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You Can't Become Rich In Your Pocket Until You Become Rich In Your Mind | ||||
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Intraday traders should watch their real-time movement throughout each sessionCROSS-MARKET ANALYSIS Market action spins off both internal and external Pattern Cycles. Swing traders must consider both factors before executing their positions. The complex interplay of world markets works its way downward into individual stocks and futures on a daily basis. But accurate prediction of the exact impact during any given session requires a detailed understanding of macroeconomic forces and arbitrage between different entities. Consider the influence of the credit and futures markets before entering an equity position. A sudden selloff in either of these exchanges can have an immediate effect on stock prices. Arbitrage between equities, futures, and credit also leads to intraday oscillation that runs through all exchanges. Observe this rhythmic movement on TICK registers and in the cyclical price swing that runs through all major indices. Swing traders can use this well-known phenomenon to time executions that synchronize with these larger forces. Local influences change quickly from day to day. The markets constantly seek leadership. In the absence of larger forces, that role can shift at any time from the S&P futures to Nasdaq to the Dow 30 Industrials. A major sector can suddenly move into the limelight and carry other markets higher or lower with little warning. These fluctuations may or may not affect any individual position. The swing trader must determine the potential impact quickly and shift strategy when required. Cross-market influences shift between local and worldwide forces. During quiet periods, simple arbitrage generates primary influence. But world events or broad currency issues may rise to the surface and shock American markets. Always defend active positions by staying informed and planning a safe exit in the case of an emergency. Avoid overnight holds during very volatile periods and think contrary at all times. The best opportunity may come right after the crowd jumps for the exits. Follow the charts of the major indices and S&P futures on a daily basis. Intraday traders should watch their real-time movement throughout each session. Keep track of the current bond yield and identify major support-resistance levels. Identify market leadership as early in the day as possible. Then use that price action to predict the short-term flow of the market. When a macroeconomic event appears, consider taking the day off unless a clear strategy emerges to capitalize upon it. Promising setups often fail badly on these days because they can’t find the crowd to carry them. REWARD:RISK Swing trading requires a serious commitment to skill, knowledge, and emotional control. Treat it as a business at all times. Prepare a personal trading plan, carefully evaluate risk capital, and set attainable goals for the future. If personal bias expects this discipline to earn quick wealth, find another hobby immediately or just take up gambling. The markets have no intention of offering money to those who do not earn it. And always remember this valuable wisdom: attention to profit is a sign of trading immaturity, while attention to loss is a sign of trading experience. Show a willingness to forgo marginal positions and wait for good opportunities to appear. Prepare to experience long periods of boredom between frantic surges of concentration. Expect to stand aside, wait, and watch when the markets offer nothing to do. Accept this unwelcome state as all successful participants do. The need for excitement makes a very dangerous trading partner. Careful stock selection controls risk better than any stop loss system. Bad timing does more damage than sustaining large losses. Make wise choices before position entry and face less risk at the exit. Watch out for secondary gains that have nothing to do with profit. Trade execution will release adrenaline regardless of whether the position makes or loses money. Always face your true reasons for swing trading the markets. The primary motivation must be to aggressively take money out of someone else’s pocket. Rest assured, the skilled competition will do their best to take yours at every opportunity. Every setup has a price that violates the pattern. The measurement from this breach to the trade entry marks the risk for the position. When planning execution, look for levels where price must move only a short distance to show that the trade was a mistake. Then expand this measurement to find the reasonable profit target and apply this methodology to every new opportunity. Limit execution to positions where risk remains below an acceptable level and use profit targets to enter markets that have the highest reward:risk ratios. Each swing trader carries a different risk tolerance. Some find comfort flipping NYSE behemoths, while others play low float screamers. Follow natural tendencies and remember that swing strategies use discretionary entry. The trader alone must decide when to enter, exit, or stand aside. Test overall results by looking at profit and loss at the end of each week, month, and year. Good results make money, while bad results lose it. MASTERING THE TRADE Consistent trading performance requires accurate identification of current market conditions and the application of appropriate strategies to capitalize upon them. Pattern Cycles provide an effective method for price discovery through all charts and time frames. This expanded concept of swing trading offers diverse tools to uncover profit opportunities through continuous feedback, regardless of bull, bear, or sideways markets. But information does not equal profit. The markets have a limited number of opportunities to offer at any given time. Price charts evolve slowly from one promising setup to the next. In between, they emit divergent information in which definable elements of risk and reward conflict with each other. At times this inconsistency yields important clues about the next trade. More often it represents noise that must be ignored at all costs. The ability to tell the difference between the two marks an important passage on the road to trading success. Trading noise occurs during both positive and negative feedback. It simply represents those periods when participants should remain on the sidelines rather than jump into the action. Account capital has limitations and should only commit to the most promising setups. While effective strategies book profits, many participants experience anxiety between positions and tend to pull the trigger prematurely. Remember that longevity requires strict self-discipline. Swing traders unconsciously seek excitement in the place of profits during quiet market periods. Allow boredom to bring down the emotional level and wait patiently for the next real thing. Both negative and positive feedback conditions produce rewarding trades, but confusion between the two can lead to major losses. Classic swing strategies work best during negative feedback, while positive feedback supports profitable momentum entry. Avoid the danger of choosing the wrong strategy through consistent application of the expanded swing methods. Regarding of market phase, use this simple, unified approach for all trade executions: enter positions at low risk and exit them at high risk. These mechanics often parallel the buying at support and selling at resistance exercised in classic swing tactics. But this expanded definition allows entry into the realm of the momentum trader with safety and precision. Swing traders study both action and reaction when evaluating setups in the momentum environment. This demands complex planning and detached execution that aligns positions to the underlying trend but against the current crowd emotions. This strategy naturally favors execution against traditional momentum tactics. Countertrend reactions provide excellent swing entry levels in momentum markets. Once filled, these positions find a comfortable exit on the next accelerating thrust just as new participants jump in from the other direction. Highly experienced players can use more sophisticated techniques to locate less obvious low-risk trade entry and enter into accelerating momentum. These high volatility positions require tight trailing stops that protect risk capital. But successful exit strategy remains the same through diverse entry tactics. Look for acceleration and feed the position into the hungry hands of other participants just as price pushes into a high-risk zone. Execution must synchronize with momentum action-reaction or it will yield frustrating results. Every player knows the pain of executing a low-risk entry, riding a profitable trend but then losing everything on a subsequent reaction. Clearly de fined swing exit tactics will avoid this unpleasant experience. Multi-trend technical analysis and cross-verification techniques identify probable reversal points well in advance of the price action. Unfortunately, most market participants do not visualize their exit when they enter a new position and allow greed to overpower analysis as soon as it moves into a profit. The master swing trader always locates natural escape routes and major profit levels before new execution. Manage risk on both sides of the trade. Focus on optimizing entry-exit points and specialize in single direct price moves. Remember that execution of low-risk entries into mediocre positions allows more flexibility than high-risk entries into good markets. Avoid fundamental analysis of short-term trading vehicles. Mental bias from knowledge of a company’s inner workings can distort the message of the price chart just when opportunity knocks. Swing trading allows many methods to improve profitability. Try to adjust position size, manage time more efficiently, or slowly scale out of winners to retain a piece for the next price thrust. But careful trade selection does more to build capital than any other technique. Enter new positions only when signals converge and send a clear message. Standing aside requires as much careful preparation as entry or exit and must be considered before every execution. Winning is a tough game. Each swing trader must compete against all other participants to take their money. House rules ensure that the insiders always retain an advantage. Market makers and specialists use proven techniques to frighten small players and shake them out of positions. Exercise original strategies while controlling emotions with strong mental discipline to find that needed edge over the crowd. Use technical analysis and drill swing prices into memory. Target acceptable dollar and tick losses. Remember that the average position gain must be significantly higher than average loss or survival will depend upon a winning percentage well above 60%. Improve results by reducing losses first and increasing profits second. Keep current and accurate trading records. The mind will play cruel tricks when results depend on memory. Consider the real impact of available capital and leverage. The well-greased competition can overcome their transaction costs by trading large blocks. But small equity accounts must watch trade size and frequency closely. Frequent commissions and small capital will eventually end promising careers in speculation. When trying to grow a small account, lengthen holding period and go for larger profits per entry. And use any drawdowns as a major signal to lighten up and slow down. |
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