It was wonderful to see so many familiar faces this past weekend at the ChartCon 2014 Conference. I know I walked away a more energized trader with a handful of new tactical options and strategies and a number of tradeable ideas I’m presently working through.
Listed below are some of my favorite takeaways from the conference. They are by no means a greatest hits list of the conference, but just what I personally found interesting. If you couldn’t make it this time around, I would wholeheartedly encourage you not to miss the next ChartCon event. Enjoy!
1. Dr. Alex Elder claimed that trading is relatively simple intellectually, but emotionally it’s one of the hardest games on the planet. There are three main parts to the menu. The first is METHOD which should be the main focus for novice investors as they get the mechanics workable. The second is MIND. It is a sort of investor gatekeeper if you are to move forward. The third is MONEY. This is the risk control and money management aspect. Controlling risks is what separates the expert traders from the extraordinary traders.
2. Investors don’t earn the right to use intuition in their trading until they’ve been investing for decades, not years. All others must stick to their methodologies and learn how to execute these consistently and profitably.
3. People like choices. Investors like choices. Research tells us that it’s much like a normal distribution curve if you graph it. Happiness increases as you add choices. There is some number that represents the optimal number of choices that maximizes happiness beyond which happiness begins to decline as choices continue to increase. I could list many examples in the investing arena, but let me give you just one. Some software programs come with over 300 technical indicators from which to choose. Ask yourself how many you need to maximize your happiness. My number is ten.
4. Limit the number of technical indicators you deploy. Successful investors must intimately understand how each indicator is calculated and how crowd psychology causes them to yield signals. If you do this properly, they will help you place your bets on the right side of probabilities.
5. Bruce Fraser, my fellow “Wyckoffian”, reminded me that one of the most powerful metaphors Wyckoff offers investors is the Composite Man as well as the daily battlefield metaphor. Embracing both as one trades the markets adds a calm clarity that is a sort of Wyckoff ‘secret sauce’. Understanding the concept of a Composite Man manipulating the markets as he executes buying (accumulation) or selling (distribution) campaigns – moving stock from weak hands to strong hands – allows you operate in concurrence with the big money. Then visualizing the eternal negotiations as the great daily war is waged between buyers and sellers which is fought not by big armies but by one trade at a time. This intuitive psychological appreciation of the struggle between bulls and bears driven by the forces of greed and fear is what Wyckoff offers investors.
Both metaphors blend synergistically as one deals with the larger overall campaign of an equity’s behavior and the other a powerful metaphor for the daily auction market where the high and low represent the battlefield and the open and close represent whether the buyers or sellers took control that day. Enlightenment resides in combining both as a trader.
6. The market is like a hungry animal looking for food. If it probes a new price high and finds no food, then the price retreats exactly like an island top reversal chart pattern.
7. Dr. Elder challenged me with this pertinent question: “What’s your edge?” I’m convinced that after teaching for so many years and sharing my tools, methodology and risk management with thousands of investors, my edge does not lie there. I’m in it to make money, not for entertainment, so I’ve systematically dealt with my psychological baggage and purged self-destructive behaviors from my novice investor days. My edge is my discipline and my routines.
8. What’s your investing horizon? This is not a trivial question. I’ll illustrate with a true story. A trader asks God, “how long is 10 million years to you?” And God replies, “one second.” The trader then asks, “how much is 10 million dollars to you?” Again, God replies, “one penny”. Finally, the trader asked God, “Can I have one of your pennies?” And God replies, “In a second”.
Your house is probably moving one inch every one hundred years as part of the continental drift. At the same time, there exits bugs that are born, live and die all within one day. Timeframes in the stock market should matter to you, and you should know what timeframe you are most comfortable trading. This reasoning also makes a strong case for my telescope, binoculars, magnifying glass, microscope methodology of analyzing the markets in multiple timeframes which is the basis of my routines.
9. I made a few suggestions to attendees in my presentation and a number of investors made a point of telling me that they were very helpful pointers. Here were my five tips:
1) Know what time horizon you are comfortable trading before you attend the seminars because different presenters speak about very different timeframes.
2) Stay true to what you trade. Don’t suddenly become enamored with futures or options just because a speaker presents some hand-picked charts.
3) Get intimate with your basket of no more than ten technical indicators and consider any new indicator presented at the conference as ‘eye candy’.
4) If you come across an extremely alluring new idea, back-test it and paper trade it before you jump in with real money. If you can’t prove it will make money, then drop it.
5) If it isn’t broke, don’t try to fix it! If you do, you’ll end up like some bureaucrats in Washington, DC whose motto seems to be “if it ain’t broke, we fix it until it is.”
10. The stock market can easily overwhelm you if you believe you are going to master every aspect of it. You must pick your areas of focus. Select tools and a methodology that you like, that you understand and that you can follow with discipline. If you invest in a manner that is temperamentally most suitable to you as a person, you are already far ahead of the majority of investors out there. The probability that you’ll succeed just shot up by 50%.
11. It’s money that matters to me. Yes, I love the stock market, but my most precious commodity is my time. I manage my time as carefully as I manage my assets. If a presenter suggests I spend my entire day in front of the monitor, chances are that he or she is trying to complicate my trading routines – not simplify or empower my routines. My experience is that complexity and profitability are inversely related. Increasing complexity usually decreases profitability. Yes, it seems counterintuitive but you just may have to learn this for yourself.
12. Finally, here are Dr. Elder’s Nine Rules:
1) Dedicate a predetermined amount of time to the market every day.
2) Keep track of earnings dates for all your equities.
3) Don’t talk to others about your present positions.
4) Use stops without fail.
5) Never risk more than 2% of your trading portfolio on any one trade.
6) If you lose 6% of your account equity in one month, stop trading and reassess.
7) Review all your closed trades.
8) Keep learning and stay open to new ideas.
9) And my favorite: Keep a trading journal!
Trade well; trade with discipline!
-- Gatis Roze