c02 JWBT016-Busby September 30, 2008 13:33 Printer: TBD
32 A FOUNDATION FOR SUCCESS
The winning trader is in the market when the move is taking place and
he is on the right side of the action. Trade zones help me identify times
when I can anticipate a move and join it to make money.
The flip side of knowing when to get into a trade is having the insight to
know when to stay out. Again, according to Richard Smitten, Livermore’s
biographer, Livermore adamantly believed that no one—regardless of his
abilities—could or should trade the markets all the time. There are times
when one should be out of the action and on the sidelines (Richard Smitten,
The Amazing Life of Jesse Livermore: The World’s Greatest Stock Trader,
Traders Press, Inc., 1999). There are many days when I do not trade. If I do
not see the correct setup and I do not believe that the odds of success are
in my favor, I do not throw my money away. I wait for a better opportunity
to play and win.
Additionally, I have at least one time during each trading day when
I will not trade. I will not trade between 1:30 and 2:00PM. This tends to
be a very dangerous time for trading because markets are unpredictable.
Experience has taught me that this is a risky time to enter a trade. Prices
often just chop around during this time, and it is very difficult to make
money. Figure 2.3 depicts the S&P E-mini and the erratic price movements
that may be seen during this time. Notice that prices were moving downFIGURE 2.3 The “Grim Reaper” stepped onto the stage and the downward move
of prices halted. As the five-minute chart shows, prices began moving up and down
in a very tight range.