I like maxims and quips. Little phrases that tell a big story. I like the parables in the Bible because a child can say “I get it,” and an aged student can say “Oh… now I get it.” The principle of keeping it simple is a good one for most of life’s situations including trading. And while trading skills are not easy to master, they involve simple principles.

Mastery in most areas of life includes learning to conserve extraneous movement and effort. When it is done right it looks simple and onlookers often say “Well, I could do that.” But the “wanna be” soon finds that it is not as easy as it seems. Trading can be frustrating and discouraging, but when the market seems to get you down and you feel like you will never get it, remember Sean Connery’s famous line, “Impossible, but doable.”

Too often, traders experience real highs and real lows. While the give and take is normal and expected, big swings are usually the result of changing stride or technique inappropriately. Finding your stride or niche can really make the trading life a lot more consistent and smooth and therefore, profitable. Getting to know a few terrific trading stocks rather than collecting all the potential candidates from recommendations and scans begins to overwhelm a trader and changes the rifle shot accuracy to a shotgun splatter.

So, a while back in a Trader Talk Live training a student wrote “- the past 7 days of trading have been absolutely fantastic. I have confirmed again the value of following just a few stocks and getting to learn (as much as possible) their behavior. PD is one of my all time favorites”. She was referring to a principle that is trained in the Trader’s Forge two day trading camp that I conduct once a month. I advise students to build a stable of good trading stocks and get to know them. Pick your favorite 6-10 and back trade them repeatedly. Learn to recognize the patterns of behavior. Does it behave in similar ways around earnings? Does it make clean or sloppy turns? Does it have a tendency to throw certain chart patterns? In doing so, you get a feel for the traders who influence the stock and improve your chances to repeatedly tap that stock for pattern trades.

The patterns we observe are the behavior of people. Key Traders are interacting with various levels of traders, brokers, fund managers and the public. This cast of players is unique in each stock or group of stocks, bonds, commodities etc. Hence, unique patterns develop and that is the key. Instead of flitting around like a butterfly from bush to bush looking for a new flower, you can find certain flowers that keep producing on a regular cycle. You develop a routine and learn the cycle so that you can just stick around and harvest over and over again.

I have a friend who taught me this principle in a dramatic way. He had a very narrow group of stocks that he got to know and not only did he learn the patterns, but he also studied the company’s behavior. He knew how they acted around earnings, what products they were releasing, and how their stock responded to economic news and events. One year alone, he made over $750,000 trading one company. It was interesting to note that others seeing his success always wanted to know, “What’s it going to do next?” Like the children’s story of the Little Red Hen, most fellow traders wanted to cash in on his valuable insight and very few asked him to teach them how to trade like he traded. It was folly to think that if he gave them the information, they would also gain the skill it took to glean the information. That, however, is human nature.
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This is reported to be an actual radio conversation of a US naval ship with Canadian authorities off the coast of Newfoundland in October 1995. Radio conversation released by the chief of naval operations, 10-10-95.

(Please Note: This story is an example of why it is important to listen and blend with the market. It is not meant as a political statement of any kind.)

CANADIANS: Please divert your course 15 degrees to the south to avoid a collision.

AMERICANS: Negative, Recommend you divert your course 15 degrees to the north to avoid a collision.

CANADIANS: Negative Sir. You will have to divert your course 15 degrees to the south to avoid a collision.

AMERICANS: This is the captain of a US Navy ship. I say again, divert YOUR course.

CANADIANS: No Sir, I say again, please you divert YOUR course.

AMERICANS: This is the Aircraft Carrier US LINCOLN, the second largest ship in the United States Atlantic Fleet. We are accompanied by three Destroyers, three Cruisers and numerous support vessels. I DEMAND that you change your course 15 degrees north. I say again, that’s one-five degrees north, or counter-measures will be undertaken to ensure the safety of this ship.

CANADIANS: Uh, Captain, This is a lighthouse. Your call.

The market, like a lighthouse, will send signals and it is incumbent on us to listen and to blend with the market. In a collision, the lighthouse (market) always wins.

Markets Maxims

One of my maxims says… “The stock will never listen to you, but, it will speak to you if you learn to listen”. Another one says, ” If you dance with a gorilla, don’t try to lead”. Folks, you must learn to listen (read charts and interpret news) and you must bend and blend with the market to avoid being crushed by it. This is not natural to our independent and proud natures. While we may be on the verge of a market upswing, every market upswing for 3 years has been met by a lower lows. Each upswing was seized upon by hopeful enthusiasm and dashed with the next roll over.

This has been a wonderful market for traders who trade both ways. It has been frustrating and devastating to one directional traders hoping for the return of a bull market. Trading is more than jumping in and holding on. It is dynamic and fluid and bidirectional. You must be trained in dynamic and tactical trading to flow with the market. You can and you must learn to do this. The following thought may help put this into perspective. It is paraphrased, as I cannot recall the author.

“The learners will inherit the earth while the learned will find themselves perfectly prepared and suited for a reality that no longer exists”.

Workshop Update

Boy what a week, we have just finished two great days of filming new materials for you in Phoenix and a “Two Days of Tradin’” boot camp in Denver. I was exhausted after the events but very pleased with the results. Both events were a success and the students loved the classes.

“The 1st day was a new course called Power Spreads. It will open you eyes very wide to understanding the power of using spreads to minimize risk and neutralize volatility. We also learned a great deal about option pricing and how to read volatility to select the most appropriate strategies. We used the X-Factor options graphing tool to historically trade QLGC and IBM and we saw price manipulation and how the options you may think is a good choice can be a real disappointment and why. I and sure you will enjoy the class when it is ready for purchase.

The second day we taped the new Market ‘Mind’ Fields. The class response was powerful. Some said it was like a mirror being held up to show them things they did not want to see but desperately needed to deal with. Almost all of us have land mines planted ion our minds. Market ‘Mind’ Fields will enlighten you to the reasons why trading is such a difficult challenge for folks and how to gain the mental disciple needed to survive and then thrive in the markets.

Friday and Saturday I was in Denver with a great bunch (mostly locals and mostly women) of students for my “Two Days of Tradin’” boot camp. What a fun time. I worked them pretty hard and they loved it. There were several who were very new and a little nervous but as the first day wore on they got into the swing of Bracket Trading™ and did very well. We traded several stocks on Friday just learning to go long and short at the right times. Back trading is a fantastic way to learn and train your train skills.

Saturday we added options to the mix by using the X Factor Options Graph to back trade several companies. We tracked several option strategies over run ups and sell offs to see which positions performed the best. Not all bullish strategies performed the same over the run ups and downs. It was very instructive to see the effect that different expiration months had on profitability. The students all realized that option trading is a lot more complicated than most people think. Picking the right strike, right month and whether to buy or sell premium can be critical. It is very possible to have two separate bullish option strategies at the same time and the one makes money while the other one loses.

New classes are being added to the calendar for March through May so check out which times and locations may fit your plans. You need to be in the trading simulator workshops. Two Days of Tradin’, will hone your trading skills like nothing else can.

Please join our Web shops and please consider coming to a Two Day Trading camp with me. I will work you … but you will come out a better trader.

Ryan with Better Trades