This is a rough transcript of a radio show I did… probably about a year ago now… with Craig Weil, the Director of Trading with the Online Trading Academy in Chicago.  The radio program was Traders Talk Live and aired at 9 AM on Saturdays on AM560 WIND.  I did have a recording but can’t seem to find it, but the transcript is probably just as good.

It was an interview based on the article I had published in Stock & Commodities magazine several weeks prior entitled “The Trading Plan.” [Just as a side note, you can check out my article in the April issue of that magazine where I discuss a rather obscure way to use the RSI indicator to verify trends.]

Enjoy, I think you will there is a lot of information packed into this, and regardless of whether you are an experienced trader or a new comer the following is a good reminder or a great introduction to trading.

Interview on Traders Talk Live with Cory Mitchell

When people ask me what the number one thing that all successful traders and investors have in common…it doesn’t take me long to come up with an answer.  Now… you have heard me say hundreds of times that there are many ways to skin this cat… as there are literally thousands of methodologies and strategies are employed every day by successful traders. There are strategies for all asset classes… for all time frames and for all kinds of markets….up…down or sideways.  Now some of you may say…its technical analysis…but of course…the fundamentalists would scoff at that notion. Some of you might say…patience or discipline…and that would be true to a degree.  No one is going to succeed without it…that’s true…But…but you can display great patience and discipline…and still not make money.

You may have even discovered…the greatest investing strategy since Warren Buffett was in diapers…… and back tested it thousands of times to eye popping results…but unless you can implement that strategy properly…and have a plan for it…you will fail.

And just as No business will get funding or succeed without a business plan… no trader or investor will consistently make money in the markets…without a trading plan.

Joining us now for a discussion on trading plans is someone who knows a lot about the topic…Cory Mitchell is an independent Trader and founder of Vantagepointtrading.com…a free educational website devoted to helping traders learn about …and succeed in the markets.

Cory has written numerous articles for several publications including Investopedia and Technical Analysis for Stocks and Commodities Magazine… and it was his featured article in their March issue that compelled me to invite him to the show today.  The title of Cory’s article is simply “The Trading Plan” and in it…Cory has artfully articulated why I think this is an extremely important topic…so I am thrilled he could join us today…Cory…welcome to Traders Talk Live!

How are you…..blah blah blah

Cory…  before we get into our topic today…let’s get a little background on you and your trading experience…

1.  Where did it all start for you? How did you get hooked on Trading?

Well, I have been trading for about 6 years full time…and what probably hooked me was when a professor I had in university introduced me to technical analysis.  The idea of looking at charts and visually trading based on actual price levels appealed to me much more than dealing with a lot of numbers.  I went on to work for 2 proprietary trading firms in Canada… trading stocks… and then a year ago switched to the Forex Market as it is open 24 hours and allowed me more freedom to trade at night which is when I prefer to trade [UPDATED: I still trade forex independently, but also own a small proprietary trading firm specializing in short-term equity strategies].  I am also a member of the Canadian Society of Technical Analysts and an affiliate of the Market Technicians association and definitely love the technical side of trading.

OK Cory…there are many components to a successful trading plan and we don’t have much time… so we had better get going.

Now…as I alluded to in your introduction…I feel  having a plan may be the single most  important ingredient  for success…so much so…that at online Trading academy….we actually have a one day class…dedicated to it.

Now…a trading plan is not just reading some books and opening an account…and sometimes…the new trader succeeds at first without a plan… and thus don’t think they need one…

Ex floor traders are especially guilty of this…when learning to trade electronically…

2.  But we shouldn’t fool ourselves right?   You call it random reinforcement… What is that?

Random reinforcement it prevalent in many things…including life in general…it means that we can do something wrong, and be randomly rewarded for it simply because the market is so dynamic.  This misleads people into believing they can beat the market without a plan simply because they win on a trade every so often – -but it is a short term phenomenon.  This random element reinforces bad habits because it gives an occasion profit while emptying out the trading account over the longer term.  It baits a lot of people into losing a lot of money who don’t take the time to really think through their plan.

3.  So where should someone start?  Do we need a methodology first…or does the plan come first? The chicken or the egg?  We really have to have some idea of what kind of trader we want to be…right?

Yeah.  We do not need some idea of what kind of trader we want to be.  It is likely best to start out by balancing our personality and desire to trade in a certain way …with our current circumstance.  By this I mean…it is very hard to be an active day trader… if the person also has a full time job.  So we need to be realistic about what and when we will trade.  From there…we can begin to develop strategies that cater to our lifestyle, personality and the particular market we have chosen to trade.

Cory…You have broken the trading  plan down into 3 parts…Money Management….Entry rules and Exit Rules….so let’s address each of these specifically…and how our plan will not work without mastering them all.

First off… you call it Money Management…I call it risk management

It seems obvious that we should be concerned about this… but so many traders overlook it.  First… we have to determine what our maximum loss will be on each trade…but  every trader has different risk tolerances and equity ..

In fact our primary goal shouldn’t be to make money….our  primary goal should be capital preservation…our secondary goal should be to make money.

4.  what is a good rule of thumb for someone…as far as what to risk on a trade?

Many traders think of a dollar amount first when considering risk. And I think that can be dangerous.  It is better to gauge risk as the percentage of the entire trading account which is being risked on each trade.  The amount that is risked on any given trade should be 1-3% of the trading account.  From my experience, traders that last it seems lean toward risking a very small percentage of total capital on each trade…therefore, we should risk only about 1 % of our capital on a trade.

Although, as our accounts grow we will find that we risk less and less percentage wise.  A $500,000 account trader does not risk $5000 on every trade…no way…the risk may be only a couple hundred.  So when this occurs, and percentages are no longer useful, a trader will normally use a dollar risk, such as $300, $500/trade or whatever the case may be.

And …speaking of Rules….Rules are really what this is all about right Cory?

5.  Can we have a plan without written rules?

If we can’t articulate our plan if we have none

The rules should to be written down.  If they are not written down we have no idea what has made money and what hasn’t, because we can’t remember what exactly we did on each trade over the last month or year – and chances are if someone doesn’t take the time to make a plan, they aren’t going to take the time to write down each trade in detail either…but if we have a plan we will know what is working and what isn’t…and we can fix it by altering the trading plan.

6.  And our rules have rules… Don’t we need a contingency plan for every situation?

Yeah…We need to know how we, personally, are going to respond to a situation.  The market can go crazy and we don’t need predict every movement, but if we have a well laid out plan we will know how to handle our current trades based on current conditions.  So yes, our trading plan takes all the guessing out of what to do while in a trade – it lays out our course of action no matter what occurs.

Lets talk about entries and exits…your other two keys.  Now… most people concentrate on entries and don’t really consider exits right? But that is where our profits or losses lay.  Anyone can get into a trade…but it is getting out that is really going to carry the day.

7.  In your opinion…what are the most important rules or steps we should have for exits?

The first thing is we should always have a stop in place.  This stop is what limits our risk to a very small percentage of our total account mentioned earlier…the 1-3%…or less…or our set dollar risk per trade…mentioned earlier.

We can also exit a trade with profit targets.  Profit targets based on logical technical analysis allow the trader to see exactly what they can expect in return for the amount of risk they are taking on.  If a trade does not appear like the rewards will outweigh the risk…the trade should be avoided.

I generally use multiple profit targets and exit part of our position at each different target.  Using stops and profit targets lets me know exactly what my risk to reward ratio is before the trade even takes place….and  I will talk a bit more about this when we talk about position sizing.

OK   Let’s talk about position sizing is and why this is so important. I think this is a difficult concept for a new trader to get.  Most people think that they should have a default quantity on every trade but that is dangerous…especially if you trade different equities every day.

People think they can make up a stop…”I only will risk 10c or 50c or whatever… But not all trades are the same.  A stop should be based on some data or criteria like time right? And once you determine a proper stop…that will dictate your positions size.

8.    Can you give us an example of proper positions sizing works and what kind of exits you use in your trading?

Sure, First let’s assume we have a $10,000 trading account…I will try to keep the numbers simple….  Risking 1% of 10,000 on this trade means we can risk $100.  And let’s say we want to buy a stock at certain price – we look and see at what price this trade would be proven wrong.  Let’s say there is a support level 30 cents below our entry, and this is where we place our stop.  Since we know our stop is 30 cents, we divide the $100…the total we can risk on the account… by our 30 cent risk on the trade to give us our position size.  In this case we can buy 333 shares, or 300 when rounded down.  We now have a logical stop in place and an ideal position size…

From there we need to look at our charts and determine a proper profit target.  For me to actually take this trade there would be to some chart formation or something logical and tangible (not emotional) which would indicate this trade would make me at least 2 to 3 x my risk level.  In other words, I need to reasonably expect that I will make 60 cents or more (preferably 90 or more), for my 30 cent risk.

We can do this by having one target but generally I set multiple profit targets because we can take a quick profit on part of the position but the last portion of the trade can be left to really ride for a bigger profit….of course it does not always work out as planned, and that’s ok, that’s why we try to make more on profitable trades than we lose on the ones that go bad.

Having a trading plan will allow us to review our trades and correct our problems. But many students…especially those that have been trading a while…don’t really care to put in the time to review their mistakes and reinforce their rules.

9.   What do you say to those people who don’t want to take the time to write down their rules and review their mistakes?

It may sound harsh but the financial markets require that there are winners AND losers.  The people who lose over the long run are the ones who don’t put in the time to plan out and review their ventures in the markets.  If you do plan and review, you have a much better chance at success.

Thanks Cory…for joining us on Traders Talk Live today.

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Adam Hewison takes a 2 minute look at the gold market in this video and gives you a level to watch for.  The video was recorded on Sunday but is still very relevant as it is the weekly chart which is analyzed.  In the video Adam mentions “engulfing” patterns.  Of the candlestick patterns, this is one of my favorite especially when seen in certain cycles or at support and resistance.

If you are invested in gold, trading gold or considering what to do with gold then be sure to check out this very quick free gold analysis video.

http://www.ino.com/info/536/CD3784/&dp=0&l=0&campaignid=3

Cheers,

Cory Mitchell, CMT

This was actually posted by Adam yesterday, so I am a little late in getting it to you, but it is still a valuable look at the current state of Gold.

Cheers,

Cory Mitchell, CMT

The move down in gold yesterday surprised many traders and flashed an exit signal based on MarketClub’s daily “Trade Triangle” technology. As we have mentioned before, we felt that gold was in a broad trading range and were not optimistic that it would shoot higher.

The action yesterday confirms that we have more of a two-way market. I expect we’ll see further selling on any rallies from this level.

In today’s video, I share with you some thoughts I have on gold based on one important element: how gold energy fields propel this market.

http://www.ino.com/info/533/CD3784/&dp=0&l=0&campaignid=3

All the best,

Adam Hewison
President, INO.com
Co-creator, MarketClub

Gold closed in on 1100 today, accelerating to the upside.  This video takes a look at where gold has been, where a particular strategy would have provided entries and exits and of course where gold is expected to go.  As always the video is informative and educational.

Keep in mind that for those who do not trade commodities, Gold can be traded in alternative ways such as through a Gold ETF like GLD.  That means being informed about Gold can provide opportunities to all traders, and not just commodity traders. Stock traders can use the information to trade the Gold related ETFs (exchange traded funds), forex traders can use the data due to the relationship between Gold and the US dollar, and commodity traders can use it to trade the commodity itself.  Here is the video:

Gold Separates and Accelerates

http://www.ino.com/info/474/CD3784/&dp=0&l=0&campaignid=3

Enjoy,

Cory Mitchell, CMT

Free Mini Email Course -You will get 10 free high quality lessons (and it actually is high quality) in your inbox….And it is totally Free!!!  Sign up today:

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The following is an article I came across and parallels a piece I am currently working on in a similar vein. The article below gives a glimpse into what is going on, but does even scratch the surface. If you read to the end when it talks about the sub prime mortgage meltdown, ask yourself: Why didn’t the government just give the money to home owners instead of corporations? The housing crisis would have been avoided because there would be far less foreclosures and the banks would have got their money from the home owners/tax payers. Is the Fed and government really there to help maintain stability? I think not.

Enjoy….

SAME PLAY, DIFFERENT ACTS by Bill Jenkins

One book I recommend reading is The Creature From Jekyll Island by G. Edward Griffin. It is an excellent treatment of the origin and goals of the Federal Reserve. I am surprised at the number of people who have never even heard of this book. It ought to be required reading in all civics classes – if they even teach that stuff anymore. Actually, I was shocked when a friend who I highly respect in our industry recently commented to me that he was just reading this for the first time.

So if you’ve never read it, get a copy. It’s available in plenty of places online. The book is a large one, and intimidating to those who are only occasional readers. But it is well worth the effort, and a real eye-opener as to why things have played out the way they have over the last year and a half.

Tracing the founding of the central bank in the United States, Griffin clearly demonstrates how and why it was formed, and how it is functioning EXACTLY as planned. The Federal Reserve is not America’s first attempt at a central bank, but all others were eventually shut down because they were recognized for what they really are — an attempt to create a cartel of bankers who, with Congressional support (even though they are not a federal agency), constantly overextend themselves in the pursuit of higher and higher profits. And when the game is up, it uses its Congressional “connection” to foist the losses onto the American taxpayer.

It always occurs with the same themes: “Too big to fail”… or “The first domino to fall in a nationwide/worldwide catastrophe.”

Each successive failure became more massive than the previous one, and a strategy emerged – start discussing amounts of money so big that the average citizen was simply mind-boggled by the size of them. As generations of public dis-education came home to roost, people increasingly believed that economics was the realm of governments rather than markets. And with that fallacy came the ingrained idea that money comes from the government, so it is the only entity able to create the resources to “correct” gargantuan fiscal shortfalls.

Of course what “everyman” missed was that the government’s creation of money out of nothing simply fleeced the citizenry in the form of the hidden tax of inflation.

Let’s take a quick and closer look at this sordid history.

I catalogued for you recently one of the failures of the central bank. It was purportedly established to stop market crashes and end recessions. But we have seen recessions in ‘53, ‘57, ‘69, ‘75 and ‘81, the crashes of ‘21 and ‘29, the Great Depression I, Black Monday in 1987 and the current lollapalooza of 2008-?

But one of the Fed’s other foundational reasons for existence was to reduce competition from outside banks, as previously mentioned. It also planned to foster an attitude of easy lending, perpetual indebtedness and constant loan rollovers and interest charges. Then when the jig is finally up, and the indebted families, corporations or nations can no longer even afford the interest payments, the debt burden will be passed to the unsuspecting taxpayer by way of inflation.

Since the inception of the Fed, the game has been managed very well. Smaller banks were allowed to fail, just as they are now. This gives the appearance of “letting the market work.”

Let’s look at some of the worst of the big bailouts, just so you can see get a grasp of what has happened, what will happen and how that affects your money.

SAVING BAD BUSINESSES BY STEALING YOUR MONEY

Penn Central was the nations’ leading railroad prior to 1970. And it was a pretty egregious example of how far bankers were willing to go to bilk money out of a cash cow.

Penn starting getting deeply into debt. Its loans were rolled over, and more money was forwarded to keep operations going, which included servicing interest on their current debt. But as things got worse, the huge banks who were in on the play, which included Continental Illinois, Chase Manhattan, Chemical Bank, Manufacturer’s Hanover and First National City, agreed to continue the loans only if the banks’ officers were put on the railroad’s operating board.

So essentially, the bankers lent themselves money and were in cahoots with the whole game. Also, they were privy to information about the railroad and its stock far ahead of the public. They used this information for their own private profit as the railroad bit the dust. Public records showed that the top executives saved themselves more than $1 million dollars by the sale of stock ahead of the public. A million saved is a million earned.

After all the banks who were called in to support the railroad with cash funds were given complete assurance that the Fed would guarantee the loans, the bailout was a done deal. Immediately all the unionized employees of the failing enterprise were given 13.5% raises. In the end, the Fed authorized loan guarantees of $125 million.

This was never really intended to solve the problem, and a year later the railroad was nationalized and its passenger service became Amtrak. It is a government-run enterprise to this day and continues to operate at a massive loss… only staying open with further governmental subsidies.

The freight side of Penn Central became Conrail, with the government owning 85% of its stock. Fortunately it was sold in a public offering in 1987, staged an impressive comeback and operates at a profit.

At the same time, defense giant Lockheed was also on the edge of bankruptcy. It was $400 million in debt, and Bank of America, along with several other smaller banks, were anxious to keep the milk flowing. Eventually, they marshaled an army of interested parties and went to Washington. They claimed that tens of thousands of jobs would be lost, along with suppliers and subcontractors who would be forced into bankruptcy if Lockheed were allowed to fail. So the government gave them an additional $250 billion in guarantees. That increased their total indebtedness 60%.

Of course, the government had a not-so-secret desire to see Lockheed pay off these debts, and the only way it could do that would be to earn more money. So the company became the chief winner of no-bid contracts and recipients of other governmental work. In the meantime, other defense contractors suffered, since they were essentially pushed out of the whole process in the rush to save Lockheed.

In the mid-’70s, New York City was pursuing the same path. Waste and overspending abounded in this gigantic welfare experiment. By 1975, NYC had sold so many bonds, the market was flooded with them, and there were no more lenders. Well, almost no more. Chase Manhattan and Citicorp were the banks that were benefiting the most from interest paid on these debt, but when the day finally came that interest payments were halted, both bankers and city leaders put together a caravan to Washington, D.C.

Same game plan: Threats of halting essential services… no firemen… no police… no garbage pickup. Rioting and anarchy in the streets. Spreading disease. In New York City? This could have international repercussions.

Out came the federal checkbook and draft was made for $2.3 billion, double what the city already owed. Even though there were a number of conditions placed upon the loan to balance the NYC budget and get a surplus to pay off these debts, none of them were ever honored. The city remains in debt to this day.

Then there was Chrysler for $1.5 billion.

Unity Bank, which eventually cost taxpayers just under $4.5 million.

Commonwealth Bank of Detroit, which enjoyed a $1.5 billion fed bailout – then was eventually sold to First Arabian Corporation, a firm funded by Saudi princes.

First Pennsylvania Bank was carrying $328 million in questionable loans, $16 million more than the entire stock float of the company. They received a $325 million loan from the FDIC.

Continental Illinois was the nations’ seventh-largest bank. It had assets of $42 billion, thousands of employees around the globe and an annual income of $254 million by 1981. Unfortunately, its stellar growth was based on shaky loans to risky businesses and foreign governments who could not obtain financing anywhere else.

Its stock was doing wonderfully, and it was named one of the five best-managed banks in the country. But as they began to reap the risk they had sown, the worlds’ first electronic bank run began. Customers were blissfully unaware, but the biggest depositors began withdrawing their funds, and the business was rumored to be in trouble. Creditors raised their interest rates to the banks and began withdrawing funds. In just four days, Continental’s withdrawals were so heavy, they were forced to go to the Fed for a $3.6 billion loan to cover them. Several banks extended a 30-day line of credit, but it was of no use. Within a week, the bank’s outflow ballooned to over $6 billion.

In the end, Continental’s liabilities (including those off-book) totaled $69 billion. Only about $3 billion of that was FDIC insured. The final bailout was more complicated than I can go into here. But just know that the bank was bailed out, and the taxpayers were stuck with the bill.

Then comes the subprime fiasco of 2008. Notice the fact beyond debate, that the Fed did not come to the rescue of the subprime borrowers. Nope — it rescued the banks. It was for this purpose that it was designed, and it continues in its mission today.

All in the name of preventing catastrophe, protecting the public and providing “liquidity” to the markets.

The multibillion-dollar bailout engineered last year is only chump change to what it will eventually cost the taxpayer. Protect the banks — fleece the public.

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P.S.  Want more trading education?  Get 4 free trading seminars here:

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Be Sure to check them out as well!

——————————–

Imagine not having access to any financial news stories. The only information you have about the market is the market itself.

Would you be a better trader or a less successful trader?

I think you would be a better trader. I have often said that the market is the best news provider in the world. It’s up the minute and it reflects both domestic and international issues. The success of our “Trade Triangle” technology is based upon market action.

In my new short video, I’ll take a big look at the S&P 500 market and where I expect it will head in the months to come.

http://www.ino.com/info/434/CD3784/&dp=0&l=0&campaignid=3

We all need to be prepared for what lies ahead, and this video is worth watching for that very reason.

There is no need to register for this video and you can watch it with my compliments.

All the best,

Adam Hewison
President, INO.com
Co-Creator, MarketClub

I am rushing this out to you guys.  The title pretty much explains what the video is about.  Check it out if you want some insights into the gold market.

Remember, you can trade gold the conventional way, or you can also use a gold CFD using much less of your own money.  If you don’t know about CDFs you can read a bit about them in my latest article on Investopedia (linked below), which has been extremely popular since its publication.  You can also read more about this type of trading right here on my site under the How to Start Trading Now—> Trading FAQ section.

So first the video:

What happened to the gold market?:

http://www.ino.com/info/415/CD3784/&dp=0&l=0&campaignid=3

And if you want to check out my article on Investopedia, here it is:

How to Trade For a Living/Quit Your Job to Trade Stocks? :

http://www.investopedia.com/articles/trading/09/how-to-trade-for-a-living.asp

Some commodity CFDs are available to be traded with my personal broker, and the broker I recommend, Forexyard.

Best a luck.  Lots of info in this post and I am a little pinched for time, but though I would fire this out and you can check out the resources when you have a minute.

Best wishes,

Cory Mitchell, CMT

Here are several videos on different topics, all are very timely and will teach  you about trading and possibly about a market you may not be familiar with.

How you SHOULD have traded Goldman (New Video):
http://www.ino.com/info/412/CD3784&dp=0&l=0&campaignid=3

Pre-earnings Apple Analysis (New Video):
http://www.ino.com/info/408/CD3784/&dp=0&l=0&campaignid=3

What’s the best strategy for USO? (New Video):
http://www.ino.com/info/409/CD3784/&dp=0&l=0&campaignid=3

The cyclic pattern of gold! (New Video)
http://www.ino.com/info/410/CD3784/&dp=0&l=0&campaignid=3

Check them all out when you have a few minutes.  The videos are totally free, and at the end you can choose to take part in a 30 day free trial of the amazing products and services offered by Ino (totally optional).

Enjoy.

Cory Mitchell, CMT
Chief Market Strategist

P.S.  Want more trading education?  Get 4 free trading seminars here:

http://www.ino.com/info/36/CD3784/&dp=0&l=0&campaignid=9

Be Sure to check them out as well!

In today’s video we’ll be looking at gold.

After a spectacular run-up in gold values in the last decade, gold prices have slowed down and have entered into a broad trading a range. In today’s video I will be looking at what are the likely scenarios that come out of this 14 month trading range.

This week (starting 7/20) could be enormously important for the yellow metal as a key level is within striking distance which will kick this market into action. In this video I give you a specific level that I am watching personally in this market.

http://www.ino.com/info/406/CD3784/&dp=0&l=0&campaignid=3

All the best,

Cory Mitchell, CMT
Chief Market Strategist

P.S.   WANT MORE?    How about 4 free online seminars:

http://www.ino.com/info/36/CD3784/&dp=0&l=0&campaignid=9 Be Sure to check that one out!

When you hear the news reporters talk about the price of
crude oil in the marketplace, they’re generally talking about
WTI, which is West Texas Intermediate crude oil. It’s a very
light, sweet crude oil and the highest grade that’s out there.
Crude oil is based on and priced on the amount of sulfur that’s
in the oil. It makes it easier or harder to refine base on the
amount of sulfur. WTI being the lightest and sweetest, is the
highest priced crude oil in the marketplace.

It is a benchmark delivered in Cushing, Oklahoma.

In benchmarks for crude oil and global pricing of crude oil, WTI
probably prices about 50% of the global pricing of crude oil.
Brent being basically the other pricing benchmark. There’s two
out there, Brent being a little of a mixture of three different
grades of crude oil; BF&O, Brent 40 and Ossenberg. They’re
all produced in the North Sea.

Please visit the link below to stream live the rest of the complimentary
article from Joseph Ria. The link below will also give you exclusive
access to three more video seminars and articles!

http://www.ino.com/info/36/CD3784/&dp=0&l=0&campaignid=9

Cheers,

Cory Mitchell, CMT