By entering a stock inappropriately, a trader can actually turna sound trade into a loser. It is the entry that serves as thefoundation of short term trading. Master the art of the entry andyou wont have to concern yourself as much about where to exit whenyou THE ENTRY IS 85% OF THE TRADE: 5 want to cash. Stocks rise andfall base on beliefs not facts. We buy people and the belief theyhave about the underlying stock. The real professionals tend to buyrumors and sell the news. When the majority is content and there isnot a cloud in the sky, your best course of action is to run forcover, for history tells us we have just experienced the calmbefore the storm. Trader First develop from within. Number onereason for failure is a lack of knowledge. Knows how importantwaiting for the right entry point is , how important not chasingthe stock is. SIGNS THAT WE ARE CONTAMINATED BY OUR PRIOR LOSSESARE:1-Chronic hesitation, which is really the hidden desire forcertainty 2-Fear of pulling the trigger, which is nothing more thanthe need to know more 3-Grabbing at profits too quickly 4-Failureto take a loss ( STOP) It is important that traders not be affectedby their results. We must not only want the win, we must crave tobe a winners. The problem many traders face is that they areapplying the wrong techniques and, therefore, developing the wronginstincts. FEAR IS BORN OF IGNORANCE, BUT THE BEGINNER WHO FEARSNOT SI TOO IGNORANT TO KNOW HE IS IGNORANT A winner is more definedby mental make up than by method or money. 6 DAILY FOOD FORTHOUGHT:1- THINKING:2- too much is not good, moved beyond the needfor thought IMAGINATION:3- dont imagine, guess, or hope. J ustprocess and react to the facts, second by second, minute by minute,with little to no imagination or opinion. FEAR:4- It erodes theintuitive faculties that become so important to seasoned tradersGREED:5- Bulls and Bears make money, but pigs make none 6-INFORMATION: EXPECTATIONS:7- Reasonable expectations are always OK.But they must be safe one. EXCESSIVE ANALYSIS:8- too much tinkeringwill prevent action and increase uncertainty HOPE: I encourage youto start a journal of losers. Write down every losing trade,starting with the symbol, the day, the entry point, the exit point,and the reason for both. Once youve accumulated five or morelosses, revisit them. Study them. Search for the common denominatorin them all. Believe me, it will be there. Once youve found it, inno uncertain terms, KILL IT! Losing is an art, and it must bemastered if we are to ever reach a high level of proficiency. Neverenter a trade without having a predefined place at which we willcut our losses. J udging how frequently you lose the same way is abetter way to measure your growth. Are you learning from yourerrors? Are you analyzing each and every one of your mistakes? Thegoal is to surpass your teacher. Hope is a dangerous thing,especially for traders. Hope is like a dope that robs one of thevery ability to reason intelligently. Those who hope become blindto the facts, and they will always be at the mercy of those whosell hope for a living. 7 When seeking out a teacher, make sure youhave firm answer to the following questions: 1-DOES THE INSTRUCTORTRADE EVERY DAY:2- If yes, find out ifthe instructor is aprofitable trader. 3- IS THE PRICE FOR THE FIRMS EDUCATIONUNUSUALLY CHEAP? 4- AFTER THE SEMINAR OR TRADING LESSONS, CAN YOUSTICK AROUND FOR A DAY OR TWO TO WATCH THE INSTRUCTOR(S) TRADE?DOES THE CLASS TEACH TRUE TRADING TECHNIQUES OR IS ITS PURPOSE TOTEACH YOU HOW TO USE A SPECIFIC PIECE OF TRADING SOFWARE?5- When wespeak of trading education, we are not speaking of softwaretraining. CAN YOU STAY IN TOUCH WITH THE INSTRUCTOR TO MAKE SURETHE FIRE OF KNOWLEDGE DOES NOT DIE? DEADLY SINS OF TRADING1-Failureto accept and take losses quickly, taking fast, but small, lossesis the only approach, the only tool. HOW TO ELIMINATE IT1-Neverplace a trade without first determining where you will bail ship ifthings go wrong 2-Always adhere to your predetermined stop loss.3-If you are having a tough time adhering to your stops, start offby getting into the habit of selling half of your position. 8 # 2DOLLAR COUNTING HOW TO ELIMINATE IT1.For each trade, establish 2potential exit prices, at which you will sell your entire position.1st. below the current price called STOP LOSS. 2nd Above thecurrent price called OBJ ECTIVE.
1-Switching time frame #7 RATIONALIZING: 2-Planning the tradeand failing to trade the plan 3-Rationalizing HOW TO ELIMINATEIT:1-First the traders must realize they are rationalizing KEYSIGNS A)Asking WHY a stock is acting a certain way. The reasonbehind a stocks behavior should have no bearing on a tradersplanned course of action. Exit First, ask the questions second.B)Checking for news, when the real purpose behind checking the newsis to postpone an action that was planned, it is nothing more thanan exercise in escapism. C)Thinking in terms of MAYBE 2-Exit theposition, if you are trying to find a reason to stay in a position,it is obvious no reason is apparent. Searching for a 11 reasonmeans you dont have one. And a trader whos in a stock without afirm reason will be a loosing trader. FACT: There are 2 types ofmistakes or losses. 1.Those that are due to the law of averages andtherefore unavoidable. 2.Those that are the result of the 7 deadlysins and/ or the faulty execution of the trading plan. 1.Take apage in your Pristine trading journal and divide it into 2 columns.2.Title the left columns: YOU CANT WIN THEM ALL 3.Title the rightcolumns: KILL THESE OR BE KILLED SEPARATING THE GOOD LOSSES FROMTHE BAD LOSSES 1-Thoroughly review the individual components ofeach losing trade, the entry, the trade management, that is, theinitial stop placement and the trailling stop method, the exit.2-If, after the review, you decide that no errors were commitedlist it as of those YOU CANT WIN THEM ALL trades, and move on tothe next trade. 3-Kill these or be killed. 12 TRADING LAWS OFSUCCESS #1 KNOW THYSELF:1.Am I patient? 2.Do I feel safe in thehands of time? 3.Does the increase in time make me grow morenervous? 12 1-What is my comfort level for risk? 2-Am I one who iswilling to take a bigger hit in exchange for potentially scoringbigger? 3-Do I tend to be more comfortable going after smaller,less significant price moves, while keeping my losses at a minimum?If the answer to this question is yes, you are a short term traderby nature. WHICH TECHNIQUES AND TACTICS TO FOCUS ON?1-Am I agambler? 2-Do I like to put my stake on the line in a big way? 3-AmI the type who likes to score in tiny bits and piece? 4-Am I cheap?5-Does price or quality mean the most to me? 6-Do I hate even smalllosses? 7-Is the thrill just as important as winning? #2 KNOW THYENEMY1-Never place a trade without first asking, WHOS ON THE OTHERSIDE OF MY TRADE? Some of the Major Market Maker are Goldman Sachs( GSCO), Merrill Lynch ( MLCO), First Boston (FBCO) 2-Never lookbeyond yourself when laying blame. 13 #3 GET THEE SOME EDUCATION,FAST.1-Seek out a quality firm that offers a training program fortraders. a)Pristine.com b)Cornerstone Securities, Inc. c)Tradersedge net ( Day trading.com) 2-Read the trading books that reallycount. Recommended reading: How I made 2 million in the stockMarket, Nicholas Darvas Trading for a living Dr. Alexander Elder.How to make money in stocks( William JONeill) The disciplinedtrader ( Mark Douglas) Winner take all ( William Gallacher)Reminiscences of a stock Operator ( Edwin Lefever) The electronicday trader ( Marc Freidfewrtig) How to get started in electronicday trading (David Nassay) Strategies for the On Line Day Trader (Fernando Gonzales) #4 PROTECT THY MOST VALUABLE COMMODITY 1-First,we enter based on one of 3 entry method. The specific entry priceis typically based on the daily price chart. THE SWING TRADE:2-Once weve bought the stock, we establish a protective sell a 1/16to 1/8 below the current days low, or the previous days low,whichever is lower. 3-This initial protective sell price would stayin place for 2 complete days with the entry day counting as dayone. After 2 days, we often make adjustments upward to protect someof our profits. 14 THE INTRADAY TRADE1- FIRST:2-Once weve boughtthe stock, we place a stop 1/16 below the low of the current 5 or15 min. bar that was bought. This entry price is usually based onthe 5 or 15 min. price chart. #5 KEEP IT SIMPLE1-Will your tradingtactics and techniques thoroughly confuse an intelligent 12 yearold? Decide today that youll become a master of the basics. 2-Doesyour approach call for mathematical calculations? 3-Do you need acalculator to trade? 4-Are more than 3 pieces of software requiredto come up with your trades? 5-Will it take more than 5 min. towrite out your trading strategy on paper? #6 LEARN FROM THY LOSSES.15 #7 KEEP THEE A TRADING JOURNAL. Ex: Date of Trade: MarketRating: Symbol: Share Size: Type of trade: Style of trade: EntryPrice: Reason for Entry: Initial Stop Price: Objective: Sell Date:Sell Price: Reason for Sell: Result: Error 1: Error 2: Error 3: #8DONT MAKE LOW PRICED STOCKS THY MAIN FOCUS: Buy fewer shares in thehigher price ranges, simply because the odds are much better. 16 #9DONT DIVERSIFY: TIP: As an astute trader, you should questioneverything and put to the test of reality even the mostfundamentally accepted axioms. Curiously, we found that being welldiversified actually curtailed ones progress and cut short thepotential profitability when a trader was right. Think about it.What traders need diversification when they can produce 8 winningtrades to every two losses? # 10 REALIZE THAT NO ACTION IS , ATTIMES, THE BEST ACTION: Inaction is a very potent tool that onlythe mosts successful traders learned to use. 1-Youve lost 2 timesin a row after an enduring winning streak.# 11 KNOW WHEN TO BOW OUTGRACEFULLY: If one or more of the occurrence take place. ( Bow out)TIP: Traders often undo themselves by self-destructing immediatelyafter a winning streak. 2-The market as measured by the S&PFUTURES contract violently turns negative. TIP: The S&P FUTUREScontract is a key market leading indicator. It often give watchfultraders advanced noticed of market turns. 3-You feel off base,uncertain, confused, disoriented, and you dont know why. TIP:Overtime traders tend to develop what is called a traders GUT . TheMaster Trader with a well developed gut learns to respect theseHINTS. 17 4-Your pre-determined trade plan is shattered by somesudden market even. TIP: It is always best to step aside whenever amonkey wrench gets thrown into your trade plan. 5-You feel ill.TIP: Traders are like professional athletes. They must keepthemselves in good physical and mental health. 6-Your frame of mindis frazzled. TIP: The traders s most potent weapon is a serene mindset. If mental equanimity is absent, sound- trading decisions willbe absent. 7-You are dealing with a personal problem. TIP: Personalproblems affect the mental equanimity, which in term affectstrading decisions. # 12 DONT EVER MAKE EXCUSES THEY NEVER MADEANYONE A DIME. Secret #1:There is no gift on Wall Street Secret #3:Professional sell hope; novices buy hope. Secret #4: Home run arefor losers. Secret #7: It should be remembered that stocks gappingopen by more than 50 cents should be purchased based on our 30 min.gap rule. Buying after the open is usually better. Secret #8:Teachtraders to especially refrain from selling a stock before the open,if it is trading up in pre-market activity. It usually doesnt payto take profit before the open. NOTE: Whenever we have a trader,who is holding a rather large but profitable position that istrading up in pre-market activity, we instruct him to sell halfbefore the bell, with the idea of letting the 18 rest ride into theopen. This is an excellent alternative if pre-market gain you havestarts to burn a hole in your pocket. TIP:When in doubt about whichone of 2 possible actions should be taken, try to do both, thetruth is usually in the middle. Secret #9:11:25 to 2:15 EST is theworst possible time to trade. It is the 1st part of the day and thelatter part of the day that have always offered day traders thevery best trading odds. Secret #13:Paying up for stocks betters theodds. It should be clear that we specialize in two forms oftrading. Swing traders who focus the bulk of our efforts ondiscovering stocks that are on the verge of a near term multi-daymove ( 1 to 5 days) also professional intraday traders, who focuson discovering stocks on the verge of a micro-move over the nextmoments. Obviously, with such a short term time horizons, we cantafford to tie up huge chunks of our capital in stocks, which maylinger on the launch pad for days, weeks or even months. As aresult, we demand a stock to demonstrate its ability to move in thedesired direction before we jump on for the ride. TIPS: Rememberthat all stocks are bad unless they go up.J ust as important, ourapproach of buying a stock on strength has saved us more money thanany other trading tactic ( besides the stop loss) in our arsenal.Isnt knowing exactly HOW to buy just as important as knowing WHATto buy. The Master SWING TRADER, one looks for 1/5 or 10 day moves,typically looks to buy a desired stock once it trades above theprior days high. The Master MICRO TRADER or day trader looks to buyonce the desired stocks takes out the high of a 2/5/15 min. bar onthe price chart. THE MASTER MICRO TRADER:simply waits for the stockto signal that the coast is clear. That signal is the stocksability to trade above the last periods high as described earlier.Only when it 19 has gained the strength to do that does the MasterTrader consider risking his familys financial future. Secret#14:THE BUY LOW SELL HIGH METHOD IS WRONG FOR DAY TRADERS.Concentrating on stocks that have already demonstrated theirability to rise is intelligent trading and investing. Focusing onstocks that are doing what we dont want them to do, in hopes thatthey will soon do what we want them to do, is nothing more thanguessing and gambling. Secret #15: 1-How do I profit from what ishappening in the present? KNOWING WHATS NEXT CAN MAKE YOU RICH.Short-Term traders must not forget that a top down approach to themarket ( macro to micro) can help us devise our short-termstrategies with a greater degree of intelligence. The very besttraders are constantly asking 2 questions: 2-How do I preparemyself for the opportunities that will likely happen in the nearfuture? DONT YOU DARE THINK THAT 2 PLAYS A WEEK ARE NOT ENOUGHACTION DURING YOUR DEVELOPMENTAL PHASE LESSON #3: BUYING VERSUSACCUMULATING Traders should buy stock that are in up trends whileinvestors should accumulate those that are in the process ofbottoming. 20 LESSON #4: THE ULTIMATE DECISION MAKING TOOL Theultimate decision maker must be your stop loss order or yourpredefined sell point, not the market. LESSON #5: SELLING THE DOGSAND BUYING THE DOLLS Quickly selling his losers ( dogs) to buy moreof his winners ( dolls) LESSON #8: LESSON #9 TIME EQUALS MONEY Areyou spending quality time after the closing bell, collecting yourthoughts, reviewing your actions analyzing your trades, preparingfor tomorrow, and/ or taking notes in your personal journal? If youwant to be a winner, you must spend time planting the seeds ofimprovement each and every day. WINNERS MAKE IT HAPPEN, LOSERS LETIT HAPPEN In order to make success happen, traders must work study,review, practice, analyze, dissect, ponder, think, write, memorize,categorize, and organize HOURS after the close or HOURS before theopen. 21 MARKET TOOL # 1: S&P FUTURES ( S&P) Standard &Poor 500 stock Index Future. The Master Intraday trades, would noteven dream of trading without it as a guide. Key barometer of theoverall market HOW MASTER TRADER INTERPRETS THE S&P FUTURESOften leads the direction of the entire Market Leading indicatorfor many individual stocks. Intraday moves in the S&P futurescontract often precede similar moves in the preceding stocks. Thisfact frequently offers the alert intraday trader some interestingscalping opportunities. We monitor the S&P futures contractusing , 2-5-15- min. charts. HOW THE MASTER TRADER PLAYS THES&P FUTURES Master Trader prefers to take intraday longposition when the S&P is above its opening price and rising.Master Trader prefers to take intraday short positions when theS&P is below its opening price and dropping. Master Trader usessupport and resistance analysis with the S&P to time intradaybuys & sells Master Trader combines reversal periods with theS&P to anticipate potential market turns. Master Trader looksat 5 and 15 min. charts of the S&P with 200 simple movingaverages (SMAS) surimposed on them. The 200 SMA often serves assignificant intraday support and resistance for the S&P. 22MARKET TOOL # 2 NYSE TICK INDICATOR ($TICK) One of the mostreliable market gauges available to the Intraday trader. Measuresthe number of NYSE stocks currently trading on an uptick (rising)versus the number of NYSE stocks trading on a downtick (declining). An uptickis a transaction executed at a price higher than thepreceding transaction while a downtick is the sale of a security ata price below the preceding sale. The $THICK helps the tradermonitor the level of broard buying and selling in the market momentby moment. It also provides an instant snapshot of whos dominatingthe action, the bulls or bears. Reading between 300 and +300indicate a generally neutral market environment. HOW THE MASTERTRADER INTERPRETS THE $THICK Reading near the +1,000 levelindicates excessive bullishness, which is usually followed by areversal to the downside. Reading near 1,000 level indicates anexcessive bearishness, which is usually followed by a reversal tothe upside. TIPS: A highly negative $THICK reading indicates thatsomeone has yelled FIRE and those with the HERD mentality are alltrying to simultaneously make an exit ( Sell) Spread reading of+1,000, often an enduring market correction typically puts in asignificant bottom which often kicks off a multi-month rally. $THICK spread measures the difference between the high $THICKreading of the day and the low $THICK reading of the day. 23 2b1af7f3a8