Search the Community

Having trouble adhering to your stops lately? Well, for some traders this is a difficult psychological demon to overcome. One that if not corrected quickly will lead to your demise as a trader. Sounds pretty serious, doesn't it? It is! For those of you who have this nagging problem, you already know the costs. So, let's try to do something about it before the damage is irreversible! As traders, one of the major weaknesses we have is being human. We are not robots, therefore we bring emotions with us wherever we go and with whatever we do. Being emotional creatures is not conducive to success in trading. Though our mind is a beautiful thing, we must always stay grounded and objective with our thoughts, which is no small task! Most traders who don't stick to their stops know they are doing the wrong thing, but, they also won't allow themselves to exit the position, because they are unable to accept a loss. By accepting a loss, they are admitting they are wrong, and in turn, they will lose money. So, instead of facing or accepting this pain, they choose to forego their stop loss, and let the stock move against them, in HOPES that it will turn around and eventually make them a winner. They will literally do anything to avoid the prospect of becoming a "loser." Sound familiar to anyone? Well, if I'm talking about YOU, then you need to continue reading... Most things we listen to or learn in our training seminars make perfect, logical sense. Find a pattern, stalk a quality entry, locate a reasonable area for the stop, pull the trigger, sit back and manage in between. Let the stock do the work for you. It's simple right? Heck, if someone asked you for technical advice about a particular stock, you could probably rattle off some very nice objective, logical advice worthy of a pro, as long as YOU are not in the stock yourself! Everything changes when it's our own money on the line. This causes many people to lose objectivity and become irrational. For some traders this nasty habit can be easily broken by going back through personal statistics and looking at the positive difference in your P/L by taking your stops versus not taking them. Unfortunately for many, merely looking back at past statistics is not enough. You've been ignoring your stops for so long, it's going to take some stronger medicine to cure this disease! The first thing you must decide on is this: Do you like trading? If the answer is yes, then the choice becomes very simple. Take your stops, or quit trading. Period! Take some time and really internalize those thoughts. Imagine your life as a trader, and all the positive things that go with it. The freedom to trade when and wherever you want, the potential to earn as much or as little as you desire, the ability to spend more time with loved ones etc. Now, picture your life without trading. Can you handle the alternative? If you don't like the alternative picture, then you are taking the first step towards correcting this habit. If you've decided that trading is your passion, then you will do whatever it takes to succeed. That includes taking your stops. So, before you enter any trade, you must first accept that the money is potentially GONE. If you are going to risk $100 on a trade, then BEFORE you enter the position, you must emotionally tell yourself, the $100 is gone. I no longer have it. After all, you can't lose something you don't have! If the thought of losing $100 is too frightening, then you need to lower the amount of money you are willing to lose per trade, until it becomes emotionally acceptable. If you cannot find a dollar amount small enough, then try using a simulator account and work your way up to trading with small shares. If that doesn't work, then there is a chance that this business is not for you. Always keep in mind that we are not going for homeruns, we are looking for base hits. We focus on a consistent approach to making money, something we can repeat day after day. We are not investors, we are technical traders. We have very specific parameters for our set-ups, and using stop losses is a large part of that process. When something does not work as we plan, we take the loss and reassess. We don't opine about the "what if's", we simply move on and stay objective. Remember, it's just one trade! So, don't let that "one" trade wipe out your account and destroy your trading aspirations. Is one trade worth that much? If you feel yourself losing control, then step back and slow things down or perhaps stop trading for a bit. Don't worry about missed opportunities because the market is not going anywhere. When you are ready to trade again, the market will still be there. If you need to, put a sign up in front of you that simply states, "I will adhere to my stop, no matter what!" Another approach might be to record yourself when you are feeling anxious about not taking a stop. Then go back and replay it afterwards to see what your emotional process was. A "consequence" system may work as well. For example, if you don't take your stop, then you are not allowed to play golf for 2 weeks. Take away something meaningful, something that will help promote change. As our own PMTR moderator Jeff Yates always says: "You won't change until the pain to change becomes greater than the pain to stay the same!" I truly believe that. So you need to ask yourself how much money do I need to lose before I change? Although not adhering to stops is a very serious problem, one of the nice things about having this type of issue is that it can be corrected in just one day. Similar to smoking, if you so choose, you can literally quit smoking today and never have another cigarette again in your life. I'm not saying this is easy, but it is possible. Same goes for adhering to stop losses. For example, learning chart patterns will take time, it's not something that you can force yourself to learn in one day. Whereas with adhering to stop losses, if you have the mental strength and desire, you can literally change overnight! It doesn't have to take months. Good luck out there, and remember this is a marathon not a sprint, and it all starts with a good, objective trading plan! The choice is simple: Take your stops or stop trading! Make sure to register for other programs that interest you the most at the following link: Pristine FREE Webinars I would be happy to see you join us and to answer any questions you may have. Jared Wesley Contributing Editor Interactive Trading Room Moderator Gap, Intra-Day and Swing Trading Specialist Instructor and Traders Coach

Good Morning All: Last week I continued with part two of a three part series to help beginners, and maybe some 'veteran' beginners also. Last week we looked at different time frames and the types of accounts used to encompass those time frames properly. We talked about how education is so over looked by so many yet so needed, as everyone will pay their dues one way or another. Here is part three. In this issue, are finally ready to begin trading, so let's go over some rules to get you off on the right foot. A Beginner's Handbook Part 3 of 3 Once you have made all the decisions that were discussed in the first two lessons and have received an education to the level you feel you need to begin trading, the decisive moment arrives. At this point, I want to make sure you have a few tools in your tool belt when you begin trading. First, there is a steep learning curve in trading. I suggest (well, insist if I can...) that you start out slowly with very minimal risk amounts. Get used to your trading software. Understand the plays. Begin to pick your favorites and really develop your trading plan. At this point your plan is likely just a 'shell'. Know how to get in and out of trades. The odds are that you will lose in the beginning. You are learning how to apply what you have been taught. You will make mistakes. The question becomes, do you want to have all this learning cost you serious money or small money? By the way, it is good to start out paper trading, but as soon as your plan develops and you know your trading software, begin trading very small risk amounts. The most important aspects of trading are not learned trading on paper. Most of you reading this need to understand something. The vast majority of traders who come in to the market fail. Many people try to do this without any education, and those who do are the first ones to fail and usually do so in a big way. However, even with an education, it is not an easy game. There are reasons why even somewhat educated traders still fail at this. For most, there is a lack of discipline by individual traders regardless of whatever education level they may be at. In addition, a lack of capital that forces traders to trade with 'scared money'. It is simply a fact that most traders try to make a living from the markets with very little capital base to work with. That causes over trading and poor management decisions. If you have been trading for a while, do any of these things sound like they are powerful issues that are currently impeding your progress? Another skill you must develop is the habit of keeping good records. Keeping records and statistical information can give you an excellent insight in your trading. There are many things that traders should track such as Sharpe ratios, batting averages, percentage gains based on any particular strategy, percentage gain based on long or short, etc. During this process you should be perfecting your trading plan. One that out lines the types of plays you will look for. It should restrict you from trading certain times and plays that you do not want to trade. It should outline money management rules for you, for handling both winning and losing days. It should set up your share size rules, and it should dictate what kind of record keeping, analysis, and continuing education you will do. Some of these I touched on in prior week in this letter. Here is one of the most important things you can do for you trading plan, and for your continued improvement. Pay attention to the analysis part and make plans to follow up on all of your trades. Most traders spend 90% of their time trading. 10% on preparation and 0% on follow up. This is a very big mistake. Traders should spend as much time following up on trades as they do trading. That does not mean that from 9:00 - 4:30 must be counted as 'trading time'. Your plan may call for you to trade the first hour and last hour. The time in between could be used to review the morning trades and prepare for the next day, paper trade new ideas, etc. You should spend considerable time printing charts of the trades you make and evaluating them and learning from any mistakes. Good traders understand that the money lost when making a bad trade can be an 'investment' in a process that works to eliminate mistakes and improve trading. Closing Comments Good traders also understand that the market is always right, and the best we can do is play the odds. Be flexible and remember that even the best trades can be stopped out. This is the final article on "A Beginners Handbook". Paul Lange Vice President of Services Pristine Capital Holdings, Inc.

Good Stocks - Bad Market In a correcting market environment you better know how to determine which stocks are "acting well" and which aren't if you're going to trade the long side. Acting well is a term often used to communicate that one tradable instrument is outperforming something else. This could be the broader market, a sector, another stock or a market internal gauge. For the stocks we are going to look at it, will be relative to the broader markets. It can also mean how that tradable instrument reacts to gaps, support, resistance or the lack thereof. In addition to knowing which stocks are acting well, you'll need to be able to determine with relative accuracy when the market is likely to bounce a bit. In a correcting market even the stocks acting well have a greater tendency not to rise when the market is falling. However, when the market makes a short-term low these stocks are likely to act even better. Meaning, go higher. The first thing that we want to consider is the market timing. For this example I will use the Nasdaq 100 ETF symbol QQQ, which has actually been weaker than the S&P 500 and the Russell 2000. QQQ has reached its first area of price support since breaking down (closed the VOID) and has stabilized between 65 and 66. Friday, prices broke below the prior three days lows, which were very close to each other (a minor breakdown) and rallied back up toward the high of the day. Pristine Tip: A Bottoming Tail (BT) bar that forms in this way - at prior price support - is a strong indication of a short-term low. Now we need to see if QQQ can trade above Friday's high for confirmation of this price action. The chart of YAHOO (YHOO) is most interesting in that it bottomed at close to the same time that QQQ topped. YHOO began to show its strength when it was able to move sideways, rather than retrace lower after the strong rally that created a Pristine Price Void (PVV) below. As QQQ began its decline, YHOO moved sideways at the prior resistance to the left and absorbed that supply (red area). This is what I call acting well. Once it formed a new support pivot, buyers came in when prices dropped back to retest that area. Lastly, YHOO gapped above the sideways consolidation it had formed creating another PVV and has held above that area. Wow, YHOO really acts well! CREE is another stock that acts well. While it did have a failed breakout and then move lower with QQQ, it recovered relatively quickly. Like YHOO, CREE has moved sideways at its prior resistance and is absorbing the supply there (red area). Plus this is happening after a large gap up that created a PVV. Also, on 10-19 when QQQ formed a Bearish Wide Range Bar (-WRB), CREE formed a BT! CREE then formed a new support pivot, has not even come close to test it, and after Friday's bullish day it isn't likely to. Cree is looking real good. I pointed out that Harley Davidson (HOG) had formed a bottom on 10-19 on my first post on Twitter. While HOG was showing relative weakness to the broader market prior to October, it was bottoming. As I showed at Twitter and Facebook, the reason this bottoming action really interested me is because the monthly time frame of HOG was a Pristine Buy Setup (PBS). You can check out the charts at Twitter and Facebook. Like YHOO and CREE, HOG is moving sideways after a strong move at resistance and is absorbing the supply there (red area). Notice that HOG broke below the prior two day's lows on Friday. While it did not recover back the high of the day; these breaks can result in a move higher if prices move above high. HOG is acting well too. All the best Greg Capra President & CEO Pristine Capital Holdings, Inc.

Many of you know that I have a back ground in Stock Car racing. The more I think about it, the more I see similarities that racing and trading the markets have in common. Particularly that they both require intense focus. I was thinking back on my racing days and I remembered a statement that my crew chief made to me. That statement not only gave me the edge in racing but virtually in every other venture that I was a part of. Are you ready for that magic set of words? Well, I think it would be prudent for me to explain a few things first. You see, in racing, you are rewarded for being fast, having cautious aggressiveness and being the most consistent; in addition, everything is measured in fractions of seconds.... In some cases the decisions you make, or don't make for that matter, could injure you or even worse, could be fatal. When you hear these words that I am going to share with you, it may not make sense at first but experienced individuals know how important this is. OKAY, are you ready? My crew chief said to me, "Jeff, if you want to go fast you have to slow way down." Now you can just imagine the confusion on my face when I was told this. I think my exact response was, "Huh?" He went on to explain to me that to be fast, you need to slow down in the corners so that you can set up the car for the exit. Most people drive off in a corner and man handle the car and as a result, they have a poor exit. By simply rolling into the corner rather than driving 100% into the corner, you will have more momentum in the majority of the track, which is in the straight away. I finally began to understand this concept and since then, I have applied it to many things in my life. So, here is the big question... How does this apply to trading the markets? Many people that are embarking on a new career want the experience of success," YESTERDAY"! They "rev up" their trading account and go full-speed into the corner not giving any consideration to consistency. They don't even know what their car has under the hood. They start buying and selling stocks as if they were selling tickets to a Broadway show. No strategy, no plan, just pure adrenalin and emotion. Most new traders feel that if you are in the trading business, you should be trading; not sitting and waiting. Unfortunately, a very high percentage of new traders never make a proper exit off the corner. Man handling their trading eventually causes them to end up in the wall, and I don't mean Wall Street. If they would just learn how to roll into the corner (paper trade) and set their car up for the exit (proper education FIRST) they would learn how to pass the majority of people down the straight away. I had a conversation once with racing legend Bill Elliot who has gone down in history as one of the most winning drivers on the NASCAR circuit. This is basically what he told me: "Jeff, if you were to paint a line around the track where your front tires are tracking, the goal would be to only focus on hitting your marks." He went on to say "Sloppiness or inconsistency of your line around the track is one of the most damaging things a racer can do." That made so much sense to me the more I thought about it. So many people spend so much time looking for the better way around or a better system that they lose the peril and momentum of consistency. By the time they find their "line" (the Holy Grail that does not exist) they have already used up their equipment. You do not need to trade 20 or even 100 trades per day to be a trader. The professionals ARE NOT TRADING the majority of the time, they are just following their line (only taking their setups and not looking for the newest and "better way" to make a lot of money in the markets.) The sooner you learn and understand that taking less trades with more consistent setups is really the only way to achieve financial rewards in day-trading, the sooner you will be on your way to consistent profits. Jeff Yates Contributing Editor Interactive Trading Room Moderator Gap, Intra-Day and Swing Trading Specialist Instructor and Traders Coach

n a prior Chart of the Week (COTW) titled Bringing Common Sense to Trading Part I, I explained how to determine turning points and continuation points with price action alone. This week I am going to show why prices trended as they did Friday. In that prior COTW, I also told you that price oscillators, various other indicators and drawing lines to determine turning points or support and resistance have nothing to do with prices reversing when they do. Friday's drop should reinforce that fact for you. To an extent, these analysis tools do have a self-fulfilling prophecy at times since so many people have been taught to believe the fallacy and use them. The internet based online trading education industry perpetuates these hocus-pocus indicator based methods. Not much has changed over the years. When I started to learn about trading the markets there was no online education, since there was no internet. However, there were mailed letters that gave recommendations and some education. Like most online educators now, those letters also used the indicator mythology. It's not easy getting started with so much information to sift through about how to use these types of technical analysis to trade and invest. I did not side-step the learning and use of indicators, but I did eventually see the truth. Through these COTW letters and our other services I hope you will see through these deceptions that create confusion about price movement. Okay, let me explain what happened on Friday. Before we get to Friday, above is a chart that I posted at the Pristine Facebook Fan Page and the Group Page last Wednesday. In it I showed why sellers would show up the next day, and they did. I also said that ES (ES is the e-mini contract for the S&P 500) retraced further than I thought it would, but those Topping Tails (TT) suggest that short-sellers are waiting to pound it again. This alone did not suggest or predict how much prices would fall on Friday. However, what made that possible was the way prices moved up to the area of the prior TTs. The key here is the fact that there is virtually no overlapping of the candles on the way up. Each candle started at or very near the prior candle close and did not retrace back into the prior candle. In other words, this is a continuous fluid movement. There is no uncertainty among the majority traders. Prices are going up; buy or get out of the way! This arrangement of candles displays strength, power and momentum. But if that is the case, how could prices fall as far and as hard as they did? While this arrangement of candles does display strength, it is the weakest link also. As I have explained in the past, one of the most powerful concepts to understand is that of supply and demand. Where sellers and buyers are and when there is a Void of them. The way prices moved up into the supply area and the TTs (little to no overlap between candles) it created what I refer to as a Pristine Price Void (PPV). When prices move upward so fast there is no support under prices. There are no pullbacks or sideways consolidations. So there is nowhere to buy a pullback based on a price support as a reference point (demand area). There is a Void of support or demand because prices moved higher so fast. In addition, as current prices move sideways over time they move away from any small support area that might be there. This makes any small support area irrelevant. This is a common question students have. What about that small area of price support? What is more powerful or meaningful, that small area of consolidation or the bearish daily time frame and intra-day bearish shock? It's the weight of the evidence to consider as a whole, not one piece of information. Pristine Tip: A truly strong momentum move does not need support. It creates it. I discussed this in the COTW Bringing Common Sense to Trading Part I. Look for momentum moves that begin from a consolidation and have a PVV overhead. Not moves that end at the top of a range. In the chart above, I've shown the daily time frame at the upper left and the 60-min. time frame. In the 60-min. you can see how little congestion (stall in prices moving higher) there is, especially on the Tuesday the 16th. As prices moved sideways and away from what little intra-day overlapping there was, it made those areas less relevant as a reference point of support. The essence of a Head and Shoulders top is that the upward move has ended when the new high fails (the head) and that the time moving sideways (the Shoulders) signals distribution. That price pattern creates a Void below. Also in this example, there is a shock that occurred on the 18th and confirmed the bearishness of the bigger daily picture. Let's assume that you had no idea of the bearish big picture and potential for the larger decline. It's conceivable that you could have thought that prices have fallen a lot and would bounce on Friday and looked for long trades. Well that's fine, but unless the price action becomes climactic near a prior support area or there is an actual trend change on the time frame being traded (in this case the 5-min.), there would be no objective reason to buy. This is a rule all Pristine students and prop traders are taught from the start. Include it into your trading plan and it will eliminate a lot of unnecessary loses. I hope this COTW has helped you understand why prices moved as they did on Friday and see that the commonplace indicator based mythology is unnecessary and misleading. I will be presenting a Free Workshop on Tuesday October 30th. At it I will be discussing what we covered today and other Pristine trading strategies. It will be similar to the coaching sessions I do with students and hope to talk to you there. All the best, Greg Capra President & CEO Pristine Capital Holdings, Inc.

Good Morning All; Of all the articles I have written, my favorite articles are ones that bring out some of the subtleties of chart patterns that many new traders may miss. But the purpose of this letter, "Eyes", is not to 'teach' technical analysis; that is what our seminars are for. That is why perhaps the most helpful articles, for those that listen, are the ones that talk about how to go about learning the business of trading. Through the Cracks That is correct. The business of trading. It is a business like any other. True, it does not generally involve employees or large facilities for most traders. But it does involve education, planning and preparation. Traders need to be educated in the method of making money in the markets, as well as all of the surrounding concepts that are needed. They need to plan the business in the big picture by opening accounts, allocating money, figuring out living expenses for a period of time, allocating the proper time and money to the new venture, allocating money to initial and ongoing education, as well as many other important issues. Traders also need to prepare for each and every trade by forming trading plans and proper follow up procedures, and the proper research for their trade. Let's take a harder look at the first concept; getting an education in the markets, as well as all of the surrounding concepts that are needed. Deciding what approach is right for you; fundamental or technical, long term or short term or both, using news or not, understanding how to use platforms, how to enter orders, what types of orders should be used, understanding what actually moves prices, and the 'math' of making money. It should seem obvious that everyone would have a handle on all these topics before risking capital in their new business. But experience tells me nothing could be further from the truth. Learning the actual concepts of technical trading is what our Trading the Pristine Method seminar is all about. But that course is about understanding price movement; how prices go through stages, transitions, and how to play those movements to make money. Plus a whole lot more. But many of the other concepts are things traders need to understand but often don't. Many are touched on in seminars, but some are not. It is expected that traders will learn from our free webinars, or from their broker, and maybe some are even in the 'common sense' category. Many important items seem to 'fall through the cracks'. Sitting in the Pristine Method Trading Room, I am often mildly shocked at some of the things that 'experienced' traders ask. To that end, we have created a new course, "Online Trading Essentials". It covers many important topics. If you are looking at a career in the markets, or if you have recently begun pursuing that opportunity, this class is a must. I also feel 'anyone' would enjoy the class. It is free to current clients who have attended a seminar. If you are currently talking to your counselor about becoming a client, see if you can get into the class for free. Paul Lange Vice President of Services Pristine Capital Holdings, Inc.

In the Chart of the Week (COTW) dated Monday 9/17/12, I showed you why a short-term correction was near. This was regardless of the bearish October Phenomenon. As I said then, the time of year alone is not a reliable guide without other factors being in alignment. Those factors are - the right price action and speculative bets being placed on higher prices. In that COTW I showed that this was happening and it virtually insured a short-term correction was close. As we know now, Friday 9/14/12 was the high day of the current move. If you would like a copy of that COTW you can e-mail me at greg@pristine.com or e-mail counselor@pristine.com for it and it will be sent to you. In the chart above, the S&P 500 is displayed by the ETF symbol SPY. The bulls attempted to hold the prior low in the 143 area of SPY last week, but could not. With an area of Major Support (MS) in the 140 area, it's an obvious place to except a bounce from. Ideally, prices would drop straight down into it similar as they did from early last week. This would create a small Pristine Price Void (PPV) for prices to bounce up into. Assuming we see this setup, I would not play this as a swing trading long. Meaning, I will not hold for a few days, since what is needed for a bottom is not yet in place. Rather I'll use the area as a reference point where the intra-day time frame will bottom and start a short-term uptrend. Historically, correction bottoms do not occur without the majority convinced that the market is going lower and they make speculative bets on that. We are not seeing that yet based those option traders that are typically on wrong side near turning points. These are the under-capitalized, overly-emotional traders that bet big at the worst time. I've used their actions at a guide for many years and they rarely fail to signal when the turn is near. When these traders start loading the boat with put options (bearish bets) the odds are that a tradable low will not be far off. Lastly, let's look at the NASDAQ 100 index ETF symbol QQQ In the above chart is a Head & Shoulders pattern that formed in the NASDAQ 100 ETF symbol QQQ. The pattern is simply a new high that has failed (longs are caught) and break of prior support. I typically don't show or talk about the esoteric types of analysis that I studied in the past. However, I thought I would show this and how it aligns with the simple technique taught at Pristine. The Head & Shoulders top theory is that the vertical length of the area between the head of the pattern and the neckline (the base) will give you the point where prices will decline to by projecting the same length below the base. In the chart, you can see that I've drawn a line from the head to the base and then placed a line of equal length from the base going lower. That is where prices should decline to. Well, based on the simple analysis of what was resistance becomes support, we see that the Minor Support (mS) area is the same as the measured low projection. I studied this many times years ago and it was virtually always the same. The projection lined up with an area of price support; it could be a minor or major area. The other lines below are simply other price support reference points to be aware of should the decline continue lower. Complex analysis tends to impress us when starting to learn about trading based on technical analysis. We are conditioned to think that the markets are complex and it's needed. Most online trading courses are based on this type of analysis. If you have to buy software or indicators to trade be wary of such education. If your charts of filled with things like indicators, wave counts, Fibonacci projections, etc. The only thing you can be sure of is that the confusion will continue. All the best, Greg Capra President & CEO Pristine Capital Holdings, Inc.

Good Morning All: Over the years, I have written many articles; hundreds, maybe even thousands if you include partial repeats and every short lesson. Sometimes the lesson is a partial re-write, or a new take, or a new way to explain or organize the information. While there are many summaries out there on various topics, and while the topics on this lesson may be found somewhere else, I began a three part series two weeks ago answering a very direct question: What causes failure in trading? This has been a no-nonsense, nuts and bolts look at the question, not a philosophical dissertation. Two weeks ago I discussed 'discipline' as the first true reason for failure. Last week I discussed reason number two; the inability to focus. Today I will discuss the third reason, which will end this series. There may be other reasons, but these are the top three. To clarify again, most people actually fail because they do not get an education. However, that is a decision that people consciously make. I want to discuss why the people who really try, can still fail. What Causes Failure? Part Three of Three Reason number three is the inability for traders to plan and follow up. This is a fairly broad topic, I agree. However, it has to be in there as one of the top three. Again, these three are not in any particular order. Yes, all of these topics are somewhat interrelated. Many may argue that this one is the most important. But what good is a plan, if you do not have the discipline to follow it in the first place? What good is a plan, if it is so expansive no one can review it accurately to see if it was followed? When I talk about planning, I am not talking about planning with a small letter 'p'. I am not talking about preparing a watchlist for the day, or checking the earnings schedule. I am talking about planning the a big letter 'P'. I am talking about the Trading Plan. When I talk about a Trading Plan, I mean a very detailed plan or what you are allowed to trade every day, when and how you trade it, how you enter, how you mange, when you can change it, what strategies, and all the money management rules. If you day trade without a trading plan you follow religiously every day, you WILL fail. You 'may' survive as a swing trader, depending on your background. The other half of this third reason for failure is the inability to follow up. No Trading Plan is worth anything if it is not followed. Closing Comments: This is the end of this three part series. To be sure, the number one reason traders fail is they do not receive a quality education. That is what we do at Pristine, provide the best education in the business. What I wanted to address here is, even after the education, why do some still fail. Lack of discipline, lack of focus, and the failure to create a trading plan and to follow up to make sure those first three are in place. That sums it up. Do you have these three eliminated? Eliminate these three reasons to fail, and you will have an outstanding chance for success. Paul Lange Vice President of Services Pristine Capital Holdings, Inc. http://www.pristine.com/images/educator_plange.jpg

Good Morning All: Over the years, I have written many articles. Hundreds, maybe even thousands if you include partial repeats and every short lesson. Sometimes the lesson is a partial re-write, or a new take, or a new way to explain or organize the information. While there are many summaries out there on various topics, and while the topics on this lesson may be found somewhere else, I began last week answering a very direct question. What causes failure in trading? This will be a no-nonsense, nuts and bolts look at the question, not a philosophical dissertation. I will discuss the top three over three letters. Last week I discussed 'discipline'. Today I will discuss the second of the three reasons for failure. To clarify again, most people actually fail because they do not get an education. However, that is decision people make. I want to discuss why the people who really try, can still fail. Last week I opened here telling you of an inescapable truth I discovered long ago. Everyone who enters trading is exactly the same, and stay the same for a long time. Reason number two for failure continues that tradition. Reason number two, is the lack of, or the inability to, focus. Yes, all of these topics are somewhat interrelated. Nevertheless, they each also have their own merit. Discipline and lack of focus are not the same thing. You may not have focus due to a lack of discipline, but you may not have focus by design. Many traders come to the market with the view that they have to become the master of all around them. They feel they need to learn about economic data, currency rates, foreign politics, and the list goes on. When traders learn technical analysis, the feel the need to put everything to use. I have seen trading plans that have 14 strategies spelled out for a new trader. Yet, all of that information is not going to change what a stock does that gaps over a red bar and pulls back to minor support. It will not change what happens to a stock that is in a perfect 15-minute uptrend. Closing Comments: Perhaps you have read the book "Market Wizards" by Jack Schwager. You should take note of the point of the book. In this book, the author sets out to interview 25 successful traders to determine what they have in common. He wants to find out what strategy it is that they all do, or how the strategies are similar. He finds two things that all traders have in common. One of them, the one we care about, was that no two did anything remotely similar in strategy, however, they all focused on one unique thing, waited for it to happened, and did only that. Focus. Paul Lange Vice President of Services Pristine Capital Holdings, Inc.

In last week's Chart of the Week (COTW), I explained why there would not be a severe market correction any time soon. However, I did tell you short term the odds are that a minor correction is not that far off as we are coming into what is historically the most bearish time of the year. That being said, we need a common sense way of measuring the likelihood of a historical cycle repeating, rather than blinding following history. Let's look. For a short-term correction to occur there has to be a reason for that to happen, other than just the time of year. Many seasonal periods have failed to produce the expected based on the past. Here is what else has to be in alignment with this time of year. First, in an uptrend, the Void of price resistance has to be closed. Without an area of price supply to the left, prices aren't likely to pullback much. Second, the majorities have to be willing to take on a historical high level of risk with bets that the trend will continue after having doubting it. This is seen through an acceleration of prices moving higher and an increase in speculative leveraged bets. In other words, the trend is now obvious to the latecomers and they are entering close to the worst possible time. This started happening last week. In the chart above, prices of the S&P 500 measure by the ETF symbol SPY began accelerating higher the week before last and are nearing resistance. This resistance is also the all-time highs from 2007, so this area will be an obvious point that all will focus on. So why are so many increasing their buying into an area where selling will show up? It always happens that way and I believe that it's just human nature to ignore the obvious risk when greed kicks in. There is also the fear on the part of money managers that they have missed the move and are jumping in. The second component needed is speculative leveraged betting and there is no place better to measure that than with the activity of options traders. The chart above displays the number of put options traded verses call options in equities on each day and a 5-day moving average of those daily closes. The 5-day moving average and the daily close have reached a historical level where short-term corrections are not far off. Combined with the upward momentum into prices resistance it tells us that the odds of a short-term correction are high during this bearish yearly time. Historical cycles in the market can be a good guide to timing change, but alone they are not enough. It's the combination of technical concepts and market internals with historical cycles that make them valuable information. All the best, Greg Capra President & CEO Pristine Capital Holdings, Inc.

"You must be rigid in your rules and flexible in your expectations. Most traders are flexible in their rules and rigid in their expectations". This is from Mark Douglas in his book, "Trading in the Zone". When I first read the above-mentioned book years ago, I did not highlight or remember this quote as anything special. It was not until recently when I saw it again that I had the experience to recognize the pure wisdom in the words. That is the reason I am devoting this commentary to this quote, so everyone reading can recognize its importance. The reason I feel this advice is so important is because two of the most common problems among new or struggling traders are addressed here. The first problem raised is that most traders are flexible in their rules. Actually, the truth is most traders do not even have a firm set of rules they trade by. Sure, if you ask most traders they will say that they follow stops, and set targets. But very few have the rules that are generated by a quality trading plan. Those that do, usually view them as optional, which really defeats the purpose of having rules. The second problem is that traders are rigid in their expectations. They form or acquire a market bias, or a 'feeling' about a particular stock, and hold to that expectation regardless of what the chart (reality) is telling them. When good news is released, they go long the stock and stay steadfast in their bullish view; even though the chart (reality) is telling them the stock is falling. Some say that you can't follow rigid rules, because trading requires your expectations to be flexible and change as needed, as the second part of the quote implies. Obviously, I agree that trading requires you to be flexible. I just believe that all of the contemplated flexibility can be part of your plan and your rules. For example, you can decide ahead of time and define what a 'change in market direction' is and then define how you react to that new information. You could react by selling all of your position, selling half, raising the stop, etc. I hope that those of you that have not embraced these concepts take new look at the quote above and use it to help improve your trading. Jared Wesley Contributing Editor Interactive Trading Room Moderator Gap and Intra-Day Trading Specialist Instructor and Traders Coach

Over the more than 20 years that I have studied and traded the markets there have always been advisors with an opinion that the market is close to a crash or a severe drop. While these opinions often come with relatively convincing reasons, the majority of times it has not happened. Wouldn't you like to know when the risk in the market is high based on historical facts, rather than another's opinion? I did and I'm going to show you what to use. As the markets approached the recent prior highs it was a reasonable assumption that selling would increase - and it did. However, it wasn't reasonable to assume that selling was going to produce a severe decline. Before we get to why, if you didn't read the prior Chart of the Week (COTW) please do that. In it I explained how Pristine students learn to recognize when support and resistance reference points are created and how to use them. If you used this simple, but powerful concept you would have known when and where bullish traders were taking a stand. You would have also known that the odds of the market moving higher after the retest had increased. Thursday's big move up tells me that those short had no idea or were in denial of the growing strength. Okay, let's get to the big picture. As we know, the market has a strong tendency to do the opposite of what the majority believe will happen. The question is, how to know when the opinion of most investors has become too bullish or to bearish? That's easy to know, if you know where to look. Each week at the website www.AAII.com individual investors vote their opinion as to whether they are bullish, bearish or neutral on the market. In the chart above, the green line displays the percentage of those that are bullish; the red line displays the percentage of those that are bearish and the blue line is a moving average of those bullish divided by those that are bullish plus those that are bearish. This provides us with a ratio that when at historical extremes it warns us when too many investors are bullish or bearish. As you can see from the chart, the blue line still has a ways to go before too many investors become bullish. The historical data for this and many other market internals, which are automatically updated on a daily and weekly basis, are available from www.pinnacledata.com. The next chart shows the spread or difference between 30-year long-term interest rates and 3-month short-term interest rates is at the top. In the lower half, it shows the weekly closing price of the S&P 500. As you can see, when the difference nears zero and below the risk of a severe market correction is very high. There are other factors to consider for market timing, especially short-term timing, but these two gauges will serve you well as a long-term guide for market risk. When both are at extremes, too many bullish and the difference between long and short-term interests below zero history tells us big trouble is not that far off. The above chart is a bull market (choppy at times) and until our long-term guides turn bearish history tells us that it makes no sense at all to even remotely think crash or severe correction. Short-term, the odds are that a minor correction is not that far off since we are coming into what is historically the most bearish time of the year. After that comes a bullish period, and assuming our internal guides are bullish - the markets will move higher. You might think that the markets have more than doubled since the lows shown in 2009 and they cannot move even higher. However, that's human reasoning. We know that doesn't work in the markets and why we need to use tools like I've shown you as a guide. Greg Capra President & CEO Pristine Capital Holdings, Inc.

n a previous article, I wrote about the true value of paper trading and having a plan of how to move from successful paper trading into real money smoothly. The issue is; now that you are successful on paper, what next? First, as described previously, you must make sure you are successful at paper trading by some objective measure. Set up a test that you must pass. Four winning trades in a row, three out of four winning paper days, or any measure as long as you enforce it. I rarely hear of anyone who is not making a killing on paper. If you cannot do it on paper, do not proceed assuming it will 'all work out'. The next step then is to put a very small amount of money on the line. I mean small. The objective here is to start an 'official' record. Even the most honest people will be 'cheating' while paper trading. Also, you will now be subject to 'real' fills (or lack thereof) rather than your 'pretend' fills. Even real software paper trading systems are very gracious on fills. Also, all those order entry 'mistakes', and trades that you swept under the table will be real now. You will now have to deal with the psychological issues. Putting money on the line, even fifty dollars, will evoke egos that will step in and start changing everything you do. That is why I emphasize, even if you have a million dollar account, the fifty-dollar risk will be enough to make you change what you do. Again, if you do well, you can move your risk amount up. You will be surprised how your paper trading results change when you have a real trade on the table. If you can pass the same 'success' test that you first set up to get you beyond paper trading, then you start moving up the risk amount. One hundred, two hundred, until you get to the objective risk amounts that you have set out in your trading plan. Along the way, if you begin losing you need to go back to the prior risk amount. If you feel you are handling trades different due to the increased risk amount, then go back to the prior level as well. You see, if you follow this plan, it is very hard to lose a significant amount of money while you are learning. That folks is the whole objective. KURT CAPRA Contributing Editor Interactive Trading Room Moderator Instructor and Traders Coach