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Traders Library
Trade Secrets On-Line Manual
This tutorial was originally titled "Electronic Trading: Mind & Technology" and was
recorded at the Online Trading Expo
The Intelligent Online Trader
with
Robert Deel
email - trade@hardrightedge.com
THE FORMULA FOR SUCCESS
A Mental Equation
PROGRAMED FROM BIRTH
MONEY = EMOTION
What does money mean to you in one- word answers?
Joy And Fear
Tool
Money & Emotion
Paper Tool
Learned Perceptions Of Money
VALUE
Psychological Price
Context Of Time
Value Neutral
YOUR EGO AND WINNING CAN MAKE YOU BROKE
You Are A Winner
Distortion Of Reality
The Joy Of winning Is The Drug That Gamblers Live For
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The Thrill Of Winning Once
LIMITED TRADING CAPITAL
It takes money to make money
Minimum of $ 50,000 to trade intraday
Use risk management in all trading
NO EXPERIENCE
Why do people think they can be successful without any
experience? Do not lose all of your money proving how good you
aren t.
Your competition has millions of dollars and trades for a living.
YOU AND YOUR TRADING METHODOLOGY
Are You Psychologically Prepared
The Awakening
The Dream And The Reality
Mindset (the zone)
YOUR PSYCHOLOGICAL PREPARATION WILL ULTIMATELY
DETERMINE THE OUTCOME OF YOUR SUCCESS OR FAILURE AS A
TRADER OR AGGRESSIVE INVESTOR.
WHY MOST DAY TRADERS
LOSE MONEY
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THE WRONG TRADING METHODOLOGY
Most people confuse day trading with scalping. The definition of a day
trader is someone who enters the market with the intention of going long or
short at some point during that day. At the end of the day they will be flat or
100% in cash and do not carry a trade over night. Successful day traders are
trend followers and will sell or reverse a position only when trend has
changed. A true day trader that follows trend will typically be in a trade until
it reverses far longer than someone who is scalping.
Scalping is based on an extremely short time frame of minutes sometimes
seconds. It is based on micro momentum within a given day. The scalper
tries to buy or sell in the general direction of momentum. This momentum is
based on the professional market maker activity and is reflected in the Level
II screens. The scalper will bid or offer stock from 1/16 to ź point from the
price he or she was filled while momentum is still active in one direction or
another. It is not uncommon for a scalper to make 30 100 trades a day.
To make any money at all, scalping requires a mastery of several factors. You must have a
rigid risk management program. Along with this you must use effective money
management. You need a very high success rate on trades. The most important part of
success in scalping is your psychological make up. 92 % or the vast majority of
people simply are not psychologically suited to this type of trading and
therefore will never be successful with this methodology. Only 8 % of traders
are successful using a strategy of scalping. The mathematics of scalping are not in your
favor. Remember when you are down x percent it takes you far more just to break even
on the next trade and margin compounds the losses exponentially. Don t forget a very
important factor, commissions. You don t mind commissions when you have a winning
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trade but it s another story when you have a loss. The combination of losses and
commission on the losing trades can put you out of business in the very short amount of
time. It is not uncommon for a novice trying to trade this type of strategy without
experience and education to lose 50 % of their capital in a few months.
IF YOU ARE TRADING MORE THAN 18 TIMES A DAY YOU ARE
GAMBLING. YOU SHOULD BE TRADING NO MORE THAN 3-5
TRADES A DAY.
NOT UNDERSTANDING THE MATHEMATICS OF TRADING
% Loss Of Capital % Gain Required To
Recover
5 5.3
10 11.1
15 17.6
20 25.0
25 33.3
30 42.9
35 53.8
40 66.7
45 81.8
50 100.0
55 122.0
60 150.0
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PROABIBILITY OF A SERIES OF LOSSES
A winning trade does not have to be followed by another winning trade. The
market is filled with variables which can change the outcome of the best
strategy or system. You must except the fact that a series of losses can and
will occur. The following is based on a 50/50 outcome.
Series Of Losses Probability
3 losses in a series 12.5 %
4 losses in a series 6.25 %
5 losses in a series 3 %
10 losses in a series 1 in a 1,000
What if you have 10 losing traders in a row? Don t say it can t happen. If you
are an aggressive trader it will happen. It is just a question of
when.
? Do you have the proper risk management in place to limit the
losses?
? Do you have too much money in one individual trade?
THE MAGIC NUMBERS
I. 3 5 high probability traders per day, month, year
II. 500 securities 3 x 500 = 1500 potential high probability,
profitability trades. 240 trading days in the year divided into
1500 = 6.25 high probability trades.
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III. Following 3 real time trading candidates
VI. 3 high probability trades x 3 securities = 9
Day traders entry and exit total maximum trades = 18
TIME CYCLE CORRELATION
I. The best performing months in the stock market tend to be
a. November, December, January
II. The worst performing months in the stock market tend to be
a. September & October followed by February & June.
b. Bear markets tend to end in October
c. Declines tend to end in June if beginning in mid to early May.
III. The best performing days of the week in the stock market in the
past six years tend to be
a. Monday, Wednesday, & Friday
b. First three days & last four days
IV. The best short term time cycle moves for the S&P 500 and the
Dow Jones EST
a. 9:30 - 11:00 AM
b. 2:30 - 4:00 PM
MOMENTUM ACCELERATION POINTS
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Three Momentum Acceleration Points
Figure 1.
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Figure 2. MACD & Acceleration Points
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Figure 3. Chart Patterns
MOMENTUM ACCELERATION POINTS
SOME TECHNICAL FILTERS FOR DATA BASE OF 500
1. 5 % increase in price 30 % increase in volume
2. Most volatile over the last 16 weeks
3. Largest % increase over the last five days
Largest % decrease over the last five days
4.
5. Oversold price & volume filter
6. Under value filter
7. Bullish filter
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Once you have found your six trading candidates you will need to narrow the selection
down to 3 of the top potential trades. For this you will need to use the trading trend
quantifier. Note that you need a risk-to-reward ratio of greater than 2.5 for a trade to
qualify. Select the highest risk-to-reward ratio followed by a high technical probability
score.
REWARD TO RISK RATIO
Profit Objective Purchase Price = $ 2,500 = 2.5 expectable
Purchase Price Exit Stop = $ 1,000
500x $ 25= $ 12,500 500x $ 20= $ 10,000 - =$ 2,500
500x $ 20= $ 10,000 500x $ 18= $ -9,000 - =$ 1,000
TRADING TREND QUANTIFIER POINT SYSTEM
Trend Trend Score
Trend lines +2, -2, 0
1.
2. Support & Resistance +1, -1, 0
3. Reward-To- Risk Ratio 2.5 Or Greater
4. Moving Averages +1, -1, 0 12, 20, 50 EMA
5. Chart Patterns +1, -1, 0
TRIX +1,-1, 0
6.
ADX +1,-1,0
7.
8. Trend Score
9. Volume +1, -1, 0
Trend Score
10.
Buy & Sell Indicators Probability
1. Moving Averages +1, -1, 0 EMA
2. MACD +1, -1, 0
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3. RSI +1, -1, 0
Price ROC +1, -1, 0 12, 26, 39 Day ROC
4.
5. Williams % R +1, -1, 0 (Over Sold Extreme Readings Only)
CCI +1, -1, 0 (Over Bought Over Sold Oscillator)
6.
7. Bollinger Bands +1, -1, 0
8. Money Flow +1, -1, 0
9. Volume ROC +1, -1, 0 12, 26, Day ROC
10. Probability Score
At this point you have the reward to risk ratio, trend point score, entry and
exit or (buy and sell) point value. By adding the trend score and the
probability score you derive the total score. This information is entered into
the chart on the next page. If you run into a situation where your entry and
exit scores are very close select the trading vehicle with the highest reward to
risk ratio.
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CHARACTERISTICS OF SUCCESSFUL TRADERS
A SENSE OF HUMOR
EMOTIONAL CONTROL
ABILITY TO FOCUS
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ABILITY TO ORGANIZE IN CHAOS
ADAPT TO CHANGE
FOLLOW THE TRADING PLAN
ALWAYS SEEKING TO IMPROVE AND LEARN
LITTLE OR NO EGO STRONG SELF-CONCEPT
DON T TAKE A LOSS PERSONALLY NEXT !
DO NOT FOCUS ON MONEY
LONG HOURS DO NOT BOTHER THEM
YOUR PSYCHOLOGICAL PREPARATION WILL ULTIMATELY
DETERMINE THE OUTCOME OF YOUR SUCCESS OR FAILURE AS A
TRADER OR AGGRESSIVE INVESTOR.
SUCCESS IS DIRECTLY PROPORTIONAL TO THE AMOUNT OF WORK
YOU ARE WILLING TO DO THAT NO ONE ELSE WILL. Robert Deel
Copyright © 2000 Traders' Library
You will be notified by Traders Library of new offers, changes,
improvements and additions to our web site.
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