How to Start Doing Better Trades?

At first it may appear this newsletter is for new traders, but it is perfect for seasoned traders that are struggling. After trading and teaching students how to trade for over 8 years, I have learned that we can cycle in and out of trading patterns. What seems to happen is we get excited about learning so many new things in the market (such as numerous technical indicators), that we can begin to over-analyze our trades. It is so easy to do. So easy that we forget how simple and important just plain old basics are. BUY LOW - SELL HIGH! Then we start slipping and miss reasonable entries or stay too long in a trade. Whether you are new, or you just need to get back to the basics, this newsletter is intended to help you get back on track.

Just a few days ago in Chicago, as I was teaching a live class, a student asked me where do I start? I could see the frantic look on her face, and I can remember feeling exactly that way when I first started trading. When I began trading in the late 90's, I had never even been on the internet, much less did I know the lingo of the stock market or how to look at charts. Being a retired accountant gave me no benefit at all. I was totally clueless about the stock market until I took classes to learn - just like many of you are doing right now. As a matter of fact, I still take classes every year, just like I had to do in my accounting practice to keep up my current skills. The market is constantly changing and we must stay on top of these changes to be a successful trader.

First off, it is the basics that are the most important. Simple things done over and over again that make the slight edge happen - that thin line between success and failure in the stock market is a very thin line. This should give you hope if you can be consistent and follow a proven plan. It took me about four and a half years to fine tune and learn this. After thousands of students asking me repeated questions I recorded my DVD series called it 40 CENTS TO FINANCIAL FREEDOM to give you many hours of visuals you could watch again until you get this under your belt. Rather than take many years to get to this level, you can be there in a week if you take the time to study this series.

In my LEAPS series I teach you a system to give you a back-up brain and trade from alerts. This stops you from thinking, which often messes up many good trades! Instead you just follow a proven written plan with ease and stop the guesswork. Don't be like most people and revert to trading without a written plan.

Since one big issue that comes up over and over again (not just new students but also many seasoned traders) is how do I know where to get in? I would like to visually give you a tour on this.

Let's start with the visual of how to select a stock to play the upside:

First, I look for a big name company (usually trades 1 million shares or more a day) that is done falling and just ready to go up. The reason I prefer to trade larger companies is that they tend to follow predictable patterns since so many people are trading the stock.

I am looking for that first bounce up off support by a doji or an open candlestick.

View Better Trade Chart

The picture below shows an open and a closed candlestick. If you review it for a moment, you can see the hollow one is closing higher than it opens. The filled-in one is closing lower than it opened. I played a little game to trick myself into learning these by pretending the hollow one was full of helium and going up, and the filled-in one was heavy so it was falling.

View BetterTrades Chart

Here is a picture of CECO. It showed a sign of being done two days ago on this chart and confirmed it intra-day (the last candlestick) so today was a good time to enter the trade to the upside. This is a perfect entry because you have a lot of room for it to move up, versus trying to enter the trade in the middle of a roll. I don't like only getting to profit from half of a trade being left. I like the whole movement in front of me so there is a lot of money for the making.

View CECO Chart

Now let's look at a visual of how to select a stock to play the downside:

Again, look for a big name company (usually trades 1 million shares or more a day) that is done going up and looks ready to go down. I am looking for that first bounce down off of resistance by a doji or a closed candlestick.

Here is a picture of YHOO. It showed a sign of being done falling today with the filled-in candlestick. If it confirms it tomorrow by continuing to fall you can jump in and trade the downside. Another perfect entry because you have a lot of room for it to move down, versus trying to enter the trade in the middle of a roll.

View YHOO Chart

DRAWING SUPPORT & RESISTANCE

The best way to get comfortable drawing support and resistance is to just pick one or two stocks to practice with. Put the chart in a line chart like the chart below. On Trade Navigator just press the "B" key until you see the pattern below.

Look for the chart to hit a line three times to be a serious enough of a stopping place to be considered support or resistance. The hits can be on either side of the line. The line can be horizontal or diagonal. Just play and erase if the line does not work. After about 30 minutes practice on a few charts you will get better.

Click to View Chart

Once you have your chart in the line chart just draw lines until you see three distinct hits at a support or resistance. The line can be horizontal or diagonal (downtrend or uptrend). If you do not see three hits on that line then keep trying.

I do sometimes give in if it looks so distinct and only has one or two hits, and I open it up to candlesticks, (again just select "B" on trade navigator to return to candlesticks) and I accept it if it has three hits on that line by the open, close, high or low of any day. This is my second favorite. The line chart is my first since those prices are more accurate.

I hope this helps you look at charts better. Using this information should allow you to get better at drawing support & resistance lines, as well as to allow you to enter trades at the beginning, giving you a lot more potential for your trade to make money.





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