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Money and investment capital are very picky things. They are constantly flowing from those who know how to manage it, to those who do not. Money is not static, it is in constant flux. This is why a person that starts out poor in America can end up wealthy, and also why generational wealth can dissolve in one generation due to bad management. The flow of money is why a lottery winner that wins a jackpot and does not know how to manage it can quickly find themselves in bankruptcy. No amount of money will overcome consistently bad decisions. In a free market, capitalistic system, money flows continually to those that create value and away from those who do not.
- Money leaves those who risk it’s loss too many times, and ends up with those that protect it and make it grow.
- Money flows from consumers of goods and services to the owners of the businesses that provide the right products.
- Money flows to entrepreneurs when they create desirable goods and services. Money flows away from consumers that do not have self control.
- Money flows to employees that develop skills that employers will pay a premium for. Little money flows to employees that lack skills, or the work ethic to attain them.
- Money flows from customers to businesses.
- Money flows to innovators and away from outdated, stagnant businesses.
- Money flows to well managed businesses and away from mismanaged ones.
- Money flows from bad traders to good traders.
Trading is not about one day, one week, or even one year. Trading is about taking money out of the markets over and over again, consistently, and keeping it to spend on other things.
When I have bad days, I look at my long term track record over multiple markets, and that gives me confidence in myself as a trader, and my trading methodology.
I have been a fortunate member of the 10% of profitable traders for the majority of the past 20 years in the markets. From investor, to stock trader, and option trader, I have made consistent returns and kept the capital to spend outside the markets. Here are ten principles that made me profitable in the long term as a trader.
- I trade in the direction of the long term trend. I am primarily long in up trends and short or in cash in down trends.
- I trade based on quantifiable facts, not my own emotions. I react based on price action, not based on my feelings.
- I have spent thousands of hours studying the financial markets. I did my homework before I began trading.
- I read several hundred trading books and tried to learn from other people’s experiences, instead of losing my own money and learning the hard way.
- I studied historical charts of monster stocks and different extreme time periods. I back tested what I thought would work to see if it would before I traded my ideas.
- I followed great traders on twitter to see how they operated.
- I learned from professional traders in facebook groups.
- I developed a trading plan to give me rules to follow to instill discipline in my trading.
- I developed a trading methodology that fits my own personalty and risk tolerance parameters.
- I have a passion for trading.
- I love the game of trading and the markets.
- I never gave up.
Chart courtesy of StockCharts.com
- The long term up trends last level of support is at the 200 day sma. A close under the 200 day will have me shifting to shorting rallies from buying the dips I have been doing since January of 2013.
- The long term oscillator support of the 30 RSI is going to correlate closely with the 200 day sma, giving a double probability of a bounce as two schools of “buy the dip” will be looking to get long at this level.
- We are also getting close to a 5% pull back which has been normal for the past two years. If the 200 day fails, then a 10% correction is on the table, followed by a possible 20% drop into a bear market. The odds still favor a bounce at the 5% pullback, which aligns with the 30 RSI and 200 sma.
- Price is far extended from the 10 day sma, like a rubber band stretched to its limit. This results in an eventual snap back, which will likely happen this week. Whether it holds or not is the question.
- The expanding volatility is not bullish and needs to resolve before we can confidently go long and attempt to ride the long elevator back to all time highs.
- The 200 day sma is where all eyes will be when the markets opens. Bulls are alive and safe above, but below it is the land of the bears. Many long term trend following systems will be selling on the next open if the 200 day is breached at close. It will be dangerous to be long below the 200 day.
- The bearish MACD still says momentum is dead. Buying strength is not working currently and momo is a no-go.
- Markets in these kinds of small corrections and volatility have very violent short covering rallies that are dangerous to be caught in. It is better to have a safety margin by shorting strength instead of shorting into the market after the price has already fallen into a hole and is due for a bounce.
- I will be looking for long plays this week as the risk/reward is now skewed in the favor of longs.
- The more bearish you see the psychology grow on social media, the more bullish I will become for a bounce. Once the majority of sellers are driven out through fear and they are safely on the sidelines, then the market can bounce.