THE ee "A Must-Have’ Resource for Anjore Seeking to a Steady Ineomea Market =hi dir TH © Copyright 2005 Vathon Grier All igh reed. No par of dhs publation may be ence sored na eit ‘osteo rans in any frm ot by any ncn, clotone, mechanical phowcopying ‘econ. or there thou the writen per permis ofthe sux Nove fr Librarians along eo fr this bok shat ncades Dewey Dima Csifcaion and US Libvary of Congres nurs aval fn the Libary and Archives of Canada, The complete exaloguing ord can be abrsina fon th online tne tions amicfndes hem ISBN I-f120-435238 ried in Vitra, BC, Canada TRAFORD Offs in Gama USA land, UK snd Spin uk was published on-demand cooperation wit Taf Publishing. Orem publishing a unique ros an service of making lc taking advange of on-demand manufactur cok avaible frre sale to the und ern marketing. On demand Publishing includes promesions ell, minalaring on fullmee accounting ad calletng royals on bch ofthe athor, Book sale for North Ameri and iterations Teflon Publishing, GE-2333 Government Se Viera, BC Vr 44 CANADA phone 250383 6854 (lic 1 8 232 4444) fx 250 83 6804; ema ordered. com Book sles in Europe: alfodPublhing (cs) Lu, Enteepise Howe, Weston Road Business Cones Woxaston Road, Crowe, Cheshie cv? Tap UNITED KINGDOM phone 01270 251 336 lal rate O45 239 3601), Fsinile 01270 254 985 ordanak@ualonL com Onleronine a: vf conm/obur4-2139 nl1 you read as much as the cover, you already know this book is about the stock market and trading. However, the operative word of this book’s content is Plan, Let me tell you why. ‘Years of mentoring traders of different levels of experience, from the beginners to those with several years undcr their belt, hhowed me a huge gap in trading education. This gap is an absence ‘of a clear plan. Traders make money when they know what they are doing. Traders fail when they shoot darts. The problem is many think they know what they are doing, when in reality they have merely leant odd pieces. Those pieces never click together because they are not integrated into a master plan. In a strange way many successful traders admit that they started with no such plan and realized its necessity much later ~ after suffering plenty of unnecessary grief and losses. Painful to admit and 1 am no exception, Had we all started with a master idea of what we are going to do, the rate of survival would be ‘much higher in the markets. And survival of the learning curve is a necessary condition for moving lo prosperity Can you make a living and prosper trading the markets? OF course, you can — many did and continue doing it, why not you? However, if you are looking for a sure-fire “get-rich-quick” scheme ~ close this book and put it back on the shelf. If you want to know how I, after many years of my own trading and consulting hundreds of other traders, would have started now = then this book is for you. IF you want to know how to plan your action and act according to your plan ~ this book is for you. If you want to maximize your chances to become a winner in the greatest {zame ever invented, avoid the mistakes made by I Still interested? Turn the page.Contents Before We Start. How Is This Book Structured? ‘Traders Talk ~ Pationce Rogers Part I: Trading Philosophy, Questions, Questions. ‘Whats it that Moves a Market? What is the Market's Reality? Is there Certainty in the Markets? ‘What is Loss? Is it Avoidable? How do | Approach Risk? ‘What is it that Constitutes the Difference Between Reckless Gambling and Trading”. ‘What am I Going to Trad in Terms of Market Movement? Traders Talk ~ Bo Yoder Part I: Trading Psy Simple vs, Basy Defensive Aspect of Psychology ‘Traders Talk ~ Alan Parle Offensive Aspect of Psychology Tradors Talk ~ Chuck Collins Part Ill: Creating your Trading Sy Necessary Comments Timeframe Risk Evaluation and Control Method of Reading Designing Your Strategy ‘Traders Talk = Daryl GuppyACKNOWLEDGEMENTS Part IV: Trading Tools . Tool-Belt Contents Brokerage (Quote/Charting Software Scanning Sofware Part V: Practical Trading. wi Small Size Trading Increasing Trading Size. ‘Trading Diary Risk Control Trading Phan Samples. Beginner Swing Trader. Retire Fundame Recommended Reading Conclusion, Glossary ne Index... Mail Order Form.Acexon Acknowledgements I wish to thank my two closest team members, Vie Jung and Nestor Suare7. ‘They togethy with the Reality Trader room members, make each day seriously fun and never seem like a day atthe office, Special thanks are extended as well to my trading peers, namely Alan Farley, Bo Yoder, Stephen Sherwood, Chris Schumacher, Chuck Collins and Daryl Guppy, who shared their reminiscences of their early trading days and details of their trading plans. Thanks to Jeff ‘Tappan whose systematic approach to planning helps me outline the vision of Reality Trader as a leader in trading education field and define the necessary steps to make it reality To those new traders I have spoken to who are just commencing their journey in the tradi World, thank you For your truthful insights into why and how you have started trading as your new career. Discussions of the challenges you face helped me reinforce the best approach to trading education, ‘The community of traders that I work with continues (o inspire me anc! I, 100, learn from the market every day. ‘Thank you for creating a welcome home at Reality Trader. To Steve Demarest and the MBTrading team, t best trading tools in the industry you for continuing to work to create the To Dan Mirkin and the entire team that worked 10 create Int software out there, thank you for your dedication and hard work, liScan, the best scanning And finall todo so to my thanks to my family who encouraged me when I started trading and continu ,ian igh Preface This book provides help to potential traders, guiding them through the stages of setting up trading as a business in a comprehensive way. During the past decade, the number of people interested in trading financial markets increased dramatically. Technology improvements opened access 10 active trading for the public, and interest across North America and throughout the world exploded, The hot market of 1998 to, carly 2000 fuelled this interest. Trading presented, for many, a sparkling dream of life without pressure of an office environment, without reporting to a boss and without a rigid schedule. Unfortunately, for too many this dream turned out to be just that. The failure rate in tradi ‘umed out to be enormous. Seemingly casy, it hid many traps and presented many dangers that destroyed the hopes and dreams of most beginning traders. Granted, trading like any other selE-governed endeavor is not suitable for all, Yet, this rale of failure seems. unnecessarily high, My own experience, coupled with the experience of hundreds of traders I taught over the years. led me to realize that education in this field lacked one hugely important aspect that ‘was common in practically all other fields of activity. It lacked STRUCTURE and let me illustrate what I mean by this. Here is what my own road has been like and I wil just outline it briefly here (the entire story is described in detail in my first book Techniques of Tape Reading, MeGraw Hill, 2003.) 1 started learning trading by reading a couple of books, picked from the sea of material available then, I did my first trade having read half way through the first book. 1 went into some websites and listened to some traders. Were those books T started with the right ones? ‘Was the material on those websites thorough and logical? Did those traders I talked to, know what they were doing? How would I know all that? 1 had no standard to measure against. My limited knowledge would not allow me to lunderstand even what I was looking for. T simply plunged into this profession having no slightest idea how to proceed. Several hard losses forced me 10 adapt and read more, starting to trade more carefully and applying tight risk control. It took two years to turn my trading around, and at the end of second year, I was at the brink of failure, with just 25% of my original account left Was my way unique, uncharacteristic for the trading profession? By no means. ‘Time-and- time again I see the same experience with other traders. They come into trading, they pick up tidbits of information, and they start trading. Reality hits fast enough. Realizing that their knowledge is not enough they start looking for the right path through education. Do they find ‘ny real structure, any idea where to start, and then how to proceed? Generally no. ‘One would think that afler 10 years since a broad interest in active trading appeared, that such a structure had wo be in place. Yet, go to any trading forum and ask the question “How do L begin? 1 hear this question asked frequently and invariably the answer is “start watching the ‘markets, start paper trading, trade small shares, read these two books, observe patterns, collect experience and lose until you learn how to stop losing.” You will hear numerous accounts of traders succeeding only after an initial failure and often after multiple failures. ‘These trader's accounts are cited as proof that this is the only way to lear, What is wrong with this picture? Let us se