I am excited to announce John Brasher of CallWriter.com will be holding a very exclusive Seminar Next month in Florida. I’m sure this will be a VERY rewarding event to attend, at least for those few that get in early enough. Please click on the graphic above for complete details.

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Friday’s session opened slightly below Thursday’s close and right at trend line resistance and traded vigorously down to form a Bearish Harami on low volume.  Price is now just above the 50 day sma.  If the dow breaks this major moving average, the next stop is strong support between 11340-11380.  Volume will be returning to the markets and we have a full economic calendar this week that could move the market.  Hurricane Gustav could have a major impact as well as reaction to McCain’s VP pick and the Republican National Convention.  Look for the Dow to be be bearish this week.

The SPX is in a trading range between 1267 and 1317.  The trend line which was formerly support is now acting as resistance.  We feel that there will be selling pressure driving the index lower this week.  Let’s see how the market reacts to this week’s economic reports as well as Gustav and the RNC.  Watch for breakout from consolidation.  If that happens with gusto (volume)  that will be significant.

The NDX is resting right on the 50 day sma and has exhibited a very bearish picture.  We have a bearish 3 day candlestick pattern and bearish crossovers on the RSI, MACD and the 5/20 EMA.  If the NDX breaches the 50 sma with conviction, the next stop could be 1825.  We’re short here.

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Why does she do what she does?! Traders like Gerdie don’t have the confidence that they can consistently win in the market. When these types of traders find themselves on the right side of the market, they stay too long trying to squeeze every last penny out of the position. The “Greedy Gerdies “of the trading world also have a tendency to not trade a diversified portfolio. They put all of their eggs into one basket and watch that basket very closely. However, to Gerdie’s credit, she has a trading plan. Having a plan sets her apart from a majority of traders. The problem is that the plan is not well thought out.

Gerdie’s five step trading plan:

1) Turn on the computer

2) Find a stock that has a catchy ticker symbol

3) Hit the buy button

4) Hope and pray

5) When the trade is working, make as much as possible

Gerdie is currently ruled by her emotions. She is undisciplined and has no plan for success in the stock market. She is random in her approach. So, how can we possible help this lost soul?? Here is Robin’s elixir for Gerdie:

1) She must have a TRADING SYSTEM

2) Gerdie must not deviate from the RULES OF THAT SYSTEM

3) It is imperative that Gerdie have PREDEFINED ENTRY AND EXITS in order to eliminate fear and greed

4) Gerdie must DIVERSIFY her portfolio and pay special attention to POSITION SIZING

5) Gerdie must resist playing the HOLY GRAIL GAME. No system is perfect. Find a system that works for you and stick with it.

Well another hard day working for the rights of the common man This Robin hood gig is not all that it’s cracked up to be. I have to try and keep “Little John” under control and sometimes he can be a real pain in the Tunic. By the way, stop by and visit the “Merry Band of Traders” at www.MarketTamer.com. They have a plan for your stock market success. See you next week. Robin

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What’s the fix for Bob!?

1) Bob needs to take some “humility pills”. These pills are hard to swallow. They are large and bitter. He needs to brutally evaluate his trading account and assess his decision making. Bob needs to come face to face with the diminishing value of his account. I would suspect that he is fooling himself into thinking that he is a profitable trader.

2) Next, Bob needs to embrace the fact that those who are successful in the market put their egos aside and are not afraid to admit when they are wrong. In fact, the hallmark of a successful trader is one who has the ability to recognize when a trade has gone wrong and the flexibility to modify the trade.

If Bob were driving his car on a steep, treacherous, winding mountain road with no guard rails, would he take the turns at a slower speed or would he test his ability to make the curves with no regard for the conditions? It’s hard to say. The answer may be closely correlated to his risk tolerance.

Let’s now add another factor; it’s winter and the roads are covered with ice. Driving under such conditions requires great skill and concentration. Most people would not even attempt to drive at that point unless it was absolutely unavoidable. However, Bob – having already chosen to navigate this icy road at this time – is not about to stop, or to adjust his speed. To do so would be to admit that he was wrong. Bob is now an accident waiting to happen. Bob needs to modify his behavior and decision making to realize that the road conditions have changed. He needs to either get off the road or at least put on some tire chains and slow down.

To be quite blunt, no one really cares about whether Bob is right or wrong, unless they are unfortunate enough to be riding with him. He does not impress anyone. Usually, the “Boastful Bob’s” of the world are the largest losers in the market and the canyons are littered with the wreckage of those that have careened off the steep mountain roads of the stock market. Come sit around the fireside with us in Sherwood (www.MarketTamer.com), we can help you find the right road and if conditions change, we can help you understand and apply modifications that will keep you on the road and out of trouble.

Speaking of driving, “Will Scarlett” one of my “Merry Band of Traders”, was supposed to give me a lift back to Sherwood and he’s late again. It looks like I’m going to have to thumb a ride back. I’ve had enough of relying upon others for my ride. Besides, “Will” drives much too fast for my taste anyway. Until next week. Robin

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Last week, I suggested a few things that “Reckless Rhonda” could do to become a better trader. Today, I am continuing my commentary on trading personalities with a look at “Fearful Freddie”. Let’s do an “instant replay “on Freddie. He knows every metric known to man regarding any stock you want to talk about. He can discourse on the “hot sectors” and all of the stocks in the news. Freddie is encyclopedic in his knowledge; trouble is, he is a miserable trader. Freddie is afflicted with “analysis paralysis”. However, Freddie occasionally catches a winner but he gets so nervous when he is on the right side of the trade that he doesn’t want to go home a loser so he cuts his winners short. He simply does not give the trade time to work. That mindset completes the self fulfilling prophecy that he is a loser and as a result, he is a loser. Freddie knows a ton about fundamentals, technical analysis and trade strategies, he just can’t execute. However, he has been a tremendous resource to others; he just can’t seem to do it himself.

The two emotions that will decimate a trading career are Fear and Greed. Freddie is fear’s poster child. He epitomizes the fearful trader. So why is Freddie so fearful? He’s been burned before and has felt the sting of defeat. Why does he continue to trade? Well, he has all of this knowledge about the market and trading, so much so that his peers regularly seek him out for advice. It would be a shame to waste all of that. In the meantime, his trading account is shrinking steadily.

Fear emanates from not knowing what the future holds and being unsure of outcomes. If you are informed of the possible outcomes, then fear diminishes. One who is confident of possible outcomes will be trading with little or no stress. Unproductive emotions are disarmed and your path is well defined and known. Freddie is regularly “shaken out” of positions. Freddie regretfully witnessed many of his hasty and fearful exits turn into winning trades. The “smart money” crowd has preyed upon the likes of Freddie. Is there any hope for Freddie!? The answer is a resounding YES!

My prescription for Freddie is

1) Begin with prudent money management and strategy diversification.

2) Test the waters with small positions and defined risk trades.

A good example would be a high probability out-of-the-money credit spread like a bull put. This position incorporates selling a put comfortably away from price action and limiting risk by purchasing a put below the short put in the same expiration month. The trade should be placed in the current month or the next month out in order to take advantage of time-decay. The bull put has a defined reward (the credit) and a defined risk (the difference in the strike prices minus the credit). The bull put credit spread can make money if the stock goes up, remains neutral or even if it goes down a little. The position does not require constant vigilance. This is “end of the day” trading so Freddie does not have to watch the computer all day and get sick to his stomach on every tick of a one minute chart. Therefore, we have to a great degree removed directional trading from the picture. The trade can be structured with a high probability of success and with a defined exit.

Now Freddie is less fearful because we have removed the unknown. He knows his reward (the credit). He knows his risk as defined earlier and he knows his exit. The market defines his exit on options expiration day, the Saturday after the third Friday of the month. The trade can be very mechanical in its execution with very little left to discretion and emotion. However, what if the stock were to go dramatically bearish? OH NO!! Freddie is “pitching his cookies” What do we do now!! “The Merry Band of Traders” AKA www.MarketTamer.com, has a quiver full of arrows (adjustments) for Freddie so he can modify this trade or any trade for that matter to stay on the winning side of the market while eliminating Fear and Greed. We’re launching September 1^st, so drop by and pay us a visit.

Well, Lady Marian just pinged me on my Blackberry and she wants to grab a burger and fries, so I’ve got to go. They just opened a new “Red Robin” on the edge of Sherwood so we’re going to give it a go. “The Merry Band of Traders” and I will see you next week.

Robin

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We are going to delve into each of the four personalities in the next several weeks and see if we can help them be better traders. We’re going to start with “Reckless Rhonda”. You may recall that Rhonda is a person of extremes both in her trading life and her personal life. She likes to make decisions on intuition. Rhonda plunges into things without a lot of forethought. If we look closer at Rhonda, we find that she likes the adrenaline rush of trading. To be blunt, she is a gambler. Sometimes, in her heart of hearts, she wants to lose in order to confirm her negative feelings about her inability to be effective in the stock market. The due diligence that should occur before trade entry is, frankly, not being done because it’s boring to her.

So, how do we help Rhonda?? Well honestly, there may be a more deep seated reason that Rhonda trades the way she does. Maybe, she doesn’t have the patience to research company and market fundamentals. Maybe, she doesn’t know how, but more likely, she just finds it unproductive and tedious. Rhonda has some tools to be a good trader but lacks discipline. If she could develop better habits, there is a chance she could begin to experience success. My opinion is that it would take a monumental effort to change deeply entrenched bad habits and impulsive behavior that has been so evident in her trading up to this point. So, faced with the choice of continuing down the same path of unsuccessful trading, in my mind, she has two choices 1) Quit trading and go to Las Vegas to get the adrenalin rush or 2) “Outsource”. What do I mean “Outsource”? As a trader, you are a business person and as such should have a business plan. (a discussion for another article) That business plan more than likely calls for the trader wears many hats. Successful businesses have specialists with expertise in various areas such as accounting, sales, IT, and marketing. It is fairly evident to me that Rhonda can’t do it all. She needs to outsource the due diligence part of her business plan. Blasphemy you say!? When confronted with the choice of continuing to fail and yet realizing a viable alternative, I think it makes sense to get the help. It appears to me that Rhonda is miscast as a stock analyst. There are several credible subscription websites that offer market and stock analysis.

OK, so we have solved the due diligence part of the formula, what about the adrenaline junkie piece of the story. To begin with, adrenaline and trading don’t go well together. We have already pointed out that world class blunders are made when in that state of mind. Maybe what we need to recognize is that Rhonda absolutely craves the “thrill of the trade”. Once again, I see two choices, 1) Ten years of intense therapy to try and eliminate the negative behavioral patterns “LOL” or 2) accept the fact that “trade thrills” need to be part of the game plan. (Don’t fight the tape) My suggestion for Rhonda is to allocate a very small portion of her portfolio to trade as “Mad Money”. Sorry Jim C.. No pun intended. Most successful traders come to realize the importance of seeing situations as they are and addressing issues head on. In Rhonda’s case, I suggest the situation be seen “as it is”. Don’t avoid it. Adjust, modify and allow a little bit of the portfolio for foolishness. Great traders are never “all in”, they diversify, they scale in and out of trades and they adjust. That’s what we are doing by modifying Rhonda’s approach to the markets. Remember, as mentioned last week, keep a trade journal.

Well, time to head back to Sherwood. Little John told me just the other day he was getting fed up with those Naked Short Sellers so I need to try and calm him down. I’ve learned not to get Little John ticked off. It’s just not a smart thing to do.

Robin

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Reckless Rhonda-

Rhonda is an interesting sort, she fancies herself as being a highly successful trader and when she is right, she’s on top of the world. However, when she’s wrong, she’s really wrong. There is no in between with Rhonda and as such, she is prone to large financial and emotional swings. Due diligence is foreign to her, she just goes on gut feeling. There is no consistency to what she does. The bottom line is when she does win, it’s brief and fleeting. She plunges into trades to try to recover her loses and most of the time it doesn’t work out.

Fearful Freddie-

Freddie does so much research that he probably knows as much about the company as the CFO or CEO!. He understands the market or so he thinks. He is an academic sort of guy but he is not a successful trader because he has difficulty “pulling the trigger”. When Freddie does enter a trade, he can’t let it work and he is easily “shaken out’ of his positions if the trade does go the way he thinks it should. As a consequence, he often will see trades that he has exited prematurely end up being winners but he isn’t around to reap the rewards.

Boastful Bob-

Bob is never wrong about much. He has to be right on most subjects. As a result, Bob will refuse to let a losing position validate that he is wrong. He will ride that loser right into the ground rather than admit he was wrong. Finally, he’ll get out because the pain is just too much to bear. He’ll never let you know he was wrong, so he’ll suffer the internal conflict of the loss alone. Bob finds it nearly impossible to cut losses or to make adjustments to losing positions. By the way, Bob is a big time loser in the stock market.

Greedy Gerdie-

Gerdie stayed at the party too long. Many times she had a nice gain but she just wanted to milk it for a little while longer and “BAM” the position totally reversed and she not only lost the gain but she ended up in the red. She tells her friends about the one that got away and “if or shoulda” unfortunately doesn’t make us money in the market s. So Gerdie swears that next time “I’ll get out when I have a profit”. Gerdie has now learned her lesson and on the next trade she’s not going to let this one get away so she exits the trade with just enough profit to pay for the transaction costs and the bid/ask spread. Her broker loves her because he’s the only one making money. Gerdie is now losing her confidence and wonders if she can ever make this work.
These are only a few profiles of trading personalities that populate the markets many more exist. What kind of a trader are you? I am going to give you a gold nugget and it may sound pretty basic but what I’m about to say could save you trading career. KEEP A JOURNAL. I t doesn’t have to be a gold embossed diary. A memo pad will do quite well. Date it every day and record your actions and thoughts. You will find it to be very revealing and you will begin to see patterns in your trading behavior.

Well that’s it for now. I hope it was helpful. It’s time to head back to old Sherwood Forrest to rejoin my “Merry Band of Traders”

Good Trading , Rob

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