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I can hear some of you saying, "At last. John is finally going to get off this psychological stuff and get into something that I can sink my teeth into, that I can program." Well you are partially correct. I would like to share with you a strategy that is the cornerstone of the technical analysis that I do while trading. Although I use more esoteric mathematical models to trade with, they are founded upon the concepts in this chapter. Your goal is to devise your own methodologynot to use someone else's. The purpose of your methodology is to help you perceive the market as it is, thereby giving you your "edge." It is not to devise some esoteric model as an end, but rather as a means to enhance your perception. |
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Some of you may brush this chapter off as too rudimentary, and not sophisticated enough. However, every methodology must have a solid foundation to build upon. This is my foundation. Although this chapter is important, it is of far less importance than the first chapter on mastering your ego and beliefs. I have taken the liberty of assuming that you already have a fair understanding of technical analysis, and the terminology used in technical analysis. |
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Bernard Baruch was born on August 19, 1870, and went on to become a trader. He made a large fortune from trading stocks and commoditiesstarting in the late 1800s and ending in the 1940s. I first heard the expression "continuity of thought" while reading Baruch's autobiography. Baruch first heard it from Middleton Burrill, another stock trader who remarked about a break in a rising market in the late 1890s. "That collapse is going to break the continuity of bullish thought," said Burrill. |
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It is the best way I have found to describe the psychology that is moving a market. It is amazing to me that novice traders think that the traders making millions somehow have an inside line on what is taking place. The information available to the professional trader is in most cases the same information available to the novice. Although professionals may subscribe to some expensive advisory services, the bulk of their information comes from the market action, newspapers, magazines, and the Internet. The reason professional traders are able to interpret the information so they can profit, and the novice remains totally ignorant, is that professional traders have mastered their beliefs and virtues. In addition, professionals have mastered their ability to think. All too often the novice trader confuses information with thinking. |
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Throughout this part of the book I will mention support and resistance points. The vast majority of traders have an instinctive reflex that associates "trend" with a bull market. When they think of "support" they think of it within the context of a bull market, and "resistance" within the context of a |
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