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Practice Controlled Trading Techniques for More Successful Trading
Author: Walt Bressert
Gamblers roll the dice and hope they are going to make money. They trade on tips, their broker's advice, and "instinct". They usually lose money. Speculators trade because they believe they have an edge. They might know the fundamentals, they might know the technical, but they fell they are not "rolling the dice", but are making an "educated guess". Whether gambling or speculating, most traders are out of control. They do not know how to make the decisions (and to do the research) to put them in control. You are in control when you have an idea, not just of what direction a market will move in, but of how far it will move and when it will reverse. You are in control when you have a profit objective and a game plan for taking profits. You are in control when you have a set of rules or guidelines that you follow to eliminate to trade based on your knowledge, your ability, not your broker and not an advisor (unless his work confirms yours). Your are in control when your trading approach is so structured that the surprises the market throws your way do not end up with margin call, or large, unexpected losses. Speculation is a risky business, and taking losses are part of the business. They cannot be eliminated, but they can be minimized and controlled. By following the 4-steps of controlled trading you will always be in control of yourself and your trading. There may be losses, but there will not be margin calls. Seeing large profits disappear and turn into losses will be a thing of the past. Controlled Trading has four steps to profits:
1. Market Analysis
2. Oscillator Analysis
3. Market Entry and Exit
4. Controlled Risk Money Management
Step 1 - Market Analysis
"The trend is your friend". If you know that the trend is up, then buy the dips; and if it is down then sell the rallies. Not only do we want to know what the trend is, we want to anticipate when the trend will reverse. With cycle analysis you can both define the trend ( long-term, intermediate-term, short-term) and anticipate tops and bottoms; both major tops and trading tops.
Step 2 - Oscillator Analysis
Both cycles and oscillators are dependent upon time and price. Quite often cycle highs and lows are accompanied by oscillator extremes. When you know these extreme levels tops and bottoms can be identified with confidence. Use technical tools and market oscillators to identify high probability entry levels.
Step 3 - Market Entry and Exit
To be in control, we must first determine the time frame for which we are trading. All too often we use a short-term entry technique and a short-term stop while planning a long-term trade. By defining the time frames before we enter the market, we can apply the correct market entry and exit techniques using weekly, daily, and intra-day techniques to buy on weakness and strength and to sell on strength and weakness. Have a game plan that includes how you will enter the market, a protective stop and a price objective, plus trailing stops. Generally, there are three distinguishable time frames. You are considered a long-term trader if you analyze price movement based on the monthly charts and trade based on the daily charts. You are considered an intermediate-term trader if you analyze price movement based on the weekly charts and trade based on the hourly charts. You are considered a short-term trader if you analyze price movement based on the daily charts and trade based on the 15-minute charts.
Step 4 - Controlled Risk Money Management
A consistent money management policy is key in obtaining success in trading. Before entering the market, determine a stop/loss as well as a profit objective. Never risk more than 10% of equity on any single trade. If possible, risk 5% or less. Never risk more than 20% in any one complex. Trade in multiple contracts:
contract 1 -- the money contract
contract 2 -- the short-term profit objective contract
contract 3 -- the long-term profit objective contract
Utilize pivot analysis as part of your plans for entry and exit criteria. The four time periods that have special significance in analyzing points are: a) the open, b) 30-minutes after the open of each market, c) mid-day and d) 35 minutes before the close.
About the author:
Walter Bressert is acknowledged as the man who brought cycles to the futures markets in his original newsletter "Hal commodity Cycles", which was profitable 10 of the 12 years it was published (1974-1985). His book, "The Power of Oscillator/Cycle Combinations" defines a new dimension of oscillator and cycle analysis. His present advisory service, Cyclewatch, is available via mail, FarmDayta, Telerate's commodity Service. In Cyclewatch he uses cycles and oscillator to forecast tops and bottoms and to identify tops and bottoms as they occur in both financial and agricultural markets. Bressert provides consulting services and offers seminars to educate traders and investors on how to identify tops and bottoms using cycles and oscillators. Many of his seminars and trading methodologies are archived by the MarketClub trading service and can be accessed by all MarketClub members for free. To learn more about MarketClub and get a feel for what the trading community thinks about this trading tool, visit the MarketClub review site.