c05 JWBT016-Busby September 30, 2008 13:49 Printer: Yet to come
The Art of Trading 63Watch the Seven Sisters described in Chapter 4. Before placing a trade,
see what the Seven Sisters are telling you. Are they moving up or down?
Are they in agreement with each other, or is there a difference of opinion
among them? If there is divergence among the indexes, the signal is clear.
The market is confused as to direction and wise traders stay out. However,
if the S&P, Nasdaq, Dax, and Dow are all trending in the same direction,
perhaps it is time to take a closer look at prices. Then take a glance at
the other indicators. How is gold trading? Is oil moving up or down? What
about bonds? Are all of the Seven Sisters in agreement with a long or a
short position? If so, look a little closer.
Check the statistical indicators. Is the NYSE tick registering a market
view worth noting? That is, is this statistical indicator reflecting a bullish
or a bearish sentiment? Look at the issues. On the NYSE and the Nasdaq,
how are issues doing? Are prices up from yesterday or are they down? If
they are expressing a strong sentiment, what is that sentiment? Do these
indicators agree with the Seven Sisters and each other?
Next, take a glance at the Arms Index or the TRIN. Is the TRIN support-
ing a buy or a sell? Or it is signaling caution? Finally, I look at my personal
indicators—the TTICK and the V-Factor. What are these numbers telling
me? Before I trade, I evaluate the whole picture. Is there a consistent mes-
sage, or is the market confused? If it is confused, I stay out. But if there is
a clear mood expressed, I look for a point to execute a trade.
Is the time right? If not, wait. If so, consider key numbers. What key
numbers are near the current trading price? Is the market near a strong
point of resistance? If I am going long, I will wait for resistance to be broken
before making a play. Where is support? If I am going short, I will patiently
wait until support has been broken. Then I will ride the move down to rake
in some profits.
The big point here is that all of the fundamentals of trading must work
together. Trading at the wrong time will not lead to success. Improperly
interpreting indicators or reading them at the wrong time will not lead to
victory. Merging the elements of trading and using them in the proper way
and at the proper time will produce a winner. Like creating a piece of art,
there are many decisions, nuances, angles, and the like that must be consid-
ered. Trading is not easy, and few put forth the effort to educate themselves
and master the skills to win the game.The Fourth Element
Unfortunately, the analytical aspects are only part of the picture.
The artistry of trading also involves emotional balance and good risk
management. Winning traders must learn to keep their emotions in check