The Complete Trader.

What is the difference between a winning trader and a losing trader? It all comes down to attitude. Plus the winning trader makes it their career while the losing trader packs up their bag and disappears broken.

How do you get the right attitude? Where do you gain the skills necessary? Can previous winning experiences in a different field translate into additional self-confidence in the trading game? How long is this gestation period going to take? What details and secrets does it take to be a consistently successful trader? Is there a point in time that you will know all there is to know? How much is technical knowledge compared to self-mastery knowledge?

Attitude comes from within. Whether you think you can or cannot do anything, you are right. Every decision you make is one from free will. No one is forcing you to do anything at gunpoint. Your upbringing and outlook on life in general affect what kind of trader you are. Your point of view on money, value, work, winning, losing, wrong decisions, right decisions, happiness, sorrow, anger, fear, disgust, self pity, self worth, greed and a host of others are all rolled into either an arrow to help you along or a wall to stop you in place.

You can choose to have any reaction to whatever the markets may present to you. Maybe you will react as most people will. Maybe you will react differently. What is wrong or what is right depends on your attitude vis a’vis the markets.

As I see it you can control in general only 2 things while trading:

1. The amount of money you lose in unprofitable trades when you set a stop loss.

2. The elements of your plan.

That’s it that’s all. The first one is easy. Enter a trade, set a stop. Barring extraordinary occurrences (as we have seen lately they do happen) you can precisely set the amount to lay on the line to test your trade ideas. The second one is the tricky bit. Your trading plan/system/edge is your foundation. It is comprised of both technical and emotional components. It is within your power to carry it out exactly as planned if you have the will to do so. It is not out of your control unless you choose to let it out. It’s up to you to follow and execute no matter what happens. To the degree you are swayed is the degree for improvement.

What can sidetrack you? Basic human emotions and lack of skills including the overall inability to cope with changing market conditions. Emotions such as fear and greed and all their associated feelings can sabotage your sincerest desires.

Acquiring the necessary skills should be done with no thought as to self imposed deadlines. First of all, beginners at any endeavour have no idea what so ever about what they even need to know. Trading is no exception. Certainly it is easy to have some winning trades right from the start and think you have this thing mastered. Market conditions frequently produce winning trades with hardly any effort at all. But when conditions change from strong to weak to sideways to chop and back again how are you going to cope if you really have no idea what to do. A beginning trader can lose their bank very quickly. Again it all comes back to you to realize what is going on and adapt to the conditions. But if you are beaten down, can you mount a comeback? Deep down inside do you have what it takes?

I can take some examples from sports and draw some parallels.

In tennis you can see the test of skills and wills clearly. One player gets the advantage and wears down the other. Slowly but surely unforced errors occur as the player behind tries to overcome the deficit. Have they lost the skills? No. Now it has become psychological in nature. One is getting beat. They are losing. Self-doubt creeps in. Their attitude has shifted from winning to losing. On the other hand the winning player feeds off the successes. They can see they have the upper hand. They can push it and show no mercy and try and pummel their opponent into the ground. They have the edge. Self confidence. Attitude.

Comeback wins do happen though and it takes supreme will power and control to force yourself to apply the system to best fit the conditions relentlessly.

Learning how to trade and manage yourself takes a lot of time. How long depends on the individual. I watched the markets and paper traded every day all day for two years before I felt I was ready to take on the professionals who have unlimited money and deep skills under all market conditions. Long markets, short markets, sideways markets all require different techniques to make consistent money in. In the very beginning how do you even know how to set your screens up. What information do you display? Then comes watching and being amazed at all the movement and colour. What about an edge, a plan, a system, taking profits, sizing, stops. This all takes many many instances of seeing and experiencing before it starts to sink in and become usable information. Why do you think flight simulators are so valuable in the aviation business? Because you can train for all conditions without crashing and burning. Over and over you can practice without getting killed. Crashing and burning as it relates to trading is to lose all your money and become psychologically damaged in the process. Your attitude will become a losing one.

Learning the technical aspects of trading and the markets takes time and what you think you know after 1,2, 3 years is nothing. Really, nothing. As the years roll by and you accumulate 1000’s of hours of seat time honing your edge and system you get to learn a few things about yourself as well. This is where you become a trader. And if you are humble, the learning never stops. To think otherwise is a recipe for disaster.

I wrote in one of my previous posts that trading is not about charts, chat rooms and technical indicators. It is about information and human emotions, real or not, that drive the prices and how best you can exploit them. The most important skill you can acquire is to master yourself. Trading wise that means to be able to do anything that you want to do at any time. You are in control of your emotions and let them work with your system and goals to become successful. The right action at the right moment based on the prevailing information and your intuition.

Confidence gets build into you when you see that you can do this thing. Winners make more winners. Unprofitable trades are only that. They are not taken as a bad reflection on yourself. Hesitation, self doubt, anger, sorrow, joy, fear, greed can all be mitigated by a winning attitude. The continual application of looking inwards at yourself is what will make an unshakable winning attitude and a complete trader.

oil shorts worked to varying degrees here is DRQ. watch for bounces to play long

short

cover

lots of fast short action in ATPG DRQ CAM..charts to come

no power for the bounce in ATPG sold it right now

short may be the direction to go, waiting to see

bot ATPG for the bounce again

ATPG looks broken at the moment when it can't bounce after that piledriver and with other oils coming backup.

Sold it and currently waiting to see...

ATPG cover and play the bounce

ATPG seems like a good short

What is probability?

It is a greater likelihood of an event happening over an event not happening.

Here's the set setup from this morning. I traded TNA long from right before it went to new highs. It stalled out so I took profits and shorted it. Some good momo for a few candles then it stalled again. I didn't go long but only waited because the short momo seemed strong.

Lo and behold I saw a doji appear on the QQQQ at the 11:15 candle. That said the probability of it dropping more was greater than not. So I took TNA short, FAZ VXX long resulting in profitable trades. No other reasons. NO thinking.

First chart is QQQQ. Screen capture is a few candles late. Red lines are support/resistance lines I draw on when I start which not coincidentally is right where the doji appeared.

Second chart is TNA short

Third chart is TNA cover

Reader Q & A 5/26/10

Hey Scott,

I don't mean to spam you, but I have question about staying in a winning position. Is there a specific procedure you have for adjusting stops? I know trailing the highs/ lows of the previous candles works, but how do you make it through the pops and drops against your positions? I'm guessing you can kind of tell when they are weak/strong pushes, and that's something Ill learn with more observation. If you could shed some light on the topic I would appreciate it.

Thanks,

Aynul (avid reader)

Hi Scott,

Your most recent post on how you enter into a trade early was a real eye opener. I am currently going live trading futures with a small account. I paper traded based on your teachings...that is go with the flow of the market. So i trade with the trend once price touches the 20/30ema and then counter trend trade when i see strong divergence on my divergence indicator....always taking small profits and taking a small loss when i am wrong. One thing i have learnt from the exercise of taking numerous paper trades is that at the end of the day i will be profitable, but to make a bigger day is to add to the winning trades. Due to the small nature of my account i still suffer from fear of losing my capital and thus don't add to the winners. Now i will look at entering earlier and getting out for a smaller loss. I am using range bars but can work with minute bars too.

It is funny, since i was just thinking about this this morning and then i read your post. Lol, i think i am heading in the right direction...if i have started to think like you.

Reading your posts certainly opened my eyes to a lot of tricks/tips that i can use to minimize errors.

On another note, on average, how often during the day are you wrong and take a loss, and how do you add to winners? Also, how do you come back from an early morning big loss...i seem to always make a losing first trade and don't know how to get out of this pattern.

Thank you,

Anon

----------------------------------------------------------------------------------------------------------------------------------------------------------------------

I found these questions in my FNG email box which I rarely check , so sorry for the delay in answering them

Aynul- It all comes down to momentum. With a strong trending stock,I'll constantly move my stop in the direction of the move. I stick to using the near time momentum for stop levels with these as well. That means I keep the stop just under a pullback candle for a long position for example.

With faster moving stocks I'll usually keep it at the original stop level until the momo says it is finished, then cancel the stop and take profits. These faster stocks can really bounce around and it is easy to get taken out otherwise. So it is better to let the original premise for the trade stand. When you can gauge the momo correctly, you are not often stopped out.

Taking profits go hand in hand with stops though. You must have a plan to capitalize on the opportunities that come your way. Big candles are a sure signal to me to take profits regardless of what else is going on.

Anon- Worrying about losing money will actually attract losing trades to you. It's like telling yourself "Don't drop the toast on the floor" Of course then you proceed to drop it. Your sub conscious only hears the command "drop the toast" so it does.

When you can get into the flow and have confidence in your edge and trading plan, then the results will come. Adding to your winning trades even a little bit will eventually make you more successful. Just keep those losing trades small.

Depending on market conditions I take a few or many losing trades. They are always small though because when I stick to my system it does not let them grow big. Taking many small losing trades is normal in this business. It also makes perfect sense to add to the winning trades.That what a successful trader does.

If you are always getting a losing trade first thing in the morning, why don't you try paper trading th efirst couple of opportunities that come your way to get' warmed up" . Then start in with real money .

Using momentum to place stops

One technique I use with great success is to use momentum to show me where to place stops. I use something I call near time momentum. Near time momo is the the price level to which the stock fell or rose to just prior to when you enter the trade. It could be 1, 2 or 3 candles previously.

I have seen these momo levels ( you can't really call them support or resistance levels) survive over 1000's of trades. Upon entering the trade, it immediately goes in your direction and away from your stop. It's also called stress free trading. The fleeting moment between entering the trade and before it starts to move is the only time that your position is at risk.

I figure that since the price level wasn't breeched before it will take something else to happen before it will. Whatever information the markets and the stock was affected by then will have to change. Day traders have a big advantage if they can process what is happening in a timely manner and act accordingly. It is a matter of getting into the flow and letting it tell you how to trade with the direction of strength.

When you see these price levels and sense the momentum changing, you need to quickly enter the trade and set the stop a penny of two higher (or lower as the case may be).

Don't hesitate when you see the momo change or you will be putting on too much risk. Don't fumble with position sizing. You should already know what you either can play with or have left to play with beforehand. Don't be thinking about the reward as you or no one else knows where it is going to go. The only thing you can control is the risk. Do it, and fast with this technique. Like the majority of my trading, it doesn't require too much thinking, only observation.

Here's VXX from today that illustrates the concept.

First chart is entry, second chart is exit.

Reader Q & A 5

Over the years you've been posting, you have made mention of the clock and its importance in your trading. Your attention to it has intrigued me and I have tried ever since coming on board here to put it in the same context as you do. It's hard to do because we aren't actually seeing your trades in real time. Would you explore the importance of the clock as it relates to movement and momentum? It clearly has patterns you've seen and represents a part of your edge. I'm curious if i'm seeing it in its proper light. Thanks much.

Forgot to add this... when you have a stock such as VECO on your watchlist, do you use some sort of alert to let you know it is a mover? If so, what are the parameters that trigger the alert, if you don't mind sharing?

-Blue Collar Trader

I trade using only a 5 minute chart. I have noticed that if a stock is trending strongly and then stalls a makes a pullback for instance, its better to take the long profits, short the pullback and then wait for a new 5 minute candle to re enter a long postion and set a stop just under the previous candle low. Timing is crucial , I watch the clock closely and every situation is different but using this technique has made me shedloads of money over the years. Risk is very low because if it turns and hits my stops then I’m out only a couple of pennies. If it works then I have a huge jump on the traders who wait. I might add quickly to my position since it is already a winning trade.

VXX this morning provided a textbook example.

Currently it is a sellers market (VXX moves opposite the market) so keep in mind that drives all my decisions.

Previously I sold the VXX long using this same technique at the 10:30 am candle, taking profits and am short this red candle which feels to me like a fake out. I’ll take it anyway but keeping in mind that the big money at the moment is VXX long.

So I wait until the red candle 5 minutes are finishing, cover the short and go long. It immediately starts rising again as the fake out sellers have no power against the buyers of VXX and the market sentiments in general.

Sell it after $1 run, taking profits and do it all over again.

At the same time I traded FAZ and earlier GG , EGO and they all did the same movements. The 10:30 candle on GG EGO were textbook examples as well.

For my alerts I only set it to show new highs or lows nothing more.

First chart is VXX entry,second chart is exit.

Under the radar

In choppy markets, there are still stocks that are trending or at least not so choppy. The trick is to find them.

The hitting new highs/lows list can still be put to good use to find the opportunities. WHat I am looking for are completely unsexy stocks, no hype, no tech, nobodys favourites, never a lot of attention paid to them. Shown here are some I found today.

But before I get to that I thought I'd post something that may or may not be useful to you, you can't confirm and maybe I'm just talking out of my ass about. However the last few months typically before volatility hits the markets the Nasdaq test code symbol ZWZZT shows up on my hitting new highs/lows indicator. I'm not saying it is a reliable indicator, far from it, but I use its appearance as signal to get ready. It's almost as if the exchange is making certain their data feed is working 100% before the waves of volume start. Like they know something from the advanced order flow maybe. Historical charts of it in any time frame are meaningless so its only the symbol showing up that piques my interest. Take from it what you will.

In any event here the the charts from above:

First chart is SHW short

Second is SHW cover

Third is BTU short

BTU cover

Ode to Nothing Part II

Once upon a midday dreary, while I pondered weak and weary,

Over many an overbought issue and overhyped bore,

While I nodded, nearly napping, suddenly there came a tapping,

As of some one gently rapping, rapping at my office door.

`'Tis some visitor,' I muttered, `tapping at my darkened office door -

Only this, and nothing more.'

Ah, distinctly I say it was in a bleak day in May,

And each separate dying security wrought its ghost upon the floor.

Eagerly I wished the morrow; - happily I had sought to borrow(shares)

From my books surcease of sorrow - sorrow for what was in store -

For the rare and radiant piledriver whom the angels named ‘The Big Score’ -

Nameless here for evermore.

And the silken sad uncertain plunging of each red candle

Thrilled me - filled me with fantastic terrors only once felt before;

So that now, to still the beating of my heart, I stood repeating

`'Tis another stock entreating entrance to a lower floor -

Some falling stock entreating entrance to a lower floor; -

This it is, and nothing more,'

Presently my account grew stronger; hesitating then no longer,

TNA I said, VXX or AAPL and more, truly your short sales I implore;

But the fact you have so recently pushed higher, every day a little higher

And now so faintly you came tapping lower, tapping lower at my office door,

That I scarce was sure I heard you' - here I opened wide the door; -

Redness there, and nothing more.

Deep into that redness peering, long I stood there wondering, fearing,

Doubting, dreaming 1000 points lower dreams no mortal ever dared to dream before

But the sound was unbroken, and the feeling gave a token, “lower”

And the only words there spoken was the whispered words, `The Big Score!'

This I whispered, and an echo murmured back the word, `The Big Score!'

Merely this and nothing more.

Back into the screens turning, all my soul within me burning,

Soon again I heard a tapping somewhat louder than before.

`Surely,' said I, `surely that is something on my S&P yearning;

Let me see then, what there at is, and this mystery explore -

Let my heart be still a moment and this mystery explore; -

'Tis the much lower market and nothing more!'

Open here I piled on the shorts sales, when, with many a flirt and moment great,

Down then marched the candles, reminiscent of the days of autumn 2008

Still it was one hour ‘ere lows would be printed, I posted a post that one could not ignore

But, with all of traders great or small, whose advice should one take at all?-

I sat perched upon my Hermann Miller just inside my office door -

Perched, and sat, and nothing more.

Then this red piledriver beguiling my silent fancy into smiling,

By the grave and stern decorum of the countenance it wore,

Though thy voice said lower and lower and lower’ I said surely a time will say, “no more”

Ghastly grim for the longs and the slow, the plunge gained speed, then some more

Tell me what thy lordly name is if not “the Big Score?!'

Quoth the markets, `Nevermore.'

Much I marvelled my ungainly sense to hear discourse so plainly,

Though its answer little meaning - little relevancy bore;

For we cannot help agreeing that no living human being

Ever yet was blessed such a plunge in history seeing-

The ugly to most, The beauty to some, of an event so revealing

With such name as `The Big Score.'

But the markets, sitting lonely at its lowest depth, spoke only,

That one word, as if its soul in that one word it did outpour.

Nothing lower further then it uttered - not a feather then it fluttered -

Till I scarcely more than muttered ‘ I am done and do deplore’

’Cover the shorts, then go long as before’, as my bounces have flown before.'

Then the markets said, `The Big Score.'

Startled at the stillness broken by reply so aptly spoken,

`Doubtless,' said I, `what it utters is its only stock and store,

Caught from some unhappy market master whom unmerciful disaster

Followed fast and followed faster till his songs one burden bore -

Till the dirges of his hope that melancholy burden bore

Of "The Big Score."

But the markets still beguiling all my accounts into smiling,

straight I wheeled a throng of longs into the bounce to get some more

Then, upon the chair sinking, I betook myself to thinking

When the bounce would fade and falter

What this grim, ungainly, ghastly, giant, and ominous bounce had in store

What it had in store.

This I sat engaged in guessing, but no syllable expressing

To the markets whose green candles now burned into my bosom's core;

This and more I sat divining, with my head at ease reclining

On my chairs leather lining that the lamp-light chuckled o'er,

Pity on the robots plight for a moment I did delight

I shall press sell then, ah, “Another Big Score”!

Then, methought, as the account inswell grew denser, perfumed from an unknown sender

Sent by my Doppelganger whose foot-falls tinkled on the tufted floor.

`Wretch,' I whispered, `thy God hath lent thee - by these angels he has sent thee

Respite – respite and drink the spoils of victory more!

Quaff, oh quaff this strong ale, and forget this Big Score!'

Quoth the markets, `The Big Score.'

`Be that word our sign of parting, I spoke to the candles upstarting -

`Get thee back into the tempest and the volatility I endure!

Leave no uptick in your wake, down, down you must go to zero

Leave the PPT fiddling as did Nero

Leave the shortsellers unbroken! - quit the incessant rise to nevermore!

Quoth the markets, `Nevermore.'

And of the markets, though they dropped a token, still may they fall unbroken

To new depths the coming weeks that are hereto unspoken

My sellers greed will not be quenched until they are truly broken

Until they are truly broken

And my eyes have all the seeming of a demon's that is dreaming,

And the lamp-light o'er me streaming throws my shadow on the floor;

And my soul from out that shadow that lies floating on the floor

Shall be lifted - nevermore!

Fascinating

Some random observations from today:

-What happened today is what I thought was the likely scenario in mid January when I wrote this Fear & Greed Day Trader: How to trade in a wild, pile driving market.

Obviously I paid attention and saw the incessant march upwards instead so I traded it the way of least resistance. But I felt it was going to turn out bad for the longs when the music stopped. Today it did.

- Human brain beats algorithm. I touched on the subject here Fear & Greed Day Trader: Probabilities vs. expectations I had to chuckle to myself when I picked the bottom to cover my shorts. It was so obvious. The really interesting part happened moments later on the upswing. The spreads indicated the machines did not know what to do. Sell or buy, buy or sell? They were totally lost like a lost young kid at a crowded circus. I almost felt pity for them. Almost. I laughed instead. Consecutive multi dollar spreads on the buy and sell sides on a typically .01 - .05 spread stocks like TNA or AAPL shouted out to me the super brain PHDs that designed the algorithms can’t think out past what happens if this and this and this and this and this and this and this and this and this happens. A clear thinking human being can because we have the ability to adapt. I'll keep that one tucked away in my memory bank. Score one for flesh and blood.

- In mid January I also updated my computer to the latest, fastest processor and loads of RAM and any other trick to make me fast and reliable as possible on my end. As I witnessed in the fall of ‘08 there is a lot of information to process in a short amount of time. I was loaded up, sitting pretty and observing during the crash today so I didn’t need to do or have a problem selling. I was looking for the cue to cover instead. Buy orders were filled EZ. Every morning I also synchronize my computer clock to the official government clock so as to have no delays.

-I wonder if some trades will be broken by the exchanges.

- Wouldn’t a 2000 point down or up day be something to trade tomorrow? Nothing is impossible.

On being prepared.

Today, if you made 10x what you normally do , now is a great time to go take a walk in the park and reflect on the incredible trading conditions. You just witnessed that anything can and does happen. Congratulate yourself on being prepared to take advantage of them and following the plan and reading the mob mentality. Now forget about the money. Don't boost or brag. Tomorrow is another day and there is always room for improvement.

Here are some worthwhile charities that you can share a bit of your "luck" with. It will make you feel good.

http://www.warchild.org/helpus/helpus.html

http://www.freethechildren.com/

http://www.worldwish.org/

Cover VXX. Now just work it...

Sold TNA, now thats what I call a bounce

And selling VXX

There comes a time when it'd be foolish not to take profits. I'm covering TNA and others here and now.

TNA

Points to remember.

Here's a few points to remember on days like today when the markets are crashing hard:

1. New lows make newer lows - fear has a grip on a lot of the market participants. The dummies who averaged down from last week are getting their accounts brutalized. And their emotional state is in one of questioning why they didn't take profits instead. You can capitalize on that force driving the market when you trade from a detached emotional view. It's much easier to make money by going short instead or trade the inverse ETFs .

2. It's time to trade larger size- push the volumes you normally trade because the momentum is telling you it's definitely on the short side.

3. Focus on only a couple of plays at the same time, don't spread yourself and your focus amongst too many stocks. You want to be able to react and take profits and not be befuddled by having to make too many decisions.

4. Nothing lasts forever. Take profits when they are offered up to you after a good run or candle. There will be bounces and pullbacks and you want to take advantages of those as well. Trade well. Follow your plan.

Days like these are what we are here for. It's why we practice and do the visualizations, fine tune the trading plans and concentration exercises. Grab the opportunity with both hands.

Trade accordingly...

Nice down day, shorts are the order of the day...until it bounces. Show no mercy in either direction.