Habitual Winners Follow Trading Plans

HABITUAL WINNERS FOLLOW TRADING PLANS

Traders need to consider new techniques that will allow for increased profitability and ways to reduce risks. This book will demonstrate how you can identify conditional changes in the markets and how you can utilize my techniques in certain setups and triggers based on an approach to using candle charts and pivot point analysis that may be different from what you have encountered before.

You will learn which leading price indicators are the best to use, plus professional chart-reading techniques and how to apply this knowledge to make trading decisions based on facts rather than on opinions. You would be surprised at how many times I am asked what my “feeling” is on the market. I can feel upset, I can feel warm, I can feel cold; but I just can’t feel the market. I can see the price action and can act on a shift in the momentum, and I can determine that the market is currently in an uptrend or a downtrend or in a consolidation phase. I certainly can’t feel the market.

I want to walk you through some top chart patterns or setups and triggers so that you can develop a trading plan based on a testable trading system. This will be a method with a complete set of rules that do not arbitrarily change. You will be able to use these concepts in many different markets and in different time frames. This book will go into more specific rules and explanations of setups and triggers than my first book did. Not only was that first project, The Complete Guide to Technical Trading Tactics: How to Profit Using Pivot Points, Candlesticks, & Other Indicators, a great introductory book that touched on several trading concepts, but it was the first work that introduced traders to the concept of integrating candlestick charting with pivot point analysis. Some of the principles in that first project will be used here, but this book will cover in greater detail how to apply and use those methods so you can learn to make money with the triggers. I would suggest that you get that book if you have not already done so, as there are many great tips and suggestions described in those pages.

In this book, I want to teach you what to search for when chart reading. I am not going to go into detail on every specific candlestick chart pattern because I generally only use them to help identify where the market closes in relationship to the open or the past price points, such as the high or low points, rather than rely on them to signal a trade based on traditional chart formations.

I believe that, like many things in life, the more you repeat positive actions, the more you will experience and receive positive reactions. In trading, that translates to simply following rules, waiting for signals to transpire, and then acting on those signals, rather than anticipating that signals will form. When signals trigger a buy, then go long; when a signal triggers a sell, then exit the long or go short. As I stated earlier, following a set of rules will not guarantee that you will be 100 percent right in your trading results; but by not following a set of rules, your chances increase that you may be closer to 100 percent wrong in your trading results. One must learn to cut losses and let winning trades ride. It sounds like a cliche to trading veterans; but the fact is that it is so simple, yet it is so hard to do. By accepting this process of learning some simple principles and then following a few sets of rules, which I will go into in this book, you become a better trader; and that may translate into becoming a more profitable trader.

One trait I have noticed that most novice traders possess is that they try to over analyze and overcomplicate matters. In order to help simplify your thinking, remember this: There are only four common denominators that each of us has equal access to—the open, the high, the low, and the close of any given market, in any given time frame. There are two other values to measure: volume and, for futures traders, open interest. However, even these two elements cannot be finalized or completely calculated until the close of each trading session. Therefore, it is important that you realize that the close is the single most important aspect when using and applying all forms of technical analysis studies.

So no matter what market or trading vehicle you are trading—whether it is a stock, a futures or commodity market, a stock index, the forex currency markets, or even an exchange traded fund, you need to watch the close of the time period in which you are trading to capture a clue in order to initiate a trade, manage the trade, and learn the right exit spot. Always remember that the close is the most important element and what matters most to focus on when trading. It is the relationship of the close to past price action and to the high, the low, and the open that will help measure or weigh a value of a given market at any given time. Therefore, you can get a more accurate gauge of what to do. In trading terms, the choices you have are to buy, to sell, to spread off, or to do nothing and hold onto your cash. Sometimes not knowing what to do translates into not entering a position. Remember that being in cash or standing on the sidelines is a trade, too.

Once you grasp the understanding that it is the close that shows you what the current market value is, then you should have a clue as what your next trading decision should be. If you learn to act on the close for your trading decisions and on triggers, that information will help stack the odds in your favor that you are going with the current flow or in the right market direction. That includes any time period for which you are trading. That means if you are a day trader using a 5-minute period, you cannot act on an intra-time period signal. You need to wait for the five-minute period to conclude before acting on a trigger. The same goes for a 5-minute, a 60-minute, a daily, a weekly, or even a monthly time period.

The clues for which we as traders are looking are what we need to initiate a trading decision and are what I define as a trading trigger, which will be explained later in the book. Once you understand how markets work, understand simple charting techniques, and have a fundamental working knowledge of indicators and what dictates increases or decreases in values of a given product at a given time (such as supply and demand factors) and how that is represented on a chart, then you will have gained a better edge in the market and will have stacked the odds of success in your favour.

There is one flaw in any system, and it is generally from the execution side rather than from the construction side of the system. To be specific, most traders who lose while trading a system fail to trade by the signals generated by that system. Either they fail to act once the signal is generated, or they anticipate that a signal will be generated thus acting on a false signal.

It is imperative that once you read this book you learn that you must wait for the actual signal to trigger, and that occurs in most cases by the close of the time period in which you are trading. Even when a system generates a losing trade, it will signal a trigger to get out. You must act on confirmed signals rather than on anticipation of those signals or, more important, on your personal hunches.

Once you have a working knowledge of the markets and the confidence in what the possible outcome of those triggers might be, working with a few setups and signals will allow you to find a trading opportunity; and then you will be able to apply the appropriate strategy. You can diversify trading styles, such as integrating a day trade into a position trade, utilizing an option strategy, or applying the information on various trading vehicles.

I talked about this concept of “finding opportunity, then applying a strategy” in my first book: I called it playing the Monte Hall game, Let’s Make a Deal. Look behind door number one, and review the risk rewards; then look at the strategy behind door number two, and review the risk and rewards there; and then finally open door number three, and see if that strategy appeals to your analysis of risk and rewards. Remember, you can determine, if an opportunity is longer term in nature, to use an option strategy (such as an outright long call or put); a ratio back spread; or, if the best opportunity exists taking a position in a stock, a stock index future or possibly an ETF or a holding company depositary receipt (HOLDR).