Invest Like Buffett, Trade Like Livermore

1. On a new 52-week high, when the market closes at or close to its high on a Friday, buy long and go home long for the weekend.

2. Exit the long position on the opening of the following Tuesday.

3. If the market opens sharply lower on Monday, exit the position immediately.

http://club.ino.com/trading/2011/05/your-1pm-update-and-the-52-week-new-highs-on-friday-rule/

Breaking A Trading Slump and Getting Back On A Hitting Streak

2011-05-04T16:42:00.000-07:00

http://www.bigtrends.com/trading-education/breaking-a-trading-slump-and-getting-back-on-a-hitting-streak/?utm_source=DTW&utm_medium=email&utm_term=FA&utm_content=L%2B1&utm_campaign=DTWL

Trade Management: Adding to a Position

2011-05-01T06:16:00.001-07:00

http://club.ino.com/trading/2011/04/trade-management-adding-to-a-position/

How you can avoid a beating from these thugs

2011-03-13T16:33:00.000-07:00

By Bengt Saelensminde Mar 11, 2011

http://www.moneyweek.com/investment-advice/how-to-spot-market-makers-10922

How to pick apart a balance sheet in five minutes

2011-03-12T19:59:00.001-08:00

http://www.moneyweek.com/investment-advice/howto-pick-apart-a-balance-sheet-in-5-mintues-10817?utm_source=TRSemail&utm_medium=Email&utm_campaign=TRSemail

9 Simple Investing Ratios You Need To Know

2011-02-13T20:39:00.000-08:00

http://www.investopedia.com/slide-show/simple-ratios/default.aspx?partner=COTW02

Use Your Holiday Shopping To Profit In The Stock Market Now

2011-01-28T17:33:00.000-08:00

It's the holiday season!

I live in New York and I am reminded of the holidays every day
because traffic comes to an absolute standstill.

People stand frozen as they look at the magnificent window
displays in the department stores.

If you are walking, it's great to just stop and take it all in.

If you're in the back of a cab, well, let's just say it gives
you a little extra time to think!

Given my business, it's not surprising that I think about the
different companies that benefit from the holiday season.

Each year there are going to be different companies that have a
break out holiday season and if you can anticipate who it will
be then you can profit from your foresight.

How?

Simple, just pay attention when you're doing your own shopping.

What is everyone trying to buy, what's sold out?

What are the hot items and who makes them?

Just by being out there and looking for gifts you are doing
research for the next great stock.

Look at Google, one of the greatest stocks ever.

As soon as it became an actual word in the dictionary, that
should have given us a clue as to the success it might have.

Now Google was a longer term and larger play but it's a great
example of how "buzz" about a particular product can lead to big
money in the stock market.

Let's use Starbucks as an example.

You're walking around shopping all day and you're freezing.

You pop into the nearest Starbucks for a hot cup of coffee
(first hint: it's conveniently located everywhere!).

There's a huge line (second hint: it's always crowded).

However, the line flies (third hint: efficiently run business).

Now you order some brand new flavor and it tastes unbelievable
(fourth hint: great product).

Now, not only did you just have a great cup of coffee during
your holiday shopping but you also researched a potential trade.

You can go to finance.yahoo.com and look up the symbol for
Starbucks.

It's SBUX.

Now you can look at what it's been doing lately and start to
anticipate what it will do.

You will then use technical analysis to determine what your
target entry point should be.

Congratulations, you have just researched your first stock and
it all started with your holiday shopping!

Once you begin to research and track stocks you can start to
develop a feel for how they move.

I hope you have a happy and profitable holiday.

Kind Regards,
Adam Mesh

http://www.adammesh.com/

Decision Point Technical Analysis Course

2011-01-23T20:04:00.000-08:00

http://www.decisionpoint.com/TAcourse/TAcourseMenu.html

The Five Golden Rules of Profitable Trading

2011-01-21T03:17:00.000-08:00

http://www.moneyandmarkets.com/the-five-golden-rules-of-profitable-trading-9748

Six rules for investing, whatever the markets are doing

2011-01-21T03:06:00.000-08:00

First, always insist on a margin of safety. In other words, don't just buy shares because they're slightly cheap, but because they look really good value. That way you've some protection if your initial forecasts prove too optimistic. And as the old stock exchange adage goes, once you've looked after the downside, the upside will look after itself.

Second, be patient. If you buy a cheap stock and the price refuses to rise, don't panic. You can't know when the market will recognise the share's true worth. It may take much longer than you expected. But value will out in the end.

And just as important, if you can't find an investment that gives you a comfortable margin of safety, then don't invest. As a private investor, you don't have to be chasing short-term performance targets - you can afford to wait for better opportunities.

Third, be contrarian. That may be a bit of a sound bite, but if you can buy when everyone else is panicking and selling out, and then unload your stock when the world is piling back in, you'll do far better than running with the herd.

Fourth, be fully aware about risk. The experts may dress this up using flash terms like volatility and standard deviation. Don't be fooled. Risk, says Montier, is the "permanent loss of capital, never a number". That's another way of saying that if you invest in a stock whose market cap is higher than the underlying company's real worth, you risk never getting all your money back.

Sometimes you can get caught out - a firm's real worth can drop (and no doubt someone will remind me about HMV). But if you've spread your investments across a diversified portfolio, the damage shouldn't be too bad.

Fifth, be wary about leverage, ie investments bought on borrowed money. And that applies to the companies whose shares you're holding. If their debts are high, how relaxed do you feel? Sure, some business - such as utilities with their predictable cash flows - can cope with high leverage. But when times get tougher, many firms can start to struggle with their interest bills. We look more closely at how to analyse this in the latest issue of MoneyWeek, out today. (Claim your first three issues free here if you're not already a subscriber.)

And finally - and this needs little explanation - never invest in something you don't understand. Pure common sense, you'd think. But it's amazing how many investors get sucked into stocks before they've worked out what the firms actually do.

These are all basic principles of 'value' investing.

http://www.moneyweek.com/investment-advice/how-to-invest/six-golden-rules-for-profitable-investing-10208.aspx

Trading Psychology 101

2011-01-12T15:49:00.000-08:00

by RealityTrader

http://www.traderplanet.com/newsletter_articles/view/3947/distribution:7

People Think It’s All About Prediction -- But It Is NOT!

2011-01-12T08:44:00.000-08:00

by Van K. Tharp, Ph.D.

http://www.traderplanet.com/newsletter_articles/view/3941/distribution:8

The Greatest Investment Lesson You’ll Ever Learn

2010-12-17T05:06:00.000-08:00

December 16, 2010 by lindsay

http://club.ino.com/trading/2010/12/the-greatest-investment-lesson-youll-ever-learn/

10 trading tips for 2011

2010-12-15T20:55:00.000-08:00

By Gary Stone, Share Wealth Systems

http://www.asx.com.au/resources/newsletters/investor_update/20101214_ten_trading_tips.htm

Buy-and-hold - the 'boring' way to healthy profits

2010-12-14T00:03:00.000-08:00

By Bengt Saelensminde Dec 09, 2010

http://www.moneyweek.com/investment-advice/how-to-invest/building-a-buy-and-hold-portfolio-04932.aspx

Swing Trading's 11 Commandments: Top Strategies for Technical Analysis: Introduction

2010-12-06T16:55:00.000-08:00

By Melvin Pasternak Monday, December 06, 2010

http://www.investinganswers.com/tutorial/swing-tradings-11-commandments-top-strategies-technical-analysis-2039?utm_source=NL-IA&utm_medium=EMAIL&utm_campaign=IA_InvestingAnswers_Investor_Advocate_--_12

My Most Profitable Swing Trading Setup

2010-12-06T03:18:00.000-08:00

http://club.ino.com/trading/2010/12/my-most-profitable-swing-trading-setup/

The most painful investing decision - and how to make it

2010-12-01T00:21:00.000-08:00

http://www.moneyweek.com/investment-advice/how-to-invest/cash-in-trading-profits-04709.aspx

The Power of the 200 Day Moving Average

2010-11-01T21:23:00.000-07:00

http://mish.marketgauge.com/articles_top.php

John Murphy's Ten Laws of Technical Trading

2010-10-19T17:00:00.000-07:00

http://stockcharts.com/school/doku.php?id=chart_school:trading_strategies:john_murphy_s_ten_la

Tools for the Value Investor

2010-10-16T22:00:00.000-07:00

http://www.investinganswers.com/a/tools-value-investor-310

What To Do When You've Missed the White Whale

2010-10-16T21:57:00.000-07:00

http://www.investinganswers.com/a/what-do-when-youve-missed-white-whale-1918?utm_source=Investor%2BAdvocate%2B--%2B10/16/10&utm_medium=newlsetter&utm_campaign=Investor%2BAdvocate

11 Things Every Trader Should Know

2010-10-16T21:23:00.000-07:00

http://www.investinganswers.com/tutorial/11-things-every-trader-should-know-1913

Top Ten Mistakes to Avoid

2010-10-03T17:03:00.000-07:00

http://adammesh.com/top10.html

Success Trading Group Guide

2010-10-02T22:20:00.000-07:00

http://www.anotherwinningtrade.com/SuccessTradingGroup.pdf

A Perfect Weekend for “The 52-week new highs on Friday rule”

2010-10-02T15:58:00.000-07:00

http://club.ino.com/trading/2010/10/a-perfect-weekend-for-the-52-week-new-highs-on-friday-rule/

Start Swing Trading Today: Introduction

2010-09-16T16:43:00.000-07:00

By Melvin Pasternak Thursday, September 16, 2010

http://www.investinganswers.com/tutorial/start-swing-trading-today-1732

The Best Alternative to the Flawed P/E Ratio

2010-09-11T17:45:00.000-07:00

By David Sterman Friday, September 10, 2010

http://www.investinganswers.com/education/best-alternative-flawed-pe-ratio-1685?utm_source=Investor%20Advocate%209/11/10&utm_medium=newsletter&utm_campaign=Investor%20Advocate

Policy Ideas in the History of Economic Thought

2010-09-05T00:07:00.001-07:00

http://thinkmarkets.files.wordpress.com/2010/09/policy-ideas-revised-2.pdf

The Value Investor's Handbook

2010-08-27T22:07:00.000-07:00

http://www.investopedia.com/articles/fundamental-analysis/09/value-investing.asp?partner=wbw0810

Pick Stocks Like Peter Lynch

2010-08-27T21:54:00.000-07:00

http://www.investopedia.com/articles/stocks/06/PeterLynch.asp

Financial Ratio Tutorial

2010-08-27T02:05:00.001-07:00

http://www.investopedia.com/university/ratios/

Up close and personal with Jim Rogers

2010-08-04T23:43:00.000-07:00

Saturday July 31, 2010
By HANIM ADNAN
nem@thestar.com.my

SELF-MADE billionaire Jim Rogers is known by many names.

He has worn so many hats in his lifetime; from a peanut seller at a tender age of 5 to what the world today has known him as ... a successful international investor, a legendary commodity trader, an author and a financial commentator. He has even entered the Guinness Book of World Records for making the longest motorbike journey of 161,000 km across the world.

Rogers, who will turn 68 this October, is now set on wearing his most important and all-time favourite “hat” ... that is to be a successful father to his two young daughters nicknamed Happy, aged 7 and Baby Bee, aged 2.
Jim Rogers

While this writer is trying her best to extract sound tips from the billionaire on his top investment picks for 2010 and a safe place to park your hard-earned cash (in equities or commodities), Rogers seems to be more inclined to talk about the antics of his two daughters, their favourite bedtime stories and the no-TV policy at home.

“Seriously, I’m spending much less time doing anything else. This could be partly because I came into parenthood much later in life. I simply do not want to miss out being a father.

“Maybe if I am 20 years old (when it is a mistake to have children), I might have some 70 years ahead of me. But there is not much time to do anything else but to make sure my girls grow up happy, educated and hopefully successful,” says Rogers.

Whenever Rogers is free from appointments or not presenting financial investment talks overseas, he is happy to be with his daughters in Singapore, which has been his corporate base and home for the past three years.

“Since we do not own a TV at home, I spend time reading children books, including almost all of Disney’s fairy tales, to my daughters. In return, my eldest who is fluent in talking, will be reading Chinese story books to my wife and me.

“(Not owning a TV) It’s like a family joke. I told my daughters we simply cannot afford it, so we are saving up. When we have enough money, we will buy one!

“Unfortunately, when we go on holidays and stay in hotels, Happy won’t do anything else but stay in the room and watch TV,” adds Rogers.

Other favourite past-times in Singapore include bicycle rides, hiking, visiting the zoo and the nature reserves. In fact, Rogers will make it a point to cycle with his eldest to and from school, which is one km away, whenever he is free from any overseas obligations.

“Every now and then, the whole family will go to this Italian restaurant at a shopping mall because Happy simply loves its spaghetti and bolognaise sauce. She can eat spaghetti and noodles, particularly udon, every day!

“Don’t ask me why because my wife (Paige Parker) and I don’t have any Italian blood in us. The noodles, however, you can blame it on our Chinese governess who cooks for them,” says Rogers.

As for his family’s favourite holiday destinations, Roger replies: “We are not into resorts. But these days, we have been going a lot to China.

“Last summer we went to Hainan island. My wife loves Shanghai and my favourite place is Dalian (not just because he is currently the senior advisor to the Dalian Commodity Exchange).

“This summer, it will be a beach holiday in North Carolina where Paige (wife) has one of her fondest memories, and this time with the children,” adds Rogers.

Often asked by journalists or friends on his decision to move to Singapore after he had sold off his New York mansion for US$16mil in 2007, Rogers will recite the same quote: “If you were smart in 1807 you moved to London, if you were smart in 1907 you moved to New York City, and if you were smart in 2007 you move to Asia.”

But who would dare to question Rogers who has become a legend, with an uncanny ability to predict long-term trends in major markets?

Till today, he actively trades and tracks commodities, stocks, futures and interest rates globally.

Investment maverick

So, how does this financial investment maverick keep track of his vast business portfolio when he admits to having no TV; not even a Bloomberg machine to sit and watch the minute-to-minute or day-to-day fluctuations in world markets?

Says Rogers: “Basically I handle my business portfolio myself. I certainly hope that I have enough experience to handle it.

“Since I have been doing it long enough, I believe I know more or less how it (the market) works. I’m not an active trader though (not even a very good one at that) but I’m a proponent of long-term investments. In fact, I will always buy low and sell high,” adds Rogers.

Rogers, who predicted the start of the commodities rally in 1999, says he is still bullish about commodities like silver, sugar and gold.

“Now the place to be is to put your money in the right commodities. The fundamentals for selected commodities, particularly agricultural and natural resource-based commodities like rice, wheat, gold silver, platinum and palladium, are looking good given the lack of discoveries in new oilfields and mining areas, poor crop yields and depleting mineral resources.

“In fact, over the next 30 years, I believe farmers are expected to be driving Lamborghinis while stock brokers and traders will be driving taxis,” quips Rogers.

Rogers admits that he is getting interested in Malaysia for the first time after a long while.

“I’m seeing positive changes in Malaysia under the new leadership. The Government is making a strong effort to boost foreign direct investments.

“My view is that Malaysia has the fundamentals, resources and strategic location within South East Asia (SEA), but there needs to be a fair playing field in order to attract more foreigners who are previously gun-shy due to changes in the policies, for example the previous pegging of the ringgit to the US currency.

”Stop the mistakes of the past and move forward,” says Rogers.

In fact, one of the reasons why Rogers moved to SEA is that he sees great possibilities i.e. the great population, expertise and resources and prosperity.

“I buy commodities, stocks and currencies. One thing for sure, whenever there is a period of economic turmoil, the surprise that comes out of it will be an improvement in fundamentals, thus leading to a better market,” adds Rogers.

http://biz.thestar.com.my/news/story.asp?file=/2010/7/31/business/6762548&sec=business

A Winning Attitude

2010-07-26T05:27:00.000-07:00

from:

http://club.ino.com/lessons/a.htm

Everyone wants to be a winner; at least, they think so. Unfortunately, most are not willing to perform the tasks necessary to become a consistent winner.

Winners generally achieve success by being focused on a goal. Being focused allows winners to remain committed to the tasks at hand. Most winners perform a lot of hard work; including a willingness to deal with sometimes mundane duties. Most of all, winners perform with an "I am responsible for both my failures and successes" attitude.

So, where does the would-be trader start to become a success? By focusing on the tasks at hand. Most of all, treat trading as a business. And, as in any business, money management is critical.

Money management, next to trend, is probably the aspect of trading most overlooked by smaller investors. Man, by nature, is an optimistic creature and the amateur trader often acts instinctively. Unfortunately, this instinct or optimism is often the undoing of the smaller trader.

When a person enters a trade, he does so with the hope it will be a winner. When the position goes against him, he keeps thinking (or hoping) "it will come back." He knows he should have a stop in place, but hope keeps telling him to stay just a little longer since everybody knows "you always get stopped out the day the market turns." Eventually, hope turns into frustration, desperation and, finally, panic, prompting the trader to issue a GMO (get me out) order.

If the trader hasn't learned his lesson by this point, he develops the "I have to get it back" syndrome. He generally rushes into another poorly planned trade, throwing good money after bad.

Winners show several different characteristics. They enter the market knowing they can be wrong and, in fact, are wrong as often as they are right. They have learned markets don't run on hope. They understand markets tell them when they are right or wrong. When a trade is losing money and getting worse, the market is telling them to get out. A bad trade is like a dead fish: The longer you keep it, the worse it smells.

When a trade is making money, the market is telling them they are right and to let the position ride. Winners don't add to, or "average", losing positions. They dump the trade and go looking for a new opportunity. Successful investors may add to the winning trades. When ahead, they press their advantage while remembering that at any time the market can turn on them and prove them wrong.

What to Do When the Market Goes Nowhere

2010-07-24T04:24:00.000-07:00

By Morgan Housel | More Articles
July 23, 2010

http://www.fool.com/investing/general/2010/07/23/what-to-do-when-the-market-goes-nowhere.aspx

What is the Real P/E Ratio for the S&P 500?

2010-07-22T02:48:00.000-07:00

By Hans Wagner Tuesday, July 20, 2010

http://www.investinganswers.com/a/what-real-pe-ratio-sp-500-1466

Five Tools for Making a Snap Buy/Sell Decision

2010-07-22T02:46:00.000-07:00

By David Sterman Monday, July 19, 2010

http://www.investinganswers.com/a/five-tools-making-snap-buysell-decision-1465

8 Signs You're Investing Like Buffett

2010-07-05T16:52:00.000-07:00

By Hans Wagner Friday, July 02, 2010

http://investinganswers.com/node/1439

Keep It Simple

2010-07-02T17:52:00.000-07:00

by VanTharp

http://www.traderplanet.com/newsletter_articles/view/2789/distribution:7

Don't Follow the Dumb Money

2010-06-30T06:17:00.000-07:00

By John Persinos Tuesday, June 29, 2010

http://investinganswers.com/a/dont-follow-dumb-money-1426

5 Signs Your Emotions Are Taking Control of Your Investing

2010-06-28T07:24:00.000-07:00

By Hans Wagner Friday, June 25, 2010

http://investinganswers.com/node/1401

Mental Fitness For Traders

2010-06-20T05:07:00.000-07:00

http://directyourmind.com/pdf/MentalFitnessForTraders.pdf

Hot For Trading

2010-06-20T02:20:00.000-07:00

by Kevin Davey

http://www.traderplanet.com/newsletter_articles/view/2697/distribution:7

Don’t Buy the Stock Market…Buy Stocks

2010-06-15T21:34:00.000-07:00

By Chris Mayer

http://dailyreckoning.com/dont-buy-the-stock-market-buy-stocks/

Day Trading Strategies For Beginners

2010-06-14T05:09:00.000-07:00

by Justin Kuepper

http://www.investopedia.com/articles/trading/06/DayTradingRetail.asp

Top 10 Rules For Successful Trading

2010-06-14T05:02:00.000-07:00

by Jean Folger

http://www.investopedia.com/articles/trading/10/top-ten-rules-for-trading.asp?partner=basics6

The Psychology of Commodity Price Movement

2010-05-31T23:08:00.000-07:00

From: The MarketClub - Tools for the Trader

The price of a futures contract is the result of a decision on the part of both a buyer and a seller. The buyer believes prices will go higher; the seller feels prices will decline. These decisions are represented by a trade at an exact price.

Once the buyer and seller make their trade, their influence in the market is spent — except for the opposite reaction they will ultimately have when they close the trade. Thus, there are two aspects to every trade: 1) each trade must ultimately have an opposite reaction on the market, and 2) the trade will influence other traders.

Each trader's reaction to price movements can be generalized into the reactions of three basic groups of traders who are always present in the market: 1) traders who have long positions; 2) those who hold short positions; and 3) those who have not taken a position but soon will. Traders in the third group have mixed views on the market's probable direction. Some are bullish while others are bearish, but a lack of positive conviction has kept them out of the market. Therefore, they also have no vested interest in the market's direction.

The impact of human nature on futures prices can perhaps best be seen by examining changing market psychology as a typical market moves through a complete cycle from price low to price low.
Classic price pattern

Assume prices trade within a relatively narrow trading range (between points A and B on the chart). Recognizing the sideways price movement, the "longs" might buy additional contracts if the price advances above the recent trading range. They may even enter stop orders to buy at B, to add to their position if they should get some confirmation the trend is higher. But by the same token, recognizing prices might decline below the recent trading range and move lower, they might also enter stop loss orders below the market at A to limit their loss.

The "shorts" have exactly the opposite reaction to the market. If the price advances above the recent trading range, many of them might enter stop loss orders to buy above point B to limit losses. But they, too, may add to their position if the price should decline below point A with orders to sell additional contracts on a stop below point A.

Typical price movement pattern

The third group is not in the market, but they are watching it for a signal either to go long or short. This group may have stop orders to buy above point B, because presumably the price trend would begin to indicate an upward bias if point B were penetrated. They may also have standing orders to sell below point A for converse reasons.

Assume the market advances to point C. If the trading range between points A and B has been relatively narrow and the time period of the lateral movement relatively long, the accumulated buy stops above the market could be quite numerous. Also, as the market breaks above point B, brokers contact their clients with the news, and this results in a stream of market orders. As this flurry of buyers becomes satisfied and profit-taking from previous long positions causes the market to dip from the high point of C to point D, another distinct attitude begins working in the market.

Part of the first group that went long between points A and B did not buy additional contracts as the market rallied to point C. Now they may be willing to add to their position "on a dip." Consequently, buy orders trickle in from these traders as the market drifts down.

The second group of traders with short positions established in the original trading range have now seen prices advance to point C, then decline to move back closer to the price at which they originally sold. If they did not cover their short positions on a buy stop above point B, they may be more than willing to "cover on any further dip" to minimize the loss.

Those not yet in the market will place price orders just below the market with the idea of "getting in on a dip."

The net effect of the rally from A to C is a psychological change in all three groups. The result is a different tone to the market, where some support could be expected from all three groups on dips. (Support on a chart is denned as the place where the buying of a futures contract is sufficient demand to halt a decline in prices.) As this support is strengthened by an increase in market orders and a raising of buy orders, the market once again advances toward point C. Then, as the market gathers momentum and rallies above point C toward point E, the psychology again changes subtly.

The first group of long traders may now have enough profit to pyramid additional contracts with their profits. In any case, as the market advances, their enthusiasm grows and they set their sights on higher price objectives. Psychologically, they have the market advantage.

The original group who sold short between A and B and who have not yet covered are all carrying increasing losses. Their general attitude is negative because they are losing money and confidence. Their hopes fade as their losses mount. Some of this group begin liquidating their short positions either with stops or market orders. Some reverse their position and go long.

The group which has still not entered the market — either because their orders to buy the market were never reached or because they had hesitated to see whether the market was actually moving higher — begins to "buy at the market."

Remember that even if a number of traders have not entered the market because of hesitation, their attitude is still bullish. And perhaps they are even kicking themselves for not getting in earlier. As for those who sold out previously-established long positions at a profit only to see the market move still higher, their attitude still favors the long side. They may also be among those who are looking to buy on any further dip.

So, with each dip the market should find the support of 1) traders with long positions who are adding to their positions; 2) traders who are short the market and want to buy back their shorts "if the market will only back down some"; and 3) new traders without a position in the market who want to get aboard what they consider a full-fledged bull market.

This rationale results in price action that features one prominent high after another and each prominent reactionary low is higher than the previous low. In a broad sense, it should appear as an upward series of waves of successively higher highs and higher lows.

But at some point the psychology again subtly shifts. The first group with long positions and fat profits is no longer willing to add to its positions. In fact they are looking for a place to "take profits." The second group of battered traders with short positions has finally been worn down to a nub of die-hard shorts who absolutely refuse to cover their short positions. They are no longer a supporting element, eagerly waiting to buy the market on dips.

The third group of those who never quite got aboard the up-move become unwilling to buy because they feel the greatest part of the upside move has been missed. They consider the risk on the downside too great when compared to the now-limited upside potential. In fact, they may be looking for a place to "short the market and ride it back down."

When the market demonstrates a noticeable lack of support on a dip that "carries too far to be bullish," this is the first signal of a reversal in psychology. The decline from point I to point J is the classic example of such a dip. This decline signals a new tone to the market. The support on dips becomes resistance on rallies, and a more two-sided market action develops. (Resistance is the opposite of support. Resistance on a chart is the price level where selling pressure is expected to stop advances and possibly turn prices lower.)
The downturn

Now the picture has changed. As the market begins to advance from point J to point K, traders with previously-established long positions take profits by selling out. Most of the hard-nosed traders with short positions have covered their shorts, so they add no significant new buying impetus to the market. In fact, having witnessed the recent long decline, they may be adding to their short positions.

If the rally back toward the contract highs fails to establish new highs, this failure is quickly noticed by professional traders as a signal the bull market has run its course. This is even more true if the rally carries only up to the approximate level of the rally top at point G.

If the open interest also declines during the rally from J to K, it is another sign it was not new buying that caused the rally but short covering.

As profit-taking and new short-selling forces the market to decline from point K, the next critical point is the reactionary low point at J. A major bear signal is flashed if the market penetrates this prominent low (support) following an abortive attempt to establish new contract highs.

In the vernacular of chartists, a head-and-shoulders reversal pattern has been completed. But rather than simply explaining away price patterns with names, it is important to understand how the psychology of the market action at different points causes the market to respond as it does. It also explains why certain points are quite significant.

In a bear market, the attitudes of the traders would be reversed. Each decline would find the bears more confident and prosperous and the bulls more depressed and threadbare. With the psychology diametrically opposite, the pattern completely reverses itself to form a series of lower highs and lower lows.

But at some point, the bears become unwilling to add to their previously-established short positions. Those who were already long the market and had refused to sell higher would eventually be reduced to a hard core of traders who had their jaws set and refused to sell out. Traders not in the market who were perhaps unsuccessfully attempting to short the market at higher levels will begin to find the long side of the market more attractive. The first rally that "carries too high to be bearish" signals another possible trend reversal.

With this basic understanding of market psychology through three phases of a market, a trader is better equipped to appreciate the significance of all technical price patterns. No one expects to establish short positions at the high or long positions at the low, but development of a feel for market psychology is the beginning of the quest for trades that even hindsight could not improve upon.

When you analyze charts, approach them with the idea that they reflect human ideas about prices that are the result and the struggle between supply and demand forces. Your attitude and ability to judge market psychology will determine your success at chart analysis. Unexpected occurrences can change price trends abruptly, and without warning. Also, some of the chart formations may be hard to visualize. You'll sometimes need a good imagination as well.

http://club.ino.com/lessons/psy.htm

A Winning Attitude

2010-05-31T00:18:00.000-07:00

From: The MarketClub - Tools for the Trader

Everyone wants to be a winner; at least, they think so. Unfortunately, most are not willing to perform the tasks necessary to become a consistent winner.

Winners generally achieve success by being focused on a goal. Being focused allows winners to remain committed to the tasks at hand. Most winners perform a lot of hard work; including a willingness to deal with sometimes mundane duties. Most of all, winners perform with an "I am responsible for both my failures and successes" attitude.

So, where does the would-be trader start to become a success? By focusing on the tasks at hand. Most of all, treat trading as a business. And, as in any business, money management is critical.

Money management, next to trend, is probably the aspect of trading most overlooked by smaller investors. Man, by nature, is an optimistic creature and the amateur trader often acts instinctively. Unfortunately, this instinct or optimism is often the undoing of the smaller trader.

When a person enters a trade, he does so with the hope it will be a winner. When the position goes against him, he keeps thinking (or hoping) "it will come back." He knows he should have a stop in place, but hope keeps telling him to stay just a little longer since everybody knows "you always get stopped out the day the market turns." Eventually, hope turns into frustration, desperation and, finally, panic, prompting the trader to issue a GMO (get me out) order.

If the trader hasn't learned his lesson by this point, he develops the "I have to get it back" syndrome. He generally rushes into another poorly planned trade, throwing good money after bad.

Winners show several different characteristics. They enter the market knowing they can be wrong and, in fact, are wrong as often as they are right. They have learned markets don't run on hope. They understand markets tell them when they are right or wrong. When a trade is losing money and getting worse, the market is telling them to get out. A bad trade is like a dead fish: The longer you keep it, the worse it smells.

When a trade is making money, the market is telling them they are right and to let the position ride. Winners don't add to, or "average", losing positions. They dump the trade and go looking for a new opportunity. Successful investors may add to the winning trades. When ahead, they press their advantage while remembering that at any time the market can turn on them and prove them wrong.

http://club.ino.com/lessons/a.htm