DISCIPLINE

Let’s start on discipline

Most new traders spend 85% of their time and effort on charts and indicators; 15% of their time is spent on studying discipline and money management. This is a number that has come from statistical studies and many of us who are long time traders believe the figures to be true.

Successful traders spend 15% of their effort on charts and indicators and 85% study on discipline and money management. I would like to ask you all. Do you think that it is just coincidental that 85% of new traders fail in their first year?
if they don’t put the effort into discipline and focus and money management?


I want to go to some of the charts we have seen in the chat room and we still see them.

This is a chart from one of the members of my chat room. Anyone recognize this chart? I have to be honest about it. This is one of Fed’s charts. He had a chart that looked very similar to this and I asked him if he could put a few more indicators on it. He did. This chart is really quite a chart. Down here is the CCI. Here is the smoothed CCI. Just to be sure he has put Bollinger Bands around the CCI. When we get up here – you may recognize price bars. There are a variety of colored lines some of which turn color depending on if they are going up or going down. We have a LSMA and several Moving Averages in there. Just to make sure things don’t get away from us he has put Keltner Bands on the top and bottom. Guess that we should stay inside of those.

This is a hard chart for me to read. Some of the indicators say BUY and some of them say SELL; some of them say STAND ASIDE.

Keep in mind that it takes most people 3-5 seconds to interpret ANY ONE LINE, what happens when traders use a chart like this (remembering that there are probably 22 lines in there) is that you will take close to a minute and a half to figure out what the chart is saying and by the time you have done this, THE TRADE IS GONE.

You simply cannot react to this kind of a chart you have to think about it – you all know “WE JUST REACT; WE DON’T THINK”.

My favorite in this chart is the little bouncing balls. Some of them red, some blue, some green, I guess. They are called “ergotics”. I bring that up because I notice the past week that the latest fad in the chart room is to have ergotics on your chart. We went through this about 7-8 months ago when FED introduced ergotics then everyone made a mad rush to put them on their chart. They have faded a bit in the past few months; we seem to be on an ergotic kick again. Everyone wants the latest and greatest indicator.

Now this is a chart that appeared in the chat about 2 weeks ago that one of the traders was using. Some of us moderators had a bit of an argument as to which of us was going to be able to use this chart. It has price bars and a series of moving averages. I can’t determine which moving average to use because I can’t process that much information in 5-10 seconds. One thing I know for sure – one of those lines will be correct. OK.

Now I am going to go to a chart……. Can anyone recognize that chart? There is only one person who uses charts like that. That is Woodie’s 6 bar Sierra chart. This is what he uses for himself when he is not moderating. You will notice that he doesn’t even have an LSMA. It just has prices on it. It has the CCI and the turbo. You all know that Woodie does not take trades off the turbo. So essentially what this chart consists of is a chart with prices and ONE indicator. He uses the turbo as an early warning signal and to draw trend lines. Compare this chart to the other charts that I have shown. Can you see how easy it is to react to this chart? You don’t have to think about it. All you have to do is react! It is very easy to process just one variable. The only thing you have to do is REACT. There is no thinking involved.
And I think we all know that Woodie is a very successful trader – and he gets by with only one indicator!

This is one of my charts. This is what I use for trading CCI. I have the CCI here and the turbo is displayed below the CCI. I can put them together, but I like to see them separated since I have a difficult time reading the turbo displayed over the CCI. That is just one of my peculiarities. It just works for me.

What I have here is a 5 min Bond chart which has a 34 ema. That is my baby blanket. I cannot give it up even when I am trading the CCI. I have to have my 34ema on my charts. When I trade, I ONLY TRADE IN THE DIRECTION OF THE 34 EMA.

I will take the CCI signals, but I will only take them in the direction of the 34 ema. In the chart, for instance, coming down here where the 34ema is headed down, I won’t take any CCI signal unless it is a short signal – that is in the direction of the 34ema. I will not take a counter-trend trade.

When the 34 ema flattens out in this area that means “Go walk the dog”. I DON’T TAKE TRADES WHEN THE MARKET IS FLAT. That is one of my peculiarities.
That is my trading style. I know many of you will take every CCI signal.

When the 34ema starts going up as in this area, then I will start taking every CCI signal that puts me in the market LONG.

Quite honestly, my favorite trades are the ZERO LINE REJECTS and the TREND LINE BREAKS THAT COME BACK THROUGH THE 100 LINE. When you are taking those with the 34ema trend, they are 80%. That is a heck of a win rate. I will settle for that.

I am going to digress here for a minute from the CCI and what we do in the room. I am going to show you a chart to make a point.

This is THE CHART of the most successful trader I have ever met. He is a guy who has made mega millions of dollars in the market. This is his chart. It is a 30 minute chart with a 34 ema on it. He only trades in the direction of the 34ema. He has many decision points on this chart just like we have rules in CCI. I am not trying to sell anyone on using it. One of these rules is “When price crosses the 34 ema the first time and then comes back and touches the 34ema (kisses the 34), then mortgage the farm. I don’t want to get into how he trades. Here is how effective the “kiss system” is. He quite often puts his positions on at the end of the day since he likes to fish during the day. He goes fishing the next morning and doesn’t look at the market until it is ready to close again. We have vacuuming trades and pie making trades; he has his fishing trade.