Steidlmayer distribution.These locations represent the beginnings and endings ofdistributions, which are desirable locations for putting yourtrade on. You should try to coincide with earlier referencepoints at the same time.
Now let's look at the type of trade we intend to make. Itmay be a responsive trade, which calls for patience andgood trade location and is usually a trade for tomorrow—a long-term trade. Or it may be an initiating trade, whichcalls for a commitment to act immediately. In the lattercase, you will give up trade location to a degree becauseyou expect an immediate response.One of ihe major problems Market Profile students encounter in their trading is that most of their trades areresponsive. Such trades are easier to put on, since themarket gives you plenty of opportunities. The error lies intreating these äs day trades, looking for an immediate response, which the market is not going to provide.Traders also make the mistake of seeing the initiatingtrades shape up but then letting the opportunity go bybefore they act. Consequently, they do not have a highpercentage of good situations on their trades, having letthe best opportunities escape; instead, they end up withmediocre situations and false expectations.To summarize this key distinction: you need to put onthe initiating trade immediately, at the market. However,you generally have about an hour and a half to put on aresponsive trade, given a fair price/value relationship. Inthis case, focus on patience and location rather than immediate gratification.The next consideration is the time frame of your trade —whether it will be a day trade or a beyond-the-day trade.It's important to determine this ahead of time, while youare in an unemotional state. The key here is to avoid turning day trades into beyond-the-day trades just because theyhave been profitable; and to avoid turning long-term tradesinto day trades just because you have made an immediate•174-
TRADE MONITORING AND EXITING
Once your position is in place, you need to monitor thetrade. To do this, you must first determine your expectations for the trade. What would you like to have happen?What do you need to have happen to fulfill these expec175
Steidlmayer on Markets
tations? If you get this, fme. If not, it needn't be disastrous,so long äs what you do get isn't adverse.As you monitor your trade, get äs close to the marketäs possible by following emerging market activity, äs wediscussed earlier. Follow this up with reference to developing market activity. Determine whether your capital issafe or in jeopardy, with reference to the plan you developed during your trade preparation period. Once you'resatisfied (usually half an hour to an hour after putting thetrade on), check the reference points above and below themarket, and look at the possibilities for multiple distributions. Your on-line volume numbers, if they are higher orlower than those for the previous days, will be helpful intracking and describing market activity (see Figure 13-4).Finally, you need to learn how to exit the trade. Themost important lesson —one I can't emphasize enough —isnot to overstay your position. If you have a tendency tooverstay, it will be very difficult for you to be a successfultrader. You need to become aware of your own pattern ofbehavior so that you can correct it if necessary.Naturally, capital preservation is your first consideration; if you lose money, you have to make it back beforeyou can even begin to profit. But you can't be too gimmicky about capital preservation. You can't swim withoutgetting wet, and you can't trade without occasionally losing.As your trade continues, ask whether you have reachedyour time frame. Once you have, exit. If not, hang tough,while remembering the importance of capital preservation.What if you miss the best opportunity to exit your trade?There is a strong human tendency, once the best opportunity has surfaced and has not been taken advantage of,to wait for the market to repeat that opportunity. However, if that opportunity really was the best, it will not•176-
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reappear. If it does, the market will go on to give you aneven better opportunity. So be psychologically disciplinedenough to realize when the best opportunity has presenteditself, and be prepared to accept something less than theideal when deciding how to exit your trade.
TIME AND THE TRADER
The central concept of natural trading is finding a goodidea that can be converted into an opportunity and placedin the market under advantageous conditions. It will thentake a while for the advantageous conditions to unwind.During that time you'11 be able to follow the trade monitoring and exiting processes äs they relate to capital preservation and enhancement.Time can be used twice here: first, to reflect on goodideas and to work hard at developing and updating yourbackground information; and second, by using the unwinding of conditions or of a distribution, to give you timeexposure in the market. If you do this, you'11 be reaciingto price positively rather than negatively — taking advantage of price and receiving a premium, rather than payingone.
In this book, you've experienced the growth and educationof a trader. You've also seen the need for continued growthand learning äs markets change and new opportunities arise.I think you've seen that sound, solid principles are thenecessary base on which every trader needs to build. Theseprinciples can grow out of each experience in our life äswell äs from all that you do and observe in your professional endeavors. With these strong principles äs your base,you can develop the patience and confidence you need tobecome a successful, independent trader. In this process,we hope you'll find the structure presented in this bookto be beneficial and helpful.I expect the world of the future to be a better place thantoday. Much of the improvement I foresee will be due tothe growth and development of markets around the world.As the markets penetrate areas of poverty and inequity,both the economies of the world and the markets themselves will be strengthened.Markets benefit civilization to the degree that they servethe people. As globalization expands the existing markets,attracting new participants and bringing more and more ofthe world's people into their orbit, the undeveloped regions of the globe will surely beneßt.I hope the work I have done will help to advance theprocess of improving the human environment and theworld's Standard of living by helping to expand the under-
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standing of markets and the benefits they bring to all levelsof society.
INDEX
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184
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