Dick's approach is so conservative that he's still trading at an age when most people are retired. And he still doesn't have a boss or employees. For most people, trading produces sleepless nights. For him, it produces steady income at retirement age. What a difference! Incredibly, this is absolutely not what most traders want. Consciously or unconsciously, they want big scores. That's one reason they end up losing.
Anybody can adopt Dick's method. Whether you do is another question. But it's all here, and it's very clear.
ROBERT PRECHTER
September 2014
Preface
I've been around the trading game for over 40 years. I've seen a lot of traders come and go. But while it's a tough and unforgiving game, it is possible to make a great living from trading. The keys, as I discuss throughout this book, are emotional discipline and risk control.
I've organized this book, Trading as a Business, in much the same way that I teach attendees at my seminar. I recount a little bit about my own history as a trader. I discuss the principles that I use to guide my trading and explain the technical indicators that I use. Finally, I reveal my four trading templates and provide dozens of examples of how I use the templates to place trades.
I would suggest reading the entire book from beginning to end and then returning to Chapter 2, “Emotional Discipline”; Chapter 3, “Principles of Successful Trading”; and Chapters 5 through 8, which discuss trading with four different templates. After you've mastered the material, I suggest you set up the trading templates on your computer and begin analyzing the markets every day using the templates. Just as I do in Chapters 5 through 8, you should try to identify 80/20 trades (trades that will produce a profit four out of five times).
I have taught many traders, and I certainly understand that readers will come to this book with different levels of trading experience and expertise in technical analysis. Many of my most successful students adapted parts of my methods to their preexisting approach and evolved into better traders. Roberto Hernandez, a former student who now teaches with me, uses his own trading template, which incorporates some indicators that I do not use at all. If you're going to modify the templates or use your own template, I would suggest a few things. First, and most importantly, do not rely on a single indicator or even two indicators. The markets are too complex to be reducible to a single indicator at all times. I advocate using three to five indicators in a template and waiting until all the indicators align before putting on a trade. Second, make sure that your template is effective in identifying 80/20 trades. From my experience, it's tough to maintain emotional discipline when your template is wrong almost as much as it is right. Finally, read and reread the chapters on trading principles and make them part of your trading DNA. Trade small, use tight stops, and cultivate emotional discipline.
While it's fine to modify my templates or create your own templates, I believe the majority of traders will be better off using the templates in the book. They are the templates I use in my own trading; I know they work.
As I discuss in the chapter on emotional discipline, it's essential that you feel confident in your trading strategies and your trading rules. A trader without confidence will have a hard time pulling the trigger and will constantly second-guess his/her system and rules. A trader with confidence will consistently follow his/her trading signals, will adhere to his/her trading rules, and will accept with equanimity the occasional loss. Remember, as long as you followed your signals and followed your rules, you made a good trade – regardless of whether it produced a profit or loss.
My goal in this book is to give you all the tools you need to trade successfully and to trade with confidence. If you study the material here and work hard to implement the strategies and rules in the market, there's no reason you can't become a consistently profitable trader.
Acknowledgments
I would like to thank several people who helped me on my path as a teacher of trading and assisted me in the preparation of this book.
First and foremost, I want to thank my wife, Sharie, for giving me motivation, support, and encouragement. Without her, I don't know if I ever would have finished the book.
In many ways, this book is an outgrowth of my trading seminars. I would like to thank Brad Marcus, who got me into teaching in a classroom setting. After I moved to Florida many years ago, I began to take in one or two students for a week. Brad was one of those students. He loved his week with me and proposed that we start a business in which I would teach a group of students for a week three or four times a year. Brad was terrific at organization and he was instrumental in making the business successful.
Bob Prechter has been a close friend and business partner for many years. Bob appealed to me to begin teaching people to trade. For a long time I said no. Finally, we were on vacation together with our families and I told Bob I would try it and see how it worked out. Well, when Bob mentioned that I was providing trading sessions in one of his columns, the phone rang off the hook. Right off the bat, it was a huge success.
Steve Sweet, a partner in Zaner Group, has been very helpful in assisting students with setting up trading accounts and placing trades. I deeply appreciate his presence at our trading seminars in recent years.
Kelly Clement of MetaStock has also been very helpful at seminars, showing students how to create trading templates on their computers using MetaStock. I've used a number of trading software packages over the years, and I consider MetaStock to be the best.
After Brad could no longer participate in the seminars due to other commitments, I began working with Roberto Hernandez. I met Roberto when he attended one of my seminars in 2003. I could tell right away that he was a very bright and very committed trader. He adapted my approach and developed his own unique template. Unlike me, Roberto is a long-term trader. Attendees at our seminars appreciate the perspective and strategies that Roberto brings and how his approach differs from mine, while at the same time conforming to the trading principles I teach.
Finally, I would like to thank the many traders from around the world who have attended my seminars over the years. I enjoyed teaching each and every one of you. I hope this book reinforces what you've learned and helps you to trade more successfully.
Chapter 1
My Life as a Trader
I became a full-time trader in 1965. Next to marrying my wife, it was the best decision I ever made. Through trading, I've enjoyed freedom, independence, and prosperity. I have no boss to keep happy; no employees to manage; and no customers to satisfy. Trading has given me a great life.
I work hard, but it's on my own terms. I monitor the U.S. stock market during public trading hours between 9:30 and 4:00, paying particular attention to the morning time period and the hour or so before the close when good trades are most likely to materialize. My after-market analysis takes only about 15 minutes. The rest of my time is my own.
In recent years, I've had the pleasure of teaching my trading approach in classes organized by Elliott Wave International, a company founded by my good friend Robert Prechter. For four days, I talk about trading principles and strategies and conduct live trading. Preparing for the classes and then explaining how I trade to a roomful of people is a great experience. Putting my trading rules and strategies down on slides and presenting to a group of people reinforces to me the ingredients to successful trading. Teaching about trading has made me a better trader.
I get enormous satisfaction when months or even years later an attendee tells me I helped him/her to become a successful trader. I know for a fact that trading can be taught. But not everyone is willing to put in the time and effort necessary to succeed in this business. People often look for easy answers, and, of course, there are too many charlatans in the industry promoting get-rich-quick trading services to the gullible. The truth is there is no substitute for hard work. When someone takes what I taught, works at it and makes it his/her own, and then consistently applies it in the market, I'm thrilled.
With