How I THINK as a Trader/Investor + Update

Why do we trade/invest?  It should be surely to make money and once we have made money the next consideration ought to be to keep hold of that money – these are over-riding goals throughout our investment lives.

So we know the main goal is to make money and keep that money, well if that’s the case I see no reason at all to giving back profits when markets fall – to me it makes no sense whatsoever.

Let’s look at this:  Let’s assume that we bought something, say a Vodafone share, it rises and rises over the course of a few months and then it falls and falls, back to where we had bought it – To ME what a waste of time owning the share, I could have used my funds and deployed them into something else, made money on that share and then bought into Vodafone’s share.

So I research past movements, work out by how much they typically rise and fall and devise some sort of trading set-up to take advantage of such moves – I am NOT looking for the big hit, I am looking for often and decent sized returns on my funds.

As well as that I also think in terms of probabilities of success and if I do that then I also know that at some point I will naturally have losing trades.

If I’m going to have losing positions then if I hold on to a loser then I’m going to get dragged down by it, if that happens what’s the effect on my portfolio/account?  It’ll be savaged by rogue losing trades – so the best thing for me to do is dump any such trades that don’t do what I want.

If I then minimise any such losing trades to just a fraction of my entire trading account and let the winners run or ensure a healthy return then over time and compounding of profits I’ll do fairly well.

Right – off to design a set-up!

So even before I put a position on, I know my maximum loss (barring gaps), I know my rough profits points and I only take the trade if it meets my criteria and I’m happy with the win:loss of the trade.

All this is covered in minute detail in my trading manual (currently working on and should be available early 2012)

Even if I’m not trading and I’m investing (buy and hold) – you know what I’ll do?  I still think worst case scenario and I’ve designed a very simple set-up (detailed in my Money Manual) to get you into a bull market and keep you out of a bear market. – over years this one set-up is worth £1000’s.

I do not think in terms of being right or wrong – the market will decide that fate, I think in terms of % gains and repeatability of said set-ups to compound growth and returns each month.  I know that if I can obtain 30%+ annual returns I will beat fund managers over the long-run.  Sure there will be the odd years where I get slated by them, but not over my investment life.  The best part is that I am in complete control, if I’m nervous to trade I have the choice of not placing that trade.

I also assess costs involved with the trade to the presumed payoff – at the end of the day I run my trading and investing as a business – to make a profit is my goal, this is not some hobby.

Ok, a quick update of the potential trade on the FTSE100 index – we’re still waiting for a signal – as of close of business Friday 9th Dec 2011 we have not had a trade signal according to my trading rules and set-up.  So what do we do?  We wait until we get one of the trades voided – simple.

That does not mean I’m not making money, I’m also looking at 25+ other markets for similar trade set-ups and I usually find that when one market is quiet another is coming into play.

Let’s have a look at the chart as of Friday 9th Dec 2011:

Figure 1.xx

Quick review – I’m not showing it but I can tell you the WEEKLY DTosc is still bullish, so I’m still looking for long only trades.  We can see from the chart above that the daily DTosc is nearly entering the buy zone @ <20, remember we need a bullish reversal before we buy – the numbers and letters on the chart above are there only for reference only and to label the pivots I’m looking at, they have no bearing on outlook for this trade at all.

There’s no comment in the NEWS about likely direction for markets – remember reporters have not got a clue, the EU zone agreed a lack lustre fix last Friday and I’ll be writing another blog on why I think eventually the EU will collapse

European Union

Image via Wikipedia

So we simply sit and wait until close of business Monday 12th Dec 2011 to see what the position of the DTosc is in.

We are very close now to a trading decision, I think I mentioned in the first example a few days back that we’d be looking to make a decision/trade this week, rather than last week and that’s borne fruit.
I will clean up the chart once a trading decision has been made and at the time of writing the FTSE100 is down which just adds to my thinking that it’s heading into those Fibonacci levels for a potential reversal.
Always remember, we have no control over trades at all, we just trade what we see and whats available to use.
The important point is that last week we had clear levels and a trade or no trade prepared in advance – If the market conforms to my way of thinking I’ll take the trade, if it doesn’t I will back away from taking the trade – this is real money on the line and I don’t like losing (I accept I’ll have losing trades during the year, but it does not mean I can stomach them all the time!)
Let’s just see what actually happens – a decision should be expected this week and typically in the next 3 days.
Happy trading
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2 Comments

  1. Ryan Quilter

     /  December 12, 2011

    I’m really liking this set-up. I’m excited to see how it turns out! An example like this shows the absolute patience and discipline that a successful trader must have!

    Reply
  2. Hi Ryan,
    Thanks for the comment and signing up for updates on the blog.
    It’s just a basic Fib analysis set-up of the A-B swing on the chart, all the news is negative Euroland – let’s see what price does when it reaches those fib levels – it might just slice right through them and void the trade.
    The DTosc suggests otherwise though!

    I don’t like being rushed, as a trader I prefer to take my trades off the daily charts but you have to wait until all your filters say take the trade, until then it’s a case of sitting tight and waiting – I don’t usually trade the FTSE100 index but last week thought I’d look at something brand new for analysis and see what type of trade (if any) could be created.

    I have to admit that I have traded this market today – NOT on the set up I’m looking for and talking about, but I shorted the market for a quick 60 points to the short side – I used the DAILY DTosc position as the higher time frame and dropped down to a 60 min chart, which was moving into a perfect 60 min DTosc bearish reversal – Only to be used for advanced DTosc usage and knowledge – my main objective from this is still for a long trade that lasts a few days – depending upon what the DTosc exhibits en route!

    I plan to cover a Daily and 60 minute DTosc combo in a future post for those that like trading lower timeframes, but 60 min is usually as low as I’ll go.

    My next update will be after tomorrow’s close – todays price fall has taken price right to the 38.2% fib level. I’m hoping that when it’s time to execute the trade entry we have a small price bar.

    It’s important to note that since August 2011, this market has just moved sideways with a slight upwards bias – there’s NO definable trend which means we can look to play the tops and bottoms of this trading range for quick profits (until it breaks out of the range). This allows you to make some cash whilst theres no trend – just think about those traders that just trade moving average crossovers – they’re not able to do anything just yet or worse they’re taking false whipsaws and getting stopped out.

    At some point that sideways range will be turn into a new trend, we just need to work out (in advance) whether it’ll be upwards or downwards.

    Reply

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