. Does being naïve help you become a better trader? Even if you make a fortune by the age of 35 what good will it do you if you are locked in a nursing home with a devastating case of Alzheimers? Wouldn’t you rather be out traveling and enjoying life? Trust me, the grocery stores, the water we drink, and the air we breathe are all full of man-made poisons our grandparents never had to experience. It’s all done in the name of “progress”. Don’t be so naïve as to think illnesses “just happen”. 80% of the time it’s up to you.

Your trading career is over when your brain can’t keep up. When you retire from trading you have no business to sell for a windfall. Your brain is your business. What are you going to do to “insure” your business? In my time I’ve kept lots of notes and written my own reports on food. It’s not hard. But it takes effort and devotion to do it. One of my favorite authors is Jean Carper. You can get her books at a library, or better yet buy some. Another is Charlotte Haigh’s “Top 100 Immunity Boosters”. A whopping $12.95. I’ve read many others. Nowadays the book stores are full of such work. I’m not into exotic solutions and foods. Just as the stores are full of poisonous crap they also have almost all the essentials you need to live long and healthy. You call the shots with your selections. Here’s a short excerpt from my notes on brain health:

“BRAIN: Keep your BRAIN in top shape…. You need anti-oxidants particularly for your brain and mental functioning. Your brain is vulnerable because 1) it’s rich in easily oxidized polyunsaturated fat, 2) and it consumes 1/5 of all the oxygen taken into your body. 3) Your brain has a lot of iron in it, an oxidation promoting mineral, and 4) your brain produces few anti-oxidants on its own. So if you DON’T want Alzheimer’s, or just plain senility, you need to take in more anti-oxidants than the typical person who doesn’t know any better.”

In today’s internet age you can find answers in minutes. But then you have to commit yourself to doing something about it. Ahhh, you know there was a catch. Like everything else in life, if you want to rise above the norm you have to do what the majority (the norm) aren’t unwilling to do.

To be a top trader you can’t be brain lazy and unable to focus. You can’t afford to punish your brain by feeding it garbage any more than an athlete can get by with eating pizza instead of protein. There will be a price to pay somewhere, sometime. If you aren’t vigilant it will creep up on you an inch at a time, almost undetected, until it’s too late. If you want living proof go visit a nursing home. Or for a less active, but still worthwhile manner, go online and look up some stats. Maybe it will “scare you straight”. I know it has for me. Just my 2 cents on a subject worth a million times more.

Friday, September 18, 2009

Answering a question.....

GD asked a question regarding Point #1 from my 9-16-09 post (“Using structure to reduce brain chatter”). His question was, “Can you please show me a sample chart about your No.1 rule. Re: "In between this lines, I don't trade".

GD, since I can’t respond to you any other way (I don't have an email for you), I will do it this way in a post. I hope this helps. I am a mini-Dow daytrader who looks to buy pullbacks in a trend. The big question is...”where will it pull back to?” To me the best pullback opportunities are right after the break and retest of a known support/resistance level. That level thus becomes my “backstop” to protect my backside. It is the level that I expect price to not go beyond. If price does decide to go past the S/R level a little, it shouldn’t be much, or else I will see it as a failed setup and get out fast. The reason I tend to avoid (not always, but usually) any pullback that takes place BETWEEN the levels is because I no longer have my S/R backstop to protect me. Thus I don’t have as clear an idea of where price might pull back to. In an ideal situation I will enter on the break and retest of a level and use the next higher/lower level as the target for the trade. The two screenshots here show how a level that was created yesterday was used as an entry point today.

Wednesday, September 16, 2009

Using structure to reduce brain chatter

In most of my posts I've talked about the psychological aspects of trading that affect me (and no doubt many others). Everything I write is from personal experience. I'm not teaching; I'm relating. I'm thinking out loud. But you are welcome to read along. We all learn indirectly from the experiences of others.

"Psychology" is a big buzzword in trading. What the hell does it mean? Have you ever really mapped it out, or have you just experienced what it made you feel like? Anger, confusion, hopelessness, bursts of giddiness, King of the world, emotional roller coaster highs and lows both of which lead to mental exhaustion. "Fear and greed" is not really just an old, tired cliche. There is a battle within our minds designed to help us cope with the UNCERTAINTY of the chart in front of us, and the FEAR that this uncertainty creates.

We are all well tuned in to the importance of having money, or not having it. Money is literally life or death. It amplifies the importance we place on the uncertainty and the fear. (If you are new to this blog, read some of the prior posts of the last couple weeks. Ziad has some important posts too that all relate to this). "Trading psychology" refers to both the adverse effects of the battle in our minds as well as the "proper" psychology side of it, sometimes called the "traders mindset". So psychology is not a bad word. It's more an indifferent word to me. To me, the effect of the psychology has to be minimized. I would rather not have to think about it. (sigh) When trading becomes boring instead of roller coaster highs and lows, we are on the right track. How to do it?

I understand the effect that fear (I'm not afraid to use the word) has on me in trading. I understand how the market works. Inconsistency and uncertainty are necessary components that make the market function. I further understand that just reading about it (say reading the same explanation over 1,000 times) is useless. I can read it, and understand it, but I can't solve it by reading a book. One way I CAN cope with the uncertainly, and thus the fear as well, is by creating some structure in the charts that minimizes it. The structure is designed to both help me get an edge in the market as well as minimize the contradictory brain chatter that can fuel the fear. In effect, by organizing my charts in such a way I am trying to create as many "black and white" (no grey area vagueness), or "Yes/No" situations as possible.

Understand here that my particular methods of creating structure aren't the point. YOUR trading plan is different than mine. You can use the general idea here to help yourself. I'm sure you already do this in some form. This blog post is a review for me to help me in my trading. You can read what my style (daytrading) and premise is by clicking on my name to the right in order to put the following in context.

1) The most important work I do every day is draw out the price created support and resistance levels (S/R). These are the levels the market, in its prior day(s), has told me in no uncertain terms were levels of contention. I know from experience they will be levels of contention again on the first day they are hit after being created. They will make good entry and exit points. So I start out each day with a chart showing a bunch of horizontal lines on it. That's my roadmap for the day. I am most interested in what price is doing when it is right around those lines. About 80% of the time I will not take a trade in the middle between those lines. That's pretty much a black & white thing for me. My brain can relax a bit when price is traveling between the levels, which is the majority of the chart. No brain cramps in trying to count fractal waves for me. Before the day even starts I already have a decent idea of where I will and won't take trades. I will watch the market all day in order to determine its TENDENCY, but I won't be sitting there with my hand on the mouse pointed to the order entry window all day wondering if I should do something or not. It is usually "not". And so the chart has already been divided into manageable segments before the open. I only need to zero-in on little snippets of it.

2) Moving average crossover. I use a moving average crossover to tell me if I can go long or short. It's not an entry signal, it's just a "Yes/No" toggle switch on my smallest chart...the entry chart. If the shorter ema is above the longer that means I can ONLY take longs. If reversed, I can ONLY take shorts. Black and white. That eliminates some thinking for me. It also prevents me from trying to buy a bottom or sell a top, things I don't need to be risking my money on.

3) A move outside a Keltner Band. I put a Keltner Band on my middle chart (3 times bigger than the smallest chart). No trade can be considered unless price has popped the upper or lower band first. No exceptions. A Keltner band puts a mathematical boundary around the price bars. Breaking an outer band requires some price momentum. I require (not just need) the momo before I can look for the trade. It's another "Yes/No" toggle switch. Nothing vague about it.

4) Using my biggest timeframe (3 times bigger than the middle one) for major price-action setups. I will watch for HL's and LH's, and double bottoms and tops here. As a final determinant as to what direction I should be trading I will look to see if this chart is still making HH's (or LL"s), or has now printed a LH or HL (or double bottom or top). If it hasn't changed directions then I shouldn't reverse my Long/Short trading bias either.

That's pretty much it. Just some mostly mechanical things to keep me trading in the direction the market is showing me it wants to go. The specifics aren't relevant to anyone but me. It may not even make sense to you. That's not the point. All of it requires little thinking and is designed to keep me from shooting myself in the foot...and to keep my thinking organized. That IS the point. As Ziad has said previously, we have to look at every little thing in the context of the bigger market. One of first "ahaa" moments I ever had was when I read a trading forum post from a guy who said the awakening for him was when he started concentrating on "setups" (as he put it) instead of triggers. The difference is that setups are showing where the market wants to go whereas triggers are specific indicator based entry signals that can show up almost anywhere. But you can only take the triggers when the setups are right as well. That's what I'm accomplishing here; getting myself pointed in the right direction first. Creating some structure on my charts helps transform the chart from a bunch of squiggly lines to a more understandable picture. Anything that makes it more understandable is going to reduce the uncertainty, and thus fear level.

Monday, September 14, 2009

Evolving through the hourglass

A reader made a comment about my “holy grail” post and I began to type a reply. But as is so common with me the length got longer and longer so I decided to just post my reply as a regular post.

Picture in your mind the process of learning to become a trader as moving through an hourglass that is “V” shaped and wide at the very top, becomes narrower and narrower as it reaches the middle, and then opens up to become an inverted “V” and widest again at the bottom. As a new trader we are a pebble of sand dropped into the top of the upper part. The hourglass is wide at this point, representing the wide-open opportunity we see ourselves having. We've just latched onto a trading plan and we see unlimited opportunity in our future. Our trading plan, we are told by its creator, is a relatively painless, quick path to success. It is backed by many great sounding testimonials.

But after awhile we see it’s not quite so easy. We get some losses sprinkled in with some winners. The signals that looked so sharp in all the tutorials seem to be downright “fuzzy” at times. We are dropping a bit lower in the hourglass and the walls seem to be getting narrower. We continue on with learning and struggling but we seem to not get that breakthrough we hoped for. Others encourage us to keep plugging away. It's like this for everybody we're told. We take some more trades but end up bailing out too soon because we don’t want to violate that rule we’ve been warned about and let a winner turn into a loser (sound familiar for readers of this blog?). But then we hold a few trades too long because we’re sure they would reverse. They didn’t. We had a correct trade entry signal just like the plan called for, didn’t we? We fall a little deeper into the hourglass and the walls are converging on us. Our optimism is still there but getting dampened. But we fight on.

We have a few successes, but greater losses. We begin to doubt that our trading plan is as great as we thought. Should we create or buy another one? We see missed opportunities that worked out just great....if we had taken them. But it seems the ones we take turn out to be the rare losers. We're confused, and angry. It seems to work so great for everybody else, why not us? In the chat rooms and blogs we see all these people making good money. Hardly ever a loser it seems. Again, why them and not us? We continue to sink further into the hourglass and the walls are getting uncomfortably tight. We feel the pressure.

After another round of more losses than winners our minds are spinning. Is the market out to get us? We see ghosts at ever corner. What should we do? Quit? We scour the internet for a better plan …and better indicators. If we have an outside job we have other income and thus quitting becomes a viable choice here. If we don't have outside income we are in trouble. Can we afford to lose even more money? Quitting, before it’s too late, is an option here too.

We rack our brains searching for answers. I'll work 12 hours a day instead of 8. I'll switch markets to an "easier" one. I'll change timeframes. Will that do it? What am I missing? But we've come this far and it seems like we may as well give it one more try. We are at the narrowest point of the hourglass now. We can literally stretch our arms out and touch both sides of the hourglass. The pressure to “put up or shut up” is intense. Our account balance has been on a steady decline ever since we first got this great dream to be a trader. Very few pebbles of sand representing the other traders who started out the journey at the same time we did are still with us. The majority have left the business and gone on to other things.

Having gone this far our knowledge level is at its highest, but our account balances are at their lowest. It’s about the opposite of where we started at the top of the hourglass where we had our full account balance, but hardly any knowledge. It seems we are the bottom of a "V" shaped cone that is coming to a closed off point. Is this the end? All this struggle, all this time and now it is destined to end? We take a minute to regroup, to assess our choices.

Our heads are still full of ideas but now it seems these ideas seem to make more sense having watched the market in operation for a thousand hours it seems. Have all those painful losses over such a seemingly long period of time finally made us smarter all of a sudden? Maybe this isn't the bottom of a cone. We muster all our resources and push onward yet again.

And then it happens. We get an "ahaa" moment. One of those moments we’ve heard about where all of a sudden the lightbulb goes on in our head, and where a chart that was once seen as a collection of chaotic lines and bars is now a clearer, more easily understood thing. But we get not just one, but two or three “ahaa” moments. Why didn’t this happen a year or two ago we wonder? Why did it take me so long to finally see what I see now? The "secrets" of trading are becoming clearer. But we didn't know earlier. We were just naive beginners so long ago.

A light appears. It’s not really a cone were in. There is no closed off bottom at the apex. We take some more trades based on our newfound knowledge. A couple winners and a loser. But the winners were both bigger than the loser. A little confidence returns. The walls of the hourglass are getting wider as the pressure on us lessens a bit. More trades and more winners. An occasional loser but it doesn’t seem to bother us too much. The walls of the hourglass, representing that wide-open opportunity we dreamed of long ago are getting wider and wider after fighting our way through the choke point in the middle. We’re smart enough now to not get cocky, but also to not get too conservative. Trades are running longer. We just had our biggest winner of all. And it came from the same old pattern we’ve seen a hundred times before. Amazing.

We’ve arrived. No, we’re not one of the “Pro’s” yet. But we’ve cracked the code. We outlasted the pain, the doubt, the fear. We come to realize that our key to success wasn’t even in that plan we bought so long ago. Oh, it helped with some basic structure. But it was in our own determination to understand what was happening in our minds and how we could make the adjustments needed that made the real difference.

Thursday, September 10, 2009

An honest PE is a good thing

My wife is a manager at an insurance company. Once a year she has to fill out a Performance Evaluation (PE) for each of her employees. PE's are serious business. A PE form is many pages in length and includes multiple choice selections as well as many written answers. Getting a good PE is the key for an employee to qualify for a raise, be seen in a positive light for advancement potential, or on the flip-side mark them as "replaceable", or make them a candidate for disciplinary watch. A lot of time has to go into completing these because of the very serious ramifications. The well-being of an employees' family, and all their hopes and dreams, may be at stake. If an employee is involved in, or causes a serious incident with that company, one of the first things the lawyers will say is, "show me the PE's". And you thought those college placement tests you took in high school were serious stuff? Welcome to the real world.

As a trader, how about you? Do you have someone completing a PE on you once a year? One of the advantages of trading is you can be your own boss. One of the disadvantages of trading is you get to be your own boss. Who is it that you have to answer to? Your family? They may desperately need for you to do well. What happens when you goof off, or make excuses for not following the plan? No doubt many traders fail because they make lousy bosses of themselves. But it's something that MUST be done. Sure, we all police ourselves to a degree but usually in a much more informal way. But if we are really serious about long term success should we require a more thorough evaluation of our performance? Do you treat your trading as a real business…with lifelong ramifications?

The only person who can probably do the evaluation is yourself, because only you know well enough what it is you need to do (at least you'd better hope you know). But it may also help to have an experienced fellow trader question you as well ("hold you to the iron" so to speak). It doesn't matter if you are just beginning as a trader or been at it for 10 years. The type of work and expectations at each level will vary. You need to be evaluated based on the level you are at. But you'd better take it very, very seriously. You have to step outside your own body and look down on yourself "as an employee of the trading system you use" and ask some tough questions. The ramifications of your honest answers may be huge. Cheat at it and you only cheat yourself....or your family. What are some areas for this evaluation? Here are some, but I bet you can think of more, based on your own situation. I'd suggest a PE every 6 months.

1) Does the employee have a set daily "morning-to-night" routine that he/she must follow? Y/N Explain what the steps are. How many times in the last 6 months has the employee failed to follow this routine? What reasons/excuses is the employee offering for those times he/she fails? Are they legitimate?

2) Related to #1...Is the employee following a specific pre-market preparation routine in order to prepare for the next trading day? Y/N If yes, what are those steps? Is the employee capable of writing down at least 2 new things he/she has learned from this prep work since the last PE?

3) Related to #1...Does the employee follow a daily or weekly homework routine where he/she works on the key principles of the plan? Y/N If yes, is the employee doing this homework at a specified time, or is he/she "winging it"?

4) Is the employee making themselves available to the market on all trading days? What days in the past 6 months has the employee failed to show up for work? What were the reasons given? Were they legitimate reasons?

5) Does the employee thoroughly understand the “how’s and why’s” of the trading plan being implemented? At least once on the last 3 months has he/she written out the trading plan on paper, from memory? How thorough was the explanation?

6) What is the employee doing to work on his/her trading psychology? List three things. What books on this subject has the employee read in the last 6 months? Has the employee submitted a credible book review complete with detailed notes?

7) Based on an after-the-fact review of the days market, what percentage of the qualifying trade opportunities is the employee taking? What reasons is the employee giving for not taking some of them? Are those valid reasons? What steps is the employee taking to improve in this area?

8) Is the employee getting plenty of rest while away from the market? Is he/she eating right so that he/she is mentally alert and not mentally lazy?

9) How would you describe the employees attitude/demeanor during the day? Does he/she seem stressed/nervous? Relaxed? If stressed, what actions do you propose employee take to work on this?

10) What kind of record keeping is the employee doing? Has he/she submitted a notebook cataloging these records? Does it appear complete or are there many missing days?

11) Has the employee given a written explanation of the conclusions reached by his/her record keeping? Or does the employee "just go through the motions" and rarely try to understand the implications of his record keeping?

12) Is the employee practicing correct trade management per the plan? What percentage of trades are reaching the minimum target?

Based on a thorough review of the above, does the employee merit keeping his/her job for another 6 months? Does the employees' equity curve show that he/she is grasping the essence of the plan? Name the one area where the employee needs the most improvement?

Date:____________ PE conducted by: ___________________

You get the idea. It’s clear that with the success/failure rate associated with this business we have all heard a hundred times, if you plan on being one of the long –term consistent winners you have to do what the rest aren’t willing to do.

Saturday, September 5, 2009

The Scourge of the Holy Grail

If you’ve been in the trading business for at least a few months, or have read a few trading books, you’ve come across something called “the search for the holy grail”. It is the search that many of us (all of us?) take in our trading careers to find that elusive set of indicators, or trading strategy, that pretty much guarantees we’ll have far more winners than losers, and that we’ll have nothing but happy endings at the end of our workday….. if we just follow the lead that these indicators give us. The search begins very early in our careers.

Why do we do it? Because this is about real money. It’s not a mindless video game we’re playing on our computer. “Afterall, how can a new trader in this business be expected to just latch on to a strategy and just make money from the start?”, we think to ourselves. Haven’t we all heard those dreadful statistics about success in this business beaten into our brains more than a few times? You know, the idea that 95% of us will turn out to be nothing but losers and that only 5% will ever make it as full time traders. Pretty daunting isn’t it? So you think to yourself, “Yea, I’d better get onto that search and start it right now. I’m no dummy.”

What else perpetrates this idea of the existence of a holy grail?
1) As new traders we are conditioned to think there are people out there who are consistent winners day after day, who make more in a week than we make in 2 months at our 9-5 jobs. It is implied that these people have found some sort of grail like trading system, and for us to achieve at such a high level we need to find one too.

2) We see the ads in the back of the trading magazines where various plans and strategies are sold. Some cost as much as $10,000. There’s one guy out there who even boasts about having the most expensive plan available, $14,000 I believe. Many go for $2-6,000. Then you can get on the internet and find many times more, usually costing from $49 to $900 or so. Is this the answer? To send a boatload of money to someone whom we assume is an “expert” and thus making us only a credit card number away from impending maximum success too? Almost all these plans are marketed as being relatively simple, and easy to implement Thus anybody with a computer is only weeks away from being a successful trader. Just buy and sell when the little arrows appear on the screen.

3) How about all those indicators out there? You can go to the user forum of about any charting service and download 50 indicators, on top of all the canned ones they include in the package. Some are variations of the common indicators, and some have pretty exotic names. There are also many indicators out there we are told are “proprietary” with their owners, thus not available to the unlearned masses. Nobody would make an indicator or strategy proprietary unless it were close to a sure thing, right? And that’s just one source. There are undoubtedly 100-200 more indicators out there. With every issue of Technical Analysis of Stocks & Commodities magazine there is usually another indicator added to the list. There’s a whole cottage industry out there of programmers who create more and more ways to torture a Open-High-Low-Close bar and sell it to the grail seekers for big bucks. So is it our job to sort through the hundreds of indicators and find just the right combination? Or do we tweak this one and that one and then add them together to make the “can’t lose” system we all want?

4) How about all those advisory and newsletter services? There are many people willing to tell us what the “key levels” will be tomorrow. Should we just wait for the email and then act when told so? Or we can join a live trade calling room for “only $300 a month”. Why not write a book to become an “expert” and then start a newsletter service based on your newfound fame and instant credibility? Is subscribing to a few of these the key to my success? At $35 a month times 662 subscribers…well, these guys must certainly know their business, right? Right?

If successful trading were a matter of spending a certain amount of money with a trading systems vendor, and spending a few months to learn that system, wouldn’t just about everyone quit their job and become traders? Layoffs…..recessions….who cares? Don’t we all want to live the perceived glamorous lifestyle of the successful trader? And if one indicator gives me some good information, won’t adding 3 or 4 more give me unbeatable information?

Wait a minute, you think. If those plans selling for a few thousand dollars were really as good as the advertisements said they were, why not sell them for much more? I see a testimonial where a user said he made $1,000 in one day….yet the plan is available for “only” $2,000? Maybe it’s just me, but if I had a near “sure thing” plan I’d sell if for 100 times what you can make in one day with it. I may not be John D. Rockefeller, but I’m not stupid either. If you owned a successful business, would you sell it for just 1 or 2 times annual earnings? I think not.

The fact is, all those plans do work…some of the time…for some of the users. And for some people, the plan works the majority of the time. The vendors know all this. This is a numbers game for them too. The legal disclaimer you see posted with every plan protects them. They know that once you give up on this particular indicator or strategy there will be plenty of people to stand in line to buy the next one. The allure of trading success is just too great to ignore their sales pitches. (continued…)

The Scourge of the Holy Grail (part 2)

Or is it that the plan works, but the people don’t? You start thinking a little deeper now as you scratch your head. Considering that there are only so many ways to skin a cat (or trade the markets), and that many, many plans are nothing more than re-named, tweaked, spiffed up, and glorified versions of many other plans already being used, I’d say it’s true that the majority of the time the problem is the trader, not the plan. That being the case, I see no reason to spend more than $100-200 for a trading plan. And only then if it has a solid background of success. You can get decent trading plans out of a library book for free. Or free off the internet. I propose that it’s the trader that makes the most difference, not so much the plan. And certainly not the jazzed up indicator.

As human beings we bring to the table both great opportunity for success, as well as great opportunity for failure. We are perfectly capable of undermining our own efforts and snatching defeat from the jaws of victory. Many successful people will tell you the key is to simplify, simplify, simplify. Not to overcomplicate. Not to fill 3 monitors with 10 different charts to trade one market. Why can some people trade with no indicators at all, or else just 1 or 2 at most?

As time goes by, most of us (OK, that’s just a guess on my part), start a method of simplification whereas we strip off indicators and concentrate more on what causes those indicators to indicate (indicate after-the-fact that is) what the price bars have already told us. We get by with less because we read between the lines and beat those lagging indicators to the punch. This is something a new trader can’t do though; he doesn’t have the experience to rely on chart reading skills. The problem though I’m addressing here is that many people never get out of this stage of searching for the magic indicator. It is their whole career, sorry to say. They believe to the bitter end that the grass is greener on the other side. They are always just one indicator away from eventual success, they believe. And they will be in the same position next year, and the year after that, etc. etc, until they finally quit. Sad to say, I had a friend in the trading business who was just like that. Almost every time I’d talk to him he was experimenting with new stuff he found on the web. Always tweaking and looking for sure things. He was making a career out of it. Some people will spend their entire trading life looking for the next best thing instead of concentrating and learning a simple system that does work.

So at what point in our careers do we quit the search and focus all our efforts on just one plan? At what point is “seeking improvement” really just a veiled “search for the holy grail” and the search is so distracting that it prevents us from succeeding in trading…preventing us from using what we DO know, because we have convinced ourselves we still don’t know enough.…even after years of effort? At what point is the search really a scourge?

Are you a “closet” searcher? Are you the person who publicly acknowledges in the chat room that such a search is silly…yet as soon as the next issue of the traders magazines come out you are downloading new indicators and spending hours trying to tweak them to perfection? Or did you read where someone else had a winning trade and the “reason” given was that the X indicator was below 20 while the Y indicator was crossing its double-weighted exponential moving average? (only try that technique when the moon is also in a certain phase…if so I guarantee a winning trade) and then you spent an hour trying to tweak this to your own plan?

If you are new at this, vendors know what you may not yet know…that trading is hard work, stressful, and full of contradictions. It is not as easy as they want you to believe. Afterall, they have something to sell you. And you “ain’t gonna spend good money to buy hard work”. Therefore the smarter vendors have created marketing plans that play on the idea that trading is in fact simple. Maybe all you have to do is buy when the green arrow shows up in their software, and sell on the red arrow. It’s not so easy. In the end however, the actual principles that guide the markets are fairly simple and you don’t need to pay much to learn them. Actually, you can get most from library books. Of course, as a new trader, you just don’t realize this yet. And that’s the irony. And even after years of learning and trading you may still believe that there are “secrets” out there that all but guarantee success.

It's natural to strive for perfection…OK, call it “improvement”, instead. Afterall, you don't want to be a sloppy, impulsive trader do you? That said, you don't want to be a perfectionist either. You will never have infallible information. NOBODY does. And you will seldom be able to execute every trade flawlessly. NOBODY can. You can plan a trade methodically only to have it fail because an unanticipated adverse event thwarts your trading plan. It happens to EVERYBODY. Work instead to fulfill your potential to be very, very good at evaluating risk… NOT to seek perfection.

On the wall over my desk I have several quotes. Let me share two of them with you.
“The purpose of technical analysis is not to be able to identify every market position at all times. That is a daydream and a waste of time. The objective of TA is to identify conditions that have a high probability of success. If you demand constant action you will have serious problems. You will accomplish your goals with patience and discipline, not activity” ….Robert Miner

And then, “The winner is the guy who is able to stay rational, has a high tolerance for ambiguity and inconsistency, can control his emotions, and handle his money” I don’t remember where I read that one so I can’t give proper credit to the author. That is the real world of trading…whether you’ve been doing it for 20 weeks or 20 years. It doesn’t matter how much you paid for your plan, or who’s “expert” advice you consult. That is real-life trading. If the markets were easily “figured out” they would no longer exist. There must be people willing to buy at the very instant others are willing to sell. Everybody’s got an opinion. And that makes a market….and it makes for contradiction, ambiguity, and uncertainty. NOBODY has an indicator or strategy for sale that eliminates that.

There is no such thing as an indicator that predicts the future. That is a guarantee. There are 100 ways to trade; none work all the time. All work some of the time. That is a guarantee, also. The reasons that the market moves are really fairly simple. And to some people that makes trading fairly simple. Do not be so naïve as to believe that we, with our small amount of experience, can find some indicator that always works by “combining this one with that one”, or “combining these 2 and then tweaking them in a certain way”, or “only looking at certain stocks and then using this indicator but not that one.” It is all a trap designed to delude us and take our money (either the market takes it or indicator programmers and “trading how-to” vendors take it).

Wanting to improve is a good thing, but there are only a small handful of methods that actually work. They are: 1) support & resistance, 2) volatility expansion & contraction, 3) basic price patterns like double bottoms/tops, HL’s and LH’s, 4) volume, 5) divergence (there are no magic divergence indicators. Stochastics, MACD, CCI, etc. Take your pick. They all work), and 6) and money management. The sooner you call off the search for the Holy Grail and concentrate on only those, the sooner you will have a chance to succeed. My guess is that few indicators are showing you something you can’t see with your own eyes in real-time. But indicators do serve a purpose. They just make it easier to see what price might be doing so we can concentrate on other factors. But no magic or seeing into the future.

If you talk to veteran traders who’ve been around 10 years or more you will probably hear (OK, I did not go out and interview a bunch of traders, but have read lots about them) that intuition and gut feel have become a prime factor in their success. Now in order to build up this level of intuition they had to work hard, day …after week …after month …after year to perfect their craft, which no doubt started out by using some indicators, strategies, and rules. But experience has taught them to understand the charts without the aid of many indicators. This makes many indicators to be like the training wheels on a bicycle. Those training wheels helped you learn how to balance on your own. After a while you learned how to ride without them. The point is that there was no magic in those indicators. They were just a visual aid to help you see what the market was already doing.

I find it refreshing to see that almost all indicators I’ve played with over the years “don’t work” for the specific thing I wanted them for. Because if they did work it would only perpetuate in me the idea that the key to success was in the indicators, and not the charts. Thus the desire to succeed, and avoid failure, would put me on an ongoing search to find the Holy Grail of indicators that would make me rich. This search would also perpetuate in me the idea that I could “study myself to perfection” by spending hundreds or thousands of hours to find that magic indicator or combination of them. Thinking be damned….just put the right indicators on my chart and I’ll get rich!

The real Holy Grail is confidence in yourself to execute according to a plan. This assumes you have a written plan on paper. You do...right? A determined person with a simple plan will outshine the guy with 3 monitors and 10 charts who is looking for more (i.e. too much) confirmation. That’s just my humble opinion. Success is, has been often said, found in the 6 inches between our ears. It is being in the right mindset and willing to take a calculated risk. Trading rules can, and should be, relatively simple. We have to learn to handle our emotions that cloud our judgment when money is on the line. Emotions usually get less mention from “experts” because it’s not as sexy as the newest indicator. I suppose another reason psychology gets so little mention from the vendor “experts” is that if you buy their winning plan you won’t have many losing trades, right? If you hardly ever lose then who needs that psycho-babble, right?

There is no easy solution for new traders. It’s too bad most of us don’t have relatives who are successful traders from whom we can get honest advice from the very beginning. It’s too bad most of us have to rely on “experts” (there’s a reason I usually put that word in quotations) who we meet in the backs of magazines, $250 a month chat rooms, and “only $775 for all this” websites. If you are new, maybe this will help your journey. …..YM-Trader (this was originally published under my real name last year)

Thursday, September 3, 2009

Thursday 09/03/2009 - Range-Bound (again)

Today provided a few good trade opportunities but timing is always critical, and if you missed the entries, then best bet is to avoid the chop. Today was Day 2 where the day session remained within the Globex/over-night range. Again, fading the extremes would have been profitable.

I look at charts on ThinkorSwim during the day when I can take a break from work, and will put on a trade using their Simulator if I see a good area for entry. I went Long 3 contracts at 996.00 around 2:00 PM (central) and scaled out at 997.00, 998.00 and 1000.00.

Employment Situation out at 7:30 AM (central) tomorrow morning.

ES - 5-Min Chart for Wednesday 09/02/2009

Some trading wisdom

The people who are going to succeed at this long term are the people who are able to get up after they’ve been knocked down, and knocked down again, and knocked down again. It’s a mind-set of being able to put closure to what happened yesterday, or what happened two minutes ago, closing that off and mentally adjusting for the future.
… Don Miller

Everyday I face brilliant opportunities disguised as challenges.
… unknown

I have never been tempted to change my style because I feel that my patterns and strategies don’t change. The market is very basic; you buy pullbacks in a trending issue, you buy divergences, or you buy breakouts from congestion areas. Likewise on the sell side. These things don’t change over time.
…. Linda Raschke

I have spent hours and hours, speaking to the same people … to concentrate on being a machine. Be consistent. Enter and exit trades, manage risk, etc, the same way every single time. Trail your stops the same way every time. Determine your stop location the same way every time. Determine your profit objective the same way every time (did I beat the horse enough?).

They SAY they understand but most find it impossible to actually do these things. The human brain wants to make an adjustment after a loser to compensate, or FIX, whatever the problem was on that trade, to ultimately avoid it in the future. And when you tell them no, your approach and management was fine, if it happens that way again you should do the exact same thing again, I think it's hard for them to stomach. I take losers and tell people, it was a signal, I took it, managed it, and exited it the same way I always do. I say I used runners on the position and got screwed again …but emphasize, I WILL DO IT AGAIN THE EXACT SAME WAY IN AN HOUR FROM NOW IF THE SAME THING HAPPENS.
….Frank Butera

Wednesday, September 2, 2009

Wed. 09/02/2009 - Consolidation Day (Range Bound)

Consolidation day, which was expected, after yesterday's down trend from the open. Price remained within the over-night range all day. Best to fade the range extremes or just sit back and wait for a directional move out of the range. Jobless Claims data at 7:30 AM (central) tomorrow morning should provide some volatility and direction.

ES - 5-Min Chart for Wednesday 09/02/2009

Tuesday, September 1, 2009

Marked Up Charts (08/28/09-09/01/09)

Just thought I'd share my marked up charts from the past few days.

ES - 5-Min Chart for Friday 08/28/2009

ES - 5-Min Chart for Monday 08/31/2009

ES - 5-Min Chart for Tuesday 09/01/2009

Gap fill levels are gems

August 31 was an "NR7" day in the mini-Dow (narrowest range of the last 7 days). Many technical traders consider it a sign of an upcoming expansion move. You can google it and get all the info you'd want. Whatever the case, the market moves from periods of expansion to contraction, back to expansion, back to contraction, back to expansion, etc., etc. It does this expandng and contracting in both range (how much the bars move from high to low for any period), and in speed (how fast they move). The daily chart seemed a bit toppy too so maybe we were due some range expansion. The 31st was actually the smallest range of the prior 10 days. Today we got both types of expansion.

The chart shows where I figured some support and resistance levels, particularly the gap fill level of 9496 (the dotted blue line starting at the beginning of "Today"), and the S/R level of 9477-9479, which was created yesterday. We had a triple header in news due out at 10:00 (source: econoday) and it jolted the market pretty good with jerks in both directions. The news was actually "good" but for technical trading we don't really care if the news is "good" or "bad". It is the reaction to the news that we need to see. The market made a double top, which was a high for the day at that point and then proceeded to sell-off pretty quickly, and deeply. It made a LL (lower low) than the preceeding swing, as marked on the chart. Picture in your mind a move from a HH to a LL as an "outside bearish" bar on the daily chart with all the price action to the left, in between that HH and LL as prior days. What we expect from such a pattern is for a LH to form in the pullback, which would be shortable. If price continued higher past the point of a potential LH I'd next look for a triple top to form (we already had the double top). The ideal place for a LH to form here is the old gap fill of 9537. It didn't oblige. It did make the LH however and then took out that low. Technically we had a confirmed top in place, regardless how "good" the news was. Traders express their opinions with their wallets, not meaningless verbal sparring like on CNBC. Trying to interpret the news as good or bad for the market (on an intraday time-frame) is something I don't care to even try.

The first place I looked to short was the current gap fill of 9496 (blue line) as price broke under it and retested it from the bottom. Smaller timeframe entry charts show this much clearer. A second place was right under the 9477-9479 S/R band. The pullback came to within 3 ticks of it. When it gets within the range of your stop-loss parameters you have to act if you saw this as an entry (this is my chart, not yours). You can't expect perfect pullbacks so you can't be a "dick for a tick" (No, I did not make up that term. No offense). We don't know how far the market will move. Today looked wonderful in hindsight after you entered. So you just have to manage the trade best you can. But you have to get in first. The support/resistance levels shown here are relatively easy to compute (but can take some time) and work pretty well. The gap fill level is always a gem.