TOOLS AND TACTICS FOR THE MASTER DAY TRADER - FX.GOLD. アウトプット報告

TOOLS AND TACTICS FOR THE MASTER DAY TRADER

Battle-Tested Techniques for Day, Swing, and Position Traders

OLIVER VELEZ

GREG CAPRA

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ISBN: 978-0-07-137919-9

MHID: 0-07-137919-3

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PART ONE

SEEDS OF WISDOM FOR THE MASTER TRADER

Preparing the Trader’s Mind for Greatness

Trading tactics and techniques will have little to no value if the mind behind those techniques has not been properly prepared. This section is specifically designed to pepper the trader’s mind with bite-sized seeds of wisdom, which over time will germinate and give rise to a heightened state of awareness and a deeper level of understanding. We call this depth. One of the most undiscovered truths of the day is embedded in the fact that the greatest riches of a successful trader lie within his or her thinking, not within the methods used. Sound methods follow the trader who has a sound mind. To state this another way, “proper trading is proper thinking.” We firmly believe that the trader who reads and digests the following sections will emerge from the experience a more seasoned individual. Each time these pearls of wisdom are digested, they will help bring into being a deeper sense of understanding, heightened mental awareness, and greater emotional mastery. Within these short essays are locked some of the most potent pearls of wisdom known to successful traders. These timeless gems have enriched the trading lives of individuals all over the world via our daily newsletter, The Pristine Day Trader. We are certain they will help provide you, as well, with a richer, fuller life in the markets.

* * *

You are certain to find repetition in many of the following themes, but we have always lent support to the notion that repetition repetition has a great value. What won’t penetrate the various barriers to understanding one way may do so when truth and wisdom is communicated another way. May you enjoy your first steps on the path to trading mastery.

CHAPTER 2

DEVELOPING THE MASTER TRADER’S MIND

Keys to Correct Trading Behavior

ARE YOU GAMBLING OR TRADING?

Trading is one of the most exhilarating activities one can undertake. Each day, each hour, and even each price tick can dramatically increase, or diminish, the financial well being of the active market participant. The winnings can be swift and enormous, while the losses, if you are careless, can just as quickly take you out of the game, forever. The potential to acquire fast and enduring wealth, coupled with the strangely exciting possibility of economic ruin, makes professional trading one of the most desired activities in the financial world. However, most who make a go at this demanding profession fail. And they fail miserably. This hard, cold reality is due to several reasons, but I’d like to point out one of the most damaging of all those reasons. What has guaranteed the failure of countless trading novices is the inability to see the difference between a “gamble” and a “professional trade.” Loading up on a stock just before the company releases what is “expected” to be positive earnings, and buying into issues that are crashing at the speed of light are just two of the actions that fit the criteria of senseless gambling. While these “shoot-from-the-hip” approaches can score big at times, their greatest value is in their fleeting entertainment, not in their intelligent approach. They have no place in an intelligent, well-planned trading program. If you want to be entertained, it is better and cheaper to go to the movies. If you want to make consistent money in the market, your methods had better be professional and extremely disciplined. This is why each of the picks we provide to our Pristine Day Trader subscribers is accompanied by a very detailed, professional trading strategy. We leave very little to guess work and hunches, and focus entirely on making: (1) the proper entry, (2) the proper position management, and of course (3) the proper exit. When you approach the market this way, with intelligence and a well-thought-out plan, many of your plays may lack the excitement of the “gamble” and occasionally they won’t live up to your dynamic expectations. But, as traders with a professional approach, you can be assured that you’ll be around to trade another day, another year, and maybe even another decade. Smart trading involves executing a plan. Gambling is nothing more then buying and selling with little more than the hope that you are right. So it is of paramount importance that you trade smart. You can never lose sight of this fact: in order to win, you must last. Those who trade smartly last, and those who gamble don’t last. Every trader must learn to recognize which is which.

SEED OF WISDOM

The desire for the big score, in other words the gamble, is one of the hallmarks of a truly novice trader. Professionals fully recognize that the entire art of short-term trading really boils down to a game of eighths and quarters, and at times quarters and halves. Think about it. Market makers and specialists represent the most astute players on Wall Street. At any given time, they can control tens of millions of dollars. The firms they represent are immense, influential, and very powerful. In a very real sense these master traders are Wall Street. They are the titans of the game, the kings of the hill, and as a result, they have etched out a permanent place at the very top of the financial food chain. Market makers and specialists are the true professionals, and their sole purpose is to do what? Do you know? Their goal, in every moment of their trading lives, is simply to gain the spread or the difference between the bid and ask prices of the stocks they trade. Reread this last statement for it contains one of the master keys to short-term trading success. The biggest and most powerful firms on the street, the financial gods who have amassed and control untold fortunes are after one thing and one thing only: the spread. They are not after a $40 gain in Amazon.com. They are not trying to capture a robust $4 advance in America Online, either. In short, they are not gamblers, they are processional traders of the highest order, and their sole objective is to gain the spread. There is a very powerful message here. Those who get it will have captured one of the most hidden, most protected truths of this game. While the novice may occasionally get lucky and hit pay dirt with a huge mouth-watering gain, the true professional is after the smaller but surer gain. They just grab it thousands upon thousands of time. The novice, lacking skill, is the one who feels as though his or her only course of action is to capture that one big score. Failing to formulate a plan, and missing the mark time and time again, the novice thinks the ticket to a better trading future is in the form of a financial lottery ticket. The most astute traders on Wall Street don’t buy or even hope for lottery tickets. They sell them, to the novices. By all means, trade. Just don’t gamble.

A WIN IS NOT ALWAYS A WIN AND A LOSS IS NOT ALWAYS A LOSS

Does a profit determine whether a trade was sound or correct? Should we automatically assume that we were wrong if a trade lost money? The answer to both of these questions is an emphatic no! The end result of any one particular trade does not determine the rightness or wrongness of your method, or your decision to make the trade. Many traders who don’t grasp this truth find themselves tinkering with, and perpetually jumping from one technique to another, ultimately gaining no expertise in the process. Too many players fail to realize that even a rudimentary toss of a coin will be right at times. But a “heads you buy, tails you sell” strategy is certainly not a sound method, despite its occasional win. The point we are trying to make is this. In the real world, every trade, however sound and workable the strategy, is not going to be a winner. There will be times when your technique will be flawless, and the end result will still be a loss. Conversely, there will be times when you’ll win despite a faulty approach. The professional knows that as long as he concentrates on making sure that the individual components of every trade are handled properly (the waiting, the execution timing, the entry, the money management, the exit, etc.), winning will eventually take care of itself. So instead of using the end result of one trade to determine if a particular trading tactic is sound, one should use the end result of, say, 10 trades. In fact, traders should perpetually remind themselves, before each transaction, that this is only one trade in a “lifetime” of trades. Therefore, a win here or a loss there will not make a major difference in the grand scheme of things. This should psychologically help the traders if they find themselves spending far too much time worrying about the end result of every single trade, an activity that breeds fear, lost opportunity, and eventually mental insanity.

SEED OF WISDOM

Becoming a professional trader should be regarded as a life-long process that never ends. The trader clothed in this mind-set looks at each play as just one tiny trade in a lifetime of trades. By itself, it is insignificant, whether it results in a win or a loss. Approaching each of your trading decisions in this way will remove much of the trade-by-trade pressure usually experienced by beginning market players. It will help create a peace and clarity of mind that further promote independence of action and intelligent decisions. But the central theme, one that must be thoroughly understood by all serious traders, is that one individual trade cannot—and will not—communicate where you are as a trader, or what level you are on. It is only after a significant block of trades that your true level is revealed. Losers hit the lottery at times and feel like kings for a day. Winners get whacked every now and then, and for a brief time do not show to the world their greatness. But after 10 or 12 trades, the real is usually separated from the false. It is only after a block of trades that the wheat is separated from the tares and the real winners emerge to take their rightful place on top of the hill as kings. You can never judge your success or failure by the result of any one trade. Take score after 10 trades. Trust us. After 10 or 12 consecutive trades, you will know all you need to know about who you are and where you are as a trader. The truth is revealed in sets of 10. Remember this.

THE MASSES CAN’T WIN FOR LONG

During times of market turmoil, many of our retail broker contacts reveal to us when their clients, individual investors, are dropping out of the market in droves. Whenever this happens, it is a strong indication that the bottom of the stock market’s recent drop is close at hand. The stock market has an inherent tendency to shake out what we call the “weak hands” just before it takes back off to the upside. The intense level of frustration and the high level of euphoria among retail brokerage clients are, in fact, intriguing market barometers that some astute traders use to pinpoint market tops and bottoms. And we must admit that these barometers fare quite well. But when you think about it, it makes perfect sense. The financial markets were not designed to benefit the majority, which is why corrections tend to obliterate the typical investor (the majority), while the astute market players (obviously the minority) last long enough to pick up the pieces when the market finally does turn. Professionals are simply masters at keeping the average investor perpetually on the wrong side of the equation.

When the novice wants to buy, the professional is willing to sell to him. When the novice wants to throw in the towel and sell, the professional is perfectly willing to relieve him of his pain by buying from him. Our question to you is, “Which character in this grand comedy are you?” Are you a part of that sad, manipulated group who surrender just when the game is about to shift in your favor? Only the able survive in this business, and obviously the survivors are the only ones who can succeed. Do your very best to be a survivor. Your success depends on it. When the going gets tough, the winners get tougher. In order to win in this game, you must last. The next time you find yourself thinking about quitting, ask yourself, “What role in this grand comedy am I playing right now?” That should help usher in a moment of clarity, in which the correct answer may emerge.

SEED OF WISDOM

The game of trading is a perpetual battle between the minority and the majority, the astute and the ignorant, the haves and the have-nots. And it must be thoroughly understood that the haves, the majority, those in the know, almost always win. The markets are designed that way. In order to be successful, one must become part of the winning group. But the reality is, very few wind up making the switch from the larger group of losers to that much envied, minority group of winners. As stated here, the markets are not designed to reward the majority. In fact, the very purpose of the majority, the reason the majority is even allowed to play, is to provide food (perpetual profits) for the gods, the winners. The following metaphor should clearly show you how the markets were designed to work.

THE BANDWAGON THEORY: A GLIMPSE AT HOW THE MARKET REALLY WORKS

Imagine a bandwagon that is rolling forward at a quickened pace. Music that is very pleasing to the ear is being played from speakers on each side of this bandwagon, and a few people currently on the back of the wagon are partying, having the time of their lives. The music, loud and clear, starts to attract many other onlookers that happen to be idly standing on the sidelines. These onlookers, unable to resist the sweet sounds being played, run to join the party that seems to be going on. Progressively, more and more onlookers jump on the back of this bandwagon, and those few who were initially enjoying the first phase of the party begin to leave. As the crowd of new party animals on this bandwagon grows larger, the bandwagon finds it harder and harder to move forward at the same pace. It slows, enabling more and more late onlookers, witnessing the great fun, the chance to jump on. The crowd grows even larger. Larger and larger this crowd grows, until the bandwagon, heavily laden with the bodies of drunken party animals, can no longer move forward. It finally comes to a complete stop. Now that the bandwagon is at a complete standstill, more people jump on. And why not? At this point, joining the fun is easy. Absolutely no work is required, for individuals wanting to join the crowd no longer have to run to jump on board. But the nature of the bandwagon is to move forward. Its motionless state is unnatural, and therefore cannot last. It tries to move forward again, but can’t. The crowd, piled on back, is much too large. It must free itself of the heavy burden. And it does. It quickly shifts into reverse, and jolts backward, knocking a few of the party animals off the back. The music stops. Puzzled faces from the crowd begin to emerge. Before anyone figures out what’s going on, another backward jerk takes place, only this one is more violent. Another large group of

people gets thrown off the back. Now, reality sets in. The fun has turned into a nightmare of epic proportions, and panic begins to run rampant. Some decide to jump to their deaths. Another thrust backwards sends an even larger group of drunken, off-balance people, hurling to the muddy ground. It doesn’t stop. The jolts backward continue, each successive one more violent than the last. At this point, only a few die-hard wagon dwellers are holding on, their very lives hanging in the balance by a very thin thread. Failing to be completely free, the bandwagon angrily puts the pedal to the metal, and this final thrust backward is so vicious that its front wheels lift high off the ground, momentarily suspending the wagon in a perpendicular position. The last of the hangers-on crash to the ground, broken and maimed to no end. At this point, a new group of onlookers emerge from the nearby woods. They are clean and serene. Each movement they make is deliberate and powerfully energetic, for they did not take part in the tragedy that just transpired. Or did they? A few of the dejected souls lying on the ground take a closer look, a look that reveals something very interesting. This seemingly new group is not new at all. It is the same group that was seen quietly exiting the party before it came to its violent end. An even closer examination by a few more beaten-down onlookers reveals something even more stunning. This group not only exited the party early, they were the originators of it! “My God,” someone exclaims. Paralyzed, and unable to move freely, all these dejected souls can do is watch, as the masters of the game go to work, again. No sooner does the bandwagon’s wheels hit the ground than this professional platoon bolts for the wagon. In a flash they are on board. Easy. The bandwagon, now free of the larger crowd, can move forward freely and gracefully, comfortably carrying the more astute group with it. Its pace quickens, and before long a smooth elegant stride is in place. After a few miles of uninterrupted movement, someone from this masterful group

flips on a switch, and suddenly the loud sounds of entertaining music start again. Someone yells, “OK everyone. Here they come. Let’s do it again.” Within moments, those who were the former victims of the backward crash become interested again. The music almost calling them from the grave. And once more, the never-ending cycle repeats.

SEED OF WISDOM

The analogy you just read is worth many more times the price of this book, if you grasp all that it contains. If you truly hear its message and lay hold to the hidden wisdom embedded in its metaphors, you will find yourself laying claim to a higher level of understanding and mastery. With each read, you will discover a deeper insight into the inner workings of the market and how the financial sages of Wall Street manipulate it for profit. As we’ve stated earlier, the purpose of this book is to help you make the all-important transfer from the larger group of novices to that much smaller group, the invitations for which are very few. If you don’t make the transfer, you will be nothing more than one of the many play toys for those who have. And when you can no longer entertain the gods with your willingness to play the game, they will send you on your way, broke, dejected, and depressed. Don’t let this happen to you. The answers you seek are within the pages of this book. In fact, a very big clue to the whole game we call trading is contained in the bandwagon theory just explained. Why not read it again, right now? Your future may just depend on it.

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