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c94fded1699e-0 | line is that they don’t want to lose any more money. Welcome to Phase II. Phase II Trading: Fear- Based Trading, or, “Why Does Everything I Touch Turn to Crap?” Many traders think that once they become more cautious, their trading will improve. They’re wrong. When traders decide that | Page 511 |
e670fe96ec05-0 | they don’t want to lose any more money, they unwittingly turn themselves into the “late entry” champions of the trading world. They wait and they wait and they make doubly sure that a trade looks good before they take it. In this scenario, the markets start to rally, but by the time the trader is absolutely convinced t... | Page 512 |
a6c9f930a6b0-0 | near the dead highs of the move. She and the rest of the traders who did this just gave the markets the fuel they needed to start moving down. Why? Because suddenly the market has a lot of stops being placed beneath it, and like wind on a forest fire, these stops will ignite a sell- off. This safe, cautious entry quick... | Page 513 |
70f39f005f94-0 | stick to their stops. The problem is that this overcautious behavior gives them terrible entries, and their odds of getting stopped out are extremely high. Yes, small losses are good, but if nearly every trade results in a small loss, the account will eventually be worn down. Phase II usually doesn’t last very long. Tr... | Page 514 |
fe10c53b234b-0 | lot of money, but they lose enough. Once traders figure out that they can stick to their stops, but that their entries are suffering, they reach what alcoholics refer to as a “moment of clarity.” If their entries are bad, then obviously their indicators are bad. So they go looking for some better ones. And thus begins ... | Page 515 |
a47513e8cc7c-0 | Phase III Trading: Why Is the Search for the Holy Grail Guaranteed to Limit Your Success as a Trader and an Investor? The search for that fail-safe indicator that’s going to work nearly every time takes a trader down a path that’s littered with corpses, broken dreams, and stuttering fools. Many traders stay in this sea... | Page 516 |
3a01756f1346-0 | lives. The irony is that individuals in this phase think they are developing as traders, when in reality their development as traders is dead in the water, having been stopped faster and with greater intensity than Monica Lewinsky’s future in government. Traders in Phase III are stuck in quicksand, entrenched in a losi... | Page 517 |
89e6276c0130-0 | The end result is a trader who spends this time repeating the same mistakes over and over again or happily discovering new ones. The cycle that takes place is one of always looking for the next best thing. It’s the search for that oh-so-special indicator or system that is going to give the traders their lodestone rewar... | Page 518 |
42bb63b0a611-0 | headlong into a couple of different trading programs or ideas and tweaking them endlessly until they reveal their magic. One typical scenario involves traders who develop a simple set of mechanical rules, which are kept secret, of course, that will help them attain a substantial profit each year with virtually no risk ... | Page 519 |
bc4585d0f362-0 | excited when they see that these methods, when carefully applied to selected historical data, work amazingly well. The ones that didn’t work out could easily have been “filtered out.” This type of trader typically dies with a one- page summary of how well the trade works and a stack of 68 pages that explain when not to... | Page 520 |
b9684f930664-0 | Other traders who are stuck in Phase III will go to seminars and learn about trends, and learn the importance of never fighting the trend. They discover the magic of moving averages and how they cross over when the trend changes. Oh, the power! When the market is trending, these methods work beautifully. Eventually, th... | Page 521 |
2eeccd7d48eb-0 | out that 75 percent of the time, markets are trading sideways, as professionals chop the Holy Grail seekers into mincemeat. This may lead traders to the world of options, where they start looking at spreads to contain risk and writing premiums to generate monthly income. This works great when the markets are chopping a... | Page 522 |
a7daedc4675b-0 | when the markets start trending again, these positions can, and often do, get killed. The list goes on and on. At various stages throughout this journey, after traders have studied a number of systems, strategies, and indicators, one day they sit down and create what they think is the perfect chart with the perfect ind... | Page 523 |
efdd0d201f24-0 | they start to use it. It may work well for the first couple of days, or even the first couple of weeks, but then the traders get burned on what they thought was a perfect setup. So, instead of using an MACD (moving average convergence divergence) with a setting of 12, 26, 9, they read somewhere that a setting of 12, 17... | Page 524 |
5c69031088cf-0 | setting and eagerly await the next trading day. Their setups work for a couple of days or a couple of weeks, and then a couple of trade setups don’t work out. Back into cyberspace the traders go. They are determined. They are focused. They neglect their family, miss their daughter’s softball game, and lose track of tim... | Page 525 |
e7018823c6cd-0 | the morning, they discover what they’ve been looking for. On their stochastic, they’ve been using the settings 14, 3, 3 when they should have been using 15, 3, 1! They put it on a chart and apply it to historical data. It works much better! The traders once again reformat all their charts and, once again, eagerly await... | Page 526 |
6e176f709ea6-0 | And when this doesn’t work, they go from a 15- minute chart to a 13-minute chart. And when that doesn’t work, they switch from trading the E-mini S&P to trading the E-mini Nasdaq. And when that doesn’t work, they learn that the euro is the place to be. And when that doesn’t work, they become gold bugs, because, don’t y... | Page 527 |
0afd286941a6-0 | always the next best thing. This cycle repeats itself forever until the trader gets sick of this roller coaster and jumps off at the next stop. Most never figure this out and remain stuck here for the rest of their trading lives. Their kids go from diapers to dormitories, and they barely notice because they’re still lo... | Page 528 |
de105e13d20c-0 | strategy who would be welcomed with open arms in any casino. Like Duluth, Minnesota, in February, it’s a terrible place to be. This whole situation is summed up succinctly by one of the hedge fund characters in Ben Mezrich’s entertaining book Ugly Americans: The True Story of the Ivy League Cowboys Who Raided the Asia... | Page 529 |
2f5eeb1439d4-0 | Millions : “The whole game of arbitrage is spotting who the asshole is. If you can’t spot the asshole—well, then you’re the asshole.” What Are the Signs That a Trader Is Stuck in Phase I, II, or III? Here are a few additional anecdotes and situations that let traders know that they are still stuck in these beginning | Page 530 |
9590c587cce0-0 | stages of trading. Good Till Close A popular order type for swing traders is called a GTC order, or “good till canceled.” This means just what it says: “Keep my order in place until my target is hit or until I cancel the order.” My partners and I, as well as many brokers, refer to GTC orders as “good till close.” | Page 531 |
6fdd7d60e1ec-0 | This is because many traders will keep their “good till canceled” order in place right up until price action gets “close” to their order. What happens is that the stock they are in is rallying hard and approaching their GTC sell order. They start looking at the stock and think, “Wow, this stock is acting great! I don’t... | Page 532 |
3dcbd08da16e-0 | their broker and cancel their GTC sell order. The stock rallies, pushes up through that order level, and then eventually starts to sell off. The trader has no exit strategy, and the stock continues to fall and turns into a losing trade. This starts off as a greed play and turns into a fear play. When this happens to tr... | Page 533 |
04c062fb5da5-0 | money. Size Really Does Matter When traders get scared and start to put most of their focus on not being wrong, a variety of bad things start to happen. The most common is that the traders get into a new position, and as soon as they see a small profit, they take it. They buy the minisized Dow at 10,100, and it goes to | Page 534 |
ab76df9fb0b0-0 | 10,104. Even though there are screaming buy signals in place and there are zero sell signals, they, miracle of miracles, have a profit, and they’ll be damned if they are going to let the market take it away from them. So they pocket the four Dow points, which amount to $20 per contract, or about $14.00 after commission... | Page 535 |
6da751aa3070-0 | it gives an exit signal. What happens is that these traders are taking a four- point profit, a three-point profit, and a six-point profit, and then the last trade of the day goes 30 points against them. So the traders have three winners out of four, but they are down on the day. And this is kind of a typical thing that... | Page 536 |
e7ed4f5447d6-0 | of not wanting to have to go through the pain of watching a profitable position go all the way back into the red. Many brokers actually analyze their clients’ accounts in order to predict when they are going to blow up. This way they can hedge the traders before the losses actually occur, essentially trading against th... | Page 537 |
4f2200af11f2-0 | that a trading account is going to blow up is an increase in the frequency of trading combined with an increased use of market orders instead of limit orders. Firms that hedge see this situation develop, begin to lick their chops, and fade their customer’s account, taking the opposite side of every trade. In general, t... | Page 538 |
c18bc54d017d-0 | trading much more frequently than they used to. It is important to realize that some firms will see this activity and take specific action, because 90 percent of the time this means that a trader is about to blow up his account. Don’t be the trader who comes up on the broker’s radar screen as a hedging candidate. Yes,... | Page 539 |
5a48ea9d8adf-0 | Bigger losses are a lot worse than smaller profits. However, a trader who takes small profits because of fear is not following a plan. A trader who is not following a plan, who is reacting only to internal emotions, is going to get beaten. Not maybe. Not probably. Going to. Greed Is Bad Nourishment for the Brain | Page 540 |
79e86c8899ef-0 | There are limitless ways in which traders can sabotage their accounts, but this is a particularly good one. What happens is that traders get into a comfortable routine. Maybe they are averaging $250 a day trading the mini- sized Dow on a $50,000 account. This, for them, is a reasonable goal with the capital they are tr... | Page 541 |
6504f0effb63-0 | asks how the trading is going. The trader responds that all is going great. The spouse is pleased and says something like, “Well, since your trading is going so well, I’ve been thinking that I’d really like to get a BMW. Can we go ahead and get one?” And so the next day, the trader wakes up and think, “Okay, if I’m goi... | Page 542 |
2e44eb9cdd58-0 | this BMW, I’ve got to step up my trading and start making $750 a day. This way I can set aside a large down payment, and I can get the car in the next six to eight weeks.” The very second a trader utters those words, a trigger clicks in the remote recesses of his mind, and he has unknowingly entered a period in which h... | Page 543 |
41148dfe2b83-0 | original parameters, he is going to start reaching for more. What used to look like a perfectly good 20-point profit in the mini-sized Dow now looks puny—it certainly won’t have much of an impact on the BMW purchase. So the position doesn’t get sold, and the trader sits back and waits for the market to give him more mo... | Page 544 |
d1a030d7981d-0 | trader ends up getting stopped out for a loss. In this mindset, what once used to look like a reasonable profit becomes too small, and this throws the entire trading plan out the window. I remember working with one trader who was in almost exactly this situation. He was a good trader, but he had recently entered a losi... | Page 545 |
6d4b74aa77e3-0 | out why. I asked him if he suddenly was trying to trade his way into any big, specific purchases. Yes. Aha. Something for his wife. We talked about this phenomenon for a while, including the story about the fur coat, which is described in Reminiscences of a Stock Operator , by Edwin Lefevre, a book that is a must read... | Page 546 |
766fa4bed32f-0 | chin. “Well, I think I know how to fix this problem,” he said. “I’ll just divorce my wife.” This is the home run mentality, and it’s a pitfall for all traders. It’s important for the trader to remember that the market is not going anywhere. Like an all-you- can-eat buffet in Vegas, it’s going to be there all the time. ... | Page 547 |
0fb9ab29124d-0 | load up your plate to the max on your first trip through the buffet line. You can grab your plate, mosey on over to the buffet, pick up a couple of pieces of shrimp, and saunter back over to your table and enjoy them. Then, when that’s done, you can go back and pick out a few slices of brie. There is no need to be a ho... | Page 548 |
72033a30227a-0 | person can sit there all day and take little nibbles from the buffet all day long. Remember, in the markets, bulls can win and bears can win, but pigs get slaughtered. Speaking of Jesse Livermore Many traders know that Reminiscences of a Stock Operator , by Edwin Lefevre, is a book about Jesse Livermore, the famed trad... | Page 549 |
60b914f90cdd-0 | who made approximately $100 million in 1929 dollars in the stock market crash (about a billion in today’s dollars). What many people do not know is that on March 5, 1934, he filed for bankruptcy, and on November 28, 1940, he blew his brains out in the bathroom stall of a hotel. Although this may not sound like a strong... | Page 550 |
cef38ab45ec4-0 | any serious trader. While this book talks about the trading strategies that made him his fortune, the book Jesse Livermore, World’s Greatest Stock Trader , by Richard Smitten, also goes into detail about the years and days leading up to his suicide. I majored in history, and I was trained to take pieces of historical ... | Page 551 |
cf5465bf61d8-0 | about what really happened in the past. From what I’ve read about Jesse Livermore’s life and eventual demise, my opinion is that he suffered a bout of euphoria after the 1929 crash. This euphoria caused him to trade recklessly and with huge size, and this caused him to lose his fortune in less than five years. Although... | Page 552 |
86ea0023958d-0 | the size of this loss did permanent psychological damage, and the pressing weight of “trying to make it all back” is what eventually did him in. Let’s take a look at what euphoria can do to a trader. Euphoria: Redefining Stupid Euphoria is the worst emotion for a trader to succumb to, even worse than | Page 553 |
67eb865a54ac-0 | greed. What happens with euphoria is that traders have such a great day in the markets that they proclaim themselves king of the trading world. Let’s say they normally trade 10 contracts. Well, now, since they are “king,” they are going to start off with 50 contracts, and go up from there if they feel like it. After al... | Page 554 |
a33d2a90fbfe-0 | This happens to traders frequently, and the resulting act of insanity is just like doubling each bet on a roulette wheel. People can sit on red and keep doubling up on each bet until they win. This works great right up until the time that they have maxed out their capital on red, and the color comes up black. Doubling ... | Page 555 |
5b42c33a411b-0 | is yet another sucker’s game. What’s worse is that this strategy always leads to traders giving back all the fantastic gains that made them euphoric in the first place. This places added pressure on them—now they have to trade in order to get back to where they were. This, of course, causes a multitude of bad habits. I... | Page 556 |
22112e0f7ee2-0 | just because you are feeling awesome about your trading is like being in a marriage that is going fantastically well. The conversations are sparkling, the mutual adulation is adoring, and life under the covers is grand. Happiness abounds in spades. How can you make this better? Double up! Have an affair. It may seem li... | Page 557 |
763868dbf364-0 | way—very, very badly. Paper Trading—Why Is It More Worthless Than an Iraqi Dinar? When I wrote the title of this section in 2005, I never imagined that there would be a growing popularity of advertisements from firms pushing paper Iraqi dinars as an investment. Admittedly, the ads sound very appealing. | Page 558 |
2bcb16cc763f-0 | For just a few thousand dollars, you can buy a million dollars worth of dinars, and “when the dinar goes to parity with the U.S. dollar,” it will then be worth a million U.S. dollars. And of course the firm that is selling these dinars is also the only place where a market is being made. Never mind that this exchange r... | Page 559 |
a88048ff8177-0 | multiples of what is being shown in the advertisements (that is, the Iraqi dinar is even more worthless than advertised because people prefer having U.S. dollars). Hopefully I’m not the first person to give the heads up that this is one of those scenarios where “if it sounds too good to be true, then pull your head out... | Page 560 |
121ff3076a49-0 | dinar may be pegged to the U.S. dollar, but that is not even in the ballpark of going “to parity” with the U.S. dollar. And if it does go to parity with the U.S. dollar, guess how that will happen? It will be revalued. Iraqi dinars can be printed at will. That does not constitute rarity and value. The few thousand doll... | Page 561 |
ad44906a87f8-0 | millions would be better served by putting them toward a vacation or something tangible like silver. And even if you want to sell it, who is going to buy it? There is no market for it. Ah, but there is! Go on eBay and sell it to someone who thinks it’s going to parity with the U.S. dollar. But hurry before the jig is u... | Page 562 |
df569226e349-0 | were a legitimate opportunity, then George Soros would already have cornered this market. He knows a little more about currencies than you and I do. This reminds me of the “ostrich scam” that hit Texas a decade or so ago. Breeder ostriches were going for $50,000 each because of the high nutritional value of the meat. U... | Page 563 |
4342cf4aec8d-0 | bought the meat, so the breeders just kept selling their stock to other people who wanted to breed ostriches, and so on, until everyone who wanted to breed ostriches had them. After that, you literally couldn’t give the large birds away, and to this day there are some of them roaming free on the Texas plains. Which bri... | Page 564 |
14538d884258-0 | There are a few good reasons for people to paper trade. Paper trading will help a trader learn a new execution platform. This way, she can figure out how to use the software through a demo account and save herself the costly errors that can arise when people they try to place orders on an unfamiliar system. Also, paper... | Page 565 |
ebdfc684e792-0 | strategy to see how it works before committing real money. However, paper trading does have one distinct disadvantage—it can be worthless in a way because it does not take into account how a trader will act when there is real money on the line. That is what makes or breaks a trader. It’s okay to trade smaller size, but... | Page 566 |
3ccd18ef93c4-0 | understand how she holds up under pressure. This is also a good way for a trader to test how far apart she is mentally from “paper trading vs. real trading.” A trader should feel the same, or at least as close as possible, when trading paper as she does when she is trading with real money. To the extent that she feels ... | Page 567 |
66596d28780e-0 | a clue as to where she is on the psychological trading scale. In other words, how screwed up is she psychologically when she is actually trading with real money? When a trader freaks out on a real trade, it is a red flag that she is trading too big for her account size. Her judgment goes to zero, and financial ruin is ... | Page 568 |
c773c398ca84-0 | smaller size until she feels the same emotionally as when she is in a paper trade. Building up trading size is very similar to building up muscle with weights. The first time a person goes into the gym, he may only be able to bench-press 140 pounds for 10 repetitions. A month later, he is able to push 140 pounds 15 tim... | Page 569 |
2ba7e0708698-0 | 150 pounds for 10 reps. This continues over the course of a few years, at the end of which he is cranking out 200 pounds for 10 repetitions. Yet had he tried benching 200 pounds at the outset, he could literally have killed himself. It’s the same in trading. The first time I lost $1,000, I threw up. The next time, I me... | Page 570 |
fdc348a9983b-0 | intestines could handle. At that point, I realized it was time to up my trade size to where I could risk $1,500 on a trade without getting “too intense” emotionally. And as the years went by, I was able to increase that to larger and larger amounts as mentally and emotionally I got used to the dollar swings on my score... | Page 571 |
6f0148019bb4-0 | start thinking in terms of purchasing power, of something that you could buy with your winnings or could have bought with the current losing trade, all is lost. Emotions at that point rule the day, and that strategy only works to the trader’s detriment. One thing I’ve studied over the years, and we’ve come out with irr... | Page 572 |
8b62c6f5ab9b-0 | make the market do what you want it to do. If you find yourself staring intently at the screen, it’s a heads-up that you are trading too big for your account size. The most dramatic instance I’ve seen of this is in working with traders in Asia, specifically in Taipei, Hong Kong, Tokyo, and Shanghai. Asians are fantasti... | Page 573 |
d4d80204bde8-0 | huge sums. This can be a problem with trading, and it takes only one bad trade to ruin an account. One guy I worked with was trading 100 lots at a time in a $100,000 account (obviously using the maximum day-trading margin). Each 1-point move in the S&Ps represented $5,000. The first day he made 5 points ($25,000), and ... | Page 574 |
2f24027e6eec-0 | normal fluctuations for him, and it showed. He’d get so excited and animated that I thought he was going to implode. I had him cut his size down to 10 lots. At first he was bored, but then a strange thing happened. He wasn’t excited, so he traded objectively … and he made money. We got him to trade in the same mental s... | Page 575 |
26ff61130319-0 | difference. Being able to work with traders overseas is a great win/win for me, as I get to learn how other people view the U.S. markets, as well as see how U.S. news is filtered through their local news channels. Being able to put yourself in another person’s shoes brings more understanding of how the world really wor... | Page 576 |
4bbea40e3fac-0 | setup that comes your way, but it does help you form a macro view of the world— and it does make life more interesting. But What About Phase IV —How Does a Person Learn How Not to Lose Money? This is the trickiest part for traders to get their arms around. Learning how not to | Page 577 |
b3cb315fbf11-0 | lose? In trading, first you lose, then you learn how not to lose, and then, and only then, can you get on the road to generating a consistent income. “Learning how not to lose” is a simple way of summing up everything we’ve talked about up to this point. It’s about having the patience to wait, the courage to get out, a... | Page 578 |
82ac2ad5d548-0 | lose. It’s about focusing on limiting risk, not having to be right, and limiting the downside so that the upside can take care of itself. And once this starts to sink in and you get comfortable with “learning how not to lose,” then and only then can you make the transition to generating a consistent income from trading... | Page 579 |
a5e5cb1c2c70-0 | unique human beings, people who lose consistently in the markets over time all do exactly the same things. They (1) overtrade, or trade way too frequently, (2) use too tight stops (their fear of loss is so strong that they don’t even give the trade a chance to work out), (3) trade with too much leverage (they would be ... | Page 580 |
24902b81758f-0 | out a big chunk of their account. Losing traders consistently do at least one— if not all— of these four things. I’ve looked at hundreds of brokerage accounts, and they all tell the same story. In fact, I know traders who fixed their trading simply by doing the opposite of this. They (1) undertrade, or trade one or two... | Page 581 |
de22183ca32c-0 | outside of the market noise, (3) trade with appropriate leverage, which is why they are able to use wider stops, and (4) never have a big losing trade. It really can be that simple. Why Does the Plateau Money Management Method Work? Up to this point, I haven’t talked about a specific | Page 582 |
83ad6ff0bc4c-0 | money management method, but there is one I’d like to talk about now. It’s something I’ve been surprised to find that not many traders think much about. The usual mindset is, “Get some setups, follow them, and make some money.” Yet once a trader has his psychology in check, the next issue that has to be resolved is mon... | Page 583 |
cbd24f8c1d42-0 | innumerable methodologies and schools of thought where money management is concerned. And plenty of them work, at least up to a point. What many money management systems fail to acknowledge is that as traders inch up the ladder of profitability, they frequently hit mental plateaus. Maybe a trader can start with a | Page 584 |
d429f60303a5-0 | $25,000 account and run it up to $40,000, but then, instead of climbing still further and taking the account to the next level, the trader plateaus, and things begin to fall apart. This $40,000 plateau becomes an invisible barrier that holds the trader down and prevents him from moving to the next level. Plateaus can e... | Page 585 |
1a339509a30c-0 | habits, usually based on the idea that a trader now has a “comfortable cushion of cash” to work with in his account. This makes him lax, more prone to break his rules. This amount will be different for everyone. Maybe you have a $5,000 account and you do a great job running it up to $7,500, but when you reach that, you... | Page 586 |
79af3e7eaa3a-0 | and every time you hit $100,000, you start trading with “house money” and getting more aggressive, and soon you find yourself back at $75,000. I’ve struggled with this problem myself over the course of my trading life, although my plateaus have grown over time. It’s almost like lifting weights. You have to reach new le... | Page 587 |
3e171f5d91cf-0 | the time, not just in terms of your trading skills, but in terms of figuring out how to wrap your mind around specific amounts of money. You have to get comfortable with progressively larger and larger sums. I have solved this problem by employing a particular strategy that I call “the plateau method” of managing my da... | Page 588 |
7df470a1df7c-0 | Specifically, this is for trading shorter-term, highly leveraged accounts such as futures, forex, and options. I don’t use this methodology for swing and position trading. Let’s use a $10,000 hypothetical starting account. Your initial goal is to run the account up to 2.5 times your starting capital, which is $25,000.... | Page 589 |
04fc65f19381-0 | your amount to reach may be different.) Under this methodology, when you reach your desired target ($25,000, in this case), you withdraw your original $10,000, plus a profit of $2,500, leaving you with a balance of $12,500 in your trading account. Now you tweak your goal. Instead of $25,000, your aim is to run your acc... | Page 590 |
db656670fee5-0 | 2.5 times your new starting capital, which equals $31,250 ($12,500 × 2.5). Once you reach your target of $31,250, withdraw half of the account ($15,625) and reset your goal. Now your goal is to take the $15,625 and increase it 2.5 times yet again, making your goal $39,062.50. When you reach that target, take out half, ... | Page 591 |
24d101bf3f27-0 | The time it takes to do this isn’t critical. You aren’t focused on achieving your target in a week or a month or a quarter. You’re simply following your plan and taking your setups, and when you hit the plateau, you’ll take money out and establish a new goal. When you’re trading leveraged instruments, one solid runner ... | Page 592 |
3c48cbc59f34-0 | is so critical to keep your losses small. Here’s the key: you aren’t trading your whole stake. If you have $50,000 with which to trade, then use only $10,000 as your stake to get started. This allows you the freedom to take bigger risks, because it’s only $10,000 of your $50,000. And if your $10,000 gets wiped out, the... | Page 593 |
2b686f72ddb8-0 | put in and try again until you’ve got the hang of it. Naturally, not everyone is going to have $50,000 in starting capital. If $5,000 or $10,000 is all you can manage, that’s fine. Just be careful not to piss your capital away on undeserved risks, trades that are typically taken out of boredom. Wait for the “Porsche se... | Page 594 |
95b2595dc397-0 | that I talk about later, and establish a trading plan that insists on only the highest- probability trades. And now you know you’ll keep your word and follow your plan, because you’re committed to trading with integrity, remember? The plateau method works because it assumes that you have passed the first few phases of ... | Page 595 |
b298bbc43e7b-0 | and are now content to simply wait for the best setups that work with your plan. As with any trade, you’ll want to consider the market within more than one time frame, always “zooming out” to see the bigger picture, which helps you maximize runners (more on this later). And remember that there will be days when nothing... | Page 596 |
c6b66c5f4598-0 | review your charts at the end of the session and take a good, hard look at all the crappy trades that some poor bastards stuck in Phase II took, and then pat yourself on the back as you think about all the money they lost that you held on to (because you have learned how not to lose). Some of the best trades are the on... | Page 597 |
91315b0244cd-0 | trade without money management plans are trading an incomplete system and fall into that category we’re all so eager to avoid— the 90 percent of traders who are going to lose their accounts to those of us who have trading plans in place that include quantifiable and specific money management plans. Trading with small s... | Page 598 |
213b489c1cef-0 | —ideally just a part of your trading capital, not all of it— on a limited number of reliable, proven setups opens up the opportunity for extraordinary results. When you add the plateau method of managing your gains, you have the added benefit of holding on to the capital you worked so hard to acquire. When you have a w... | Page 599 |
45bf36e0469b-0 | the next winning trade. Though individual trades are obviously critical, when viewed through the lens of your grander plans, each trade becomes just a brick in the wall of wealth you are building. Yes, some of those bricks will fall off the wall, but you are building tools to replace those bricks and continue building... | Page 600 |
7f95d97900aa-0 | Investing, What Are the Best Ideas to Keep in Mind? A trader’s relationship with the market is really like a dance, and it’s best to let the market lead. It’s important not to come into the market with an overly bullish or overly bearish outlook. The more strongly a trader believes in an idea, the easier it will be for... | Page 601 |
a6d458a11cd8-0 | wrong side of a trade. In an upcoming chapter, I talk about how to read market internals, and this is a great way to get a reading on what’s happening in the markets. Instead of coming into the day a raging bull or a roaring bear, I just come in as an interested observer. The “radar screen” that I watch keeps me in the... | Page 602 |
19e10371e32d-0 | long as we’re dancing together, I’d like to know when my partner is going to try to dip me. The reality is that the markets do move in cycles. My studies in history had a huge impact here. I could clearly see that since the beginning of modern civilization, the world had gone through a number of repetitions of similar ... | Page 603 |
dfb79f87337c-0 | all driven by human decisions. This insight really changed my focus and how I looked for opportunities in the markets. I stopped looking for the next great indicator and started looking for repeatable market patterns based on human nature. A great book that falls within this theme is The Secret Life of Real Estate | Page 604 |
ea9d38d04add-0 | and Banking , by Phillip J. Anderson. The dry title does not do this book justice. It’s a great and fascinating read, and the author is incredibly passionate about his subject matter. With great stories and examples, he documents how a real estate price cycle that has repeated every 18 years since the United States was... | Page 605 |
843521bd059d-0 | of speculators, bankers, and politicians—all of whom are reacting to the price movement of real estate— were all nearly exactly the same during each one of these 22 cycles. In other words, none of the stuff you are seeing on TV today is new. Politicians, banks, and speculators have been reliving their lives and policie... | Page 606 |
aba04c90e988-0 | This knowledge is priceless when it comes to financial planning and real estate investing—not to mention keeping the latest headlines in perspective. And there’s a little saying that I always like to remember; it’s called “discipline before vision,” which is something I first heard from Peter Borish, the former head of... | Page 607 |
208c54780d1e-0 | Paul Tudor Jones. I may think that the market is going to crash today, but I’m still going to have a stop in place in case I’m wrong. The vision of being short during a crash is a pleasant one, and the thought of a big move leads traders to do stupid things, like doubling up and adding to losing positions. Disciplined ... | Page 608 |
819ae048a897-0 | heard many traders who were “staying positioned for the next, inevitable terrorist attack.” After the events of September 11, they saw how that had affected the markets, and they wanted to get positioned for the next attack. (Yes, this is a terrible way to look at a disaster, but this is how traders think. If there is ... | Page 609 |
8cbab0675f3a-0 | will have to rebuild a lot of houses.) The funny thing is, this vision of being positioned for a crash totally clouded their judgment. The only thing the market hates is uncertainty. The events of September 11 were unexpected, and the market got crushed. However, terrorist activity is now a certainty. It is no longer a... | Page 610 |
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