Discipline Trader

Discipline Trader

Candlestick signals and high-profit patterns create the groundwork for elimi­nating the emotional input involved in financial decision-making processes. As a result, understanding what a signal or pattern should cause as a result, calms the jitters. The simple process of watching a pattern develop and knowing what that pattern should be doing, allows an investor to exhibit composed patience until the pattern completes itself. At the same time, an investor can establish stop loss areas. These levels can be established by projecting what and where would constitute a failure of the pattern.

Fundamental-based investing incorporates a much longer timeframe for an anticipated price move. The fundamental factors that should cause a price to move may not be recognized for months or years down the road. Holding a position long-term, with the anticipation of particular results, becomes a risky endeavor when not analyzing price movement. The application of candlestick signals and high-profit patterns as a guideline for a long-term hold has benefi­cial aspects. If fundamental results ‘should’ produce a positive move in a trad­ing entity, the analysis of its chart pattern can be valuable. A price movement contrary to what should be expected from fundamental improvements of a company would indicate that something might have altered the future poten­tial of that company. Whether an investment decision is made or not, based on price patterns, at least it would forewarn the “fundamental investor” that fur­ther research was required. Something may have changed the outlook for that company.

A “technical investor” executes trades based upon expected results from chart patterns. The discipline that should be followed becomes a function of adhering to simple rules. Letting your profits run and cutting your losses short does not need to be a nebulous investment procedure. As discussed previously in this book, the candlestick signals are as effective for illustrating when a trade is not working as well as when a trade is working. The maintenance of good discipline involves making decisions based upon rational analysis. The candle­stick signals and high-profit patterns incorporate price levels that would indi­cate an investment situation NOT working. When they do, closing a trade immediately is the proper investment process. The purpose for establishing a trade is that the ‘probabilities’ are all in alignment. When the signals or patterns reveal that the probabilities are no longer favorable, an investor can close a trade without emotions hampering the decision.