10 Steps To A Better Trader!

1. Practice exiting trades at break-even, using a one-tick target, a two or three tick soft stop (mental stop) and a 1.5 point hard stop. Never *allow* the market to hit your hard stop. Exit by moving your target toward your hard stop, not by moving your hard stop towards your target. With time, all of this must become a reflex. You won't always be able to keep your losses down to 2 ticks, but only on rare occasions should you find yourself letting the market hit your hard stop. ("Rarely" means only about once every 50-100 trades after you get the hang of it.)

Even though your entries won't be good enough in the beginning to make a profit trading these tight soft stops, your entries will gradually improve until you turn the corner and become profitable.

Learn exits and entries separately. Don't let the one influence the other.

Taking losses this way takes dedication and discipline, so stick with it. It's the key to confident trading. If you never take large losses (and rarely medium size ones), the fear of loss pretty much goes away, and your confidence grows. Especially after your entries improve enough to support a "scalping" type exit strategy.

2. Every trade *in all market conditions* begins as a scalp. Let me clarify this: if you're in a choppy market and you're looking to get small gains, like a point or so, manage your initial hard and soft stops *exactly* the same way you would in a quick trend or any other type of market. That means keeping losses as close to 2 ticks as possible, taking lots of break even trades and exiting every time the market doesn't give you *instant gratification* (within a minute or so).

No matter what the market is doing, you must demand that it moves in your favor right after you enter, otherwise you get out as close to break even as possible. This means you'll be closing a lot of trades near break-even within the first minute. This is the foundation of learning to trade for consistent gains.

3. Don't worry about the commissions on break-even trades. If you do, you'll hold on to losing positions, begging them to turn around for you. This is called *hoping.* In this business, this type of *hoping* is the kiss of death. Your money-making trades must move your way in the first minute or less. When trades don't act right in the first minute, most of them will hit your hard stops.

So don't get hung up on the fact that your broker loves you. Who cares if he/she makes a living?

Your concern is *limiting losses*. I care more about this than anything else in trading. (Well-timed entries make my tight soft stops possible, so they're almost as important as the exits.)

4. Practice your entries until your timing is so good that you can *reasonably expect* the market to go your way immediately, before it goes more than 2 ticks against you. This is not easy at first, but if you stick with it, you'll get it.

5. Practice fading the emotional extremes on your entries. (Fading means entering in the opposite direction of the market's last move.) When an extreme NYSE-Tick (often above 1000 or below -1000) occurs at the same time the market accelerates into a support or resistance area, look for a price stall or reversal and fade the move. Fade the emotion.

6. Rarely, if ever, *chase* the market on your entries. Wait for a pullback to get onboard a trend.

I favor shorts over longs... I can get out of a short position quicker than I can get out of a long position. I don't know why. I like to say that I "see gravity better than helium." In the rare strong-trending markets where I may chase an entry, it's going to be a down trend, not an uptrend. I don't trust up trends enough to chase them. Maybe it's just a personal quirk and maybe not. I honestly don't know.

But it's interesting to note that most (not all) professional traders I've met are Bears and prefer short positions over longs. You should give it some thought and find out which direction works better for you. Are your losses bigger on shorts or longs? Specialize in one direction and trade the other direction only when things are looking real good.

7. Never let a gain turn into a loss. This will mean getting out of most trades a little (or a lot) too soon. You just have to live with it. Swing for home runs (greed) will ruin your trading. There is no mechanical formula that I know of, (such as, "move your stop to break even after you get 3 ticks gain") that will work. You have to develop a feel for how the market is acting at the moment, and use your feel to reduce your target or advance your hard stop. This comes with experience.

8. Develop a feel for the big picture movements of the market, not just the intraday action. Use the end-of-day market internals to analyze the market's mood and develop a daily bias.

9. Practice does *not* make perfect. Only *perfect practice* makes perfect. I learned this in my younger years, pursuing a professional baseball career. Perfect practice will keep your losses smaller than your gains in the trading business.

There are a lot of things involved in perfect practice. When you get tired, or when the phone rings, or whatnot, *don't trade*. Always, *always* exit trades exactly the way I've outlined above on every trade in every market condition. Always *wait* for your pitch, the well-timed setup for entering. Don't practice sloppy entries just because you're bored. Only perfect practice will help you. Anything else just amounts to practicing bad habits.

10. Get a mentor. I traded for 6 years before I learned to keep my losses small. My trading turned around immediately after I met my mentor and talked to him on the phone for one week. Is there any serious profession that you can learn without a mentor? Maybe there is, but I don't know of any. It's certainly not trading.

excerpted Mike Reed

Don't Live To Regret!

"Twenty years from now you will be more disappointed by the things that you didn't do than by the ones you did do. So throw off the bowlines. Sail away from the safe harbor. Catch the trade winds in your sails. Explore. Dream. Discover." -- Mark Twain

For My Nephews - Nathan & Jonathan

Merry Christmas and Happy Holidays!

Trading Our Assets For Consumables!

By Warren E. Buffett

Two isolated, side-by-side islands of equal size, Squanderville and Thriftville. Land is the only capital asset on these islands, and their communities are primitive, needing only food and producing only food. Working eight hours a day, in fact, each inhabitant can produce enough food to sustain himself or herself. And for a long time that's how things go along. On each island everybody works the prescribed eight hours a day, which means that each society is self-sufficient.

Eventually, though, the industrious citizens of Thriftville decide to do some serious saving and investing, and they start to work 16 hours a day. In this mode they continue to live off the food they produce in eight hours of work but begin exporting an equal amount to their one and only trading outlet, Squanderville.

The citizens of Squanderville are ecstatic about this turn of events, since they can now live their lives free from toil but eat as well as ever. Oh, yes, there's a quid pro quo--but to the Squanders, it seems harmless: All that the Thrifts want in exchange for their food is Squanderbonds (which are denominated, naturally, in Squanderbucks).

Over time Thriftville accumulates an enormous amount of these bonds, which at their core represent claim checks on the future output of Squanderville. A few pundits in Squanderville smell trouble coming. They foresee that for the Squanders both to eat and to pay off--or simply service--the debt they're piling up will eventually require them to work more than eight hours a day. But the residents of Squanderville are in no mood to listen to such doomsaying.

Meanwhile, the citizens of Thriftville begin to get nervous. Just how good, they ask, are the IOUs of a shiftless island? So the Thrifts change strategy: Though they continue to hold some bonds, they sell most of them to Squanderville residents for Squanderbucks and use the proceeds to buy Squanderville land. And eventually the Thrifts own all of Squanderville.

At that point, the Squanders are forced to deal with an ugly equation: They must now not only return to working eight hours a day in order to eat--they have nothing left to trade--but must also work additional hours to service their debt and pay Thriftville rent on the land so imprudently sold. In effect, Squanderville has been colonized by purchase rather than conquest.

http://money.cnn.com

The Art Of Risk Management!

Walking that fine line between Risk & Reward!

Use Your Body To Change Your Mind!

Train yourself to rehearse the facial and muscular expression of desired emotions. Evoke positive images of success, happiness, etc. and make conscious efforts to assume facial expressions and body postures when negative emotion is experienced.

Ready & Waiting!

"The act of remaining inactive in one place while expecting something"!

Psychological Mindset!

"Approach the market like a robot. Emotionless and effective!"

Understand your maximum loss

Understand it's OK to take a loss

Don't become emotionally attached to your trades

Take adequate position sizes

Be in total control

Your psychological mindset is one of the most important ingredients to your success in the market. Be disciplined and you will put yourself ahead of the majority of other traders/investors.

Jesus On Daytrading!

"Recognize what is in your sight, and that which is hidden from you will become plain to you. For there is nothing hidden which will not become manifest."

The Gospel of Thomas.

Simple Solution To Trade Deficit!

By Warren E. Buffett

"We would achieve this balance by issuing what I will call Import Certificates (ICs) to all U.S. exporters in an amount equal to the dollar value of their exports. Each exporter would, in turn, sell the ICs to parties--either exporters abroad or importers here--wanting to get goods into the U.S. To import $1 million of goods, for example, an importer would need ICs that were the byproduct of $1 million of exports. The inevitable result: trade balance".

(I visualize that the certificates would be issued with a short life, possibly of six months, so that speculators would be discouraged from accumulating them.)

"For illustrative purposes, let's postulate that each IC would sell for 10 cents--that is, 10 cents per dollar of exports behind them. Other things being equal, this amount would mean a U.S. producer could realize 10% more by selling his goods in the export market than by selling them domestically, with the extra 10% coming from his sales of ICs".

http://money.cnn.com/magazines/fortune/fortune_archive/2003/11/10/352872/index.htm

Focus!

Maximum clarity or distinctness of an idea!

A Beautiful Mind!

J. Krishnamurti

...what is impossible becomes possible only when you understand that there is no tomorrow at all ...

... the division between the thinker and thought, the observer and the observed, the experiencer and the experience... is an illusion ...

... total negation is the essence of the positive. When there is negation of all those things that thought has brought about psychologically ...then is there love, which is compassion and intelligence ...

Clip: http://www.kfa.org/
http://doormann.tripod.com/jkcite.htm

Grade Your Outcome!

Grade your trading outcomes which are in your control:

Whether we size positions properly, whether we maintain a good risk/reward profile on each trade, whether we follow rules about stops and exits, and whether we trade when and only when there is genuine opportunity.

Steady improvement is a realistic goal that can lead to growing feelings of mastery!.

http://traderfeed.blogspot.com

Success = Skills + Winning Psychology!

All successful traders have finely honed skills, superior information, and unique strategies for exploiting markets. Once you have all of these, then psychology enters the picture to provide consistency and resilience in the face of challenge. But what happens if you have a good mindset, but don’t hone your skills, obtain superior information, or cultivate unique strategies?

You’ll calmly and smilingly go up in flames!.

excerpted http://traderfeed.blogspot.com

Flirtatious Trading!

a.k.a, Paper Trading, is a way to interact

without revealing feelings!.

Why Women Live Longer Than Men

Goodbye Expansion, Hello Recession!

No matter where you look, signs of a recession are beginning to proliferate. Indeed, it's getting more and more difficult to come up with reasons to expect this aging expansion to continue.

One reason for concern is the age of the expansion itself. November marks the sixth birthday of the current upswing. This makes it a senior citizen by business cycle standards, since it is now 20 months older than the average postwar peacetime expansion.

Indeed, only four of the previous 32 business cycles tracked by the umpire of the business cycle, the National Bureau of Economic Research, lasted longer than this one - and two of these occurred during wartime.

History aside, there are any number of reasons to be cautious about the economic outlook today.

Chief among these is the plight of the consumer, the mainstay of our economy. For one thing, people's cost of living is soaring. Most households are suffering from a vicious combination of higher food and energy prices and the skyrocketing cost of health care.

Consumers' buying power has failed to keep pace with the rising cost of these essentials - and this includes the past year, when job creation was strong and the unemployment rate dipped to as low as 4.4%. However, by October of this year, there were fewer people at work (as measured by the household survey) and only a jump in the number of people leaving the labor force kept the jobless rate steady at 4.7%.

To make matters worse, the value of people's two biggest assets, their homes and their investments, are falling. Many households have little or no savings to fall back on, having spent more than they have earned for at least the past two years. As for borrowing, forget about it! The credit squeeze has made banks increasingly wary of lending money - not just to consumers, but to businesses as well.

The credit squeeze is slowly but surely choking off the flow of funds to those who are accustomed to borrowing as part of their daily activities. If people and business can't get the funds they need, they will reduce their outlays. As it is, there is anecdotal information suggesting that people are starting to curtail such nonessential activities as eating out, buying luxury goods and travel.

For its part, the holiday shopping season looks to be the worst in at least a dozen years. It will not take long for these cutbacks to ripple out to other parts of the economy, which are already feeling the effects of the sharp decline in homebuilding.

Besides the obvious impact on suppliers of building materials, jobs having anything to do with real estate, from construction, to brokers, to lenders, are beginning to dry up. These developments have not escaped the financial markets - witness the recent skein of stock market declines.

Rightly or wrongly, the markets believe that more rate cuts from the Federal Reserve are needed to help keep the economy from slipping into a recession. And no matter what the Fed might want to do, at the end of the day, the markets will have their way.

http://www.marketwatch.com

The Art Of Zen Trading

"Our trading becomes very low stress. In our trading room we don't get real excited. We normally sit here with the cat and the dog in the room with classical music on. It's not a hectic place at all. The atmosphere is almost meditative" Bill Williams

Find Calm Within The Storm!

Begin each trading day rested and energized!

Human Gerbils!

Gerbils going round and round on a spinning wheel of technical indicators in an endless and never-to-be-realized search for the perfect system!.

How Not To Earn Your Ph.D!

Day Trader's goal is not to be an analyst but a trader. Is your technical analysis turning you into a Ph.D in the S&P, if so join a university faculty!.