I'm going to write the next few tips on topics that might press your buttons. They'll help you find your hotspots and help you discover how you sabotage yourself. I've been reading a wonderful little book by Jerry Stalking entitled, Laughing with God. In that book the following dilemma is brought up, and here I'm going to rewrite the conversation to make it pertinent to trading/investing. 

God: Do you want to win without losing?

Trader: Of course.

God: If you win, you must lose as well. But you lied to me. You said that you'd like to just win. If that were the case, you'd win much more often. The possibility of failure motivates you much more than the possibility of success. Your whole culture, with few exceptions, is dependent upon failure or at least the fear of failure. If there were not the possibility of failure, you could not take any credit for success. You wouldn't feel so good about winning.

Think about it. How many times would you watch a football game if you knew the outcome? It is the uncertainty of the outcome that keeps your attention. 

What if you always knew what was going to happen before it does? As a matter of fact, you already have that ability, but you do not use it because everything you presently call fun in your life would be lost. You would lose the uncertainty that you thrive on, feed on, and yet attempt to diminish.

The last statement may "get to" some of you. But what if it's true? Ed Seykota said in Market Wizards that people get what they want out of the market - excitement, punishment, and a justification for their emotions. I've certainly seen plenty of evidence to suggest that his observation is true. But the conversation gets even more interesting:

God: I am saying that you already can know the future. Remember that future and past are both illusions. The fact that you ignore this ability makes it more obvious that you do not want to know the future or that you love wanting to know the future while believing that you cannot know it. 

There is no time - just present. You use the uncertainty (mock uncertainty) of the past and the uncertainty (mock uncertainty) of the future to keep yourself suspended in the illusion of time while calling the whole process life.

Just to make this conversation more meaningful, imagine that you are 100% accurate on every trade. You know every top and every bottom on every stock. You are never wrong about a trade. Suppose you just entered the market and made $10 billion in a year. Would you keep going if it were that easy? Would ten billion be enough? Would you honestly keep trading?

Perhaps your response is, "Sure I would! I'd get all the money in the world." Well, would that be interesting? I tend to doubt it. Trading is only interesting because of the possibility of losing. You are now in a position where you can buy anything; do anything, etc., because you will never lose money on a trade. Would you still trade? Why or why not?

Everything in this tip may be made up. Nothing may be true, but I'd like you to assume (act as if) it is true. Just pretend that it's true. When you do so, what happens to you inside? How do you feel about trading? Would you keep on trading? If so, how often? If not, why not? What does that tell you about yourself? Is it the uncertainty that keeps you in the game? Would you keep trading if you had all the money in the world? Why? What do your answers tell you about yourself?

I would encourage you to do this exercise and notice what comes up for you. How many trades would you take if you had no uncertainty in the outcome? What do your answers tell you about yourself?

A note for your consideration:

There are many books that claim that the text "came from God" and I simply don't know whether such books come from God or not, but if they give me new ideas to ponder then I find them very exciting. If it stretches your beliefs to think it came from God, then just assume that someone made it up. But at the same time imagine that it might be true. This one gave me a lot of new ideas, and if you open yourself enough to do the same, you might find the ideas quite expansive.

happy trading.
Make Pips, Keep It, Repeat It!
hemant.

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"The public, as a whole, buys at the wrong time and sells at the wrong time. The average operator, when he sees two or three points profit, takes it; but, if a stock goes against him two or three points, he holds on waiting for the price to recover, with oftentimes, the result of seeing a loss of two or three points run into a loss of ten points." ~Charles Dow

Charles Dow transformed the world of investing more than just about anyone in history. His ideas on market trend have been taught in millions of classrooms, forums, seminars, and trading floors all over the world.

Dow was born in 1851 on a rural farm. From the age of six he started working odd jobs to help support his family after his farther died. He wasn’t “learned” in Harvard and had no outstanding formal education. What he did have, which survives him today, was the ability to see trends in what was considered a sea of financial confusion.

Shortly after moving to New York in 1882 and starting Dow Jones & Co., Dow created the Dow Jones Industrial Average. An averaging of 11 major stocks listed on the exchange. Later, he also created the 20 stock Railroad Average (now the Transport Average). Dow never referred to his theories as the Dow Theory, and in fact, never took credit for it.

Dow’s theories of trend movement apply to nearly every market on Earth where traders respond to any type of movement with emotion.

The Dow Theory defines the (stock) market as moving within three movements. Each movement is defined as a time frame in which the market fluctuates in major and minor trends.

Dow stated these movements as being the Major Movements (trends), Secondary Movements, and the Intra-day Cycles. Within these movements are known as the Bull Markets, Bear Markets, and Ranging Markets.

We won’t cover all the particulars, just the points you need to know.

Bull markets are broad upward movements of the market that may last several years, interrupted by secondary reactions. Bear markets are long declines interrupted by secondary rallies. These movements are referred to as the primary trend.

From the above below, we can see clear defined paths indicating Bullish and Bearish market conditions. At the same time, we also see an excellent example of “Trending” market conditions. The market is moving in a defined upward or downward movement.

Periods between major trends are referred to as the “Bottom” and typically define “Ranging” market conditions. Prices move within a narrow band and “whipsaw” back and forth. Ranging market conditions are normally followed by a break out in either direction.

Within the Major Trends can be several Minor Trends referred to as Secondary Trends or Secondary Movements.

Secondary movements normally retrace from one third to two thirds of the primary trend since the previous secondary movement

Often if a Secondary Trend is severe in nature, it’s referred to as a “Correction”.

To help identify trends, here are the basic rules of the market:

A Bull Market is defined as having Higher Highs and Higher Lows.

A Bear Market is defined as having Lower Highs and Lower Lows.

Defining the exact start and ending of market conditions is normally irrelevant to daily trading, but you’re gonna find out anyway.

The start of an up trend is signaled when price makes a higher low, followed by a rally above the previous high:

Start = higher Low + break above previous High

The end is signaled by a lower high, followed by a decline below the previous low:

End = lower High + break below previous Low

There are those that argue that a major correction in the opposite direction of the trend indicates an end to the trend. But again, it’s irrelevant to daily trading. We just need to identify the major trend.

By definition, the Bullish trend cycle ends when the next two closes result in Lower Highs and Lower Lows. This is referred to as the “Reversal”

For practical purposes, only accept large corrections as trend changes in the primary trend.

Okay, I’ve covered the Dow Theory and now you can identify Major and Minor trends within a time frame.

Happy trading.
Make Pips, Keep It, Repeat It!
Hemant.

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Nuggets of Wisdom from Jesse Livermore, Greatest Trader Ever

In the early part of the 20th century, Jesse Livermore was the most successful (and most feared) stock trader on Wall Street. He called the stock market crash of 1907 and once made $3 million in a single day. In 1929, Livermore went short several stocks and made $100 million. He was blamed for the stock market crash that year, and solidified his nickname, "The Boy Plunger." Livermore was also a successful commodities trader.

I think the most valuable knowledge one can gain regarding trading and markets comes from studying market history, and studying the methods of successful traders of the past. Jesse Livermore and Richard Wyckoff are two of the most famous and successful traders of the first half of the 20th century. Many of the most successful traders of today have patterned their trading styles after those of the great traders of the past.

Here are some valuable nuggets I have gleaned from the book, "How to Trade Stocks," by Jesse Livermore, with added material from Richard Smitten. It's published by Traders Press and is available at Amazon.com. Most of the nuggets below are direct quotes from Livermore, himself.

* "All through time, people have basically acted and reacted the same way in the market as a result of: greed, fear, ignorance, and hope. That is why the numerical (technical) formations and patterns recur on a constant basis."

* "The game of speculation is the most uniformly fascinating game in the world. But it is not a game for the stupid, the mentally lazy, the person of inferior emotional balance, or the get-rich-quick adventurer. They will die poor."

* Don't take action with a trade until the market, itself, confirms your opinion. Being a little late in a trade is insurance that your opinion is correct. In other words, don't be an impatient trader.

* Livermore's money made in speculation came from "commitments in a stock or commodity showing a profit right from the start." Don't hang on to a losing position for very long."It is foolhardy to make a second trade, if your first trade shows you a loss. Never average losses. Let this thought be written indelibly upon your mind."

* "Remember this: When you are doing nothing, those speculators who feel they must trade day in and day out, are laying the foundation for your next venture. You will reap benefits from their mistakes."

* "When a margin call reaches you, close your account. Never meet a margin call. You are on the wrong side of a market. Why send good money after bad? Keep that good money for another day."

* Livermore coined what he called "Pivotal Points" in a market or a stock. Basically, they were: (1) Price levels at which the stock or market reversed course previously--in other words, previous major tops or bottoms; and (2) psychological price levels such as 50 or 100, 200, etc. He would buy a stock or commodity that saw a price breakout above the Pivotal Point, and sell a stock or commodity that saw a price breakout below a Pivotal Point.

* "Successful traders always follow the line of least resistance. Follow the trend. The trend is your friend."

* A prudent speculator never argues with the tape. Markets are never wrong-- opinions often are.

* Few people succeed in the market because they have no patience. They have a strong desire to get rich quickly.

* "I absolutely believe that price movement patterns are being repeated. They are recurring patterns that appear over and over, with slight variations. This is because markets are driven by humans -- and human nature never changes."

* When you make a trade, "you should have a clear target where to sell if the market moves against you. And you must obey your rules! Never sustain a loss of more than 10% of your capital. Losses are twice as expensive to make up. I always established a stop before making a trade."

* "I am fully aware that of the millions of people who speculate in the markets, few people spend full time involved in the art of speculation. Yet, as far as I'm concerned it is a full-time job -- perhaps even more than a job. Perhaps it is a vocation, where many are called but few are singled out for success."

* "The big money is made by the sittin' and the waitin' -- not the thinking. Wait until all the factors are in your favor before making the trade."

An important point I want to make is that Jesse Livermore's trading success came not because of any "inside" information or some huge store of knowledge he had about each and every stock or commodities market he traded. Livermore's trading success was derived from his understanding of human behavior. He realized early on that markets and stocks can and do change -- but people and their behaviors do not. Therein lay his formula for trading success. That formula for trading success has not changed since Livermore's hey day in the stock and commodities markets almost a century ago.

A final note: Jesse Livermore may have been called the greatest stock market trader of the 20th century, but I question that notion. Certainly, no one can disagree that his profits were immense and his trading prowess was unmatched. But his life was not in balance. He was a "workaholic" who paid too little attention to his family. Livermore put a gun to his head and pulled the trigger in 1940. He"crashed and burned." You must have balance in your life to achieve lasting success at any endeavor. Trading markets is no exception.

happy trading.
Make Pips, Keep It, Repeat It!
hemant.

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Bob Prechter: Bear Market Rally Is Over, Stocks Headed For New Lows

With the Dow Jones Industrial Average once again marching closer to 10,000, many investors, especially those who missed the rally since March, must be asking themselves: Is now the time to finally pull the trigger?

Robert Prechter, founder of Elliott Wave International, implores retail investors stay away… for now. Prechter, who was bullish near the lows in March, now says the stock market "is in a topping area."

Why?

Several factors:

- Slowdown in upside momentum. Recent intraday rallies are petering out before the close.
- Bullish Sentiment. Investors who were bearish near the lows, are now just as bullish after a 60% run in the S&P 500. To Prechter, "that's a dangerous place to be."
- General overvaluation of stocks.

Prechter, the author of Conquer the Crash, says this is akin to the market in 1966-74 or 1929-32, where massive bear rallies gave way to another "big leg down."

He's predicting another crash in 2010 that will bring stocks below this year's low. His word to the wise, "be patient, don't rush it" keep your money in cash and cash equivalents for now and wait out this bear market.

He thinks it'll be another 5 or so years before we turn the corner but the good news is when we do, it'll be the buying opportunity of a lifetime.

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Hello Fellow Traders,

The November Month Issue of Currency Trader Magazine is now available.. Click here to download.


happy trading.
Make Pips, Keep It, Repeat It!
hemant.

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