c05 JWBT016-Busby September 30, 2008 13:49 Printer: Yet to come
62 A FOUNDATION FOR SUCCESS
Time
The art of trading involves properly reading the tape. In Chapters 2, 3, and
4, I discussed the fundamentals of successful trading. The first fundamen-
tal is time. One has to trade at the right time of day, week, or month to
make money. Every trader has executed a trade at just the wrong time. For
example, he has bought the top or sold the bottom. That same trade exe-
cuted at a different time would have resulted in profits, but the timing of
the trade was off and there was a loss. In trading, timing is not everything,
but it is extremely important.
Day traders must have volatility and volume to trade. If there is no
volatility, prices are flat. A trade is made and the price does not move.
Obviously, if there is no price movement, there is no opportunity to make a
profit. Volume translates into liquidity. Traders not only need to get into the
market, but they also need to be able to get out of it when they so choose.
If there is no volume, there are not enough buyers and sellers to allow
for the ease of ideal entry and exit. Chapter 2 deals with the best times for
executing my strategies. I do not trade stocks or any other financial product
that is not liquid. When trading stocks, I trade only those with 2 million or
more shares traded, on average, in any trading day. The S&P, Dow, Dax,
and Nasdaq equity indexes are all highly liquid products to trade, and my
method identifies the best times of day for me to trade them.Key Numbers
The second fundamental of trading is key numbers. I use key numbers to
find my way through the market’s noise. Key numbers are for me like a
buoy is to a ship’s captain. They mark off places where danger lurks so
that I can avoid disaster. Skilled tape readers know support and resistance
levels identified through the use of key numbers. That information helps
them avoid buying tops and selling bottoms. It gives them the ability to
identify ideal entry prices and establish profit targets. It also is beneficial
in finding the right location for a stop/loss order. Mastering key numbers is
another big part of proper tape reading.Market Indicators
A third fundamental of good trading is the proper interpretation of market
indicators. Traders need gauges to maneuver through the maze of prices
and data. Tracking statistical data is an important part of that process.