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You Can't Become Rich In Your Pocket Until You Become Rich In Your Mind | ||||
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Intraday trading requires constant examination of range and range breakoutTIME FRAME Pick a holding period early in the game and stick with it until a better one comes along. Align all trades to this single time frame until self-discipline allows strict management of multiple strategies. Simultaneous positions that rely on different time frames raise the odds of trend relativity errors and allow weak-minded participants to turn trades into investments. Successful swing trading requires time specialization. Each Pattern Cycle subset marks unique trends and conditions. Learn the important characteristics for a chosen holding period and use them to improve performance. Choose time frame wisely and for the right reasons. Swing trading must align with personal lifestyle or it can trigger very bad losses. Avoid intraday trading completely until advanced skills produce consistent profits through longer holding periods. Day trading hypnotizes many novices with sexy software, pretty colors, and subliminal advertising. But most market participants lack the time and resources to manage profitable intraday positions. Neophytes dream about the freedoms associated with day trading but forget to accept the risks. Ninety percent or more fail and lose large amounts of capital that could have attracted substantial profits in longer time frames. Part-time intraday traders catch a few quick gains on their lunch hours and proclaim mastery of the art. Or they tap relatively brief momentum markets and believe their good times will last forever. If this sounds familiar, stop immediately and find an appropriate strategy that fits well with current responsibilities. Only time and commitment will lead to consistent performance. Very short-term positions require great effort to trade well, and successful players may spend 30 or more nonmarket hours per week examining new setups and tactics. There are no profit shortcuts in the modern markets. Intraday Pattern Cycles produce more opportunities than daily ones. Swing traders can access setups in many small time frames throughout each session. But quick positions produce smaller average gains with higher transaction costs. Two strategies respond to this unpleasant characteristic. Shorten the time frame further and try to overcome very small reward through high-volume scalping techniques. Or lengthen the holding period to tap swing trade tactics that capture larger movement within this volatile environment. Both methods work well in the right hands and fail miserably in the wrong ones. Intraday trading requires constant examination of range and range breakout. Success demands accurate prediction and precise timing. Learn to read the cycles and memorize the numbers in longer time frames before applying these skills to very short-term markets. Always enter trades in the direction of the highest odds at the time and exit immediately when proven wrong. Understand the narrow time window in which intraday traders must execute. Tiny whipsaws that few investors notice on daily charts incur sharp losses on 5-minute and 60-minute bars. Level II access allows very short-term scalping strategies that work well with Pattern Cycles. In this time frame, classic ETs lose importance as players rely on observed order flow among market makers and ECNs. Few market participants should scalp. This risky strategy requires advanced skills and fast reflexes. Positions held between 30-minutes and 2 hours offer optimal profit conditions for most intraday traders. Use this popular zone to apply classic tactics with highly predictive outcomes. Two classic time frames attract most swing traders. The 1-3-day hold aligns positions to an underlying S&P futures buy-sell cycle. The 1-3-week hold parallels natural trend development on the daily chart. Both styles demand less time than intraday trading but offer dramatic profit opportunities with controlled risk. They also closely match common Pattern Cycle phases. The 1-3-day swing measures an ideal holding period for many participants. The American markets tend to print 3-day mini-trends. Three strong bars often follow three weak ones. Three trending days precede 3 days of congestion. Find a recent reversal and count through swings to see how this natural pivot works under current conditions. This cycle expands and contracts as markets evolve. Instead of direct application, develop a sharp sense for natural market swing reversals and tune individual entries to these high-profit points. Align positions correctly to this 1-3-day phase and catch large pieces of each move. This active style requires aggressive management and careful observation of open positions. Apply the same strategies as the intraday trader but use longer chart views to locate ETs and exit points. Sixtyminute and daily charts work well for these overnight positions. Trade frequently but control risk with tight stop losses that focus on primary chart landscape features. The 1-3-week position aligns to a monthly buy-sell cycle that grabs a large price swing without aggressive position management. It fits well into a lifestyle not obsessed with the financial markets. Use the daily and weekly charts to organize profit opportunities and focus on closing prices. Ignore intraday volatility to avoid trend relativity errors. Manage profit and loss through physical stops. Protect gains with trailing stops that give positions adequate wriggle room. Then set stop losses based on natural breakdown zones and walk away. Position traders have more time to consider promising setups and ideal strategies. They also seek higher individual profits, execute less frequently, and incur lower transaction costs. While intraday traders profit from single direct price thrusts, longer positions allow a greater variety of countertrend pullback strategies. Lock in a profit with a trailing stop and allow the stock to retrace when the charting landscape shows a strong trend. Then sit back and enjoy another sharp primary wave. Consider time frame before every trade execution. Careful analysis must conclude that the setup works within the chosen holding period. This frustrating process will filter out many promising opportunities, but avoid chasing them. Successful tactics apply only to the swing trader’s natural time tendency and can fail miserably if they miss their target. Market cycles exhibit polarity between adjacent trends. When holding periods compress or expand, they shift out of phase and can trigger opposite outcomes. Test new time frames slowly to ensure that proven tactics still function within the chosen cycle. Look for setups that also work well in the time frame above the targeted holding period. These will exhibit few reward barriers, good support, and timing that converges with the smaller view. Follow larger-scale charts closely after execution and exit quickly if conditions change. For example, 1minute scalpers follow important S/R features of the 5-minute chart while 1-3-day swing traders examine reward on the daily chart but execute patterns on the 60-minute bars. Learn to decipher many subtle relationships between trends. Price movement occurs within shortterm, intermediate, and long-term time frames. But these trends rarely synchronize with each other and often generate considerable friction. This flips price action through wavelike motion and may eventually force a reversal to relieve the stress. These volatile mechanics also create opportunity. Examine two adjacent trends and locate a good setup within the shorter one. Then add a lower dimension and time actual execution to price movement below the one that shows the trade. Trading tools work through all time frames. Apply Bollinger Bands, Fibonacci retracements, and trendline channels to all chart views. Use this versatility to unleash tremendous predictive information. Toggle time frames to uncover tool convergence that cross-verifies promising setups. This confluence often locates major multi-point profit events. For example, when both daily and weekly Bollinger Bands converge at a single breakout number, odds increase that price will reverse right at that level. Trend relativity errors steal more profits than any other trading mistake. An excellent position for one holding period often fails in the next larger or smaller time frame. Natural price waves that generate through multiple trends must align with reward targets and the chosen time frame. Make sure that strategies always focus on the right elements for that setup. Investors make frequent relativity errors, but their broad position timing often forgives mistakes. Swing traders that miss their time frame will wash out of the markets quickly. Shorter holding periods spawn more critical time errors than longer ones. Short-term trends generate very noisy signals that trigger early positions. High transaction costs and lost opportunity also take their toll on these misinformed entries. Control this tendency through longer-term charts that capture broader price movement and filter errors. LOADING THE GUN Plan the trade; trade the plan. Swing traders must define a personal style, write it down, and update it frequently. Without one, they don’t know what it is and will fail the next time their wallet really depends on it. The personal style defines trading rules, holding periods, stock vehicles, execution criteria, and a series of filters that describe specific conditions under which to stand aside. Others may have good ideas on what belongs in each column. But only the swing trader’s money is at risk, and no one else can make those important decisions. Create a personal identity before the trade. Choose an appropriate holding period, since it defines so many other strategic considerations. This decision must look at both experience and available capital. Match positions to other lifestyle considerations and free time. New swing traders should also manage risk by applying longer time frames and smaller share commitments. Review your major goals for participation in the financial markets. Is excitement or financial return more important? Must the profits pay household expenses or just the next family vacation? If no obvious goals appear, trade small until they do. The markets direct talented participants toward the trading styles that offer the greatest profits. Where they begin on that path may not be where they end up. Trade small accounts wisely or they will disappear quickly. Avoid the tendency to overtrade a small amount of capital in the hopes of building it up quickly. Concentrate on applying the limited cash into promising opportunities rather than flipping it repeatedly and incurring heavy transaction costs. Decide whether or not to use the account’s margin. Realize that margin increases both reward and risk. Trade with your head, not over it. Define entry and exit rules. Start with reward:risk parameters and list conditions that must be met before taking a position. Many swing traders will not consider entry unless it shows a minimum 3:1 reward:risk. Short-term opportunities also depend upon the execution zone (EZ). This focal band surrounds the execution target and requires undivided attention as price bars move into it. Intermarket analysis and ticker interpretation then decide whether the ET warrants entry. Use rules to define exactly what must occur in the EZ before execution. Examine time of day, technical convergence, and underlying market sentiment to decide the minimum external support required for a position entry. Focus on a specific price range for the current strategy. Then trade the right number of shares for each setup, regardless of account size. Opportunities that repeatedly cross-verify at a single point demand more shares than positions with lower odds for success. Limit total shares to manage risk and always reduce share size when trying out new tactics or time frames. Decide whether or not to scale in and out of positions. Consider doing it for one side of the trade but not the other. Will executions use limit or market orders? Will physical or mental stops decide trade exits? These important decisions may depend on the choice between a discount and a direct-access broker. Many direct systems don’t allow placement of market orders or physical stops. They assume that participants will sit in front of their terminals at all times and guard positions. If lifestyle conflicts with this workflow, consider a less demanding system interface that allows automatic position management. Modify personal style frequently as skills grow. Experience awakens fresh tactics that require new risk considerations. Since trading rules only represent guidelines to focus strategies, they should not strangle fresh ideas. Update them to incorporate your trading evolution and mark progress on the road to experience. One note of caution: review and adjust all prior tactics as necessary, but don’t trade new styles first and document them later. Decide where to place focus at the beginning of each market day. Time restraints force the elimination of many excellent opportunities in favor of those that appear more imminent through analysis. Choose wisely and setups will explode as predicted. Use personal trading style to define what will survive and capture the attention. Intuition plays a great part in this process. New setups that invoke excitement are more likely to ignite than those that draw fatigue. Choose information sources wisely. How much chart analysis will be done each night? Will news as well as numbers trigger trade execution? Will positions remain active through major economic releases or will they close out in anticipation of shock events? Decide if a real-time news ticker will improve results and whether the TV set will stay on or off during market hours. Define clear relationships to stock boards and chat rooms. When will external opinions be shut out completely to prepare for the next entry? Trading journals work well in conjunction with written rules. Compare the two frequently to determine how well decisions follow personal style and whether trading plans remain on target. Identify poor results and adjust tactics immediately. The game’s complexity requires constant attention to stay focused on the goal. But avoid using a written journal to excuse failure. Confession only goes so far in healing emotions. Profits do a much better job. |
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