thalestrader

Weekend Reading Hi Folks, What I believe should have become apparent to all over the course of this thread is the following: Whether you trade using the approach I use or your own variation of it, or you use an approach completely different, the key to success is not in the method selected, but in the trader him or herself to apply that method consistently. I have tried, in these weekend readings, and the occasional extra articles and essays I share, to focus upon the emotional and mental aspects of trading, the discipline required to succeed, and the subject of money management, which will keep you alive long enough to see yourself through the learning period and beyond. The three Raschke essays shared this week along with last weekend's readings moved me profoundly, both when I first read them years ago, and on my most recent reading as well. This week, I offer two readings, one an old friend, the other a new one (new to me, that is). I feel both to be hepful in moving one toward the understanding of this game and what one has to do and how one has to approach it in order to win. The first is a little piece of an old Gann course called "How to Trade." I found it long ago. It is available all over the internet. It is a five page chapter that has some real pearls within it. I do not have his course. I do not know what he means when he refers to a "master forecasting chart." Disregard the strange, and focus on what strikes you as relevant to trading in general, especially as it has been discussed in this thread. The reason I share the Gann article has nothing to do with Gann's more esoteric teachings, but everything to do with his nuts and bolts, reall world approach to understanding the markets. The second is a book I acquired this week. It is Mark Douglas's first book, The Disciplined Trader. For whatever reason, of al the books, articles, seminars, software, etc. and so that I consumed over the years, Douglas is one I had avoided. It was only the fact that Kiwi recommended him multiple times that I decided to take a look. I liked what I saw enough to make his Trading in the Zone a Weekend Reading installment several weeks ago. I have not yet finished this book, but I think it also a worthwhile read. I do not have a .pdf myself, but a quick google search turned up this link where you can download the entire book except for the index: http://prismintraday.com/readings/Disciplined_Trader.pdf I have attached the Gann article to this post. Best Wishes, Thales Gann, W D How To Trade.pdf

No problem, Brownie. I wasn't criticizing you, and I understood that you were simply relaying OEC's explanation. I just find their explanation ridiculous. A range bar chart is constructed of bars of equal tick counts. OEC's explanation seems to imply that the definition of a range bar chart is one of opinion rather than fact. I agree with you, and said as much when I said that if range bars are important to a trader, OEC is not the place for that trader to trade. Best Wishes, Thales

Hi Folks, There are several people to whose writings I return again and again. One of those folks, you may have guessed, is Linda Raschke. My most recent re-reading of her materials this past week have surprised me by how very much my own trading has been influenced by her. In fact, her influence ma outweigh all of those to whom I have given so much more credit. Here is yet another essay of hers that desrves to be copied, pasted, printed, read, and re-read. Best Wishes, Thales The Mental Aspect of Trading by Linda Bradford Raschke Many traders quickly come to acknowledge that despite being familiar with winning strategies, systems, and money management techniques, trading success is dependent on your psychological state of mind. If you're a trader just starting out, where do you find the initial confidence to pull the trigger? How do you deal with the down times without digging yourself deeper into the hole? If you are in a hole, how do you work your way back out? How do experienced traders push through the ceiling of profitability that caps their initial trading years and make a truly fabulous living? Trading is a performance-oriented discipline. Stress and mental pressures can affect your ability to function and impact your bottom line. Much of what has been learned about achieving peak performance in both business and sports can be applied to trading. But before looking at some of these factors, let's first examine the ways that trading differs from other businesses. 1. Intellect has nothing to do with your ability as a trader. Success is not a function of how smart you are or how much you have applied yourself academically. This is hard to accept in a society that puts a premium on intellect. 2. There is no customer or client good will built up each day in your business. Customer relationships, traditionally important in American businesses, have little to do with a trader's profitability. Each day is a clean slate. 3. The traditionally 8-5 work ethic doesn't apply in this business! A trader could sit in front of a screen all day waiting for a recognizable pattern to occur and have nothing happen. There is a temptation to take marginal trades just so a trader can feel like he's doing something. There's also the dilemma of putting in constant hours of research, having nothing to show for it, and not getting paid for the work done. Yet if a trader works too hard, he risks burn- out. And what about those months where 19 out of 20 days are profitable, but the trader gives it all back in one or two bad days? How can a trader account for his productivity in these situations? 4. If you were to invest time, energy, and emotion into developing a business venture and backed out at the last minute, it would be considered a failure. However, you should be able to invest time and energy into researching a trading idea, and yet still be able to change your mind at the last minute. Market conditions change, and we cannot be expected to predict all the variables with foresight. Getting out of a bad trade with only a small loss should be considered a big success! What IS the definition of a successful trader? He should feel good about himself and enjoy playing the game. You can make a few small trades a year as a hobby, generate some very modest profits, and be quite successful because you had fun. There are also aggressive traders who have had big years, but ultimately blow-out, ruin their health or lead miserable lives from all the stress they put themselves under. Principles of Peak Performance The first principle of peak performance is to put fun and passion first. Get the performance pressures out of your head. Forget about statistics, percentage returns, win/loss ratios, etc. Floor-traders scratch dozens of trades during the course of a day, but all that matters is whether they're up at the end of the month. Don't think about TRYING to win the game - that goes for any sport or performance-oriented discipline. Stay involved in the process, the technique, the moment, the proverbial here and now.! A trader must concentrate on the present price action of the market. A good analogy is a professional tennis player who focuses only on the point at hand. He'll probably lose half the points he plays, but he doesn't allow himself to worry about whether or not he's down a set. He must have confidence that by concentrating on the techniques he's worked on in practice, the strengths in his game will prevail and he will be able to outlast his opponent. The second principle of peak performance is confidence. in yourself, your methodology, and your ability to succeed. Some people are naturally born confident. Other people are able to translate success from another area in their life. Perhaps they were good in sports, music, or academics growing up. There's also the old-fashioned "hard work" way of getting confidence. Begin by researching and developing different systems or methodologies. Put in the hours of backtesting. Tweak and modify the systems so as to make them your own. Study the charts until you've memorized every significant swing high or low. Self-confidence comes from developing a methodology that YOU believe in. Concentrate on the technical conditions. Have a clear game plan. Don't listen to CNBC, your broker, or a friend. You must do your own analysis and have confidence in your game plan to be a successful trader. Analyze the markets when they are closed. Your job during the day is to monitor markets, execute trades and manage positions. Traders should be like fighter pilots - make quick decisions and have quick reflexes. Their plan of attack is already predetermined, yet they must be ready to abort their mission at any stage of the game. Just as you should put winning out of your mind, so should you put losing out of your mind - quickly. A bad trade doesn't mean you've blown your day. Get rid of the problem quickly and start making the money back. It's like cheating on a diet. You can't undo the damage that's been done. However, it doesn't mean you've blown your whole diet. Get back on track and you'll do fine. For that matter, the better you are able to eliminate emotions from your day, the better off you will be. A certain amount of detachment adds a healthy dose of objectivity. Trading is a great business because the markets close at the end of the day (at least some of them). This gives you a zero point from which to begin the next day - a clean slate. Each day is a new day. Forget about how you did the week before. What counts is how you do today! Sometimes what will happen during the day comes down to knowing yourself. Are you relaxed or distracted? Are you prepared or not? If you can't trade that day, don't! - and don't overanalyze the reasons why or why not. Is psychoanalyzing your childhood going to help your trading? Nonsense! The third important ingredient for achieving peak performance is attitude. Attitude is how you deal with the inevitable adverse situations that occur in the markets. Attitude is also how you handle the daily grind, the constant 2 steps forward and 2 steps back. Every professional has gone through long flat times. Slumps are inevitable for it's impossible to stay on top of your game 100% of the time. Once you've dug yourself out of a hole, no matter how long it takes, you know that you can do it again. If you've done something once, it is a repeatable act. That knowledge is a powerful weapon and can make you a much stronger trader. Good trades don't always work out. A good trade is one that has the probabilities in its favor, but that doesn't mean that it will always work out. People who have a background in game theory understand this well. The statistics are only meaningful when looking at a string of numbers. For example, in professional football, not every play is going to gain yardage. What percentage of games do you need to win in order to make the playoffs? It's a number much smaller than most of us are willing to accept in our own win/loss ratios! Here is an interesting question: should you look at a trade logically or psychologically? In other words, should every trade stand on its own merits? Theoretically, yes, but in real life it doesn't always work that way. A trader is likely to manage a position differently depending on whether the previous trade was a winner or a loser. How does one know when to take profits on a good trade? You must ask yourself first how greedy do you want to be, or, how much money do you want to make? And also, does your pattern have a "perceived profit" or objective level? Why is it that we hear successful winning traders complain far more about getting out of good trades too soon than not getting out of bad trades soon enough? There's an old expression: "Profits are like eels, they slip away." Successful traders are very defensive of their capital. They are far more likely to exit a trade that doesn't work right away than to give it the benefit of the doubt. The best trades work right away! OK. Realistically, every trader has made a stubborn, big losing trade. What do you do if you're really caught in a pickle? The first thing is to offer a "prayer to the Gods". This means, immediately get rid of half your position. Cut down the size. Right off the bat you are taking action instead of freezing up. You are reducing your risk, and you have shifted the psychological balance to a win-win situation. If the market turns around, you still have part of your position on. If it continues against you, your loss will be more manageable. Usually, you will find that you wished you exited the whole position on the first order, but not everyone is able to do this. At an annual Market Technician's conference, a famous trader was speaking and someone in the audience asked him what he did when he had terrible losing trades. He replied that when his stomach began to hurt, he'd "puke them at the lows along with everyone else." The point is, everyone makes mistakes but sooner or later you're going to have to exit that nasty losing position. "Feel good" trades help get one back in the game. It's nice to start the day with a winning scalp. It tends to give you more breathing room on the next trade. The day's psychology is shifted in your favor right away. This is also why it's so important to get rid of losing trades the day before. so you don't have to deal with them first thing in the morning. This is usually when the choice opportunity is and you want to be ready to take advantage of it. A small profitable scalp is the easiest trade to make. The whole secret is to get in and get out of the market as quickly as possible. Enter in the direction of the market's last thrust or impulse. The shorter the period of time you are is the marketplace, the easier it is to make a winning trade. Of course, this strategy of making a small scalp is not substantial enough to make a living, but remember the object is to start the day out on the right foot. If you are following a methodology consistently (key word), and making money, how do you make more money? You must build up the number of units traded without increasing the leverage. In other words, don't try going for the bigger trade, instead, trade more contracts. It just takes awhile to build up your account or the amount of capital under management. Proper leverage can be the key to your success and longevity in this business. Most traders who run into trouble have too big a trade on. Size influences your objectivity. Your main object should be to stay in the game. Most people react differently when they're under pressure. They tend to be more emotional or reactive. They tense up and judgement is often impaired. Many talented athletes can't cut it because they choke when the pressure's on. You could be a brilliant analyst but a lousy trader. Consistency is far more important than brilliance. Just strive for consistency in what you do and let go of the performance expectations. Master the Game The last key to achieving mental mastery over the game is believing that you can actually do it. Everyone is capable of being a successful trader if they truly believe they can be. You must believe in the power of belief. If you're a recluse skeptic or self-doubter, begin by pretending to believe you can make it. Keep telling yourself that you'll make it even if it takes you five years. If a person's will is strong enough, they will always find a way. If you admit to yourself that you truly don't have the will to win at this game, don't try to trade. It is too easy to lose too much money. Many people think that they'll enjoy trading when they really don't. It's boring at times, lonely during the day, mentally trying, with little structure or security. The markets are not a logical or fair playing ground. But there are numerous inefficiencies and patterns ready to be exploited, and there always will be.

There are several different implementations of range bars? Are there several different implementations of minute bars as well? Would it make sense to load a 5 minute chart, and have some bars that are 4 minutes and others that are 6? Range bars are understood everywhere in the world to be a chart where each bar is the same number of ticks. OEC doesn't use "fake ticks" to fill gaps? Well there is part of the problem. The other part seems to be a technological incompetence. Range bars such as those in the examples above are useless. If range bars are important to you, daedalus, then do as Dinero suggested and move on. Best Wishes, Thales

The dollar rallied to 80.68 today, putting into the lower half of the 80.40-82 target range for this rally leg. It had closed at 79.92 yesterday. The dollar selling/euro buying at the end of the day may be the beginning of a somewhat larger correction to this dollar rally than we've seen thus far, though I am always somewhat hesotant to read too much into last hour of the last of the week activity. If a larger correction is in the offing, I'd be looking for 78.45 down to 76.60 as a target range (not shown with trend lines, but basically the 12/22 high and 1/13 low). Best Wishes, Thales

1059-1069 is really a thick R-zone, wouldn't you say? I wasn't trading that long there (I hope I didn't mislead anyone), and my post was meant as a "thought experiment" more than anything else. Best Wishes, Thales

It is managing the trade where our emotions are most inflamed. Tough stuff, MidK. I have a friend who back tested a "random entry" approach and found that with a volatility based trailing stop, random entry had positive expectancy. So basically waking up, flipping a coin, and trailing a stop is all we need. If only it were that easy, right? Best Wishes, Thales

Have you considered that with a 5K balance, you could halve your risk, and still reach your goal. A 2.5% risk (still heavy, but still .5% below cowboy levels) with a 10R weekly target is 25%. Now there are many who would balk at the "audacity" of a 10R/week goal. But it is achievable. Also, be sure that should you suffer a string of losses, you reduce you size as your balance decreases. Your risk needs to be based on x% of closed equity, not x% of starting equity. I wish you my best, Thales

Haters? Here? At TL? I don't believe it. Though my horns are still twisted from the idiot from last week who wandered in from ET. I do not know what they get out of their comments. Best Wishes, Thales

But, as it is a long sequence, not doing anything fancy but throwing some fib expansions on to see where it might be heading without respect for chart points. Right now the trade, had I taken it, would be at BE. I would usually take profits at or close to a chart point corresponding to the 1.618, but in this case, I maybe would have used that as BE, and played for the higher points noted on the chart. All of thisis conjecture, because I am not in the trade. Best Wishes, Thales

I believe the points I would emphasize are these: 1) Be aware of the size of the swings you are using to get into the market. The ensuing moves, i.e. what you can reasonably expect by way of maximum favorable excursion (MFE) for the trade will be in proportion to those swings. Do not enter a short sequence visible on a 5 minute chart and expect profits the size you would expect on a similar sequence visible on a 60 minute chart. 2) If you are using a smaller degree to "anticipate" a higher degree break out, then accept that any profit may disappear to a loss if the larger degree breakout fails to materialize. 3) If you are taking a breakout of a sequence visible on a 15 minute chart, do not manage trailing stops on a lower degree, with the exception that if a lower degree adverse reversal appears soon after entry, and with very little MFE, then use the small degree to exit, but have a plan to re-enter in the original direction if the larger degree move you anticipated re-asserts itself. If there were something else I had said to which you are referring, you will need to find the post. I remember the discussion, and I think I even remember the charts I used (6E/EURUSD at a double top discussing two back to back short sequences and showing various degrees of swing), but I do not remember where the post is. This has become quite a large thread, and at some point, I do intend to perhaps move/reiterate certain points either in a thread of their own, or utilizing TL's blog features to make it easier for us to reference the material. Best Wishes, Thales

Still looking ... I put a sell stop below the spike low on the NFP announcement, but canceled it with the new bounce/rally high. I apparently was so convinced of my opinion that the direction would be down, that I did not see this as a long sequence. Usually I at least see the possibility, and then choose to do nothing. This time, I did not even let myself "see" this as a long. Though I did not lose anything this time, it is still a clear violation of Rule Number 49 - "Lose your opinion, not your money." Best Wishes, Thales

Looking for a short anytime now ... it will either be a short sequence ont he 15 minute or a new break low, but I am looking for a short on the ES that should have a first profit target in the high 1020's with lower targets should I please. Note that the blue and red lines do not represent actual orders yet. We do not yet have a short sequence, and I am just tracking the potential for one. Also, the chart shown here is the 15 minute, not the 240 minute from the above quoted post. http://www.traderslaboratory.com/forums/attachment.php?attachmentid=18936&stc=1&d=1265374789 Best Wishes, Thales

Hi Folks, I've taken advantage of a slow quiet night in the markets to go back and read some Linda Raschke material. The following is a list of trading rules that she was given when she was a floor trader trading options on the Pacific Exchange in the early 80's. I think it is a good list, so I thought I'd share this here (Again, this is from Linda Raschke, not me). I especially like the last one: "Assimilate into your very bones a set of trading rules that works for you." Best Wishes, Thales Time Tested Classic Trading Rules for the Modern Trader to Live By This is a list of classic trading rules that was given to me while on the trading floor in 1984. A senior trader collected these rules from classic trading literature throughout the twentieth century. They obviously withstand the age-old test of time. I'm sure most everybody knows these truisms in their hearts, but this list is nicely edited and makes a good read. 1. Plan your trades. Trade your plan. 2. Keep records of your trading results. 3. Keep a positive attitude, no matter how much you lose. 4. Don't take the market home. 5. Continually set higher trading goals. 6. Successful traders buy into bad news and sell into good news. 7. Successful traders are not afraid to buy high and sell low. 8. Successful traders have a well-scheduled planned time for studying the markets. 9. Successful traders isolate themselves from the opinions of others. 10. Continually strive for patience, perseverance, determination, and rational action. 11. Limit your losses - use stops! 12. Never cancel a stop loss order after you have placed it! 13. Place the stop at the time you make your trade. 14. Never get into the market because you are anxious because of waiting. 15. Avoid getting in or out of the market too often. 16. Losses make the trader studious - not profits. Take advantage of every loss to improve your knowledge of market action. 17. The most difficult task in speculation is not prediction but self-control. Successful trading is difficult and frustrating. You are the most important element in the equation for success. 18. Always discipline yourself by following a pre-determined set of rules. 19. Remember that a bear market will give back in one month what a bull market has taken three months to build. 20. Don't ever allow a big winning trade to turn into a loser. Stop yourself out if the market moves against you 20% from your peak profit point. 21. You must have a program, you must know your program, and you must follow your program. 22. Expect and accept losses gracefully. Those who brood over losses always miss the next opportunity, which more than likely will be profitable. 23. Split your profits right down the middle and never risk more than 50% of them again in the market. 24. The key to successful trading is knowing yourself and your stress point. 25. The difference between winners and losers isn't so much native ability as it is discipline exercised in avoiding mistakes. 26. In trading as in fencing there are the quick and the dead. 27. Speech may be silver but silence is golden. Traders with the golden touch do not talk about their success. 28. Dream big dreams and think tall. Very few people set goals too high. A man becomes what he thinks about all day long. 29. Accept failure as a step towards victory. 30. Have you taken a loss? Forget it quickly. Have you taken a profit? Forget it even quicker! Don't let ego and greed inhibit clear thinking and hard work. 31. One cannot do anything about yesterday. When one door closes, another door opens. The greater opportunity always lies through the open door. 32. The deepest secret for the trader is to subordinate his will to the will of the market. The market is truth as it reflects all forces that bear upon it. As long as he recognizes this he is safe. When he ignores this, he is lost and doomed. 33. It's much easier to put on a trade than to take it off. 34. If a market doesn't do what you think it should do, get out. 35. Beware of large positions that can control your emotions. Don't be overly aggressive with the market. Treat it gently by allowing your equity to grow steadily rather than in bursts. 36. Never add to a losing position. 37. Beware of trying to pick tops or bottoms. 38. You must believe in yourself and your judgement if you expect to make a living at this game. 39. In a narrow market there is no sense in trying to anticipate what the next big movement is going to be - up or down. 40. A loss never bothers me after I take it. I forget it overnight. But being wrong and not taking the loss - that is what does the damage to the pocket book and to the soul. 41. Never volunteer advice and never brag of your winnings. 42. Of all speculative blunders, there are few greater than selling what shows a profit and keeping what shows a loss. 43. Standing aside is a position. 44. It is better to be more interested in the market's reaction to new information than in the piece of news itself. 45. If you don't know who you are, the markets are an expensive place to find out. 46. In the world of money, which is a world shaped by human behavior, nobody has the foggiest notion of what will happen in the future. Mark that word - Nobody! Thus the successful trader does not base moves on what supposedly will happen but reacts instead to what does happen. 47. Except in unusual circumstances, get in the habit of taking your profit too soon. Don't torment yourself if a trade continues winning without you. Chances are it won't continue long. If it does, console yourself by thinking of all the times when liquidating early reserved gains that you would have otherwise lost. 48. When the ship starts to sink, don't pray - jump! 49. Lose your opinion - not your money. 50. Assimilate into your very bones a set of trading rules that works for you.

Current view of the 240 minute ES with targets. The target around 1050 almost feels like a given at this point. I'd be more inclined to short a bounce off of it than to buy that bounce (presuming it bounces at all. My favorite target is about 1018.75. Below that is 1007.25, though if 1018.75 fails I'd be looking for 998.50 or so (not shown). Best Wishes, Thales

Current view of the US Dollar index shows that the Buck cleared nearby reistance easily. Next stop is the area between 80.40 and 82.00 (I could try to pick a tick, but why bother). I did not trade today other than a small loss on an ES long. My guess, if guesses are allowed, is that the long dollar, long Yen, short the world has a day or two more before a pause. I do think this is looking a lot like 2008 which means, as MK has implied in his recent posts, that 6E(EURUSD) and 6B (GBPUSD) should be viewed as long scalps/short swings. Best Wishes, Thales

I shared this over at Jonbig's blog as well. He observed that both recent lows in crude were 72.42/3 level. ... this is the 240 minute crude, which shows the 72.4x level is likely line in the sand between current levels and much lower crude prices, as not only did it act as suport on 2/1 and this afternoon, but it was the 12/14/09 low as well. Best Wishes, Thales

And the 12/14 low was 72.45 ... $76.50 was a great level to sell. I wish I had sold it there myself. Crude is very close, if not at, a "sell and hold situation." Best Wishes, Thales

Hi Folks, A family emergency called me away suddenly, but the crisis has passed. What a day I missed. The first chart I see is crude, and it shows that it has retraced every penny of the February rally. That is what I call a trend day down! Best Wishes, Thales

-5 ticks on the long, and which isn't bad. What is bad is that I sat here thinking, "well, if it break 89.75, not only do I no longer want to be long, but I want to be short. I then promptly did nothing. If you were to pull up a 15 minute ES. I think you will see that the the ES gave a very nice ABC up from its overnight low, and that my stop loss at 89.50 would have been the short entry from the breakdown of that ABC. At any rate, price has now dropped to the level at which I would again be interested in a long sequence, should one show itself. Best Wishes, Thales

I'll probably use the escape hatch if price breaks 89.75. This chart is a bit longer view, and it shows where I would prefer to see a long sequence present itself (blue rectangle). I also attached a chart of the one minute to try to illustrate why 89.50 would be a reasonable point for me to end this trade if price fails to rally from here. Best Wishes, Thales

Pushed to within a tick or two of BE and first resistance and then reversed back to the buy point. Fingers are on the rip cord, ready to pll my chute if necessary. Best Wishes, Thales,

Current view f the ES ... it poppoed before I could finish getting the chart ready (the market has a way of ding that at times. I don't know if this will be a win or not, but you have to like that the buy point represented breaj up through prior support that was failing to do its job as resistance on the test. That doesn't mean that it cannot and will not reverse right back down, but I'd much rather buy a break of anticipated resistance than to buy into anticipated resistance. Best Wishes, Thales

Current view of the EURUSD ... Best Wishes, Thales

Current view of the EURUSD shows slowing downside momentum, possibly a prelude to a bounce. Best Wishes, Thales