FeEl ThE PoWeR Of ThE FoReX

what is forex

2007-03-19T02:42:00.000-07:00

FOREX (FOReign EXchange market) is an international foreign exchange market, where money is sold and bought freely. In its present condition FOREX was launched in the 1970s, when free exchange rates were introduced, and only the participants of the market determine the price of one currency against the other proceeding from supply and demand.As far as the freedom from any external control and free competition are concerned, FOREX is a perfect market. It is also the biggest liquid financial market. According to various assessments, money masses in the market constitute from 1 to 1.5 trillion US dollars a day. (It is impossible to determine an absolutely exact number because trading is not centralized on an exchange.) Transactions are conducted all over the world via telecommunications 24 hours a day from 00:00 GMT on Monday to 10:00 pm GMT on Friday. Practically in every time zone (that is, in Frankfurt-on-Main, London, New York, Tokyo, Hong Kong, etc.) there are dealers who will quote currencies.FOREX is a more objective market, because if some of its participants would like to change prices, for some manipulative purpose, they would have to operate with tens of billions dollars. That is why any influence by a single participants in the market is practically out of the question. The superior liquidity allows the traders to open and/or close positions within a few seconds. The time of keeping a position is arbitrary and has no limits: from several seconds to many years. It depends only on your trading strategies. Although the daily fluctuations of currencies are rather insignificant, you may use the credit lines, that are accessible even to currency speculators with small capitals ($ 1,000 - 5,000), where the profit may be impressive. (You can learn more about it in the section: The idea of marginal trading stems from the fact that in FOREX speculative interests can be satisfied without a real money supply. This decreases overhead expenses for transferring money and gives an opportunity to open positions with a small account in US dollars, buying and selling a lot of other currencies. That is, on can conduct transactions very quickly, getting a big profit, when the exchange rates go up or down. Many speculative transactions in the international financial markets are made on the principles of marginal trading.Margin trading is trading with a borrowed capital. Marginal trading in an exchange market uses lots. 1 lot equals approximately $100,000, but to open it it is necessary to have only from 0.5% to 4% of the sum.For example, you have analyzed the situation in the market and come to the conclusion that the pound will go up against the dollar. You open 1 lot for buying the pound (GBP) with the margin 1% (1:1000 leverage) at the price of 1.49889 and wait for the exchange rate to go up. Some time later your expectations become true. You close the position at 1.5050 and earn 61 pips (about $ 405). For the calculation of 1 pip .Everyday fluctuations of currencies constitute about 100 to 150 pips, giving FX traders an opportunity to make money on these changes.In FOREX, it's not obligatory to buy some currency first in order to sell it later. It's possible to open positions for buying and selling any currency without actually having it. Usually Internet-brokers establish the minimum deposit such as $ 2000, for working in the FOREX market, and grant a leverage of 1:100. That is, opening the position at $100,000, a trader invests $1,000 and receives $99.000 as a credit. The major currencies traded in FOREX, are Euro (EUR), Japanese yen (JPY), British Pound (GBP), and Swiss Franc (CHF). All of them are traded against the US dollar (USD).In order to assess the situation in the market a trader has to be able to use fundamental and/or technical analysis, as well as to make decisions in the constantly changing current of information about political and economic character. Most small and medium players in financial markets use technical analysis. Technical analysis presupposes that all the information about the market and its further fluctuations is contained in the price chain. Any factor, that has some influence on the price, be it economic, political or psychological, has already been considered by the market and included in the price. The initial data for a technical analysis are prices: the highest and the lowest prices, the price of opening and closing within a certain period of time, and the volume of transactions.A technical analysis is founded on three suppositions:Movement of the market considers everything;Movement of prices is purposeful;History repeats itself. That is, technical analysis is a statistical and mathematical analysis of previous quotes and a prognosis of coming prices.A number of technical indicators have been installed into the PRO-CHARTS trading system. Analyzing the indicators one can come to the conclusion about further movements of the quoted currencies. For a more detailed description of the indicators, analyzing price charts and volumes of trading .Fundamental analysis is an analysis of current situations in the country of the currency, such as its economy, political events, and rumors. The country's economy depends on the rate of inflation and unemployment, on the interest rate of its Central Bank, and on tax policy. Political stability also influences the exchange rate. Policy of the Central Bank has a special role, as concentrated interventions or refusal from them greatly influence the exchange rate.At the same time one should not consider fundamental analysis just as an analysis of the economic situation in the country itself. A far bigger role in the FOREX market belongs to the expectations of the market participants and their assessment of these expectations. Various prognoses and bulletins, issued by the participants, have a strong influence on the expectations. Very often an effect of the so-called self-filfilling prophecy occurs when market players raise or lower the exchange rates according to the prognosis. But a deep and thorough fundamental analysis is available only for big banks with a staff of professional analysts and constant access to a wide field of information.In spite of these different approaches, both forms of analyses complement one another. Traders who act on the basis of a fundamental analysis, have to consider some technical characteristics of the market (the main rates of support, such as resistance and resale), and supporters of the technical approach to the market must track the main news (interest rates, important political events).

Forex Market Drivers

2007-03-19T02:41:00.002-07:00

How Interest Rate Increases Drive Currency SpikesA common way to think about U.S. interest rates is how much it's going to cost to borrow money, whether for our mortgages or how much we'll earn on our bond and money market investments. Currency traders think bigger. Interest rate policy is actually a key driver of currency prices and a great "starter" strategy for new currency traders.Fundamentally, if a country raises its interest rates, the currency of that country will strengthen because the higher interest rates attract more foreign investors. When foreign investors invest in U.S. treasuries, they must sell their own currency and buy U.S. Dollars in order to purchase the bonds.If you believe U.S. interest rates will continue to rise, you could express that view by going long U.S. Dollars.If you believe that the Fed has finished raising rates for the time being, you could capitalize on that view by buying a currency with a higher interest rate, or at least the prospect of relatively higher rates. For example, U.S. rates may be higher than those of Euroland now but the prospect of higher rates in Euroland, albeit still lower than the U.S., may drive investors to purchase Euros.Capitalize on Rising Gold Prices with Currencies It's not hard to understand why we've experienced a run-up in gold prices lately. In the US, we're dealing with the threat of inflation and a lot of geo-political tension. Historically, gold is a country-neutral alternative to the U.S. dollar. So given the inverse relationship between gold and the U.S. Dollar, currency traders can take advantage of volatility in gold prices in innovative ways.For example, if gold breaks an important price level, one would expect gold to move higher in coming periods. With this in mind, forex traders would look to sell dollars and buy Euros, for example, as a proxy for higher gold prices. Moreover, higher gold prices frequently have a positive impact on the currencies of major gold producers. For example, Australia is the world's third largest exporter of gold, and Canada is the world's third largest producer of gold. Therefore, if you believe the price of gold will continue to rise you could establish long positions in Australian Dollar or the Canadian Dollar - or even position to be long those currencies against other major countries like the UK or Japan.Translating Rising Oil Prices to Profitable Currency MovesEquity investors already know that higher oil prices negatively impact the stock prices of companies that are highly dependent on oil such as airlines, since more expensive oil means higher expenses and lower profits for those companies.In much the same way, a country's dependency on oil determines how its currency will be impacted by a change in oil prices. The US's massive foreign dependence on oil makes the US dollar more sensitive to oil prices than other countries. Therefore, any sharp increase in oil prices is typically dollar-negative.If you believe the price of oil will continue to increase for the near term, you could express that viewpoint in the currency markets by once again favoring commodity-based economies like Australia and Canada or selling other energy-dependent countries like Japan.

ntroduction to Technical Analysis

2007-03-19T02:41:00.001-07:00

Technical analysis is a method of forecasting price movements by looking at purely market-generated data. Price data from a particular market is most commonly the type of information analyzed by a technician, though most will also keep a close watch on volume and open interest in futures contracts. The bottom line when utilizing any type of analytical method, technical or otherwise, is to stick to the basics, which are methodologies with a proven track record over a long period. After finding a trading system that works for you, the more esoteric fields of study can then be incorporated into your trading toolbox.The examination of past price movements to forcast future price movementsAlmost every trader uses some form of technical analysis. Even the most reverent follower of market fundamentals is likely to glance at price charts before executing a trade. At their most basic level, these charts help traders determine ideal entry and exit points for a trade. They provide a visual representation of the historical price action of whatever is being studied. As such, traders can look at a chart and know if they are buying at a fair price (based on the price history of a particular market), selling at a cyclical top or perhaps throwing their capital into a choppy, sideways market. These are just a few market conditions that charts identify for a trader. Depending on their level of sophistication, charts can also help much more advanced studies of the markets.On the surface, it might appear that technicians ignore the fundamentals of the market while surrounding themselves with charts and data tables. However, a technical trader will tell you that all of the fundamentals are already represented in the price. They are not so much concerned that a natural disaster or an awful inflation number caused a recent spike in prices as much as how that price action fits into a pattern or trend. And much more to the point, how that pattern can be used to predict future prices.Technical analysis assumes that:* All market fundamentals are depicted in the actual market data. So the actual market fundamentals and various factors, such as the differing opinions, hopes, fears, and moods of market participants, need not be studied.* History repeats itself and therefore markets move in fairly predictable, or at least quantifiable, patterns. These patterns, generated by price movement, are called signals. The goal in technical analysis is to uncover the signals given off in a current market by examining past market signals. * Prices move in trends. Technicians typically do not believe that price fluctuations are random and unpredictable. Prices can move in one of three directions, up, down or sideways. Once a trend in any of these directions is established, it usually will continue for some period.The building blocks of any technical analysis system include price charts, volume charts, and a host of other mathematical representations of market patterns and behaviors. Most often called studies, these mathematical manipulations of various types of market data are used to determine the strength and sustainability of a particular trend. So, rather than simply relying on price charts to forecast future market values, technicians will also use a variety of other technical tools before entering a trade.As in all other aspects of trading, be very disciplined when using technical analysis. Too often, a trader will fail to sell or buy into a market even after it has reached a price that his or her technical studies identified as an entry or exit point. This is because it is hard to screen out the fundamental realities that led to the price movement in the first place.As an example, let's assume you are long USD vs. euro and have established your stop/loss 30 pips away from your entry point. However, if some unforeseen factor is responsible for pushing the USD through your stop/loss level you might be inclined to hold this position just a bit longer in the hopes that it turns back into a winner. It is very hard to make the decision to cut your losses and even harder to resist the temptation to book profits too early on a winning trade. This is called leaving money on the table. A common mistake is to ride a loser too long in the hopes it comes back and to cut a winner way too early. If you use technical analysis to establish entry and exit levels, be very disciplined in following through on your original trading plan.Price chartsChart patternsThere are a variety of charts that show price action. The most common are bar charts. Each bar will represent one period of time and that period can be anything from one minute to one month to several years. These charts will show distinct price patterns that develop over time.Candlestick patternsLike bar charts patterns, candlestick patterns can be used to forecast the market. Because of their colored bodies, candlesticks provide greater visual detail in their chart patterns than bar charts.Point & figure patternsPoint and figure patterns are essentially the same patterns found in bar charts but Xs and Os are used to market changes in price direction. In addition, point and figure charts make no use of time scales to indicate the particular day associated with certain price action.Technical IndicatorsHere are a few of the more common types of indicators used in technical analysis:Trend indicatorsTrend is a term used to describe the persistence of price movement in one direction over time. Trends move in three directions: up, down and sideways. Trend indicators smooth variable price data to create a composite of market direction. (Example: Moving Averages, Trend lines)Strength indicatorsMarket strength describes the intensity of market opinion with reference to a price by examining the market positions taken by various market participants. Volume or open interest are the basic ingredients of this indicator. Their signals are coincident or leading the market. (Example: Volume)Volatility indicatorsVolatility is a general term used to describe the magnitude, or size, of day-to-day price fluctuations independent of their direction. Generally, changes in volatility tend to lead changes in prices. (Example: Bollinger Bands)Cycle indicatorsA cycle is a term to indicate repeating patterns of market movement, specific to recurrent events, such as seasons, elections, etc. Many markets have a tendency to move in cyclical patterns. Cycle indicators determine the timing of a particular market patterns. (Example: Elliott Wave)Support/resistance indicatorsSupport and resistance describes the price levels where markets repeatedly rise or fall and then reverse. This phenomenon is attributed to basic supply and demand. (Example: Trend Lines)Momentum indicatorsMomentum is a general term used to describe the speed at which prices move over a given time period. Momentum indicators determine the strength or weakness of a trend as it progresses over time. Momentum is highest at the beginning of a trend and lowest at trend turning points. Any divergence of directions in price and momentum is a warning of weakness; if price extremes occur with weak momentum, it signals an end of movement in that direction. If momentum is trending strongly and prices are flat, it signals a potential change in price direction. (Example: Stochastic, MACD, RSI)

The Trillion Dollar Bet - Lessons from Long Term Capital Management

2007-03-19T02:38:00.000-07:00

A while back the PBS series "Nova" did an excellent show called "The Trillion Dollar Bet" on the rise and fall of Long-Term Capital Management (LTCM), a hedge fund founded by Nobel Laureates Myron Scholes and Robert Merton. LTCM placed massive leveraged trades in derivatives (hence the show's title) and then collapsed in truly spectacular fashion in 1998 following economic turmoil in Asia and Russia, and for a brief period threatened to take much of Wall Street with it. You can read the online, and it's well worth a look - a fascinating window into how things can go wrong for even the most rigorously calculated and tested financial models.At the heart of LTCM's implosion, like that of , were common problems that every trader should be aware of: the potential for unexpected drawdowns in turbulent market conditions; the fallibility of trading rules and signals that depend on past market behavior and unquestioned assumptions about future behavior; and taking on too much risk through extreme leveraging.A number of scholars, experienced traders and fund managers appear in the show, and their observations are some of the most valuable insights I took away from it. Here are a few highlights:Leo Melamed: "You can't ignore an error. Once you realize that you've made an error, the best thing is to get out of that error and start again fresh, and that's what a good trader does.""That's an old market rule: the market will test you and do what you don't expect it to do."Stan Jonas: "It was as though the world was behaving exactly the way it had been writ on the blackboard...And then slowly and totally unexpectedly, a change in the market dynamics began to become apparent.""When do you admit that you're wrong, start all over again, or when do you hang on and assume that the markets will turn around in your way? That's the biggest decision we all have to make."Roger Lowenstein: "Although their models told them that they shouldn't expect to lose more than 50 million or so on any given day, they began to lose 100 million and more, day after day after day till finally there was one day, four days after Russia defaulted, when they dropped half a billion dollars, 500 million in a single day."Alan Greenspan: "How much dependence should be placed on financial modeling which for all its sophistication can get too far ahead of human judgment?"Peter Fisher: "If a random bolt of lightning hits you when you're standing in the middle of the field, that feels like a random event. But if your business is to stand in random fields during lightning storms, then you should anticipate, perhaps a little more robustly, the risks you're taking on."

Markets, Strategies & Time Frames

2007-03-19T02:31:00.000-07:00

The first step in developing a trading strategy is to select the market action and
corresponding strategy type that you want to trade. As I’ve discussed, selecting a
strategy type is a very important part of strategy trading and you should take your time in evaluating the alternatives. Many factors will influence your decision, but your own personality will ultimately direct you to the strategy that is right for you. In making the choice, the most important thing to remember is that it is yours to make alone. Read everything I have to share with you about different types of strategies, but then decide for yourself. Only you really know what type of person you are and therefore what type of trading is best for you.
This chapter will help you to understand some of the conditions that can occur in
the market, and the strategy type that complements those conditions. Once you
are familiar with the basic strategy types, you will be able to select the one you
want to use.

Three Market Types

Generally, there are three types of markets. The three market types, or phases, arederived from three distinct chart patterns that appear when there is a shift in
market action. The phases are trending, volatile, and directionless, and each can be characterized by specific price activity. Take a look at the following charts and
familiarize yourself with each different market pattern.

Woodies CCI Club

2007-03-19T02:23:00.001-07:00

Woodie (Ken Wood) created the Woodies CCI trading system and the Woodies CCI Club trading room. You can find his website at with lots of documents, audio and video lectures, CCI trading information and other useful links to front-end tools and charting setups.

You can reach Woodie directly at his email address or just come on into the room as he is in there everyday. If you email him you had better be sure to put the word ‘CCI’ in the subject line or he’s going to delete it and for good reason!

We respect, admire and value Woodie a great deal. There is no other person like him in the trading community running a trading room like this whatsoever. He has worked so very hard to help as many traders as he can over the many years that he has been trading. He gives to us his system, its secrets, his time and trading knowledge, lots and lots of help and support as well as his friendship every single day in the room and all of it is free. Yes, I said free!

Woodie has been trading for over 26+ years and created the trading system you will be reading about in this document. He is well sought after. He has been interviewed on numerous popular radio stations for the trading community, published in Active Trader Magazine, given online presentations at the Chicago Board of Trade (CBOT), presented for MAN Financial in Chicago and will also be presenting at the Traders Expo in Chicago.

Woodie also puts on Trade-A-Longs across the USA, and soon in other countries too, to help teach his trading system. He has an Annual CCI Conference where all of the CCI traders can meet one another, share ideas and learn even more. All of these are events done at his cost only. He makes no profit on them. Any money remaining after the event has been paid for all goes to the Children’s Make-A-Wish foundation. What a wonderful idea! He is an excellent trader and truly a unique and caring leader in the Trading Community.

Woodies CCI Club room is a world class trading room. We have traders in the room from all over the world and of all skill levels from new to advanced and professional as well as many pit traders too. We are a very large and diverse family of traders from all different walks of life.

In Woodies CCI Trading room we mostly trade index, bond and currency futures contracts. However, Woodies CCI works well on everything in the market that moves. We also talk about stocks, metals, and options. You may even catch us talking about oil, beans, corn, rice and pork bellies. No it’s not a cooking room! CCI works on them all. If it moves then CCI will nail it for us!

The 1st Works Hotcomm software provides us with a room that is first class, high quality and equipped with high-tech multimedia features. We have real-time live charts, snapshot charts, voice, text, music, file trading and more being pushed to all members of the room on demand. During after-market hours and all weekend long we run trading simulations so that we can continue to learn, practice and discuss Woodies CCI system. There is never a dull moment in the room. Something is always going on. 1st Works Hotcomm charges a small fee for their advanced cutting-edge software but Woodies CCI Club room is free.

In Woodies CCI Club room we are very serious about trading, helping one another learn, sharing CCI related trading ideas and focusing on the path to becoming highly successful traders. We have many hundreds of traders, currently 550+, every single day in the room all focusing on Woodies CCI system in some way or another. Imagine that concentration! The room has high spirits, positive attitudes, very friendly and we enjoy ourselves everyday. The room has traders in it 24 hours a day 7 days a week. We trade all three major markets: USA, Asian and European.

Woodies CCI system is like no other system in the world. You will see for yourself and you will love Woodie too. He’s a wonderful, generous, warm, kind and caring person. His characteristics are very infectious to all that trade with him. All members are generous with their time and provide their help free with patience.

In fact, this document took many long hours over several months to put together. I did this in hopes of giving back just a little bit of what Woodie and his room has given to me. Thank you Woodie!

Some of Woodies CCI Club mottos are:

Traders Helping Traders

No Boasting Just Posting

Positive Attitudes and Positive Posts

A Candle Loses Nothing By Lighting Another Candle

You will not find a single room that is highly successful on so many levels as is Woodies CCI Club. Not to mention it’s all free!

Thank you Woodie for all you have done for so many people in so many ways including trading!

Trading Woodies CCI System

2007-03-19T02:19:00.000-07:00

This document is for educational information and exchange of trading ideas only. Nothing mentioned in this document or your interpretation of the information or charts is to be taken as trading advice. Trades taken based on this educational information are strictly at your own risk. You should consult your broker or financial advisor before placing any trade.

Additionally, it is important for you to know that brokers and financial advisors still make their money from giving advice even though they can and have lost money everyday for millions of people.

This document revision R-0.7 is a work in progress. Rather than possibly missing a post in the room, please let me know via email listed at the end of the document if you see any mistakes or can suggest something that may improve its clarity. Please include the document version number, page and sentences that you are referring to if relevant. Your continued feedback will help make this a much more useful document for everyone.

The purpose of this document is to help people learn Woodies CCI system in its entirety, just as Woodie himself still trades it, without any confusion. This way they can spend time practicing and getting in quality screen time instead of trying to understand what the guidelines actually are. However, it only explains the guidelines. You will absolutely need many months of screen time to master this system. You will not be a successful trader unless you follow your rules and put in long hours of screen time and practice.

This document can also help long time traders of Woodies CCI system to get back to basics. If you are not doing as good as you want then remove everything off of your charts right now, start fresh and follow the guidelines.

Successful trading is much less than 20% trading system and more than 80% mental control. Your brain is worthless when trading. It tries to tell you how to trade. Do not listen to it. Shut it down. It sends out 200 emotional messages for every 1 logical useful thought. At that rate your account could be gone in weeks. You cannot use emotions in trading. A trading system is based on a set of pure rules. In hopes of helping new traders with this severe problem this document tries to overpower that mighty 80% mental control that is usually useless and force it to follow logical guidelines. Do not fight it. Get rid of the emotions. Do not think. Do not feel. Just follow the rules. All you need to do is react to the signals. Period.

This document demands that you follow your rules while trading. This is the only way you will become a successful trader. Woodies CCI is a very simple system. The rules are very simple. Don’t let your lack of mental control ruin your trading. Keep focused on the system and you will do well. The guidelines tell you everything you need to know. Just follow them directly and precisely.

If you don’t follow strict rules in all aspects of your trading you will not make money trading. I guarantee that. There is only one type of person that can make a fantastic living trading an account without rules. This person is called ‘your broker’, the living he makes is called ‘your fees’ and the account he uses and loses is called ‘yours’. Follow your rules precisely or walk away from trading.

For semi-new to experienced traders it is strongly suggested that when you see an obviously very new person asking about the CCI that you do them a favor and don’t tell them anything about your methods. Instead explain to them that it would be best for them being new to follow Woodies CCI, only Woodies CCI and no one else’s but Woodies CCI system. Help them, do not hinder them by giving them information that they think is Woodies CCI system. They are new. They do not understand that many people have many variations on Woodies CCI. Please help them learn Woodies CCI first before they get confused. Send them to this document to help get them started. It will help them understand Woodies CCI system easier, have a better chance at being successful trading and will allow Woodies CCI Club room to stay much more focused on the trading at hand during market hours. It will benefit us all.

This document is very strict. It does not beat around the bush. It does not suggest or hint at what to do. It tells you exactly what to do. So follow it. Woodies CCI is very simple. This document has many added explanations and constantly repeats important information in hopes of providing you the knowledge and courage to follow Woodies CCI only. Do not mix trading methods. As soon as you become profitable at paper trading with this document then you can decide how you want to trade. Until then just follow the guidelines.

When I first came to learn Woodies CCI system I quickly became very confused. After reading so many documents and watching so many people I couldn’t figure out what Woodies guidelines were apart from the many other great traders here. I then become very frustrated. All I wanted to do was trade Woodies CCI the way he trades it since he is the expert. Instead I spent many longs months trying to learn the guidelines to Woodies CCI system.

This document sets out to define the guidelines of Woodies CCI. Follow them precisely and you will become an excellent trader. All too often new people will not keep a trading system simple and will not follow directions. They think it has to be complicated to be good. This is completely wrong. Follow these guidelines only and you will do very well at trading.

If you are new to the room or still trying to figure out how to trade Woodies CCI then do not read or follow anything else except for Woodie himself and this document. If you ask someone a question be sure to preface it with “What Would Woodie Do…” This will help keep you focused. Keep doing this until you are trading the guidelines consistently and you have become profitable over a long period of time.

The Principles of Successful Trading

2007-03-19T02:01:00.000-07:00

Over many years of trading, I’ve found certain principles to be true.
Understanding and using basic principles provides an anchor of sanity when
trading in a crazy world. Whenever I find myself under stress, questioning my
judgment or my ability to trade successfully, I pull out these basic trading
principles and review them.

Don’t Try to Predict the Future

I used to think that there were experts and geniuses out there who knew what was
going to happen in the markets. I thought that these traders and market gurus
were successful because they had figured out how to predict the markets. Of
course, the obvious question is that if they were such good traders, and if they
knew where the market was going, why were they teaching trading techniques,
selling strategies and indicators, and writing newsletters? Why weren’t they rich?
Why weren’t they flying to the seminars on their Lear Jets?

NO ONE KNOWS WHERE THE MARKET IS GOING

It took me a long time to figure out that no one really understands why the market does what it does or where it’s going. It’s a delusion to think that you or any one else can know where the market is going.

I have sat through hundreds of hours of seminars in which the presenter made it
seem as if he or she had some secret method of divining where the markets were
going. Either they were deluded or they were putting us on. I have seen many
complex Fibonacci measuring methods for determining how high or low the
market would move, how much a market would retrace its latest big move, and
when to buy or sell based on this analysis. None has ever made consistent money
for me.

NO ONE KNOWS WHEN THE MARKET WILL MOVE

It also has taken me a long time to understand that no one knows when the
market will move. There are many individuals who write newsletters and/or
books, or teach seminars, who will tell you that they know when the market will
move.Most Elliott Wave practitioners, cycle experts, or Fibonacci time traders will try to predict when the market will move, presumably in the direction they have also predicted. I personally have not been able to figure out how to know when the market is going to move. And you know what? When I tried to predict, I was usually wrong, and I invariably missed the big move I was anticipating, because “it wasn’t time.”

It was when I finally concluded that I would never be able to predict when the
market will move that I started to be more successful in my trading. My
frustration level declined dramatically, and I was at peace knowing that it was OK not to be able to predict or understand the markets.

Know that Market Experts aren’t Magicians

Some of the experts that try to predict the markets actually make money trading
the markets; however, they don’t make money because they have predicted the
market correctly, they make money because they have traded the market correctly.

THEY DON’T PROFIT FROM THEIR PREDICTIONS

There is a huge difference between trading correctly and making an accurate
market prediction. In the final analysis, predicting the market is not what’s
important. What is important is using sound trading practices. And if sound
trading habits are all that is important, there is no reason to try to predict the
markets in the first place. This is the reason strategy trading makes so much sense.

THEY HAVE LEARNED TRADING DISCIPLINE

I have watched many market gurus continually make incorrect market predictions and still break even or make a little money because they have followed a disciplined approach to trading. More importantly, they used the exact same principles that I will show you how to use in creating your strategy. It is these principles that make the money, not the prediction.

To be a disciplined trader, you have to know how and why to enter the market,
when to exit the market, and where to place your money management stops. You
need to manage your risk and maximize your cash flow. A sound trading strategy
includes entries, exits, and stops as well as sound cash management strategies.
Even the market gurus and famous traders don’t make money from their
predictions, they make it from proper trading discipline. Over the years, they have learned the discipline to control their risk through money management. They have learned to take the trades as they come, and not forgo a trade because they are second-guessing their strategy or the market. These are the same practices that you will learn to include in your trading strategy.

THEY PROFIT FROM SOUND CASH MANAGEMENT & RISK CONTROL

Sound money management and risk control are the keys to being a profitable
trader. I will say over and over again, it is not the prediction or the latest and
greatest indicator that makes the profit in trading, it is how you apply sound
trading discipline with superior cash management and risk control that makes the difference between success and failure.

I often tell the story of the great fish restaurant that opened up just down the
street from my office. It opened with great fanfare and was ranked in the top five
restaurants in the city. The food was outstanding. But it only took a little more
than a year and this great restaurant was out of business. Why? Because the key to running a good restaurant is not the food…it is cash management and risk
control. It is making sure your business is run efficiently, keeping your costs (risk) in control, and managing your staff effectively. If you believe that the taste of the food is what makes a great restaurant, think of how great the food is at your
favorite fast food restaurant. But, someday, watch how well that restaurant is run. just as in the restaurant business, the key to profits in trading is not in the
prediction or the indicator, but how well the trading strategy is designed and
executed. The ability to achieve risk control and cash management will make the
difference between a successful trader and an unsuccessful trader. If you ever have the opportunity to watch a successful trader, you will see that they don’t worry about where the market is going or about predicting when the next big move will take place. They aren’t looking to tweak their indicator. They are worried about their risk on each trade. Is the trade being executed correctly? How much of their total account is at risk? Are the stops in the right place? And so on.

THEY DON’T HAVE SUPERIOR PERFORMANCE NUMBERS

If you want to have some fun, look at the performance of a successful market
expert, one who is known for his or her market predictions and trading expertise.
You will find that their performance numbers really aren’t any better than an
average trading strategy. The percentage of profitable trades, the return on the
account, average profit to average loss, number of losing trades in a row…all of
these trading parameters are within the average trading strategy performance
parameters.

Why is this? Because you can’t predict where the market will go and when it will
move. But if you use correct strategic trading disciplines, you will make money
whether you try to predict the market or just trade a good strategy. You might as
well save yourself a lot of time, energy, and mental anguish and trade a good
strategy.

Be In Harmony with the Market

We make money trading when we are in harmony with the market. We are long
when the market is going up, and short (or out of) the market when it is going
down. If we bring an opinion with us while trading, we will end up fighting the
market. We keep trying to go long as the market is declining, or we keep shorting
a market that it is in a bull phase.

DON’T FIGHT THE MARKET

Fighting the market is not good for two reasons. First, we lose money. How much
we lose depends on how well we are managing our money and controlling our
risk. Second, fighting the market affects our judgment, and causes us to try to
confirm that our judgment is correct, or persist in fighting a trend so that we will
eventually prove to be correct. We figure that if we persist long enough, no matter
how long it takes, we will eventually be right.
The same can be said for being in a canoe in a river. There is a reason for leaving
your car downstream, launching your canoe upstream, and paddling downstream. It is much easier and eminently more fun to go with flow and paddle downstream.

We could do the opposite and paddle upstream. Eventually we may even get to
our destination, but the cost would be substantial. It would take much more time,
more physical and emotional stamina, and we would be constantly fighting the
current. Reaching the goal would not be worth the cost.

Even if you ultimately make money fighting the market, it is not worth the price
you have to pay, both financially and with peace of mind.

LET THE MARKET TELL YOU WHAT TO DO AND WHEN

The correct attitude for successful trading is to let the market tell you what to do.
If the market says to go long, buy, and if it starts to go down, sell. This sounds
easy but it is much more difficult than you think. We always like to believe that we can be in control. We want to be in control of our trading and of the market. If
you accept the notion right now that you cannot control the market, that all you
can control is your execution of trades, you will take a great step toward being a
successful trader.

Instead of trying to control the market, let the market tell you what to do. Let the
market and your strategy take you long rather than you personally trying to predict or decide when to go long. Let your strategy take you out or get you short. Once you realize that you can’t understand the market, and that you can’t predict when the market will move, you will move into that detached state of mind where you let the market take you where it will when it wants to.

THE MARKET GIVES AND THE MARKET TAKES AWAY

To remove your personal biases and let the market tell you what to do is to give
up control, to give up the notion that you are actually in charge of how much
money you make. For profitable trading, you need to move into the mental state
of letting the market determine the profits, not you. It won’t be whether you
predict the market correctly that determines the profits, but whether your strategy is in a profitable mode or drawdown mode as determined by the market.

So, let the markets tell you what to do based on your strategy. Let it get you long
and put you short. Let the market determine how much money you are going to
make. Trade your strategy and let the market do the rest. And know that the
market gives money and the market takes away money. Your goal should be to
develop a strategy that gives you more money than it takes away.

Have a Healthy Time Horizon

One of the biggest problems new traders have is that they think they will make a
large amount of money right away. They think they will get rich quick. This type
of reasoning is very similar to the short-term thinking in American business in
general, usually managing for the current quarter’s profits, focusing on short-term earnings at the expense of long-term investment and profit growth.

TRADE FOR PROFITS OVER TIME

Traders tend to get wrapped up in current market conditions, the news of the day
and the current trade, usually at the expense of the big picture and profits over
time. My grandfather used to have a saying, “You can’t go broke taking profits.”
He was very wrong. You can go broke taking profits. If you take profits before
the market tells you to, or you succumb to fear and close out the trade before its
time, you are focusing on the short-term and forgetting how to make money over
the long haul. Close out no trade before its time.

GIVE YOUR TRADING STRATEGY ENOUGH TIME TO WORK

We tend to be impatient, and we sometimes think that we should get instant
gratification. This will not work in trading. The only way you will really know
whether you are a successful trader is to be successful over time. A week or a
month will not be enough time to tell you how you are doing. You should be
trading with the objective of making money in the long run, consistently, and with
the confidence that your strategy will make money given enough time.
One of the benefits of trading with a strategy is that having done the requisite
historical testing, you should know how long it should take you to start making
money. You should have an idea as to the length of time that the strategy has lost
money in the past, how much money it has lost, and how long it will take the
strategy to become profitable. If the strategy has proven profitable historically, it
should be profitable in the future. You just need to give it the necessary time to do
its work.

Understand the Psychological Keys of Trading

There are many people who teach the psychology of trading. There have been
many books written and effort spent on seminars trying to teach the discipline
needed for trading. I don’t think trading is that complex. I have developed a few
simple psychological rules for myself, and once you accept them, they should
greatly enhance your ability to trade effectively.

ACCEPT LOSSES AS A COST OF DOING BUSINESS

Most successful traders will tell you that the most difficult thing about trading is
accepting the losing trade. We all have the desire to be to be right, to be correct all of the time. For novice traders, the losing trade means that something is not
working and that you have somehow made a mistake. For experienced traders,
losses are just a cost of doing business.

Some of the best traders in the world lose money on more than half of their
trades. If you look at the performance results of the best traders and money
managers, you will see that they all have a large percentage of losing trades. If you
trade, I guarantee you that you will have losing trades. Learn to love losing trades.They should be your friend because you will be spending a lot of time with them.

USE HISTORICAL STATISTICS

I don’t think anyone has ever traded without first looking at historical statistics.
Even some traders who deny they are strategy traders have used historical data.
And before EasyLanguage and TradeStation were available, most good traders
developed a strategy’s history by hand. I can remember countless hours pouring
over charts spread out on the kitchen table, writing down trades by hand. Before I
would trade it, I absolutely insisted on knowing what the strategy’s personality was and how much money it would have made.

Using historical statistics gives you great peace mind, particularly in learning to
love losing trades. Knowing the history of a trading strategy can give you
tremendous psychological comfort during those tough periods of losing trades
and drawdown. Historical statistics tell you how much money the strategy has lost in the past, how many losing trades it has had in a row, and the largest losing trade the strategy has experienced. This is very important information if you are learning to accept losing trades. Comparing historical data with the current string of losses and drawdown can give you much comfort that what you are experiencing now is not unusual and has happened before. Maybe not in exactly the same manner, but it has happened before.

LET THE MARKET AND STRATEGY DETERMINE THE PROFITS

Don’t have an opinion, don’t try to predict the market, and don’t try to secondguess your strategy. It’s human nature to have an opinion about things, but this opinion can become a stumbling block if we let it affect our trading. One of the alluring aspects to having an opinion on the market is the exhilaration of being right. Even though we know that the chances of being right are slim, we
nonetheless want to prove our intellectual prowess by being right.
Your trading strategy is ultimately a little business. You have developed and tested the product and are now operating the business in the real world. Let the strategy be the strategy. Let it make the money you know that it can. And know that if the market doesn’t move in the manner that will allow the strategy to make money, it won’t make money. Ultimately, the market determines the profit through its movement. If it doesn’t make that move, there will not be profits.
Put the responsibility of making money on the strategy and the market. When they work together, you will have a profitable business.

Don’t Trade for the Money

I have met many successful people, and the one thing that they have in common
is that they love what they do. Many have told me they can’t believe that they
actually get paid for doing what they do. They have so much fun they feel guilty
taking money for doing it. Many successful people will tell you that they would do
what they do even if they weren’t paid at all.

SUCCESSFUL PEOPLE DON’T WORK FOR THE MONEY

Work hard and love what you are doing and the money will follow. Successful
people work first and count the money later. Sometimes they don’t ever count it,
and some don’t even know (or care) how much they have. They just know that
they have enough to allow them to continue what they are doing; working hard
and having fun.

LOVE TRADING FOR ITS OWN SAKE

I know that many individuals want to trade because they think that they can make a lot of money easily and quickly. Because of the low start-up costs for trading as compared to other businesses, they think that trading should be the easy road to riches. Their goal is to make a lot of money fast. These are the people who come to seminars and want an indicator that will guarantee profits. They don’t want to learn the ins and outs of the business; they want the magic indicator that will get them the money they desire. They are doomed to failure.
I remember a guy named John walking into a seminar I was about to teach. He
threw up his hands and said, “Ah, Traders! I am glad to be home.” This individual
was a successful trader. John loved going to seminars, not so much for the
techniques and indicators, but for the camaraderie. He loved being around traders, talking with traders, analyzing trading strategies and techniques, and learning about the latest and greatest trading technology. He loved learning the latest features added to TradeStation and finding out a new way to use EasyLanguage. He loved designing new indicators, and spent countless hours working on new and different ways to exit the market. He was excited about getting up early in the morning to monitor the overnight market information and checking what the S&P was doing in London. He looked forward to calling his broker and putting in his orders. He loved watching his strategy run on TradeStation. He was exhilarated when he had to call his broker and give him a lot of grief for the latest bad fill. He even loved losing trades. Even when he had to take a losing trade, he was still doing what he loved to do—trade.

John is a successful trader. He loves what he is doing. And as long as he can keep
on trading, he will be happy. The money he makes is secondary, but he makes a
lot of it. He can’t believe that he can have all of this fun and make money as well.