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have worked out after the fact and lay claim to what would have been. Also, it is easy to pick the "well-chosen examples" and demonstrate the validity of these methods from the past.

Although these are effective means of study, in the real-life situation there are many other variables that will influence your trading judgement. It is very similar to a basketball player who practices free throws. The player might be able to make ten in a row in practice. But, if that player is put in an arena with thousands of opposing fans, the environmental conditions will influence his shooting ability. Furthermore, the player will not be consistently successful until he/she experiences actual game experience. The stock joumal is the real-life scorecard.

I have included a sample of my own joumal that shows how I approach trade set-ups. I line the various set-ups in "my sights" and wait for them to materialize. If they dont work out the way that I have projected, I move on to the next trade. If I do see a set-up that comes together, I gauge the price action. After the opportunity is over, I summarize the events and my response to the opportunity. If I accept a trade, I will record my thoughts and feelings throughout the entire experience until I am out. Here is a sample from my own joumal.

8/13

UAL = AB=CD @ 71; 127 @ 69......CLOSED YESTEIODAY SHORT OF

127 and waming sign = gap down on the open today below 69......wait for

1618 @ 63.25 for potential buy

AOL = mini-3 DRIVES OFF TOP COMPLETE RIGHT @ THE 618-ALMOST EXACTLY!!!!!... .MUST HOLD LOW FROM 8/5 OR THIS IS GOING TO GET WHACKED AGAIN

FDX = SELLEG OFF INTO MAJOR 1618; THIS IS CLOSE TO A BUY!!!!!!!!! WAIT FOR AB=CD to complete around 50; a good set up though! Price action stabilizing! Its almost past the 1618, so Im very close!

JPM = Critical Support Levels: @ 618/786 = 111.1875/104.6625

As you can see by my joumal entries, I have identified several trade set-ups for potential opportunities. It is not uncommon for me to follow a stock for a week or two, especially when I am tracking price action after a



nice harmonic set-up. I urge you to use a written journal religiously. I have leamed a great deal about price action and harmonic set-ups. In addition, I have leamed even more about myself, and my perception ofthese opportunities.

It is even more essential in the beginning stages of your study because each persons trade executions are unique. Although two people may utilize these harmonic methods and calculate the same potential reversal zone, their execution prices will most likely be different. One person might take the trade, while the other avoids it. The difference lies within the perception of the market action within the reversal zone.

Over time, the stock joumal will help you gauge your own personal signals to inte ret the market action. In addition, you will develop a feel for what "should be happening." For example, lets say that you have identified a valid harmonic set-up with several numbers within a very tight zone. Specifically, you have identified a great bullish Butterfly pattem. You are looking to buy but the price action suggests an extreme move because of an extreme price range, tail close or gap. You might record in the joumal that the pattem looks great but the price action at the reversal point is too strong or has a waming signal, so you avoid the trade. Also, you might record that an ideal reversal "should" bounce off this zone quickly and show strong signs, such as a positive close above the harmonic area. In this example, since the stock is not reversing the way it "should," you have not accepted the trade.

During this time, it is important to record the reasons why or why not you accepted the trade, and the emotions that were associated with your actions. Also, after the opportunity has abated, it is important to record how the trade tumed out and how you responded to the experience. Recording these events helps develop your feel ofhow a stock should act. When you understand how a stock should act, your intuition for gauging price action increases. Furthermore, by developing your intuition, your executions will improve.

Although not all harmonic set-ups are ideal, developing certain standards of price action helps create a framework to gauge the reversal zone. A stock joumal that records these experiences is the key to developing your intuition. Each persons response to price action is unique. So, it is imperative to leam the signals that you generate during the execution process to improve future trades.



Chart Record: Labeling the Trade

Another method of improving your trading is to print out a chart of a stock that you traded and label where you bought and sold. By reviewing each trade, you will begin to understand your flaws and strengths. Also, by comparing the chart with your emotions and feelings that are recorded in the stock joumal, you will leam a great deal about your trading and yourself.

I have included a chart of a stock that I traded. The stock was Etoys.com (ETYS). I marked where I bought and where I sold.

i i i i

ETOYS (ETYS): BULLISH BUTTERFLY

Sold; 800 shares @ 50

Bought: 800 sharesx @ 43 5/8

©BlsCharts.com

IHllllllHHiilnliH,,..»4ill.4ill

85 SO T5 70 65

55 SO 45 40 35 15

19 21 25 27 Jun 3 7 9 ii 15 17 21 23 25 29 Jwl 6 S 12 14 16

I made some mistakes on this trade, especially since I jumped in a little late on this set-up. But, I was waiting for a clear break out to validate



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