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Trade Less and Make More


Posted By: Steve Burnson: August 23, 2019

In trading more action and time spent watching screens is not necessarily rewarded with more
profits. The majority of the time trading every day and watching every tick in price is not rewarded
by making more money the odds are greater that emotional errors of over activity will be made.

Ed Seykota had some of the best annual trend trading returns for decades and traded strictly
with end of day data. Nicolas Darvas also made millions by only placing trades after the market
close. For small accounts the more you trade the more commissions you pay that can cost you a
percentage of your profits. New traders can be tempted to make bad decisions outside their
trading plan intra-day when watching the market for hours if the desire to to something becomes
too strong. Some of the most profitable professional money managers and traders in history were
trend followers and position traders that executed quantified trend following systems that simply
got on the right side of some trends and stayed there until there was a good signal to exit their
trade.

Trading does not reward the time you spend watching price action or how many times you
entered and exited trades. Over the long term the market rewards right action, following trends,
buying big dips in price during up trends, creating trades with great potential risk/reward ratios,
and your edge over other traders.

Over trading is when a trader takes a trade based on fear, greed, desperation, or ego instead of
a valid entry signal. Over trading is due mostly to wanting to be profitable so bad that impulses
are driving decisions instead of a trading plan. If a trader has an edge over the markets then they
want to take the trades presented to them within their system parameters, the more signals the
better. If a trader takes trades that are not based on robust entry parameters the more trades
they take the quicker they will lose money and have a draw down in capital.

1. For smaller accounts over trading can rack up large commission costs that can eat into
profitability.
2. The bid/ask spread is an expense that pays the market makers. The more you trade the
more you pay.
3. The more you trade the more you can be front run and gamed by High Frequency
Traders. You can beat High Frequency Traders with Low Frequency Trading. You avoid
the intra-day price action noise they feed off of.
4. Trading too much gets you into bad entries when you should have been waiting for good
entries. Entries have to be based on signals and risk/reward ratios not the emotional
chasing of gains.
5. Over trading is bad trading. Generally over trading is the external results of bad internal
self controls. It is the epitome of not having a trading plan, lacking discipline, and not
following a trading plan. Over trading will cause you to lose faith in yourself as a trader
with the discipline to follow a plan. Over trading can lead to mental ruin only take the right
trades that meet your own guidelines and trading plan based on homework and research.
In most professions working more is what makes you more money. If you are paid for your time
the more you work the more money you make. This does not transfer into trading. Over trading
can be expensive in trading losses, losing in the bid/ask spread, and commission cost. The best
trades come when you are patient and wait for the right entry signal and set up. More trading
does not necessarily mean more profits, it is usually means the opposite, losses.

Here are 10 productive things that you can do to improve your trading when the market is too
dull, too volatile, or you are waiting for your entry signal.

1. Back test new entry and exit parameters.


2. Study charts of the best performing stocks in history.
3. Study the charts of the worst market crashes.
4. Study the charts of the strongest bull markets.
5. Look at how your technical indicators perform on charts of indexes and stocks.
6. Read trading books.
7. Learn how to use all the functions in your charting platform.
8. Read great trading blog articles.
9. Listen to interviews with great traders.
10. Chat with other traders.
These are better places to invest your time and energy than forcing trades that just aren’t there
yet. My best trading months and years were when I was letting a winning trade run during a
market trend not setting in front of my computer staring at screens for 8 hours a day.
 HomeHOME CHART PATTERNS WHAT CAUSES AN ASCENDING TRIANGLE PATTERN?

What Causes an Ascending Triangle Pattern?


Posted By: Steve Burnson: August 14, 2019

Click here to get a PDF of this post

Chart Facts:

 The ascending triangle is a bullish chart pattern that usually forms during an uptrend as a
continuation pattern.
 Sometimes an ascending triangle pattern will form as a reversal pattern as a downtrend
comes to an end, but they are usually continuation patterns in an uptrend.
 Regardless of their location during a trend ascending triangles are bullish patterns that
indicate accumulation. The higher lows in the pattern are a clue that sellers are not letting
their position go at lower prices as the pattern makes higher lows.
 The top horizontal resistance line on this pattern holds until the sellers are worked
through and buyers come in at higher prices, this signals a buy signal for the potential
breakout to higher prices and the continuation or the beginning of an uptrend.
 Ascending triangle patterns can be longer in timeframe and wider in range than a flag or
a pennant. The length of this pattern can range from a few weeks to months with the
average lasting for 1-3 months. Many times the catalyst of earnings will trigger a breakout
for a stock.
 Many times volume will contract as the pattern gets near to a breakout. A breakout with
higher than average volume can give a higher rate of success for a buy signal.
 Many times a return to the breakout price level will happen as old resistance becomes
new support for a second chance entry.
 Traditionally the price projection for this pattern after the breakout is found by measuring
the longest distance in the price range of the pattern and projecting after the resistance
breakout.
The below $XES chart shows the horizontal trend line that lasted 6 months around the $16.50
area and the ascending trend line of higher lows that started in the middle of August. The large
candlestick bullish breakout over resistance carried through for a run to $18 and could go farther.
This chart trend could be from the breakout of $16.50 to $20.50 equal for a $4 trend equivalent to
the longest range of the triangle from $12 support low to resistance at $16.50.
Trading for a Living
Posted By: Steve Burnson: August 10, 2019

I first read the original version of this book over fourteen years ago, and it was the book that
finally cemented for me the overall structure I needed to understand all the dynamics of profitable
trading. I have read hundreds of trading books, and this one still stands head and shoulders
above the rest. It explains how to manage the risk, overcome negative psychology, and the
importance of developing and following a trading method with an edge.
I especially like the clarity of the charts in this new edition. Dr. Elder used charts from the
StockCharts.com website, and these are great charts for clarity and easy to use.

If you read and follow the principles in this book, you will make enough money on your trades to
pay for this book many times over. I have been an active participate in the markets for over 25
years, as a trader of trends, and I agree with Dr. Elder completely, having experienced the greed,
fear, and mistakes that he illustrates. Read this book and save yourself a lot of unnecessary
losses of both financial and mental capital.

The first section of this book teaches you the psychology of successful trading:

1) You must be committed to being a trader for the long haul.

2) Learn all that you can, but be skeptical, go with what works.

3) Develop a method for analyzing the market.

4) Develop a plan for proper position sizing.

5) Do not get greedy and rush into trades.

6) Understand that you can be your own worst enemy through greed, fear, and emotions.

7) You must change bad behaviors and bad habits to be a profitable trader.

Dr. Elder explains, in great detail, his own trading tactics and methodology. For example, in the
Risk Management section, he covers the most important strategy of when to exit. He suggests
setting a stop-loss on every trade so you keep losses small. He also emphasizes the importance
of protecting profits with trailing stops as a winning trade goes in your favor, and never risking
more than 2% of your account on any one trade based on your position sizing and where your
stop loss is placed. He also warns against losing more than 6-8% of your account in any one
month, this is a dangerous amount of capital to lose in a short amount of time.

A critical point made by Dr. Elder, is that professionals in any field do not count their money daily.
Traders should focus on their trading, and not their daily profits. Traders should focus on
following their trading plan and let the profits take care of themselves. Dr. Elder’s background in
psychology makes him the perfect person to explain the pitfalls of trading emotionally and without
discipline.

Dr. Elder has written one of the most all-encompassing trading books on the market today. You
will profit from it, whether you are a beginner or an advanced trader. It will make you more
professional and logical, and it will show you that traders are only profitable by trading a winning
method, using risk management, and psychological discipline. This book was one of the most
important and influential for me in my trading as it brought together the importance of what Dr.
Elder calls the three legs of the trading stool. Managing your money, your method, and also your
mind, the three M’s that are required for profitable trading over the long term.
In trading defence is under rated and offense is over rated. Too many new traders want to make
money so bad they don’t even consider the risk of loss when the market becomes very volatile
and plunges.

Here are ten ways to manage risk and limit your losses during market plunges.

1. Your maximum position size on any one should never be more than 10% to 20% of your
total trading capital.
2. Every trade you make should have a planned stop loss price where you are proven
wrong about the trade and must exit.
3. Your biggest loss on any one trade should be no more than 1% of your total trading
capital based on your position size and your stop loss.
4. You should trade with diversified traidng signals: dip buying signals, trend trading signals,
and swing trading so you have a chance to make money in multiple types of markets.
5. The less your positions are correlated the lower your risk of loss at one time.
6. Position size based on volatility not your opinion or ego.
7. Trade in the direction of the trend on your time frame.
8. Realize bull markets have no long term resistance and bear markets have no long term
support and do not get stubborn and hold a position on the wrong side of a trend.
9. Also enter a trade understanding the odds that it can be a losing trade.
10. You must test any trading system through mutiple types of markets: up trends, down
trends, volatile, and crashes to completely understand your risk of ruin.
Risk management can both save you from big losses and eventual ruin during losing streaks.
The most valuable lessons you can learn in trading is how to protect the capital you do have to
give it a chance to both survive and grow.

Why Perfection Is A Bad Trading Goal


Posted By: Steve Burnson: July 30, 2019

Click here to get a PDF of this post

If we want a perfect entry, we will never trade.

If we want a perfect company, we will never invest.

If we want a perfect person, we will never marry.

If we want a perfect job, we will never be employed.

Perfection is not the goal, success is.

A big stumbling block for new traders is the goal of perfection. If you think it is possible to
be right about every trade, every time, and hate to be wrong you are going to have a bad time.
Trading is much like being an entrpreneur, during the creative process you win some and you
lose some. Some businesses are profitable and some lose money and go out of business.
Some trades make money and some trades lose money and profitability really comes from
bigger wins and smaller losses not all wins. Few bowlers every bowl a perfect 300 and no
baseball hitter has every batted over a .410 batting average in a season. Perfection is not
possible because you are competing against the composite of all other traders and investors in
the markets.

You can have winning streaks and be profitable but no matter what you will eventually have
losing streaks and drawdowns, that is just the reality of the markets. Even the best traders in
the world have ‘only’ 50%-70% win rates. Both value investor Warren Buffett and trend
follower Bill Dunn have had +50% drawdowns in there capital and they are some of the best
of all time in their fields and using their methods. There are few delusions greater than
entering the markets with the goal of perfection. Focus on making money with an edge, focus
on a repeatable quantified system.

Accept your losses quickly and maximize your gains by letting your winners run until you
have a reason to lock in your profits. To be a profitable trader you have to be a good loser.
Accept there will be losses and you will cut them short and not hold on to a losing trade on
the wrong side of a trend because you don’t want to exit it and admit you were wrong about
the trade. Admitting to your losses is one of the biggest parts of the trading game.

Perfection makes you wait to enter a good trade. Perfection makes you hold on to a losing
trade hoping it will come back to even. Perfection makes you upset about every losing trade.
Perfection keeps you in the learning process far too long when only trading can teach you the
toughest lessons. Perfection keeps you looking for the perfect trading system and ignoring a
good trading system with an edge becuase it is not good enough.

“There are just four kinds of bets. There are good bets, bad bets, bets that you win, and bets
that you lose. Winning a bad bet can be the most dangerous outcome of all, because a success
of that kind can encourage you to take more bad bets in the future, when the odds will be
running against you. You can also lose a good bet no matter how sound the underlying
proposition, but if you keep placing good bets, over time, the law of averages will be working
for you.” – Larry Hite
Steve Burns

Interview with a Trader: Inside the Mind of Steve


Burns

Steve Burns has been successfully investing in the


stock market for more than 20 years, and has been an active trader for over 14 of
those years. He is the author of 13 trading books in total, 6 of which are #1 best
sellers on Amazon.com in the Stock Market Investing Category. He ranks near the
top 1,000 of all reviewers on Amazon, and is one of the site’s top reviewers for
books about trading.
Steve has been featured on several sites and within numerous publications, some of
which would include DarvasTrader.com where he was featured as a top Darvas
System trader, and has been interviewed by the Wall Street Journal, Traders
Magazine, Michael Covel (creator of Trendfollowing.com,) and now of course,
by TraderMentality.com. He has also been a contributor to Traders
Planet, ZenTrader.ca, and SeeitMarket.com.
Steve currently resides in Nashville, TN with his wife and business partner, Holly,
their three children, and lots and lots of cats.
The Interview
He took some time away from his busy schedule to answer some questions for me:

What first influenced your interest in the stock market?


“As a teenager, I was always fascinated with what drove stock prices, and I loved
the concept of free market capitalism. I thought the rate of growth through
compounding returns on money was magical, and wanted to do it myself in the
real world. By March of 2000, I had enough in my first investing account to pay
off my first house. After that, I was hooked for life.”
What methods/strategies have you pursued that have failed for you in
the past as a trader?
“I was not patient enough to be a value investor. After all, it could take years for
a stock to be valued correctly. I also didn’t enjoy sitting in front of a screen for 8
hours a day as a day trader. That wasn’t what I wanted to do with my life.
It was either wait for years for a stock to come back, or waste my life on screen
time as a day trader. So instead, I ended up in the swing trading/trend trading
camp focusing on the open and the close for trading decisions. I wanted to get
paid for good trades on a weekly and monthly basis, and still have a life outside
of the screens during the day.”
Who are influences/role models for you that are relevant to trading and
why?
“Alexander Elder showed me the importance of combining the mind, method,
and money management for trading success.
Michael Covel showed me the power of reactive technical analysis and the trend.
Jack Schwager let me look inside the thoughts and process of the world’s
greatest traders with his interviews.
Van Tharp really explained the process of risk with his ‘R’ process.
Mark Douglas was the master of trader psychology.”
When/what was your “ah-ha” moment? What was the breakthrough?
“When I quit trading fundamentals, when I stopped trading too big, and when I
simply reacted to the price action in a systematic way. As a result, my returns
and drawdowns became much more consistent, and trading was no longer
painful or emotional for me. Drop the ego and the predictions and follow a
winning system and the trend.”
How would you best describe your trading style?
“I am a swing trader that trades in the direction of the dominant trend. I strive
for small drawdowns and my edge comes from maximizing bull markets through
leverage and minimizing drawdowns during market plunges and bear markets.”
What key rules do you apply to your own trading?
“I never lose more than 1% of my trading capital on any one trade through
proper position sizing and setting stop losses.
I am an aggressive bull when in bull markets, and trade short and small in bear
markets. I trade the market leaders, not the laggards. Moving averages show me
the trend. RSI shows me when the trend is about to bend. MACD shows trend
turning points. I trade the market based on predetermined signals.”
What do you look for in the stocks that you trade?
“I want the stocks of the companies that are changing the world through their
business model, products, or technology and are pressing all time highs above all
key moving averages.”
What do you feel sets the great traders apart from the rest?
“The great traders are slaves to the markets price action and keep their own
egos in check. The great traders I know personally are humble, generous, and
learned their trading lessons the hard way, by losing money.”

What can you tell readers about your risk management approach?
“My goal is to never lose more than 1% on a single trade when it goes against
me. I do not want to be exposed to more than 3% total risk at one time in
correlated positions.
I want to be in losers briefly and move on if I do not make money pretty fast. I try
to limit my drawdowns in capital to 5% each year. Risk management is my #1
priority. I want to keep what I have more than try to go for big winning trades.”
What trading moments make you the most proud?
“In my main accounts I averaged +20% returns from 2003-2007 and went to
cash in January of 2008 in those accounts suffering no drawdown in 2008.
I traded Apple and Priceline breakouts in the 1st quarter of 2012 with weekly
option rolling a 52% return in 3 months. I made a 100% return on options in a
big Apple strangle in mid 2012 in an overnight trade.”
The most upset?
“I suffered two 50% drawdowns in my trading accounts over the last 16 years
through trading too big and aggressively.
I learned the lessons of position sizing and trend fighting the hard way. I came
back from both drawdowns to return to all time account highs. It is hard road to
come back from. I advise not travelling it. It tends to break most traders.”
What books, websites, or other resources would you recommend to
those wanting to broaden their trading knowledge?
I tried to create the most affordable and informative books and e-courses on the
market for new traders to get them started. I
use stockcharts.com, ETFreplay.com and Finviz. I strongly advise educating
yourself before you start to trade. The books from those I mentioned
before, Michael Covel, Alexander Elder, Van Tharp, and Jack Schwager were all
life changing for me.
What advice can you offer readers regarding position sizing?
“Trade small enough where you emotions don’t interfere with you following your
trading system and trading plan. Never losing more than 1% of your trading
capital on one trade is a great place to start.”
A lot of traders plateau and have trouble evolving beyond this level.
What advice can you give to them?

“Never stop learning and growing as a trader.


Focus on where the trends are every year and never stop growing.”
Now that you have developed into a successful and profitable trader,
what are you doing to better your skill?
“My blogging and book writing forces me to grow and solidify my trading in my
writings. It keeps me from getting sloppy or lazy.
I also post my trades on twitter and in my private twitter group so I am always
accountable for why I am trading something.”
Any habits or methods that you use that others might think is
unorthodox?
“I don’t care about fundamentals, I care about price action. I don’t watch CNBC
anymore. I don’t predict price action, I follow price action. I care more about
moving averages than the news. I trade primarily the first hour and the last 30
minutes and consider most of the daily price action just noise.”
For those who are just beginning to get their feet wet, what advice would
you give or direction would you point them?
“Learn to manage your emotions and your ego, they are expensive things in the
market. Trade small so you survive. Do not put money at risk without first
having a trading system and a trading plan for how to implement it.”
Any advice for those traders who are already successful?
“Never believe you have arrived and can take money from the market at will.
That will cost you.”
What would you like your “legacy” as a trader to be?
“My goal is to bring up the survival rate of my audience of new traders by
focusing on risk management, discipline, and rule based systematic trading. If I
can inspire one trader that goes on to be a millionaire or even billionaire then
that would have made my work well worth it.”
I want to personally thank Steve for taking the time to share his thoughts on the
above subjects with us. A brilliant financial mind to share.