: What is the primarymotivation that drives individuals to the trading arena?2
CHAPTER 1
PREPARING TO TRADE
3
1. Is it greed? Merriam Webster’s Collegiate Dictionary,tenth edition, defines greed as “excessive or reprehensible acquisitiveness.” In other words, as it applies totrading, greed is excessive emotional attachment tomoney.2. Is it excitement? Gamblers often ride an emotional rollercoaster that takes them from manic highs to depressivelows—they stay in the market for the thrill of theride.3. Or is it passion? Individuals who compete in the markets do so for emotional and financial growth.My hope is that it is number 3: passion. The passionate are theones for whom this book is written. Passion is really the only motivation that can lead to the desired results. The rules I will highlightthroughout this book will build on what has been learned overmany years by many professionals. That is why I will spend themajority of the time on rules that have stood the test of time as theyhave been adapted to fit today’s marketplace. Few would arguethat we are not in the midst of the most dramatic change our market has ever seen. Fair and equal access to the market through technology is creating increased market liquidity because of individualparticipation. The rules I cover still apply today, in spite of suchdramatic change. Therefore, your interests will be best served tofollow them because of these enduring qualities. I can make thatstatement with confidence not because I have written the rules butbecause I have used them, as have professionals who have tradedover many years.
THE MENTORThe second rule is Get a mentor. The Marines would tell you: “Awell-executed plan today is far better than a perfectly executedplan tomorrow.” In trading, a well-executed plan will alwaysinclude a mentor. Professional traders tend to be loners, much likeathletes who participate in individual sports, such as swimming,wrestling, golf, or tennis. These types of individuals have no oneto rely on but themselves once the games have begun. But there is
4
RULES OF THE TRADE
one person you will almost always see standing near a world-classwinner at the end of an event. And there is almost always one person that is singled out for special praise when the championaccepts his or her trophy. That person is almost always the athlete’s personal coach or mentor.The success of almost every great trader reflects the influence of one or more people who took a personal interest in thatperson when he or she first entered the trading arena. Everyoneneeds a sounding board—someone to bounce ideas off, a trustedcolleague to share plans with, someone to talk to when things aregoing well, and most importantly, someone to be there when youare not.If you are fortunate enough to have a close personal relationship with a mentor and coach, then I think you have an advantage(assuming the mentor is worthy of that title). A coach does nottake shots for a pro golfer. He or she does not do the swimmingfor the Olympic athlete, and he or she certainly can’t be on thetennis court with the athlete for three hours at a crack. Mentorsare off the field, on the sidelines. They watch. They think. Theyoffer suggestions. They point out weaknesses and praisestrengths. They cheer you up when you are down and bring youdown when you are too high. They try to keep you from hurtingyourself, and they push you to excel. They teach you what you donot know and tell you when you think you know too much. Andthey must do all these things well enough by game day so that youare ready to proceed without their physically talking you throughit. What you want from this relationship is the lessons mentorsteach in your head when you need them. When the opening bellrings, traders are on automatic pilot, making fast decisions without the time and luxury of overthinking. Instincts must kick inwhich are born from your efforts made prior to the opening bell.Mentors can help in these efforts. Remember, no one is an island;we all need coaching.You cannot find good coaches easily because mentors andcoaches have a difficult job. It is not exactly a job for which aperson normally applies. Mentors and coaches are not alwaysappreciated. They are not the ones that get the glory. Often, theyare the ones that are blamed when things go wrong. Is it anywonder you rarely see ads for the position of mentor? Usually,these relationships already exist having been built up over
CHAPTER 1
PREPARING TO TRADE
5
many years, but have not been broadened to include the lessonsof trading. Successful people you trust can contribute in manydirect and indirect ways to your trading, even if they do not possess the direct skills of trading. While it is an advantage to havea mentor who is also a successful trader, utility can be found inprofessionals from different backgrounds. For example, thelessons taught in athletics have many applications to trading.Like sports, the results are black and white. You either win orlose at the end of the day. There are no shades of gray as thereare in so many endeavors and careers that are evaluated by subjectivity. Because of this, facing reality is apparent in each trade,and this develops a tough skin on traders and athletes who arewinners. Humility, discipline, and focus are additional attributes that are present in winners. Like almost all endeavors,winners are minorities, representing a very small percentage ofthe participants. In some endeavors, it is the 80/20 principle,where 20 percent of the players are getting 80 percent of theresults. In trading, I believe the distribution is more extreme,where 5 percent of the traders are getting 95 percent of theresults. And in the active trading environment of day trading, Iseek to learn from the one percenters, where these individualsare at the very top of the food chain. The point is, in the absenceof a mentor in the trading environment, an individual in the top1 to 5 percent of his or her respective field most likely possessesmany of the same attributes required to be a one to five percenter in the trading environment. These individuals and theirexperiences can teach you the personal psychology of winningand losing, and these lessons are transferable to trading.Finding the mentor best suited to you and your trading styleis not easy. Nevertheless, I would recommend you start by outlining the ideal solution—the combination of attributes that youfeel is necessary to help you get the training and coaching youneed, based on the style of trading you plan to implement. Bywriting down everything you need from a trading mentor, youengage yourself in a process that actually helps you define whatkind of trading you will be doing and how much interaction witha coach you desire.Many traders like limited involvement and would just wanta person with whom they could share ideas, with little depth tothe relationship. That might seem odd, but some trading schools
6
RULES OF THE TRADE
and brokerage firms provide this very service: an objective, experienced professional that you can call from time to time to askquestions and who will point you in the right direction. Also,some services available through the Internet allow you to log intotraining sessions with seasoned traders where you can simplylisten or participate more fully by engaging in a conversationwith the professional. This type of arrangement provides a “Webmentor,” which is attractive to people in remote locations. If youare fortunate enough to have a more intimate relationship in atrading room, in which a brokerage firm provides a trading floorequipped with all the tools and human support you need totrade, then take advantage of it. Regardless of which approachattracts you more, and even though trading is an individualendeavor, I suggest you find a market enthusiast or leader withmore skill and experience than you have so that you can growpsychologically.Many believe that there is an ideal mentor who can giveyou one winning trade after the other through a subscriptionservice or chat room. But that assumption is unrealistic. Remember that There are no silver bullets in this business. Thereis no easy way to make money in trading. No one person, noone mentor, can provide perfect advice all the time. As a matterof fact, that is not even the providence of a mentor. Only a guruor an alchemist would claim to have the silver bullet. The problem with a self-proclaimed guru is that he or she is paid for hisor her advice. In contrast, firms that will provide services freeof charge regardless of the number of trades you make are firmsI believe you can trust and that have your interest at heart.Think about it: A brokerage firm gets paid for your trading,regardless of how active, through commissions. It has a vestedinterest in your success. That creates a fair win-win relationship. The firm provides free support and continuing education;you provide your patronage. Paying for a subscription servicethat promises “winning trades” is denial for the amateur whorefuses to do the work required and not the approach of a onepercenter.Mentors also help you develop conviction. I learned from myfather to stand behind my convictions. Weak traders are easilyinfluenced by news and others, but strong traders have conviction,
CHAPTER 1
7
PREPARING TO TRADE
and it shows in the way they make and maintain trades. The besttraders form their opinions based on their solid research and hardwork, and because of that, their opinions are theirs, adding credence to the cliché, “People support the things they help create.”It is important to trust your instincts and convictions. Lessons likethese are not always popular with new traders because they don’tequate to tangible ideas that can be plotted on a chart or seen on aWeb site. But having conviction in the course of action you havechosen based on your own research and instincts will give you amuch greater chance for success than acting upon a whim orimpulse.Now that you have an idea of what a mentor is, what youexpect from one is important to evaluate. Before evaluating whatyou need from a mentor, the first step is to ask yourself someimportant questions as outlined in the following section.
Personal Knowledge and Skill Survey for TradersCheck your level of confidence and competency in the followingareas. In what areas do you need formal or self-education andwhich ones call for one-to-one mentoring?High
1. General knowledge of how stocks arebought and sold2. Specific rules governing the purchase andsale of stock:Over-the-counter versus listed issuesElectronic communication network(ECN) executionsStock clearing rulesCrossed marketsShortingStock selectionTechnical analysisFundamental analysisOpening positionsClosing positionsMargin requirements and rulesAccount paperwork
Medium
Low
8
RULES OF THE TRADE
3. Skill and trading experienceShort-term (day trading and/or scalping)Swing trading (one to three days)Trend trading (three to ten days)Medium term (less than one year)Long term (over one year)Trading strategies4. Years trading (over five = high;one to five = medium; less than one = low)5. Trading volume per month(200 or more = high; 199 to 51 = medium;less than 50 = low)6. Trading demeanor and passionfor the market7. Computer and trading software8. Internet connectivity9. News and information gathering10. Financial backingNote that this is not an all-inclusive list. It is meant instead toprovide insight into some of the key areas in which electronictraders must be competent. Because electronic traders are oftenreplacing their brokers with themselves, they must self-impose asuitability profile in order to assess and improve their skill andknowledge. The trader must seek formal education, self-education,and a mentor for some of the more intuitive skills before acceptingthis responsibility. Many will maintain a combination of servicesby which they will continue to work with a broker as well as tradecapital for themselves; either way, this information at a minimummust be known before electronic trading begins. In the absence orpresence of a mentor, another cliché I use often is “If it is to be, it isup to me,” which properly states that the buck does stop with you.That is why, with or without a mentor and coach, you ultimatelymust be in control of your own universe. That control does notcome with a quick motivational course; it comes with a plan.
THE PLANBefore you begin trading and determining which stocks you willtrade and on what time horizon, you must first set up a plan of
CHAPTER 1
PREPARING TO TRADE
9
action. The plan itself will actually help set the criteria for whichstocks to trade and for how long. Many traders fail to plan theirtrading strategy and determine which stocks to trade, and consequently their mistakes are very real and very common. In fact,even ordinary. What is extraordinary is obtaining the knowledge,learning the rules, and developing the skills and attributes of successful traders before ever turning on a computer to trade. I oftenspeak about the exuberant who are so anxious to launch theircareer at trading. They remind me of young sailors who cast offfrom the shore in their canoes instead of slowing down andremaining onshore long enough to build the proper ship. Whatgood is a head start with a poor vessel? Smart traders build theright plan that can complete the journey. This leads to the ruleCreate a written plan.This is one of the toughest rules to convince traders to follow. Time and again, they state they know exactly what and howthey are going to trade. These same traders constantly find themselves confused and caught in losing trades. To avoid this trap,every 13 weeks I thoroughly review my own trading plan andadjust it accordingly. In Chapter 9, I include some aids to use inthis process once you have begun trading, but before beginningto trade, the plan comes first.A plan is composed of only two primary parts:1. The blueprint. A blueprint is a preliminary action plandeveloped before trading begins. This step is accomplished before beginning to trade if the trader is new andinexperienced. If the trader is experienced, he or sheshould reevaluate the plan every 13 weeks. An inexperienced trader should review the plan more frequently.Either way, it is a “living written document” that evolvesover time. For example, I always revise my plan for thesummer trading season since summertime market conditions call for different strategies.2. The journal. The journal is a day-to-day microadjustment of the blueprint. This is the document that requiresyou to adhere to your plan. Emotional aspects of tradingon a daily basis are written in here. Questions such as• Did I follow my blueprint today?• Did I maintain discipline?
10
RULES OF THE TRADE
• Did I do the research required?• Did I recognize support and resistance levelsthrough volume?• Was my methodology correct?would all be good to ask yourself and answer in yourjournal. These represent intangible issues that technologycannot capture through a database. For example, traderswill often lose money while doing the right things; nevertheless, they should remain on course regardless of themonetary outcome. A trade journal is ideal for remindingyourself of that. For example, in Chapter 9 I show the trading patterns of three traders. Each has a distinct style, butthrough a database, patterns in their respective styles canbe seen, including where they are most profitable in termsof sectors, time horizons, and strategy, such as long versusshort positions. But what the database cannot tell thetraders are the emotional and instinctive qualities of thetrade. The journal does, because often a trade is openedand closed for all the right reasons and indications, butthe P&L does not reward the right behavior. The data is soobjective that it does not reveal the fact that the trader didthe right things in spite of a losing trade. If a trader acts onmarket action a certain way and is rewarded for the action8 out of 10 times, then the 2 out of 10 times the trade doesnot yield a profit for the same action should not be questioned too critically. A journal is a good reminder to yourself that you would have done the same trade in spite ofthe loss. Conversely, if you abandoned your discipline,this too should be noted with your steps to avoid makingthe same mistake again. Questions like these should alsobe answered in the journal:• What was my strategy (earnings play, split,momentum, etc.)?• Did I exit on fear or logic?• Did I do the right thing, and do I feel good aboutmy decision? Why or why not?• Would I make the same trade again in the samesituation?
CHAPTER 1
PREPARING TO TRADE
11
• Did I have confirming indicators when enteringthe trade?• Was my discipline followed? Why or why not?Before defining your trading style in your written plan, whichwe will do to close this chapter, examining why your plan shouldbe written deserves comment. Writing stimulates thought. Whenyou put your plan on paper, it somehow becomes more real than itis when it is just in your mind. You can more easily share it witha mentor or a fellow trader. Often a thought running through yourhead sounds great, but when it is in black and white in front ofyou, it seems unrealistic or improbable. And nothing is moreexpensive to a trader than trying to make something happen thatis unrealistic.Another very important reason for writing out a plan is thatyou cannot deny it. If your plan states you will not hold positionsovernight but you do so anyway, you realize you have violatedyour own discipline. When the plan is only in your mind, you willfind yourself rationalizing why holding that position overnight iswise, even prudent. Your discipline erodes like the sands of abeach; each ripple, wave, and tide of the market changes the landscape of your discipline so that you evolve more into a jellyfishof the market rather than the relentless, unemotional shark youneed to be.Think of your written trading plan as one way of measuringyour success in terms other than monetary. By comparing yourplan to how you are performing, you can make minor adjustmentsas you need to, and then each quarter you can completely rebuildyour plan, incorporating new rules, insights, and goals based onyour most recent 13-week experience. Think of your plan as a wayto keep score. Too often the profit and loss is the only barometerfor traders to judge performance. Your profit and loss (P&L) is certainly important and cannot be underestimated since in the end,what we are all in search of is performance. But many more factorsplay into the process than just money. Emotions, accountability,responsibility, focus, and creative thought all get brought into thedynamics of trading versus a one-dimensional fixation on monetary gain. Writing down what these motivations and componentsare for you while tracking your adherence to them each day,through your journal, increases exponentially the likelihood that
12
RULES OF THE TRADE
you will achieve your desired result. Let’s take a closer look nowat each component of the plan and the rules that apply.Designing a plan is ultimately a very personal process. Onlyyou know what you know. Therefore, the first place to start is toclearly state your goals and objectives by asking some additionalimportant questions:1. Do you want to be a full-time or part-time trader?2. Is it your objective to make a living trading or to supplement your current income?3. How much time and energy do you expect to put intoelectronic trading?4. How many hours a day will you dedicate to research, andwhen will you do it?5. Do you seek to become a day trader, swing trader (holdingpositions 1 to 3 days), trend trader (3 to 10 days), or aninvestor?These are all critical questions you must ask yourself. Onceanswered on paper, the rules you follow for each style of tradingwill be much easier to incorporate. Each component of your planshould include a time horizon. Everything that follows in yourplan keys off of this decision. Select a time horizon for each trade,rather than a single time horizon for all your trading. Like radar,when an opportunity presents itself, it will be recognized, especially as you gain experience. These opportunities will come, andif the criterion you recognize, such as the anticipation of earnings,is more associated with a swing trade, trade accordingly. Pigeonholing yourself strictly as a day trader, swing trader, or investorlimits opportunity and also increases the likelihood that you willforce trades out of boredom, trying to impose opportunity into atrade where none exists. In short, a multidimensional approach isalways preferred to a narrow approach.As a novice electronic direct-access trader (EDAT) or onlinetrader, you should learn each trading strategy individually. Inyour written plan, you should state the order in which you planto tackle each approach to the market. For example, you mightstate, “I’ll day trade for the first two months of trading. This willtake me into the earnings season, which is more conducive to
CHAPTER 1
PREPARING TO TRADE
13
swing trading, which I will focus on for that time.” Also concentrate on one trading strategy at a time. Spend the first couple ofmonths hitting nothing but very short term momentum trades.Then move on to adding swing trading for the next quarter. Midto long-term trading is probably what you have been doing, orhave done in the past, if you come from an investing background.The research you do to buy a stock you are going to put in yourindividual retirement account (IRA) and hold for the long term issubstantially different from the stock you would buy for a tradeyou think will last only minutes. For the former, you would do alot of fundamental analysis to learn everything you can about thecompany and its markets, not to mention the company’s pasttechnical performance. This requires a considerable amount oftime and effort. Precision execution is not dependent on research.Instead, market action momentum and pattern recognition are thefocus. The evaluation process for a day trade is equally importantbut more intense, faster, and dependent on direct precision execution and timing. For a momentum trade, intraday volatility iscritical, as is how the stock opens and closes. Unfortunately, toomany “wannabe” day traders are not willing to work as hard as isnecessary to become successful. You cannot park yourself behinda computer and start to day trade against the top market-makingtrading teams in the world and expect instant success. It does notwork that way.When you start working on your swing trading, technicalchart patterns, breakout and breakdowns, moving averages in priceand volume, and broader focus on Level II analysis become thetools and techniques of the trade. Since these trades last for severaldays, as opposed to several minutes or hours, you must decide—inadvance of entering the trade—whether you will hold the positionovernight.While you may occasionally hold a position overnight, youshould, as a rule, Avoid holding positions over weekends. Therationale is simple—time in the market is one of the three thingsyou have absolute control over (stock selection and size are theother two). Since you have no idea what could occur over theweekend to influence the stock you are trading, why take the risk?Additionally, you can always reestablish your position on Monday if the trade still looks promising. Think of swing trades astrades you enter early in the week and exit by Friday. While not
14
RULES OF THE TRADE
an inclusive list, these are examples of rules you would includein your plan.From your decision on time horizons flows the rest of yourtrading plan, such as selecting stocks to trade as well as your entryand exit plan. For example, if you decide to begin with day trading, you should write down a criterion for the stocks you willtrade. You would include characteristics like adequate daily volume, sufficient price volatility, correlation with leading indicators,major market maker participation, reliable technical indicators,liquid ECNs, tracking by analysts, and availability of news. Additionally, I find the more I trade a given issue, the more I becomea specialist in that stock and recognize the patterns the stockexhibits. These are by no means the only criteria, but they are whatI look for in the stock selection process. These characteristics willbe discussed in greater detail in Chapter 4.Table 1.1 will help you begin your plan, as it provides a setof criteria that should be followed for trades that last up to 10days.
Day Trade Criteria (Intraday time horizon within an hour or less)Day traders in the purest definition are rapid-fire momentumtraders who take profits fast and cut losses even faster. They likeanything that moves and shows a pattern or signs of followthrough. They are indifferent to going long or short, and they makethe most trades in a day and have the tightest risk tolerance. Thereis no completely literal description of a day trader, but Table 1.1 isa good overview of considerations to follow.
Range Trade Criteria (Intraday time horizon up to severalhours)A range trader will carry a position throughout the day for periods of hours. These traders are trading the daily range of stocksbased on pattern recognition and correlation to sector trends.Range traders don’t like news on the stocks they trade. They prefer to move quietly through the market taking profits out ofhighly predictable ranges among the stocks they specialize in.They are a form of day trader, but they use a longer time horizon.
CHAPTER 1
PREPARING TO TRADE
15
Swing Trade Criteria (One- to three-day time horizons)The swing trade is more associated with minor trends in the market. Charles Dow compared (what later contributed to the Dowtheory) the market patterns to the tides, waves, and ripples in theocean. Primary trends are analogous to the tides, secondarytrends to the waves, and minor short-term trends are associatedwith the ripples. Swing traders are looking for minor and secondary trends in stocks that reveal themselves over a few days.Day traders ignore these moves because they are intolerant of therisk associated with overnight positions. Many investors believethey are swing traders, but they lack the skill and experience toread the signals well enough to take consistent profit. Most willfollow the “poke-and-hope method,” waiting for the stock tomove in their favor. Those trades that do are often liquidated andcovered generally too soon, and those that don’t become longterm investments until the traders can’t meet margin calls anylonger, forcing investors to cover at the worst possible time.Swing traders differ from investors because they employ amethodology that includes the discipline to cut losses when thedata the market provides tells them to.
Trend Trade Criteria (Over 3 days, but generally less than10 days)Trend trading is very similar to swing trading but it works withina longer time horizon. This trader is often a systems trader relyingon technical tools, such as Omega Tradestation, TC 2000, Neovest,and other alert systems. This trader tends to be the full blowntechnical trader, who will often employ options as well as equitiesto trade.The criteria presented in Table 1.1 make up a guide to helpyou create a profile of which style or combination of styles suitsyour trading desires. While finding success in any style is hardwork, all have the potential for substantial upside and downside.Because of this, mental preparation through a written plan willhelp set reasonable expectations prior to engaging the market tooffset manic highs when success is found and depressive lowswhen inevitable losses occur. The key to surviving this potentialemotional roller coaster ride is to look at trading like the trades
16
RULES OF THE TRADE
TABLE 1.1 Trade style criteriaCapitalRequirements
Time Requirements
Risk Tolerance
DT
Minimum$25,000 with2:1 marginaccount or$50,000 cash.
• Pure discipline.Tight risk stops(mental).8:30–9:30 Shaping up for the open/premarket. • No overnight9:30–12:30 Trade the open and morning; sitpositions.out the first 15 minutes of open.• Trade heavy size.12:30–4:30 Trade the afternoon and close.1000 shares or more.4:30–5:30 Account maintenance and journal. • SIP.2 hoursEvening work and research.• Minimum 500,000shares per day.• Volatility. Dailyrange of >$3.
RT
Minimum$25,000 with2:1 marginaccount or$50,000 cash.
Minimum 10 hours per dayExample:
Minimum$10,000 with2:1 marginaccount or$20,000cash.
Minimum 6–8 hours per dayExample:
ST
No IRAsshould betraded usingthis style oftrading.
TT
Minimum$5000 with2:1 marginaccount, or$10,000 cash.Self-directedIRAs oftentraded.
Minimum 10 hours per dayExample:
Same as DT.
• Risk tolerant/purediscipline. More riskthan DT.• Slightly lighter sizeper trade. 500–1000shares or more.• Limited overnights.• 500,000 sharesper day.• Volatility. Dailyrange of >$1 or more.
• Risk tolerant.Timing less critical.• Trading ranges/8:30–9:30 Shaping up for the open/premarket. trends.9:30–11:00 Study market patterns.• Lighter size.2:30–4:30 Watch/trade the close; clues on• Larger pointhow a stock will open are oftenmovements.left at the close.•Overnight4:30–5:30 Account maintenance and journal.positions.2 hoursEvening work and research.• Smaller dailyvolume required.• Volatility. Dailyrange <$1 acceptable.• Stops important.Minimum 3 hours per dayExample:
•Same as swingtrading.
9:30–11:00 Positions are generally openedduring morning hours or after the close.4:30–5:30 Account maintenance and journal.Notes:• Marking to market should be done toevaluate margin requirements.• Evening hours vary according to researchbeing done.
Abbreviations: DT, day traderIRA, individual retirement accountMA, moving averageRT, range trading
SIP, small incremental profits and lossesST, swing tradingTA, technical analysisT&S, time and salesTT, trend trading
CHAPTER 1
17
PREPARING TO TRADE
Analysis Techniques(Personal)
Psychology
Psychology (Market)
• Specialist. Knows ahandful of stocksvery well.• Tape reading.• Levels and prints.• Support/resistance.• Relative strength.• Index correlation.• Futures market.• Fading and shorting.
• Spousal support.• Aggressivepersonality traits.• Hard worker.• Competitive.• Self-motivated.• Independent.• Risk tolerant.• Highly focused.• Humble.
• Microview ofmarket.• Understandsbroad trends.of markets.• Fades overreactions.• Avoids directnews.
• Same as DT,plus charts withshort timeusing 10-, 20-,50-, and 100periodMA.
• Same as DT, plustape reading—largerrange trading with abroader focus.
• Same as DT,plus averageto aggressivepersonalitytraits.
• Same as DT,plus understandsbroad trends ofmarkets as well.• Range trading.Looks for patterns.• Trades stockscorrelated tomarket.
• TA/charts.• Online systems.• Conditionalorder entry.• Level II andT&S notcritical butdesirable.• Precisionexecutionnot criticalbut desirable.
• Filters through TA.• Sector strength.• Support/resistance.• Breakout/breakdown.• Shorting less active.• Gap trading iscommon.• Follows news more.• Research andfundamentalsimportant.
• Same as DTand RT, plusaverage tomoderatelyaggressivepersonalitytraits.• More analytical.• More timeconstrained.• Less active.
• Follows trendsof markets.• Follows newsmore closely.• Range trading.• Technicalmarket patterns.
• Same asswing trading.
• Same as swingtrading except gaptrading is avoided.
•Same as swingtrading, exceptthese traderstend to be veryanalytical.
• Follows theoverall markettrend. Shortingis rare.
Analysis Tools• Level II.• Time/sales.• Graphs/charts.• Index/future.• Charts/short term.• Precisionexecution.
18
RULES OF THE TRADE
themselves. Avoid the expectation of selling tops and buying bottoms, as you avoid exuberance and dismay. Find the “sweetspot” somewhere in the middle and run the long race by pacingyourself with limited losses. One of the greatest lessons anytrader can learn regardless of trading style is to let profits run andcrucify losses immediately.
CAPITAL CONSIDERATIONS AND MARGINOnce you have profiled your trading style, the subject of capitalis critical and must also be part of your written plan.