How To Trade Better

The Fear/Greed Dilemma

Let's face them, right now at the first of the year... Fear and Greed
and the emotional tug of war we will have with them all year long.

Overcome this dichotomy and your profits will skyrocket.

To begin, for many traders greed is a stronger emotional force than fear. I believe we are a greedy lot (that's why we enter an arena others pass on). Thus, one needs to know what emotion is gaining the upper hand in his or her daily life, be it in the markets or business.

Greed, as I have come to understand it causes us to do that which we should not! It is greed that is the active force, kicking us in, causing us to jump the gun, to hold on too long, to buy too much.

Hence if you feel greed seeping inside you, I suggest you look it directly in the face to see if it is leading you into more trouble than reward.

Fear is different. Our fears cause us to not do what we should do. President Roosevelt had the all time worst comment saying, "...all we have to fear is fear itself." But then, what would you expect from a socialist who, along with Colonel House, did more to damage this country on a long-term basis than anyone before or since? I digress...

Fear is prohibitive - it puts on the brakes. It is preventive and it is very primal as it is more closely connected to survival. Indeed, we need a healthy dose of fear to keep on living. But life, or event fear, is not the same as market fear.

For some unexplainable reason, we pass on the best or largest winning trades out of pure adrenaline spouting fear. We don't place stops for fear we will be stopped out. My advice is when your fear emotions tell you to not do something, in this business, as Nike says, "Just Do IT!"

Scary thought, but that is why top traders are successful. They do just do it.

There are two important parts to fear; the first is why it happens, the second is what it makes you do.

Fear is the product of unknowing. A seal team buddy of mine said it best, "Whenever we went on a shoot and loot mission my heart was pumping but it was not from fear. We were so well trained and armed that every unknown was known. We knew what to do and how to react to any contingency".

Traders are not so well prepared. They have not thought out the future, they trade with no stops (protection) and trade with no idea of where or how to take profits. Hence all of the future is unknown. It's a black hole and they are afraid of the night.

To shut down on your fears prepare for the future, and have all bases covered and you will be able to act, not react to market events.

The next point is that fear causes us to lie. Traders lie about their trades, wins or losses, especially to their spouses, so they are in a state of constant denial and fabrication, a dream world. It's no wonder they don't deal well with reality.

How To Trade Better By Eliminating Fear

I hope these insights from my career, my fears and my greed factors, give you some understanding of yours.

*WHEN TO GET IN - WHEN TO GET OUT - TREND CHANGE SIGNAL*

There are probably as many ways to determine trend change as there are traders! In this day of computers, the fancy math boys have really beaten the numbers up to develop a trend change mechanism. In a very large way trend change is a moot point, as it just tells us what has transpired with no assurance it will continue in the future.

MY CENTRAL THESIS: Here it is, conditions cause major up and down moves, trend change. Without the conditions being present, trend change has little validity. Back a trend change with conditions and you get rip roaring bull/bear markets.

I would like to think you now understand some of these conditions, such as the Commercials, i.e. Commitment of Traders Report Commericials. Let me add to your arsenal a trend change tool. The tool illustrated in the following charts is a simple 18-day moving average of closing price, that's it, nothing fancy here.

Sugar Chart 1

Notice the dots...notice how they appear at important trend change points.

The dots on the chart appear when there have been two days totally above the average for a buy and two days totally below the average for sells. This is the set up for the change. Then some select short-term buy/sell signals can be used for your entry. Markets do not alway trend like this, there is risk in trading. Results will vary and no technique can guarantee making money. What you are seeing here is a tool I have used for 30 years.

I teach more specific entries in my Sure Thing Commodity Trading online course, but as you can see, there is power to these points.

For example, I have taken two big trend markets - the up move in T Bonds and the down move in Lumber, as well as a choppy one, Gold.

Treasury Bonds Chart

 

Gold Chart 3

 

Dollar Index Chart 4

 

As you will note the appearance of the dots usually kick off trend changes of consequence. (But not always) That's the good news for the start of the year; we can determine trend change. This is not a new phenomena; the following charts are from 2000 (note the changes in software since then as well!)... I used these charts back then, to illustrate the same point I am making in 2011.

Sugar Chart 5

Wheat Chart 6

There is much to learn here; a mere crossing above the moving average on one day, or touching it with no further extension of the move is not enough to bring about trend change.

As I see it, moving averages act as support and resistance. What it looks like is needed to bring about a long term trend change is for a power house move to follow on a short term basis, once prices gets into the area of the average.

It should go without saying, but there are so many technicians out there I'd better say --- do not take these signals on their own. These signals are just a sign, a symptom of what matters, the underlying bullish/bearish fundamental condition.

Your homework is to fire up your computer to study this relationship of price, the 18-day average and trend change. This moving average is in all the charting and trading software so you have no excuses.

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