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Archive for April, 2008

The vix has collapsed, and the market is getting ready to catapult to new heights.

Or so it would seem.

But you and I know better, since we both have been around the block (a few times).

Here is a question for you to ponder:

What is the shortest distance between two points?

If you answered “A straight line”, then you have a major part of the information you need to understand how the market moves.

Another question:

What is the longest distance between two points?

Can I assume you answered “A choppy, zig zag pattern”.

The market continues to ebb and flow on a daily basis. Understanding the type of day we are likely to be encountering is perhaps one of the more significant levels of awareness we can possess.

Trading according to that insight is another matter altogether.

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Paper trading is a great way to learn how we will adapt to market movements in real time. It allows us to “practice” without losing real money.

The trick is to ask ourselves, “If this was real money, would I make this trade?” If no, then we are just playing a video game.

In this article, the last paragraph discussing the stem of a wine glass is all important. It correctly illustrates the fatal flaw of simulators; namely our emotional control under fire cannot be evaluated with play money.

By all means a trader new to futures should be using a simulator; but after some experience, showing positive results, entering into the live trading arena is the only way to test what Jesse Livermore’s calls the three big keys: Timing, Money management, and Emotional Control.

Self deception and denial is a well-developed skill for many of us, and we need to remove this type of thinking from our psyche if we are to become successful traders.

 

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Confusion, headfakes, and sleight of hand.

The market aways has a game plan, and it is up to us to decipher it.

Yesterday, mess with the shorts, then pullback and take profits, leaving the late longs stranded. Today, gap up and then pull back hard. Then chop small range, accumulate the shorts.

The late shorts then got taken out as the market hit new weekly highs at the end of the day.

And the rhythm was all there to be read, if we could only put our bias aside. Having the right indicators, the right understanding of what move would confuse the most traders, would have had you in the “Shake and Bake” trade that made +20 s and p travel range points and more if you got it right long and short.

Common sense, along with an understanding of The secret code of the illuminati helped me to see their plan. Wrong Way Charlie, the 90% of traders who are always on the wrong side of the trade, need to understand their code if they are ever going to break out of the rut of handing over their money to the enightened ones.

Leave me a comment and let me know where you are with your trading.

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I don’t know, and I don’t need to know where Mr Market is going tomorrow.

The only thing I do need to know is where am I willing to take a risk, and what am I willing to risk.

Of course, targets and partial targets are also nice to know. That is part of our system, and as a day trader, I seek these short term imbalances and fleeting opportunities.

On good days, they are plentiful, and I guess right. I make money.

On bad days, I guess wrong and overtrade trying to get in synch with the market gyrations.

On really bad days I violate my rules and if I am lucky, I get punished.

Why lucky? Because I need to have the consequences of my bad decisions hammered home to me until I no longer feel a need to break them. Violating my rules and getting rewarded for it only trains me to be sloppy and lose respect for the market.

Taking a calculated risk and placing a trade is what we do for a living. Being wrong is no problem; CONTINUING TO BE WRONG with my decision is definitely a problem.

That is something I do know. 

 

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Gold rush

“In a gold rush, get rich by selling ’em picks and shovels.”

So it has been said about market guru’s dispensing their sage advice.

The real truth for me is actually quite simple. Organizing my thoughts about trading into this journal, crystalizes my thinking and allows me to prioritize the critical aspects of my trading mehodology.

Pattern recognition, along with the overwhelming evidence of the truth found in my proprietary model, are my pick’s and shovels.

Identifying and isolating our golden rules, and then having the discipline to trade them, is where the rubber meets the road.  

 

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I have seen many charts in my day.  Recently I opened a popular author’s book and asked my wife to bring me a fork. With so many moving averages, trendlines, bollinger bands, It reminded me of a bowl of spaghetti.

The charts had too much information, making it impossible to see the truth with any clarity.

There is no right way or wrong way as to how many charts to have available, and what information to display. Every trader needs to manage his own real estate view.

Too little information, and you miss critical insights; too much and you just get confused.

Read this article for additional thoughts.

I like trade station’s functionaltiy of multple workspaces; with one click I can get a different view in predetermined time frames, whether globex, regular hours, or even tick chart format.

This is a business, and I cannot afford to go without the best tools available.

Can you imagine Tiger Woods going out on the course with half a set of clubs with worn out grips, or worse, 18 clubs in his bag?

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The last three days of market activity clearly shows how the “average” trader loses. The market had been working its way lower, with an unfilled gap at 1321.75

Expecting closure, many market participants stayed with the trade on Tuesday after it hit a marginal low of 25.25 hoping to capture those inevitable profits. Being option expiration week, many shorts had built up a sizble position the past few weeks, and probably had already figured how they were going to spend their new found wealth.

Like they say, it ain’t over until the fat lady sings.

Gap up Wednesday, and trend day up. Consolidation Thursday, strong close. Gap up Friday, leaving an island, and 75 points later from the low, that was all she wrote.

Traders who “averaged in” (scaling in is the positive spin given) were wiped out. Whether it was a true bottom, or PPT manufactured, makes no difference if you fought the “bounce/rally”.

I hear one guru who peddles sofware and advice risks 30 pts to make 10. At $50 per point, he risks $1,500 per conract to make $500. So a profitable trade turns negative and if he has 10 cars on he is out 15 grand.

Seems to me that is a tough way to run a business.

A very bright trader suggested to me: “Never let it run against you. Take your small loss and look for a new trade when it doesn’t work out.” Great advice. Studies have shown that most of us cut our profits short and let our losses mount; exactly the opposite of what we need to be doing to be successful.

Leverage cuts both ways; abuse it and the market will make you suffer. Treat the market with the respect it deserves, and stay vigilant for the over-indulging demons inside of each and every one of us.

For more reading on the psychology of this self-destructive behavior, read this.

Manage your losses and the gains will inevitably come if you truly have a respectable system.

 

 

 

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