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You Can't Become Rich In Your Pocket Until You Become Rich In Your Mind | ||||
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The new generation of trading software, and all traders should seriously consider such a systemWhat is also nice is that, once the trade is placed, all these orders are easy to follow and are marked visually on a screen of the market being traded. In Figure 3,5 the screen shows that an order was filled for six contracts on the E-mini S&Ps at 868.75. The total number of contracts being traded is displayed at the top of the column. On the left side of the column there are the three profit target orders, two contracts each, placed at one, two, and three points above the entry price (869,75,870,75, and 871,75, respectively). Down below the entry price is a stop order for six contracts at 866.75, which is two points below the entry price. A single mouse click was used to place the market buy order at 868.75. All these other orders were simultaneously and automatically placed by the software as specified in the selected strategy. In addition, since these are OCO orders (one cancels the other), as each profit target is reached, the stop loss is reduced by the appropriate number of contracts and trailed accordingly. This represents the new generation of trading software, and all traders should seriously consider such a system. Many brokers do not offer these features. For example, I love TradeSiation's charting ability, but its order execution is a little behind the curve in regards to this type of trading technology. They are working on it, to be sure, and they may have caught up by the time this book is released. For now, it is software programs like NinjaTrader that are leading the pack. OPINIONS ARE LIKE BELLYBUTTONS; EVERYBODY HAS ONE This section isn't about recommending good financial market subscription services that are available. It's about how to treat them. There are many market-related services, newsletters, and Internet chat rooms that are operating today. These services typically offer opinions on the markets, and they usually charge a fee for accessing their information. They offer thoughts on market direction and, sometimes, specific market picks, 1 used to be a newsletter junkie, and still am to some extent. These days I'm much less interested in individual opinions and am more interested in Web sites that offer a quick synopsis of the current state of the markets through a variety of technical data. To that endT one of the best sites on the Internet is Decision Point, run by Carl Swenlin (www.decisionpoint.com). This site allows traders to get a quick feel for the markets and offers an endless amount of drill down detail, which 1 like to peruse on Sundays. It's the best $20 a month ever spent. I also like to read comments by John Mauldin in his weekly newsletter, Thoughts from the Frontline (www.2000wave.com). His writing is lucid, far reaching, and entertaining. My favorite newsletters for staying on top of world economic trends, particularly Asia, are found at www.gavekal.com. The founders are Anatole Kaletsky. Charles Cave, and his son, Louis-Vincent Cave.They have offices in various parts of the world, stay on top of what's going on economically, and actively discuss implications and trends, and they write about all of this in an entertaining and interesting way. I also find it useful to read and balance the views of the people who think the Dow is going to 3,000 versus the views of the people who think the Dow is going to 30,000. There are both rational and ridiculous arguments for both cases. I personally don't have an opinion where the stock market is going to be by March 27, 2023. I'm more focused on where it is going to be by the end of next week. Also, it is important to take these views with a grain of salt. With Wall Street, if everyone is expecting the same thing to happen, then it's not going to happen. It is certainly important to stay on top of the major trends affecting the world today, namely, an aging population, rising crude oil prices, and the explosive economic growth of China and India. These are real trends that affect nearly everything in our lives. Where there are trends, there are opportunities to make money. The main thing to keep in mind is that everyone is offering an opinion, especially if it's regarding a specific trade recommendation. The writer may sound absolutely convinced it is the best trade on the planet, and this conviction can easily pass into the brain of the reader The hottorn line is this: If traders take a recommendation from a subscription service, they still have to set appropriate risk parameters and decide how much they are willing to lose on the pick. Just because a guru thinks the market is going to crash doesn't mean that it is going to. I've heard more stories about people blowing out their accounts because **they put it all on a newsletter recommendation. There is a tendency for traders to feel more confident in a trade because it is being recommended by somebody else. A tip! In reality, it's just a trade setup like any other, and it is important that a trader not get lured in with a false sense of security that diis particular trade is going to work out exactly as planned. Whether traders found a setup for themselves or whether they are folluwing a Irade setup recummended in a newsletter, the ultimate responsibility is on the trader. Don't get overconfident just because you read about something online. ESTABLISHING PRIORITIES: IF YOU ARE GETTING INTERRUPTED DURING THE FIRST TWO HOURS OF THE TRADING DAY, IT IS YOUR FAULT I talk more about this at the end of the book when I discuss the business plan, but it does touch a little on technology here. The bottom line is that a trader needs focus and concentration in order to be successful in this business. The most critical hours in the stock market are generally the first two hours of the trading day. This is where most of the setups occur. It is up to the traders to communicate to colleagues* or, if they are trading from home, to their spouse and children, that they cannot be disturbed. When I am trading, 1 am not checking e-mail, 1 am not answering the phone, and I am not accepting uninvited visitors. If my wife wants to be dropped off at the gym before the trading day starts, she knows the deadline. If she lets me know after the deadline, my answer is always the same, Honey, you know I love you. The trade is on. Click. (I usually remember flowers on those days.) It can be hard to communicate things like this directly. You'll find it is helpful to write out a fully developed trading plan and then share it with the people in your life. Once they understand that this is important to you and that you are serious, they will generally respect any boundaries that are clearly outlined in what they are reading. In terms of communicating with people throughout the day, for anyone who doesn't utilize instant messaging software, this is an incredibly efficient way to stay in touch. People can call at exactly the wrong moments during a trade. With instant messaging, people can type in a question and the traders can get back to them at their leisure. Instant messaging was built for traders. This is free software, and I utilize the three most popular programs: MSN, Yahoo, and AOL. I also utilize a software program called Trillian (www.ceruleanstudios.com that ties all three of these together into one application. The key with instant messaging software, however, is to block everybody except for people traders have specifically permitted to their list. If everyone knows you are online, then everyone will bug you. Instant messaging for traders is appropriate between their brokers and other traders. It is inappropriate for anyone else who could interrupt a trader's workday, and this includes family members and clients. There are very few people who are on my list, but they are all important to my trading day. My wife did make the cut, however, and it has proved to be a useful way to stay in touch when the markets are moving. WHY WATCHING HARRY POTTER ON DVD AFTER 12 NOON EASTERN IS BETTER THAN WATCHING CNBC I am bringing this up because I've seen too many traders who quit their jobs and follow what [ call the CNBC setup. They are excited because they are able to finally trade fulltime. They feel they've been at a disadvantage all these years, getting quotes from the Internet, sneaking trades onto their computers in between meetings, and hearing about key news events only after the markets have already closed. So what do they do? They plop a TV down right next to their computers, turn on CNBC, and glue themselves to the screen, looking for trading opportunities. CNBC has a very specific job; to provide enough entertainment to viewers so they tune in and watch. With a lot of people watching, the network makes more money from the commercials. It's as simple as that. CNBC is fun to watch, and when diings get serious, it does a great job of reporting. I found out about 9/11 as it unfolded live before my eyes from Mark Haines. I flipped to some of the other channels, but ended up parking it on CNBC that day because it did, hands down, the best job reporting about it. Who can forget Maria Bartiromo reporting about the event, covered in ash and soot just after the first building collapsed? It was a gut-wrenching experience to watch, and the reporters and the network did a great job. That said, traders must realize that they cannot make a living trading the news oft any financial news channel. By the time it appears on television, it is way too late to react. Trading floors have already heard the news, and by the time it makes it to the public, the floor traders are closing their positions, ideally to suckers who just saw the headlines. If anything, CNBC can be used as a fading tooltaking the opposite side of the news. Once it runs out of stories and starts repeating the same things over and over, I turn down the volume and either turn on a commercial-free music radio station or, once in a while, plop in a DVD, Who can get tired of watching Gladiator? Traders who do this for a living spend their days waiting for specific setups to take shape. Yet one of the biggest weaknesses for most traders is a need to be in every move. If the markets start running away, many traders just can't help but jump in, fearing they may be missing something big. This is a fatal flaw that will ruin any traders who can't control this habit. If there is anything I can hammer into your brain as you are reading this book, it is this: It is okay to miss moves. Professional traders miss moves; amateur traders try to chase every move. By listening to music or keeping a DVD on in the background, traders have something to pass the time while they wait for their specific setup to take shape. This makes them less prone to impulsively jump into trades just because they are bored or because they can't stand mis&ing out on a move. The goal is not to catch every move in the market. The goal is to take the specific setups that a trader has outlined as a part of their business plan. Otherwise he or she is just a gunslinger, and sooner or later all gunslingers get killed. GREEK PROVERB THE WORLD BEYOND STOCKS AND WHY ITS IMPORTANT We've covered why markets move, how traders sabotage themselves, and what to do with your computer. That was the equivalent of prep school. It's time to graduate and start looking at the markets. I wrote this chapter specifically for stock traders who have never ventured beyond these borders into the world of bonds, stock index futures, currencies, grains, gold, oil, and so forth. My goal is to provide a straightforward guide to these markets from a trader's perspective. I do not try to talk a person into trading these marketsmore individual traders get eaten for lunch in these markets than anywhere else (which of course provides numerous trading opportunities). 1 also do not attempt to discuss how all these markets interact with and influence one another on a global level. That would involve a macro discussion of how the world works and is not within the scope of this book, 1 just want to show you how I trade them for a living. For people who are interested in a more macro view of how all the Financial markets are tied together, the upcoming trends these interactions are creating, and how to get positioned for these trends, pick up a copy of John Mauldin's book, Bull's Eye Investing (John Wiley and Sons, 2005). John shows the trader two important things with this book: first, what to expect in the years ahead and how to prepare for it. He does this with a unique perspective, as his sources of information are extremely far reaching. Second, for people who realize they should have a portion of their funds managed by a professional, John takes the reader through a process of how hedge funds work, finding the right funds, and how to perform due diligence. It's a great book with fascinating research. For traders who are already readily familiar with these other markets, feel free to skim through this chapter and move on to the nextthough I would read the next section as well as the part that compares trading the mini-sized Dow (YM) to the E-mini S&Ps (ES). Although ] say in the introduction I won't be focusing on basic trading terminology such as uptrends, I do want to explain the other markets outside of stocks that I reference in this book. The reason for this is that most traders I've met are stock traders only. Some might have a little experience with the E-mini futures, but for the most part the focus is on actual stocks and that's it. To put this in perspective, there are roughly 25 million stock brokerage accounts in the United States. There are only 450,000 futures accounts. For people who are familiar with only stocks, contracts such as the 30-year bond, soybeans, S&Ps, euro, and gold often seem nebulous, scary, and out of reach. But are they? Figure 4.1 shows a very good reason for knowing how all these various markets work, and that reason is as followsthere are always going to be some markets that are trending and some that are stuck in a trading range. In general, trending markets provide more trading opportunities. While the figure shows a range-bound Dow over most of early 2OO5t the 30-year bonds were in a clear, tradeable downtrend, and the gold, euro, and soybean markets were in clear, tradeable uptrends. Although the mini-sized Dow (YM) is one of my favorite markets to trade, there are plenty of times when it is stuck in a trading range, going nowhere. Although Figure 4.1 is based on a daily timeframe, this same thing happens on all intraday time frames as well. While one market is chopping, another market is trending. I have setups for both types of markets that I review later in this book. While choppy markets do provide specific setups for traders to take, these are scalp trades only, generate more transactions and thus increase costs, and won't result in a potentially bigger move available in a trending market. |
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