It's the Method — Not the Money

Avoid the most common novice mistake.

Charlie Whooph, CFE

I Made it about The Method, not The Money.

The most common mistake of new young traders is seeing dollar signs. Imagining "I'm smarter than your av-er-age bear, this trading thing can't be "that hard". Jumping in the middle of hot darling momentum which feels like the thrill-ride is gonna go on for a month! And finding out the market is a Russian mob whore. I'm sorry, "sex worker".

Swing traders are a different breed. Method deployed for a swing trade must demonstrate a high level of repeatability. Swing trading is not a Hunt n Jump on the next hot Apple momentum play on sweet timing for a ride to the moon. Unless you can repeat that trade tomorrow and next week. And you won’t.

Statistically, honing a method is not a strong suit for most young traders used to riding momentum following a tech stock earnings release. Likewise, neither is repeatability.

Repeatability

Since 2001 Whooph has focused technical analysis. No, not just support, resistance, trend lines and triangles. Critics of technical analysis (TA) understand maybe 10% of the scope of TA, and almost nothing of its pertinence and value. Critics are often confined to fundamentals and attempt to "time" a trade that way which is a HORRIBLE idea for many reasons. Fundamentalists study the causes of market movement. Technicians study the effects of ALL perceived and processed causes, including price effects which haven't yet happened.

Full technical analysis correlates and compares movements of Price with its Indicator, cites disagreement, and couples that with Price Action using equity charts. So Whooph is an expert on that discipline of correlating and comparing Price and Indicator. From that study he has cited, defined and, derived repeatable methods and market "tells". Tells which "foretell" swings, pull-backs, reversals, and corrections. That long-term commitment was an estimated 40,000 charts ago! Whooph now trades happily, consistently, with repeatable methods using these tells.

Beginning 2012

Everyday for seven years I traded the swings of only ONE equity up and down. The Q’s for the Nasdaq, with no exposure to News. The 1x amplitude ETF — Exchange Traded Fund — would be the QQQ. Why?

And to reduce cash requirements a trader can trade the 2X leveraged ETF pair following the same index at greater wave amplitude: QLD (up/long the Nasdaq) and QID (down/short the Nasdaq). So, what happened? What did this one-dimensional single-equity approach do for my success?

It forced me to focus on technical methods and ignore earnings driven momentum. As far as possible, I traded irrespective of the gains. By 2015, my consistency had grown exceptionally as you can see from the sample account graph. I learned discipline. And naturally, the account grew.

A trader who is willing to learn how to swing trade, acquires a particular set of skills.

Rules

Rules. Self-imposed rules for small position size allows for recurrent small income: 30 bucks per day. And it focuses a trader on methods for keeping it. This further builds discipline and confidence. Conversely, a guy who wins big in one emotionally charged rally after another, doesn’t build confidence but doubts of his an ability to repeat it tomorrow nags on the psyche. It creates a trade dependency more than trading skills.

Patterns

In the seven-year focus one the Q’s, there was no sense of riding momentum fueled by an earnings release. Or one big WIN, that I could average over three weeks and call it income. I traded only the Q’s! I treated every day the same, dissecting swings, short-term trends, and study-analysis for any inference of recognizable patterns.

A swing trader can trade two recognizable patterns which are the same technically, foretelling swing highs or swing lows or reversals, but to a momentum trader, they look nothing alike. Acquiring this skill requires repetition and study. Reminds me of how a martial artist defends, blocks, and parries with astounding accuracy, not by guessing the assailant’s next move, but through repetition MA’s mind accumulates a database of recognizable patterns.

Repeatability

Sure, gains are the ultimate objective, but consistency and repeatability are better. A trader will eventually concur that success in trading is not about the account balance. It’s about the how. True wealth is not a quantity of cash, it’s knowing how to accumulate it gradually.

Wielding a repeatable method, you make 30 bucks. And the next day you make 27. And the next. (Scale it when you're ready.) Proving performance. Repeating, holding to your rules, improving your skill. You do this so that on any day, in the UP or DOWN direction, you know how to extract recurrent income from a market. All the while the market waits for you to misstep. Waiting to eat your for lunch! But you are disciplined.

Discipline is boring, and all the wiser. You practice discipline and perfect your method, extracting small income out of thin air. You create self-imposed harsh rules for position size, averaging down, and locking in profits. You eat, sleep, and drink the chart. This is trading. And the market cannot touch you.

So, except that money happens to be your product, a trader’s thoughts and habits have nothing to do with money, especially the pursuit of more of it.

For precisely the same reason, “Bulls make money, Bears make money, and Pigs get slaughtered”.

It’s “the how” that preoccupies a swing trader not the account balance.

Daily chart analysis over 23 years of approximately 40,000 stock charts, something is bound to happen! At some point a skill develops for seeing predictive “tells” of equity or market turns. These tells, a skill for seeing them, and a method for using them gives a trader advantage, as you might imagine.

In this Guide, hopefully you will learn new trading methods for increasing trading income by employing a few rules, insights for citing market tells, and discipline that make a great trader.

I hope you find the concepts of market signals, predictive tells, divergence, weakness, triggering of Buy and Sell decisions beneficial!

Let's get to the business of positioning your money in a Trade for Income. — Charlie Whooph

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CAVEAT/DISCLAIMER: This guide is for general educational purposes only. None of the technical analysis, positioning, or trade decision strategies provided in this guide should be considered investment advice appropriate for your specific situation, risk tolerance, or objectives. If you are seeking specific investment advice, you should consult a licensed professional.

A Trade Method is your creation. Its rules and process is derived or designed by you and for you the trader. Perhaps inspired by Whooph, but as the old adage goes, "Your trade is Your trade." Do your own due diligence.

Whooph's Own Trading Account depicting Consistency.

Whooph's Own Trading Account depicting Consistency.