Scientists have estimated that the average human makes 50 to 60 thousand decisions everyday, whether they realize it or not. This includes conscious as well as subconscious thoughts. That makes decision making one of the most important things you do in life (obviously). Everyday, you decide between happiness and misery, work and fun, success and failure. You make your own determiniation as to direction, speed, and destination. And, you decide for yourself how you’re going to get where you want to go.

As far as we know, humans are the only creatures on Earth that have the ability to make conscious decisions. Dogs behave as dogs have always behaved, by their nature. A dog does not have the capacity to decide to do otherwise, even though it may have its own quirks. The hive built by bees today is the same design as hives built by bees a thousand years ago. Nature conforms to a definite pattern, within each species, through birth, growth, reproduction, and death. There is little variation.

However, humans are different. They can change. They have the power to reason and think and to use information. It has been said that there is only one point at which all humans are alike and that is that they are all different. The reason is because each person can act independently. The biggest business of any life, then, is deciding what to do next. This is also the hardest thing to do. Why? Because it’s the place where success or failure is ultimately determined.

So what is a decision? By definition, you make a decision by making one side of an argument the victor over the other. To decide is to “bring an end to vacillation.” It is the “termination of doubt or controversy.” To decide means to “conclude” after careful investigation or reasoning. And a real decision implies a degree of firmness that enables you to carry your plans through a conclusion.

How does all of this apply to trading? Trading is all about making decisions. I make split second decisions all day long, some of which do not have the time for “thinking”. If you hesitate, you will lose or lose out on some ridiculous gains. We are not creatures without the ability to make decisions and only you can make them for yourselves. I know it’s difficult for most of you to “pull the trigger”, but trading is all about taking risks. You cannot get ahead without taking them. You must take chances and not be afraid. Are you just going to sit there all day and not make a move?

A lot of people confuse intention with a decision. That’s like confusing a blueprint with a finished house. Almost everyone wants (intends) to do successful things in their lives, but most never get around to it. You’ve heard that the road to hell is paved with good intentions. If that’s true, then the road to failure is lined with billboards of good intentions. A decision is a mental state that is far more advanced and has far greater power than any mere intention. We all intend to make trades, but if you don’t actually make them, then what’s the point?

Make up your mind. Emerson said that “the world belongs to the energetic.” Very few things are as mentally and physically invigorating as a successful day at work (ex: winning like a mofo on your trades). Emerson also said, “Work every hour, paid or unpaid. See only that you work, and you cannot escape your reward. Whether your work be fine or coarse, plating corn or writing epics, honest work, done to your own approbation, shall earn for you the greatest rewards known to the senses.” Honest work earns the greatest rewards of success, but even industry must be preceded by decision.

Emerson might just as easily have said that “the world belongs to those who can make up their minds.”

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The most dangerous enemies of success are those that hide somewhere deep in your own heart and mind. Those who say that the want success and yet hang onto the attitude of failure are deceiving themselves. Almost all failure is generated within a person’s inner self, through their thoughts and attitudes. Looking through some history, Aristotle warned Alexander the Great that the most immediate dangers confronting his success were enemies within his own ranks. As you may know, the Macedonian army was rife with disloyalty, drunkenness, carelessness, etc. On an individual level, these actions could have been prevented by having a proper attitude.

Let’s fast forward to now. A few years ago, a survey was conducted by a life insurance company to determine why unsuccessful salespeople failed. Here were the results:

37% failed because of discouragement
37% failed because of lack of industry
12% failed because they didn’t follow instructions
8% failed because of a lack of knowledge

This should come up to 94%, and all four areas are directly related to individual attitude problems. Discouragement is caused by poor mental posture. Lack of industry is cause by a general bad attitude. Failure to follow instructions means you’re just lazy and have a lazy attitude. Finally, a lack of knowledge comes from a mix of everything above. Most of the salespeople failed because their attitudes broke down well before they even displayed their failures through their actions. It’s all about attitude.

In war, morale is the first defeat in any war. One side always loses heart before they are actually beaten on the battlefield. The side that believes in their ultimate failure will fail, no matter what other circumstances exist. A negative attitude almost always starts small and as you cling to it and believe it, it grows like a virus. When this virus gets to become so strong, it will overwhelm you until you break down. Sometimes, the psychological effect is so great that it can actually breakdown the central nervous system.

A good attitude doesn’t come instantly though. It does not come from solving one big problem in your life. It comes from solving a lot of little problems, proving to your mind and others that you can overcome anything. For example, if you are consistently losing on your trades, take it day-by-day and isolate each problem and solve it. You have to train yourself to believe in yourself that you can overcome the difficulty of losing. You will most likely lose if you think that you will lose on a trade before you even place the order.

The quickest way to go from a bad attitude to a good one is through taking positive actions. Theodore Roosevelt once told a crowd of politicians before a major vote in Congress, “If you want to be brave, then start acting brave.” He didn’t say, “have brave thoughts.” He clearly wanted action. You’ve heard that action speaks louder than words. Well, that applies equally to thoughts that lead to success.

You must take action to become better. You can’t make successful attempts without first beginning with a successful attitude, and only you can make that choice.  Suppose that nothing goes right for you, still. Do you quit? Hell no. No matter what happens to you, you can turn the “bad” experiences to your good.

Some people wish they could always have things exactly the way they want. However, suppose you could always have your own way – you would never make a mistake, never be opposed, never know trouble or failure. And…you would never develop the strength that comes from opposition, or the feeling of exhilaration that comes from success. Problems can become your best teachers. Remember Edison? He tried over 5,000 times to make a light bulb that wouldn’t burn out without success. He learned something from each failure until he eventually succeeded. Even Shakespeare knew about failure when he said, “The best men are often molded from their own faults.”

Listen, whether something is a problem or not, it’s all in your head anyway. You have to realize that your life (and trading career) can be whatever you let it be. You don’t have to let every little failure be a total wreck. Instead, tell yourself, “If there’s to be trouble, let it begin here, and let me be the one to handle it.”

Apply these principles to your trading.

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The Imperial Eagle

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First, I am up over 200% YTD. This is not my all-time high. My 2008 return was 256%. My goal is to hit 300% YTD for 2009.

I have nothing to add, except that we are still consolidating. There seems to be a lot of folks that are confused as to why the market is moving the way it is. If you used technical analysis and not some useless fundamentals, you may have realized that there are 3 key short-term MA’s that are boxing in the SPX (15-, 20-, 30-day MA’s). These MA’s are creating the narrow range that we are in right now. Stop wondering why the market is doing what it’s doing by doing some simple homework.

Let’s talk about why I post my trades. They are NOT for you to follow. They are for public documentation purposes. If you join me, you do so at your own risk with the assumption that you know what the fuck you are doing. I get really annoyed when people ask me if I am “still in” or “when I will sell”. Shut up. You should already know when to exit prior to entering. If you enter blindly, you are sheep waiting to get slaughtered.

Here is a sector breakdown of the SPRD Select Sector ETFs:

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Since I don’t have much to talk about, let’s mix in a little education in here. Today’s topic is on FEAR.

Fear, and it’s powerful ally – worry, ruin more ideas, intentions, business transactions, and the vitality and energy of more people in the world than any other single thing. The USA has become a nation of worriers. If you intend to build a strong, successful trading future for yourself, you must learn to eliminate unhealthy fear from your thought processes.

Besides the ruinous forces of fear, it can also be one of the greatest motivating forces in the world. Shakespeare said, “To fear the worst, oft cures the worst”, meaning that sometimes a good scare accomplishes more than good intentions.

Why do we learn? We get an education because we are afraid of being ignorant. I mean, come on, you don’t want to be following my trades forever, right? Most people obey the law because they fear punishment (Unless you’re Bernie Madoff). You take a shower and brush your teeth everyday, hopefully, because you have a healthy fear of disease. The point it, some  types of fear have value. Fear forces you to think about things you might not otherwise worry about.

However, the negative kind of fear will cripple and debilitate you mentally and then destroy you and your dreams, if you let it.This unhealthy fear will inhibit you and prevent your progress towards success in whatever you do, in this case, trading. It holds you back, prevents you from ‘pulling the trigger’, restricts you from taking advantage of the ideas you create, and in the end, stops you from taking action, until it’s too late to act.

In essence, you become your own worst enemy. There is no one or nothing you can blame but yourself if you let fear take over your life. As yourself, “what are you afraid of”? Are you afraid of losing? Stopping out? Taking profits too early? Deviating from your system? Events outside of your control? What in the world can be so scary that it prevents you from winning in the trading game?

Whatever it is, this fear will prevent someone with great potential from going as far as they might have otherwise. This type of fear usually becomes a self-fulfilling prophesy if it is allowed to grow (being fed by you, of course). Basically, you will lose before you are even given the opportunity to consider any victory.

Where does this fear come from? When you were a kid, did you ever burn your hand on the stove? I bet you didn’t touch the stove ever again. Or, if you’re a rare case, you kept touching the stove and it took you a while to figure it out. The point is, these fears are usually well-grounded by events that took place in the past. Perhaps you suffered a huge loss, or a string of losses. Your confidence got sapped. I tell my students all the time, “don’t dwell in the past in order to see the future”. This is an obstacle that only you must defeat on a personal level.

How do you deal with this? It must be done in a straightforward manner. Most likely, each fear developed from a bad experience. We all fail, and we all lose, and this can be extremely demoralizing. When you fail, it is likely that you will start believing that you will fail again. Here are some solutions for some of the more common psychological issues related to trading:

• Anger over a losing trade – Close out your positions, take a breather, move away from your computer and come back when you calmed down.
• Trading too much – Pace a limit on your trading activity or even take one or several days off.
• Wishing, hoping, praying – Base your decisions on technicals.
• Adding to a losing position – Instead of averaging down, average up on a winning position.  (You have never seen me adding to a losing position, ever)
• Afraid of ‘pulling the trigger’ – Again, base your decisions on the technicals
• Fear of being stopped out – If you use stops, let them do their job.

In conclusion, I want to share with you an old fable that I’m sure you already know. It is about the mouse that roared.

Once up on a time, there lived a little mouse. He lived in constant fear of a cat that lived in the village. One day, a powerful space alien magician came to town. “M’lord,” the mouse begged of him, “thou art wise and powerful, and my life is most miserable because of a cat. Woudst thou return joy into my life by making me into a cat? Then I would no longer live in fear.”

The magician smiled, raised his wand, said some magical words, drew some lines on a chart, and the mouse found himself a cat as he wished. But, he was the most frightened cat in the land. A dog that had been of no concern to him before, now made his life unbearable with fear. Every time he ventured out of his out, the dog chased him.

The cat, desperate with fear, went back to the magician. “M’lord,” he said, “being a cat is most miserable because of a dog. Wouldst thou return joy to my life by making me into a dog? Then I would no longer live in fear.”

The magician obliged, and the cat became a dog. But he became a dog that lived in constant fear for there was a huge tiger that lived in the forest and made his life…miserable.

Again, this poor creature set out for the magician. This time he asked to be made into a tiger, and it was done. Suddenly, the tiger now found himself in the most terrifying circumstances he had ever known. Hunters came into the forest with rifles and dogs. They even set out traps for him. He had never known more fear than he did now.

Finally, the magician was asked by the tiger to be made into a man, that he would fear nothing from that day on. For the first time, the magician spoke. “As a mouse you knew nothing of cats. As a cat, you knew nothing of dogs. As a dog, you knew nothing of tigers. You know nothing of sickness, old age, or failure. You know nothing about finding and losing a job. No, I will not make you a man, I will again make you a mouse, for in your heart, you are a mouse anyway.”

Don’t be a mouse.

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When I was a kid, I would help my mom gardening by plowing the ground, planting the seeds, and watering the plants each summer. We planted all sorts of vegetables and fruits, such as lettuce, strawberries, carrots, melons, radish, tomatoes, eggplants, cucumbers, and many others. We even had a large row of apple trees, which would have provided 100% all natural apple juice if it weren’t for all the bugs getting of them first. It was tough work preparing the ground and helping them survive, but in the end, we all got to enjoy the fruits of our labor.

Trading is a lot like farming (and gardening for suburban folk, but I’ll stick with farming here), especially with my style of swing trading. We are all farmers if you haven’t realized it already. Every stock you buy (or short) is a seed which you are planting in the ground. Now, before you plant anything in ground, you have to make sure the weather and season favors any such plantings. You have to make sure the ground is soft, moist, and fertilized. You also should have a fence around your garden to protect your plants from animals and neighborhood kids.

You toil endlessly, day after day, making sure the ground is prepared to plant your seeds. Every stock that you buy (or short) is the seed of a plant that you are hoping will provide you with sustenance. You make sure the seed is deep enough into the ground, but not too deep, so that it will have the chance to grow. You watch over your garden each day.

As the days go on, you may notice some weeds. You must remove the weeds or they will rob the soil of the nutrients that your germinating seeds require. As your baby plants poke their heads out from the ground, they will require sunlight to activate the process known as photosynthesis. However, if you do not remove these weeds, they will grow tall and block out the sunlight. remove these unwanted weeds from your garden, or they will kill your plants. Some of your plants will not make it, so cut your losses early so the others have a chance.

Now, some people are very impatient and expect their plants to grow up in one day to be harvested. Ridiculous, who taught you that nonsense? Does make any sense to pick a seedling? No. Give your baby plants time to show you what they can become. It might seem really exciting to see them start to grow, but i you pick them now, you will never realize their full potential. You kill your plants the moment you pick them. Some plants need time, so give it to them.

You’ll also notice that not all days are sunny and clear. You’ll have days like this:

or this:

But, do not fear. You are the farmer and you are watching over your plants every single day (I hope). If the rain and winds are strong, you can put tarp (not TARP) on top of the garden for protection. Again, some plants will die because nature is not always nice. Cut your losses and give the others a fighting chance.

One day, you may notice a nosy deer walking. He likes what he sees. The deer may look pretty and gentle, but as a farmer, you know what kind of destruction that deer can bring. Good thing you have a fence around your garden, but sometimes, the deer will fight to get into your garden. You’ll just have to scare him off, or if you’re Alpha, just shoot the thing so it never comes back. There will always be creatures trying to kill your garden. It is your job to watch over and protect it. The fence is there to act as your support.

Towards the end of summer, you’re garden is lush with life. It practically looks like a jungle full of colorful vegetables and fruits. It is time to harvest. If you do not harvest now, you will let the bugs eat up everything. You can spray pesticide as often as you’d like, but your veggies and fruits won’t stay on their mature plants forever. They will fall to the ground and rot. It is time to harvest, so do it now. Know when to buy AND when to sell. Too many people buy without knowing when they will exit. You may lose all of your strawberries for no good reason.

A great thing about fruits and veggies is not only are they delicious to enjoy, but they provide you with even more seeds than you previously had. You may even be able to double the size of your garden in time for the next season. If you just eat up all of your fruits and veggies right now, then you will not have any seeds left. You have become greedy and wasteful and the only seeds left are the ones that go through your digestive track, if you know what I mean.

Save the seeds and grow your garden.

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This article continues the weekly educational series, primarily dealing with psychology and methodology. Here are the previous articles: 4 Stages of Learning, The Trading Death Spiral, and the Trader’s Mindset /w Common Psychological Issues.

I get over 100 e-mails per week and people asked me more questions about the trading plan and some ground rules, so I’m going to combine both topics into one article.

I like to ask myself several questions when constructing the plan. I’ll give you 20 of them here and you can brainstorm the rest.  The plan is your defense against emotional trading (if you actually follow it). Without a plan, you will be all over the place. The plan must be clear and concise and written down. If you do so, you’ll be in the top 3% of individuals who have a plan, immediately giving you an edge over the other 97%. Here are the questions (in no particular order):

1) WHY are you trading? – The simple answer is “to make money”, but that’s really not a specific answer that describes you. Perhaps I can change the emphasis: “why are YOU trading”? Every person has their own reasons, such as quitting their full-time job, spend more time with their kids, increase their quality of life, take control of their financial future, etc. Why are YOU trading?

2) How will you enter & exit trades? The best entries are when the trades that you put on are lower risk compared to a much higher reward. This requires a through understanding and rationale of WHY you enter the trades in the first place. You can exit trades in many ways, such as setting initial and secondary stops, trailing stops, scaling out of positions. Do what makes you the most comfortable.

3) What type of orders will you use? There is a vast array of orders. I like to use market orders 99% of the time. Others like limit orders, and of course, there are stop limit orders and trailing stop orders. Make sure you know when to use what.

4) What broker, software, hardware will you use? Compare brokers and see what you like. Don’t make the mistake of simply going to the cheapest broker. You get what you pay for. Instead, aim for a balance of reasonable fees, fast execution, excellent service, etc. You can choose what software and platform you want to use as well. Try out a couple. Finally, I’m not very knowledgeable in the hardware field, so just get a fast computer with lots of memory.

5) How much capital will you need to reach your goals? I think the absolute minimum to feel safe and without most restrictions is $25,000. To be adequately capitalized, I suggest a min. of $50,000. If you suffer a large drawdown in a small account, then you will have some problems. A larger account ensures flexibility and the ability for you to remain in the game, provided that you don’t go crazy in your trading. If you hold a smaller account, limit the downside risk.

6) What ARE your goals? This goes with #1. Make sure your goals are 1) written, 2) believable, 3) challenging, 4) measurable, 5) specific, and 6) with deadlines.

7) What’s your % allocation of capital per position? On average, I like to use 10% per position or side. Depending on my conviction level and the probability, I can go up to 20% per position and up to 100% per side (a rare occurrence). For people that are starting out, I’d say start with 5% per position, and move up as you build a tolerance. There are many ways to allocate capital.

8 ) What is your pre-market trading preparation process? This is your plan of action in the morning. You definitely want to check the futures in the morning for any gaps and their implications and location vs. the previous day’s close. I like to check different news outlets/sites (there are hundreds of links on the sidebar for you to explore). I also check analyst upgrades/downgrades, economic reports, and earnings reports that may move the market. Be aware of what’s happening.

9) What is your after-hours review process? Besides taking a nap sometimes, your end-of-day routine is key. Use this time to think about what happened during the day and what you did. It’s good to keep a journal or blog to record your thoughts and observations. Keep a daily log.

10) How many positions are you able to focus on at once? I personally do not like to have many positions open. 10 is the limit for me. Having a portfolio with dozens and dozens of positions will create a distraction and you may miss exit points. The good thing is that the more positions you have and capital allocated per position, then the risk level per position is minuscule. I prefer larger, concentrated positions initiated through directional timing.

11) What type of trader are you (day, swing, position, etc.)? If you don’t know this yet, then you shouldn’t even be trading at all. Know yourself. Figure out what style suits you the best. What is your psyche most comfortable with and able to tolerate. Just because I do “X” doesn’t mean X is appropriate for you. This is also why many people to follow other people become losers automatically by default.

12) Are you purely fundamental, technical or a hybrid of both? There is no wrong answer to this. It all depends on what you like and it’s your choice. I am 100% technical and could care less about fundamentals (except earnings).

13) What will you use (exch-listed, OTC, futures, options, etc.)? Again, your choice.

14) When will you trade (all day, set time, every few days, etc.)? This depends on your available time, schedule, strategy, and personal preference. If you set a certain time, don’t violate it. Commit to your scheduled and allotted time, or risk impulse trading.

15) What are your guidelines for using stops? This is your choice, but you have to adapt to market conditions when making your decision. Presently, wider stops are the norm due to high volatility constantly triggering tighter stops resulting in many losses. I personally do not use a hard stop unless I have to step out. I can use a mental stop and monitor the situation throughout the day. If you have a 9-5 full-time job, then you should use stops. Stop use is on a case-by-case basis.

16) What are your guidelines on losing positions? Specifically, how will you identify a serious loss vs. a temporary drawdown? How will you deal with the loss. Some traders simply stop trading for a few days to screw their head back on straight. This accompanies your strategy for exiting trades, but on the losing side. If you have 3 consecutive losses, seriously, take a break. Go ride some horses.

17) How much will you risk on every trade? Typically, a common rule is to risk no more than 2% per trade. Your risk depends on your allocation, exposure, and your loss limit. If you allocate 20% per position, you may risk up to 10% per position using th 2% rule. If you allocate 10% per position, you may risk up to 20% per position using the same rule.

18) Will you go both long and short? You should learn both skills. If you do not know how to short in a bear market, you will left with a severe disadvantage. Learn to take profits on both sides of the market. I recommend 4 main books on short selling (the first 2 are fundamental and the last 2 are technical): The Art of Short Selling by Kathryn Staley, Sold Short by Manuel Asensio, How to Make Money Selling Stocks Short by William O’Neil, and Sell & Sell Short by Dr. Alexander Elder. Get reading.

19) Are you going to trade the open? If the gap exceeds the high of the previous day after a day long consolidation, then the gap will run in the direction of the gap’s open. An area gap that opens within the previous day’s range is subject to fading/filling. What is your gap strategy? What is your strategy if the market opens unchanged?

20) Do you have a list of sites to visit, resources to read on a daily basis? If not, then check the sidebar for hundreds of links to every resource you need as a trader.

There are many more questions to ask yourself, but here are basics. Meditate on them.

I want more in-depth review/info on…	Reasons to trade Entering & exiting trades Types of orders to use Broker, software, hardware Capital requirements Goal setting Position allocation Pre-market preparation process After-hours review process Number of positions Type of trader Fundamental, technical, hybrid Various financial instruments Trading time frame Guidelines on using stops Guidelines on losing positions Trade risk Long and short resources Trading the open Various resources for traders
	Current Results

As for the rules, there are plenty of them. We all forget about them once in a while. In fact, I always catch myself in the act of breaking them. The key is to be aware of your mistake and to get out of it as quickly as possible. Right the wrong. If you are not aware, then you won’t know, and then you will be finished. Here are some rules, or little tidbits, that should aid you as a short-term trader. Some are obvious, some are not, just mind them all.

1) Buy on the 1st pullback from a new high & sell the first pullback from a new low. The first pullback and subsequent continuation move will confirm the strength of the rally or sell-off. Don’t be the trader they buys right before an upside pullback and shorts right before a downside pullback.

2) Enter during quiet times & exit during crazy times. Then the markets are quiet, or trading in a tight range, that indicates that an explosive move is imminent. Use the chart to determine if it will most likely be a breakout or breakdown. Get out when everyone in the world is trying to get in at the same time, usually indicating a blow off exhaustion top.

3) Equalize time to opportunity. You must know how long you’re going to hold the stock before you enter the trade. If you have to keep asking me or anyone else, “Are you still in?”, “When are you getting out?” (of such and such stock), then clearly, you have no idea WTF you are doing. My timeframe may or may not be the same as yours.

4) Sell the 2nd high, buy the 2nd low. By default, the 1st high becomes resistance and the 1st low becomes support after major pullbacks. When a high or low gets tested more than 2x, then the likelihood of a break is extremely high.

5) Don’t trade the exact open (in most cases). I like to wait a full 30-mins prior to pulling the rigger, unless #19 shows up (in the Trading Plan section above).

6) Short the weak rallies and not the sell-off (in most cases). Shorts are looking to cover since they are finally making money on the breakdown. There are times where the market just sells, sells, and sells, however, I’m talking about the majority of times when it doesn’t cascade.

7) Do not short strong rallies & do not buy strong weakness. If a rally continues, corrects, continues, corrects, etc., then the rally is strong and sustained for whatever reason. Shorts will continue to cover in the face of it, adding fuel to the fire. Likewise, don’t buy when a stock is selling off like there is no tomorrow. Something is terribly wrong and traders, for whatever reason, are willing to sell at any price they can get. Just remember why you are buying or shorting.

8 ) Keep the charts in mind & ditch the news. News moves the markets, but news is immediately priced in, and it shows in the chart immediately. First, determine if the news item is valid, trustworthy, relevant, and important. Second, measure the impact of the item. New items of all sorts are responsible for the vast majority of the breakouts and breakdowns that occur, but charts already tell you that.

9) Keep support & resistance and MA’s in mind. Prices have memory, because humans have memory. People buy at support and sell at resistance. That’s how it is. Use trend lines, channels, and moving averages to guide you. They are NOT just some stupid lines on a chart.

10) Trends test the last point of support or resistance (in most cases). Combine this with #9 above.

11) Use the TICK, VWAP and/or VIX, and other indicators to verify moves. They are your friends.

12) Stop chasing stocks, long or short, if you don’t have a valid reason to do so. Don’t be a sucker. Stop wondering why the market reverses everytime you buy or short. It’s probably because you were chasing whatever you were chasing and that’s your fault, not the market’s. Afraid of “missing out”? Too bad, wait for the next opportunity.

13) The 200-day MA is the strongest MA, followed by the 50-day MA. The 200-day MA is not only the strongest, but the most important long-term MA. These MA’s guide the trend of the market for years, and even decades. The 50-day MA is the strongest and most important intermediate-term MA, guiding the market for months to years. Always know where they are located in relation to the market.

14) Therefore, don’t be buying toward or short into an MA. (includes the 20/30-day MAs). They are strong and reliable points of support or resistance. For the short-term, you want to focus on the 20 and 30-day MA’s. Additionally, add the 10 and 15-day MA’s if you are long and the 5-day MA if you are short. Many stocks use their own “custom” MA’s, but many stocks follow the ones listed here.

15) Track the pivot points. Make note of prior highs and lows because there is a force at these points that caused at least a short-term reversal against the prevailing trend. If you are constantly wondering why a stock bounces at a certain point and pulls back at another, then you might want to note the pivot points. Pivots don’t happen just because a stock “feels like doing it”.

16) Make note of every gap and identify them (area, breakaway, continuation, exhaustion, etc.). Learn what all the gaps are, how to identify them, how to trade them. Gaps also mark major support and resistance levels, especially force gaps on Spikers™.

17) Massive volume at a pivot will kill the existing trend…and it will start a completely new one. Volume shows conviction, enthusiasm, and in most cases, institutional support. Don’t trade against money that immediately stopped the existing trend and broke away to form a new one.

18) Bottoms take longer to form than tops because accumulation takes long than distribution. Classic greed vs. fear. People have a tendency to sell out of fear faster than buy into greed. This is why shorting stock yields profits 40-70% faster than if you were going long.

19) Stop rapidly trading during consolidation periods. What is the hell is the matter with you? The “Chop Zone” is specifically designed to chop up suckers.

20) Use multiple time frames for entry & exit signals. I like to use the 1-min, 5-min, 1-day, 5 day, 10-day, 1-month, and 4-6-month time frames on a single stock. Your reason for entering and staying in a trade will be confirmed on all time frames if the trade is still working.

Which rules did you find most useful?	Buy on the 1st pullback from a new high & sell the first pullback from a new low Enter during quiet times & exit during crazy times Equalize time to opportunity Sell the 2nd high, buy the 2nd low Don’t trade the exact open (in most cases) Short the weak rallies and not the sell-off (in most cases) Do not short strong rallies & do not buy strong weakness Keep the charts in mind & ditch the news Keep support & resistance and MA’s in mind Trends test the last point of support or resistance (in most cases) Use the TICK, VWAP and/or VIX, and other indicators to verify moves Stop chasing stocks, long or short, if you don’t have a valid reason to do so The 200-day MA is the strongest MA, followed by the 50-day MA Don’t be buying toward or short into an MA Track the pivot points Make note of every gap and identify them Massive volume at a pivot will kill the existing trend Bottoms take longer to form than tops Stop rapidly trading during consolidation periods Use multiple time frames for entry & exit signals
	Current Results

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As you know by now, psychology is a secondary interest of mine, after reading charts and tarot cards, of course. For this week, I decided to cover the “trader’s mindset” and the most common psychological issues that all traders deal with.

How does someone know that they reached the trader’s mindset? Here are a few characteristics:

1. No anger whatsoever.
2. Confidence and being in control of the self
3. A sense of not forcing the markets
4. An absence of feeling victimized by the markets
5. Trading with money you can afford to risk
6. Trading using a chosen approach or system
7. Not influenced by others
8. Trading is enjoyable
9. Accepting both winning and losing trades equally
10. An open mind approach at all times
11. Equity curve grows as skills improve
12. Constantly learning on a daily basis
13. Consistently aligning trades with the market’s direction
14. Ability to focus on the present reality
15. Taking full responsibility for your actions

Developing the trader’s mindset takes time. It usually takes traders 2-5 years before they can read through the above list and honestly say that it describes themselves.

Let’s take 100 traders using the same trading system or approach. It is highly likely that no two of them will trade it exactly the same way in all aspects. Why is this? Because our mindsets, beliefs, and understandings are unique. It is no surprise that most traders fail and the reason why is because they lack the trader’s mindset. This article covers those in Stage III and IV within the 4 Stages of Learning. More importantly, it applies to those that survived Stage II.

There are two parts to fixing any psychological problems:

1. Recognizing that it exists
2. Accepting it so you can move on

In trading, this is where it’s so crucial to take responsibility for your own actions because it induces change and you can start making improvements. If you don’t recognize and accept a problem, then you won’t get anywhere!

What are some of these issues that I speak of? Here are a few along with their causes and/or effects:

1. Anger over a losing trade – Traders usually feel as if they are victims of the market. This is usually because they either 1) care too much about the trade and/or 2) have unrealistic expectations. They seek approval from the markets, something the markets cannot provide.

2. Trading too much – Traders that do this have some personal need to “conquer” the market. The sole motivation here is greed and about “getting even” with the market. It is impossible to get “even” with the market.

3. Trading the wrong size – Traders ignore or don’t recognize the risk of each trade or do not understand money management. There is no personal responsibility here.

4. PMSing after the day is over – Traders are on a wild emotional roller coaster that is fueled by a plethora of emotions ranging throughout the spectrum. Focus is taken off of the process and is placed too heavily on the money. These people are very irritable akin to the symptoms of premenstrual syndrome.

5. Using money you can’t afford to lose – Usually, a trader is pinning his/her last hopes to make money. Traders fear “losing” the “last best opportunity”. Self-discipline is quickly forgotten but the power of greed drives them, usually over a cliff.

6. Wishing, hoping, or praying – Do this in church, but leave this out of the market. Traders do not take control of their trades and cannot accept the present reality of what’s happening in the market.

7. Getting high after a huge win – These traders tie their self-worth to their success in the markets or by the value of their account. Usually, these folks have an unrealistic feeling of being “in control” of the markets. A huge loss usually sobers them up pretty quickly.

8. Adding to a losing position – Also known as doubling, tripling, quadrupling down, typically, this means that the trader does not want to admit the trade is wrong. The trader’s ego is at stake and #6 comes into effect as the trader is hoping the markets will “work in their favor”.

9. Compulsive trading – Similar to #2, except these traders have an addiction to trading and quite possibly gambling issues. They need to constantly be trading, even if there is no rational reason to do so. They are always excited whether they win or lose.

10. Afraid of “pulling the trigger” – This usually means that the trader does not have a system or approach already in place. They have not calculated risk/reward and many times, these trades are unplanned. This also comes after a string of losses. They don’t want to be “wrong again”. There is no trust from within.

11. Over-thinking or second guessing – Similar to #10, but these people are usually looking for a “sure thing”, when they clearly don’t exist. Losing is not recognized a normal part of trading and the risks and unknowns of trading are not fully accepted.

12. Limiting profit or getting out too early – These traders have poor self-esteem. This is a direct effect of believing that the profits were undeserved. Usually a trader is stressed over a trade for some reason and closing the position quickly eliminates the anxiety. Usually, there is a fear of “giving back” those gains.

13. Fear of being stopped out – Traders fear failure and the pain from taking losses is great. Here is another instance where the ego is at risk. They must always be correct or suffer a feeling of “let down”.

14. Not following your system – This is a trust and follow-through issue. Perhaps the trader didn’t test it enough, or it recently produced a string of losses, casing some doubt. Your faith in the system is broken. Not only do you not trust the system, you can’t even trust yourself with picking one that works for you.

15. Following other traders (indiscriminately) – These traders do not have a system. They are also limited in trading knowledge. They feel that they will become winners if they simply “follow” someone. These trades are usually impulsive.

The key to all things is creating balance. This means that if you are winning or losing, you should not care. When you finally recognize and accept each of these common pitfalls, you’ll be well on your way to acquiring the trader’s mindset. Good luck.

Take the poll below. Multiple selections are allowed:

Which psychological issue(s) do you struggle with the most?	Anger over a losing trade Trading too much Trading the wrong size PMSing end-of-day Using money you can’t afford to lose Wishing, hoping, praying Getting high after a huge win Adding to a losing position Compulsive trading Afraid of “pulling the trigger” Over-thinking/second guessing Limiting profit/getting out too early Fear of being stopped out Not following your system Following other traders (indiscriminately)
	Current Results

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