http://www.realitytrader.com/tutorial-ta.htm

Speculative trading is buying a financial instrument with the sole purpose of selling it for a profit at a later time. Now, why would anybody who owns an asset sell it for less then it’s worth? Why do merchants run sales on individual items, cutting their profits and perhaps even selling at a loss?

Supply and Demand
In the short-term time frame that traders deal with, stocks are just a product to be accumulated or distributed. Whenever there is confusion, go back to the roots of short-term price movement. Think in terms of a retail scenario. The purchasing manager of a chain of clothing stores after consulting with the companies fashion advisors has decided that colored jeans will be “in” this fall. The orders are made and 50,000 pairs of red, beige, and blue jeans are manufactured, and distributed to the stores in malls and shopping centers everywhere. As the season progresses, the blue, and beige colors sell very well. The stacks of red jeans are not moving. What happens next? The company advertising begins to feature models wearing red jeans. The mannequins in the windows all are wearing the red jeans. Fashion designers on morning TV shows “make over” audience members and promote red pants as a “fresh new look”. Sales pick up a little but the public just is not buying red jeans this season. So as the season winds down, the last of the inventory (mostly red) goes on sale at a substantial discount.

Now, consider this scenario. A fund manager after consulting with the firm’s analysts decides that the drug sector offers an attractive value. The orders are called in and the fund is soon the proud owner of a basket of 10 drug stocks. The drug sector does indeed pick up, business is booming. But out of the 10 stocks purchased, 3 are under performing badly. FDA approval of a new drug is slow to come, lawsuits from a side effect linked to a drug, and poor sales due to a tampering scare, have acted to dampen public interest in these issues. The fund begins to unwind these positions, selling into rallies and days of deep volume. The sector's bull move is picking up strength, analysts are showing up on TV and in the financial press talking bullishly about the drug's. Upgrades are issued, and targets are moved higher. It is now 3 months later, the under performers have been sold until the basket’s size is reduced to the 3 strongest issues. But the rally in the drug sector has been sluggish of late. The runup has been substantial, and there are large profits to be taken. The advice to buy drug stocks has been everywhere, and has begun to filter down to non-financial media. The coffee talk at the proverbial diner is about how this person has made a “killing” in PharmChem Industries. But hype aside, all those who wished to buy into this rally have done so. Trend lines are broken, we start to see the first lower highs form. The fund begins to sell. At first selling as opportunities present themselves. Then they start hitting bids, unloading their shares. With 50 points open profit, they are willing to chase the stock down to a level where buyers are present.

These are two different scenarios, one in the world of retail, the other in the world of stocks. Fundamentally, are they really any different?

Back to the beginning, let’s restate the question… Why would anybody who owns a stock sell it for less then it’s worth? Why sell a profitable position? There are many reasons, but within the cycle of accumulation/distribution there are 3 types of selling to scan for and identify. (invert this discussion for buying)

Selling because the trend is changing, and profitable positions are being unwound.
Selling because resistance levels are being challenged and positions are being lightened.
Selling because a chart pattern has failed and stop loss orders are entering the market.
A stock experiencing selling type 1 should be watched with a short bias, as it is likely that there are sellers of size in control of the market. A stock experiencing selling type 2 should be watched with a long bias, and scanned for continuation patterns, and other low risk entries. A stock experiencing selling type 3 should be watched with a short bias for a Stop Seeker short setup and then possibly long at support levels after the panic selling subsides.

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Short Term Supply/Demand Imbalances
There are two basic types of supply/demand imbalances. On the long side, there can be more buyers then sellers. This market is characterized by strong trending moves with orderly wiggles. There are plenty of sellers, as the short-term player’s scalp in and out of the stock. The bigger time frame bulls use the wiggles as buying opportunities to build positions of size.

The second type of buying imbalance is in a market where there is an absence of selling. This market is characterized by big bars to the upside. The traders watching all feel that the stock is going higher, and are holding their sell order for a better price. Without many sellers on the offer, any bulls are forced to pay up for their shares. Instead of a healthy bull market with steady selling into strong buying, the constant turnover has ceased, and all those positioned are waiting for the perfect exit point. A market with an absence of sellers often indicates that the final push of the bull phase is unfolding. This “exhaustion bar” should be watched carefully, and if it terminates in an area of price resistance can be good as a short. Conversely, stocks often sell off in an orderly manner before reaching a crisis point and then becoming a market with no buyers. These exhaustion bars to the downside are what often occur after a successful Stop Seekers setup is taken. The exhaustion bar/snap back tendency must be studied, as a great Stop Seeker trade can become a mediocre one in a very short time if the position is kept open too long. Once in a Stop Seeker trade, you want the stop takers to be pushing and shoving to get out, forcing the stock lower and increasing the panic as the slippage grows. As a Stop Seeker short accelerates to the downside, watch for the ECN’s fighting to be the best offer to lift. Watch the time and sales for the selling to reach fever pitch, then subside. When this pause manifests itself, there are two options. If you have a strong opinion that there is more downside to come, cover ½ your position at the pause, locking in profits. Then move your stop loss to breakeven for the remaining shares. The second (and usually preferred) option is to cover all your shares, and move on to another setup.

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Top 10 Things I've Learned as a Trader
Only trade if you have an edge. See Risk Evaluation.
Don’t force it. There are times when sitting on the sidelines is the best course of action. This is normal.
Wining trader’s losses are usually small and contained.
Win by losing properly. Be an expert at managing your losing trades.
Sell into strength. Sell when you can not when you have to.
Over analysis causes paralysis. Keep it simple.
Home runs are nice but pros take out the middle of most moves.
Pro traders quickly get into a position where they are playing with the market’s money.
A pro is quick to change his view if proven wrong and does not let his ego get in the way.
There is no Holy Grail. Great patterns come and go. The hallmark of a professional trader is their ability to be agile and adapt their style and technique to the market at hand.
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Indicators Used Intraday to Help Time Our Tradess
Nasdaq Futures – five minute chart
S&P Futures – five minute chart
Compx – fifteen minute chart
NYSE Tick
NYSE Trin
CHARTS WE USE

All charts used are with simple moving averages and candlesticks.
Two and thee minute – 10,20
Five minute – 20,200
Fifteen minute – 20,200
Thirty minute – 20, 200
Daily – 10,20,50,100,200
Weekly – 10, 20,50,100,200
All our charts have histogram volume bars at the bottom.
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Trading Room Priorities
Scanning for potential intra-day trades
Analysis of trades in play
Answers to questions regarding existing plays
Answers to questions regarding trading in general
Please reserve the use of capital letters for emergencies only. For example: You find yourself in the unfortunate position of being in a room trade due to a blown stop and you need help, this qualifies as an emergency. In adhering to this policy, it will help us identify when a true emergency is at hand.
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Win Loss Clusters
No matter how good a trader becomes sooner or later he will succumb to the inevitable LOSING STREAK. It is during this challenging time that a clear understanding of Win Loss Clustering will help a trader retain his sanity.

Reasons for losing streaks may be blamed on improper use of a particular pattern, going against the trend, a bad mental state or a countless number of other reasons. But realize this, even if you do everything correctly eventually statistical reality will rear its ugly head.

Below are some Win Loss Cluster which will give you an idea of what to expect, depending on you win percentage.

In a random sample size of ten thousand trades (all are approximation and will differ from sample to sample).

40% win rate = potentially 10 wins, 21 losers
50% win rate = potentially 17 wins, 15 losers
60% win rate = potentially 21 wins,13 losers

Keep in mind, these are successive winners and losers. So to clarify, the trader who has a 50% hit rate, can expect at some point to win approximately 17 in a row and to lose approximately 15 in a row. Also keep in mind, this trader may lose 15 times in a row with one winner in-between and then another 15 losers. Pretty unlikely, but statistically possible.

Obviously, it becomes paramount that this trader better be well versed at risk management if he wished to survive in this sometimes unfair game of trading.

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$100 BILL
Soldiers wishing to join the Special Forces go through unbelievable physical and mental hardships as they try to prove they have what it takes to be one of the world’s elite warriors. Those who succeed are true warriors, fighting in small task forces, and conducting their campaigns/waging their wars on a very personal level. Trading is economic warfare on a very personal level, and traders go through a lot of similer experiences as they fight their way through the learning curve hoping to count themselves among the few consistently profitable traders. Soldiers go through exercises designed to break down certain mental responses and thought processes detrimental to performance. Traders need to also break down and change certain mental processes.

Try this exercise. Take a $100 bill and throw it out a convenient window. Sit down in a quiet place by yourself and wait 15 minutes. After this time has elapsed, you may go outside and retrieve the bill. What thoughts are running through your mind as you sit? You are probably feeling foolish for doing this in the first place, and are trying to remember if there was any wind outside. Thoughts flit through your mind.

I could just run out and get it…
But I’m supposed to sit here for 15 minutes…
I don’t know this author from Adam…What does HE know? I just read about this stupid exercise, the author can’t make me do anything!
It IS windy out there, I knew it…
I’m not going to be able to find that bill…
What was I thinking?
I’m going to lose $100…
I make $X an hour, it is going to take me how many %#$& hours to make that $100 back?
I’m going to lose $100…
I’m going to lose $100…
I’m going to lose $100…
I AM GOING TO LOSE ONE HUNDRED DOLLARS!!!

These are some of the same destructive thoughts that go through your mind as you initiate, and manage your trades. They are counter productive and must be controlled and eliminated. Instead, what if the following were your reaction to the $100 exercise.

It is mid day, the area outside my window is quiet, no one is about. There is a bit of wind, so I may have to hunt a little. I routinely risk $500 or more as I trade, so if this exercise improves my trading substantially, it will be a 5 to 1 or richer risk reward endeavor. Nobody forced me to take this action, I am in total control at all times. But, bottom line… If for any reason I was unwilling to risk my C note, I would not have thrown it out the window! A controlled, emotionless, style is one that every trader must