“Ray,

We hear all the time that successful traders know when a high probability trade is “setting up”. My question is what is it that you look for as a set up for a trade?”

This was an interesting question, because in trying to answer it, I realized that while I thought I had totally different mental processes going on between day trading and position trading… the ’setups’ I was looking for were essentially the same.

Let me explain…

First off, regardless of the timeframe you’re trading, I think it’s vital to have an idea of what’s going on in other timeframes.

In other words, you need the big picture. So if you’re trading 5 mintue charts, have an idea what’s going on in the 1 hour and daily charts. If you trade the daily charts, know what’s going on in the weekly and monthly charts.

The reason for this is that while I may say that the doji is a great candlestick setup, just trading a doji in isolation could be very dangerous especially if on a higher trading timeframe that doji is running against major opposition.

Secondly know and watch your key support/resistance levels.

When trade I look for where key support/resistance points are, and create various scenarios that may play out. I then watch price and how it reacts around these key levels.

At this point this is where my day trading and position trading approaches begin to differ.

When day trading, many times I expect support/resistance to hold up, and will look to trade with the support/resistance as my stoploss. Basically meaning that (depending on the context of the trade in progress) if price reaches a support level I deem important, I’ll go long, and use the support price level as my bail out point.

While when position trading, I usually choose to not trade with support and resistance, but against it… meaning that I look to trade longer term trends when support and resistance points fail.

Obviously these paint fairly broad generalizations as it is impossible to address every market condition with a general article, but I hope this gives you an idea of why just looking for a setup, in the traditional sense, is just part of the picture.

I know the reader asking the original question was probably looking for a more definitive answer, like, “I look to trade of dojis and falling hammers…” but what you have to realize is that while these trading patterns do help to alert us to potential changes in market sentiment, that used in isolation they only give us one side of the picture. By learning to understand what is going on in price action and the context to which it is occuring, you’ll be less in need of specific setups, and more in tune with the market.

Continued Success!
Ray

P.S. For more info on how I position trade, check out Market-Millions.com.

For more info on how I day trade, check out Day-Trading-Secrets-Revealed.com

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After my last article where I revealed “An Odd Place to Refine Your Trading Skills…” I got a comment that I thought was fitting…

in fact maybe even more fitting than the “odd” way I was suggesting to refine your trading skills.

The comment was

How true!

But unfortunately, I am an impatient man…and, therefore, to tackle the dilemma, I just play and buy in 0ne or Two number quantities while waiting for a good hand (so to say). This way I reinforce and check the strategies with minimum risk.

May be this is then second best thing to do for impatient traders.

VM

This is a good suggestion, in fact I’ve kind of suggested it in previous articles on how to ramp up your trading.

But this is a good technique that even intermediate and advanced traders can use when they have the ‘urge’ to trade, despite the fact that their system is telling them otherwise.

Now while some may feel that this goes against the idea of discipline, I think that by taking a very small trade that will not blow out your account, you can satisfy your need to trade, and not end up overly anxious to jump into a potential trade prematurely.

Because like a dieter who is trying to use will power to not eat a crumb of chocolate cake, more often than not they’ll end up in a state where they’ll just binge. Instead of suffering that fate, satisfy that craving with just a bite or two, and you’ll be satisfied.

Just don’t fall into the trap of making many ’small’, ‘insiginficant’ trades… or else you’ll wither away your account before you know it.

Once again we’ve come back to the key element of disipline

Continued Success!

Ray

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Tired about hearing about paper trading? I’ve got a suggestion I’m sure nobody else is making…

Now before you think I’ve lost my marbles, let me setup why I’m recommending the following ‘training’…

One of the most difficult skills to develop in trading is patience. That is, the ability to wait for the right opporutnities to come along and taking action when they are present.

Now as I tell all traders, papertrading is a one way to accomplish this. Unfortunately the one thing that papertrading sometimes doesn’t encapsulate is the real emotions felt when trading with real money. To many this exercise becomes just that… an exercise.

So how can you overcome this limitation?

I find that competing with others injects that emotion into the mix…

So what do I suggest?

Online poker.

Now before you think that I’ve totally flipped my lid, let me say… I’m NOT telling you to play with any money.

What I am trying to get across is the cellular learning of being able to sit and wait while “action” is going on is a valuable skill.

Because in trading, depending on your trading style, you may be “waiting” 60%-80% of the time, whether you’re in trades, or waiting for trades to setup.

Waiting is probably the most overlooked skill, because it can’t really be taught the way that chart reading can be, but without it, you’re going to face an uphill battle to success.

Now before you think I’m off my rocker, here’s a quote from Gary Bielfeldt from the book Market Wizards,

“… My father taught me the concept of playing the percentage hands. You don’t just play every hand and stay through every card, because if you do, yiou will have a much higher probablity of losing. You should play the good hands, and drop out of the poor hands…

… If you apply the same principles of poker strategy to trading, it increases your odss of winning significantly. I have always tried to keep the concept of patience in mind by waiting for the right trade, just like you wait for the percentage hand in poker.”

Just a thought for the day…

Continued Success!

Ray

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Here’s the gist of an email I received today…

“I have never traded, I’ve watched futures but never stocks.

I am very interested in this just a little unsure about all the little things that need to be done before one can start trading.”

Because I get similar questions, I figured I’d address address some of the elements in this question in an article…

So, how do you start?

I’ve got a 2 step formula that can be perfectly applied to this question. In fact this “formula” works for anything, the 2 keys are:

Education

Education is the process of learning about what it is you plan to do. You can get this from books, courses, trial and error and learning from other people.

There is no one best way for everyone. Some people learn well from reading, others video, and others need one-on-one guidance. Determine what works for you and get started.

When I was first learning to trade, I didn’t even know what questions I should be asking. Only by emersing myself in the subject did I gain enough knowledge to know what I didn’t know. This is the first step.

Next you begin to fill in the gaps of your missing knowledge through continued education. (Actually in trading your education will never end… but that’s the subject for another article.)

Now here’s where a lot of people go wrong… they become execellent at educating themselves… the problem is you can’t stay ONLY in education mode forever. If you do you will never realize your original goal of becoming a profitable trader.

That’s why the next step in this equation is… execution.

Execution

Now I am NOT saying to run out and start live trading! Execution can, and should begin with tiny baby steps… and the more risk free you can make these steps the better.

For our business, papertrading is the most logical beginning. And today with the numerous free trading simulators availble there is no reason for not getting adequate practice in the initial stages of execution.

In future articles I’ll list a few simulators. (If you know of any you’d like to share, feel free to leave a comment with the ones you recommend.)

This is a general overview of how to get started. I’ll start covering more detailed aspects in future articles.

Continued Success!

Ray

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