Tuesday, June 3, 2008

Destroying the Enemy

"How many enemies - boundless as the sky - might I destroy," wrote the Buddhist poet, Santideva. "Yet when the thought of hatred is abolished, all enemies are destroyed."
Dear Reader, do you hate the bears ? Those unknown, faceless people who are driving the markets down. Well, do not indulge in this silly past time of hatred. Because, You are the Bear. In fact, in bull markets, You are the bull. The Market consists of thousands of people like you, who together determine the direction which the markets will take.
When you are bearish, you stop buying. Thousands others like you also stop buying. The absence of buyers causes markets to fall. Then, panic sets in and investors and traders begin to sell. In absence of buyers, sales of small lots can cause disproportionate declines. This is the way of the markets.
Ino.com has a blog where many traders write about their trading ideas and experiences. On May 29, Corey Rosenbloom is the guest, at http://club.ino.com/trading/2008/05/the-four-main-types-of-trades/ . Corey explains there are four diferent types of trades:
1. Breakout/Breakdown
2. Retracements
3. Reversals
4. Rangebound Fades
This classification of trades are similar to what I follow. Based on ideas given in StreetSmarts, a book by Connors & Raschke, I divide trades into four categories:
Breakouts
Tests
Retracements
Low Volatility setups