I got addicted to charts when I was about seventeen, which was seven years ago. I never got off that habit, and I am now a habitual user, and for good reason. See, you have to understand that certain addictions, the ones that make you money, excluding providing illicit sex, are OK for you. Charts have played a significant role in my trading, and they allowed me to produce triple-digit returns in 2006, 2007, and 2008. This year has been my best year yet, and I have rarely relied on fundamental analysis in my trading decisions, except for earnings plays. Every person with a pair of eyes and ears can see what a chart is trying to show them and listen to what…ok, maybe not the ears, but you know what I mean. Charts are easy to understand and read. Even a five year old can draw Fibonacci’s. Charts are most appropriate for short-term traders using technical analysis, which is my discipline.The effectiveness of charting diminishes if you’re making longer-term decisions.
I started investing when I was thirteen, but got lucky during the 90’s bull market, or else I probably would have lost it all. I never had a mentor, and no one taught me anything. I had to learn everything myself, and still do. Hopefully through my daily analysis, I can guide you closer to the Light and help to avoid total obliteration in your trading account. You should be smart enough to make your own damn decisions from there.
I have a simple list of rules, in no particular order:
1) Have a plan and a system. If you don’t, you will lose, before you even place a trade. But you won’t know it until it happens.
2) Get an understanding of Technical Analysis. Listen, it won’t hurt you. Get off your lazy ass and start off with “Stikky Stock Charts“.
3) Forget the news, forget people. Charts never lie. People may have ulterior motives. Charts never come on CNBC and boast “strong capital reserves” or a “strong balance sheet” and then go under within 5 days. The price action tells you almost everything you need to know.
4) Don’t chase stocks. You might be buying at resistance or selling at support. Then, you become the weak hand, slapping yourself silly.
5) The trend is your friend. Don’t be stubborn.
6) Bulls live above the 200-day MA and sellers live below the 200-day MA. Currently, we are very far below the 200-day MA.
7) Prices have memories. This is how/where support and resistance levels are created. They are not just magical lines.
8 ) Bottoms take longer to form than tops. This is because fear works faster than greed. Anything usually drops 40-70% faster than it rises. Just take a look at all the bubbles throughout history.
9) Play the pullbacks. Or the market will play you.
10) The market usually gives second chances. This applies whether you are buying, selling, shorting, or covering. Prices usually fall back to support and resistance areas, giving you a second chance to do whatever you were thinking of doing the first time, but didn’t do.
11) Mark the gaps. This goes for area, breakaway, continuation, exhaustion gaps and island reversal.
12) Volume confirms price action. Volume equals market participation. Don’t go to a party if no one’s there.
13) Practice emotional discipline. Don’t get exhilarated when you gain 5% or throw your computer out of the window if you lose 10%. Trading is like life, there are ups and downs. Deal with it, or don’t trade at all.
14) Don’t trade if you’re under capitalized. A huge loss can knock you out, which brings us to…
15) Cut your losses quickly. Usually, that’s the moment when you realize that it will definitely not go in your anticipated direction. Or, it could be a trusted stop loss.
16) Learn candlestick charting. They are far superior than that bullshit bar charting.
17) Learn to scale in/out of positions.
18) Avoid the trading death spiral. If you lose, don’t be stupid and bet more just to see if you can make it all back. That’s call revenge trading, and you’ll get your ass kicked.
19) Trading takes patience. Avoid impulse trading. Don’t trade because you feel like it. Didn’t you read rule #1?
And for this year: 20) If you want to call a market bottom, you should wait until a higher low is made. If not, you take the risk of being some idiotic soothsayer if you’re wrong. You may also get a time slot on CNBC.
There are many more rules to follow, but these are some basics.
I look forward to giving you your daily hit.Twitter