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Commodity Traders Article of the Month
How to Trade the Markets Successfully by The Anonymous Trader
It's that time of year, a good time for people to reflect on their success and failures and plan ahead for next year to make it more productive and prosperous. It has been a very interesting year to say the least. The financial markets were all moving in big swings like copper, coffee, lumber, cotton and financials. Some were trending more than anyone thought like currencies, treasury-bonds, individual stocks and stock indexes.
As I look back at the past year and examine my style of trading (intraday trading the S&P 500) I am even more excited and committed to this type of trading. Why? Well here are some points that I will review that I have found to be beneficial to myself and hopefully to other CTCN members. These are all points that I have brought out during the year, but it is a good time to reflect, review and plan for next year.
Many people are still searching for a trading method and have been for years. This is one of the most frustrating modes to be in, because how can you plan for a prosperous trading year if you still don't know exactly how you are going to trade or approach the markets. You simply cannot have any confidence if you do not have a method or way of identifying trades along with money management guidelines. You're lost in the woods, so to speak. I was there for many years. What did I do? This may help a lot of you.
I threw out 99% of all the crap I learned about oscillators, divergence's, Elliott Wave, cycles, timing, seasonals, Gann, pitchforks, volume, fractals, RSI, stochastics, overbought/oversold (this is a good one - the stock indexes, currencies and cotton for example everyone said were overbought and topping in February and March this year). Look what they did. Needless to say, I don't pay attention to this anymore either, etc, etc. The list goes on to infinity almost. I went back to the basics. I went back to a few simple chart patterns like a simple moving average and trendline as a visual aid).
I came up with a lower-risk money-management trading plan and put it together with trading with the trend and wah-lah, presto, an effective and time tested trading plan. The plan is simple and has worked since trading began and will last me a lifetime. What a relief not to have to spend countless hours every night trying to find a new way to trade. I am sick and tired of that after 7-years.
When the day is done my analysis for the next day is automatically done in less than 5-minutes on my own software program I had developed and I'm off to enjoy my evening. No more, honey, I need to analyze the charts till midnight again and all weekend. Now I can concentrate on improving my psychological or mental skills during the trading day.
This will be an ongoing lifelong challenge. Nobody ever stops learning and trying to be a little better. Is my method perfect? No! (None are) am I perfect? Surely not. But it is the simplest and most accurate way of trading that I have come up with, and I've looked at lots (tons) of ways of trading. My method or approach works just as well on daily, or weekly charts. I choose not to trade that way.
I really enjoy and believe in the daytrading concept. There are so many advantages. No overnight exposure to huge gaps, not getting sick to your stomach over the weekend if it rains in Iowa and your long soybeans or some government official makes the wrong comment over the weekend on "Meet the Press" and your life flashes before your eyes, because your long currencies and they're going to tank on the opening Monday morning. I've been through it and so have many of you. No thank you anymore. Every day is a new day. You start fresh with a clean slate.
You slept at night. You enjoyed your weekend with your family. If you made a mistake yesterday, you can try to do better today. I realize that some traders cannot trade during the day because of other commitments. That's OK, you will just have to deal with the overnight risk. So trade small size and use stops. Perhaps use the Mid-Am or a smaller equivalent to the market you're trading if available. If you can have some access to intraday charts, you can use this to establish a longer term or intermediate term position with very low risk.
For example, when a day trader sees a good looking trade setup, they can go to the intra-day chart and wait for the same intra-day trading setup again. Establish the position with a fraction of the risk, turn the monitor off, walk away, and then monitor it from a daily perspective. You just need to be aware of gaps (there's that nasty word again) of which you have no control. So day trading even has a place for the position trader.
I also believe at becoming an expert at one market and its behavior and then putting all your skills and energy to work in a concern(traded) manner. Get good at that market and trade the heck out of it. Increase your size over time and you'll make more money with less effort. There are lots of professionals that do this. Look at some floor traders or locals that stay in the pit for many years trading one market exclusively.
Do you think you can't do it? I have 2 words for you. Tom Baldwin made all his money watching, waiting and learning the intricacies of the bonds until he could trade them in his sleep (which I'm sure he did, I do it all the time, most traders do!) and then traded the hell out of them. Point Made!
One thing that I have learned this year, is that I am trying to cut back on the number of trades I take and be more selective and not trade in congestion as much as I did before. I miss some good trades out of congestion, but I save myself a lot of mental energy, buy myself some more free time during the day, and get better more profitable trades.
For those of you who actively trade (or desire to learn how to trade) the financial and futures markets, there are a lot of other things outside the markets you should be following. But, I guess my bigger message is for those of you that aren’t in the futures markets, whether you trade them or not, the futures markets have a significant impact on what happens in the other financial markets, including forex, currencies, options and stocks. That’s why you should soak up every piece of good trading knowledge like a sponge in a quest to clearly see the bigger picture.
My attitude is changing now to just 1 or 2 winning trades, all I need to make my week (a triple or a home run, so to speak). There are plenty of them during any given weeks time. There are also a lot of singles and doubles to add to that and a few strike cuts or losers to absorb. This is part of the learning process and part of getting older. So I pass these observations on to you, in order that you may profit from my experience. Don't try to reinvent the wheel.
Trading is fun. Once you have a method and money management in place, it allows you to concentrate on trading and not on searching and researching. That gets old and frustrating. Make it your goal to find a simple method for next year. One that you can hang your hat on and that will last you a lifetime. Trading is simple. Remember that it's the Execution or implementation of your trading plan that is the bigger challenge.
Most traders end-up making finding the method the big challenge. That is because there is so much junk thrown at traders. They feel like a child in a candy store and have to try every doodad in the place. When they are done, they are sick and never want to see another candy store (trading gizmo) again. They could have had the plain piece of milk chocolate at the front of the store (simple method price patterns) which would have done everything they desired and fulfilled all their needs.
I think CTCN has evolved into a very good sounding board for ideas and interaction. I'm glad to see a lot more discussion on the psychological aspects of trading the markets. I feel this is where the most improvement for traders will come.
I wish to all a great new year. I hope some will be able to end their journey in search of the holy grail or indicator that will turn their life around. Search for simplicity. You will be surprised what has been right under your nose all the time, right there in front of you on the chart or price bars. Pay attention to what they say and they can tell you everything. You need to listen and get to know them. Trading can be really simple.