Want to Trade Successfully?

Just choose the best positions and avoid the bad ones. Poor trade selection takes a heavy toll as it bleeds your confidence and wallet. You face many crossroads during each market day. Without a system of discipline for your decision-making, impulse and emotion will undermine skills as you chase the wrong stocks at the worst times.

Some short-term players view trading as a form of gambling. Without planning or discipline, they throw money at the market. The occasional big score reinforces this easy money attitude but sets them up for ultimate failure. Without defensive rules, insiders easily feed off these losers and send them off to other hobbies.

Technical Analysis teaches traders to execute positions based on probability and percentages, on numbers, time, and volume. This discipline forces traders to distance themselves from reckless gambling behavior. Through detached execution and solid risk management, short-term trading finally "works."

1. Stocks and markets echo similar patterns over and over again. The science of trend allows you to build systematic rules to play these repeating formations and avoid the chase.

2. Read the news and forget it. Remember the chart. Most of us are not smart enough (or lucky enough) to know how news will affect price. The chart already knows the news is coming and reflects it in the price / volume action.

3. Buy the first pullback from a new high. Sell the first pullback from a new low. There's always a crowd that missed the first boat.

4. Buy at support, sell at resistance. Everyone sees the same thing, and they're all just waiting to jump in the pool.

5. Don't chase momentum if you can't find the exit. Assume the market will reverse the minute you get in. If it's a long way to the door, you're in big trouble.

6. Exhaustion gaps get filled. Breakaway and continuation gaps don't. The old traders' wisdom is a lie. Trade in the direction of gap support whenever you can.

7. Trends test the point of last support/resistance. Enter here even if it hurts.

8. Trade with the TICK not against it. Don't be a hero. Go with the money flow.

9. If you have to look, it isn't there. Forget your college degree and trust your instincts.

10. Sell the second high, buy the second low. After sharp pullbacks, the first test if any high or low always runs into resistance. Look for the break on the third or fourth try.

11. The trend is your friend in the last hour. As volume cranks up at 3:00pm don't expect anyone to change the channel.

12. Avoid the open. They see you coming and sucker punch you.

13. Bulls live above the 50 day, bears live below. Sellers eat up rallies below this key moving average line and buyers to come to the rescue above it.

14. Price has memory. What did price do the last time it hit a certain level? Chances are it will do it again.

15. Too much volume kills the move. Climax blow-offs take both buyers and sellers out of the market and can lead to sideways action.

16. Trends never turn on a dime. Reversals build slowly. The first sharp dip always finds buyers and the first sharp rise always finds sellers.

17. Bottoms take longer to form than tops. Greed acts more quickly than fear and causes stocks to drop from their own weight.

18. Beat the crowd in and out the door. You have to take their money before they take yours, period.

19. Doubling-up is for losers. When a trade moves against you, look to get out of it, not add to it.

20. Money management is more important than any entry strategies. Keep your losses to a minimum. All losses were small losses at one point—keep them all small by taking more, smaller losses.