Costly Trading Mistake #4 (And How To IMMEDIATELY Fix It)
Relying on Technology Instead of Learning How To Trade
Information overload is a problem, not a solution. Most unsuccessful traders think more information will make them a better trader and never take the time to learn how to trade.
Today, software, data and market information is cheap. When I started to trade in the mid-80's, most traders did not have a computer or trading software. Those who did, paid hundreds of dollars a month for the software and data. Back then, most of us traders drew our charts by hand each day on graph paper. Some of us either sat in the broker's office or had a DTN or other steaming data at home and made intraday charts by hand as well.
Today, trading software and data are very cheap. They have become so inexpensive, that the cost of data and trading software is hardly a relevant cost for a trader. Many traders become software junkies thinking they can buy success with a trading program and not actually have to learn how to trade and make trading decisions. BIG MISTAKE!
No Amount of Technology Will Make You Successful
Today's cheap and abundant technology and plethora of trading software and cheap data is not a substitute for learning how to trade. No software program, advisor or any amount of data will make you a successful trader. Only the knowledge of how to distinguish which information is useful and relevant and how to apply the information to make low-risk and high-probability trade decisions will help make you a successful trader. Trading is exactly like every other business. To be successful, you must have knowledge, information and make decisions based on a plan and experience.
Trading software and data began to get very available and cheap to the small retail trader in the early 90's. Plus, index, stock and Forex trading have become very popular in the last ten years, adding 10's of thousands of active traders. Yet, with all the new technology, cheap data and information that was only available to major institutions a decade or so ago, the percentage of successful traders has not increased!
Brokerage companies still report that only about 20%-30% of accounts are profitable after a year of trading, the same as the "old" days of hand charting data at the end of the day! I suspect if the data was available to do a thorough study of trading results going back to at least the early 80's, we would find the percentage of successful traders is actually less today than in the pre-technology days.
You Can't Buy Success
No matter how much technology, information and data you have, you will not be successful if you don't know what makes a market trend, what are the key characteristics of a successful trading business, how to develop and execute a trading plan and much more. In other words, just like every other business, you have to gain knowledge and experience and take risks in order to have the opportunity to be successful.
A while back I gave a talk at a large, local trading group for their monthly meeting one evening. After the talk, several of the group members and I were having a cocktail and someone started a discussion about how many monitors they had on their trading desk. Pretty soon it was a friendly "I've got more monitors than you" competition. Someone asked me how many trading monitors I had. I said one. Everyone fell silent. I guess they thought since I was the "guru" of the hour, I would have a desk full of monitors with all kinds of data feeds. I explained to them that I only look at a handful of markets at any time. Before the first tick of the day, I have the trading plan for the day which means I have identified what conditions must be met to consider a trade. It is just a matter of executing the trade if the conditions are met.
You can't buy success. Most traders have way too much information which causes paralysis of analysis. More importantly, much of the information traders have is not relevant to making a low-risk, high-probability trade decision.
How To IMMEDIATELY Fix This Mistake
Immediately begin to eliminate all information that you cannot specifically identify has been consistently useful to making profitable trade decisions.
Most traders need less information, not more. Decide what are the three or four pieces of information you need to make a trading decision. If you think you need more information, you definitely have too much irrelevant or misleading information. For at least one week, shut down all information flow that provides any information that is not part of the three or four pieces of information critical for your trading decisions. Make all your decisions based on the reduced information. You will probably look at fewer markets. You will probably make more relaxed decisions. You will probably have more profitable results.
Monday, January 24
Sunday, January 23
Costly Trading Mistake #6 (And How To IMMEDIATELY Fix It) by dynamic trader
Costly Trading Mistake #6 (And How To IMMEDIATELY Fix It)
Not Taking Time Away From Trading
Most successful traders take regular time away from the markets for R&R.
Like most businesses, the business of trading can become obsessive. Many markets are active 24/7. There is always something new to learn and ways to improve. Like any other business or profession, traders need to get away from the business on a regular basis for R&R to recharge their physical and mental batteries. You would be surprised how many good trading ideas you will come up with in a relaxed atmosphere with no computers or internet.
Get A Life!!!
There is nothing wrong with being passionate about your trading business. In fact, success in any business is difficult without a passion for the business. But being obsessive or addicted to any business is not healthy or productive.
When you remove yourself from all the information and related activity for any business, you give your mind the opportunity to relax, experience new things and grow. The outcome is often not as anticipated. You will often come up with new trading ideas or perspectives.
Get Away From A Trading Environment
I recently spent three weeks in Argentina. I did have my laptop but did very little "productive" work. I let the folks at the office know that I would rarely check email. I only checked email one day the first week of my trip just in case there was a problem only I could solve. (There are fewer of these than I imagine.) I didn't update any data, charts or workspaces. I adjusted my daily routine to the Buenos Aires schedule. Dinner around 9-11 at night. Milongas (social Tango dances) until 2-3 in the morning, sleep until 10-12, dance lessons or sight seeing in the afternoon etc.
Even though I was in one of the great cities of the world with easy Internet connection and all the financial information I could want, I took myself out of any type of schedule where I would be a part of my trading business and had new experiences and a lot of fun.
With very little time during the three week trip specifically devoted to trading and business, my mind was free to make plans, consider options and come up with new ideas that I implemented after I returned. It was probably the most productive business time of the past few years yet the least amount of time specifically spent on business for a three week period in the past few years!
How To IMMEDIATELY Fix The Costly Trading Mistake of Not Taking Time Away From Trading
Whether you are a full time trader or not, take at least one week off per calendar quarter when you do not look at a chart, update prices, read a financial report or trading book or engage in any activity that is related to the financial markets or trading.
This is much more difficult to do than you may imagine. Even if you are not taking a trip away from home, you must shut down all trading related information for the week.
Spend the time on non-trading related activity. Try something new. Preferably some new sort of physical activity. You would be surprised how your trading business comes into perspective when you are not thinking about it.
If you can't take the one week per calendar quarter off from financial information or trading, you probably need help I can't give you. You are probably "addicted" to trading (see Costly Trading Mistake #2) and probably believe you will miss something important if you do not keep on top of trading 24/7. You won't miss anything. Markets have been active for hundreds of years. There will be more opportunities than you can handle after you come back from your week off from trading.
Take at least one week off each quarter from anything directly connected to trading and you should find your bottom line improve, IMMEDIATELY. Start next week!
Not Taking Time Away From Trading
Most successful traders take regular time away from the markets for R&R.
Like most businesses, the business of trading can become obsessive. Many markets are active 24/7. There is always something new to learn and ways to improve. Like any other business or profession, traders need to get away from the business on a regular basis for R&R to recharge their physical and mental batteries. You would be surprised how many good trading ideas you will come up with in a relaxed atmosphere with no computers or internet.
Get A Life!!!
There is nothing wrong with being passionate about your trading business. In fact, success in any business is difficult without a passion for the business. But being obsessive or addicted to any business is not healthy or productive.
When you remove yourself from all the information and related activity for any business, you give your mind the opportunity to relax, experience new things and grow. The outcome is often not as anticipated. You will often come up with new trading ideas or perspectives.
Get Away From A Trading Environment
I recently spent three weeks in Argentina. I did have my laptop but did very little "productive" work. I let the folks at the office know that I would rarely check email. I only checked email one day the first week of my trip just in case there was a problem only I could solve. (There are fewer of these than I imagine.) I didn't update any data, charts or workspaces. I adjusted my daily routine to the Buenos Aires schedule. Dinner around 9-11 at night. Milongas (social Tango dances) until 2-3 in the morning, sleep until 10-12, dance lessons or sight seeing in the afternoon etc.
Even though I was in one of the great cities of the world with easy Internet connection and all the financial information I could want, I took myself out of any type of schedule where I would be a part of my trading business and had new experiences and a lot of fun.
With very little time during the three week trip specifically devoted to trading and business, my mind was free to make plans, consider options and come up with new ideas that I implemented after I returned. It was probably the most productive business time of the past few years yet the least amount of time specifically spent on business for a three week period in the past few years!
How To IMMEDIATELY Fix The Costly Trading Mistake of Not Taking Time Away From Trading
Whether you are a full time trader or not, take at least one week off per calendar quarter when you do not look at a chart, update prices, read a financial report or trading book or engage in any activity that is related to the financial markets or trading.
This is much more difficult to do than you may imagine. Even if you are not taking a trip away from home, you must shut down all trading related information for the week.
Spend the time on non-trading related activity. Try something new. Preferably some new sort of physical activity. You would be surprised how your trading business comes into perspective when you are not thinking about it.
If you can't take the one week per calendar quarter off from financial information or trading, you probably need help I can't give you. You are probably "addicted" to trading (see Costly Trading Mistake #2) and probably believe you will miss something important if you do not keep on top of trading 24/7. You won't miss anything. Markets have been active for hundreds of years. There will be more opportunities than you can handle after you come back from your week off from trading.
Take at least one week off each quarter from anything directly connected to trading and you should find your bottom line improve, IMMEDIATELY. Start next week!
Saturday, January 22
Costly Trading Mistake #5 (And How To IMMEDIATELY Fix It) by dynamic trader
Costly Trading Mistake #5 (And How To IMMEDIATELY Fix It)
Not Keeping It Simple
Successful traders usually have a fairly simple trade plan based on a few pieces of key information and just one or two trade strategies.
Unsuccessful traders usually have very complex trading plans (if they have a trading plan at all). A successful trading approach should be relatively simple to understand, to identify the trade set-ups and execute the trades. Having a trade plan and strategy that is too complex is related to Costly Trading Mistake #4, too much technology and information.
From The Complex To The Simple
In the 1980's, my trade plan was very complex. I was known as one of the prominent Gann and Elliott trading authorities and released a very comprehensive and complex W. D. Gann Home Study Trading Course in the late 80's. Trade decisions involved dozens of price and time calculations, lot's of chart geometry and complex E-wave patterns.
As the years have progressed and I've learned more, I've also simplified my trading strategy. I look at far less information now than I did 15-20 years ago. Trading decisions for any market and any time frame are quickly made because there are only three or four relevant pieces of information regarding the multiple-time-frame, price, momentum, pattern and time position of any market that are needed to make a specific trade decision. A market is either in a low-risk, high-probability trade position or it is not.
Successful Trading Is Not Easy, But It Should Be Simple
I'm not trying to tell you that successful trading is easy. I am saying that successful traders do not make trading decisions complicated.
I had a customer of my Gann Course from the late 80's who came to a number of my workshops over the years. He was very bright and did a lot of hard work. Each time I would see him, he would describe a new approach or new indicator he was working on or testing and always finish up by saying "one more tool for the trading tool box." Most of his new indicators and strategies didn't really provide any new or unique information he did not already have. He was over complicating the trading process.
I would tell him my objective is to get rid of most of the trading tools and focus on just three or four tools to make decisions. Most household repairs can be made with just a few tools - pliers, hammer, wrench and screw driver are all you need for most simple home repairs. Most trading decisions can also be made with just a few tools. If your trading tool box is too full, you are likely to overcomplicate a situation and make mistakes.
How To IMMEDIATELY Fix The Mistake of Not Keeping It Simple
I'm assuming you keep a trading log that notes the conditions of a market that describe why you took a trade and the outcome. If you don't have a trading log to track and review trades - well - that is another costly mistake. All consistently successful traders keep a trade log to be able to review each trade.
Review all of the information you considered before each trade was made in the last 30 days. Determine which information you considered important at the time of the trade was actually useful for the trading decision. You will probably find that some of the information you thought was necessary before the trade review did not help make a successful trade decision and can be ignored in the future.
After this review, you should have reduced the information you need for a trading decision and the trade strategy to more a more simple approach than you had before the review. All traders should go through this process at least once a quarter for all of their trades.
If you do this review and simplify your trade strategies, you should immediately improve your bottom line.
Take The Time To Learn How To Trade
Not Keeping It Simple
Successful traders usually have a fairly simple trade plan based on a few pieces of key information and just one or two trade strategies.
Unsuccessful traders usually have very complex trading plans (if they have a trading plan at all). A successful trading approach should be relatively simple to understand, to identify the trade set-ups and execute the trades. Having a trade plan and strategy that is too complex is related to Costly Trading Mistake #4, too much technology and information.
From The Complex To The Simple
In the 1980's, my trade plan was very complex. I was known as one of the prominent Gann and Elliott trading authorities and released a very comprehensive and complex W. D. Gann Home Study Trading Course in the late 80's. Trade decisions involved dozens of price and time calculations, lot's of chart geometry and complex E-wave patterns.
As the years have progressed and I've learned more, I've also simplified my trading strategy. I look at far less information now than I did 15-20 years ago. Trading decisions for any market and any time frame are quickly made because there are only three or four relevant pieces of information regarding the multiple-time-frame, price, momentum, pattern and time position of any market that are needed to make a specific trade decision. A market is either in a low-risk, high-probability trade position or it is not.
Successful Trading Is Not Easy, But It Should Be Simple
I'm not trying to tell you that successful trading is easy. I am saying that successful traders do not make trading decisions complicated.
I had a customer of my Gann Course from the late 80's who came to a number of my workshops over the years. He was very bright and did a lot of hard work. Each time I would see him, he would describe a new approach or new indicator he was working on or testing and always finish up by saying "one more tool for the trading tool box." Most of his new indicators and strategies didn't really provide any new or unique information he did not already have. He was over complicating the trading process.
I would tell him my objective is to get rid of most of the trading tools and focus on just three or four tools to make decisions. Most household repairs can be made with just a few tools - pliers, hammer, wrench and screw driver are all you need for most simple home repairs. Most trading decisions can also be made with just a few tools. If your trading tool box is too full, you are likely to overcomplicate a situation and make mistakes.
How To IMMEDIATELY Fix The Mistake of Not Keeping It Simple
I'm assuming you keep a trading log that notes the conditions of a market that describe why you took a trade and the outcome. If you don't have a trading log to track and review trades - well - that is another costly mistake. All consistently successful traders keep a trade log to be able to review each trade.
Review all of the information you considered before each trade was made in the last 30 days. Determine which information you considered important at the time of the trade was actually useful for the trading decision. You will probably find that some of the information you thought was necessary before the trade review did not help make a successful trade decision and can be ignored in the future.
After this review, you should have reduced the information you need for a trading decision and the trade strategy to more a more simple approach than you had before the review. All traders should go through this process at least once a quarter for all of their trades.
If you do this review and simplify your trade strategies, you should immediately improve your bottom line.
Take The Time To Learn How To Trade
Friday, January 21
lesson from dynamictrader #4
Information overload is a problem, not a solution. Most unsuccessful traders think more information will make them a better trader and never take the time to learn how to trade.
Today, software, data and market information is cheap. When I started to trade in the mid-80's, most traders did not have a computer or trading software. Those who did, paid hundreds of dollars a month for the software and data. Back then, most of us traders drew our charts by hand each day on graph paper. Some of us either sat in the broker's office or had a DTN or other steaming data at home and made intraday charts by hand as well.
Today, trading software and data are very cheap. They have become so inexpensive, that the cost of data and trading software is hardly a relevant cost for a trader. Many traders become software junkies thinking they can buy success with a trading program and not actually have to learn how to trade and make trading decisions. BIG MISTAKE!
No Amount of Technology Will Make You Successful
Today's cheap and abundant technology and plethora of trading software and cheap data is not a substitute for learning how to trade. No software program, advisor or any amount of data will make you a successful trader. Only the knowledge of how to distinguish which information is useful and relevant and how to apply the information to make low-risk and high-probability trade decisions will help make you a successful trader. Trading is exactly like every other business. To be successful, you must have knowledge, information and make decisions based on a plan and experience.
Trading software and data began to get very available and cheap to the small retail trader in the early 90's. Plus, index, stock and Forex trading have become very popular in the last ten years, adding 10's of thousands of active traders. Yet, with all the new technology, cheap data and information that was only available to major institutions a decade or so ago, the percentage of successful traders has not increased!
Brokerage companies still report that only about 20%-30% of accounts are profitable after a year of trading, the same as the "old" days of hand charting data at the end of the day! I suspect if the data was available to do a thorough study of trading results going back to at least the early 80's, we would find the percentage of successful traders is actually less today than in the pre-technology days.
You Can't Buy Success
No matter how much technology, information and data you have, you will not be successful if you don't know what makes a market trend, what are the key characteristics of a successful trading business, how to develop and execute a trading plan and much more. In other words, just like every other business, you have to gain knowledge and experience and take risks in order to have the opportunity to be successful.
A while back I gave a talk at a large, local trading group for their monthly meeting one evening. After the talk, several of the group members and I were having a cocktail and someone started a discussion about how many monitors they had on their trading desk. Pretty soon it was a friendly "I've got more monitors than you" competition. Someone asked me how many trading monitors I had. I said one. Everyone fell silent. I guess they thought since I was the "guru" of the hour, I would have a desk full of monitors with all kinds of data feeds. I explained to them that I only look at a handful of markets at any time. Before the first tick of the day, I have the trading plan for the day which means I have identified what conditions must be met to consider a trade. It is just a matter of executing the trade if the conditions are met.
You can't buy success. Most traders have way too much information which causes paralysis of analysis. More importantly, much of the information traders have is not relevant to making a low-risk, high-probability trade decision.
How To IMMEDIATELY Fix This Mistake
Immediately begin to eliminate all information that you cannot specifically identify has been consistently useful to making profitable trade decisions.
Most traders need less information, not more. Decide what are the three or four pieces of information you need to make a trading decision. If you think you need more information, you definitely have too much irrelevant or misleading information. For at least one week, shut down all information flow that provides any information that is not part of the three or four pieces of information critical for your trading decisions. Make all your decisions based on the reduced information. You will probably look at fewer markets. You will probably make more relaxed decisions. You will probably have more profitable results.
Learn A Comprehensive Trade Plan
In our Dynamic Trading Multi-Media E-Learning Workshop and other educational material, we teach you how to develop a trade plan to identify trade setups with a high probability outcome and low risk. In other words, how to trade to maximize results from your trading activity rather than to maximize the activity itself!
Treat trading as a business and you WILL dramatically improve your results
Today, software, data and market information is cheap. When I started to trade in the mid-80's, most traders did not have a computer or trading software. Those who did, paid hundreds of dollars a month for the software and data. Back then, most of us traders drew our charts by hand each day on graph paper. Some of us either sat in the broker's office or had a DTN or other steaming data at home and made intraday charts by hand as well.
Today, trading software and data are very cheap. They have become so inexpensive, that the cost of data and trading software is hardly a relevant cost for a trader. Many traders become software junkies thinking they can buy success with a trading program and not actually have to learn how to trade and make trading decisions. BIG MISTAKE!
No Amount of Technology Will Make You Successful
Today's cheap and abundant technology and plethora of trading software and cheap data is not a substitute for learning how to trade. No software program, advisor or any amount of data will make you a successful trader. Only the knowledge of how to distinguish which information is useful and relevant and how to apply the information to make low-risk and high-probability trade decisions will help make you a successful trader. Trading is exactly like every other business. To be successful, you must have knowledge, information and make decisions based on a plan and experience.
Trading software and data began to get very available and cheap to the small retail trader in the early 90's. Plus, index, stock and Forex trading have become very popular in the last ten years, adding 10's of thousands of active traders. Yet, with all the new technology, cheap data and information that was only available to major institutions a decade or so ago, the percentage of successful traders has not increased!
Brokerage companies still report that only about 20%-30% of accounts are profitable after a year of trading, the same as the "old" days of hand charting data at the end of the day! I suspect if the data was available to do a thorough study of trading results going back to at least the early 80's, we would find the percentage of successful traders is actually less today than in the pre-technology days.
You Can't Buy Success
No matter how much technology, information and data you have, you will not be successful if you don't know what makes a market trend, what are the key characteristics of a successful trading business, how to develop and execute a trading plan and much more. In other words, just like every other business, you have to gain knowledge and experience and take risks in order to have the opportunity to be successful.
A while back I gave a talk at a large, local trading group for their monthly meeting one evening. After the talk, several of the group members and I were having a cocktail and someone started a discussion about how many monitors they had on their trading desk. Pretty soon it was a friendly "I've got more monitors than you" competition. Someone asked me how many trading monitors I had. I said one. Everyone fell silent. I guess they thought since I was the "guru" of the hour, I would have a desk full of monitors with all kinds of data feeds. I explained to them that I only look at a handful of markets at any time. Before the first tick of the day, I have the trading plan for the day which means I have identified what conditions must be met to consider a trade. It is just a matter of executing the trade if the conditions are met.
You can't buy success. Most traders have way too much information which causes paralysis of analysis. More importantly, much of the information traders have is not relevant to making a low-risk, high-probability trade decision.
How To IMMEDIATELY Fix This Mistake
Immediately begin to eliminate all information that you cannot specifically identify has been consistently useful to making profitable trade decisions.
Most traders need less information, not more. Decide what are the three or four pieces of information you need to make a trading decision. If you think you need more information, you definitely have too much irrelevant or misleading information. For at least one week, shut down all information flow that provides any information that is not part of the three or four pieces of information critical for your trading decisions. Make all your decisions based on the reduced information. You will probably look at fewer markets. You will probably make more relaxed decisions. You will probably have more profitable results.
Learn A Comprehensive Trade Plan
In our Dynamic Trading Multi-Media E-Learning Workshop and other educational material, we teach you how to develop a trade plan to identify trade setups with a high probability outcome and low risk. In other words, how to trade to maximize results from your trading activity rather than to maximize the activity itself!
Treat trading as a business and you WILL dramatically improve your results
Thursday, January 20
by Janice Dorn,M.D., Ph.D. www.thetradingdoctor.com
It is one thing to show a man that he is in an error, and another to put him in possession of truth...John Locke
Cognitive biases describe the way you think--the operative words here being cognitive (thinking) and biases (prejudices). You tend to hold on to your biases, even when they don’t serve you well.This causes you to make trading mistake after trading mistake. Also, since your brain is hard-wired for biases, it is difficult to change them without experiencing some type of internal discomfort. Resistance to change and acting out of biases have two effects on your trading and investing: You do the same thing over and over again, and you expect different results every time you do it. This is--as you are aware—Albert Einstein’s definition of insanity.
In order to push through the biases that are holding you back from becoming a profitable trader and investor, you must be aware of them and make appropriate changes. How do you make changes? You retrain your trading brain. This is done through consistent coaching and practice. It takes time, but it is completely doable—and it works!
The human brain uses biases to protect against assaults on your self-esteem. The self-attribution bias describes the tendency for good outcomes to be attributed to skill and bad outcomes to be attributed to just plain hideous bad luck.
A decision matrix for self-attribution bias looks something like this:
Good OutcomeBad Outcome
Right Reason
Skill
Bad luck
Wrong Reason
Good luck
Mistake
This type of thinking is one of the biggest obstacles you must push through in order to become successful. Why? Because the only way to gain consistent profitability as a trader is to recognize and take full responsibility for your own mistakes. This is yet another reason to keep a detailed trading journal and to analyze each trade in context of self-attribution. In this way, you will come to a better understanding of where you were skillful and where you were lucky.You will also find that mistakes are essential to learning—both in the markets and in life. The takeaway is to accept a mistake as a mistake, not blame anyone else, and learn from it so as not to make it again.
Here are some questions for you to ponder as they pertain to self-attribution bias and how it is interfering with your trading success:
1. When are you lucky and when are you skillful?2. Are you right for the "right" reason, or are you right for some other reason?
3. Does it matter, as long as you are right?
4. How do you measure and "fess up" to mistakes—i.e., recognize mistakes as mistakes by taking personal responsibility and accumulating regret?
5. Is it important to do this, and why or why not?
6. What are some other biases that affect your trading results?
You should examine yourself daily. If you find faults, you should correct them. When you find none, you should try even harder...Israel Zangwill
Thanks and Good Trading!
Janice Dorn,M.D., Ph.D.www.thetradingdoctor.com
Wednesday, January 19
by dynamic trader Costly Trading Mistake #3
Costly Trading Mistake #3 (And How To IMMEDIATELY Fix It)
Taking Too Much Risk Per Trade
If you risk more than 3% of your trading account on any one trade, you are not in the business of trading.
Taking too much risk is a consistent characteristic of almost every unsuccessful trader. There are all sorts of psychological reasons traders do this. It almost always relates to the failure to accept that the trade could be a loser. The more time and energy a trader devotes to identifying the trade set-up, it seems the more he or she believes the trade will be successful and is worth a larger position with more risk.
Be Ruthless About Limiting Capital Exposure Per Trade
Consistently successful traders are ruthless about limiting their capital exposure on each trade. Consistently unsuccessful traders frequently take way too much risk per trade and set themselves up for big, unrecoverable loses.
Consistently successful traders always assume a trade has as good a chance of being a loser as a winner and they cannot predict in advance which it will be. That is why they are ruthless about limiting their capital exposure on each trade. Consistently unsuccessful traders always assume the trade will be a winner which is why they usually take too much risk per trade and are never able to recover from a short series of loses.
Trading and Risk Management
Risk management is as important as maximizing profit, maybe more so. It is no different than with every other business. Every business has risk. But, an important part of any business plan is to identify and minimize the risk so the business will continue to prosper even when things don't work out as planned. Preservation of capital in the business of trading is crucial. That is why ALL successful traders are ruthless about managing risk.
How To IMMEDIATELY Fix This Costly Mistake
This is a very easy mistake to overcome, and can immediately improve your bottom line. Every trader must have an inviolate rule that the maximum capital exposure (risk) for any one trade will be no more than 3% of your trading account. The number of shares or contracts you may have for any one trade will depend on the price you entered and where the initial stop is placed. Here is a simple example of how to determine trade size.
Assume a $100,000 stock trading account. Three per cent is $3,000 maximum capital exposure for a position. Stock price at entry is 61.50 with a stop at 59.50 for a $2 capital exposure per share. $3,000 / $2 = maximum 1500 share position. The position size is determined by the initial entry, stop and account size. For the conditions above, a trader who enters a position with more than 1500 shares (greater than 3% account risk per trade) is probably an unsuccessful trader or soon will be one.
Consistently successful traders are ALWAYS aware of the maximum risk per trade and NEVER let that amount go over 3% of the trade account.
Learn All About Dynamic Price Support and Resistance
In our Complete Price Tutorial CD Series, you will learn more about price support/resistance and trend reversal than any other book or workshop has ever taught. Like all of our educational material, you learn practical trade strategies step-by-step and bar-by-bar in a professionally produced educational series.
Treat trading as a business and you WILL dramatically improve your results.
Taking Too Much Risk Per Trade
If you risk more than 3% of your trading account on any one trade, you are not in the business of trading.
Taking too much risk is a consistent characteristic of almost every unsuccessful trader. There are all sorts of psychological reasons traders do this. It almost always relates to the failure to accept that the trade could be a loser. The more time and energy a trader devotes to identifying the trade set-up, it seems the more he or she believes the trade will be successful and is worth a larger position with more risk.
Be Ruthless About Limiting Capital Exposure Per Trade
Consistently successful traders are ruthless about limiting their capital exposure on each trade. Consistently unsuccessful traders frequently take way too much risk per trade and set themselves up for big, unrecoverable loses.
Consistently successful traders always assume a trade has as good a chance of being a loser as a winner and they cannot predict in advance which it will be. That is why they are ruthless about limiting their capital exposure on each trade. Consistently unsuccessful traders always assume the trade will be a winner which is why they usually take too much risk per trade and are never able to recover from a short series of loses.
Trading and Risk Management
Risk management is as important as maximizing profit, maybe more so. It is no different than with every other business. Every business has risk. But, an important part of any business plan is to identify and minimize the risk so the business will continue to prosper even when things don't work out as planned. Preservation of capital in the business of trading is crucial. That is why ALL successful traders are ruthless about managing risk.
How To IMMEDIATELY Fix This Costly Mistake
This is a very easy mistake to overcome, and can immediately improve your bottom line. Every trader must have an inviolate rule that the maximum capital exposure (risk) for any one trade will be no more than 3% of your trading account. The number of shares or contracts you may have for any one trade will depend on the price you entered and where the initial stop is placed. Here is a simple example of how to determine trade size.
Assume a $100,000 stock trading account. Three per cent is $3,000 maximum capital exposure for a position. Stock price at entry is 61.50 with a stop at 59.50 for a $2 capital exposure per share. $3,000 / $2 = maximum 1500 share position. The position size is determined by the initial entry, stop and account size. For the conditions above, a trader who enters a position with more than 1500 shares (greater than 3% account risk per trade) is probably an unsuccessful trader or soon will be one.
Consistently successful traders are ALWAYS aware of the maximum risk per trade and NEVER let that amount go over 3% of the trade account.
Learn All About Dynamic Price Support and Resistance
In our Complete Price Tutorial CD Series, you will learn more about price support/resistance and trend reversal than any other book or workshop has ever taught. Like all of our educational material, you learn practical trade strategies step-by-step and bar-by-bar in a professionally produced educational series.
Treat trading as a business and you WILL dramatically improve your results.
Tuesday, January 18
People Think It’s All About Prediction -- But It Is NOT! by Van K. Tharp, Ph.D.
Let’s look at some of the major methods behind investing or trading and see what they can tell us.
- Trend following – If you buy what’s going up, it will probably continue.
- Value Investing – Buy what’s undervalued because it will eventually become overvalued.
- Seasonality – The market tends to show seasonal patterns that you can capitalize upon.
- Band Trading – It’s possible to draw bands to describe the nature of an investment. Those bands will allow you to sell when the price gets too high and buy when it gets too low.
- Elliot Wave – The market moves in a sequence of five waves up and three waves down, and if you can understand the various levels to this, you can predict tops and bottoms.
While there are many other methods, notice how all of these particular methods are related. What is the common element? All of these methods tend to predict, to a certain extent, what the market will do next. So if you are a trend follower, you are predicting that the trend will continue. If you are a value trader you are predicting that what’s undervalued will go up eventually.
Yet if you look at the track record of some of the major players who used these methods, you’ll find that they are often right less than fifty percent of the time. Good trend-followers, for example, might make money in about 40% of their trades. But when they are right, they make huge amounts of money.
Elliot wave traders look brilliant when they are correct, and the media wants to interview them about what will happen next. But when they are wrong, they can look really stupid and people start to laugh about their predictions.
My point in mentioning all of this is to show the importance people place on prediction. Countless books have been written about how to “pick the right stocks.” The media tend to interview professional traders about what stocks they are picking and why. And perhaps they’ll even show what happened to the last set of picks and ask what happened with the losers.
I have yet to hear anyone say, “I don’t make money picking stocks – I make money by cutting my losses short and letting my profits run. And more importantly, I meet my investment objectives through the judicious use of position sizing.”
Your trading style forms a basis for your beliefs about how to enter the market. This is important because you really only trade your beliefs about the market. It’s very hard to trade something that’s going up if you believe it is overvalued. Similarly, it’s very hard to trade something that’s considered undervalued, if you believe (because it is going down) that it will continue to go down.
But it really doesn’t matter what framework you select for picking your trades or investments. That’s only the starting point for real success. What’s really critical is that you understand that you make money by cutting losses short and letting profits run. This will give you a positive expectancy system.
And if you can do it in such a way so as to develop a good system, then you can probably achieve your objectives through the appropriate use of position sizing. And if you can continue to do this without making many mistakes, then you’ll probably be happy with the results. These are the real keys to investment success.
Monday, January 17
www.thetradingdoctor.com by Dr Janince Dorn
Always keep your mind as bright and clear as the vast sky, the great ocean, and the highest peak, empty of all thoughts. Always keep your body filled with light and heat. Fill yourself with the power of wisdom and enlightenment. ..Morihei Ueshiba
Our individual journeys take us into unexpected situations where we encounter a wide variety of people—some quite like ourselves and others very different. We cannot anticipate these meetings, but we can make the most of them when they take place. When we are open-minded in our assessment of the individuals whose lives briefly touch our own, we are more apt to stumble upon unexpected gems of wisdom that open us to new worlds of possibility. Every person we meet can affect us profoundly, just as every situation in which we find ourselves in can teach us something new. We do not judge, just as we do not wish to be judged. We are in a space of unconditional positive regard—open heart, open mind--ready and willing to receive without bias. We are grateful for every lesson because it moves us forward on the path to enlightenment.
In everything there is a lesson. Everything!
This is the essence of serendipity: Chance favors the prepared mind.
The same applies to trading. Every moment in the markets is unique. Every trade is an opportunity to learn, to grow, to gain wisdom and to embrace acceptance.
To fully appreciate this, it is essential to acknowledge that each trade is capable of expanding our personal horizons. Because we are dealing with probabilities in a complex adaptive system, we never know when the truth will be revealed. But—we certainly do know it when we see it.
To fully appreciate this, it is essential to acknowledge that each trade is capable of expanding our personal horizons. Because we are dealing with probabilities in a complex adaptive system, we never know when the truth will be revealed. But—we certainly do know it when we see it.
If we are able to approach each trade with non-attachment to outcome, then each trade becomes our teacher. In this way, we do not judge ourselves, rather we learn from everything we do. This is how we grow—both as traders and as human beings.
Just as every person is special and has something to teach us, so does every trade. By making an effort to adopt a positive attitude toward others at all times, we ensure that our emotions do not blind us to wisdom that may be lurking in difficult or distressing situations. We are then open and receptive to knowledge that comes to us in the form of examples, advice, and direct teaching.
As with trades, brief human encounters have the potential to enrich our lives in a very concrete way. The wisdom we gain is proportional to the attention we pay. It is our responsibility as traders to maintain a state of awareness that allows us to recognize when we are in the presence of knowledge that will change us significantly. When we open our minds and hearts to the potential for unexpected enlightenment, we make a habit of turning strangers into friends, of seeing failed trades as our best teachers and ensuring that we are never without a magnificent fountain of enlightenment that will enrich and nourish us.
As with trades, brief human encounters have the potential to enrich our lives in a very concrete way. The wisdom we gain is proportional to the attention we pay. It is our responsibility as traders to maintain a state of awareness that allows us to recognize when we are in the presence of knowledge that will change us significantly. When we open our minds and hearts to the potential for unexpected enlightenment, we make a habit of turning strangers into friends, of seeing failed trades as our best teachers and ensuring that we are never without a magnificent fountain of enlightenment that will enrich and nourish us.
Knowing others is wisdom, knowing yourself is enlightenment…Lao Tzu
Sunday, January 16
How I use Bollinger Bands in My Trading by Jim Wyckoff
The Bollinger Bands (B-Bands) technical study was created by John Bollinger, the president of Bollinger Capital Management Inc., based in Manhattan Beach, California. Bollinger is well respected in the futures and equities industries.
Traders generally use B-Bands to determine overbought and oversold zones, to confirm divergences between prices and other technical indicators, and to project price targets. The wider the B-bands on a chart, the greater the market volatility; the narrower the bands, the less market volatility.
B-Bands are lines plotted on a chart at an interval around a moving average. They consist of a moving average and two standard deviations charted as one line above and one line below the moving average. The line above is two standard deviations added to the moving average. The line below is two standard deviations subtracted from the moving average.
Some traders use B-Bands in conjunction with another indicator, such as the Relative Strength Index (RSI). If the market price touches the upper B-band and the RSI does not confirm the upward move (i.e. there is divergence between the indicators), a sell signal is generated. If the indicator confirms the upward move, no sell signal is generated, and in fact, a buy signal may be indicated.
If the price touches the lower B-band and the RSI does not confirm the downward move, a buy signal is generated. If the indicator confirms the downward move, no buy signal is generated, and in fact, a sell signal may be indicated.
Another strategy uses the Bollinger Bands without another indicator. In this approach, a chart top occurring above the upper band followed by a top below the upper band generates a sell signal. Likewise, a chart bottom occurring below the lower band followed by a bottom above the lower band generates a buy signal.
B-Bands also help determine overbought and oversold markets. When prices move closer to the upper band, the market is becoming overbought, and as the prices move closer to the lower band, the market is becoming oversold.
Importantly, the market’s price momentum should also be taken into account. When a market enters an overbought or oversold area, it may become even more so before it reverses. You should always look for evidence of price weakening or strengthening before anticipating a market reversal.
Bollinger Bands can be applied to any type of chart, although this indicator works best with daily and weekly charts. When applied to a weekly chart, the Bands carry more significance for long-term market changes. John Bollinger says periods of less than 10 days do not work well for B-Bands. He says that the optimal period is 20 or 21 days.
Like most computer-generated technical indicators, I use B-Bands as mostly an indicator of overbought and oversold conditions, or for divergence--but not as a specific generator of buy and sell signals for my trading opportunities. It's just one more "secondary" trading tool, as opposed to my "primary" trading tools that include chart patterns and trend lines and fundamental analysis.
Saturday, January 15
Trading Psychology 101 by RealityTrader
This is one of those neverending debates among newer traders - role of psychology in trading. Some claim it's all there is to trading. Some argue it's nothing but red herring, and one just needs to follow his signals (system, indicators, whatever one fancies) and no psychobabble will ever be needed. Yet some say psychology is important and assign some weight to it - "80% of trading is psychology"... or 95%... Not sure how they measure it, I personally like 76.364%.
Two things must be said about this.
First, we all are different. Some simply cannot change their behavior and, no matter what system they are given, they just can't follow it. Their personality takes over pushing them into all kinds of trading No-No's. They can't enter when entry signal comes in; they don't apply stops when the trade fails; they take profits too soon or never.
Two things must be said about this.
First, we all are different. Some simply cannot change their behavior and, no matter what system they are given, they just can't follow it. Their personality takes over pushing them into all kinds of trading No-No's. They can't enter when entry signal comes in; they don't apply stops when the trade fails; they take profits too soon or never.
Then there are others who don't seem to be influenced by their inner workings; they just see the light and follow it. Obviously, the role of psychology will be drastically different for those two types.
Second, and most significant for most of us: We go through different stages in our learning curve. As far as trading psychology is concerned, I can clearly see three stages common for the most traders.
First stage is total ignoring or underappreciation of this aspect of trading. By ignorance, by arrogance or for whatever else reason, a trader doesn't give it much thoughts while focusing on technical side of trading.
Second stage is acknowledgment. Running into troubles with their inner gear, reading books or listening to others, traders become aware of the ways their personality interferes with their trading. They have met the enemy.
Finally, third stage is dismissal of psychology again. Maybe dismissal is not the right word but that's how it feels for it's (psychology as a subject of thoughts) no longer needed. At this stage focusing on it becomes unneeded as a trader overcomes his inner barriers, changes himself, learns to behave in a right way - and this correct behavior becomes second nature. Just as learning to swim you stop thinking of how to move when swimming, in the same way you stop giving time and thoughts to psychology of your trading again - seemingly returning to a first stage, although it's obviously another level you reach. You simply mastered it and stopped thinking about it - just as learning to drive you stop thinking of switching gears, turning the wheel or pushing the pedals.
It's important to understand that this third stage exists and make it your target to achieve it. Too many traders simply get stuck at the second stage - they think of it all the time, they make it their point of focus to such degree and for so long that they just can't seem to get out of it. Their development stops, they become locked in this endless inner digging - means become the end. There is no need to rush through the second stage but to get stuck in it forever is no fun either.
In the following articles we will go over each of those three stages a bit deeper - and make one step beyond that, defining a fourth stage which I don't want to define before we are done with first three. If you are lucky to belong to that second type that needs no stinkin' psychology, skip these series but do check out that fourth stage for it's the highest craftsmanship of this side of trading.
Second, and most significant for most of us: We go through different stages in our learning curve. As far as trading psychology is concerned, I can clearly see three stages common for the most traders.
First stage is total ignoring or underappreciation of this aspect of trading. By ignorance, by arrogance or for whatever else reason, a trader doesn't give it much thoughts while focusing on technical side of trading.
Second stage is acknowledgment. Running into troubles with their inner gear, reading books or listening to others, traders become aware of the ways their personality interferes with their trading. They have met the enemy.
Finally, third stage is dismissal of psychology again. Maybe dismissal is not the right word but that's how it feels for it's (psychology as a subject of thoughts) no longer needed. At this stage focusing on it becomes unneeded as a trader overcomes his inner barriers, changes himself, learns to behave in a right way - and this correct behavior becomes second nature. Just as learning to swim you stop thinking of how to move when swimming, in the same way you stop giving time and thoughts to psychology of your trading again - seemingly returning to a first stage, although it's obviously another level you reach. You simply mastered it and stopped thinking about it - just as learning to drive you stop thinking of switching gears, turning the wheel or pushing the pedals.
It's important to understand that this third stage exists and make it your target to achieve it. Too many traders simply get stuck at the second stage - they think of it all the time, they make it their point of focus to such degree and for so long that they just can't seem to get out of it. Their development stops, they become locked in this endless inner digging - means become the end. There is no need to rush through the second stage but to get stuck in it forever is no fun either.
In the following articles we will go over each of those three stages a bit deeper - and make one step beyond that, defining a fourth stage which I don't want to define before we are done with first three. If you are lucky to belong to that second type that needs no stinkin' psychology, skip these series but do check out that fourth stage for it's the highest craftsmanship of this side of trading.
To conclude the series, we are going to go over some particular and very common problems traders tend to have and show what causes them. We are going to keep it strictly practical - no academic stuff, only the things with which every trader will identify.
Friday, January 14
trading Junkie
Costly Trading Mistake #2 (And How To IMMEDIATELY Fix It)
Becoming A Trading Junkie
The objective of a Trading Junkie is not to make money, but to make trades.
Too many traders become a "trading junkie" and over trade which is always a costly activity. A "trading junkie" overtrades because he feels he must make trades every day instead of waiting for the high probability set-ups. A "trading junkie" does not trade with a specific, written trading plan, but continually takes low-probability trades just for the sake of trading.
When I talk to someone on the phone or at a trading conference who is interested in Dynamic Traders Group products or services and they ask, how many trades does your "system" make each day (or week or month)? I know they are probably a trading junkie because what is most important to them is the frequency of trades.
When I speak with other traders and they brag about how many trades they make each day, I know they are probably a trading junkie who is not most interested in maximizing the return for capital, time and expense in their trading business.
Only Make The High-Probability Trades With Minimum Risk
The principle for any trade strategy is to identify trade setups with a high probability outcome and minimal capital exposure. Trading junkies make marginal trades, those without a high probability outcome. Consistently successful traders have identified conditions with a high probability outcome and minimal risk for every market they trade, and only take trades that meet those conditions.
You know you're a trading junkie when:
· You are nervous if you are not in the market.
· You trade for ticks and not for points.
· You are impressed with the number of trades you make regardless of the net profit.
· You have messages sent to your cell phone or pager from your broker or trade software when you are not in front of a computer. Especially while you are on vacation!
· You are afraid to take time off from trading because you might miss a good trade.
· You have not identified setup conditions with a high probability outcome.
Trade For Profit, Not For Activity
No one wants to think of themselves as any kind of Junkie, but you are probably a trading junkie if you are concerned with anything related to your trading other than maximizing the return from your capital and time. Trading Junkies are always in denial just like any other kind of junkie. They have their excuses like - "I only day trade because I don't want to hold a position overnight." Which really means - "I am trading out of fear because I don't have a trading plan, or enough capital for overnight trades, or I don't really understand the market." Another one is - "If I'm not in the market, I can't make any money." What this means - "I don't have a clue how to identify trend conditions so I'll always be in the market so I know I'll catch the next trend."
All trading junkies have an excuse. In the past twenty years, I think I've heard them all.
If you want to be a consistently successful trader, your only objective is to trade to maximize your return for the capital and time invested. If you trade for any other reason, you are not in the business of trading.
Trade For Profit, Not For Activity
You are reading this and thinking, "This article doesn't apply to me. I'm not a Trading Junkie." That may be the case, but I'll bet at least 50% of the people reading this are. You probably need an intervention, but that isn't going to happen! If you are not a consistently successful trader, more than likely you over trade. Most all traders will improve their bottom line if they trade less.
This isn't theory, this is advice from someone who has traded for over 20 years. And yes, I am a recovering Trading Junkie!
How To IMMEDIATELY Fix Being A Trading Junkie
The easiest way to immediately solve a trading addiction is to trade a higher time frame, regardless of what time frame you are now trading. What ever type of trade strategy you use, apply it to a higher time frame for at least some of your trades. The junkie day-trader who usually trades for a few ticks on 3 and 5 minute charts, should apply the same strategy to 15 and 60 minute or 60m and daily charts to identify trades that will last at least from hours to days. The junkie swing-trader who usually scans several thousand stocks should apply their trade strategy to a handful of picks with daily and weekly data to identify the potential for trades that may last for several weeks instead of several days.
Make the decision to maximize the gain from the capital and time invested in your business of trading. Move up to a higher time frame for at least part of your trades. Or, take a set time period like one month, and only trade the higher time frame. It will be the first step to overcoming your trading addition and becoming a consistently successful trader. You should quickly learn how to identify the high probability setups and enjoy the success of having a trade and sticking with it when a major move is made.
Learn A Comprehensive Trade Plan
In our Dynamic Trading Multi-Media E-Learning Workshop and other educational material, we teach you how to develop a trade plan to identify trade setups with a high probability outcome and low risk. In other words, how to trade to maximize results from your trading activity rather than to maximize the activity itself!
Treat trading as a business and you WILL dramatically improve your results.
Becoming A Trading Junkie
The objective of a Trading Junkie is not to make money, but to make trades.
Too many traders become a "trading junkie" and over trade which is always a costly activity. A "trading junkie" overtrades because he feels he must make trades every day instead of waiting for the high probability set-ups. A "trading junkie" does not trade with a specific, written trading plan, but continually takes low-probability trades just for the sake of trading.
When I talk to someone on the phone or at a trading conference who is interested in Dynamic Traders Group products or services and they ask, how many trades does your "system" make each day (or week or month)? I know they are probably a trading junkie because what is most important to them is the frequency of trades.
When I speak with other traders and they brag about how many trades they make each day, I know they are probably a trading junkie who is not most interested in maximizing the return for capital, time and expense in their trading business.
Only Make The High-Probability Trades With Minimum Risk
The principle for any trade strategy is to identify trade setups with a high probability outcome and minimal capital exposure. Trading junkies make marginal trades, those without a high probability outcome. Consistently successful traders have identified conditions with a high probability outcome and minimal risk for every market they trade, and only take trades that meet those conditions.
You know you're a trading junkie when:
· You are nervous if you are not in the market.
· You trade for ticks and not for points.
· You are impressed with the number of trades you make regardless of the net profit.
· You have messages sent to your cell phone or pager from your broker or trade software when you are not in front of a computer. Especially while you are on vacation!
· You are afraid to take time off from trading because you might miss a good trade.
· You have not identified setup conditions with a high probability outcome.
Trade For Profit, Not For Activity
No one wants to think of themselves as any kind of Junkie, but you are probably a trading junkie if you are concerned with anything related to your trading other than maximizing the return from your capital and time. Trading Junkies are always in denial just like any other kind of junkie. They have their excuses like - "I only day trade because I don't want to hold a position overnight." Which really means - "I am trading out of fear because I don't have a trading plan, or enough capital for overnight trades, or I don't really understand the market." Another one is - "If I'm not in the market, I can't make any money." What this means - "I don't have a clue how to identify trend conditions so I'll always be in the market so I know I'll catch the next trend."
All trading junkies have an excuse. In the past twenty years, I think I've heard them all.
If you want to be a consistently successful trader, your only objective is to trade to maximize your return for the capital and time invested. If you trade for any other reason, you are not in the business of trading.
Trade For Profit, Not For Activity
You are reading this and thinking, "This article doesn't apply to me. I'm not a Trading Junkie." That may be the case, but I'll bet at least 50% of the people reading this are. You probably need an intervention, but that isn't going to happen! If you are not a consistently successful trader, more than likely you over trade. Most all traders will improve their bottom line if they trade less.
This isn't theory, this is advice from someone who has traded for over 20 years. And yes, I am a recovering Trading Junkie!
How To IMMEDIATELY Fix Being A Trading Junkie
The easiest way to immediately solve a trading addiction is to trade a higher time frame, regardless of what time frame you are now trading. What ever type of trade strategy you use, apply it to a higher time frame for at least some of your trades. The junkie day-trader who usually trades for a few ticks on 3 and 5 minute charts, should apply the same strategy to 15 and 60 minute or 60m and daily charts to identify trades that will last at least from hours to days. The junkie swing-trader who usually scans several thousand stocks should apply their trade strategy to a handful of picks with daily and weekly data to identify the potential for trades that may last for several weeks instead of several days.
Make the decision to maximize the gain from the capital and time invested in your business of trading. Move up to a higher time frame for at least part of your trades. Or, take a set time period like one month, and only trade the higher time frame. It will be the first step to overcoming your trading addition and becoming a consistently successful trader. You should quickly learn how to identify the high probability setups and enjoy the success of having a trade and sticking with it when a major move is made.
Learn A Comprehensive Trade Plan
In our Dynamic Trading Multi-Media E-Learning Workshop and other educational material, we teach you how to develop a trade plan to identify trade setups with a high probability outcome and low risk. In other words, how to trade to maximize results from your trading activity rather than to maximize the activity itself!
Treat trading as a business and you WILL dramatically improve your results.
Thursday, January 13
timing the market...
There is a lot of speculation around regarding future market movements. The most important question now is what kind of a paradigm the stock market will follow within the next several months. There is an opinion that the market is changing its paradigm. Behind this very obscure statement lies a very precise technique that will be explained in this article.
The formal analysis says (see in the end of this article) that two most important cycles can be revealed inside the historical data for Dow Jones Industrial index. One of them is Juglar 9-11 years cycle and the other is Kitchen cycle. This is exactly what the Classical theory in economics states.( I do not consider here Kondratief cycle as it is too long.) To conduct this analysis, I took long term monthly data for DJI: since 1789-1885 "stock index" was used and since 1885 Dow Jones Industrial index's data were analyzed.
On the chart below you can see five different projection lines calculated for the most powerful economical cycle - Juglar cycle:
What do these projection lines tell us? All these projection lines are based on the same cycle, the only parameter that makes a difference among them is the amount of analyzed years that are used to adjust this cycle.
Red line represents Juglar cycle based on the latest 10 years of DJI history, i.e. this curve shows how Juglar cycle works for the last 10 years, since the year 2000.
Blue line shows Juglar cycle adjusted to all available 200 years of history of the American stock market.
In other words, the red projection line shows the recent tendency in the stock market behavior, the pattern that was formed within the last ten years. Blue projection line tries to reveal persistent tendencies.
What projection line is more important, red or blue? I don't know.
I think we need to watch how DJI will move within the next six months. If the steady growth will continue, i.e. Dow will follow a red line - the newest tendencies in stock market behavior will prevail. If the stock market will start declining till June-December 2011, the old patterns will play the main role here.
We will see what happens in the reality.
This bunch of projection lines is called committee.
Here is the committee calculated for a superposition of two cycles - 40 months' Kitchen cycle and 10 years Juglar cycles:
Below is the explanation how I have received these lines. It is done with Timing Solution software, so any of Timing Solution users can repeat what I have done.
Instruction for Timing Solution users:
To reveal the most important cycles, run Spectrum module and set there these parameters:
Two highest peaks here correspond to the strongest cycles. Click the mouse around these peaks to pick them up:
To calculate a projection line based on these cycles, simply drag and drop these cycles in the Main screen:
If you plan to calculate a committee of projection lines, set these parameters in the popup window:
The formal analysis says (see in the end of this article) that two most important cycles can be revealed inside the historical data for Dow Jones Industrial index. One of them is Juglar 9-11 years cycle and the other is Kitchen cycle. This is exactly what the Classical theory in economics states.( I do not consider here Kondratief cycle as it is too long.) To conduct this analysis, I took long term monthly data for DJI: since 1789-1885 "stock index" was used and since 1885 Dow Jones Industrial index's data were analyzed.
On the chart below you can see five different projection lines calculated for the most powerful economical cycle - Juglar cycle:
What do these projection lines tell us? All these projection lines are based on the same cycle, the only parameter that makes a difference among them is the amount of analyzed years that are used to adjust this cycle.
Red line represents Juglar cycle based on the latest 10 years of DJI history, i.e. this curve shows how Juglar cycle works for the last 10 years, since the year 2000.
Blue line shows Juglar cycle adjusted to all available 200 years of history of the American stock market.
In other words, the red projection line shows the recent tendency in the stock market behavior, the pattern that was formed within the last ten years. Blue projection line tries to reveal persistent tendencies.
What projection line is more important, red or blue? I don't know.
I think we need to watch how DJI will move within the next six months. If the steady growth will continue, i.e. Dow will follow a red line - the newest tendencies in stock market behavior will prevail. If the stock market will start declining till June-December 2011, the old patterns will play the main role here.
We will see what happens in the reality.
This bunch of projection lines is called committee.
Here is the committee calculated for a superposition of two cycles - 40 months' Kitchen cycle and 10 years Juglar cycles:
Below is the explanation how I have received these lines. It is done with Timing Solution software, so any of Timing Solution users can repeat what I have done.
Instruction for Timing Solution users:
To reveal the most important cycles, run Spectrum module and set there these parameters:
Two highest peaks here correspond to the strongest cycles. Click the mouse around these peaks to pick them up:
To calculate a projection line based on these cycles, simply drag and drop these cycles in the Main screen:
If you plan to calculate a committee of projection lines, set these parameters in the popup window:
Wednesday, January 12
fundamentally by zacks.com
"At the end of the day, all stock price movements can be traced back to earnings."
Read that last line again...so it sticks!
The reason it's true is because when investors buy shares in a stock, they are actually buying part ownership in that company. And owners of companies, big and small, are most concerned with the earnings they will generate in the years to come.
With earnings being of such central importance is why earnings season is such a critical time for investors. If the companies you own have good news, then their stocks will immediately jump higher. Unfortunately, if your companies disappoint, they will gap down HARD and you will be handed stiff losses.
Not surprisingly investors have long sought a reliable "whisper number" they could use before companies report earnings. Truly, this would be the Holy Grail of investing. With that information in hand, an investor would have a portfolio that lights up like a Christmas Tree every earnings season.
Our research team has spent many long years in the hunt for this coveted "whisper number" and it is with great pleasure that I can say: WE FOUND IT!!!
Below I will detail what we discovered and, better yet, how you can profit from these whispers this earnings season...and every earnings season thereafter.
Pushing Ahead When All Others Have Failed
Nobody understands earnings data more than Len Zacks. Remember he is the one who uncovered the power of earnings estimate revisions that is the cornerstone of the Zacks Rank for stocks and its +28% annual returns.
So I met with him three years ago to start this project to find a reliable earnings whisper number. He told me not to waste my time.
Why? He cited numerous such projects undertaken by other leading researchers over the years. Each time they tried and failed.
In fact he shared with me his previous efforts that also ended in futility. He said emphatically, "Steve, I can tell you with 70% accuracy which stocks are more likely to beat estimates. But beating estimates and the share price moving higher are two very different things."
Certainly you know what he's saying. How many times have you owned a stock that supposedly beat estimates and yet the price went down afterwards? (Too many times is the answer...we've all been there).
I pleaded with him to try once again. He begrudgingly accepted the challenge with the help of others here at Zacks, like Kevin Matras, who have developed many of our most profitable trading strategies.
There was very little success early on. None of the new theories were panning out. Yet the toughest part was to get sufficient new data points in place to test. When this new class of earnings data was finally installed this past summer, then things got real interesting.
The Discovery of These "Whispers"
What finally got us on the right track was going back to the basics of the earnings estimate philosophy at the heart of the Zacks Rank. Here are the clues:
Earnings estimates come from brokerage firm stock analysts.
These analysts are highly motivated to create conservative estimates that can easily be beat. Why? If they have a Buy rating on a stock, and the estimates are too high, then the stock is more likely to disappoint. This would send the stock price lower and the performance on their stock ratings would be poor (leading to lower compensation).
The closer to earnings season we get, the more accurate the information that goes into the estimate.
Add it all up and there is no good reason for an analyst to create a higher estimate close to the date of the earnings report unless they had a DAMN GOOD REASON. Focusing in on those estimates closest to the earnings announcement is where we found the "whisper that becomes a scream"...a clear indication from the analyst community of stocks more likely to beat earnings by a wide margin. And most importantly, rise on that news.
Where to Find These Stocks
We can't share all the details of the secret formula with you, but the new system relies on two under-utilized signals coming from the brokerage analyst community. These two whispers are then layered on top of other time-tested elements such as the Zacks Rank and Zacks Industry Rank to find only the best stocks in the best industries to profit from each earnings season.
If you would like to receive our precise whisper trading signals in the future, then we invite you to become a member of our most promising service in years. But a word of caution. When it launched last September, the response was so overwhelming we had to close it to new investors. It's slated to close again Tuesday, January 11, but it looks like that might have to happen sooner.
Read that last line again...so it sticks!
The reason it's true is because when investors buy shares in a stock, they are actually buying part ownership in that company. And owners of companies, big and small, are most concerned with the earnings they will generate in the years to come.
With earnings being of such central importance is why earnings season is such a critical time for investors. If the companies you own have good news, then their stocks will immediately jump higher. Unfortunately, if your companies disappoint, they will gap down HARD and you will be handed stiff losses.
Not surprisingly investors have long sought a reliable "whisper number" they could use before companies report earnings. Truly, this would be the Holy Grail of investing. With that information in hand, an investor would have a portfolio that lights up like a Christmas Tree every earnings season.
Our research team has spent many long years in the hunt for this coveted "whisper number" and it is with great pleasure that I can say: WE FOUND IT!!!
Below I will detail what we discovered and, better yet, how you can profit from these whispers this earnings season...and every earnings season thereafter.
Pushing Ahead When All Others Have Failed
Nobody understands earnings data more than Len Zacks. Remember he is the one who uncovered the power of earnings estimate revisions that is the cornerstone of the Zacks Rank for stocks and its +28% annual returns.
So I met with him three years ago to start this project to find a reliable earnings whisper number. He told me not to waste my time.
Why? He cited numerous such projects undertaken by other leading researchers over the years. Each time they tried and failed.
In fact he shared with me his previous efforts that also ended in futility. He said emphatically, "Steve, I can tell you with 70% accuracy which stocks are more likely to beat estimates. But beating estimates and the share price moving higher are two very different things."
Certainly you know what he's saying. How many times have you owned a stock that supposedly beat estimates and yet the price went down afterwards? (Too many times is the answer...we've all been there).
I pleaded with him to try once again. He begrudgingly accepted the challenge with the help of others here at Zacks, like Kevin Matras, who have developed many of our most profitable trading strategies.
There was very little success early on. None of the new theories were panning out. Yet the toughest part was to get sufficient new data points in place to test. When this new class of earnings data was finally installed this past summer, then things got real interesting.
The Discovery of These "Whispers"
What finally got us on the right track was going back to the basics of the earnings estimate philosophy at the heart of the Zacks Rank. Here are the clues:
Earnings estimates come from brokerage firm stock analysts.
These analysts are highly motivated to create conservative estimates that can easily be beat. Why? If they have a Buy rating on a stock, and the estimates are too high, then the stock is more likely to disappoint. This would send the stock price lower and the performance on their stock ratings would be poor (leading to lower compensation).
The closer to earnings season we get, the more accurate the information that goes into the estimate.
Add it all up and there is no good reason for an analyst to create a higher estimate close to the date of the earnings report unless they had a DAMN GOOD REASON. Focusing in on those estimates closest to the earnings announcement is where we found the "whisper that becomes a scream"...a clear indication from the analyst community of stocks more likely to beat earnings by a wide margin. And most importantly, rise on that news.
Where to Find These Stocks
We can't share all the details of the secret formula with you, but the new system relies on two under-utilized signals coming from the brokerage analyst community. These two whispers are then layered on top of other time-tested elements such as the Zacks Rank and Zacks Industry Rank to find only the best stocks in the best industries to profit from each earnings season.
If you would like to receive our precise whisper trading signals in the future, then we invite you to become a member of our most promising service in years. But a word of caution. When it launched last September, the response was so overwhelming we had to close it to new investors. It's slated to close again Tuesday, January 11, but it looks like that might have to happen sooner.
Tuesday, January 11
plan your trade..
Six Costliest Trading Mistakes You Are Making Right Now
(And How To Immediately Fix Them)
You might want to print this email and the rest of the lessons
in the series for easier reading and to review at a later time.
80%+ of Traders Lose and Quit Within One Year
How To Become One of the 20% of Winners
There have been several studies regarding the failure rate of stock and futures traders. The results are a majority of traders fail within a year of opening a trading account. The failure rate is typically found to be in the 70%-80% range. I suspect the failure rate at least for stock traders was much lower in the late 90's as thousands of people first began their trading experience during the final years of the relentless bull trend when almost any bull market strategy from momentum buying to average down to moving average crossovers was profitable. I suspect the failure rate is higher than the average from 2000 to the present when you actually had to have skills to achieve consistent profits.
Most people who trade are aware of these failure statistics. And, most beginning and experienced traders think they are part of the 20%-30% of potential successes, when in fact, they usually end up with the majority who fail.
Experienced traders are not necessarily successful traders. In the 20 years of teaching how to trade around the world, I know a large percentage of the private traders end up trading more for entertainment or the challenge than to make it a profitable business.
I don't mean to start this series off on a negative note. But, I do want to be honest and realistic with the reader. You have to decide if you are in the business of trading to maximize profit for the capital and time you invest, or if you are trading for entertainment. My job for twenty years has been to educate traders. That is what I am good at. I've helped traders in over 30 countries turn their trading around to a consistently profitable business. I can help you do that as well if you are willing to make some changes.
There are certain things that all successful traders do which most unsuccessful traders do not do. Doing these things does not guarantee success. Not doing them ensures failure.
If you do not make the Six Costliest Trading Mistakes, it will not guarantee your success, BUT, if you make just one of them, you can almost be assured you will not succeed.
Let's get started and learn how you should be able to quickly improve your trading results.
Costly Mistake #1 (And How To IMMEDIATELY Fix It)
Not Trading With A Plan
Every successful trader has a written trading plan.
This is probably the number one reason that traders fail. In twenty years of trading and teaching trade strategies, every time I talk with a trader who is not doing well the first thing I ask is "What is your specific trade plan?" They usually answer with some generalities like "I buy the momentum breakouts" or "I buy on a Fib retracement."
I then ask, "How many rules or guidelines are in your trading plan?" It doesn't matter how many there are. It is just a sneak question to see if they actually have a written trading plan. Inevitably, I find they have no actual plan, just some general untested strategy.
The Business of Trading Is Like Any Other Business
Most traders have been successful in another business or profession. In the other business or profession, they always had a plan of action for developing products or services, completing projects, making sales and every other aspect of the business or profession. They fail to make a plan for trading because for some reason, they believe the business of trading is different than other businesses. They believe you do not have to plan to be a successful trader even though they would not think of conducting another business without a detailed plan of action.
There have been books and articles written about the psychology of the trader and why they mess up in trading after being successful in other businesses. We don't need to know the psychological why. We just need to know what must be done to solve the problem. We don't need to get paralysis of analysis with the problem any more than a trader needs to have paralysis of analysis in a trading plan.
How To IMMEDIATELY Fix This Mistake
If you do not have a written trading plan of action, make one right now, before you make another trade.
Your trading plan does not have to be so detailed that dozens of very specific conditions must be met before a trade is considered. A trading plan should include the minimum conditions that must be met before a trade is considered, the specific objective entry strategy and the specific conditions that must be met to exit the trade.
Do you have a written trading plan? If not, do not make another trade until you do.
If you fail to develop a written trade plan and then fail to follow that plan, you will make inconsistent trade decisions. If you want to be a successful trader, do not make another trade until you have your written trade plan.
Learn How To Make A Comprehensive Trading Plan
The trading plan that we teach in our six CD Dynamic Trading Multi-Media E-Learning Workshop easily fits on one page and can be applied to any market and any time frame. It is so simple yet logical that when I do live workshops, I will challenge the audience to give me any stock, index, Forex or futures symbol and I'll have a complete trade strategy within just three minutes! Even if I've never hear of the symbol.
ALL consistently successful traders have a written trade plan. Write down your specific trade plan before you make another trade. I think you will find that you trading results will IMMEDIATELY be more consistently successful.
If you "fail to plan, then you should plan to fail." Why not plan to succeed? Right now!
(And How To Immediately Fix Them)
You might want to print this email and the rest of the lessons
in the series for easier reading and to review at a later time.
80%+ of Traders Lose and Quit Within One Year
How To Become One of the 20% of Winners
There have been several studies regarding the failure rate of stock and futures traders. The results are a majority of traders fail within a year of opening a trading account. The failure rate is typically found to be in the 70%-80% range. I suspect the failure rate at least for stock traders was much lower in the late 90's as thousands of people first began their trading experience during the final years of the relentless bull trend when almost any bull market strategy from momentum buying to average down to moving average crossovers was profitable. I suspect the failure rate is higher than the average from 2000 to the present when you actually had to have skills to achieve consistent profits.
Most people who trade are aware of these failure statistics. And, most beginning and experienced traders think they are part of the 20%-30% of potential successes, when in fact, they usually end up with the majority who fail.
Experienced traders are not necessarily successful traders. In the 20 years of teaching how to trade around the world, I know a large percentage of the private traders end up trading more for entertainment or the challenge than to make it a profitable business.
I don't mean to start this series off on a negative note. But, I do want to be honest and realistic with the reader. You have to decide if you are in the business of trading to maximize profit for the capital and time you invest, or if you are trading for entertainment. My job for twenty years has been to educate traders. That is what I am good at. I've helped traders in over 30 countries turn their trading around to a consistently profitable business. I can help you do that as well if you are willing to make some changes.
There are certain things that all successful traders do which most unsuccessful traders do not do. Doing these things does not guarantee success. Not doing them ensures failure.
If you do not make the Six Costliest Trading Mistakes, it will not guarantee your success, BUT, if you make just one of them, you can almost be assured you will not succeed.
Let's get started and learn how you should be able to quickly improve your trading results.
Costly Mistake #1 (And How To IMMEDIATELY Fix It)
Not Trading With A Plan
Every successful trader has a written trading plan.
This is probably the number one reason that traders fail. In twenty years of trading and teaching trade strategies, every time I talk with a trader who is not doing well the first thing I ask is "What is your specific trade plan?" They usually answer with some generalities like "I buy the momentum breakouts" or "I buy on a Fib retracement."
I then ask, "How many rules or guidelines are in your trading plan?" It doesn't matter how many there are. It is just a sneak question to see if they actually have a written trading plan. Inevitably, I find they have no actual plan, just some general untested strategy.
The Business of Trading Is Like Any Other Business
Most traders have been successful in another business or profession. In the other business or profession, they always had a plan of action for developing products or services, completing projects, making sales and every other aspect of the business or profession. They fail to make a plan for trading because for some reason, they believe the business of trading is different than other businesses. They believe you do not have to plan to be a successful trader even though they would not think of conducting another business without a detailed plan of action.
There have been books and articles written about the psychology of the trader and why they mess up in trading after being successful in other businesses. We don't need to know the psychological why. We just need to know what must be done to solve the problem. We don't need to get paralysis of analysis with the problem any more than a trader needs to have paralysis of analysis in a trading plan.
How To IMMEDIATELY Fix This Mistake
If you do not have a written trading plan of action, make one right now, before you make another trade.
Your trading plan does not have to be so detailed that dozens of very specific conditions must be met before a trade is considered. A trading plan should include the minimum conditions that must be met before a trade is considered, the specific objective entry strategy and the specific conditions that must be met to exit the trade.
Do you have a written trading plan? If not, do not make another trade until you do.
If you fail to develop a written trade plan and then fail to follow that plan, you will make inconsistent trade decisions. If you want to be a successful trader, do not make another trade until you have your written trade plan.
Learn How To Make A Comprehensive Trading Plan
The trading plan that we teach in our six CD Dynamic Trading Multi-Media E-Learning Workshop easily fits on one page and can be applied to any market and any time frame. It is so simple yet logical that when I do live workshops, I will challenge the audience to give me any stock, index, Forex or futures symbol and I'll have a complete trade strategy within just three minutes! Even if I've never hear of the symbol.
ALL consistently successful traders have a written trade plan. Write down your specific trade plan before you make another trade. I think you will find that you trading results will IMMEDIATELY be more consistently successful.
If you "fail to plan, then you should plan to fail." Why not plan to succeed? Right now!
Sunday, January 9
It's How You Play the Game By Kerry Szymanski
An expression that most of us remember from our childhood is, "It's not whether you win or lose; it's how you play the game." The underlying message is an important one for children to understand. As we get older, however, we're more like to prefer the adage, "Winning isn't the only thing; it's everything."
These are radically different mental approaches to winning and losing, and it's probably accurate to say that most of us bring the latter to the table by the time we begin our career as traders. Which philosophy, however, is better suited to consistently profitable trading?
In my case, I clearly brought the "Winning isn't the only thing; it's everything" philosophy into my trading early on. On the plus side, this kind of thinking will drive you very hard, but it comes with a serious drawback for traders who want to be consistently profitable. This mindset can be associated with the drive to win at all costs, never to lose under any circumstance, and therein is the problem.
Consistently profitable traders are not sore losers. They don't tie up a bunch of emotional energy with the outcome of a trade. In fact, they do quite the opposite. They tend to view the outcome as meaningless, just a blip in a long series of trades during their trading careers. As a result, they don't hesitate to book small losses when necessary. If consistent results are what you are looking for, give some thought to your attitude about winning and losing. If you focus on how you play "the game" of trading, the results will take care of themselves.
These are radically different mental approaches to winning and losing, and it's probably accurate to say that most of us bring the latter to the table by the time we begin our career as traders. Which philosophy, however, is better suited to consistently profitable trading?
In my case, I clearly brought the "Winning isn't the only thing; it's everything" philosophy into my trading early on. On the plus side, this kind of thinking will drive you very hard, but it comes with a serious drawback for traders who want to be consistently profitable. This mindset can be associated with the drive to win at all costs, never to lose under any circumstance, and therein is the problem.
Consistently profitable traders are not sore losers. They don't tie up a bunch of emotional energy with the outcome of a trade. In fact, they do quite the opposite. They tend to view the outcome as meaningless, just a blip in a long series of trades during their trading careers. As a result, they don't hesitate to book small losses when necessary. If consistent results are what you are looking for, give some thought to your attitude about winning and losing. If you focus on how you play "the game" of trading, the results will take care of themselves.
Saturday, January 8
Tom Joseph on Trading Elliott Type One Trades
Tom Joseph on Trading Elliott Type One Trades
Although I use several trading methods, one of my favorites is an Elliott Type One Buy / Sell, which in Elliott Wave terms, is entering a trade after the completion of a Wave 4 retracement.
I consider the Type One trade the most easily identifiable pattern in an Elliott Wave sequence. And, over the years, I have developed studies and indicators that allow you to make this trade with a high degree of accuracy.
When using Elliott Wave analysis, one can receive numerous signals. Some of them only become clear after the fact. This might be okay if you're writing a newsletter, but, to make a successful trade, you need patterns you can identify ahead of time with a considerable amount of accuracy. From my experience trading since 1979, the Type One pattern can be identified with a high degree of accuracy prior to its actual occurrence.
After a long Wave 3 rally, profit-taking sets in, and the market enters a retracement phase. While profit-taking continues, others, who are convinced that the trend is still up, continue to enter the market. Once the profit-taking pressure is over, the new participants entering the market will finally push the market to new highs in a Wave 5.
One of the simplest tools we developed for Advanced GET is the Elliott Oscillator. We discovered that this oscillator pulls back to the zero baseline at least 94 percent of the time during this profit-taking retracement. This is a great tool because it lets you stand aside until the profit-taking is over. When the Elliott Oscillator pulls back to zero, it provides a highly accurate area where you can predict that profit-taking is actually over, and the trend is ready to resume.
In addition to this, we created the Profit-Taking Index (PTI), which is designed to be used with the Elliott Oscillator and measures the intensity of the profit-taking. The PTI calculates the magnitude of the profit-taking compared to the previous Wave 3 rally. Historically, if the PTI remains above 35, it indicates a normal profit-taking, which allows the market to resume its trend to a new high. A PTI of less than 35 indicates too much profit-taking and diminishes the odds that the Wave 5 rally will set in.
We also created the Wave 4 Channels, which show up as three lines on the chart (blue, green and red). During a Wave 4 retracement, we would like to see the prices hold above the blue or green channels. Based on statistical observations, this provides 70 percent favorable odds for a quick move to new highs.
Let's take a look at an example.
Chart 1 is a daily chart of Occidental Petroleum Corp. (OXY). After a large rally up in Wave 3, this stock is now in a profit-taking phase; the Elliott Oscillator has pulled back to zero indicating that profit-taking may be over. Now, we check the PTI. In the case of the OXY chart, the PTI shows a value of 73. Any PTI of greater than 35 indicates the profit-taking was not excessive. The prices during the pullback have managed to stay above the green channels. With OXY, we now have the three conditions that give us the confidence to step in and buy the market for the next phase, the Wave 5 rally:
1.Profit-taking is over (Elliott Oscillator pulls back to zero) AND
2.The profit-taking happened in an orderly fashion compared to historical patterns (as indicated by the PTI being greater than 35) AND
3.Prices are holding above the green channels.
Advanced GET has also developed a study called the Make or Break (MOB). The MOB is activated from the Wave 3 high and provides a potential target for the upcoming Wave 5 rally. A projection is very important because it allows you to calculate your potential return compared to your initial risk. The risk-to-reward ratio has to be greater than 2 to initiate the trade.
The Ellipse is a Time/Price tool that provides the right time and price for the end of a Wave 4. Typically, we look for the Ellipse to provide support both in respect to time and price. In the case of the OXY chart, the retracement tested the Ellipse support and held very well.
Now, it is time to enter the trade. To confirm the validity of an entry point, we developed the regression trend channel, which contains prices within a set of statistical boundaries. These statistical boundaries are calculated using a standard deviation of 2, which, in essence, means that the area between these boundaries contains approximately 94 percent of the prices. When prices break out of these boundaries, this confirms a change in trend.
Now, let's take a look at the actual trade.
As you can see in Chart 2, the actual trade is taken on the cross above the regression trend channels. A protective stop is placed below the previous Wave 4 low. As the prices rally in Wave 5 toward the projected MOB, you can trail standard stops. The trade is exited when the profit target is met.
All of the studies (Elliott Wave, Elliott Oscillator, Wave 4 Channels, Ellipse, PTI and MOB) mentioned in this article (along with others not mentioned here) are available as an add-on service to eSignal called Advanced GET. For further information, please visit www.esignal.com/partners/studies.
Although I use several trading methods, one of my favorites is an Elliott Type One Buy / Sell, which in Elliott Wave terms, is entering a trade after the completion of a Wave 4 retracement.
I consider the Type One trade the most easily identifiable pattern in an Elliott Wave sequence. And, over the years, I have developed studies and indicators that allow you to make this trade with a high degree of accuracy.
When using Elliott Wave analysis, one can receive numerous signals. Some of them only become clear after the fact. This might be okay if you're writing a newsletter, but, to make a successful trade, you need patterns you can identify ahead of time with a considerable amount of accuracy. From my experience trading since 1979, the Type One pattern can be identified with a high degree of accuracy prior to its actual occurrence.
After a long Wave 3 rally, profit-taking sets in, and the market enters a retracement phase. While profit-taking continues, others, who are convinced that the trend is still up, continue to enter the market. Once the profit-taking pressure is over, the new participants entering the market will finally push the market to new highs in a Wave 5.
One of the simplest tools we developed for Advanced GET is the Elliott Oscillator. We discovered that this oscillator pulls back to the zero baseline at least 94 percent of the time during this profit-taking retracement. This is a great tool because it lets you stand aside until the profit-taking is over. When the Elliott Oscillator pulls back to zero, it provides a highly accurate area where you can predict that profit-taking is actually over, and the trend is ready to resume.
In addition to this, we created the Profit-Taking Index (PTI), which is designed to be used with the Elliott Oscillator and measures the intensity of the profit-taking. The PTI calculates the magnitude of the profit-taking compared to the previous Wave 3 rally. Historically, if the PTI remains above 35, it indicates a normal profit-taking, which allows the market to resume its trend to a new high. A PTI of less than 35 indicates too much profit-taking and diminishes the odds that the Wave 5 rally will set in.
We also created the Wave 4 Channels, which show up as three lines on the chart (blue, green and red). During a Wave 4 retracement, we would like to see the prices hold above the blue or green channels. Based on statistical observations, this provides 70 percent favorable odds for a quick move to new highs.
Let's take a look at an example.
Chart 1 is a daily chart of Occidental Petroleum Corp. (OXY). After a large rally up in Wave 3, this stock is now in a profit-taking phase; the Elliott Oscillator has pulled back to zero indicating that profit-taking may be over. Now, we check the PTI. In the case of the OXY chart, the PTI shows a value of 73. Any PTI of greater than 35 indicates the profit-taking was not excessive. The prices during the pullback have managed to stay above the green channels. With OXY, we now have the three conditions that give us the confidence to step in and buy the market for the next phase, the Wave 5 rally:
1.Profit-taking is over (Elliott Oscillator pulls back to zero) AND
2.The profit-taking happened in an orderly fashion compared to historical patterns (as indicated by the PTI being greater than 35) AND
3.Prices are holding above the green channels.
Advanced GET has also developed a study called the Make or Break (MOB). The MOB is activated from the Wave 3 high and provides a potential target for the upcoming Wave 5 rally. A projection is very important because it allows you to calculate your potential return compared to your initial risk. The risk-to-reward ratio has to be greater than 2 to initiate the trade.
The Ellipse is a Time/Price tool that provides the right time and price for the end of a Wave 4. Typically, we look for the Ellipse to provide support both in respect to time and price. In the case of the OXY chart, the retracement tested the Ellipse support and held very well.
Now, it is time to enter the trade. To confirm the validity of an entry point, we developed the regression trend channel, which contains prices within a set of statistical boundaries. These statistical boundaries are calculated using a standard deviation of 2, which, in essence, means that the area between these boundaries contains approximately 94 percent of the prices. When prices break out of these boundaries, this confirms a change in trend.
Now, let's take a look at the actual trade.
As you can see in Chart 2, the actual trade is taken on the cross above the regression trend channels. A protective stop is placed below the previous Wave 4 low. As the prices rally in Wave 5 toward the projected MOB, you can trail standard stops. The trade is exited when the profit target is met.
All of the studies (Elliott Wave, Elliott Oscillator, Wave 4 Channels, Ellipse, PTI and MOB) mentioned in this article (along with others not mentioned here) are available as an add-on service to eSignal called Advanced GET. For further information, please visit www.esignal.com/partners/studies.
by Kevin Klombies is a prolific writer and market analyst
Like a pebble dropped into a still pond creating ripples that extend and expand effecting conditions in all directions... a seemingly minor change in one market can alter the trend in a myriad of ways. Our initial focus today is on copper in general and copper prices north of 4.00 in particular.
The chart below compares heating oil futures and the share price of Boston Scientific (BSX) from 1999 into 2005.
In 2004 crude oil and heating oil futures pushed to new all time highs. When this happened a number of sectors that had previously been strong- including lumber futures and BSX- began to weaken. In other words the impact of new highs for energy prices led into a rising trend for interest rates and the start of credit tightening by the Federal Reserve which, in turn, initiated the first crack in the U.S. housing market which, in turn, almost demolished the banking system four years later.
What started out as mere ripples ended up as veritable tidal waves.
Further below we features a comparison between copper futures and the share price of McDonalds (MCD).
When copper prices peaked in 2006 the nature of the markets changed in a number of ways as one of the weaker cyclical themes- Japan- turned negative. The offset to cyclical weakness, however, was a rising trend for a number of global consumer stocks. We are focusing on MCD today although a similar case could be made for Coca Cola (KO).
From the spring of 2006 into the end of 2010 copper futures prices traded below 4.00 while the share price of MCD trended higher. While one might not look to the base metals markets when analyzing the trend for MCD the chart suggests that there may be a causal link between the upside break for copper and the price roll over for MCD.
Our view is that this may well be important. If the markets are throwing us a curve then similar to heating oil in early 2003 the break out will be temporary with copper prices failing rather briskly back below 3.50 before starting the price building process once again. In this case the bullish trend for MCD would be extended in the same manner that Boston Scientific added to its gains from 2003 into 2004. However... if copper prices continue to hold above 4.00 then all kinds of trends are in the process of ending and starting. We will look at a couple of notable examples below.
Equity/Bond Markets
We are going to try to ignore what we think ‘should’ be happening and focus instead on what appears to be happening. In other words we have argued in the past that the trend for copper prices is similar to the trend for the Asian equity markets which are also similar to the trends for the commodity currencies. To suggest that copper price strength may be a negative for the Asian equity markets is intuitively difficult for us but... if that is the way the markets are responding then we need to accept it (for the time being at least).
Below is a chart of copper futures and the Shanghai Composite Index.
Next is a chart of the Bank of America (BAC) and the ratio between gold and the CRB Index.
Below is a chart of U.S. retailer Target (TGT).
When copper prices began to rise in November the trend for the Shanghai Comp. began to weaken somewhat. This might be explained by the fact that rising copper prices were more a function of strength in U.S. economy which, in turn, helped turn the dollar higher.
When copper prices rise it usually means that there is upward pressure on interest rates. The recovery in the U.S. economy helped swing the share prices of U.S. banks upwards as gold prices started to weaken relative to the CRB Index.
Copper prices moving to new all time highs appears to created a trend that may be negative for the Asian equity markets and gold while being positive for the banks. The initial reaction to the trend (i.e. McDonalds) suggests some downward pressure on valuations in the defensive sectors.
The price decline for Target yesterday may be linked in some way to the trend changes discussed above. Typically Target (and Amazon) outperform Wal Mart when Asian growth is strong and rising. If the Hang Seng Index, Shanghai Comp., and commodity currencies start to weaken then look for Wal Mart to outperform TGT.
The chart below compares heating oil futures and the share price of Boston Scientific (BSX) from 1999 into 2005.
In 2004 crude oil and heating oil futures pushed to new all time highs. When this happened a number of sectors that had previously been strong- including lumber futures and BSX- began to weaken. In other words the impact of new highs for energy prices led into a rising trend for interest rates and the start of credit tightening by the Federal Reserve which, in turn, initiated the first crack in the U.S. housing market which, in turn, almost demolished the banking system four years later.
What started out as mere ripples ended up as veritable tidal waves.
Further below we features a comparison between copper futures and the share price of McDonalds (MCD).
When copper prices peaked in 2006 the nature of the markets changed in a number of ways as one of the weaker cyclical themes- Japan- turned negative. The offset to cyclical weakness, however, was a rising trend for a number of global consumer stocks. We are focusing on MCD today although a similar case could be made for Coca Cola (KO).
From the spring of 2006 into the end of 2010 copper futures prices traded below 4.00 while the share price of MCD trended higher. While one might not look to the base metals markets when analyzing the trend for MCD the chart suggests that there may be a causal link between the upside break for copper and the price roll over for MCD.
Our view is that this may well be important. If the markets are throwing us a curve then similar to heating oil in early 2003 the break out will be temporary with copper prices failing rather briskly back below 3.50 before starting the price building process once again. In this case the bullish trend for MCD would be extended in the same manner that Boston Scientific added to its gains from 2003 into 2004. However... if copper prices continue to hold above 4.00 then all kinds of trends are in the process of ending and starting. We will look at a couple of notable examples below.
Equity/Bond Markets
We are going to try to ignore what we think ‘should’ be happening and focus instead on what appears to be happening. In other words we have argued in the past that the trend for copper prices is similar to the trend for the Asian equity markets which are also similar to the trends for the commodity currencies. To suggest that copper price strength may be a negative for the Asian equity markets is intuitively difficult for us but... if that is the way the markets are responding then we need to accept it (for the time being at least).
Below is a chart of copper futures and the Shanghai Composite Index.
Next is a chart of the Bank of America (BAC) and the ratio between gold and the CRB Index.
Below is a chart of U.S. retailer Target (TGT).
When copper prices began to rise in November the trend for the Shanghai Comp. began to weaken somewhat. This might be explained by the fact that rising copper prices were more a function of strength in U.S. economy which, in turn, helped turn the dollar higher.
When copper prices rise it usually means that there is upward pressure on interest rates. The recovery in the U.S. economy helped swing the share prices of U.S. banks upwards as gold prices started to weaken relative to the CRB Index.
Copper prices moving to new all time highs appears to created a trend that may be negative for the Asian equity markets and gold while being positive for the banks. The initial reaction to the trend (i.e. McDonalds) suggests some downward pressure on valuations in the defensive sectors.
The price decline for Target yesterday may be linked in some way to the trend changes discussed above. Typically Target (and Amazon) outperform Wal Mart when Asian growth is strong and rising. If the Hang Seng Index, Shanghai Comp., and commodity currencies start to weaken then look for Wal Mart to outperform TGT.
Friday, January 7
dump as goooood
Smart man + smart woman = Romance
Smart man + dumb woman = One Night Stand
Dumb man + smart woman = Affair
Dumb man + dumb woman = Marriage
Smart man + dumb woman = One Night Stand
Dumb man + smart woman = Affair
Dumb man + dumb woman = Marriage
lesson from a get
Type 1 Trades
Used for buying at the end of a fourth-wave retracement
Rules:
Wait for the Elliott Oscillator to pull back to zero. Historically, this happens 94% of the time in wave four retracements.
Make sure the Profit-Taking Index (PTI) is greater than 35. A PTI greater than 35 indicates a good possibility of new highs in wave five.
When prices break the channel, buy the market for a wave five rally
Type 2 Trades
Used for selling at the end of a fifth-wave rally
Rules:
When wave five makes new highs, make sure the Elliott Oscillator shows divergence with its wave three peak. 94% of the time, this oscillator should pull back to zero in wave four.
When five waves are complete, the market changes trend. Wait for the price to cross the channels and sell the market.
The initial target is the previous wave four.
Used for buying at the end of a fourth-wave retracement
Rules:
Wait for the Elliott Oscillator to pull back to zero. Historically, this happens 94% of the time in wave four retracements.
Make sure the Profit-Taking Index (PTI) is greater than 35. A PTI greater than 35 indicates a good possibility of new highs in wave five.
When prices break the channel, buy the market for a wave five rally
Type 2 Trades
Used for selling at the end of a fifth-wave rally
Rules:
When wave five makes new highs, make sure the Elliott Oscillator shows divergence with its wave three peak. 94% of the time, this oscillator should pull back to zero in wave four.
When five waves are complete, the market changes trend. Wait for the price to cross the channels and sell the market.
The initial target is the previous wave four.
Thursday, January 6
by Dr. Van K. Tharp
How human beings work has always fascinated me. I received my bachelor’s degree in psychology in the 1960s when the field of psychology was dominated by behaviorism. The mantra was "Understand the stimulation one receives and you can figure out the responses you'll get." I, however, found this idea limiting; I didn’t believe it showed how we really work.
I pursued a doctorate in biological psychology to go beyond behaviorism, but I found out that behaviorism dominated that field also: “Stimulate this part of the brain and notice the responses you get.” “Cut out another part and notice the differences.” It was more of the same! I wanted something more.
Upon graduating with my Ph.D., I discovered it’s easy to get published if you write a paper that agrees with the scientific community, with perhaps a slightly different take. But if your ideas are too different, then getting published is very difficult. I remember reading, The Structure of Scientific Revolutions, which helped me make sense of this phenomenon. It detailed progress in science and how that usually comes from someone outside of the primary area of research, usually with great resistance.
While working as a researcher, I came across Neurolinguistic Programming (NLP). How people thought and acted finally made a lot more sense to me after that. As I had suspected, thinking and behavior had nothing to do with stimulus-response relationships. I discovered that that anyone could learn to do what others did through the process of modeling. Modeling requires that you find successful people in a particular area and learn how they think and what they do. By finding the three common elements in these people's tasks, an NLP practitioner can model and teach the same process to other people. The ingredients (i.e., the sequence of our thinking), for those of you who have not read The Peak Performance Course, are beliefs, mental states, and mental strategies.
Over time, I've modeled trading, wealth accumulation, system development, position sizing™ strategies, and even how top brokers perform. And I came to the conclusion that most people believe the opposite of what is necessary for success.
As an example, let's look at a few of the beliefs of mainstream versus successful traders.
Old Belief/Mainstream New Belief/Success Modeling Area Modeled
Learn how to pick stocks well. Understand reward-to-risk ratios. Trading
Asset allocation and diversification are critical. You achieve your objectives through position sizing strategies. Position Sizing Strategies
There is a magic system. You need trading systems that fit you and the current market type. System Development
Winning the money game amounts to having a lot of money. When your passive income is greater than your expenses, you are infinitely wealthy. Wealth
Analyze the markets well. Analyze yourself well. Trading
Risk it all under the right conditions. Find a position sizing strategy that fits your objectives. Position Sizing Strategies
Find high probability entries and setups. You make money through your exits. System Development
You can afford it if the down payment and the monthly payments are small. What you own tends to eat you financially. Wealth
I could go on and on, but you get the idea. Remember: you don’t trade the markets, you trade your beliefs about the markets.
After many years of study, it’s obvious to me that beliefs create your reality. It's as if the movie, The Matrix, has come true. Society tends to program you with certain beliefs, most of which are not true, at least as measured by their impact on success. Thus, taking the "red pill" amounts to determining how you shape your reality with your beliefs, which allows you to discover beliefs that are not useful and then reprogram yourself to have more useful beliefs.
As I began to understand the impact of beliefs, I also learned about belief hierarchies, which indicate that certain types of beliefs carry significantly more weight than others. Beliefs about yourself tend to be very influential as they determine your sense of "who you are." Beliefs about the universe tend to be even more important because they shape your reality. For example, if you believe the universe is a friendly place, you are open to everything because you are not afraid. If you believe that the universe is a dangerous place, you'll isolate yourself and build defenses to protect yourself.
When I studied psychology as an undergraduate, psychology was trying to be a science. In fact, it was modeling itself after Newtonian physics even though quantum physics as a general model had already displaced Newtonian physics. I pursued my Ph.D. 40 years ago so I recently spoke to a new psychology graduate to determine if the study of psychology had changed much since then. My first question was "Is psychology still trying to prove itself to be a science?" Her response: "Oh, we are a science." That response prompted me to check some of their assumptions, so I asked, "Are you taught that our beliefs shape our reality?" She responded, “Oh, I don’t believe that.” I didn’t bother to ask any more questions; nothing has changed.
The Belief Examination Paradigm
Since beliefs create our reality, I have a general set of questions you should ask yourself when examining your beliefs that I call the Belief Examination Paradigm.
1.“Where did the belief come from?” It’s often useful to know how you came to have a particular belief.
2.“What does that belief get me into?” And you should be able to list about 10 things that happen when you have the belief.
3.“What does that belief get me out of?” Most people have trouble with this because they are stuck in the belief. Another way of saying it might be, “Who would I be without this belief?”
4.“Is the belief useful?” and “Does it have charge?” If it’s not useful and doesn’t have charge, it is easy to change the belief. If, however, the belief does have charge, you must release the charge before you can change the belief.
It used to be hard for many people to change their beliefs. But people’s level of awareness has increased dramatically over the last 20 years and now most people can understand, for example, how some of the old trading beliefs in the above table are not nearly as useful as the new beliefs.
Let’s go a little deeper. What happens to you when you wear a belief? Here is an example of a belief that a trader might have:
“I’d be a great investor if I could just pick stocks like Warren Buffet.”
Let's run it through the Belief Examination Paradigm.
Belief Examination Paradigm
1. Who gave it to me?
a. Probably the media or the titles of various books. It’s what’s taught generally about investing: Warren Buffet is the world’s greatest investor. He’s a stock picker, so in order to be great, I need to pick great stocks, too.
Is there evidence for it?
b. Well, there are a lot of books promoting this concept. And Warren Buffet is a great stock picker… according to these books.
2. What does it get me into?
a. It gets me into trying to pick stocks.
b. It gets me into reading books about how to pick stocks.
c. It gets me into finding good criteria to pick stocks.
d. It gets me into wanting to be like Warren Buffet.
e. It gets me into buying Berkshire Hathaway stock so I can go to the annual meeting and hear Warren Buffet speak.
f. It gets me into thinking there is a magic formula for picking stocks.
g. It gets me into watching “stock picking” shows on the financial news media network.
h. It gets me into thinking that when someone’s picks don’t work out that he is a poor stock picker.
i. It gets me into thinking that I’m a poor stock picker because most of mine don’t work out.
I could go on and on, but you get the picture. Now let’s look at the third question.
3. What does it get me out of?
a. It gets me out of looking at what else might be important to trading:
i. me
ii. exits
iii. position sizing strategies
iv. reward-to-risk ratios
b. It gets me into thinking that Warren Buffet is a total genius and out of looking at his failures.
c. It gets me out of thinking short term.
d. It gets me out of thinking, “How would I know if I were wrong about this position?”
e. It gets me out of critical thinking.
Again, I could keep going. Most people have a lot of trouble with this question because they have trouble stepping out of themselves and seeing what life might be like without the belief.
At this point, you would answer the last question one of two ways: ”Yes, it is useful,” if you think that stock picking has something to offer to success or “No, it’s not useful,” if you really realize that other factors are more important.
I’ve seen people take beliefs, that almost everyone else would recognize as limiting, and defend them with every ounce of energy that they have. It is that important for them to be right. So when I say one of my criteria for a good trader is the willingness to work themselves, what I’m looking for is an openness to examine everything, including rigid beliefs at the identity and spiritual level. And this doesn’t mean that they accept my beliefs, it simply means that they are open.
Personal Responsibility and the Belief Examination Paradigm
I’ve always said that personal responsibility is the most important trait any trader can have because personal responsibility gives you the power to improve. However, there are many levels to this.
At the first level, personal responsibility means that you are responsible for your reactions to whatever happens to you. For example, you might notice that you get angry when the market does X. Well, not every trader gets angry when the market does X and that probably isn’t a useful response. When you are able to accept this, you can use the techniques we teach to change your beliefs and mental states.
At the second level, personal responsibility means that you create your reality through your beliefs and emotions. This idea has been around throughout history and it’s been recently popularized through Rhonda Byrne’s The Secret. If you take personal responsibility to this level, you literally believe you create your own reality. And obviously, if you realize this (and believe it), then you can create an amazing reality. And if you believe that you don’t, then you won’t, which means that you did. (That, by the way, is a paraphrase of one of my favorite quotes from Harry Palmer and it really fits here). Can you notice how important the word "belief" becomes in this context?
At the next level, if you believe that we do create our own reality through our beliefs and thoughts and emotions, then also we do this collectively in our cultures and societies. The reality we create is a collective illusion—one that is full of separateness and judgment. At their core, every spiritual path recognizes this illusory world.
Quantum physics offers an intriguing idea for this level—there is no difference between matter and energy (i.e., E = MC2). The universe is an unlimited field of pure potential through which creation happens. Neo came to understand the possibilities of this idea at the end of The Matrix when he suddenly realized that he could go “beyond the Matrix.”
When you begin to take personal responsibility to this level, all sorts of changes happen. You take trading to another level and at the same time trading itself does not even matter. But that’s another story.
I’d like to conclude with an excerpt from a beautiful PowerPoint full of quotes from A Course in Miracles. It’s called Jewels: http://www.youtube.com/watch?v=vzGFvb-IjuY
Part if of it goes as follows:
The oneness of the Creator and creation is your wholeness, your sanity, and your limitless power. This limitless power is God’s gift to you because IT IS what you are. If you dissociate your mind from it, you are perceiving the most powerful force in the universe as weak, because you do not believe you are a part of it.
If you have trouble taking personal responsibility to this level, then “you are perceiving the most powerful force in the universe as weak, because you do not believe you are a part of it.” And you don’t even have to believe that, at least for now. You just need to be open to the possibility.
I pursued a doctorate in biological psychology to go beyond behaviorism, but I found out that behaviorism dominated that field also: “Stimulate this part of the brain and notice the responses you get.” “Cut out another part and notice the differences.” It was more of the same! I wanted something more.
Upon graduating with my Ph.D., I discovered it’s easy to get published if you write a paper that agrees with the scientific community, with perhaps a slightly different take. But if your ideas are too different, then getting published is very difficult. I remember reading, The Structure of Scientific Revolutions, which helped me make sense of this phenomenon. It detailed progress in science and how that usually comes from someone outside of the primary area of research, usually with great resistance.
While working as a researcher, I came across Neurolinguistic Programming (NLP). How people thought and acted finally made a lot more sense to me after that. As I had suspected, thinking and behavior had nothing to do with stimulus-response relationships. I discovered that that anyone could learn to do what others did through the process of modeling. Modeling requires that you find successful people in a particular area and learn how they think and what they do. By finding the three common elements in these people's tasks, an NLP practitioner can model and teach the same process to other people. The ingredients (i.e., the sequence of our thinking), for those of you who have not read The Peak Performance Course, are beliefs, mental states, and mental strategies.
Over time, I've modeled trading, wealth accumulation, system development, position sizing™ strategies, and even how top brokers perform. And I came to the conclusion that most people believe the opposite of what is necessary for success.
As an example, let's look at a few of the beliefs of mainstream versus successful traders.
Old Belief/Mainstream New Belief/Success Modeling Area Modeled
Learn how to pick stocks well. Understand reward-to-risk ratios. Trading
Asset allocation and diversification are critical. You achieve your objectives through position sizing strategies. Position Sizing Strategies
There is a magic system. You need trading systems that fit you and the current market type. System Development
Winning the money game amounts to having a lot of money. When your passive income is greater than your expenses, you are infinitely wealthy. Wealth
Analyze the markets well. Analyze yourself well. Trading
Risk it all under the right conditions. Find a position sizing strategy that fits your objectives. Position Sizing Strategies
Find high probability entries and setups. You make money through your exits. System Development
You can afford it if the down payment and the monthly payments are small. What you own tends to eat you financially. Wealth
I could go on and on, but you get the idea. Remember: you don’t trade the markets, you trade your beliefs about the markets.
After many years of study, it’s obvious to me that beliefs create your reality. It's as if the movie, The Matrix, has come true. Society tends to program you with certain beliefs, most of which are not true, at least as measured by their impact on success. Thus, taking the "red pill" amounts to determining how you shape your reality with your beliefs, which allows you to discover beliefs that are not useful and then reprogram yourself to have more useful beliefs.
As I began to understand the impact of beliefs, I also learned about belief hierarchies, which indicate that certain types of beliefs carry significantly more weight than others. Beliefs about yourself tend to be very influential as they determine your sense of "who you are." Beliefs about the universe tend to be even more important because they shape your reality. For example, if you believe the universe is a friendly place, you are open to everything because you are not afraid. If you believe that the universe is a dangerous place, you'll isolate yourself and build defenses to protect yourself.
When I studied psychology as an undergraduate, psychology was trying to be a science. In fact, it was modeling itself after Newtonian physics even though quantum physics as a general model had already displaced Newtonian physics. I pursued my Ph.D. 40 years ago so I recently spoke to a new psychology graduate to determine if the study of psychology had changed much since then. My first question was "Is psychology still trying to prove itself to be a science?" Her response: "Oh, we are a science." That response prompted me to check some of their assumptions, so I asked, "Are you taught that our beliefs shape our reality?" She responded, “Oh, I don’t believe that.” I didn’t bother to ask any more questions; nothing has changed.
The Belief Examination Paradigm
Since beliefs create our reality, I have a general set of questions you should ask yourself when examining your beliefs that I call the Belief Examination Paradigm.
1.“Where did the belief come from?” It’s often useful to know how you came to have a particular belief.
2.“What does that belief get me into?” And you should be able to list about 10 things that happen when you have the belief.
3.“What does that belief get me out of?” Most people have trouble with this because they are stuck in the belief. Another way of saying it might be, “Who would I be without this belief?”
4.“Is the belief useful?” and “Does it have charge?” If it’s not useful and doesn’t have charge, it is easy to change the belief. If, however, the belief does have charge, you must release the charge before you can change the belief.
It used to be hard for many people to change their beliefs. But people’s level of awareness has increased dramatically over the last 20 years and now most people can understand, for example, how some of the old trading beliefs in the above table are not nearly as useful as the new beliefs.
Let’s go a little deeper. What happens to you when you wear a belief? Here is an example of a belief that a trader might have:
“I’d be a great investor if I could just pick stocks like Warren Buffet.”
Let's run it through the Belief Examination Paradigm.
Belief Examination Paradigm
1. Who gave it to me?
a. Probably the media or the titles of various books. It’s what’s taught generally about investing: Warren Buffet is the world’s greatest investor. He’s a stock picker, so in order to be great, I need to pick great stocks, too.
Is there evidence for it?
b. Well, there are a lot of books promoting this concept. And Warren Buffet is a great stock picker… according to these books.
2. What does it get me into?
a. It gets me into trying to pick stocks.
b. It gets me into reading books about how to pick stocks.
c. It gets me into finding good criteria to pick stocks.
d. It gets me into wanting to be like Warren Buffet.
e. It gets me into buying Berkshire Hathaway stock so I can go to the annual meeting and hear Warren Buffet speak.
f. It gets me into thinking there is a magic formula for picking stocks.
g. It gets me into watching “stock picking” shows on the financial news media network.
h. It gets me into thinking that when someone’s picks don’t work out that he is a poor stock picker.
i. It gets me into thinking that I’m a poor stock picker because most of mine don’t work out.
I could go on and on, but you get the picture. Now let’s look at the third question.
3. What does it get me out of?
a. It gets me out of looking at what else might be important to trading:
i. me
ii. exits
iii. position sizing strategies
iv. reward-to-risk ratios
b. It gets me into thinking that Warren Buffet is a total genius and out of looking at his failures.
c. It gets me out of thinking short term.
d. It gets me out of thinking, “How would I know if I were wrong about this position?”
e. It gets me out of critical thinking.
Again, I could keep going. Most people have a lot of trouble with this question because they have trouble stepping out of themselves and seeing what life might be like without the belief.
At this point, you would answer the last question one of two ways: ”Yes, it is useful,” if you think that stock picking has something to offer to success or “No, it’s not useful,” if you really realize that other factors are more important.
I’ve seen people take beliefs, that almost everyone else would recognize as limiting, and defend them with every ounce of energy that they have. It is that important for them to be right. So when I say one of my criteria for a good trader is the willingness to work themselves, what I’m looking for is an openness to examine everything, including rigid beliefs at the identity and spiritual level. And this doesn’t mean that they accept my beliefs, it simply means that they are open.
Personal Responsibility and the Belief Examination Paradigm
I’ve always said that personal responsibility is the most important trait any trader can have because personal responsibility gives you the power to improve. However, there are many levels to this.
At the first level, personal responsibility means that you are responsible for your reactions to whatever happens to you. For example, you might notice that you get angry when the market does X. Well, not every trader gets angry when the market does X and that probably isn’t a useful response. When you are able to accept this, you can use the techniques we teach to change your beliefs and mental states.
At the second level, personal responsibility means that you create your reality through your beliefs and emotions. This idea has been around throughout history and it’s been recently popularized through Rhonda Byrne’s The Secret. If you take personal responsibility to this level, you literally believe you create your own reality. And obviously, if you realize this (and believe it), then you can create an amazing reality. And if you believe that you don’t, then you won’t, which means that you did. (That, by the way, is a paraphrase of one of my favorite quotes from Harry Palmer and it really fits here). Can you notice how important the word "belief" becomes in this context?
At the next level, if you believe that we do create our own reality through our beliefs and thoughts and emotions, then also we do this collectively in our cultures and societies. The reality we create is a collective illusion—one that is full of separateness and judgment. At their core, every spiritual path recognizes this illusory world.
Quantum physics offers an intriguing idea for this level—there is no difference between matter and energy (i.e., E = MC2). The universe is an unlimited field of pure potential through which creation happens. Neo came to understand the possibilities of this idea at the end of The Matrix when he suddenly realized that he could go “beyond the Matrix.”
When you begin to take personal responsibility to this level, all sorts of changes happen. You take trading to another level and at the same time trading itself does not even matter. But that’s another story.
I’d like to conclude with an excerpt from a beautiful PowerPoint full of quotes from A Course in Miracles. It’s called Jewels: http://www.youtube.com/watch?v=vzGFvb-IjuY
Part if of it goes as follows:
The oneness of the Creator and creation is your wholeness, your sanity, and your limitless power. This limitless power is God’s gift to you because IT IS what you are. If you dissociate your mind from it, you are perceiving the most powerful force in the universe as weak, because you do not believe you are a part of it.
If you have trouble taking personal responsibility to this level, then “you are perceiving the most powerful force in the universe as weak, because you do not believe you are a part of it.” And you don’t even have to believe that, at least for now. You just need to be open to the possibility.
Wednesday, January 5
Janice Dorn, M.D.,Ph.D.. plan ur trade
By failing to prepare, you are preparing to fail...Benjamin Franklin
Ladies and Gentlemen -welcome to Flying Blind Airlines. We hope you enjoy your trip today from Phoenix to Vancouver. We wish to remind you that the pilot has very few navigational aids, no instrument panel, no co-pilot, and no flight plan and will be flying by the seat of his pants. Alcohol (lots of alcohol) will be served.
As ludicrous as this may appear, it was actually true in the early days of aviation when the pilot flew using his intuition (dead reckoning) and any other skills he managed to muster in the course of his training.
The same thing happens with traders. They have no trading plan and enter the markets with their gut feel, intuition, hot tips or because this or that trade or investment might work. This is recipe for disaster and yet many traders do it over and over again. For an endless variety of reasons, they have failed to make a trading plan. Compounding this is the fact that even those who take the time to make a trading plan are unwilling or unable stay with it and execute it with consistent discipline. It is incongruous to imagine a general going into battle without a plan, a coach going into a professional sports event without a plan, a pilot beginning a flight without a plan, a professional gambler sitting down at the table without a plan, or any elite athlete entering a competitive event without a plan. Unfortunately, traders do this on a disturbingly- consistent basis. If you want to fly by the seat of your pants, then you might be advised to get out of the markets and consider a career in the Cirque du Soleil where people might pay to see your death-defying antics. Whenever you put monies into the markets you are at risk for ruin.
Trading is a journey and a competitive activity. Why would you not plan your trades? Are you relying on someone else to plan them for you? Are you thinking there is something magical about the markets and all you have to do is click the mouse or call your broker and money flows into your account? If any of these are true, you are setting yourself up for failure.
Make a plan. This plan is what resonates with your brain structure, trading personality and money attitudes. Make it as simple as possible and then trade it consistently, day after day. If the plan is not working, change it until you get one that works for you. If it is working and generating profits for you, keep it. Don't try to fatten it up, give it more bells and whistles or get greedy with it. If it's broken, fix it and if it isn't then leave it alone. Keep it simple and keep going with it.
Look at your plan every night after the market close. Write down how it worked for you that day and then contemplate and write down how you will use it the next day. In your nightly preparations and your preparations before the market opens, review your plan, Ensure that you are ready to execute, that you know what you are going to do, when you are going to do it, and then just do it -then execute ruthlessly. This is one way to empower yourself and grow in confidence as a trader. Winning in the markets, sports, business and life is about superior positioning, planning, reviewing, reworking, and executing over and over again until you get it right in a way that is seamlessly competent.
Be Prepared... the meaning of the motto is that a scout must prepare himself by previous thinking out and practicing how to act on any accident or emergency so that he is never taken by surprise...Robert Baden-Powell ( founder of the World Scout Movement)
Janice Dorn, M.D.,Ph.D.
www.thetradingdoctor.com
Ladies and Gentlemen -welcome to Flying Blind Airlines. We hope you enjoy your trip today from Phoenix to Vancouver. We wish to remind you that the pilot has very few navigational aids, no instrument panel, no co-pilot, and no flight plan and will be flying by the seat of his pants. Alcohol (lots of alcohol) will be served.
As ludicrous as this may appear, it was actually true in the early days of aviation when the pilot flew using his intuition (dead reckoning) and any other skills he managed to muster in the course of his training.
The same thing happens with traders. They have no trading plan and enter the markets with their gut feel, intuition, hot tips or because this or that trade or investment might work. This is recipe for disaster and yet many traders do it over and over again. For an endless variety of reasons, they have failed to make a trading plan. Compounding this is the fact that even those who take the time to make a trading plan are unwilling or unable stay with it and execute it with consistent discipline. It is incongruous to imagine a general going into battle without a plan, a coach going into a professional sports event without a plan, a pilot beginning a flight without a plan, a professional gambler sitting down at the table without a plan, or any elite athlete entering a competitive event without a plan. Unfortunately, traders do this on a disturbingly- consistent basis. If you want to fly by the seat of your pants, then you might be advised to get out of the markets and consider a career in the Cirque du Soleil where people might pay to see your death-defying antics. Whenever you put monies into the markets you are at risk for ruin.
Trading is a journey and a competitive activity. Why would you not plan your trades? Are you relying on someone else to plan them for you? Are you thinking there is something magical about the markets and all you have to do is click the mouse or call your broker and money flows into your account? If any of these are true, you are setting yourself up for failure.
Make a plan. This plan is what resonates with your brain structure, trading personality and money attitudes. Make it as simple as possible and then trade it consistently, day after day. If the plan is not working, change it until you get one that works for you. If it is working and generating profits for you, keep it. Don't try to fatten it up, give it more bells and whistles or get greedy with it. If it's broken, fix it and if it isn't then leave it alone. Keep it simple and keep going with it.
Look at your plan every night after the market close. Write down how it worked for you that day and then contemplate and write down how you will use it the next day. In your nightly preparations and your preparations before the market opens, review your plan, Ensure that you are ready to execute, that you know what you are going to do, when you are going to do it, and then just do it -then execute ruthlessly. This is one way to empower yourself and grow in confidence as a trader. Winning in the markets, sports, business and life is about superior positioning, planning, reviewing, reworking, and executing over and over again until you get it right in a way that is seamlessly competent.
Be Prepared... the meaning of the motto is that a scout must prepare himself by previous thinking out and practicing how to act on any accident or emergency so that he is never taken by surprise...Robert Baden-Powell ( founder of the World Scout Movement)
Janice Dorn, M.D.,Ph.D.
www.thetradingdoctor.com
Tuesday, January 4
how to become milloinaire tomorrow... trading is easy
The headline of this educational feature may be a bit confusing, but I will explain what I mean shortly. First, I want to reiterate that trading futures, stock and FOREX markets is not an easy undertaking. It disgusts me that there are a few unsavory people in our industry that portray trading as an easy, get-rich-quick scheme, or as some endeavor for which there are “secrets” to be learned from those who hold “trading secrets.”
Folks, the plain truth is that there are no trading secrets and no easy paths to quick success in trading markets. Beware of anyone who tries to tell (or sell) you such.
One of the biggest obstacles to success in trading markets is a lack of knowledge and understanding of the process of trading. The “process of trading” includes understanding financial leverage, market behavior and trader psychology. Understanding the process of trading can be achieved with perseverance and a willingness to continue to learn.
It’s not coincidental that trading markets is similar to most other human endeavors: Hard work and experience are required to achieve notable success. A person who enjoys classic automobiles would not attempt to tear down and successfully rebuild an engine without having some previous experience, or without having learned about the workings of an automobile engine—including knowing about the tools involved in the operation.
I have written numerous times that learning about different trading tools, different markets and different trading strategies provides a solid foundation on the road to trading success.
Ironically, I believe a major advantage of being an experienced trader is knowing what you don’t know about markets and trading. Yes, you heard that right: Knowing what you don’t know.
What do I mean by this? I mean that there are certain elements of futures trading about which I do not “know,” and never will.
I don’t “know” what markets are going to do in the future. Some may ask, “How can you be in this business and not know what markets are going to do? How can you be a successful trader and not know where market prices are going?” My answer is that market analysis and trading (at least the way I see it) is not a business of bold predictions, but one of exploring market probabilities based upon market knowledge, price history, human behavior and trading experience. The fact that I “know that I don’t know” exactly what a market will do gives me a trading edge. Why? Because I will exercise more caution and think about and plan for what could happen if a trade turns against me. I know that some trades will indeed turn against me and that I need to have the capital to trade another day, so I won’t “put all my eggs in one basket.”
I prudently place protective buy and sell stops on trades because I do not “know” what the markets will do. I would rather absorb a small trading loss and be termed “wrong” about that trade, as opposed to risking trading with no protective stops and seeing a small loser turn into a big loser--all in the “hope” the market will turn around so I can be proven “right.”
(Do you see what I mean when I discuss human behavior? Most of us don’t like to be “wrong,” and will make decisions so that we are not wrong. In trading, sometimes the decisions traders make to avoid being “wrong” are not prudent decisions for those wanting to be successful traders in the long run.)
One sure fire clue I get that a trader does not have much trading and market experience (and needs more!) is when the trader tells me he or she “knows” a market is going to do something. What can be even worse is when a trader thinks he or she “knows” what the market is going to do, and then makes a trade that turns out to be a winner. That type of psychological reinforcement of a flawed trading characteristic only sets up the trader for a bigger disappointment at some point in the future—likely sooner rather than later.
Traders absolutely must respect the markets. Only the markets are 100% right. Traders who think they “know” exactly what a market will do are not showing the markets respect.
Folks, the plain truth is that there are no trading secrets and no easy paths to quick success in trading markets. Beware of anyone who tries to tell (or sell) you such.
One of the biggest obstacles to success in trading markets is a lack of knowledge and understanding of the process of trading. The “process of trading” includes understanding financial leverage, market behavior and trader psychology. Understanding the process of trading can be achieved with perseverance and a willingness to continue to learn.
It’s not coincidental that trading markets is similar to most other human endeavors: Hard work and experience are required to achieve notable success. A person who enjoys classic automobiles would not attempt to tear down and successfully rebuild an engine without having some previous experience, or without having learned about the workings of an automobile engine—including knowing about the tools involved in the operation.
I have written numerous times that learning about different trading tools, different markets and different trading strategies provides a solid foundation on the road to trading success.
Ironically, I believe a major advantage of being an experienced trader is knowing what you don’t know about markets and trading. Yes, you heard that right: Knowing what you don’t know.
What do I mean by this? I mean that there are certain elements of futures trading about which I do not “know,” and never will.
I don’t “know” what markets are going to do in the future. Some may ask, “How can you be in this business and not know what markets are going to do? How can you be a successful trader and not know where market prices are going?” My answer is that market analysis and trading (at least the way I see it) is not a business of bold predictions, but one of exploring market probabilities based upon market knowledge, price history, human behavior and trading experience. The fact that I “know that I don’t know” exactly what a market will do gives me a trading edge. Why? Because I will exercise more caution and think about and plan for what could happen if a trade turns against me. I know that some trades will indeed turn against me and that I need to have the capital to trade another day, so I won’t “put all my eggs in one basket.”
I prudently place protective buy and sell stops on trades because I do not “know” what the markets will do. I would rather absorb a small trading loss and be termed “wrong” about that trade, as opposed to risking trading with no protective stops and seeing a small loser turn into a big loser--all in the “hope” the market will turn around so I can be proven “right.”
(Do you see what I mean when I discuss human behavior? Most of us don’t like to be “wrong,” and will make decisions so that we are not wrong. In trading, sometimes the decisions traders make to avoid being “wrong” are not prudent decisions for those wanting to be successful traders in the long run.)
One sure fire clue I get that a trader does not have much trading and market experience (and needs more!) is when the trader tells me he or she “knows” a market is going to do something. What can be even worse is when a trader thinks he or she “knows” what the market is going to do, and then makes a trade that turns out to be a winner. That type of psychological reinforcement of a flawed trading characteristic only sets up the trader for a bigger disappointment at some point in the future—likely sooner rather than later.
Traders absolutely must respect the markets. Only the markets are 100% right. Traders who think they “know” exactly what a market will do are not showing the markets respect.
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