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Smart traders are always fine-tuning their skills, because no matter what they trade there is always money left on the table.
You may get out of good trades too early, or get into bad trades that drain your account.
I call them “profit leaks.” Every trader has them.
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You probably know him as the premier candlestick charting guru.
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Good Trading,
Barry
Sign up for Steve’s free video trading and investing newsletters. Get the first one in 30 seconds.
Details at www.candlecharts.com/free-education
written by Barry Desautels
One of the great things about keeping a trading journal is the history it creates. Trading is not something everybody does, so the uniqueness itself is valuable.
Each of us comes to the market with baggage, some good, some bad. It doesn’t matter what you trade, stocks, forex, eminis’, options, your personality will affect your trading. The key is to understand how to change yourself and adapt to the market, not the other way around.
When you keep a trading journal you are recording personal market lessons. If you’ve done any trading at all, you will recognize fear and greed as constant companions. A little of each is alright, too much of one or the other is a disaster. Learning to live with and control these two emotions is a whole other discussion, but by recording your experiences in a journal, you’ll be able to see and understand these two culprits more easily.
I started a journal following the advice of an instructor while taking a course in eminis’. It contains details of hundreds of trades, including the many moods and emotions present, along with some commentary.
A notebook or a 3 ring binder will work, with day and date at the top. Tell your story about the session in a way that is comfortable. A long narrative is not necessary, but if it works, use it. Bullet points are also quick and easy. If you don’t trade every day the journal helps keep all your research in one place.
The objective is to capture more than just the entry-exit-profit or loss data. There are personal motivators for every trade and it’s useful to note some of these for future reference.
For example, what market signal did you use to get in and get out of the trade?
Did the signal do what it was supposed to do?
Did you get in too early, out too late?
It’s important to be completely honest with yourself when doing this exercise. State the facts as they occur. Don’t speculate about cudda, shudda, wudda. None of those guys can help you.
Review your journal away from the market in a quiet place. Use an open mind and be objective. Look for behavior patterns. What do you do over and over? Are the results positive or negative?
Whenever you trade try and set up a routine, starting with your journal. Most successful traders keep a trading journal. It’s another good habit and they use it to their advantage.
Make it happen for you too!
http://www.chartreaders.com/blog
Written by Barry Desautels
Trading plans are one of the most important tools in your arsenal as a trader. This document is your guide and something that needs to become a good habit.
When I first started trading futures contracts, I designed a form that allowed me to lay out a weekly plan. I filled it out faithfully every Monday morning prior to the market opening. The problems started at the opening bell. I ignored the plan. Trading futures is fast paced and I was quickly caught up in the action, forgetting everything I’d learned about discipline and controlling emotions. Needless to say it didn’t help my results one bit.
Good trading plans allow you to put your carefully thought out philosophy on paper. If you are a stock trader, the plan will keep you trading a particular type of stock, certain size companies, dividend/no dividend, P/E ratio in a specific range and so on. It will dictate your entry/exit strategy, the hours you trade, the number of trades you make, and how you manage losses.
These are important components and new traders must learn to stick to the plan. Trading requires discipline and lots of it. Most of us come to the market with dreams of earning a steady income and generating extra cash whenever we want. The reality is trading takes time to learn, and can be very unforgiving.
Successful traders prepare and practice. They arm themselves with a long term perspective, ongoing study, and education. The steady income is a result, not a given. Lay out what you want to achieve and be realistic. Lady Luck does not play a regular role in anybodys trading world. Monitor your progress and make changes if necessary. Learn to stay connected to your plan and don’t let the market lead you.
Fear and greed are the emotions most dangerous to traders. They must be controlled and contained. Develop a habit of recognizing their presence early in the session and take action. You might have to stop trading for an hour, or even the whole day. The market doesn’t care what you do. It will be there when you return.
Remember: planning and practice - patience and perspective. Make them your partner. Stay in the zone.
http://www.chartreaders.com/blog
Written by Barry Desautels
As our world continues to fill with new and improved technology, change and opportunity remain common place. For anyone looking for something with a long and exciting learning curve, home trading offers a wide variety of challenges.
First of all, it’s at home. When properly developed, the commute is gone. No more rush hour traffic, honking horns, road hogging cyclists, and no parking expense. You set your own hours. If you don’t want to trade on a particular day even for a week, nobody on Wall St. or Bay St. is going to miss you one little bit.
Home trading gives you choices and flexibility. Your time is your own. Trading can involve as many hours a week as you like, or as few. Of course you need to be successful at it and that comes with practice and involvement. List your strengths, your areas of interest, things you are not so good at. Procrastination and complacency are two major conditions found to some degree in all of us, so they may need special attention if you are serious about working at home. Decide on your level of knowledge and experience, then build a plan around both.
Begin to study and absorb. Learn the vocabulary. Price movements for everything tradeable are tracked on charts. Develop some comfort using them. Read all you can on trading and the markets.
At home, find a place to setup a trading room. You’ll need a bookshelf, dedicated desk and a computor. Use a cable connection as opposed to dial-up if possible. Most TV cable companies offer internet connection as part of a package or product bundle, and chances are your telephone provider also has options.
Focus on the long term. Like any business, home trading will take time. It won’t produce a living overnight, so part of your plan needs to include cash flow to meet ongoing expenses. Most people use their job to supply the funds to pay the bills while they learn to trade. A general rule to remember once you start to see success, is to have two years expense cash in the bank before you consider quitting your job and trading full time. Do not expect or plan to use trading money to pay any of your bills at the start. Save enough for all mortgage, tax, utility, food and car expense, and don’t forget money for your trading account. Nobody wins every trade.
Have fun, learn, enjoy and prosper.
http://www.chartreaders.com/blog
For readers not familiar with Steve Nison, he is the founder of a site that specializes in chart reading education and information. Candlestick charts are part of the language of trading and on a whim, he recently came up with a new version of an old song. Check it out!
http://www.watchthecandleman.com
Written by Barry Desautels
In order to succeed at anything in life, one must bring desire and passion to every game. New Traders are no different. This game is as full of emotion as any game you’ll ever play, so preparation and a solid, positive attitude are critical.
Trading has many facets. It is a huge part of our economy and intricately connected to almost everything we do. To learn it all is nearly impossible. However, if you are able to subscribe to continuous learning, a substantial body of knowledge can be acquired. It is a life long challenge, provided we accept it as a challenge and not something we are obligated to pursue. Enjoyment and pleasure are a big part of learning and if those parts are missing, it quickly becomes a drudgery.
So with desire and committment securely imbedded in our minds, the last thing we need is time. It sounds easy to start with, and as human nature goes,enthusiasm is always highest at the beginning. It’s the 4th quarter that often matters the most, and with a topic as large and complex as learning to trade, it’s who plays the hardest that usually wins.
Organizing your time for trading takes some thought and some planning. I find that breaking large projects down into manageable pieces is the most helpful. Build a system and a routine. A system will allow you to move forward in an orderly fashion. It will provide a place to record and store information, lessons learned, and reference material. Use a spread sheet of some kind to track your investment progress. Start a journal to record your daily ups and downs. The highs and lows are a regular feature of trading, both just part of the business and you’ll learn to handle them.
Routines are the secret to time management. Try and pick a time during the day where an uninterrupted hour exists so you can focus and concentrate. I use the same time every day. Each task gets a slot. Research, reviews, journal entries, all require a regular effort. The more time you devote, the larger your knowledge base becomes. It’s all a very personal matter. In spite of the best intentions, best coaching and access to endless material, we all struggle with time at some point. New traders need to give this special attention.
The key is to not give up and quit. All good things in life have a price. Learn to understand the concept, accept it, and very soon you will find yourself in a whole new world. Good Trading!
http://www.chartreaders.com/blog
Written by Barry Desautels
Trading is an individual “sport” for the most part. Each buy or sell decision comes down to one person, (you), making a final assessment. Each of us arrives at that point in our own way, based on the level of knowledge and experience we possess and what our emotional thermometer says at the time.
So how do you trade? All traders develop a style and follow a methodology. Both are developed and adapted as a result of training, education, market conditions and personal conviction. The various trading instruments and their off-shoots each have certain characteristics that come to light through study, observation and experience.
It’s always a good idea to start small and go slow. No one becomes an expert overnight. Follow your interests and learn the rules. In todays markets the computor of course has become an essential tool used to provide access and information. Online brokerage is common place, and a good starting point for new traders.
Do not become overwhelmed with the amount of information available. Pick a niche that you have an interest in. It should be something you have a passion for. Is the company you work for listed on a stock exchange? As an employee you will have a good insight into how it’s working and how well it’s doing. Many of these companies have stock purchase plans connected to payroll. Find out if it will work for you.
There are two major components to trading. The first is the technical aspect and by that I mean everything physical that allows you to trade. It’s the stocks, options, futures contracts, forex and how they work, what they cost, brokerage fees, computor software, and all else that provides the opportunity to buy and sell.
The second component is the most important and that is you, the trader. The psychological side of trading accounts for about 80% of the events that lead to profit or loss. It’s another side of learning this business and for most, an endless challenge.
So the first step is to develop a list of information resources. Study the market as a whole and pick a sector you know something about, or have a serious interest in. Try and keep a schedule and devise a method to measure your progress. Starting with common shares will be easier than trying to figure out options or forex.
Once you’ve found a niche and picked some stocks, establish a following process where you can track price movement. List the companies on a spread sheet and “paper trade” until your profits exceed your losses on a consistent basis.( Paper trading is where you buy and sell on paper without actually spending any money). Be honest about when you buy and sell and document your reasons for each move.
It’s very important to find your own answer to the question “how do you trade?” There are hundreds of brokers, good and not so good, with offers of free advice and recommendations. It’s fine to read their reports and even follow through on them, but learn to make your own decisions based on facts. For instance, if a company is profitable, pays a 6% dividend and is in a sector with high demand for its products, it will be a much safer stock to own than a junior exploration company.
The more knowledge you have, the better your decisions will be. Remember, trading is as much an art form as a science, so not every trade will be a winner. Learn to take your losses and move on. It’s all part of the business.
What starts as a part time hobby can eventually become a full time vocation, filled with new challenges and rewards. Have fun as a trader, keep learning, and enjoy the game.
http://www.chartreaders.com/blog
Written by Barry Desautels
As the new decade begins, many people will continue to struggle with employment issues. The economy is showing some signs of recovery, but there are still major underlying problems that have not been dealt with. U.S. debt is one of the big ones, and the country’s effort to move from a consumption state back to one that produces on a competitive basis globally, remains a daunting challenge. Other governments, including Canada’s politicians are following the U.S. with jobs being created that don’t matter, money being spent that will disappear forever, and bail-outs for antiquated businesses. The administration involved with these band-aids creates bigger bureaucracy and despite this well meaning intervention,more and more people are facing career choices.
As individuals we are hard pressed to make a significant difference on our own. Instead our greater effort must be to look after ourselves and our families. We can no longer count on endless, stable employment and uninterrupted personal cash flow. We can’t afford individual liabilities that are beyond reasonable debt/equity ratios, and we must start paying attention to the personal savings account.
While these remedies seem obvious, implementation can be a bit difficult. Often there simply isn’t any money to save. Every penny is needed for daily essentials, payments, or unexpected expenses. Unfortunately, it doesn’t matter to those we owe money to. They want their cash, and we don’t have several million taxpayers tethered to our desk to make up the shortfall.
So one of the things we can do is stop acting like the government. They won’t ever learn, but we can. There are two important things to be concerned with, one being revenue and the other is expense. Our job supplies the revenue, and our intelligence controls the expense. We can start by no longer spending money we don’t have, reduce or eliminate discretionary spending, and one way or another, jam a little from every pay cheque into a savings account. It takes time to add up, but it will. The trick is to develop the habit of doing it, consistently, every payday, without excuses.
Hand in hand with the savings should be a financial plan. It doesn’t need to be complicated, but it helps to write it out. You can call it a budget, or a road map, or even a journal. A written plan creates a picture for you to watch and observe. You begin to notice the relationship between the revenue and the expense. You learn the true meaning of surplus and deficit. You obviously want the former to prevail.
The point is, you control how it looks. You get used to making entries, talking it over with your spouse or partner, making adjustments and changes. Every business that is being run properly does the same thing. The owners stay aware of the revenue and expense on a regular basis, and follow through with whatever is necessary to stay in the black.
You hear lots of talk about balance sheets, equity, earnings per share, and other language connected to the corporate world. It all starts with revenue and expense, or as it’s better known, the income statement. Net income from this statement gets moved over to the balance sheet. No net income, no contribution to the balance sheet. If the revenue stops or drops below the amount of expenses being incurred, a loss is created. Two ways to mitigate a loss are by borrowing money which is debt, or by selling assets off the balance sheet. Neither option is good for long term financial health.
One solution we as individuals can use to avoid this unpleasantness is to diversify our income by creating one or more additional income streams. If you’ve never been self-employed, now is the time to give it serious consideration. Start by analyzing your strengths. What are you good at? What are you passionate about? What has your life time of experience taught you? Somewhere in that process of soul searching you will have a key to your next move. Finding it will open a door to a whole new world. Depending on your personal asset mix, the chances are you will discover the starting point as a home based business idea that will provide a new life of excitement. It will devour your time and energy and supply a completely new range of emotions that you’ve never experienced in your life.
Welcome to the world of self-employment. You will soon find a deep satisfaction in starting and developing your own business. It is a field of dreams, with pot-holes and gullies, low ground and high ground, tears and laughter. The experience will teach you, humble you, try you, and reward you. It is unique to you and your personality and success provides a wall of financial security for you and your family.
Not everyone is going to make it, but that doesn’t mean you shouldn’t try. The journey alone is worth the stories created, and when you consider the alternative, why wouldn’t you? Facing career choices is your new beginning!
Best Wishes, and Good Luck.
http://www.chartreaders.com/blog/facingcareerchoices
Written by Barry Desautels
Aside from trading terms and miscellaneous vocabulary, the real traders’ language is in the charts. This is where the orders are recorded causing the buy or sell signals to appear. Charts are used to track many things, but in the trading business, they are used to record a variety of different price movements, with a constant connection to time. Understanding the meaning of chart signals allows buy or sell orders to be placed and trades executed.
Regular price movement for individual stocks, stock indexes, commodity prices, futures, and currencies are some of the more common instruments for which information is readily available. The actual signals are supplied by the exchange where the trades take place. For instance, the Chicago Mercantile Exchange, or CME, carries the S&P 500 E-mini index, among others, and through a massive computer system, the signals are broadcast and utilized by the trading community.
Chart reading is part of the life long process traders undertake that allows them to understand and enjoy trading. It is a big part of the passion we all have for this business. Studying signals usually begins with a book or E-course, and involves the basics. Standard reversal signals are the easiest to learn because it’s simple to see a directional price change. It also happens quite often in a volatile market. In fact, it’s the only signal some traders use.
Transitioning from books to live market means learning to focus and concentrate. Signals occur quickly and new traders must be ready to move fast. Not hesitating is something you learn early so you don’t fall behind the market. Jumping into a trade late is not recommended, while being decisive takes practice, and doesn’t change. You either are in or you are out, and the same mental awareness is needed for every trade.
When the decision is made to become a trader, an individual soon realizes that embracing chart signals and what they say is critical to moving forward. Knowledge and experience are valuable assets under any circumstance, and setting a personal goal to attain both is an enjoyable and worthwhile undertaking. Learning takes place every day, a little at a time, and ultimately leads to achieving long term success.
http://www.chartreaders.com/blog
Written by Barry Desautels
I’ve recently taken a break from trading in order to focus on writing and on some other investments that need attention. While I do miss the day to day price action and the commentary, I’m finding some things out that I need to work on.
Discipline has been talked about a lot in trading, and it is a big part of life whether we’re on a fast track, slow track, or no track. In order to survive at our most basic level, we all need to learn something about discipline. It’s almost a craft that needs to be practiced and studied.
I’ve long been a fan of day books and lists, and planning every detail. The problem is, getting bogged down in the details can happen easily and often. It takes practice and persistance to achieve listed goals and even more determination to do it consistently. Distractions and disturbances can plague those of us not involved with a traditional boss in a traditional workplace, holding down a nice, regular paying job.
In a review of where I should be according to my plan, and where I am in reality, I see a discipline problem. It’s not as if I’m just sitting around. I still work ten hours or more a day, most days of the week, including weekends. I have numerous projects started, many not finished, waiting for research, or just plain stalled. It happens!
But what is the answer? In my case, I need to rework the priorities and sharpen the focus. If writing articles is top of the list, than a higher completion rate would be a worthy goal. In research, again, a limit on the scope would provide an opportunity to establish how far I go into each topic. There is no advantage to gathering information that never gets used. What is gathered needs to be filed or indexed or stored so it can be easily retrieved.
Skimming the surface can be fun and supply lots of ideas and things to follow up or expand on. However, the nuts and bolts are what make things work, not the shiny paint on the outside that grabs our attention. Fewer topics, greater effort, and more concentration seem to be the direction that will lead to more meaningful production.
It’s never too late to make adjustments in life. By ramping up the discipline just a little bit, I expect to see positive change both long and short term.
Merry Christmas and Best Wishes in 2010!
http://www.chartreaders.com/blog
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