Velez & Capra, Tools and Tactics for the Master Day Trader

This is an outstanding book, chock-full of tools and tips for the beginning securities trader.

I'll bypass the disclaimer, which you can read on any standard financial services website, as the tips below are not mine, they are from the book.

What this book does is go deeply into the Zen of trading, the mental aspects where, according to the authors, the trader must beat his or her demons, mainly those of fear and greeed.

Here are some snippets from the book, gems I've extracted for my own notes:

Strategy
• 2-10 day window has the greatest predictive power.
• Measure your performance in 10-trade increments.
• Buy on rumor, sell on news. Stocks reporting good news will gap up then reverse. The smart money is in at the rumor and sells when at the news when the novices rush in.
• After the initial training period, play in the higher-priced stocks. It's easier for them to advance or decline.
• The entry is 85% of the trade.
• From 11:15 am to 2:15 pm is the midday doldrums. Stocks vacillate--avoid trading.

Discipline
• Be disciplined. Adhere to your strategy once you're in the trade; ask "why" only once you're out.
• Go for smaller but surer gains.
• Two to four plays a week are enough in your developmental phase.
• For every trade, establish a stop-loss, and an objective for profit-taking. Sell only if the stock hits one of these two. This strategy keeps you out of fear and geed and keeps you in your predetermined trading strategy.
o If the urge to exit before either becomes overwhelming, sell only half.
o Do not switch time frames mid-trade; stick to your strategy. If you enter in one time frame, construct your exit in the same time frame.
o Adjust your stop upward when long, never downward.
o Adjust your stop downward when short, never upward.
• After 2 winning streaks of 4-5 trades each, stop and step back. Review the entry, stop, exit. Check for rule violations or errors. Reduce your lot size by half. Remember that the market rewards discipline, not luck.
• Only trade when at your mental peak.

Losses
• Lossses are our teachers. Study the symbol, day, entry and exit of 5 losses; find the common element, and eliminate it. Learn to manage losses professionally: keep them miniscule.
• Each time a carefully chosen stock gets stopped out, you've won. You've gained discipline, self-respect. Nothing is free--every gain must be earned; an unearned gain will be balanced out by loss. You have to learn the art of losing small.
• Keep a trading journal of plays, realizations, emotions. Do not judge yourself. Winning is the flower that blooms after the long, successful journey of growth has been made.

Understanding the Market
• Love the market and it will love you. Respect its power to create and to destroy.
• The market speaks to you through its failures--it sends messages, warnings, hints that it is changing character again. Learn to listen to your friend's communication. While focusing on proper management of losses, the winning happens automatically.

Trader's Mind
• Certainty is an illusion.
• Seek knowledge first, profits later. Once you have knowledge, the profits will take care of themselves.
• When it doubt, get out; clearing the slate clears your mind.
• The only power that makes stock rise is: more buying than selling.
• The professional trader takes from the majority, those who jump on the bandwagon and don't get off until it's too late. Corrections obliterate the novice while the astute trader picks up the pieces. When the market finally turns, the astute relieve the novice of pain and sell to the greedy.
• Throw out the idea if it does not consistently make money.
• The experience of pain or triumph will fade over time, leaving a more intuitive sense and ridding you of the Pavlovian response to market moves.
• When the market gets quiet and low-risk actions are scarce, the best course is no action.
• Absorb knowledge, but do not allow past wins and losses to affect the present trade.
• We trade people not stocks--the astute trader knows when one emotional state in the market is about to give way to another.

In addition to this discussion on mental aspects and strategy, the book offers some basic but well-developed information on various methods and tactics, including use of the reversal bar, tails, gaps, support and resistance, retracement, climactic volume, the moving averages, and other information.

There is a small promotional blurb for their own products, but in it the take on competitors is priceless:

• The business rule of thumb for many fly-by-nights seems to be, 'where there is no value, compete strictly on price.' If the very best have truly paid the price for their success, they will not cheapen their achievements with a bargain basement offer.

That wisdom applies across the board to all kinds of businesses and programs. Everybody loves a discount, but that's exactly what you get--a discounted service (think metaphor).

It's already clear how trading using Japanese candlesticks has a connection with alternative medicine in that it looks to homeostasis and balance in the group mind, symbolized by the market, mirroring the same play of energies in the individual. The focus of Tools and Tactics on the mind of the trader applies similar principles in helping the trader find balance and avoid the psychological sharks that prevent a disciplined approach.
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