Category — Trading Advice

Research studies have demonstrated that when people’s psychological resources are taxed to the limit, they make impulsive mistakes. Maintaining discipline takes psychological energy, and when you use it up, you have to rest. Just like a muscle, when you are worn out, you need to take a break and regain your strength. It’s vital to consider that the mind has limited energy, and that after putting in a hard and tedious effort, you must take a rest and rejuvenate, so you can face the market action with a renewed sense of vigor. Holidays are one of the best times to stand aside and regain your composure.

Trading often comes down to performing in a peak performance state at a few key moments. To take advantage of these key moments, you must be relaxed. If you have strained your mental “muscles,” you’ll have difficulty taking advantage of these opportunities. Your mind will be elsewhere or you’ll be too tired to act decisively. When you’re tired, it’s hard to gauge market action accurately. You’ll be prone to decision-making biases and you may act impulsively because you are too tired to patiently wait for the proper signals to enter or exit a trade. By staying relaxed yet full of energy, you’ll be able to trade in a logical and disciplined manner.

You don’t need to perform at a peak performance state every minute of your life. Many people can work for only a limited number of hours a day, and if we try to work in marathon stretches, it eventually catches up with us, and is shown by our weak performance. Just as a runner must rest when his or her muscles ache, it’s vital to take breaks after a marathon work session.

Part of trading profitably is the acknowledgment of your limitations and putting together sensible ways to work around them. Don’t think you are superhuman. Take a few days off to rest and regain your mental and physical strength. Get plenty of rest so that next week, you will be ready to handle whatever the market throws at you.

How does a trader live in the moment? Perhaps the first step is just intellectually considering the existentialists’ proposition that anxiety is sometimes a matter of focusing on, and mulling over, the past, or worrying about the future. When you consider it, it seems reasonable to think that if you could just forget about the past and avoid thinking about the future, you will live in the present. It seems unrealistic and perhaps a little reckless, however, since it is often prudent to both learn from past mistakes and to make sure you avoid potential adverse events. But again, when you do so, it takes you out of the moment. You start to analyze and remove yourself from the ongoing experience rather than enjoying it. In contrast, trying to stay in the moment will keep you focused on the trade. And by focusing all your energy on the trade of the moment, you will reach that higher level of awareness where you’ll see the market more clearly and be able to run through all possibilities at lightening speed.

These concepts sound good in theory, but how do you put these ideas into practice? First it may all depend on how many past conflicts you have in the back of your mind and your self-esteem. If you are unsure of your abilities, it’s hard not to worry about the future, especially when you are facing extreme pressure in the midst of a trade. If you are easily shaken by uncertainty and stress, your mind will tend to wander toward your past mistakes and regrets and you’ll tend to question your ability to control your destiny. But, if on the other hand, you are especially confident, you are not likely to be troubled by your past, and can more easily live in the moment. That said, it may be extremely difficult for some to live in the moment for very long, or to stay there and completely cast aside all past regrets or worries about the future. You can strive to reach this state of existence for a short time, however, at least long enough to evaluate a trade and take decisive action. The first step is to monitor your thoughts and identify instances where you are mulling over the past. The second step is to actively try to push such thoughts out of your awareness. For example, you may think, “I wish I hadn’t lost so much money on my last trade,” or “I’m frustrated that I’ve had so many losing trades.” You may think these thoughts throughout the day and it’s difficult to just shut them out. But it is definitely possible to put them aside for about an hour, while you monitor a trade and decide what action to take next. You may similarly worry about the future: “I wonder if I will keep losing or will I finally make huge gains?” After you are aware of the kinds of thoughts that indicate you are mulling over the past or worrying about the future, such thoughts can be pushed aside temporarily. It may be necessary to yell “stop” or think, “Don’t think about that right now; I can consider these issues later, after I’m done evaluating my trade.” Now, using these strategies won’t put you in that ideal mental state where you are completely in the moment, but it will help you get to a mental state that is close to the ideal. It may take some practice, but you can eventually reach this mental state.

The best traders are not self-conscious about their mistakes. They don’t regret past mistakes or worry about the future. They live in the moment. You can also live in the moment, if you practice cultivating the proper mindset. When you reach this peak level of experience, you’ll not only be more profitable, you will enjoy trading, and find it to be fulfilling in its own right.

Have you ever felt as if the more you know, the less you know, and the more you become confused? Why is this?

People have the tendency to believe that the accuracy of their forecasts increases with more information. This is the illusion of knowledge - that more information increases your knowledge about something and improves your decisions. However, this is not always the case - increased levels of information do not necessarily lead to greater knowledge. There are three reasons for this. First, some information does not help us make predictions and can even mislead us. Second, many people may not have the training, experience, or skills to interpret the information. And, finally, people tend to interpret new information as confirmation of their prior beliefs.

Let me give you an example of how too much information can lead to a paralysis of confusion.

I met a man who was an avid student of the teachings of W.D. Gann. Gann believed in the movement of prices along a 45 degree angle. He also believed that time intervals of 3, 5, 9, and others had great importance. So the man I knew created moving averages of 3 bars, 5 bars, 9 bars and multiples thereof. Of course, 3 x 9 equals 27 and so he kept 27 bar moving averages. 5 x 9 is 45, and so he also kept 45 bar moving averages. He also watched 135 bar moving averages (3×45) and others. He looked for agreement among all of these moving averages, which of course, led to great confusion, since it was rare indeed and most likely coincidental when all of the moving averages showed some sort of agreement (confluence). So this man suffered greatly from paralysis of analysis. He simply had too much information, and he was unable to pull the trigger on a trade.

I will never forget the statement he made to me: “Joe, I know so much. Why then is it that I never seem to be making money?”

I think from the above description you should be able to figure it out, just as I did.

Do you ever sit there looking at your screen hour after hour, a little tired and bored? You feel like you need some action, but nothing much is happening. You think to yourself, “I might as well get long, it’s likely to go up before the Close.” So you place your order, even though you have no specific plan or reason for the trade. It’s just something to do, because you’re bored or just because you think you should.
My friend, if that’s you, you are probably overtrading.

Overtrading can be a number of things: trading too large a size for your account; trading too often; or simply putting on trades unnecessarily, and without a trading plan.

Some traders may overtrade because they assume a real trader must trade all day. Others overtrade because they crave the excitement and the adrenalin rush that trading can bring. Still others overtrade because of some frustration they feel in their lives. For them, putting on trades is like playing the lottery: every trade brings hope of success and fulfillment. Others are just plain greedy and hope to make as much profit as possible during the trading day. However, overtrading usually doesn’t pay.

Does trading more mean you make more money than trading less? Not according to studies that have been made. For the most part, over-traders end up churning their own account. Commissions and fees eat up a huge portion of their profits.
The reasons for overtrading are very similar regardless of the timeframe traded. Some traders put on trades for the thrill of making a big win, while others over-extend their trading knowledge or trading abilities. Regardless of the reasons, the net results are the same — their trading accounts are unnecessarily depleted.

One way to stop overtrading is to force yourself to follow a method. A method is supported by a very detailed trading plan. Of course you can develop your own detailed trading plan, in which case you will have developed your own method. Whether it is your own method or someone else’s, it is to your advantage to stick with it. Before you put on a trade, make sure your trading plan is clear. Identify the signals or indicators you will use to monitor the trade. Anticipate which indications will signal when a trade is going against you. Prove your trading plan with real money on the line, and make sure that you have sound reasons for putting on a trade. Make sure you are taking advantage of good setups, rather than acting on the urge to put on a trade. By carefully monitoring your trading plan, you can reduce overtrading and the potential damage it can do to your trading account. Limiting your trades will not only increase your chances of making profits, but you’ll feel a sense of psychological stability that comes with consistently profitable trading.

When prices are in a trading range, count the number of closes above or below a specific price near the vertical mid-level of the trading range. If 70% of the closes are above the mid-level price, and the market cannot rally and close above reaction highs, a severe correction may be imminent. If a market breaks and cannot close below reaction lows, then expect a rally to carry prices above the reaction highs. E.g. Let’s assume that a futures chart is showing that about 90% of the Closes are above 445.00, yet prices cannot Close above 455.00. If prices finally do Close above 455.00, a powerful buy signal would then be in place.

Another way to determine that prices are about to break out of a trading range is to note if you have a 1-2-3 followed by a Ross hook within the trading range. If both are present, the percentages favor a breakout to follow, and entry by way of a TTE is acceptable.

A 1-2-3 formation followed by a Ross hook is a consistent objective chart pattern for defining that a trend or swing is in process. Once the point of the Ross hook has been violated, this pattern is enough to establish that a trend or swing does exist.

You must be disciplined in following the plan of your trade. Once you have closed your position, you should record everything about the trade. Write down where you wanted to enter the trade, what you expected out of the trade, and what you actually did get out of the trade. Make sure to include notes that will help you learn from the trade, reasoning what actually took place once you entered the trade. Explain why the trade was a winner or a loser. If you keep detailed records, you can learn from past trades and increase your chances of recognizing your strengths and weaknesses. Build on your strengths, and stay away from trades in which you have demonstrated weakness. We are not all perfect traders. Most of us do better with one kind of trade than another. But if you don’t keep a record, you will suffer many painful losses while discovering the trade that is your trade.

Another good thing to do is to keep a diary of your feelings. Learn which feelings go with the winning trades. Keeping such a diary will help you to become a more intuitive trader. In my book Trading Is a Business, I describe how to do that. It certainly helped me to know when a trade “felt right.” But at first, much to my own pain and regret, I ignored those feelings. When I began being obedient to my feelings, my wins increased substantially.

Trading Educators

If you had the opportunity to learn a simple technique that offers you all of the following, wouldn’t you want to grab it? This technique:

• Tells you where to place your stop loss in any market or time frame.
• Tells you where to set your objectives, so that you are paid to trade.
• Tells you which market to be in today, to make the most money.
• Tells you which time frame to be in, today.
• Tells you how many contracts to trade in accordance with your risk tolerance.

Can you imagine, no more guessing at where to place your stop loss! Wouldn’t you want to know which markets and time frames to trade every single day? Wouldn’t it be great to no longer be stuck in one market and one time frame? How could anyone really believe that they should trade the same time frame in the same market each and every day? You want to go where the money is, but it can be in a different place tomorrow than where it was today!

How to be a successful trader is one of the best kept secrets in the world. The insiders don’t want you to know how to do it. Yet trading can be one of the most profitable ways to make money ever conceived.

To let you in on the secrets of successful trading you are provided with a live seminar! You can get an inside look at the reality of trading from a 52-year professional who trades and earns his money in the markets. As one trader said:

“I guess I’ve seen and read almost everything on trading published over the years. I’ve never seen anything as complete and as unique. Joe’s methods will completely change the way most traders view the markets. His seminar makes trading a whole new ball game.”

You need to know what the successful traders know, so at the seminar you will learn the following:

• The way the markets really work and how you can take advantage of that knowledge.
• Why markets exist and how you can take advantage of them to substantially lower your risk.
• How to know where prices will move next and how to avoid being trampled by the insiders when it happens.
• How to get more leverage on your money than you might think.
• How you can trade always knowing where to put your stops in the market.
• How to considerably reduce your margin requirements for each trade you make, and in some cases eliminate them entirely.
• How you to be paid to trade before the insiders run your stop.
• What to do to make a pile of money when a market forms the right setups.
• How to use the Law of Charts™ and the Traders Trick™ the ways the pros do.
• Five different setups that let you locate winning trades.

Learning the rationale of price movement will put you far ahead of most traders. You can find out how to trade in a way most traders never even hear about before they lose all their money and disappear into the night. You can position yourself at much lower risk than traders who trade using only standard techniques.

You’ll see that prices these days swing, not trend, and you’ll find out how to take advantage of the momentum that initiates those swings.

The setups you will learn enable you to trade in markets at the exact time they have the best liquidity. Beautiful setups can be found in all markets: grains, softs, energies, metals, financials, currencies (forex and futures), stocks and stock indices. They are even available in Single Stock Futures and Contracts for Difference. The setups can be day, swing, or position traded. There are traders who use them for option trades as well.

You will have proven to you that the odds of winning on the trade setups taught at the seminar are greater than those for the way most people have been taught to trade. You will discover how you can win with trades even as markets move sideways and other traders are being unmercifully whipsawed.

To learn how to really trade successfully is why you should take a seminar. You will learn everything mentioned above and more.

Click to learn more about Joe Ross’ Trading Seminar coming to Dallas, Texas on March 20-21, 2010

Question from a subscriber:
“Once I’ve achieved success as a trader, then what? I’ve heard that after awhile trading can become boring.”

I know you would all like to have that problem, but I can vouch for its being true. I am always having to find new ways to trade or I do become bored. However, I have never run out of ways to trade that remain exciting, at least for a fairly long time.

After the objective techniques of trading (discipline, controlling losses, self-control, self-confidence, etc.) are mastered, the great traders have prescient insight and the ability to envision themselves and their methods as part of a higher realm where art, science, and markets become one with all life.

My friend Kent Calhoun says it this way: “The great traders I’ve known have an enthusiasm for life. The word ‘enthusiasm’ comes from the Greek word ‘Enthios’ and means, ‘God within.’ Enthusiasm is contagious and causes men to rise above their abilities. Napoleon was known as the ‘100,000 man,’ because on the battlefield his enthusiasm was worth another 100,000 men. Henry V was a brilliant ‘100,000 man’ who lead his troops, outnumbered more than five to one, to startling victory at Agincourt, where over fifty Frenchmen died for every one Englishman. Great traders, scientists and artists recognize there is great art in all scientific endeavors, and there is great science in all artistic endeavors. Living one’s life is the ultimate artistic statement.”

Of course, you can always turn to helping others. There is a lot to be said for giving back some of what you have received in the way of good fortune. There is great reward and satisfaction in seeing another person make it as a successful trader.

One week ago I received a couple of emails questioning whether or not I believe in support and resistance. In fact, one subscriber said if I didn’t believe in support and resistance, then I couldn’t possibly believe in trend! Why? Because in all cases the situation ends.

Here’s what I believe: The trend is your friend until the end. The swing is the thing until it goes “ding.”

What is support and what is resistance? Are those not simply convenient terms to describe an area of fair value? Prices bounce off of those areas of so-called support and they bounce off of areas of so-called resistance. Why? Because temporarily no one is willing to sell for less than “support” and no one is willing to pay more than “resistance.” “Support” and “resistance” are equally as mythological as “trend.” Why do I say that?

Every market is in a trading range between the highest price it ever achieved (resistance) and the lowest price it ever reached (support). So what is all that stuff in-between? Can we call the junk in between “support” and “resistance?” What are trends and swings? Are they not simply connectors connecting the temporary areas of fair value? So-called support areas fail to support, are broken, and are connected to a lower fair value area by a swing or trend. So-called resistance areas fail to resist, are broken, and are connected to a higher fair value area by a swing or trend.

Trend lines and swing lines are also broken, and lead to areas of fair value, where prices chop sideways for awhile. So, what’s the bottom line of all this clap-trap about support, resistance, swings, and trends?

As far as I’m concerned, the only thing that counts is whether or not you have found a way to make money from any of this. If you are able to make money when prices bounce off of so-called support and resistance, then congratulations, you have probably made it as a trader. If you have found a way to make money from trends or swings, or have found a way to make money from broken trend or swing lines, then you deserve praise and are well on your way, or have already succeeded as a trader. The rest is just a mincing of words — semantics. Support, resistance, trend, swing — all are nothing more than ways to identify what prices appear to be doing. Any one of them can see the beginning of the end with the next price bar. If you tell me prices are at support, I will probably know what you mean. That is all the word “support” is good for! If you tell me prices are at “resistance,” I will probably know what you mean.

Do I believe in support, resistance, trends, and swings? The answer is no! I do not believe in any of it. What I do believe, most of the time, are the numbers on the statement of my trading account. If they are getting bigger, then I am winning, unless, of course, the broker’s back-office has made an accounting error, giving me your winning trade or, Heaven forbid, one of your losing trades.

A reader asks: How do you handle fear? I seem to have plenty of it.

Let’s get one thing straight. Fear, for the majority of traders, is a very real thing. You have it, I have it. Others have it as well. What is it that traders fear? The top three, in order, are:

1.Fear of missing a trade.
2.Fear of losing money.
3.Fear of being wrong and losing face.

In order to become a professional trader, you must learn to deal with fear. The first step is to acknowledge that you have it, which is what you have done. Once you admit to fear, you can begin to deal with it.

When you notice the impulse to trade based on strong fear, it is usually best to literally step out of the trap by stepping out of the situation.

You need to get up, walk away from the computer. Turn off the television if it’s tuned to a financial station, take a walk, get something to eat, go outside and cut the grass, water the lawn, or do anything that will move you out of the fear/panic mode.

Don’t return to your trading desk until you have managed to achieve some emotional control over your fear/panic reaction. If you can’t get a grip on your fear, then don’t come back that day.

Most likely you will find that even if you keep thinking about the miserable market conditions while you water the lawn, simply getting away from the keyboard and monitor is enough to make a difference. It removes the demand to take action, and gives you the mental space to gain perspective and let go of your impulsive, fear-based reaction.