Free Tutorials In Disciplined trading
Tutorials/lessons on trading strategies, stock investment, investment strategy, systems & tactics of buying and selling, stop-loss strategy, charts & indicators, support & resistance.
Disciplines and Strategies
A single Strategy is not nearly enough. You need several Strategies. A single Discipline is not enough. You need a variety of Disciplines. You must develop your disciplines around flexibility. The market changes constantly. Its biases change. At one time it favors momentum investors, and at another time it hammers them. Your rules for buying and selling must be adaptive. If you develop disciplines that are adaptive to the varying whims of the market, and your strategies are suitable to the prevailing market climate, you will prosper. Consistent profitability in the market is not about how you "feel," or about the fact that a company has a great "story" and that its stock should go up. Emotions have no place in the equation. Study to learn tactics and tactical considerations. For example, what are the implications of a "hanging man" candlestick formation after a long uptrend? What tactics are worth considering in the placement of rising stop-losses relative to a rising trendline for a volatile stock as compared to a less volatile stock? Remember that there is either a person or a computer on the other side of every trade you make. That person or thing is betting that you are wrong. What tactical difference would it make in the placement of your stop-loss if a stock's pattern suggests the stock is frequently "gunned" near the trendline? A stock is "gunned" if a specialist sees a group of sell orders (perhaps stop-losses) just below a trendline and he forces the stock down by dumping some shares in order to buy up the shares offered for sale at the lower price so he can resell them later at a higher price. This is more likely to happen if the stop loss orders for those shares are set too close to the stock's current price. If this is a pattern for a particular stock, how would you approach the problem? What tactics do you use to buy breakout stocks? Do you buy on the breakout, wait for a pullback, or wait for a pullback and bounce? Even though it takes time, work, and some losses to develope your skills as a trader, you will find that it can be a very interesting and even a fun way to make a living. Think of it as the world's largest computer game. The money in your account is how you keep score. Even a beginner can hold his own if he is careful. There are a lot of people in the market who have no discipline, strategy, or self-protection systems. Protect your portfolio with a good stop-loss system. Do your homework. If you do these two things, you will be way ahead of most of the people in the market.
Discipline implies "teach" & "train." You are not disciplined if you do not study to learn from your mistakes and modify your behavior accordingly. Discipline means to govern. You have no discipline until you learn to govern your emotions. Discipline can involve chastening. The market will do that for you if you do not exercise the other meanings of the word. If you are disciplined, you will regulate your behavior so that you do not deviate from your planned procedures. A Disciplined investor or trader will combine lessons the market has attempted to teach him with lessons gleaned from his past behavior to provide self-generated tutorials that will lead to success-generating behavior.
Strategy suggests at least a general plan. However, to be a consistent winner (which does not mean always winning) you need more than simply a generalized plan. Successful stock market strategies are more complex than that. You need a detailed blueprint that is designed to gain you an advantage over other participants in the market. "Strategy" involves adapting means to desired ends. To this end, real strategies must incorporate at least some general rules of behavior. Think of your strategy as the skeleton of your enterprise. Think of your "system" as the organs, muscle, and ligaments of your enterprise. Your strategy maps out the general structure of your endeavor. Your system gives life to it.
A "system" is more defined than a strategy. That is, a system has many subsets of rules that address various contingencies. Like the ligaments of the body, these subsets work in concert with each other to support the goals of the enterprise. However, "system" often implies more than a set of rules. The term may be expanded to include external support systems. That is, the word may include the set of rules, tools, indicators, and formulas that tell the trader what market actions to take. Top traders learn the rules of their system like a student of karate practices his katas (combinations of positions and movements) so that they become automatic responses in a combat situation. Similarly, all the rules of your system must be learned so that your behavior becomes automatic. Otherwise, the danger is that emotion will overrun your rules. A so-called "system" without contingency rules is not a real system in the sense of being a money-making blueprint. Without a system to give life to your strategy, your strategy is dead.
Discipline, Strategy, and System These three are the triumvirate that will lead you to success in the market. Your overall "strategy" will be made up of various sub-strategies that define your general approaches to investing under various market conditions. Will you look for breakouts, gaps, surges, use stop losses, or sell short? Your system consists of the set of rules and procedures you will follow to carry out your strategy (an example would be the set of rules in R.C. Allen’s triple moving average system). The meaning of "discipline" can also envelop the whole package or overall structural matrix of your enterprise. However, for our purposes here, we will define discipline to be what holds your system and strategies together. It is the persistence, care, and accuracy with which you implement your set of rules. Without discipline, you will not follow your own rules because the market will defeat you psychologically. Without the correct implementation of your system, you really are not in possession of an effectual strategy. You may have a strategy of buying stocks that have certain behavioral characteristics. However, no strategy is fail-proof and all people make mistakes. Effective systems deal with possible failures. At any given time, there should be a well-defined answer to the question, "How will you deal with each type of failure that could occur if you take that position?"
We hope you find these discussions (they are actually small tutorials or lessons) to be informative. Some of these are mini tutorials on various technical indicators that we have found useful and that we may refer to in our larger discussions, lessons, or tutorials. We expect this list to expand over time.
The tutorials vary widely in sophistication. However, we will work on the basics at first. We are aware that many visitors are beginners. There is no particular order or progression as you move from one tutorial to the next. We will simply discuss a variety of issues in a variety of ways. Some of our content will be taken from our Strategy Updates and other communications that we had with clients when we were managing investment accounts. Bear in mind that those accounts were not "trading" accounts. However, we believe that "traders" and "investors" differ primarily in the length of their holding period and in the amount of risk they are willing to tolerate. To us, holding on to a declining position after it has broken support involves more risk than selling it and moving on to something more promising. "Traders" and "investors" can learn from each other. They both must master the principles of buying and selling.
Descriptive Index: Tutorial Links
1. To Sell a Stock or Hold--When Is it Time?
2. Stop Losses: Right Way Where and How
3. Stocks Cycle Through Four Phases
4. Buy and Sell Signals of a Moving Average System
5. A Few Notes on Discipline
6. One of Many Disciplines That Can Be Created Using the Valuator
7. The Triple Moving Average Crossover System for Buying and Selling Stocks
8. The Stochastic Oscillator, Chaiken Advance/Decline, and Chande Momentum Oscillator (CMO)
9. Chaiken Money Flow
10. McClellan Oscillator and Summation Index
11. Relationship Between Short-Term & Long-Term Interest Rates: What the Interest Rate Spread Tells You
12. The MACD, its Signals, and the S&P500
13. Stock Buy and Sell Signals With the CCI
14. The Market Bias Indicator (MBI)
15. Prices Relative to "Fair Value" ~ Three Measurements
16. An Outline of Three Strategies for Stock Investing
17. Stop Loss Strategy
18. A Good Intermediate-Term Stock Investment Strategy
19. Looking for Stock Market Signals Is Sometimes Like Predicting the Weather
20. Introduction to The Disciplined Growth Strategy
21. Investor or Trader?
22. Here are Illustrations Showing Stock Alerts and "Setups"
23. A Test to Find the Best Moving Average Sell Strategy
24. The Probability of a Stop Loss Being Triggered
25. The Market is Rising but Stocks Keep Breaking Down
26. Do You Sell or Hold After Your Stock Has Dropped?
27. How to Invest When Stocks Keep Breaking Down
28. Information You Need to Know About Your Mutual Fund (You Really do Need to Know Your Mutual Fund)
29. An Intermediate-Term High-Performance System
30. Small Losses Are the Mark of a Disciplined Trader
31. Control Risk and Loss in the Stock Market
32. Timing the Market for Profitable Stock Investment
33. Diversification and Stop Loss Placement
34. The Best Stop Loss for Long-Term Investors
35. What does "Timing the Market" or "Market Timing" Really Mean?
36. The "Fundamental" vs. the "Technical" in Stock Buy and Sell Decisions
37. Stock Market Investing: Long-Term or Short-Term?
38. The Advantage of Exchange-Traded Funds (ETFs)
39. Short-Term Stock Trends and Risk Control
40. Be Both a Short-Term Trader and a Long-Term Investor
41. Select Stocks by Combining Technical and Fundamental Screens
42. Where to Put a Stop Loss
43. To Trade Stocks for a Living
44. Why Pick Individual Stocks Over Mutual Funds?
45. Risk Control Through Selling and Diversification
46. Bear Market Recovery and Replacing Stock Laggards
47. Stop Losses and Avoiding "Significant" Declines
There are other instructive materials, lessons, or tutorials in various locations on this site. You will encounter them as you browse the site. Links for an additional 50 tutorials can be found in one place by clicking below on "More Tutorials."
Perhaps We Can Enhance Your Performance
The Valuator does not report PE and PEG ratios based on last year's obsolete data. Nor does it try to look ahead a full year (analysts are notoriously inaccurate when they try to estimate a year ahead). Instead, the 1-year earnings estimates it uses for computing PE & PEG ratios look ahead only about 6 months (6 months past + 6 months future). We believe this is far more accurate. Also, the market tends to look ahead about six months.
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