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[start]                                                                                             [ 93 ]                              
Placed in the proper perspective, technical tools are usable. They can point out divergence, they can indicate that everything is going along within "normal" parameters. They can act as confirmation that what is seen in the price action is really so. These tools are all filters for what is seen reflected in the prices on a chart. They are never anything more than that - no, not even Fibonacci numbers, or Gann angles, or Elliott waves are ever more than reflections of reality, and sometimes they do not mirror reality at all, or are so far behind that they are of no use in trading.
People have a way of camouflaging these false gods so that they seem real. They use ail manner of mathematical window dressing and make up all sorts of rules so that one wouid think that they really have something. But in the end, no matter how complex, they always fai! when you need them most. That is why a trader has to learn to read the oniy reality that is available on a regular, day by day basis - that is the reality of price.
Throughout this manual, I have tried to show how I see the price action on charts. But there are some things I cannot show in a manual. These are the things that make up trading sense. A person can learn these only by getting their lumps and bumps in the market place.
A very important concept to grasp when trading is that of the run. All markets, in ali trading time frames, have runs. IVlarkets have runs up and runs down, in order to take advantage of these runs, one has to be in a position in the market. Its as I explained in Part ll, one has to be in the water ready for the wave.
Heres a technique I have seen used that will explain what 1 mean.
1 know a trader who takes a position in the S&P every day at the Open. She is a professional trader and , and trades a managed account that makes money for her investors. She has spent six years in developing her technique, and it explains everythinc anyone needs to know about runs.
Based on the direction of the Open, she waits for a retracement of that Open and then takes a position in the direction of the Open. She also places a very tight protective stop along with her position. Some days she makes a few hundred dollars and other day she loses a few hundred dollars. Most of the time her account hovers around break-ever. But, every so often the S&P will make a run. If the run goes against her position, she is out with a small loss. If the run goes her way, "bingo!"
One of the things that I am invariably asked by others is, "Do you daytrade"? My answer is, I used to daytrade a lot. But, because of a present physical handicap, I am no able to do it any more to the extent I did. it takes great energy to daytrade, It involves great intensity of concentration.
I used to daytrade intensively for a few days, but then I had to rest and get away from the markets. The funny thing is that I didnt always know when Id had enough. Unfortunately, I would find out or realize that Id been at it too long when i would wake up to the fact that Id lost a lot of money in the market.
A friend of mine daytrades only two or three days out of a month. He says that is all he is able to stand of it. He has been a full-time professional in the business for 24 years, and owns a seat on the CBOT.
Because daytrading is so intense, and because I personally cant handle it as much any more, I am essentially a situational trader based upon the price action of the daily and weekly charts. Just because I cant physically work hard at daytrading doesnt mean tha my money shouldnt be working for me.
Position trading more or less takes care of itself. I dont have to pay much attention to it. I call in my orders, and when they are fiiied all I have to do is monitor the trade closely enough to move the stops and get out at my objectives.
Anyone who is not full-time at trading should not attempt to be a daytrader. Anyone having another business to attend to or a job to go to is not in the situation where daytrading can be accomplished successfully.
There are, of course, exceptions to this rule. Anyone able to take the time away from business to concentrate on daytrading can engage in daytrading.
Anyone who works at night can daytrade in the mornings if he is alert. Even day workers can daytrade the Bonds and Gold at home in the evening if they have a data feec from a CBOT registered vendor. I suspect that in the future there will be more of this kind of trading going on, with eventually the ability to trade anywhere in the world on a twenty-four hour a day basis.
The biggest mistake I see people making once they have learned to trade is that they trade too much. Such an amount of overtrading destroys them and they never really figure out what went wrong. What they fail to realize is that greed has taken hold of them and they are trying to make it all at once.
I have read countless times a thing that is true: "Take steady profits out of the markets. Dont try to make the big killing. Be content with a modest return on your money on a regular and continuing basis." The meaning of a modest return is going to differ from one trader to the next.
Avoid Foolish lyioyes
I try to avoid what are obviously foolish moves. Dont sell into support and dont buy into resistance. The odds are against it.
i have watched traders sell right into major and obvious Fibonacci support areas. They didnt understand anything about Fibonacci. If nothing else but how to find them is learned from this manual, it will be worth the price.
Look at the charts that are one magnitude greater than the one on which you are trading. Look for long time support and resistance areas. Look for Fibonacci support and resistance areas. Dont trade into those areas. Just cool it and wait to see how things develop.
One of the biggest mistakes I make is that I get so wrapped up in my trading that 1 fail to realize soon enough that prices are in a trading range. Learn to step back once a week and take a broad overview look at all the markets. You want to be trading the onei that are truly trending.
Sometimes that means not trading at all. One good clue to the fact that you are ir congestion areas is that all of a sudden you stop making money. Trades stop working out. You find that you are struggling in the markets. You start taking hits, if this starts to happen, stand back, be eclectic. Virtually every time you will see that the market overall is going sideways.
That is the time when you have to have the maturity to stop trading. No one is looking over your shoulder. Be wise. Stop calling in orders. You dont have to trade all the time. Wait for the right times. Place envelopes around a market and wait for things to start popping again.
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