5 ways to improve your trading

To ease my guilty feeling about playing so much golf, I decided to write an
article on the mental similarities of playing golf and trading. The more I
played, the more ideas I got. The best of both worlds.

Below is a summary of my thoughts and hard work on the golf course on the
similarities of Golf and Trading:

1) Before you take your first swing, you evaluate the course conditions. Is it
windy or still, where the tee box is aiming you, is there a dogleg in the
fairway, location of hazards that might come into play, is the ground soft or
hard, is the hole going to play long or short, and the pin placement.

1) Before you make your first trade, you evaluate the market conditions.
Where did the market close the day before, what is the pre-opening call, what is
in the news, what economic data is coming out and what are traders looking for
in these numbers, where are the support and resistance areas.

2) You tee up the ball, get your direction and keep your eye on the ball. You
need confidence in your shot.

2) You get your entry/exit points and keep your eye on the numbers. You need
confidence in your execution.

3) You need to focus on every shot. Is the ball in the fairway, first cut, sand,
or in the woods? Your position will determine your next shot.

3) You need to focus on every trade. Is your trade in the money or out, are
you on the right side of the trend, is the market volatile? Your position will
determine your next trade.

4) No “Hail Mary’s.” You have a bad shot or a bad trade; you get yourself back
into play and take the penalty.

5) The objective of golf is score well. Maximize your good shots and minimize
your bad shots. Make money if you are the betting type.

5) The objective of trading is to make money. Maximize your good trades and
minimize your bad trades. Make enough money to play golf.
You want to “play” the course and “trade” the market. Be aware of how each is
set up, don’t try and beat either. The golf course and the market will tell you
what to do, you just need to: “LISTEN.”

Traders can confirm there entry/exit points by “listening” to Volume at Price
data.

Since this is a financial publication and not a golfing publication, I will
expound on a trading strategy rather than on a golf strategy.

The reason why I used the analogy of “listen” in the paragraph above, is that
with the explosive growth of electronic trading, traders today want trading
tools that give them an inside edge as to what the market numbers are telling
them. “Volume at price” is a trading tool that allows traders to “listen” to the
market; you hear where the demand is or isn’t.

Markets seldom go straight up or straight down; there is a lot of sideways
trading. Odds are in your favor that many market numbers are going to be
revisited. The upper and lower boundary market numbers in a sideways trading
range will give traders the general area where the market is facilitating to
make its next move. To be able to pinpoint the pent up demand in this area,
traders can more accurately gauge their entry/exit market points; i.e., If the
resistance number in a sideways trading pattern is 10560, and the cumulative
high volume area starts at 10580, you would want to have your first entry/exit
points starting at 10580. The reason being is that if the market has enough
momentum to break through this high volume area in the sideways pattern, the
chances that the market will break through the resistance number of 10560 have
been greatly increased. “Listening” to the volume numbers will give traders the
inside edge of the markets dynamics.

Below, the standard bar chart for the CBOT’s mini-sized Dow shows sideways
trading between 10680-10560, for four trading days, and then breaking out of
this area at 10560 to move sharply lower.

The Chart-Ex Month vs. Day chart for the CBOT’s mini-sized Dow display’s the
historical cumulative volume at each price. You can confirm;

1) There was heavy volume in the sideways trading range of 10680-10560

2) Pinpoint the lower band of the high volume area at 10580-10560 (The chart-ex website provides a java applet
that displays volume at each individual price).

The trading strategy in this sideways market would be to have your 1st entry
point for setting up a short position at the 10580-10560 area. Once the market
has broken through the lower band of the high volume area of 10580-10560, you
have confirmation that the sellers are in control. I would add on to my short
position slightly below 10560, keeping my stops close to confirm the break out
and the downward market momentum. Chart-Ex volume at price data confirms the
relative strength and/or weakness of the markets price action.

As in the game of golf, you want to equip yourself with the best tools. Volume
at price will enable you give it your best “shot.”

About the Author

Lisa Erdmier is President of Chart-Ex, LLC. Chart-Ex is a web-based company
that offers a new proprietary data visualization tool that displays comparative
price action on a single central axis with cumulative volume at each price. The
Chart-Ex display keys into the growing demand from traders and investors that
want to see volume at price in one concise model.