Before I forget, I added a strength reading to the chart pattern indicator. I show the new indicator in the chart to the right, which is a snapshot from the top of this page. The number of black diamonds varies from one (weak and unreliable signal) to three diamonds (strong and reliable).

The diamond indicator is experimental and not foolproof, but it should help you interpret signal changes in the chart pattern indicator. Click on the diamonds at the top of this page (not on the ones displayed in the chart) for additional details.

The chart pattern indicator (the red down arrow says that the bull run which started back in early March has transitioned into a bearish retrace as of May 11. The three diamonds suggest the bearish turn is not a false trend change.

The following is based on an article from Ari Kiev, published in the May 1995 issue of Technical Analysis of Stocks & Commodities magazine.

I received an email from a person I will call Basket Case Bob which said he would grow his brokerage account from $15,000 to $25,000 in about 6 weeks. The markets were kind to him and he accomplished his goal a few days ahead of schedule. He moved more money into his brokerage account to build it up to $50,000. His new goal? $100,000 by the end of this year. I think that will be difficult because it is a goal that only 4% of traders meet. Basket Case Bob is not a seasoned trader. In fact, he started trading a few months ago and he has a full time job, too, but his timing is impeccable.

How did he nearly double his money? He loves the low cost and volatile insurance and bank stocks. He sets a buy order about 15% to 20% below the prior close and sells when price rises 30%. Such a bounce has often taken less than a week in the recent past. What does he do if the stock drops? His strategy changes from a swing trade to buy and hold. Yes, it's not a good strategy when things go bad. In fact, he really doesn't have a good exit strategy at all.

What is admirable about his strategy is that he has set a goal of doubling his money by year end. How many of you have set a goal?

Setting Goals

Kiev makes a good point when he writes, goals will help them [traders] overcome internal fears and inhibitions. It is the best way to teach traders to keep asking themselves what else is needed to produce the desired result rather than accept poor results....

I know that when I set a goal, I spend more time on a project and accomplish more during that time.

Kiev adds,

Think of the most successful master traders that you know. Invariably, you'll find that one of the critical keys to their performance is a willingness to promise the outcome before they take action and then do whatever it takes to produce the promised results. This takes accountability, responsibility and a willingness to deal with reality, despite the naturally occurring thoughts that encourage withdrawal and retreat.

Just setting a financial goal is not enough. You have to figure out how to achieve it. Here are some ideas.

  • Set a realistic goal in financial terms.
  • Break down the goal into manageable limits both in terms of dollar value and time. You cannot double your money in one trade, in one hour, but you can double your money in x trades over y months.
  • Look for flaws in your existing trading strategy. Are you consistently entering a trade too early or too late, or exiting in an untimely manner?
  • Would setting a price target instead of waiting for a trend change (or other exit signal) increase profits? You may find that for short-term trades, a profit target (such as, If price hits $19.95, I will sell) works better.
  • Follow your trading plan: Plan your trade and trade your plan.
  • Experiment with different position sizing algorithms to maximize profits while keeping risk in check.
  • Are you trading the right stocks? You may do better by selecting more or less volatile stocks, ETFs, or other securities.
  • Take a more proactive approach to your trading. Move any conceptual work into the experimental stage and allow yourself to break barriers of fear or habit. In other words, push your comfort zone to help achieve better results. This may mean taking a larger position than your normally would or setting a stop farther away, but more closely monitoring the trade.
  • Keep your goals in mind and do not allow emotions or habits to interfere with or somehow limit achieving those goals.
  • Mistakes are made and stress increases when a trade begins turning into a loss, so that is when you need to focus on your objectives. Look at each losing position as an opportunity to test yourself and your skills. Use those losses to hone your ability to channel emotional energy to trade better.
  • Learn to accept risk and discard any concerns or fears that might impair your trading.
  • When looking at past trades, ask yourself what is limiting your ability to make more money?
  • Find a trading partner that compliments your skills. If you lack trading setups but know when to exit a trade, perhaps another trader has setups to share but needs help with pulling the trigger. Combining your skills may benefit both traders.
  • Develop habits that help you overcome your liabilities. Learn not to trade when you are upset or when the market tells you to stop trading (say, at three losing trades per day or after making your quota of $x per day. Learn to walk away when you are doing well).
  • Learn to trade not for the excitement it brings, but for the skill it demands when trading well.

Kiev writes that Every trader must acknowledge how his thoughts and behavior patterns keep him locked into his own comfort zone. Each trader must learn to assess and trade outside his recurrent patterns of self-defeat by developing skills for expanding attention and focus and taking more risks.

I was burned by buying stocks as the market sank during the slide in 2008. When price bottomed in March 2009, I was unwilling to believe that the turn had come. However, I pushed past my fear of losing by downsizing my positions to one-fourth their normal size and buying. I bought several stocks within a week of the bottom and now, two months later, those position are still paying dividends (it helps because many were utility stocks).

With new positions I have added, I want to triple my money in less than three years. That is my goal. On Conseco, I doubled my money in a week, so I know it is possible. I just have to remain focused on my goal and trade opportunities as they become available.

Perhaps we can profit together. Set a goal and strive to get there then join me on the walk to the bank.

-- Thomas Bulkowski