Continued from Part I
4- When you enter a position, try to justify your decision with more than one pattern or indicator. These indicators or patterns have to be independent of each other and shall overlap to justify your position. Independent means, that you cannot use all the same type of indicators such as the Stochastic, RSI, MACD or any OB/OS indicator together and say that all give a buy (or sell) signal, thus jumping in. You have to understand that those indicators are all the same by nature (some sort of formulated lagging moving averages) and using only one of your choice would be more than enough. On contrary, as an example, using an indicator along with a Support line and the trendline or a market pattern would give you a much, much better idea about your entry position. There is no such thing as “Holy Grail” and for sure there is no such a thing as a magic indicator or such. Yesterday, at yahoo news I saw again one of those fraudulent commercials, that a young boy turned 10k into over a million dollars by using the magic indicator alone. Beware of such claims. When it sounds too good to be true, it is mostly a fake, a scam. Those people making such outrageous claims are snake oil merchants trying to rob you by offering you a fraudulent cure for all illnesses.
5-Never get into a position without a Thrust. What does thrust mean? It is an abrupt move in price in one direction or other. This can happen at any time frame. The smaller the time frame is the better in a sense, because you are detecting it faster. A news break may cause such a thrust, but most of the time when a thrust occurs, it means that there is enough underlying juice in the markets to cause that sudden thrust. The underlying condition could be a strong Support, high accumulation etc. Breakouts are thrusts with additional pattern validation. When observing a thrust, you got to be careful to assess the volatility of the market. In high volatile markets, moves can be confused with thrust. A thrust must be a move, changing the volatility of the time frame it belongs to.
6- Money Management is paramount. There is no such a thing as “getting rich quick”. I haven’t personally seen any honest trader having ever achieved such a thing quickly. However, it is true that there are insider traders who know some news ahead of time and hugely profiting from that. There are flash traders as well, who know what’s coming just a few milliseconds before everybody else and making millions in a split second using super computers. Those are however high rank traders at influential mega corporations with very deep pockets and connections. Unfortunately you are an average Joe and you will never be exposed to such tips and privileges ahead of time. So you better stick with your “Money Management” scheme and try to make money slowly in time. Shortly, money management is to have firm principles and following them like percentage of money put under risk, discipline following a certain Risk vs Reward ratio, diversification of portfolio etc. etc. Money Management is the tool which makes or breaks it. You don’t need to be correct all the time. It has been shown that traders below 50% accuracy but with sound money management can perform superbly at the end of the day.
Continued in Part III
4- When you enter a position, try to justify your decision with more than one pattern or indicator. These indicators or patterns have to be independent of each other and shall overlap to justify your position. Independent means, that you cannot use all the same type of indicators such as the Stochastic, RSI, MACD or any OB/OS indicator together and say that all give a buy (or sell) signal, thus jumping in. You have to understand that those indicators are all the same by nature (some sort of formulated lagging moving averages) and using only one of your choice would be more than enough. On contrary, as an example, using an indicator along with a Support line and the trendline or a market pattern would give you a much, much better idea about your entry position. There is no such thing as “Holy Grail” and for sure there is no such a thing as a magic indicator or such. Yesterday, at yahoo news I saw again one of those fraudulent commercials, that a young boy turned 10k into over a million dollars by using the magic indicator alone. Beware of such claims. When it sounds too good to be true, it is mostly a fake, a scam. Those people making such outrageous claims are snake oil merchants trying to rob you by offering you a fraudulent cure for all illnesses.
5-Never get into a position without a Thrust. What does thrust mean? It is an abrupt move in price in one direction or other. This can happen at any time frame. The smaller the time frame is the better in a sense, because you are detecting it faster. A news break may cause such a thrust, but most of the time when a thrust occurs, it means that there is enough underlying juice in the markets to cause that sudden thrust. The underlying condition could be a strong Support, high accumulation etc. Breakouts are thrusts with additional pattern validation. When observing a thrust, you got to be careful to assess the volatility of the market. In high volatile markets, moves can be confused with thrust. A thrust must be a move, changing the volatility of the time frame it belongs to.
6- Money Management is paramount. There is no such a thing as “getting rich quick”. I haven’t personally seen any honest trader having ever achieved such a thing quickly. However, it is true that there are insider traders who know some news ahead of time and hugely profiting from that. There are flash traders as well, who know what’s coming just a few milliseconds before everybody else and making millions in a split second using super computers. Those are however high rank traders at influential mega corporations with very deep pockets and connections. Unfortunately you are an average Joe and you will never be exposed to such tips and privileges ahead of time. So you better stick with your “Money Management” scheme and try to make money slowly in time. Shortly, money management is to have firm principles and following them like percentage of money put under risk, discipline following a certain Risk vs Reward ratio, diversification of portfolio etc. etc. Money Management is the tool which makes or breaks it. You don’t need to be correct all the time. It has been shown that traders below 50% accuracy but with sound money management can perform superbly at the end of the day.
Continued in Part III
