Mind over market.

What is your objective as a trader? The thrill of the kill, bragging rights, or make enough money to pay your bills and get out from under your boss’ foot?

Mine is to be a consistently profitable trader. I have come to learn that a narrow focus brings more power to the object of your desire compared to a wide and nebulous effort. Think high powered rifle vs. a shotgun.

In order to reach that state of desire what tools will you use? Hoping and wishing your stock picks are right?

I use my mind to formulate a plan, a road map if you like, to my final destination. My plan details the steps I need to take, based on observation of my personality, mental state and how to interface with the market. I then use my will power to compel myself to do what ever is necessary to reach my goal. Eliminate emotions and trade like a machine.

To be able to trade like a machine, it is necessary to work in such a way that the way you work never differs. You do the same actions again and again in response to the market because your trading system is ingrained into your being that so it is an automatic reflex. Everyone has will power if they decide to use. Whatever obstacles in your way can be overcome by applying your will power to find a solution and implementing it. This takes dedication to reach your goal. Putting the effort in to change or fix whatever it is that is holding you back. Make up your mind to focus on the issues and one by one the problems will disappear.

Concentration is what makes this possible. A trader needs to be able to identify, organize and implement all steps toward their desired goal. You’ll find that when you can concentrate fully on an idea and bring to bear all your mental powers, a solution is easily found.

In broad strokes my daily trading plan is as follows:

1. Get into the flow.
2. Feel the momentum
3. Confirm the markets
4. Check the clock
5. Enter the trade
6. Set stop at exit price (mental or hard)
7. Manage the trade.

There are many, many sub sections in each of those steps but the learning of how to achieve all those steps was met a long time ago for me. And the completion of these steps bring me to my ultimate objective to be a consistently profitable trader.

When you can utilize your will power and concentration as tools in the same way as your computer is to be a necessary component or tool of your trading system, I think you’ll find good results will quickly come your way.

Connected stocks show the way.

With the markets trading pretty choppy lately, one technique I use to help point the way and give me more weight to a probable direction is to look at what other "connected" stocks are doing. By connected I mean related in some way. When trading the bank and financial stocks I always look to see what gold stocks are doing. They are connected.

Earlier this morning the bank/financials were shooting up again but the market volume was weak. I took a look at AEM and ABX gold stocks. They were already on their way down so it was a good probability that the banks etc. were going to follow even though they were still going up.  Good profits are possible due to seeing these small signals 10 minutes before the other stocks follow and being prepared to take the correct action.

1st chart is S&P andd QQQQ before the move.

2nd chart is after/during  the move 

3rd chart is ABX shows downward move 10 minutes before bank stocks

AEM does the same

FAS before

FAS after/during

FAZ before

FAZ during/ after

SKF before the move

SKF during / after

SRS shows the same

SRS after the move

Profit goals are a bad idea.

I fail to understand the 1000's of stock market pundits that recommend you set a profit target when you enter a position for the following reason:

Exhibit A - your bruised and bloodied ego after the markets have shown you who is always right. (hint - it ain't you or me)

 I don't know anyone that can predict what the market is going to do. And to set yourself up for psychological beatings time after time is a sure way to run your trading account down to zero. But, says you, "it's a perfect set up, the stars are aligned and maybe even some trusted analysts are touting the stock to X$ level." All you are doing when you subscribe to this train of thought is to CONVINCE yourself that you know what the future is. And there is a huge difference psychologically between convincing yourself that an event will happen,  and believing in the probability of an event happening.

To demonstrate these two approaches let look into this summary of two traders named Bob and Cindy.

-Bob buys 1000 SKF @$250 and a sell target of $300. (secretly $500)

-Cindy buys 1000 SKF @ $250 with a stop at $249

- an hour later SKF hits $260. Bob is thrilled and says to himself , "Booyah, I'm right" He does a  victory dance and dreams about a new Ferrari.

- Cindy sells SKF and pockets $10K. She then shorts it and says to herself "way to take those  profits girl" High 5.

- SKF is sliding down so Bob checks his fundamentals and reaffirms that SKF should at any  moment shoot back up.

- Bob buys more SKF to average down his cost.

- Cindy moves her stop lower to protect profits should SKF suddenly and violently reverse.

- At the end of the day Bob checks various chat rooms that forecast SKF going to "at least $300.   He feels better and says to himself " I'll get out at $290 then".

- The next day SKF opens @ $220. Bob picks himself up off the floor and looks  stunned into his  flat screen monitors. He can't even think right now.

- Cindy covers her short sale, putting a huge chunk of $ into her account.

- Bob can't remember his plan or what to do. But he rationalizes "well it was a good buy at $250  so  it's a screamin' good buy now." And he proceeds to buy more @ $218, $212, $207, and $190.

 "I mean it has to go up, the banks are in a real mess. This is a fact!!!" He shouts at no one in  particular.

- Cindy acknowledges SKF is making big red candles moving down so she shorts it again almost  immediately after covering her first short. She doesn't even consider the additional $10 in  commissions.

- Bobs brokerage firm gives him a margin call. Bob and Bobs life is destroyed. Reality has  overtaken fantasy in his life.

- Going into the close, Cindy is thinks it is wise to cover her short.  She admits" I don't know  what tomorrow will bring" as she leafs through a brochure on "Great diving destinations in the  South Pacific"

Ego will destroy you as a trader and possibly a human being when you are wrong after you convince yourself you're right.

Hoping and wishing will not make the market do so.

How many beatings can you take before self doubt creeps in, effectively paralyzing you as a trader?

Profit targets are just one more nail in the coffin of traders who think they know.

Try this approach instead. Say to yourself,

"I don't know what a stock will do in the future."

"No one on TV, or on web sites or newspapers know what a stock will do."

" Based on past patterns, the charts and prices tell me now which direction is more PROBABLE." 

"I do know my risk amount so I will set a stop at that point."

Now sit back and let the market do it's thing.

Some of you very persistant FNG seekers  have convinced me that my way of trading and my articles have value to those trying to learn the game. SO this blog is open to the public again. Feel free to download stuff while it's available...

sold SKF 

sold SRS

15 minutes to go, doubled up in SRS SKF longs