THE LATEST

Trade Less and Make More

In trading more action and time spent watching screens is not necessarily rewarded with more
profits. The majority of the time trading every day and watching every tick in price is not rewarded
by making more money the odds are greater that emotional errors of over activity will be made.

Ed Seykota had some of the best annual trend trading returns for decades and traded strictly
with end of day data. Nicolas Darvas also made millions by only placing trades after the market
close. For small accounts the more you trade the more commissions you pay that can cost you a
percentage of your profits. New traders can be tempted to make bad decisions outside their
trading plan intra-day when watching the market for hours if the desire to to something becomes
too strong. Some of the most profitable professional money managers and traders in history were
trend followers and position traders that executed quantified trend following systems that simply
got on the right side of some trends and stayed there until there was a good signal to exit their
trade.

Trading does not reward the time you spend watching price action or how many times you
entered and exited trades. Over the long term the market rewards right action, following trends,
buying big dips in price during up trends, creating trades with great potential risk/reward ratios,
and your edge over other traders.

Over trading is when a trader takes a trade based on fear, greed, desperation, or ego instead of
a valid entry signal. Over trading is due mostly to wanting to be profitable so bad that impulses
are driving decisions instead of a trading plan. If a trader has an edge over the markets then they
want to take the trades presented to them within their system parameters, the more signals the
better. If a trader takes trades that are not based on robust entry parameters the more trades
they take the quicker they will lose money and have a draw down in capital.

1. For smaller accounts over trading can rack up large commission costs that can eat into
profitability.
2. The bid/ask spread is an expense that pays the market makers. The more you trade the
more you pay.
3. The more you trade the more you can be front run and gamed by High Frequency
Traders. You can beat High Frequency Traders with Low Frequency Trading. You avoid
the intra-day price action noise they feed off of.
4. Trading too much gets you into bad entries when you should have been waiting for good
entries. Entries have to be based on signals and risk/reward ratios not the emotional
chasing of gains.
 5. Over trading is bad trading. Generally over trading is the external results of bad internal
self controls. It is the epitome of not having a trading plan, lacking discipline, and not
following a trading plan. Over trading will cause you to lose faith in yourself as a trader
with the discipline to follow a plan. Over trading can lead to mental ruin only take the right
trades that meet your own guidelines and trading plan based on homework and research.
In most professions working more is what makes you more money. If you are paid for your time
the more you work the more money you make. This does not transfer into trading. Over trading
can be expensive in trading losses, losing in the bid/ask spread, and commission cost. The best
trades come when you are patient and wait for the right entry signal and set up. More trading
does not necessarily mean  more profits, it is usually means the opposite, losses.

Here are 10 productive things that you can do to improve your trading when the market is too
dull, too volatile, or you are waiting for your entry signal.

1. Back test new entry and exit parameters.

2. Study charts of the best performing stocks in history.
3. Study the charts of the worst market crashes.
4. Study the charts of the strongest bull markets.
5. Look at how your technical indicators perform on charts of indexes and stocks.
6. Read trading books.
7. Learn how to use all the functions in your charting platform.
8. Read great trading blog articles.
9. Listen to interviews with great traders.
10. Chat with other traders.
These are better places to invest your time and energy than forcing trades that just aren’t there
yet. My best trading months and years were when I was letting a winning trade run during a
market trend not setting in front of my computer staring at screens for 8 hours a day.
 HomeHOME  CHART PATTERNS  WHAT CAUSES AN ASCENDING TRIANGLE

PATTERN?

What Causes an Ascending Triangle Pattern?

Chart Facts:

 The ascending triangle is a bullish chart pattern that usually forms during an uptrend as a
continuation pattern.
 Sometimes an ascending triangle pattern will form as a reversal pattern as a downtrend
comes to an end, but they are usually continuation patterns in an uptrend.
 Regardless of their location during a trend ascending triangles are bullish patterns that
indicate accumulation. The higher lows in the pattern are a clue that sellers are not letting
their position go at lower prices as the pattern makes higher lows. 
 The top horizontal resistance line on this pattern holds until the sellers are worked
through and buyers come in at higher prices, this signals a buy signal for the potential
breakout to higher prices and the continuation or the beginning of an uptrend.
 Ascending triangle patterns can be longer in timeframe and wider in range than a flag or
a pennant. The length of this pattern can range from a few weeks to months with the
average lasting for 1-3 months. Many times the catalyst of earnings will trigger a breakout
for a stock. 
 Many times volume will contract as the pattern gets near to a breakout. A breakout with
higher than average volume can give a higher rate of success for a buy signal. 
 Many times a return to the breakout price level will happen as old resistance becomes
new support for a second chance entry. 
 Traditionally the price projection for this pattern after the breakout is found by measuring
the longest distance in the price range of the pattern and projecting after the resistance
breakout.
The below $XES chart shows the horizontal trend line that lasted 6 months around the $16.50
area and the ascending trend line of higher lows that started in the middle of August. The large
candlestick bullish breakout over resistance carried through for a run to $18 and could go farther.
This chart trend could be from the breakout of $16.50 to $20.50 equal for a $4 trend equivalent to
the longest range of the triangle from $12 support low to resistance at $16.50. 
Trading for a Living

I first read the original version of this book over fourteen years ago, and it was the book that
finally cemented for me the overall structure I needed to understand all the dynamics of profitable
trading. I have read hundreds of trading books, and this one still stands head and shoulders
above the rest. It explains how to  manage the risk, overcome negative psychology, and the
importance of developing and following a trading method with an edge.

I especially like the clarity of the charts in this new edition. Dr. Elder used charts from the
StockCharts.com website, and these are great charts for clarity and easy to use. 

If you read and follow the principles in this book, you will make enough money on your trades to
pay for this book many times over. I have been an active participate in the markets for over 25
years, as a trader of trends, and I agree with Dr. Elder completely, having experienced the greed,
fear, and mistakes that he illustrates. Read this book and save yourself a lot of unnecessary
losses of both financial and mental capital.

The first section of this book teaches you the psychology of successful trading:

1) You must be committed to being a trader for the long haul.

2) Learn all that you can, but be skeptical, go with what works.

3) Develop a method for analyzing the market.

4) Develop a plan for proper position sizing.

5) Do not get greedy and rush into trades.

6) Understand that you can be your own worst enemy through greed, fear, and emotions.

7) You must change bad behaviors and bad habits to be a profitable trader.
Dr. Elder explains, in great detail, his own trading tactics and methodology. For example, in the
Risk Management section, he covers the most important strategy of when to exit. He suggests
setting a stop-loss on every trade so you keep losses small. He also emphasizes the importance
of protecting profits with trailing stops as a winning trade goes in your favor, and never risking
more than 2% of your account on any one trade based on your position sizing and where your
stop loss is placed. He also warns against losing more than 6-8% of your account in any one
month, this is a dangerous amount of capital to lose in a short amount of time.

A critical point made by Dr. Elder, is that professionals in any field do not count their money daily.
Traders should focus on their trading, and not their daily profits. Traders should focus on
following their trading plan and let the profits take care of themselves. Dr. Elder’s background in
psychology makes him the perfect person to explain the pitfalls of trading emotionally and without
discipline.

Dr. Elder has written one of the most all-encompassing trading books on the market today. You
will profit from it, whether you are a beginner or an advanced trader. It will make you more
professional and logical, and it will show you that traders are only profitable by trading a winning
method, using risk management, and psychological discipline. This book was one of the most
important and influential for me in my trading as it brought together the importance of what Dr.
Elder calls the three legs of the trading stool. Managing your money, your method, and also your
mind, the three M’s that are required for profitable trading over the long term. 

In trading defence is under rated and offense is over rated. Too many new traders want to make
money so bad they don’t even consider the risk of loss when the market becomes very volatile
and plunges.

Here are ten ways to manage risk and limit your losses during market plunges. 

1. Your maximum position size on any one should never be more than 10% to 20% of your
total trading capital. 
2. Every trade you make should have a planned stop loss price where you are proven
wrong about the trade and must exit. 
3. Your biggest loss on any one trade should be no more than 1% of your total trading
capital based on your position size and your stop loss. 
4. You should trade with diversified traidng signals: dip buying signals, trend trading signals,
and swing trading so you have a chance to make money in multiple types of markets. 
5. The less your positions are correlated the lower your risk of loss at one time. 
6. Position size based on volatility not your opinion or ego. 
7. Trade in the direction of the trend on your time frame. 
8. Realize bull markets have no long term resistance and bear markets have no long term
support and do not get stubborn and hold a position on the wrong side of a trend.
9. Also enter a trade understanding the odds that it can be a losing trade. 
10. You must test any trading system through mutiple types of markets: up trends, down
trends, volatile, and crashes to completely understand your risk of ruin. 
Risk management can both save you from big losses and eventual ruin during losing streaks.
The most valuable lessons you can learn in trading is how to protect the capital you do have to
give it a chance to both survive and grow. 
Why Perfection Is A Bad Trading Goal

If we want a perfect entry, we will never trade.

If we want a perfect company, we will never invest.

If we want a perfect person, we will never marry.

If we want a perfect job, we will never be employed.

Perfection is not the goal, success is.

A big stumbling block for new traders is the goal of perfection. If you think it is possible to
be right about every trade, every time, and hate to be wrong you are going to have a bad time.
Trading is much like being an entrpreneur, during the creative process you win some and you
lose some. Some businesses are profitable and some lose money and go out of business.

Some trades make money and some trades lose money and profitability really comes from
bigger wins and smaller losses not all wins. Few bowlers every bowl a perfect 300 and no
baseball hitter has every batted over a .410 batting average in a season. Perfection is not
possible because you are competing against the composite of all other traders and investors in
the markets.

You can have winning streaks and be profitable but no matter what you will eventually have
losing streaks and drawdowns, that is just the reality of the markets. Even the best traders in
the world have ‘only’ 50%-70% win rates. Both value investor Warren Buffett and trend
follower Bill Dunn have had +50% drawdowns in there capital and they are some of the best
of all time in their fields and using their methods. There are few delusions greater than
entering the markets with the goal of perfection. Focus on making money with an edge, focus
on a repeatable quantified system.

Accept your losses quickly and maximize your gains by letting your winners run until you
have a reason to lock in your profits. To be a profitable trader you have to be a good loser.
Accept there will be losses and you will cut them short and not hold on to a losing trade on
the wrong side of a trend because you don’t want to exit it and admit you were wrong about
the trade. Admitting to your losses is one of the biggest parts of the trading game. 

Perfection makes you wait to enter a good trade. Perfection makes you hold on to a losing
trade hoping it will come back to even. Perfection makes you upset about every losing trade.
Perfection keeps you in the learning process far too long when only trading can teach you the
toughest lessons. Perfection keeps you looking for the perfect trading system and ignoring a
good trading system with an edge becuase it is not good enough. 
“There are just four kinds of bets. There are good bets, bad bets, bets that you win, and bets
that you lose. Winning a bad bet can be the most dangerous outcome of all, because a success
of that kind can encourage you to take more bad bets in the future, when the odds will be
running against you. You can also lose a good bet no matter how sound the underlying
proposition, but if you keep placing good bets, over time, the law of averages will be working
for you.” – Larry Hite
 Interview with a Trader: Inside the Mind of Steve
Burns

Steve Burns has been successfully investing in the

stock market for more than 20 years, and has been an active trader for over 14 of
those years. He is the author of 13 trading books in total, 6 of which are #1 best
sellers on Amazon.com in the Stock Market Investing Category. He ranks near the
top 1,000 of all reviewers on Amazon, and is one of the site’s top reviewers for
books about trading.
Steve has been featured on several sites and within numerous publications, some of
which would include DarvasTrader.com where he was featured as a top Darvas
System trader, and has been interviewed by the Wall Street Journal, Traders
Magazine, Michael Covel (creator of Trendfollowing.com,) and now of course,
by TraderMentality.com. He has also been a contributor to Traders
Planet, ZenTrader.ca, and SeeitMarket.com.
Steve currently resides in Nashville, TN with his wife and business partner, Holly,
their three children, and lots and lots of cats.
The Interview
He took some time away from his busy schedule to answer some questions for me:

What first influenced your interest in the stock market?

“As a teenager, I was always fascinated with what drove stock prices, and I loved
the concept of free market capitalism. I thought the rate of growth through
compounding returns on money was magical, and wanted to do it myself in the
real world. By March of 2000, I had enough in my first investing account to pay off
my first house. After that, I was hooked for life.”
What methods/strategies have you pursued that have failed for you in the past
as a trader?
“I was not patient enough to be a value investor. After all, it could take years for a
stock to be valued correctly. I also didn’t enjoy sitting in front of a screen for 8
hours a day as a day trader. That wasn’t what I wanted to do with my life.
It was either wait for years for a stock to come back, or waste my life on screen
time as a day trader. So instead, I ended up in the swing trading/trend trading
camp focusing on the open and the close for trading decisions. I wanted to get paid
for good trades on a weekly and monthly basis, and still have a life outside of the
screens during the day.”
Who are influences/role models for you that are relevant to trading and why?
“Alexander Elder showed me the importance of combining the mind, method, and
money management for trading success.
Michael Covel showed me the power of reactive technical analysis and the trend.
Jack Schwager let me look inside the thoughts and process of the world’s greatest
traders with his interviews.
Van Tharp really explained the process of risk with his ‘R’ process.
Mark Douglas was the master of trader psychology.”
When/what was your “ah-ha” moment? What was the breakthrough?
“When I quit trading fundamentals, when I stopped trading too big, and when I
simply reacted to the price action in a systematic way. As a result, my returns and
drawdowns became much more consistent, and trading was no longer painful or
emotional for me. Drop the ego and the predictions and follow a winning system
and the trend.”
How would you best describe your trading style?
“I am a swing trader that trades in the direction of the dominant trend. I strive for
small drawdowns and my edge comes from maximizing bull markets through
leverage and minimizing drawdowns during market plunges and bear markets.”
What key rules do you apply to your own trading?
“I never lose more than 1% of my trading capital on any one trade through proper
position sizing and setting stop losses.
I am an aggressive bull when in bull markets, and trade short and small in bear
markets. I trade the market leaders, not the laggards. Moving averages show me
the trend. RSI shows me when the trend is about to bend. MACD shows trend
turning points. I trade the market based on predetermined signals.”
What do you look for in the stocks that you trade?
“I want the stocks of the companies that are changing the world through their
business model, products, or technology and are pressing all time highs above all
key moving averages.”
What do you feel sets the great traders apart from the rest?
“The great traders are slaves to the markets price action and keep their own egos
in check. The great traders I know personally are humble, generous, and learned
their trading lessons the hard way, by losing money.”

What can you tell readers about your risk management approach?
“My goal is to never lose more than 1% on a single trade when it goes against
me. I do not want to be exposed to more than 3% total risk at one time in
correlated positions.
I want to be in losers briefly and move on if I do not make money pretty fast. I try
to limit my drawdowns in capital to 5% each year. Risk management is my #1
priority. I want to keep what I have more than try to go for big winning trades.”
What trading moments make you the most proud?
“In my main accounts I averaged +20% returns from 2003-2007 and went to cash
in January of 2008 in those accounts suffering no drawdown in 2008.
I traded Apple and Priceline breakouts in the 1st quarter of 2012 with weekly
option rolling a 52% return in 3 months. I made a 100% return on options in a big
Apple strangle in mid 2012 in an overnight trade.”
The most upset?
“I suffered two 50% drawdowns in my trading accounts over the last 16 years
through trading too big and aggressively.
I learned the lessons of position sizing and trend fighting the hard way. I came
back from both drawdowns to return to all time account highs. It is hard road to
come back from. I advise not travelling it. It tends to break most traders.”
What books, websites, or other resources would you recommend to those
wanting to broaden their trading knowledge?
I tried to create the most affordable and informative books and e-courses on the
market for new traders to get them started. I
use stockcharts.com, ETFreplay.com and Finviz. I strongly advise educating
yourself before you start to trade. The books from those I mentioned
before, Michael Covel, Alexander Elder, Van Tharp, and Jack Schwager were all
life changing for me.
What advice can you offer readers regarding position sizing?
“Trade small enough where you emotions don’t interfere with you following your
trading system and trading plan. Never losing more than 1% of your trading
capital on one trade is a great place to start.”
A lot of traders plateau and have trouble evolving beyond this level. What
advice can you give to them?

“Never stop learning and growing as a trader.

Focus on where the trends are every year and never stop growing.”
Now that you have developed into a successful and profitable trader, what are
you doing to better your skill?
“My blogging and book writing forces me to grow and solidify my trading in my
writings. It keeps me from getting sloppy or lazy.
I also post my trades on twitter and in my private twitter group so I am always
accountable for why I am trading something.”
Any habits or methods that you use that others might think is unorthodox?
“I don’t care about fundamentals, I care about price action. I don’t watch CNBC
anymore. I don’t predict price action, I follow price action. I care more about
moving averages than the news. I trade primarily the first hour and the last 30
minutes and consider most of the daily price action just noise.”
For those who are just beginning to get their feet wet, what advice would you
give or direction would you point them?
“Learn to manage your emotions and your ego, they are expensive things in the
market. Trade small so you survive. Do not put money at risk without first having a
trading system and a trading plan for how to implement it.”
Any advice for those traders who are already successful?
“Never believe you have arrived and can take money from the market at will. That
will cost you.”
What would you like your “legacy” as a trader to be?
“My goal is to bring up the survival rate of my audience of new traders by
focusing on risk management, discipline, and rule based systematic trading. If I
can inspire one trader that goes on to be a millionaire or even billionaire then that
would have made my work well worth it.”
10 Reasons Most Traders Are Not Profitable
 Darla
Many new traders turn  into bitter traders because they lose a lot of money. It’s a fact that the
majority of active traders don’t make it and leave the  market. Many investors become
disillusioned with buy and hold drawdowns and bear markets that destroy their capital. A trader
has to not only overcome slippage and commissions, but also their own emotions and ego.

If a trader doesn’t have enough capital to start, then they are fighting a losing battle. They will be
tempted to trade too big to build capital, and if they are risking too much capital, the odds are that
they won’t be profitable after a few losses. Traders are seen as gamblers because the vast
majority of traders are gamblers looking to make easy money. They are lured by gurus into ‘get
rich quit schemes’ that are expensive and leave them broke. What I try to do in my eCourses and
books is share what the profitable traders and professionals do to avoid ruin and  make money.

Here are the reasons most new traders never become profitable traders:

1. They risk so much money per trade that the losses make it mathematically impossible to
keep their profits.
2. They trade with no plan, method, or system, just opinions and emotions.
3. Their entries are based on hope and their exits are based on fear.
4. They trade markets with wide bid/ask spreads that make it impossible to win.
5. Their trading account is so small that commissions are too high of a percentage of their
account. 
6. They don’t have patience and are unable to wait for the best entries.
7. Traders that aren’t able to cut a loss when it is small end up with large losses.
8. Traders that try to predict bottoms and tops are the ones that usually miss the whole
trend.
9. Traders that don’t understand proper position size typically pay for their ignorance.
10. Most traders trade with their ego, and they are costly in financial markets.
Jesse Livermore’s 21 Trading Rules

1. Nothing new ever occurs in the business of speculating or investing in securities and
commodities.

2. Money cannot consistently be made trading every day or every week during the year.

3. Don’t trust your own opinion and back your judgment until the action of the market itself
confirms your opinion.

4. Markets are never wrong – opinions often are.

5. The real money made in speculating has been in commitments showing in profit right from the
start.

6. As long as a stock is acting right, and the market is right, do not be in a hurry to take profits.

7. One should never permit speculative ventures to run into investments.

8. The money lost by speculation alone is small compared with the gigantic sums lost by so-
called investors who have let their investments ride.

9. Never buy a stock because it has had a big decline from its previous high.

10. Never sell a stock because it seems high-priced.

11. I become a buyer as soon as a stock makes a new high on its movement after having had a
normal reaction.

12. Never average losses.

13. The human side of every person is the greatest enemy of the average investor or speculator.

14. Wishful thinking must be banished.

15. Big movements take time to develop.

16. It is not good to be too curious about all the reasons behind price movements.

17. It is much easier to watch a few than many.

18. If you cannot make money out of the leading active issues, you are not going to make money
out of the stock market as a whole.

19. The leaders of today may not be the leaders of two years from now.
20. Do not become completely bearish or bullish on the whole market because one stock in
some particular group has plainly reversed its course from the general trend.

21. Few people ever make money on tips. Beware of inside information. If there was easy money
lying around, no one would be forcing it into your pocket.

.
10 Disciplines of a Winning Trader

Dis·ci·pline : a way of behaving that shows a willingness to obey rules or

orders.
 Discipline is a key element of successful trading, nothing works in trading without the ability to
stay focused and take the right action at the right time. 

1. We must take our entries when we get the signal.

2. We must exit when our stop loss is hit.
3. We have to manage our position sizing at all times and not get too big in a trade.
4. If our trailing stop is hit we have to take it.
5. If we get out of a trade and a new signal is hit we have to get back into it.
6. We have to follow our trading plan and not get swept away by our emotions.
7. We have to do the  research and homework first and see if our method works first and
then trade it.
8. Smart traders stick with markets they know well.
9. We can not drift into a different trading style just because our style is out of favor.
10. Even if  the market is not conducive to our method currently we have to stay focused on
doing our homework and taking our entries when the opportunity arises.
The 10 Top Skills of Profitable Traders

Most long term profitable traders possess a set of skills that lead to their consistent success over
a long period of time. Here are the 10 skills that I have seen in common with so many successful
traders. These were skills that had to be mastered before I was able to generate and keep long
term profits from trading the financial markets. 

1. Traders must have the skill to create a trading system with an edge that rises above
randomness and creates a high probability of long term success. 
2. Profitable traders know how to create good risk/reward ratios by managing their margin
of safety on entry, their stop loss, and their potential open ended upside profits.  
3. Backtesting and doing historical chart studies is a skill they possess to see what worked
in the past. To give them better odds of success in the present. 
4. They are not tempted to fight trends. They go with the flow until that stops making them
dough. 
5. The ability to accept an unprofitable trade is wrong early in the loss. 
6. Trading is their business for making money and they treat it that way, not a form of
entertainment and excitement. 
7. The flexibility to let a winning trade run when there is no reason to exit it early. 
8. They possess the skill to navigate the random nature of prices and focus on the signals
that really matter. 
9. Profitable traders have developed an unbreakable faith in their trading system and their
own ability to execute it with discipline over the long term. 
10. They have the skill to accept the unknown and that the future is unknowable and to trade
what is currently happening. 
RISK Isn’t Just a Game, in trading it is THE GAME

Rich Trader Ed Seykota Interview

Van Tharp:

Have you played around with any other significant ideas in terms of position sizing besides
market’s money? If so, what are they?

If you could give me ten rules to consider with respect to position sizing what would they be?

Ed Seykota:

“Playing around” with “when market money becomes your money” seems to be an exercise in
math-turbation.

I don’t know what you mean by playing around with ideas. I feel you either think things through or
you don’t.

Ten rules for position sizing:

1. Bet high enough to make meaningful profits when you win.

2. Bet low enough so you are ok financially and psychologically when you lose.

3. If (1) and (2) don’t overlap, don’t trade.

4. Don’t go adding a bunch of rules that don’t work, just so you have ten rules.

1% of total account capital  is the best risk profile for traders. What this means is that if you trade
a $25,000 account, you can risk $250 per trade. If you have a hot stock that is about to break to
new highs and you want to take the breakout, you need to set a stop loss at $250.

If you are trading 100 shares at $100 each, your stop should be at $97.50. If you are trading 250
shares at $100, then your stop would be at $99.  The volatility of the stock will determine your
position size. If the stock moves $3 a day you may only be able to trade 50 shares.

Stops are an insurance policy that save you from huge losses. If you bought the $1oo stock, you
would be out at your stop. This is the difference between winners and losers in the market, RISK
CONTROL.

Never risk more than 1% of your total equity in any one trade. By risking 1%, I am indifferent to
any individual trade. Keeping your risk small and constant is absolutely critical.” – Larry Hite.

As a trader, you will eventually lose ten times in a row. High expectancy mean reversion systems
eventually lose ten time straight in a monster trend. In Las Vegas the roulette wheel hits red or
black ten times in a row many more times than gamblers may think. So the question is, when that
day comes do you want to be down 10%, or have your account knocked out by a 50%-70% loss?
Your choice.
What makes Money?

In trading, money is simply made by making more money when you are on the
right side of the trade than you lost when you were on the wrong side. That is
rarely understood. Even many of  the best traders in the world only win 50% of
the time or less. In baseball the pitching competition is so fierce, that  batters
do great to get on base slightly more than one out of every three at-bats. The
same thing applies to trading, traders do great to win over half the time due
to fierce competition in the markets. The real key is big winners and small
losers. Home runs and Grand Slams to off set the strike outs and being tagged
out at first base.  If you make $10,000 on your winners and lose $5000 on your
bad trades you are still up $5000. This is why it is important to let your
winning trades run with a trailing stop as far as they will go and cut your
losing trades as quickly as possible or at the stop loss. This is how we really
make money, WIN BIG, lose small.

“Simplicity is the ultimate sophistication” Leonardo DaVinci

When at first you don’t succeed….

Try, Try, again.

It is important in trading to never get overly discouraged with consecutive losses or draw downs
in equity, this is a normal part of the business. I once had a 50% draw down early in my trading
career when I did not respect risk, but came back and quadrupled my capital over a few years of
steady trading. I never quit. When the market is not favorable to your system you will lose, when
it is favorable to your system you win. You have to stick with your system and give it a chance to
win. The markets have a way of finally being willing to give you that big win right when you style
drift into another system. Nothing is more sickening than to here that slot machine pay the
person that sits down after you gave up dropping tokens in.

Stick with your proven system, control your risk, you will win big in the long term.

[My mentor] also taught me one other thing that is absolutely critical: You have to be willing to
make mistakes regularly; there is nothing wrong with it. Michael taught me about making your
best judgment, being wrong, making your next best judgment, being wrong, making your third
best judgment, and then doubling your money. -Bruce Kovner
Your Opinions or A Proven System?

Decisions, Decisions,

Discretionary Trader vs. Systematic Trader

Discretionary Traders trade information flow, while Systematic Traders trade price flow. While
discretionary traders are busy trying to digest what fundamental news and information mean,
systematic traders are taking the signals they are getting from actual price movement in the
market. Systematic traders are not thinking and predicting what the market is going to do, they
are reacting to what the majority is doing based on their predetermined system’s entry signals.

Discretionary Traders are trying to anticipate what the market will do. Systematic Traders are
participating in what the market is doing.

Discretionary Traders are subjective, they read their own opinions and past experiences into the
current market action.  Systematic Traders are objective, they have no opinion about the market,
they are following what the market is actually doing and following that trend.

Discretionary Traders trade what they want and have loose rules to govern their trading. 
Systematic Traders have few but very strict and defined rules to govern their entries and exits,
risk management, and position size.

Discretionary Traders are usually very emotional in their trading and taking their losses
personally because their opinion was wrong and their ego is hurt.  Systematic Traders are
unemotional because when they lose it is simply that the market was not conducive to their
system, they know that they will win over the long term.

Discretionary Traders use many different indicators to trade at different times, sometimes macro
economic indicators, sometimes chart patterns, sometimes news. Systematic traders always use
the exact same technical indicators for their entries and exits, they never change them.

Discretionary Traders generally have a very small watch list of stocks and markets to trade
based most of the time on their expertise of the markets they trade. Systematic Traders trade
many markets and are trading their technical system based on prices and trends so they do not
need to be an expert on the fundamentals.

For the average trader being a 100% Mechanical System Trader usually maximizes the chance
of success in the markets. If you are using a historically proven profitable system. If you are
removing your emotions and ego out of your trading. If you are controlling your risk of ruin with
proper trade size and stop losses. Then you have the probability on your side of joining the
consistently profitable traders in the market.
Dangerous trading

There is really only one reason to trade: to make money. Unfortunately many traders get off
track.

Your trading should be ran the same way you would run a business. You are trading to make
money, no other reason. Your trading should resemble being in an auction for profit or a market
place of goods. If your trading resembles a gambler’s trip to the casino you are on the wrong
track. You will lose money, maybe all your money. You must trade with a defined and proven
plan, while managing risk, and with as little emotions as possible. If you are just having fun and
like the excitement of  plunging in and losing money consistently then at least be honest with
yourself, it is a hobby not a business, you are just having fun. If you want to make money
remember why you are trading and ask yourself is it worth it? In the long term it is possible to
make enough money to buy a house, retire, and even be a millionaire, but it is a lot of work like
any other business. The question is are you willing to do the work?

Here are the five most dangerous things that traders start to do when they take their eyes off the
priority of making money.

1. Traders begin to hold trades that are losing  in an attempt to prove they are right while
ignoring stop losses.
2. Traders put on huge trades because they think they have an idea that can’t lose. These
may be the most dangerous trades.
3. Traders add to a losing trade believing that it can not possibly move against them any
more and a reversal is eminent.
4. Traders start to trade only for bragging rights even to the point of ignoring losses and
talking only about wins.
5. Traders trade to prove they are great traders, the priority is their ego not making money.
The Best Bet in Trading

Trading is all a manner of taking a position because you believe the odds are on your side and
that it will move in your favor and you will make money.

That is what the stock market is all about whether you are a value investor, swing trader, or a
momentum trader. The reason trading works is that all traders see charts differently, a swing
traders resistance is a momentum traders buy signal for a breakout. A value investor’s buy
point is a trend followers short sale target.

The market goes up the market goes down, and traders are along for the ride.

What is the best bet? I believe the best bet is that markets will trend. Trend followers made
money in the crude oil run of 2008, the internet bubble of 1999, they made a killing recently
in gold and silver. When the financial panic hit in late 2008 they made double digit returns
while investors got clobbered. Some short term trend followers even have systems that catch
the whole run up and then the whole trend back down.

Many of the world’s top money managers are trend followers, they produce steady returns
and grow capital over the long term. While their systems differ they have core similarities:

1. They trade multiple markets based on price.

2. They have methods to determine a market’s current overall trend.
3. Risk is carefully controlled on each trade position.
4. They trade defined systems and stay away from predictions and opinions.
5. Winning positions are allowed to run until they reverse.
Many times I have looked like a genius by simply following a trend that the majority thought
was way over done but it ran another 10%, at other times I went to cash during volatile times
and just sidestepped a wild market that cost people a lot of money.

For me the best bet is that the market will have trends, and I will be positioned to profit from
them when they happen wherever they may be.
Greatest Trading Book Ever Written?

Is Reminiscences of a Stock Operator really the greatest trading book ever written?

It was ranked #15 on ‘Fortune’s 75 ‘The Smartest Books We Know’, and Alan Greenspan said it
is “a font of investing wisdom.” The majority of top trading book lists name it as recommended
reading, and many great traders credit it as one of their all-time favorites. In another all time
classic book ‘Market Wizards’ Reminiscences was quoted by many rich traders that Schwager
interviewed, as a major source of stock trading knowledge.

Reminiscences of a Stock Operator is a 1923 novel by American author Edwin Lefevre and is
thought to be the life story of Jesse Livermore written as fiction. It takes the readers through the
life of Larry Livingston, speculator extraordinaire. Readers get the chance to watch how a
legendary trader operates and makes millions. The book is a delight to read since it is written as
a narrative, and aspiring stock traders get to pickup market wisdom along the way.

Here are some of the best quotes from the book (Some of the trading lingo and trading principles
we still use today was first written in this book):

Trading Psychology:

“A speculator must concern himself with making money out of the market and not with insisting
that the tape must agree with him.  Never argue with it or ask for reasons or explanations.”

“He was utterly fearless but never reckless.  He could, and did, turn on a twinkling if he found he
was wrong.”

“The speculator’s deadly enemies are: Ignorance, greed, fear and hope.  All the statue books in
the world and all the rule books on all the Exchanges of the earth cannot eliminate these from
the human animal”

Risk Management:

“Suppose he buys his first hundred, and that promptly shows him a loss.  Why should he go to
work and get more stock?  He ought to see at once that he is in the wrong; at least temporarily.”

“I did precisely the wrong thing.  The cotton showed me a loss and I kept it.  The wheat showed
me a profit and I sold it out.  Of all the speculative blunders there are few greater than trying to
average a losing game.  Always sell what shows you a loss and keep what shows you a profit.”

Trading Method:

“Disregarding the big swing and trying to jump in and out was fatal to me.  Nobody can catch all
the fluctuations.  In a bull market the game is to buy and hold until you believe the bull market is
near its end” (There is a time for the buy and hold approach!)
“Remember that stocks are never too high for you to begin buying or too low to begin selling.”
(Momentum trading can make you a lot of money)

“At the same time I realize that the best of all tipsters, the most persuasive of all salesmen, is the
tape.”

“It never was my thinking that made the big money for me. It always was my sitting. Got that? My
sitting tight! It is no trick at all to be right on the market. You always find lots of early bulls in bull
markets and early bears in bear markets. I’ve known many men who were right at exactly the
right time, and began buying or selling stocks when prices were at the very level which should
show the greatest profit. And their experience invariably matched mine–that is, they made no
real money out of it. Men who can both be right and sit tight are uncommon.” (You have to let
your winners run and set your stop low enough to give your position room to breathe)

“Old man Partridge’s insistence on the vital importance of being continuously bullish in a bull
market doubtless made my mind dwell on the need above all other things of determining the kind
of market a man is trading in. I began to realize that the big money must necessarily be in the big
swing. Whatever might seem to give a big swing, initial impulse, the fact is that its continuance is
not the result of manipulation by pools or artifice by financiers, but depends upon basic
conditions. And no matter who opposes it, the swing must inevitably run as far and as fast and
as long as the impelling forces determine.” (You have to trade in the direction of the current
trend)

Whether this is the greatest trading book of all time may be up for debate, but it most definitely
the most influential book in the trading business.
The Wisdom of the Legendary Paul Tudor Jones

At 56, Paul Tudor Jonesis a  self made billionaire with a net worth of 3.3 billion and is ranked as
the 336th richest  person in the world, he  knows exactly how to trade the biggest money for the
biggest returns. One of Jones’ earliest and major successes was anticipating and trading through
Black Monday in 1987, tripling his money during the event due to large short positions. The Dow
Jones Industrial Average dropped by 508 points to 1738.74 (-22.61%) on that day. While the
majority of others lost more than they ever had in their lifetime, Jone’s was on the other side of
their trade making a fortune. That is the sign of a truly great trader making money at the tipping
points that most others miss.  Paul Tudor Jones has returned double digit annual returns to his
investors for decades. He is one of the greatest traders to have ever lived, we need to sit up and
listen closely to his advice, it is priceless.

Risk Management

“Don’t focus on making money; focus on protecting what you have.”

“Where you want to be is always in control, never wishing, always trading, and always, first and
foremost protecting your butt.”

“At the end of the day, the most important thing is how good are you at risk control.”

Trader Psychology

“Every day I assume every position I have is wrong.”

“Losers average losers.”

“Trading is very competitive and you have to be able to handle getting your butt kicked.”

Method

“I believe the very best money is made at the market turns. Everyone says you get
killed trying to pick tops and bottoms and you make all your money by playing the
trend in the middle. Well for twelve years I have been missing the meat in the middle
but I have made a lot of money at tops and bottoms.”

“The secret to being successful from a trading perspective is to have an indefatigable and an
undying and unquenchable thirst for information and knowledge.”

The concept of paying one-hundred-and-something times earnings for any company for me is
just anathema. Having said that, at the end of the day, your job is to buy what goes up and to sell
what goes down so really who gives a damn about PE’s?”
“The whole world is simply nothing more than a flow chart for capital.”
That cotton trade was almost the deal breaker for me. It was at that point that I said, ‘Mr. Stupid,
why risk everything on one trade? Why not make your life a pursuit of happiness rather than
pain?’
A Trader’s Emotional Indicators

How are you feeling? Were your palms sweating as you placed that last trade? Was your
heart pounding the whole time you had the big trade on? Are you trading for excitement or to
make money?

The hardest part of trading is not math, it is not even developing a good methodology and
system.  Risk management in itself is not difficult. The problems arise when we are pumped
so full of adrenaline we can not do the right math. We are so full of pride that we can not
follow the system and cut the loss. Our ego ignores risk management in the desperate attempt
to “get back our lost money” in one trade. The problems in trading are not out “here” they are
in the little trading floor in our heads where pride, fear, greed, doubt, shame, and stress all try
to out bid each other to be able to control your next action.

Emotions are not weaknesses they are protectors and communicators. We are a village of
logic, thoughts, and emotions and we need them all flowing correctly for balanced and
healthy trading careers.

Fear increases your ability to respond effectively to new or changing situations that contain
uncertainty or some danger. If you are fearful in a trade then your emotions may be telling
you the trade is too big or you do not have faith in the method to win in the long run. You
need to trade at a size that you are comfortable with whether you win or lose. You need to
back test your method and learn about others that traded your method and style and were
successful with it. You need faith in your trading.

Stress is simply a fear based readiness response that tries to activate and prepare you for
change and unpredictability. There is good stress where you are mentally positive and excited
and ready for action and there is bad stress with sweating palms and pounding heart and
overwhelming fear. You have to trade at a level where you are engaged not overwhelmed.
Sometimes it is best to go to cash if market action or volatility gets you confused to a point
where you really don’t know what to do.

Our own ego is our biggest barrier, it will not cut losses because that means it is wrong, it
hates admitting it is wrong.  It is the ego that wants to quit after a losing streak because of the
shame it feels. the ego’s very purpose is to keep us safe and out of danger. We have to show
the ego that trading is a business and winning and losing has no effect on our self-worth. The
market simply was not conducive to our method, it is not about us. We are truly our own
worst enemy.

Some emotions deliberately impede our ability to follow the wrong path and do the wrong
thing with our trading capital. To truly grow into the trader we want to be we have to go up
step by step and win at smaller levels of capital before moving to the next level. We have to
back test and paper trade to prove to ourselves that our trading will be successful before we
begin with real money.
 Emotions always bring with them a message. When your emotions are welcomed and
honored, they move easily and quickly-they arise in response to real situations, they
contribute precisely what you need, and then they retreat after you react to the message with
adjustments in actions.

Emotions aren’t your tormentors; they are your tools, your guides, your protectors, and your
allies. Even you are feeling a very strong emotion the odds are that something is really wrong
and you need to figure out what it is and correct it.

Some of my favorite books on dealing with a trader’s emotions: The 12 Habbitudes of Highly

Successful Traders and Overcoming 7 The Deadly Sins of Trading.

More advanced books by Alexander Elder and Brett Steenberger are also excellent.

If you can’t manage stress and fear, you can’t trade.


The Greatest Trader who ever lived: Jesse
Livermore?

Seventy two years ago, on Thursday, November 28, 1940,

Jesse Lauriston Livermore, entered the Sherry
Netherland Hotel where he took a seat near the bar and
enjoyed a couple of old-fashioned. After an hour Jesse
Livermore got up and went in the cloakroom, seated
himself on a stool, and then shot himself in the head with
a .32 Colt automatic. How could the man who is still
regarded by many as the greatest trader who ever lived
go out this way by taking his own life? It just doesn’t
match the rest of his life.
In his youth Jesse was know as the “Boy Plunger”
because he looked younger than his years and he would
take big positions when he traded against the bucket
shops of his day. The bucket shops let traders bet on a
stock price, but no trade was executed, the house
covered if you were right. How good was he? He was
banned from the bucket shops one by one, it was like
getting kicked out of a casino because you beat the
house so badly with outsized gains. He went on to trade
in stocks and commodities and did very well becoming a
millionaire many times. Unfortunately he also went bust
many times. He made his biggest money in the market
crashes of 1907 and 1929,  it is said that J.P. Morgan
himself sent word asking for Jesse to please quit
shorting stocks. In 1929 the day of one of the biggest
market meltdowns he returned home and his wife was
scared that he had lost everything, he surprised her by
making the biggest money of his trading career. He
ended up with the nickname “The Great Bear of Wall
Street” because of his shorting activity.
Here are some of his most insightful quotes from his
book  “How to Trade in Stocks”
“All through time, people have basically acted and re-
acted the same way in the market as a result of: greed,
fear, ignorance, and hope – that is why the numerical
formations and patterns recur on a constant basis”
“Successful traders always follow the line of least
resistance – follow the trend – the trend is your friend”
“Wall Street never changes, the pockets change, the
stocks change, but Wall Street never changes, because
human nature never changes”
“Just because a stock is selling at a high price does not
mean it won’t go higher”
“But careful timing is essential…impatience is costly”
“Markets are never wrong – opinions often are”
“Remember too that it is dangerous to start spreading
out all over the market. By this I mean, do not have an
“Interest in too many stocks at one time. It is much
easier to watch a few than many. I made that mistake
years ago and I cost me money”
In the book , Jesse Livermore: World’s Greatest Stock
Trader it is said that he loved women and that this lead to
the eventual divorce form his first wife. His second
marriage was to a women with a very bad history with
men. Did this cause his eventual depression and
suicide? He rode a roller coaster of extreme wealth and
being broke many times in his life, did this wear him out?
It is said that he was in a draw drown at the time he killed
himself, did he have a hard time living up to his own
legend? We will never know but I do know the mental
anguish and pain that comes from riding a wild equity
curve and I strongly suggest that all traders respect the
risk of ruin, when those ten losing trades in a row hit
your trading it is much easier to come back from a 10%
draw down when you are risking 1% of capital per trade
than blowing up when you are just going all in on ever
trade. A 10% risk per trade has a 100% risk of ruin in the
long term for just about every trading system. I think that
was Jesse’s problem he did not manage the risk of ruin,
that is how a trader of his caliber and brilliance was
ruined financially so many times.
“The only area I may have differed from most
speculators, was when I felt I was truly right, dead right,
for-damn-sure right-then I would go all the way, shoot the
works.” -Jesse Livermore
The Specific Rules used by the Legendary Turtle
Traders

Have you ever heard of the legendary Turtle traders? Legendary millionaire trader Richard
Dennis set off to find out if traders were just born to trade or if they could be trained to be
successful in the markets from scratch. The answer? If they could follow rules they could be
successful.

Founder of the ‘Turtle Traders’ Richard Dennis quoted from the book Market Wizards: “I
always say that you could publish my trading rules in the newspaper and no one would follow
them. The key is consistency and discipline. Almost anybody can make up a list of rules that
are 80% as good as what we taught our people. What they couldn’t do is give them the
confidence to stick to those rules even when things are going bad.”

Most of the traders that could follow the rules went on to be millionaires and to manage
money professionally.

The Turtle system was a complete trading system.

Markets – What to buy or sell

 The Turtles traded all major futures contracts, metals, currencies, and commodities.
 The turtles traded multiple markets to diversify risk.
Position Sizing – How much to buy or sell

 Turtle position sizing was based on a markets volatility using the 20 day exponential moving
average true range.
 The Turtles were taught to trade in increments of 1% of total account equity,
Entries – When to buy or sell

 The Turtles traded a Donchian breakout system, System 1 entered a 20 day break out and
System 2 entered a 55 day break out.
 Positions were added to in a winning trend. (pyramiding)
Stops – When to get out of a losing position

 System 1 exited at a 10 day break out in the opposite direction of the entry and System 2
exited at 20 day break out in the opposite direction of the entry.
 No trade could incur more than a 2% equity risk, stop losses were planned accordingly
Tactics – How to buy or sell

 The most important aspects of successful trading is confidence, consistency, and discipline.
 The Turtles believed that successful traders used mechanical trading systems.
 They traded liquid markets only.
Turtle traders bought strength, sold weakness, controlled risk, and followed their rules.
Here is a document containing all the original Turtle Trading rules from an original
Turtle>>>> Click Here

Excellent books about the Turtle trading program: The Complete Turtle Trader and The Way
of the Turtle.

It was truly a land mark experiment in trend following’s success rates.

Paul Tudor Jones and This Market

Arguably one of the greatest traders of the past 30 years both for his annual returns,
consistency, and returns versus draw downs. Taken from his interviews and quotes here are
ten things I believe he would do in this market. (Of course this is just hypothetical and my
opinion based on all that I have read and watched on how he trades).

1. He would have bet against the EU nations coming together to  agree on a consensus, he
would be itching and waiting to short the Euro, and European markets.
2. He would be carefully managing his risk exposure in the volatile market and waiting for the
right moment to trade with a high reward to risk opportunity.
3. If he was wrong in a trade he would not add to it he would exit.
4. He would not be predicting he would be reacting to the action in the market, searching for a
top to short or a bottom reversal to go long.
5. He would be trading his beliefs about what buyers and sellers would be doing, trading off
fear, greed, and uncertainty.
6. He would be long markets trending up and short markets trending down.
7. Mr. Jones would be studying charts, looking for technical patterns based on historical prices.
8. While planning his trades he would be studying the underlying fundamentals of the
European zone and making plans to trade events that he believed would eventually happen.
9. He would be holding for days or weeks at a time trying to catch a price trend.
10. He would love the action!
Paul Tudor Jones On Risk Management:

“..at the end of the day, the most important thing is how good are you at risk control. Ninety-
percent of any great trader is going to be the risk control.”*

“Every day I assume every position I have is wrong.”

“Losers average losers.” PTJ’s office wall

His Trading Psychology

“Where you want to be is always in control, never wishing, always trading, and always, first
and foremost protecting your butt.”

His thoughts on Risk versus Reward trade set ups:

“I’d say that my investment philosophy is that I don’t take a lot of risk, I look for
opportunities with tremendously skewed reward-risk opportunities. Don’t ever let them get
into your pocket – that means there’s no reason to leverage substantially. There’s no reason to
take substantial amounts of financial risk ever, because you should always be able to find
something where you can skew the reward risk relationship so greatly in your favor that you
can take a variety of small investments with great reward risk opportunities that should give
you minimum draw down pain and maximum upside opportunities.”*
His thoughts on getting an edge in your trading:

” The secret to being successful from a trading perspective is to have an indefatigable and an
undying and unquenchable thirst for information and knowledge. Because I think there are
certain situations where you can absolutely understand what motivates every buyer and seller
and have a pretty good picture of what’s going to happen. And it just requires an enormous
amount of grunt work and dedication to finding all possible bits of information.”*

How he trades:

“The concept of paying one-hundred-and-something times earnings for any company for me
is just anathema. Having said that, at the end of the day, your job is to buy what goes up and
to sell what goes down so really who gives a damn about PE’s? If it’s going up you’re
supposed to be long it.”

“I believe the very best money is made at the market turns. Everyone says you get killed
trying to pick tops and bottoms and you make all your money by playing the trend in the
middle. Well for twelve years I have been missing the meat in the middle but I have made a
lot of money at tops and bottoms.”

Technical analysis:  “Made well over half the money that I’ve made in my lifetime.”

Fundamental Analysis:  ” Made the rest.”

Market efficiency: “No such thing.”

Day Traders: “95% losers.”

An Edge in a Trader’s Psychology
To have an edge in the markets you must follow the rules of your system with complete
discipline. If you do not act on the impulses of greed and fear you will have an edge over other
traders. If you can ignore your ego and trade your plan you can win. If you can ignore your ego
about not wanting to be wrong and cut your loss you can save yourself a lot of money. If you can
ignore your greed during a big win and take your exit when it is time you will have an edge.

Risk Management
What separates winners from losers in trading? The size of their bets on each trade. When a new
trader bets randomly for each trade based on how certain they are about it being a winner, they
will lose over the long term. This is how MOST new traders handle their accounts because they
greatly overestimate the importance of picking stocks and timing trade entries, while
underestimating the importance of risk management. Even though a new trader has a winning
setup, his arbitrary method of betting will keep working against him as he bets too large on losing
plays and gives back previous winning trades.

Many times new traders do not even understand the risk of ruin. Based on how much you risk
per trade, how many trades can you be wrong on before blowing up your account? If you bet
10% of your total account capital per trade and lose five times in a row, you are basically ruined,
a 50% draw down in your account needs a 100% return to just get back to even. One of the
biggest things that will determine whether you win or lose in trading is your position sizing and
where you put your stop losses, not your stock picks.

If you limit your risk to 1% to 2% of total equity per trade with a winning method that you follow
with great discipline you will find your edge in the markets and win.
Overcoming the Top 10 Pains of Trading.

Trading is not all fun and games. We do not make money every day and certainly not on
every trade. It is not like other careers or jobs where you work and then get paid. Our
pursuit is more like the life of an entrepreneur. Our idea may work or it may not. The stock
we just bought may take off or it may fall. After many years of hard work we may have
enough capital to pay off our house or lose $50,000 of our hard earned money. We may
become a millionaire in a runaway bull market or waste five years of hard work with
nothing to show for it.

Here are 10 painful aspects of trading and what to do about them.

1. The pain of losing money. (Trade smaller so it is not painful, it is just an outcome.)
2. The pain of being wrong about a trade you were sure about. (You lost simply
because the market was not conducive to your trading methodology, trend
followers lose money in choppy markets, swing traders lose money in trending
markets, it’s the market not you.)
3. The pain of a draw down in capital.(Even the world’s best money managers do not
continually hit all time equity highs. Your path may look like this $10,000 to $20,000
to $15,000 to $25,000 to $20,000 to $30,000.  Mine was rockier than most, and after
blood, sweat and tears I am now able to trade with some size.)
4. Consecutive trading losses hurt. They make you doubt yourself, your method, and
your system. (You need to remember your winning trades, your winning years, or
your back-testing, or paper trading of the method.)
5. The embarrassment of public losses. You told everyone who would listen about a
great trade, and you were wrong. (Never be overconfident in any trade, but always
be sure of your stop loss.)
6. The pain of of admitting you were wrong. (Cut your loss and move on to the next
trade, trade reality not your ego.)
7. Losing paper profits, you are up 20% on a trade then a massive whip saw takes
back those profits in one move. (Take your trailing stop and move on to the next
trade, there is truly no reason to cry over spilled milk.)
8. You are following a guru and come to realize he truly is a salesman not a trader.
(You stop following gurus and look to learn how to trade you yourself.)
9. You buy a super hot stock that you have researched for many weeks then it goes
down due to a bear market. (Only trade stocks long in up-trending markets)
10. You start trading a system that did amazing in back-testing and promptly lose 10%
of your account. (You have to stick with it so it can win in the long term, you may
need to make slight adjustments in position sizing or stops to account for volatility
that you may have missed.)
Whatever the pain, just don’t quit, there is gold to be found in trading right over the long
term.
The Top 10 Signs of a Bearish Market

While the generally accepted definition of a bear market is a 20% decline over a two month
period. I am referring to just being bearish, believing the market will go down, seeing signs of a
down trend before you are sitting with a 20% decline in your accounts or more while holding what
were market leaders and are now spiraling downward.

1. The market begins to start up in price in the morning but end up closing lower each day
for multiple days.
2. Previous stocks that were leaders are struggling at their 50 day moving averages, many
below.
3. The market as measured by the SPY  ETF (exchange traded fund) is trading below its
200 day simple moving average and the 200 day is sloping downward.
4. There is a lot of uncertainty about the future in the broad economy.
5. The total market along with individual stocks keep having trouble finding support at
specific levels but continually have very defined resistance levels in price.
6. The market is making lower highs and lower lows.
7. There is a lot of fear about some event that may or may not happen and their is a wait
and see attitude.
8. Money is flowing out of mutual funds and into bonds in large amounts.
9. Talking heads are trying to convince people to buy stocks, that they are now a great
‘value’.
10. Consumer staple type  stocks start being the best performers, Wal*mart, McDonalds, and
dollar stores.
When all these things line up it is a high probability you will win by selling short at price
resistance points, buy puts, and take retirement accounts to cash that do not let you buy reverse
ETFs. This is a time to be cautious.

No matter how great a company is or how amazing their earnings, a bear market is like a
hurricane, it damages all boats regardless of how great they are.
Dan Zanger’s 10 GOLDEN STOCK RULES

This article is for momentum traders, CAN SLIM traders, and Darvas Traders. Trading break
out stocks is a great way to make  money in the right up trending market with the right stocks.
Apple and Google are up to their old tricks, taking over whole markets and laying waste to
competitors. Their charts are just amazing. If Google and Apple do not make new all time
highs then I just don’t know of any stock that ever will. Their technicals and fundamentals
are lining up like only a monster stock can.

But always manage your risk through correct positions sizing and only trade this style if it is
comfortable for you.

Here is how the greatest momentum trader of modern times recommends playing momentum
stocks:

DAN’S 10 GOLDEN STOCK RULES

In addition to these 10 rules, please see notes below:

1. Make sure the stock has a well formed base or pattern such as one described on this web
site and can be found on the tab ‘Understanding Chart Patterns’ on the home page, before
considering purchase. Dan highlights stocks with these patterns in his newsletter.

2. Buy the stock as it moves over the trend line of that base or pattern and make sure that
volume is above recent trend shortly after this ‘breakout’ occurs. Never pay up by more than
5% above the trend line. You should also get to know your stocks thirty day moving average
volume, which you can find on most stock quote pages such as eSignal’s quote page.

3. Be very quick to sell your stock should it return back under the trend line or breakout
point. Usually stops should be set about $1 below the breakout point. The more expensive the
stock, the more leeway you can give it, but never have more than a $2 stop loss. Some people
employ a 5% stop loss rule. This may mean selling a stock that just tried to breakout and fails
in 20 minutes or 3 hours from the time it just broke out above your purchase price.

4. Sell 20 to 30% of your position as the stock moves up 15 to 20% from its breakout point.

5. Hold your strongest stocks the longest and sell stocks that stop moving up or are acting
sluggish quickly. Remember stocks are only good when they are moving up.

6. Identify and follow strong groups of stocks and try to keep your selections in the these
groups

7. After the market has moved for a substantial period of time, your stocks will become
vulnerable to a sell off, which can happen so fast and hard you won’t believe it. Learn to set
new higher trend lines and learn reversal patterns to help your exit of stocks. Some of you
may benefit from reading a book on Candlesticks or reading Encyclopedia of Chart Patterns,
by Bulkowski.

8. Remember it takes volume to move stocks, so start getting to know your stock’s volume
behavior and the how it reacts to spikes in volume. You can see these spikes on any chart.
Volume is the key to your stock’s movement and success or failure.

9. Many stocks are mentioned in the newsletter with buy points. However just because it’s
mentioned with a buy point does not mean it’s an outright buy when a buy point is touched.
One must first see the action in the stock and combine it with its volume for the day at the
time that buy point is hit and take keen notice of the overall market environment before
considering purchase. Are stocks moving briskly or are they acting sluggish or even worse,
are we in a hefty sell off.

10. Never go on margin until you have mastered the market, charts and your emotions.
Margin can wipe you out.

Stocks that breakout and move up with tremendous volume and close near the highs of
the day seem to work out best. However many stocks that move up 15% or more on
breakout day often fail. You’ll just have to watch your stocks action like a hawk and get to
see and understand these things over a long period of time. If trading were easy everyone
would be making millions. It’s not; it takes years and years of hard work and long hours.

Many traders employ a half hour rule, meaning that for the first half hour of the day
many traders do not buy any stock that gaps up in price. If the price holds after the first
half hour then often many traders will step in a buy the stock. I find this rule works good
after the market has moved up for few strong weeks and is not very effective at the start of a
new strong move.

If it’s earnings season then it’s an absolute must that you know the date that your company
reports its earnings. Many traders prefer to be out 100% before a company reports its
earnings in case the company misses its earnings or guides lower. Others I know reduce
positions substantially before earnings are released to lower risk. The choice is up to you.
You can see an earnings calendar on this web site by clicking on the icon Useful Stock
Recourses. Please verify this information by calling the company or visiting the companies
website which you should be able to find in any search engine.

*The market moves in waves that can last anywhere from weeks to months. Then a correction
or setback starts, which can last anywhere from 5 to 8 weeks or even as long at 4 to 6 months.
If you are starting a free trial and are a novice you may be lucky to join just as the market
gets underway, in which case you will see the full power of charting. If however you start
after the move has been going for sometime then things won’t look as good as traders are
paring down positions. Or even worse the market could be selling down hard and working off
the prior up move in which case you will be completely discouraged. The power of charts is
though waiting for the correction to end whereby the chart patterns will then be fully
developed. After weeks of base or pattern building, stocks will begin to lift off and that’s
when the big rewards come in. The question is, are you willing to wait and be here for the
start of the next big move? The biggest mistake a novice can make is to come back after a
move has started.
Rich Trader: Dan Zanger Interview

This interview really takes you into the mind of a rich trader who has made millions with
momentum trading. This method is not for everyone but if you can click the buy button like Dan
Zanger or Nicolas Darvas  during true bull markets with stocks in companies that are world
changing, you can be a millionaire.

By Larry Jacobs

©2006, Originally posted in Traders World Magazine (www.tradersworld.com)

Larry: How have you been?

Dan: I have been very good and busy. Last year was probably my most profitable year and my
biggest dollars gain ever since I started trading. I had some big winners such as Google, Apple
and housing and oil stocks. The majority of my money was made on Google first then Apple
second. I made some on Sandisk and then the housing stocks. I really can’t complain, it’s been
going exceptionally well.

Larry: What was your actual performance last year?

Dan: My personal gain was up 180.6%. The dollar amount was $22 million.

Larry: Has your trading method changed since we last talked?

Dan: No, my method has stayed the same. It’s finding fast growing companies and leading
groups and companies that dominate their space in the global environment. You will find some
incredible winners in the marketplace by following that method. Certainly, Apple dominates its
place in the IPOD market. They not only dominate it, they created it. Google created the pay-per-
click advertising and they dominate it. These are global companies with leading niches. They
dominate and control their space. These are they types of companies that I look for.

Larry: What software do you use to find these companies and actually how do you do it?

Dan: I use AIQ software. It leads me into finding the charts. Certainly when we have real positive
charts you have very positive fundamentals as a general rule. This is what I use to find the big
moving stocks. I download all day long and look every hour for stocks on the move. I also
download at the end of the day to find them. The AIQ software is my priority. That’s all I use
really.

Larry: Using AIQ you say you are downloading during the day at certain times of the day. How
do you scan all the charts that you download determining what to buy?

Dan: In the evening, of course, I do my newsletter at my website, chartpattern.com. I will scan

some 1,300 to 1,400 charts. I have a defined list in the AIQ software. It’s called the TAG list. With
this you can tag your favorite charts. I manually flip through those every night finding the big
movers in the market. I highlight them on my website. Then I put them on my eSignal quote
screen in the daytime. I may have 50 or 60 of the leading moving stocks. I’ll also have the
strongest groups in the market. In my sixty stocks I may have 10 of the biggest movers in the
market. I may have two or three groups and then I may have six to 10 stocks in each group in my
little group sectors. I am constantly watching for stocks on the move. Then, during the day when I
see things moving, I’ll download my charts with AIQ and I’ll make reference to the charts and see
how they look. I want to see how the charts are setting up, whether it is a bearish formation,
bullish formation, how big is the daily bar in reference to other bars, how small is the bar.
Whatever is taking place, I want to see what it looks like during the day. Then, I may add or
subtract my positions. I may sell my entire position. I am constantly referring to the AIQ charts
during the day and in the evening time. I am certainly making a list all day long and into the night
when I do my Chartpattern.com newsletter in regard to what is looking good and what needs to
be sold or bought.

Larry: How do you actually determine during the night and during the day what to buy and what
to sell? Is this based on patterns?

Dan: I certainly use patterns and the look of a daily trading bar. A lot of stocks have good
patterns, but then they don’t move. Many people have sent me pattern recognition soft ware that
they have setup on various soft ware platforms such as TradeStation, or some other software.
They run all these scans and here are all these patterns. They come up with all these patterns,
but nothing moves. So you really have to find what moves and then find the patterns that they
create. I have initially missed the first move of a stock, but I will track it for a month or two waiting
for something to set up as opportunistic to buy either a breakout to the upside or a potential sell
to the downside. I would say that 95% of my trades are long positions. 99% of my gains are in
long positions and the 1% from shorts are for fun and games!

Larry: How do you determine what moves a stock?

Dan: I go with the big funds. When the institutions are buying the stock en masse on volume I
will buy the stock too. When I see a stock beginning to move on heavy volume, I will be a buyer
with the other institutions. Volume is extremely important. It fact it’s everything.

Larry: Do you have any kind of a volume alert?

Dan: No, I don’t have any pre-set alerts. I may have a couple of buy alerts set on my eSignal. I
have all the stocks memorized because I have done my homework the night before. When the
market opens, I know what is moving, what looks good, what is sluggish, what is not moving,
what is trying to move, what is faking you out. You really have to spend a lot of time in the market
every day. I spend 12 – hours at it every day studying my charts and watching volume behavior
and price movement when the market is open. Every day when the market is open that is
everything to me. I want to see the behavior, behavior is everything.

Larry: When you see the volume coming in, what patterns do you like to buy on?

Dan: It depends. I certainly like bull flag patterns. They are my favorites. High level channels and
horizontal channels work very well too. Occasionally, you will see a good cup and handle. A cup
and handle is best when the stock breaks out of the handle on the day of earning. Many times
people will say here is the cup and handle and the stock is trying to break out between earnings.
That is typically a sell signal to me. I find that those fail quite a bit. So I try to avoid those types of
cup and handles. Certainly, you see a lot of oil stocks trying to break out of descending channels
here in March. After the market corrects a certain amount of time you see a lot of leading stocks
breaking out of descending channels. I’ll go ahead and buy some of these stocks with this type of
pattern. Sometimes these patterns yield weak moving stocks and sometimes they yield very
strong moving stocks. Like any pattern where a stock breaks out, the pattern alone does not
guarantee a winner. This is a big fallacy for people who are tying to trade off of chart patterns.
They think that patterns are the new thing (deleted) and that is a no fail system. Patterns just give
you a leading indication of which stocks are ready to move. Be prepared for the failures. Be quick
to cut your losses. When they really start to move big with big volume you need to really step into
the stock heavy.

Larry: How do you actually do that?

Dan: A big stock that trades 2-3 million shares per day can make moves of 3, 4 or 5 points per
day without breaking a sweat. These are the stocks I really like to key in on. As the stock breaks
out I might test the water on it and buy 30 – 50% of the position that I really want to buy. So if I
want to buy 200,000 shares of a stock like a Google, I would buy 70,000 to 100,000 shares of the
stock and see how the stock reacts then I may wait an hour or two and see how the stock is
moving. Then, as the stock continues to move up with heavy volume and is not timid making new
highs, I might add another 30,000 to 40,000 shares up to 75% of the position that I want. I may
wait 4-5 days to see how the stock acts and then add the fi nal 25% of the position I want.

Larry: How long are you in a position?

Dan: It depends on the market and the stock. If it’s breaking out of a high level pattern I would be
in the stock for a shorter period of time. Usually 3 – 5 days up to 2 weeks. If the stock has had a
long base for example 6 – 8 to 10 weeks and the market is coming off a nice correction, I might
be in the stock for 10 – 15 weeks. Th ese are things that take experience and time before you
really get the hang of it.

Larry: What about stops, how do you use those?

Dan: If a stock really does not act right and get up an go when it breaks out, for example, I would
just sell the stock right there. I would not even wait for it to come back down to the breakout
point. If you want to make money in stocks, you have to be in stocks that are moving up. Th e
longer it continues to move up, the more money you make. If the stock breaks up and then goes
to sleep, I am out of the stock. I want to keep my money in those fast moving stocks that are
always moving up. So that is how I employ stops. Certainly it the stock comes back under where
I bought it, I will just checkout. Then, if the stock then turns and breaks out again I would re-buy
the stock, for example if the market had a shakeout on a terrorist attack or a news story, the
stock can easily breakout again. I would wait for it to clear the bar that it failed on. If the stock
broke out at 60 and ran up the next day to 63 and say it had bad news, then the stock comes
back down to $58, I would sell out of the stock. When the stock clears 63 again, I would buy the
stock again as $63.10 is a new high.

Larry: Why do you think a lot of people are not good traders as you are? (Awkward question.
How about: How do you think traders can improve their skill-set?

Dan: Persistence, homework, more homework and more homework is the reason for success. I
feel many traders don’t put the time in. They don’t have the desire to learn. They don’t have the
laser beam focus to really zoom in with what is working, why it works, what does not work, why it
did not work and to put the years in that it really takes to learn all the stuff . People think that
trading is going to be easy. They come in and they get crushed after a little while. Then they say
they’ll never do it again. Guess what, you’ll never do it again and you’ll never succeed.

Larry: How long does it take to make a good trader?

Dan: It depends, but with most people that are really successfully they have been at it for 4-6
years at a minimum.

Larry: Have you changed anything in your trading since I talked to you in the last two years?
Dan: In stocks like Google, I have added deep in-the-money stock options, because Google is
trading at $300, I did not want to buy it at such a high stock price. I would rather buy the cheaper
options. When Google was at $300 I would buy a 2 month out contract, like a Google 260 or a
240 call option. Th e 240 contract would cost me 65 dollars. That means I would have to pay up
$5, but I would not have to pay $300 for the stock. I would save $240 for an extra $5 and this
way I could even buy more stock. So I ended up buying an incredible amount of Google and the
stock took off and I obviously made a great deal of money. Th at was the only thing that I
changed in my trading, adding deep in the money call contracts out one to two months on very
expensive stocks.

Larry: Have you found the volume to be OK to trade those options?

Dan: For the most part yes because I like to trade stocks with high volumes. But I still fi nd it
fairly easy to get out of options on low volume stocks for example, the Chicago Mercantile
Exchange stock, tick symbol CME, the stock would trade 500,000 – 800,000 shares per day with
the stock at $260. I bought the CMD 200 contracts with the stock at $250 or $260. If you bought
10,000 shares and wanted to get out on a fl ash, it would take you 2-3 hours to get out. If you
tried to sell 10,000 shares at a shot you could drive the stock down 4-5 dollars. I could buy 400-
500 or even 1,000 contracts of that stock with a phone call I could completely sell it all instantly,
with no waiting. I found that the options market is more liquid than many of the stocks, which is
especially nice when the stock is not moving . However, when the stock is collapsing that is
another story? Because I had Google call contracts when the stock was going up to 440 – 445
and it got a downgrade and the stock got slammed $20, by the time I got out of my contracts.
You could watch money evaporate as the contracts were getting filled. What I learned was when
Google was moving down like it was is that I had too many contract prices and that was diffi cult.
I had to sit down and go through the diff erent strikes and wait for one strike to be liquidated and
then go to the next strike and wait for it to be liquidated. You are spending all this time as you are
moving through the strikes and diff erent time frames to sell them all. It took a long time to get out
of these options with my traders. Th e one thing I learned is that you should get options with just
one strike and one month. Then you can just click the button once and you’re out, you don’t have
to wait and go through various strikes and expirations to get out of them. It was a learning
experience. It cost me a couple of million dollars on that trade but I still made millions on the
trade. I only employed options on a couple of stocks. I don’t really want to trade options. I only
want to trade options aft er the market has come down aft er a correction and then comes up out
of it, then I’ll buy the deep in the money call contracts and that’s it. Otherwise, options will kill
you, because you are so leveraged. If the market goes against you, you think being on margin is
tough! Being on options is tougher because of the greed factor for one, but its the leverage factor
that will eat you alive. You might say that you can buy so many more options and you can make
so much more money and then if you get caught in a down move due to an earning downgrade
or something, you’ll be out of cash completely, maybe even wiped out. You need to be careful on
margin and even more so on options.

Larry: What is your outlook for the market?

Dan: For me, trading is one day at a time. I never say the market is going to go up or down. It if
you trade on a forecast like that, and you load up, the market can turn on you and you can really
get hammered. I have a few market timers who send me stuff and it is interesting and that’s fine.
But, I don’t really rely on it for trading. For example, you can be loaded up on chip stocks and say
all of a sudden the leader in the group says that they don’t see earnings continuing and then the
whole group takes a 15% discount and you are on 2 x 1 margin. This may cause you to take a 20
to 25% loss on your positions. You can really get hurt on this. I don’t believe in anything but my
charts and my price action with stocks.

Larry: What is your protection with something like a terrorist attack?

Dan: I don’t have any protection. I don’t think anyone does who is a trader. The main thing is not
to get too loaded up on margin. If you have to take a brutal discount on your positions and you
are loaded on margin or on options and you do get into a wicked terrorist attack you can get
really hurt. On something like this the market might gap down a substantial amount, you can get
wiped out. You really don’t want to be in a position like that at any time. You need to be
reasonable in your positions.
Bernard Baruch’s 10 Trading Rules

While pure trend followers and technical analysts will not agree with all of Mr. Baruch’s principles
it is interesting to read through them, they are the same as some of the top traders and investors
of our age. Some of these all traders can agree on.

Bernard Baruch was a millionaire in his early thirties after a few good runs in the stock market
and devoted the remainder of his life serving the public and helping the U.S. win World Was I
and World War II. He was a big believer in serving his country and that was the main purpose for
the remainder of his life after he made his fortune.

Here is a summary of his 10 rules summarized:

1. Only speculate if you can do it full time.

2. Ignore inside information and tips.
3. Have a complete understanding of a companies fundamentals before you buy the stock.
4. Don’t try to buy bottoms or sell tops.
5. Cut your losses quickly.
6. Focus on and buy only a few stocks.
7. Review and update your investments periodically for changes.
8. Study your tax position to know when to sell at greatest advantage.
9. Never invest all your funds. Keep a reserve.
10. Stick to the field you know best in investments.

His biography is a great read for anyone interested in this great man and master trader who
counseled presidents and was a close associate of Winston Churchill. It is interesting that it
shows how far ahead of his time Mr. Baruch was in not only stock speculating but also
discrimination and economics.  If you are reading it for only his advice on stocks just read
Chapter 19: My investment philosophy. It is one of the greatest chapters you will find anywhere
on advice for successful market speculation. He will explains to readers that economic conditions
do not drive prices, peoples perceptions do. Cut your losses fast. Sell your worst performers and
keep your best. Know what you are investing in. You can only truly learn the rules of stock
trading by experiencing the losses personally.
Be a Trader not a Gambler

Successful traders act more like business people than gamblers. They manage risk, manage
inventory, follow trends, look for patterns in their ‘customers ‘ buying and selling, and work
for profits not excitement, just like anyone else in any business for profit.

There is one huge difference between the winners and the losers in the market. New traders
tend to go ‘all in’ on trades they are just sure will be winners. If a new trader wants to be
around long enough to be a rich trader they better manage their risk per trade.

Here is a great example from the popular and educational marble game that teacher and trader
Van Tharp uses to show the real power of the risk of ruin to traders in a way they will never
forget.

You will be ruined even with a winning trading system if you bet too much per trade.

To illustrate the importance of risk management, Van Tharp has participants play a trading

simulation game.

1. Van simulates 50 trades by pulling a marble out of a bag 50 times.

2. Each marble represents either a winning or losing trade.
3. You simply bet on whether he’s going to pull out a winner or a loser before he pulls it out.
60% of the marbles are winners, so if everyone were to simply bet the same amount of
trading capital on every trade, they’d each come out a winner.

But everyone doesn’t come out a winner, because they bet inconsistently on each trade.

Surprisingly, when Van Tharp plays the game, only a 3rd of the people in the room are
winners. Also, out of the other two-thirds that lost money, half of them lost it all, they were
ruined– in a game with a positive expectancy model, the odds were in their favor. This can
easily happen when traders do not manage risk and trade based on feelings and emotions.

Everyone began with the same amount of money, but no two individuals in the room ended
with the same amount of money (except those that went bankrupt, zero $’s). This all goes to
show that the question, “How much capital do I risk on each trade?” is more important than
the more fun questions, “What stock do I trade and where do I enter?”

Van Tharp had two special marbles in the bag to keep things interesting. One was a 10x
winner – meaning if you bet $5,000 out of the initial (imaginary) $100,000 you were given to
start with, you’d make 10 times your money on that bet, for a profit of $50,000. There was
also a 5x loser in the hat. So if you bet $5,000 when Van pulled the 5x loser, you’d lose
$25,000.

Consider the Gambler’s Fallacy.

A simple coin toss with 50/50 odds. If a regular coin came up heads nine times in a row, what
is the chance it would come up heads on the next toss? Pretty slim, right? Think about it –
what are the chances that a coin would land on heads 10 straight times? It’s bound to be tails
on the next toss, no?

Actually, the odds are 50/50 – exactly the same as the first coin toss. The coin has no memory
of where it landed last time around. Each toss is unique.

This same idea – that each individual outcome is unique – applies to traders as well as players
of  the marble game “My last three bets were wrong, therefore chances are I’ll be right on this
one.” This thinking is the Gambler’s Fallacy. If you go with your initial feeling and ignore
the Gambler’s Fallacy in your trading, chances are, you could end up broke, just like many of
the players of Van’s game.

After all, in Van’s game you were practically guaranteed to win. But what are your
guarantees in the stock market? There are none.

How did traders go broke in a game they were guaranteed to win? They didn’t understand the
impact of “draw downs” and the “risk of ruin”

Let’s say that, after a streak of losers, you had $50,000 left out of your original $100,000.
And let’s say you wanted to lay down a big bet to try and catch up with the rest of the crowd
– say $10,000?

You may not realize it, but due to the rules of the game, you run the risk of getting wiped out.
Let’s say that Van pulls the one 5x loser marble out of the bag, then you’re wiped out
instantly. If you don’t fully understand what you have at risk, you will eventually “blow up”
your account.

Accounts do not go back up as fast as they go down. Lose 1% of your total trading capital
and you only need to get back 1%. Lose 10% and you need a little over 11% to get back to
even. If you are down 20% you have to make a 25% return to get back to even. If your
account falls by 25% this means that you will be faced with the epic challenge to earn 33% to
get back to where you started. If you’re willing to allow your account  a 50% draw down,
you’ve got to earn 100% to get back to where you started. And if you go ‘all in” and your
trading account falls 90%, it has to rise 900% to get you back to where you started. That is
the mathematical problem with losing your trading capital.

If you limit your total capital risked to 1% per trade, you will rarely have to deal with draw
downs of greater than 10%-20%. This will give you a great advantage over other traders in
your likelihood of long term success.

 
Top 10 List for a Bull Market

There is a big difference between trading in an up trending market and a down trending market.
Money can be made in bull markets and bear markets but you have to be trading the right way to
capture those profits.

Here are the ten best signs that we are in a baby bull market:

1. The major market indexes are above both the 50 and 200 simple moving
averages. Check.
2. You have many growth stocks trading at all-time highs, AAPL, CMG, and ISRG. Check.
3. You can safely buy on any price retracements that bounce off key moving
averages. Check.
4. Traders and investors are surprised that the market is rallying regardless of  macro
worries. Weird.
5. Bad news hits the market but the market goes up, because it is already priced in. Europe
downgrades had no effect.
6. Higher risk assets start a strong uptrend with safe money coming out of bonds and the
cash and are used to purchase market leaders. It appears so.
7. New leaders emerge out of strong bases while defensive stocks under perform. Yes.
8. Can Slim traders find huge amounts of set ups to choose from. That is what I am
hearing.
9. Fear of missing out on the rally replaces the fear of losing money on sudden drops. I am
there.
10. The majority of traders do not believe the rally is real. Hmmmm.
Are You a Gambler or a Trader?

How many times has this happened to you? You tell your co-workers, family, or friends about
your trading, and after a gasp they say, “Oh my, isn’t that gambling?” You try to assure them that
no, you are not a gambler, you are a trader. You have a winning system, and you make money
over the course of time. But they still look at you judgmentally and never quite understand. They
don’t seem to understand that when they lost half their retirement money with their supposedly
safe investing methods, you made double-digit returns over the same period of time.

Here is a quick checklist to see if you are a bad gambler or a good trader:

 Gamblers are always at a disadvantage to the house. Good traders have a  system that
gives them an advantage over other traders.
 Gamblers always leave the casino with empty pockets, no matter how much money they
are up at any point. Good traders make money consistently.
 Gamblers risk money randomly. Good traders risk preset amounts of money on each
trade.
 Gamblers don’t understand the odds against them. Good traders understand the
risk/reward ratio in every trade.
 Gamblers enter a casino with no understanding of their risk of ruin. Good traders manage
their risk of ruin, keeping it close to zero.
 Gamblers use emotions to make decisions. Good traders use a trading plan for each
decision.
 Gamblers have big egos win they win. Good traders are humble winners.
 Gamblers go all-in to win big. Good traders trade just big enough to make a meaningful
profit.
22 Bad Trading Habits

Here are the best answers from my Facebook trading group when I posted the following
question:

What is one of your bad trading habits that causes you to lose money?

1. Underestimating the possibility of volatility expansion at times and taking too big a
position size.
2. Overly optimistic that the market will trend well… only to reverse.
3. Averaging in on losing positions.
4. Not studying more.
5. Not following the trend and trying to predict the top or bottom.
6. Following other’s trades.
7. Deviating from positive expectancy models.
8. “Fighting” back instead of taking the loss/killing a bad trade (bad trade = against the plan)
…
9. Trading too large for my account size.
10. Overtrading.
11. Starting the day “looking” for something to trade like a trading addict.
12. Wishful thinking for big profits.
13. Taking trades that aren’t “my” trades.
14. Focusing on returns instead of risk-adjusted returns.
15. Closing trades too soon.
16. Not being consistent in daily activity but being inconsistent is not something I do
consistently.
17. Going all in.
18. Probably tweaking my strategy too much during drawdowns.
19. Moving my stop up too quickly.
20. Not being patient.
21. Feeling like I have to do something.
22. All of the above.
10 Disciplines of a Winning Trader

Dis·ci·pline : a way of behaving that shows a willingness to obey rules or

orders.
 Discipline is a key element of successful trading, nothing works in trading without the ability to
stay focused and take the right action at the right time. 

1. We must take our entries when we get the signal.

2. We must exit when our stop loss is hit.
3. We have to manage our position sizing at all times and not get too big in a trade.
4. If our trailing stop is hit we have to take it.
5. If we get out of a trade and a new signal is hit we have to get back into it.
6. We have to follow our trading plan and not get swept away by our emotions.
7. We have to do the  research and homework first and see if our method works first and
then trade it.
8. Smart traders stick with markets they know well.
9. We can not drift into a different trading style just because our style is out of favor.
10. Even if  the market is not conducive to our method currently we have to stay focused on
doing our homework and taking our entries when the opportunity arises.
Six Common Traits of Profitable Traders

While there are many ways to make money in the markets from long term buy and hold investors
to day traders in Forex there are some common traits that emege after studying both succesful
traders and investors. 

1. They focus on their edge. The successful market speculators stay with the process that
they are experts in. They double down on their strengths and stay away from style drift
into timeframes and techniques they have not mastered. 
2. They are creative. Profitable traders have created a successful system that fits their own
return goals, risk tolerance, and personality.They don’t copy others they create their own
strategy. 
3. They learned lessons from others. Almost all profitable traders learned key principles and
lessons from other traders that came before them whether it is from a mentor one on
one, books, seminars, newsletters, or eCourses they took short cuts from other’s
successes and failures and didn’t have to learn everything the hard way for theirself. 
4. They create good risk/reward ratios. They are good at the basic process of both cutting
losers short and letting winners run inside their timeframe. This not only is the key to
profitable trading but the key to long term survival by not letting losers get out of hand. 
5. They never quit learning and growing. The top traders never stop trying to improve their
trading and keep their edge in place. They continue to read, study, and backtest as life
long learners. 
6. Perservence. The profitable traders are the ones that didn’t quit. The common trait of the
90% of traders that fail is they all quit before they were successful. 

Regardless of timeframe or markets traded these common traits are some shared by the majority
of profitable traders. 
42 Ways To Trade Like A Market Wizard

                                                                                                                                                            
                                                                                                                                              What if
you could read the principles for success for some of the world’s greatest traders? Well
you can, here is how author Jack Schwager summed up the the similarities of the ‘Market
Wizards’ he spent years interviewing in his second book.

The following is a summarized excerpt from Jack D Schwager’s book, The New Market
Wizards. I highly recommend this book for all active traders.

1. First Things First You sure you really want to trade ? It is common for people who
think they want to trade to discover that they really don’t.
2. Examine Your Motives Why do you really want to trade ? Did you say excitement ?
Then don’t waste your money in market, you might be better off riding a roller
coaster or taking up hand gliding.
The market is a stern master. You need to do almost everything right to win. If
parts of you are pulling in opposite directions, the game is lost before you start.

3. Match The Trading Method To Your Personality It is critical to choose a method

that is consistent with your your own personality and conflict level.
4. It Is Absolutely Necessary To Have An Edge You cant win without an edge, even
with the world’s greatest discipline and money management skills. If you don’t
have an edge, all that money management and discipline will do for you is to
guarantee that you will gradually bleed to death. Incidentally, if you don’t know
what your edge is, you don’t have one.
5. Derive A Method To have an edge, you must have a method. The type of method is
not important, but having one is critical-and, of course, the method must have an
edge.
6. Developing A Method Is Hard Work Shortcuts rarely lead to trading success.
Developing your own approach requires research, observation, and thought.
Expect the process to take lots of time and hard work. Expect many dead ends and
multiple failures before you find a successful trading approach that is right for
you. Remember that you are playing against tens of thousands of professionals.
 Why should you be any better ? If it were that easy, there would be a lot more
millionaire traders.
7. Skill Versus Hard Work The general rule is that exceptional performance requires
both natural talent and hard work to realize its potential. If the innate skill is
lacking, hard work may provide proficiency, but not excellence.
Virtually anyone can become a net profitable trader, but only a few have the inborn
talent to become supertraders ! For this reason, it may be possible to teach trading
success, but only upto a point. Be realistic in your goals.

8. Good Trading Should Be Effortless Hard work refers to the preparatory process –

the research and observation necessary to become a good trader – not to the
trading itself.
“In trading, just as in archery, whenever there is effort, force, straining, struggling,
or trying, it’s wrong. You’re out of sync; you’re out of harmony with the market.
The perfect trade is one that requires no effort.”

9. Money Management and Risk Control

Money management is even more important than the trading method. The Trading
Plan
o Never risk more than 5% of your capital on any trade.
o Predetermine your exit point before you get in a trade.
o If you lose a certain predetermined amount of your starting capital (say 10
to 20%), take a breather, analyze what went wrong, and wait till you feel
confident and have a high-probability idea before you begin trading again.
10. Trying to win in the markets without a trading plan is like trying to build a house
without blue prints – costly (and avoidable) mistakes are virtually inevitable. A
trading plan simply requires a personal trading method with specific money
management and trade entry rules.
11. Discipline
Discipline was probably most frequent word used by the exceptional trades that I
interviewed.
There are two reasons why discipline is critical. Understand That You Are
Responsible
o Its a prerequisite for maintaining effective risk control.
o You need discipline to apply your methods without second guessing and
choosing which trade to take.
A final word, remember that you are never immune to bad trading habits – the best
you can do is to keep them latent. As soon as you get lazy or sloppy, they will
return !

12. Whether you win or lose, YOU ARE RESPONSIBLE for your own results. I’ve never
met a successful trader who blamed others for his losses.
13. The Need For Independence You need to do your own thinking. It also means
making your own trading decisions. Never listen to other opinions.
14. Confidence An unwavering confidence in their ability to continue to win in the
markets was a nearly universal characteristic among the traders I interviewed.
15. Losing is Part of the Game The great traders realize that losing is an intrinsic
element in the game of trading. This attitude is linked to confidence. Because
exceptional traders are confident that they will win over the long run, individual
trades no longer seem horrible; they simply appear inevitable.
There is no more certain recipe for losing than having a fear of losing. If you cant
stand taking losses, you will either end up taking large losses or missing great
trading opportunities – either flaw is sufficient to sink any chance for success.
16. Lack of Confidence and Time-Outs Trade only when you feel confident and
optimistic.
17. The Urge to Seek Advice The urge to seek advice betrays a lack of confidence.
18. The Virtue of Patience Waiting for the right opportunity increases the probability of
success. You don’t always have to be in the market.
Guard particularly against being overeager to trade in order to win back prior
losses. Vengeance trading is a sure recipe for failure.

19. The Importance of Sitting Patience is important not only in waiting for right trades,
but also in staying with trades that are working. The failure to adequately profit
from correct trades is a key profit-limiting factor.
“One common adage .. that is completely wrong headed is : You cant go broke
taking profits. That’s precisely how many traders do go broke. While amateurs go
broke by taking large losses, professionals go broke by taking small profits.”

20. Developing a Low-Risk Idea The merit of a low risk idea is that it combines two
essential elements: patience (because only a small portion of ideas will qualify)
and risk control (inherent in the definition). “Open a doughnut shop next door to a
police station”.
21. The Importance of Varying Bet Size It can be mathematically demonstrated that in
any wager game with varying probabilities, winnings are maximized by adjusting
the bet size in accordance with the perceived chance of a successful outcome. 
22. Scaling In and Out of Trades You don’t have to get in or out of a position all at
once. Scaling in and out of positions provides the flexibility of fine tuning trades
and broadens the set of alternative choices.
23. Being Right is More Important than being a Genius Think about winning rather
than being a hero. Go for consistency on a trade-to-trade basis, not perfect trades.
24. Don’t Worry About Looking Stupid Don’t talk about your position.
25. Sometimes Action is More Important than Prudence When your analysis,
methodology, or gut tells you to get into a trade at the market instead of waiting for
a correction – do so.
26. Catching Part of the Move is Just Fine Just because you missed the first major
portion of a new trend, don’t let that keep you from trading with that trend (as long
as you can define a reasonable stop-loss point).
27. Maximize Gains, Not the Number of Wins The success rate of trades is the least
important performance statitstic and may even be inversely related to
performance.
28. Learn to be Disloyal Never have loyalty to a position.
29. Pull Out Partial Profits Reward Yourself !
30. Hope is a Four-Letter Word Hope is a dirty word for a trader, not only in regards to
procrastinating in a losing position, hoping the market will come back, but also in
terms of hoping for a reaction that will allow for a better entry in a missed trade.
31. Don’t Do the Comfortable Thing Do what is right, not what feels comfortable.
32. You Cant Win If You Have To Win “Scared money never wins”. If you are risking
money you cant afford to lose, all the emotional pitfalls of trading will be
magnified. The market seldom tolerates the carelessness associated with traders
born of desperation.
33. Think Twice When The Market Lets You Off The Hook Easily There must be some
very powerful underlying forces in favor of the direction of the original position !
34. A Mind is a Terrible Thing to Close Open-mindedness seems to be a common trait
among those who excel at trading.
35. The Markets are an Expensive Place to Look for Excitement Excitement has a lot to
do with the image of trading but nothing to do with success in trading.
36. The Calm State of a Trader If there is an emotional state associated with
successful trading, it is the antithesis of excitement. Exceptional traders are able
to remain calm and detached regardless of what the markets are doing.
37. Identify and Eliminate Stress Stress in trading is a sign that something is wrong. If
you feel stress, think about the cause, and then act to eliminate the problem.
38. Pay Attention to Intuition Intuition is simply experience that resides in the
subconscious mind. The objectivity of market analysis done by the conscious
mind can be compromised by all sorts of extraneous considerations (e.g., one’s
current market position, a resistance to change a previous forecast). The
subconscious, however, is not inhibited by such constraints. Unfortunately, we
cant readily tap into our subconscious thoughts. However, when they come
through as intuition, the trader needs to pay attention. “The trick is to differentiate
between what you want to happen and what you know will happen.
39. Life’s Mission and Love of the Endeavor Many traders felt that trading was what
they were meant to do – in essence, their mission in life.
40. The Elements of Achievements
Faulkner’s list of the six key steps to achievement Prices are Nonrandom = The
Markets can be Beat

o using both “Toward” and “Away From” motivation;

o having a goal of full capability plus, with anything less being unacceptable;
o breaking down potentially overwhelming goals into chunks, with
satisfaction garnered from completion of each individual steps;
o keeping full concentration on the present moment – that is, the single task
at hand rather than the long-term goals;
o being personally involved in achieving goals (as opposed to depending on
others); and
o making self-to-self comparisons to measure progress.
Robert Krausz’s basic tasks necessary to become a winning trader.

o Develop a competent analytical methodology.

o Extract a reasonable trading plan from this methodology.
o Formulate rules for this plan that incorporate money management
techniques.
o Back-test the plan over a sufficiently long period.
o Exercise self-management so that you adhere to the plan. The best plan in
the world cannot work if you don’t act on it.
2. In reference to academicians who believe market prices are random, Trout says,
“That’s probably why they’re professors and why I’m making money doing what
I’m doing.” These exceptional traders have proved that it can be done !
3. Keep Trading in Perspective There is more to life than trading !
Paul Tudor Jones — 21 Trading Rules That
Have Stood the Test of Time

On October 1987, the financial markets collapsed.

It’s a devastating month for both traders and investors.

But not for Paul Tudor Jones…

That same month, he made an incredible return of 62 percent.

More importantly, he’s done what many thought was impossible…

…combining five consecutive, triple digit return years, with low equity
retracements.
With such legendary track record, it pays to find out what are Paul Tudor Jones
trading rules that brought him much success.

21 trading rules that will improve your trading

1. When you are trading size, you have to get out when the market lets you out, not
when you want to get out.

The old high was at 56.80, there are probably going to be a lot of buy stops at
56.85. If the market is trading 70 bid, 75 offered, the whole trading ring has a
vested interest in buying the market, touching off those stops and liquidating into
the stops.

If I want to cover a position in that type of situation, I will liquidate half at 75, and
the remaining half beyond that point.

2. Never play macho with the market and don’t over trade.

My major problem was not the number of points I lost on the trade, but that I was
trading far too many contracts relative to the equity in the accounts that I handled.

3. If I have positions going against me, I get out; if they are going for me, I keep
them.

4. I will keep cutting my position size down as I have losing trades.

When I am trading poorly, I keep reducing my position size. That way, I will be
trading my smallest position when my trading is worst.

5. Don’t ever average losers.

6. Decrease your trading volume when you are trading poorly; increase your
volume when you are trading well.

7. Never trade in situations you don’t have control.

I don’t risk significant amounts of money in front of key reports since that is
gambling, not trading.
8. If you have a losing position that is making you uncomfortable, get out. Because
you can always get back in.

9. Don’t be too concerned about where you got into a position.

The only relevant question is whether you are bullish or bearish on the position
that day.

10. The most important rule of trading is to play great defense, not offense.

Every day I assume every position I have is wrong. I know where my stop risk
points are going to be.

I do that so I can define my maximum possible drawdown. if my positions are

going against me, then I have a game plan for getting out.

11. Don’t be a hero. Don’t have an ego.

Always question yourself and your ability. Don’t ever feel that you are very good.
The second you do, you are dead.

12. I consider myself a premier market opportunist.

I develop an idea on the market and pursue it from a very low-risk standpoint until
I have repeatedly been proven wrong, or until I change my viewpoints.

13. I believe the very best money is to be made at market turns.

Everyone says you get killed trying to pick tops and bottoms and you make all the
money by catching the trends in the middle.

Well, for twelve years, I have often been missing the meat in the middle, but I have
caught a lot of bottoms and tops.

14. Everything gets destroyed a hundred times faster than it is built up.

It takes one day to tear down something that might have taken ten years to build.

15. Markets move sharply when they move.

If there is a sudden range expansion in a market that has been trading narrowly,
human nature is to try to fade that price move.

When you get a range expansion, the market is sending you a very loud, clear
signal that the market is getting ready to move in the direction of that expansion.

16. When I trade, I don’t just use a price stop, I also use a time stop.

If I think a market should break, and it doesn’t, I will often get out even if I’m not
losing any money.

17. Don’t focus on making money; focus on protecting what you have.

18. You always want to be with whatever the predominant trend is.

19. My metric for everything I look at is the 200-day moving average of closing
prices.

I’ve seen too many things go to zero, stocks and commodities.  The whole trick in
investing is: “How do I keep from losing everything?”  If you use the 200-day
moving average rule, then you get out.  You play defense, and you get out.

20. At the end of the day, your job is to buy what goes up and to sell what goes
down so really who gives a damn about PE’s?

21. I look for opportunities with tremendously skewed reward-risk opportunities.

You should always be able to find something where you can skew the reward-risk
relationship so greatly in your favor, that you can take a variety of small
investments with great reward-risk opportunities, that gives you minimum
drawdown pain, and maximum upside opportunities.