CONTROLLING. Your TRADES, MONEY& EMOTIONS. by Chris Vermeulen
CONTROLLING. Your TRADES, MONEY& EMOTIONS. by Chris Vermeulen
CONTROLLING. Your TRADES, MONEY& EMOTIONS. by Chris Vermeulen
Your TRADES,
MONEY&
EMOTIONS
By Chris Vermeulen
INTRODUCTION
In this condensed guide I have put together some key points which I think should
be read a few times in order for these critical trading ideas to be stored in your
subconscious for quick retrieval.
When reading this guide, try to put yourself in a trading state of mind; the markets
open and it’s 9:45am ET, trades are being executed and your emotions are flying as
new highs or lows are being made for the session. The question we ask ourselves as
traders is, “What Position Should I Take?”
Most individuals analyze and trade the market contrary to what is correct. The
primary reason is because the majority of traders do not have a trading strategy
with simple entry and exit rules. Instead, these traders jump into the market
chasing prices riding the emotional roller coaster on nearly every trade.
No matter how good of a trader you are, you can never completely remove your
emotions from trading; however, being able to diminish them and learning to
manage them the remainder of the time will change the way you trade forever. If
you feel you don’t have a trading strategy or clearly defined entry and exit rules,
I will be running a trading/mentoring program in the spring of 2011.
The program will be for traders, who want to truly be able to read the market,
learn trading strategies through my video courses, and ask me trading questions
throughout the one month intensive program. Each trading session will be
recorded for individuals who work and/or would like to review a trading session.
This trading program allows participants to gain years worth of trading experience
within a short period of time.
On the next page are some trading thoughts and tips to help you minimize losses,
ride your winners while reducing trading stress.
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TRADING RULES
Never Trade With Capital You Cannot Afford To Lose
The market is a dangerous place and it will take everything you have without
missing a beat. Trade only with capital that is not life changing, which you can
afford to lose. This helps eliminate some of your emotions because scared money
WILL be lost.
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Be A Loser And Ride The Winner
People naturally want to hold onto losing trades simply because they do not like
to be proven wrong (a loser). But in trading, holding onto losers is by far the
fastest way to go broke and be removed from the business/game. Losing trades can
continue to lose for extended periods of time and move much further than what
any trading account can withstand. The same goes for winning trades. Winners
can continue winning for an extended period of time growing your account to new
highs very easily. This is the reason you must cut losers and scale out slowly on
winning trades always holding a core position which can fully mature with
the position.
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TRADING TIPS
Volatility and Volume Are Your Warning Signal
Just before the market changes direction we tend to see volatility and volume rise.
During a trending market they lessen
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Best Day/Short Term Times To Trade
Those of you, who trade each day, should focus on trading between 9:35am – 11:30
am ET in the morning. That is when there are solid trends, heavy volume, and the
least amount of market maker manipulation. Step away at lunch and start watching
the market around 2:00pm – 4:00pm ET when volume starts to pick back up along
with trends.
Protective Stops
It is important to always use protective stops. If you can monitor the market and
stick to a trading plan then mental stops are the best way to go.
Trade Defensive
The market has no mercy and will take every penny you have if you are not careful.
Moves protective stops up, take partial profits on price surges in your favor, and exit
weak looking positions.
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KEY TECHNICAL TRADING RULES
Before entering any trade it is important to have an understanding of what the
overall market conditions are like. Depending on market conditions, you will be
focusing on more of a trending type of strategy or a much shorter term momentum
trading strategy. The key is to wait for low risk/high probability setups to present
themselves so the odds are in your favor before taking a trade. Below are some key
factors you should be aware of prior to taking a trade.
• Trade in the direction of the underlying longer term trend. I use the 20 or 50
day moving average on the daily chart depending on the market condition.
• If the trend looks to be over extended and has not had a pullback in a while,
trade with a smaller position size.
• Time your entries and exits using short term time frames like the 10 or 30
minute charts.
• Clearly identify an exit point for each trade prior to entering. Use support/
resistance levels, pivot highs/lows, and trend lines.
• Identify the first area where the trade will lose momentum (support/resistance)
and look to take partial profits at that level, and then move your protective stop
up accordingly.
• Take partial profits on the first sizable surge in your favor. This reduces
emotions, downside risk and increases the number of winning trades you
will make.
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• Avoid big losses by exiting positions at the first sign of weakness or if your stop
level has been reached.
• Follow the price and volume. I always watch the volume using shorter term
time frames like the 1 and 10 minute charts to get a feel if the larger orders are
buys or sells. You can use the time and sales window with a filter showing only
futures orders of 50 contracts or more, and for stocks I filter out orders under
500 or 1000 shared depending on the volume of the stock.
• You must have patience with winning trades because winners can run for days
or even months. When in doubt slowly scale out of position locking in more
gains as it continues to move in your favor.
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TRADING CONCLUSION
Pulling money from the market on a daily, weekly, or monthly basis is no easy
task. Which is why 90-95% of traders break-even or lose money year after year. I
will admit being able to follow the market without any directional bias is difficult
especially with so many online publications that post their analysis and opinions as
to why the market should go up or down. While it is possible to predict and trade
some short term movements, anything beyond a couple trading sessions is virtually
impossible.
We are lucky we are not hedge fund managers as they carry an extra burden that
adds stress and emotions to their trading. Some individuals think this way also but
I find it a waste of mental energy to even worry about. That is to out perform the
market on a weekly, monthly or yearly basis. The way I look at and trade the market
is simple: I find low risk setups; take positions scaling out partial profits on the first
sizable surge in my direction, and then ride the position hoping the trend continues
for much larger gains. There are years when I outperform the market, others where
I under perform but the key is that I am always making money and know I will
never take a big loss from any trade or be caught on the wrong side of the market
for long because I manage my money and positions.
I focus on multiple time frames using the daily, 60 min, 10 min and 1 minute charts
which I find provides me with a solid grasp of the price action, buying/selling
volume, and key support/resistance levels. The daily chart is to find the underlying
trend, 60 and 10 minute charts help me get a feel from key support/resistance
levels, market sentiment, and timing. The 1 minute chart along with the time &
sales window gives me a solid feel for the short term momentum with big buyers or
sellers actively trading.
Traders/investors in general tend to react to new, events and chart patterns in a very
predicable way. Once you understand what the average trader (the herd) is seeing
and feeling on an emotional level only then can you position yourself with high
probability setups to take advantage of their bad habits. My trading strategies use a
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combination of price action, volume and intraday market sentiment indicators for
doing just that.
I am a strong believer that cash is a great position to be in. I find that 80% of the
time my active trading account is in cash waiting for short term high probability
setups to unfold. Hopefully this short guide has got you thinking about your
trading strategy and emotional behaviors. Remember the market is always evolving
and learning to change with the times is crucial for long term success.
Receive my daily pre-market trading videos, learn how to trade and get my ETF
trading signals be sure to checkout my trading service: TheGoldAndOilGuy.com
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Economic Indicator Effects
www.TheTechnicalTraders.com/Markets/How-To-Trade-Economic-Indicators-Data.html
When The The Dollar The Bond The Stock
Economic Indicator Price Of Gold
Indicator Is: Reaction Reaction Reaction
*Quick Tip*
If news is above or below expected prices (a surprise) then expect larger moves on the indexes.