Attention Traders: Making a Trading Checklist

A lot of email has come in from readers asking me how to improve upon "pulling the trigger" to enter a trade. How many traders out there have ever pondered a potential trade for so long that once they actually got ready to execute it, they then got cold feet due to concern they had missed the move?

Some traders are reluctant to put on a position because they are torn between what they perceive as conflicting market factors. Here's a typical quote from such a trader:

"The moving averages are positive, the market is trending higher, but the RSI shows the market as being way overbought. What should I do?"

A "Trading Checklist" of prioritized criteria not only will help you decide when to execute a trade, but will also help you identify potential winning trades. You'd be surprised how a visual checklist can resolve uncertainty in your mind.

What kind of stuff should a trader put on a Trading Checklist? That depends on the individual trader. Each trader should have his or her own set of criteria that helps determine a market to trade and the direction to trade it--including when to get in.

(As an aside, I like to compare my trading criteria to a bunch of tools in a toolbox. The more tools I have at my disposal, the better. Also, there are different tools for different tasks. However, there are some basic tools that I think are more important than the others and that are a must for the toolbox.

In trading terms, the more you know about chart patterns, technical indicators, fundamental factors, etc., the more tools you will have in your "trading toolbox" and at your disposal when trading the markets.)

Back to the checklist: You'll want to put your most important trading tools on the checklist, and in order of importance.

At the top of my Trading Checklist is: "Are daily, weekly and monthly bar charts in agreement?" A very important position- trading tenet for me is that shorter-term and longer-term charts must agree on the trend of the market. If the daily and weekly charts are bullish, but the monthly is bearish, there's a good chance I'll pass on the trading opportunity.

So if my very first (and most important) objective on my Trading Checklist is not met, then I really don't need to go any farther down the list. I'll look for another trading opportunity.

However, if the last item (least important) on your Trading Checklist does not meet your objective, but the big majority of the other objectives on your list are met, then you may make the trade anyway. It's entirely possible that all of your trading tools on the list may not give you the proper signal to trade the market, but it's still a good trading opportunity.

Every trader should have at least a few trading "tools" that help determine a trading opportunity. Listing those tools on paper, in order of importance, and then examining that list when deciding each trade should make easier the sometimes difficult task of "pulling the trigger."

Jim WyckoffTradingEducation.com

RSI Indicator: The "Cornerstone" of Andrew Cardwell's Trading Model

The ideal technical indicator, according to Andrew Cardwell, Jr., is one that offers capability to identify and monitor the current trend, highlight overbought and oversold extremes, and give early warnings of a trend change.

"The Relative Strength Index (RSI) is such an indicator, offering the best of all worlds," said Cardwell, president of Cardwell Financial Group, Inc., based in Woodstock, Ga. The RSI "is the cornerstone of my trading model," he said.

"In the lectures and workshops I have given, I have shown how the RSI can be used as either a completely independent trading model or an addition to and enhancement of a trader's current technical approach. I use it as a completely independent model to identify trend, support and resistance, overbought/oversold levels, divergence, trend change, reversal and price targeting."
Cardwell said most traders who use the RSI focus their attention on trying to identify bullish and bearish divergences. He said basic price and momentum divergence can and does help to identify extreme overbought or oversold conditions in market momentum.

"However, most traders fall prey to the concept of divergence and see it as the end or reversal of the prevailing trend of the market. All would be right in the world if markets were to reverse from simple divergence. But there are times when sentiment and momentum are so strong that the market continues to make new highs (or lows), which will keep the RSI at overbought (or oversold) levels for extended periods of time.

"Momentum and price corrections, when they do materialize, are usually sharp and swift. After these brief respites the market is then ready to resume its normal upward (downward) trend. With each successive new high (low) and divergence formed, anxious traders are ready to call for a top (bottom) and reversal of trend. However, in strongly trending markets, multiple divergences can and do develop, which only lead to corrections of the overbought (oversold) condition of the market.

"If a trader attempted to take positions based solely on divergences, he or she would need deep pockets and eventually exhaust his or her trading capital," said Cardwell.

While Cardwell takes note of divergence, he said that only shows the market is overextended and needs to correct the overbought or oversold condition. Even though the RSI is considered a momentum oscillator, he said it has more values as a trend-following indicator.

"One of the guidelines I have established for myself is to identify a range for uptrends as well as downtrends. As the market trends higher or lower I will adjust the normal range of RSI (70-30) to account for the shift in market momentum and bullish or bearish sentiment on the part of the traders. The fact that this adjustment needs to be made in the range of RSI is one of the first indications that the market is undergoing a trend change."

The ability of a trader to recognize a trend change quickly, reverse a position and trade in the direction of that next trend is the skill that traders must develop to be successful, said Cardwell. "By having a position in tune with the trend, the trader will have the opportunity to participate in the bigger market moves, which generate larger profits."

Cardwell has what he calls "Three Keys to Success: have a trading program, patience and discipline."

Jim WyckoffTradingEducation.com

Why Would Anyone Give Workshops if They Can Trade Well?

In a recent article entitled, “Some Will Love You and Some Will Hate You, So What!” I talked about someone on an internet forum asking if he should attend a Van Tharp workshop. People, who had obviously not attended a workshop or were not students of any of my work, were quick to respond with very negative comments. That article was my response to those comments, and it prompted a wealth of positive and supportive feedback from so many of you, which my entire staff and I appreciated so much (I've included a link at the end of today's article if you'd like to read some of those). However, there was one last comment on the forum I mentioned that I wanted to address separately. The comment was “Why would anyone give workshops if they can trade well?” To me that addresses what my life is all about and I wanted to devote a separate article to it.

I've already responded to this statement to some extent in the last article. I love helping people and that's my calling. And I have great coaching skills. However, there is also an underlying presupposition behind the statement (and understanding presuppositions is a major part of understanding NLP). That presupposition is that money (or trading) is the most important thing in the world and why would anyone do anything else.

We've actually found that good traders do not value money that highly, or at least, it is not one of the major reasons that they trade. They trade because they want to be the best or because they love it. Those who trade for the money usually have a very difficult time. And if you'd like to understand that better, then I strongly recommend that you work on my Peak Performance Course.

I actually started this business because I wanted to help people transform. I found that the best traders tend to live very balanced and happy lives. Furthermore, you had to deal with psychological issues right up front if you ever wanted to be an effective trader. Otherwise those issues would constantly find a way to bite you. And as I started coaching people, I watched their lives change for the better and that's what drove me.

So I could actually change that statement around. To me it makes sense to ask, “If you can transform people's lives and help them become the creators of what they want, why would you want to trade?” But that really illustrates one of the key points that we teach. You really need to find your purpose in life and if you want to be successful as a trader, then trading has to be part of that purpose.

At one point in my life, I regarded a hedge fund manager, who I had been coaching for nearly 10 years, as our model trader. I'd worked with him and his family and his employees during that time. Everyone seemed to love him. And when I told him about my mission of helping people change, he said to me, “Van, I transform lives too, by making people a lot of money.” And based upon what I was seeing, I believed him and that got me off track. I started to think, “How can I help people make a lot of money – including those who don't seem to follow my advice?” When you get off track from your purpose, the universe has a way of correcting things. It turned out that this client was a fraud, running a ponzi scheme, which appeared on the cover of Barrons Weekly magazine in early 2000. Even being a psychologist with prior training working with sociopaths, I didn't see this one coming at all. My mistake cost me a lot of money and a lot of heartache. But I also realized that I'd gotten off my purpose, which is to help people transform their lives through a financial metaphor. I think we've now gotten back on track and great results are starting to pour in.

What we really do is work with those people who are receptive to doing the necessary work and who believe in what we do. Those are the people who love us and our goal is to help them transform their lives. And we have a lot of them.

When I realized that I was going to write this article, I asked some of my Super Traders (especially those who were nearly finished or had finished) to write a paragraph about their experiences in the program and, most importantly, what they thought Van Tharp's purpose was in teaching them. Here are the responses I got.

Rick Freeman was the first person to enter into the new Super Trader program. He has completed the program plus a one year extension and this is his comment.

I am currently finishing up my Super Trader program with Van Tharp and IITM that has spanned the last three years. I felt it was worthwhile and useful to point out what I think Van Tharp and IITM are all about as I reflect on the completion of my program. While IITM holds itself out as a source for high quality trading education, which it clearly provides in my opinion, I believe Van's primary mission is to help individuals achieve personal transformation and he teaches it through the financial metaphor of trading. I am living proof that Van is not only fulfilling that mission, but he is also helping others achieve success in their lives that they may have only dreamed about in the past. Not only have I gone from being an unprofitable trader to a consistently profitable trader, which is largely credited toward the education and insight I have gained from Van and IITM, I have also created a completely new life over the last two years as a result of the personal work I did in the program. I went from being the typical corporate employee, burnt out on the job and miserable in general, to now being infinitely wealthy and owning my own company as I pursue my dream career as a professional trader and real estate investor. My family and I couldn't be happier and it was all made possible by the work I did with the help of Van and IITM, once I committed to do so. I think it's important to point out, though, that while Van and IITM can put an immense amount of resources at your disposal and help you learn how you can change your trading results and your life, it is still up to the individual to commit to the change and the work required putting those efforts to gainful use. For those that are up to the challenge and truly committed to producing enormous results in their lives, I couldn't speak more highly of IITM's offerings as a means to doing so. I am eternally grateful, not only for how they have helped me in my trading, but more importantly…how they have helped me truly create and live my dream life.—Rick Freeman, Palm Harbor, FL

Ed Pomicter is a physician who is just about to complete the program. Here is Ed's comment on the topic at hand.

I first attended a Van Tharp/IITM workshop with the goal of improving my trading and investing. What I found, after that one workshop, was that Van could help me have a happier and more fulfilling life. The change in me, as a person, was something that my wife noticed immediately. I eventually joined the Super Trader Program, now with the goal of learning the skills to take myself to higher and higher levels of happiness and achievement. Trading is certainly a part of this, and the freedom that trading affords me to create the life that I want is tremendous. My training with IITM has made me a much better trader in terms of profitability, consistency, and the ability to continually improve my skills. The real benefits of working with Van and the whole IITM staff are much greater than my trading. The personal growth, the change in how I view the world and my part in it, the happiness in my heart, the fearlessness with which I approach each day, the generosity that I share with others, the patience with which I parent, and the honesty with which I relate to myself and my wife have all grown tremendously. And I was a pretty together, successful and fun person to begin with!

My view is that if someone is looking for a “trading guru” who is going to tell them how to trade, look somewhere else. If you are looking for somebody to help you really understand trading, understand your role in your trading, improve your ability to perform as a trader, and who can teach you the skills to take yourself up a level or two or more in every area of your life, I would say that IITM is the place to go. In all of my education, from elementary school through medical school and residency, I learned more truly important, useful, and powerful information and skills through my work with IITM than anywhere else. —Edward Pomicter, MD , IITM Super Trader, PLC Owner, Count de Monet, LLC

This statement is from a Super Trader who also is about to finish his program. I have not given his name because of the steps he is about to take.

The financial markets have infatuated me from the first time I bought a bond as a young boy. Ever since then, I have played in various markets though I shied away from a financial career because I wanted a fuller life than primarily pursuing mammon. Then I read The Market Wizards where Dr. Van K. Tharp said top traders didn't view money as important. Really! Then what was it about for top traders? Studying Van's material over these last few years has led me to understand how responsibility, psychology, and beliefs underpin my trading results. Now I also appreciate that emotions such as gratitude, love, and forgiveness affect how well I trade. Van and his staff have helped me transform not only my trading but my life. Most significantly, I am about to leave a desirable position at a highly regarded company and trade independently for a living. Such a move would have been unthinkable before Van's work helped me comprehend my nature, my place in the universe, and the practice of excellence in trading. For this, I am deeply grateful.

Here's some final input from Robert Morton, who joined the Super Trader program last year. I think his input is important because it really emphasizes what I think IITM's mission is.

It is certainly true that IITM is an educational company that provides very powerful information on the keys to trading success. Examples of which are position sizing, business planning, system design, etc. However to view it wholly as an information imparter, like many educational pursuits, I believe is missing the point. Throughout every element of IITM's courses & materials there is a culture of asking the participant much broader questions. Questions that view trading from a more holistic perspective, inseparable from other aspects of ones life such as health, relationships, spiritual development, etc. This is often weighty stuff but the results of being confronted by these broader topics can be the catalyst for powerful paradigm shifts.

Personally speaking, this process has already had a significant and positive impact on my life, and I am far from completing my two year program. An example of the shifts would be in relation to my goals. When I started with the objective of becoming a successful self-employed trader my goals were all monetary, literally percent signs and dollar signs. Now, through exposure to these broader questions, I am aware of my life purpose. A natural consequence of that realization is that my trading life is much more congruent with my overall mission and surprise, surprise, the profits are there, too!

IITM does not affect change to my circumstances, nor does it even affect change to me directly; however, what it does provide in a structured and supportive environment are the tools for me to affect change to myself as I choose. To sum up I would say that IITM provides no answers but asks exactly the right questions. For that I am eternally grateful and look forward to continually redefining myself in how I choose to answer those questions.

Quite frequently we get statements from those of you who have taken our material to heart, telling us about the profound changes that you've made in your lives and thanking us. I'm sure it's part of what motivates my staff to do what they do and it's the juice that keeps me going. I can't ever imagine retiring because I just love doing this. And your personal transformations are what it's all about for me.

Dr. Van K Tharp TradingEducation.com

How to Handle a Losing Streak

A trader emailed me a while back, asking for some advice on a good money manager for him. He said he was a "lousy trader" and tired of losing money.

I doubt there is one non-rookie trader reading this story who has not experienced at least a small run of poor performance in trading futures. I've said before that most successful veteran traders have more losing trades than winning trades in any given year. The key is maximizing profits on the winning trades and minimizing losses on the losers.

I will also argue that at one point or another in most traders' experiences, they, too, have felt like "lousy traders." I certainly have. (Those who say they have never had a run of poor trading performance or felt "lousy" about a trade or trades are likely either lying or completely out of touch with futures trading reality.)

So what's a trader to do when losses start to pile up and winners become scarce. Here are a few tips that I've picked up over the years from some of the very best traders in the business:

Don't overtrade. If you are trading several markets and not having any success, cut back to trading one or two markets. You can follow fewer trades more closely and document your success or failures more easily. Plus, your trading account won't be drawn down so quickly.

Keep a detailed trading diary. If you keep a good trading diary, you can go back and see if there is a common thread among your losers--and your winners, and possibly make the proper adjustments.

If you are not trading that many markets and still racking up losers, take a break from trading for a while. Gather your thoughts. You may want to "paper trade" for a while to get your confidence back. Then, if you are still losing on paper, you will want to look for other trading methods.

If you are losing money trading, DO NOT (I REPEAT) DO NOT try to make a big home-run-type trade that will get you back to even or the plus side in a hurry. In fact, do just the opposite. Make smaller trades that risk less capital, until your performance starts to turn around and you can resume your normal asset allowances for trades. Successful traders survive the rough waters by hunkering down and being conservative.

Exhibit patience and discipline. I've preached about this before. Are you following a trading plan that you devised before you put on the trade? If not, you should be. You are not shooting from the hip (no exit strategy in place) once a trade gets initiated, are you? If so, that could be part of your problem. On the patience issue, are you impatient? I've talked to successful position traders who may only trade a few times a year, because they wait for what they feel is that "perfect set-up" to occur. If you are a position trader (as opposed to a day trader), you don't have to be "in the market" all the time. Wait for the good trades to develop and don't chase markets.

Be confident. Have faith in your trading methods. And if you don't have faith in your methodology, why don't you? If your methods are really not successful, find something else. Read some of the many books out there by the successful traders, and how they have traded successfully. But be cautious of the person who wants to sell you some so-called successful trading method for big bucks. (See the next item on hard work.)

Work harder. Don't expect to produce winning trades if you are not working very hard at trading. Do you know well the fundamentals of the markets you are trading? Even if you know technicals well, you should have at least a good understanding of a market's fundamentals. Here's an example: Let's say the charts and technical indicators look bullish for corn and it's the day before a major USDA report. Smart traders likely won't initiate a trading position in corn the day before a big government report is out.

In case you're wondering what I told the reader who emailed me and told me was a "lousy" trader, here's what I said: Don't give up just yet. The fact that he admitted he needed some help (before he lost all of his trading assets) is a positive first step. I then told him I would write this feature because there were likely many traders who feel the same way, at times, that he feels, and that there are steps to take on the road to recovery and eventual successful trading.

Jim WyckoffTradingEducation.com

Top 10 Mistakes Traders Make

Achieving success in futures trading requires avoiding numerous pitfalls as much, or more, than it does seeking out and executing winning trades. In fact, most professional traders will tell you that it's not any specific trading methodologies that make traders successful, but instead it's the overall rules to which those traders strictly adhere that keep them "in the game" long enough to achieve success.

Following are 10 of the more prevalent mistakes I believe traders make in futures trading. This list is in no particular order of importance.

1. Failure to have a trading plan in place before a trade is executed. A trader with no specific plan of action in place upon entry into a futures trade does not know, among other things, when or where he or she will exit the trade, or about how much money may be made or lost. Traders with no pre-determined trading plan are flying by the seat of their pants, and that's usually a recipe for a "crash and burn."
2. Inadequate trading assets or improper money management. It does not take a fortune to trade futures markets with success. Traders with less than $5,000 in their trading accounts can and do trade futures successfully. And, traders with $50,000 or more in their trading accounts can and do lose it all in a heartbeat. Part of trading success boils down to proper money management and not gunning for those highly risky "home-run" type trades that involve too much trading capital at one time.
3. Expectations that are too high, too soon. Beginning futures traders that expect to quit their "day job" and make a good living trading futures in their first few years of trading are usually disappointed. You don't become a successful doctor or lawyer or business owner in the first couple years of the practice. It takes hard work and perseverance to achieve success in any field of endeavor--and trading futures is no different. Futures trading is not the easy, "get-rich-quick" scheme that a few unsavory characters make it out to be.
4. Failure to use protective stops. Using protective buy stops or sell stops upon entering a trade provide a trader with a good idea of about how much money he or she is risking on that particular trade, should it turn out to be a loser. Protective stops are a good money-management tool, but are not perfect. There are no perfect money-management tools in futures trading.
5. Lack of "patience" and "discipline." While these two virtues are over-worked and very often mentioned when determining what unsuccessful traders lack, not many will argue with their merits. Indeed. Don't trade just for the sake of trading or just because you haven't traded for a while. Let those very good trading "set-ups" come to you, and then act upon them in a prudent way. The market will do what the market wants to do--and nobody can force the market's hand.
6. Trading against the trend--or trying to pick tops and bottoms in markets. It's human nature to want to buy low and sell high (or sell high and buy low for short-side traders). Unfortunately, that's not at all a proven means of making profits in futures trading. Top pickers and bottom-pickers usually are trading against the trend, which is a major mistake.
7. Letting losing positions ride too long. Most successful traders will not sit on a losing position very long at all. They'll set a tight protective stop, and if it's hit they'll take their losses (usually minimal) and then move on to the next potential trading set up. Traders who sit on a losing trade, "hoping" that the market will soon turn around in their favor, are usually doomed.
8. "Over-trading." Trading too many markets at one time is a mistake--especially if you are racking up losses. If trading losses are piling up, it's time to cut back on trading, even though there is the temptation to make more trades to recover the recently lost trading assets. It takes keen focus and concentration to be a successful futures trader. Having "too many irons in the fire" at one time is a mistake.
9. Failure to accept complete responsibility for your own actions. When you have a losing trade or are in a losing streak, don't blame your broker or someone else. You are the one who is responsible for your own success or failure in trading. You make the trading decisions. If you feel you are not in firm control of your own trading, then why do you feel that way? You should make immediate changes that put you in firm control of your own trading destiny.
10. Not getting a bigger-picture perspective on a market. One can look at a daily bar chart and get a shorter-term perspective on a market trend. But a look at the longer-term weekly or monthly chart for that same market can reveal a completely different perspective. It is prudent to examine longer-term charts, for that bigger-picture perspective, when contemplating a trade.

Jim WyckoffTradingEducation.com