back start next


[start] [1] [2] [3] [4] [5] [6] [7] [8] [9] [10] [11] [12] [13] [14] [15] [16] [17] [18] [19] [20] [21] [22] [23] [24] [25] [26] [27] [28] [29] [30] [31] [32] [33] [34] [35] [36] [37] [38] [39] [40] [41] [42] [43] [44] [45] [46] [47] [48] [49] [50] [51] [52] [53] [54] [55] [ 56 ] [57]


56

TOTAL

COST TO

LOSS

COST

COMTRrtCT

COMTftOl.

Tutnl Loss

vz v .5.e&

z .Boe

Z ,BDe

300Q

5 BOO

z ,000

150»

1

lesoe

IZ >

Heads and Shoulders

Another piece of mythology is ihe so called heads and shoulders formation. Tho formation itself is real, at least in The eye of the beholder. What IS wrong is the expectation. Anyone who thinks he knows which way a heads and shoulders formation is going to break needs to have his own head (and maybe even his own shoulders) examined. To prove my point, I submit the following very common example.

193%

ig9bz

18B94

16792

1E3S7

15923

15490

The aboue fornatiaii is a lypical heads and shoulders pattern. Theres only one thing uroiig, uith this picture. Did you get ii? This harket is supposed to cone doirn - not go upt

Guess uliat? This happens 49-4S: of the tine. It goes the urowj

19838

• « . < I I r

19396

I 1JI

IB 528

• i-t p p I • p p

18894

176

17226

16792

16357

15923

15498

it uasnt a heads and shoulders after ain Perhaps it uds really a btitt uitli hipsM

Please pardon ihe pun, but someiimes this is the way I feel about some of these figments of the imagination that some people claim to trade from. Some of these formations are strictly in the eye of the beholder, Now, dont blame me for what I see, Not only cant I do math, bul Im also dyslexic. Dyslexia may be the secret of my trading success. Perhaps f can write a book about how lo become dyslexic.

If I can trade from a chart seeing tfiings all wrong, then the reader should surely be able to do it seeing things straigtvi side up.

I Trade What I See

Here is something thai comics up lime and lime again, Ill mention what il is. It*s something I had to learn to (fiink about with afl my might, and as often as I could. I used to write this one down. I placed it where I would have to read it every day, and made sure I read it and thought about il every day. The majority of traders will understand it academically, but not from the depth of soul t evenlually came to. I had to come to the point where I really understood what Im about to say; the understanding came to be deep. Heres the poster I made for myself.

JOE, NEVER TRADE WHAT YOU THINK. TRADE ONLY WHAT YOU SEE!

What I think is merefy anolher opinion - mine, Most have \GS(noO that their own opinion is as good as anyone elses opinion. That is right, but il is also wrong. I came to see il as being tliai my opinion is as bad as anyone elses opinion.



Ils the old viewpoint of the cup being half full or half empty. In the case of Trading, the cup is half empty My opinion is bad, il stinks.

As long as I try to trade based on what I think, 1 will be trading on opinion.

When prices broke out on a gap up and Td missed a trade, Id think that it was too lafe to get in now. That is wfial I thought. The fact was that prices were going up. Then, when prices started coming back down, Td think that prices are not really going lo go up. Again that was my opinion. The truth is 1 didnt and couldnt really know which way prices would go. Therefore, when 1 saw prjces begin to go up again, I learned I had to try to buy. In a bull market, I learned to buy every chance I got. 1 look for reasons to buy, I buy the minute a retracement starts to go back up again. I buy when todays prices take out yesterdays high. I buy at the breakout of the Ross hook that was created when the retracement began. I buy, buy, buy That is the only way Ive learned to make money in this business when prices are going up.

When I see prices going down, I selll When prices break out of congestion and move down, I wait for a correction. As soon as prices are moving down again, I sell a breakout of the low. In fact, I try to be selling breakouts of the lows the entire time prices are correcting. Once pnces start moving down and the trend is established, I sell every chance I get. I sell a breakout of yesterdays low, every day. I have resting sell orders below every Ross hook. I sell and sell some more. Thats how I make money in bear markets.

I trade what I see. 1 trade with tlie trend. 1 buy bull markets. I se bear markets. I can see when a trend is in force. A little child can see lhat. dont need an oscillator to tell me which way tfie trend is going. I draw a trend line on the chart. If the trend is up, I buy. If the trend is down, I selh trade what 1 see.

If I think the market cant go any higher, and the trend is up, 1 buy. f trade what I see, not what I think. If I think that surely tfiis is the bottom, and the trend is down, I sclL What I think doesnt matter. Its what I see that counts.

In growing up, 1 had become so used to doing what I tfiought that it was hard to divorce myself from my own opinion. After all, Id lived by my wits most of my life. In the markets, that will kill a trader. Trading is simple, but it is harder than all get-out to separate what is seen frorh what is tfiought. I work at doing that. 1 let this concept sink deeply into my thougfus. It has become a part of every fiber of my being. It took a lot of effort on my part.

Strange Data

A piece of data Ive come across is tlsat upon initial entry into a market, 80% of traders are on the right side of the trade. Yet they end up as net losers. Why? When I first learned of this, it boggled my mind. How could such a thing be?

Here is the answer: Apart from the flat-out gamblers who are in the markets, niany, many traders have read and studied intently everything ihey could afford to buy or send off and receive for free. They have been diligent about getting their education in every aspect of trading but one - they haven4 learned fiow to make money-

Thats rightl They have learned how to trade. Indeed, tfy know how to trade! What they dont know is how to rnake money. Believe rne, there is a world of dillerence between the two.

Ive shown some of how to do it in this book, The rest you will find in Trading Is a Business,

Knowing how to trade is a different animal from knowing how to make money from trading, Apart from Idl;igJ...,lLBu!jiess, Ive iiever seen or heard of such a book. If there is one, Id like to hear about it.

Many of my readers know how to trade. They are actually pretty good at it. But wficn it comes time to reel in a profit, they dont seem to know how or when.

1 would venture to say that many cf the traders and vouid-be traders I teach are better and more astute at trading than I am. But ifiey are consistent and/or overall net losers in tfie markets. IraUiiigJs.a 8usine ss addresses in detail the reasons for this and explicitly shows how to turn a profit in the markets.

I firmly believe tliat wo are soon coming to the point wfien almost everyone who trades will have to take up some form of dayuadrng to survive.

With the adveni of computerized trading, the markets will be traded continuously, twenty-four hours a day round tfie clock. Tradets may be forced to enter and exit a trade on the same day, or be faced with yawning gaps the following day as world and market events coritiiMje to flow while they sleep. Already, the more knowledgeable traders are placing stops in the Forex markets to avoid multi-thousand dollar overnight losses in tfie currencies. Sucfi stops will become commonplcice for anyone wfio wants to hold a position overnight.

There will be some advantages, too many to go into fiere, but for instance, a trade could be put on early in the morning upon awakening and taken off later that night upon retiring.

The floor trader, as he exists today, will disappear. He will be relegated to a screen and have to trade mucfi as tfie rest of us do.

Already a move is on that is thinning the trading pits. The costs to trade on the floor and the requirements to trade on the floor are rising, causing a gradual flow of traders out of the pits and upsiaips to a triuJing screen. Tfiese traders are fiaviruj to releurn liow to trade. I knov/, because Ive been teaching many of tfiem.



Their oxucTuSh trickle now, but everituany e flood, is alrendv caosiriy increaspd volatility down on the floor. Not That ihn open interest is affecied by tf>eir leaving the fiooc but that as the floor Thins out it is rnucfi more npt to he driven by emotion and hysteria. This is already happening, and will increase.

The competition from foreign commodity markets, coupled with the age of the cornputer, may sotmd the death knell for what is probably tho last bastion of tree capdslism in the wodd - open outcry trading,

Wfiethor this will be good or bad is purely phiiosophical. 1 suspect it vi.ill be a mixture of both. The important thing is tliat a lot of adjustments will have to be made. Many of the things that worked in the past will no longer work in the future.

Im not talking about entry or exit signals. not talking about technical analysis or cliart patterns. Those will the same. A chart is a chart is a chart. The charts will look the same. They will give the same signals as before. It is the trading tactics, the expectations at each level, and the risk and money management that rnay be different.

The "locals" will be impacted more than anyone eise with fiaving to learn a new way to trade. They wiil have to fearn to trade from a cfiart, or a tote board, or whatever way they vant to see prices. Some of tftcrn have never dcme it tliat way.

They rnay be Subieci to the same delay I have to live with vis-a-vis the telephoric. Thats unciear to oie at the moment. Again, they may be abfe tn enter their trades diretrify into the syst:em. If is also possible they may bo able to see as mt;ch or more of what is going on tfian they did before.

Al! of us may find ourselves placing our orders with a computer, or calling a broker wio will place our order on the computer. A computer vfill match up the buy/sell pairs.

i can surmise that those having seats, and perhaps the focafs, may be able to call the computer directly. The rest of us win still have to go through a broker, wfio VJ\\\ in tLirn cafi the computer. To a certain extent, that wifl maintain the same relative degree of unfairness in the riiarkct that exists today. It will also keep the brokers rich as they will be allowed to continue lo suck our bfood iri mtjch the same way they do now.

m not talking about the broker who does research and gives trading advice or manages accounts that broker is entitled to a commission. What m talking about are pie discounters and even fuff service brokers wfio ieecii off trader?; vjho are catling a;l their ovn shots.

ft would be nice, tiut not likely, for traders who dont need or want a broker to be extended (fie same trading privileges, tt would be nice if any trader vvho was computerized and had telecommunications equipment were able to riirectfy an order without the need for a broker. Perhaps a write-in campaign is needed here.

Systems and methods that do nol take into account the changes that are now in the making will fall apart at tfie seams. No one now knows the full extent of die changes that are coming or the impact tfiey wjII have. But when they fiappen, 1 intend to take whatever itme is necessary to adjust my personal trading to the new order. I especially feel that timing ard fills will be the critical areas. I intend to trade very gingerly until I know what kind of fills will come out of the new order, and how to time my market entries and exits.

[ woufd suggest to any full time trader that he begin to bank a greater portion of his earnings against that time when we may all have to trade quite lightly, with reduced incomes, while we aif learn how to trade in a new world.

Unanswered at this are questions like, wilf there be sessions that open and close, or will trading be continuous, and around the clock? ff there are no sessions, what will happen as concerns the close? Will there be a close? If not, what will happen to all of the technical indicators that depend upon the close? What about alf of the rnechanical systems that focus on the close for their trading parameters? Ditto for those that rely on the open?

There are gobs of traders who look to the breakout of tfie open to tell them what lo do. If there is no close, will there be an open?

f dont reafly think there will be no open or close. There will almost surety be trading sessions or segments. Certainly there must be cut off point at which there will be accountabi!ii:y.

What will happen to sucfi staple commodities as corn, beans, and wheat? Are there suddenly going to be ( traders of tfiose commodities? Thats hardly likely. But, whereas now alf of the corn trading is done in one approximately five hour session, all those who trade it wil! he strung out over a twenty-four hour period.

There probably wont he any more corn, and there wont be any more corn traders, but the volume of com trading traffic will be spread out by a factor of almost five. That may make it very difficult to get good fiils, as the volume wifl be thin.

Markets that are already thin will become paper thin if and when the irading is spread out over a twenty-four fiour period. What sort of hysteria will rule the trading in these markets? What wili the slippage be like? Will those off-lhe-floor G;<-floor traders be able to run the markets - first one way and then the otfier?

Wfiat wifl happen to the volume from afl the traders who now figure out their trades, call in their orders, and then go off to work? Will they stiT behave that way, or will they wait until they home from work, have dinner, and then sit down in from of their scrQn to trade - what? - a night session, or a continuous session? Any one who has traded the night session in the bontis knows how awful il can be. CurrentJy, it is characterized as a thin market that rarely goes anywhere.



[start] [1] [2] [3] [4] [5] [6] [7] [8] [9] [10] [11] [12] [13] [14] [15] [16] [17] [18] [19] [20] [21] [22] [23] [24] [25] [26] [27] [28] [29] [30] [31] [32] [33] [34] [35] [36] [37] [38] [39] [40] [41] [42] [43] [44] [45] [46] [47] [48] [49] [50] [51] [52] [53] [54] [55] [ 56 ] [57]