Long Term Secrets To Short-Term Trading

Figure 2.21 S&P 500 Index (daily bars). Graphed by the "Navigator" 
(Genesis Financial Data Services). 

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Figure 2.22 S&P 500 Index (weekly bars). Graphed by the "Navigator" 
(Genesis Financial Data Services). 
Figure 2.23 S&P 500 Index (monthly bars). Graphed by the "Navigator" 
(Genesis Financial Data Services). 

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will note these same repetitive phenomena. The closer the daily close is to the high of a bar, especially if 
there are several such bars together, the closer we are to a market high. 
Market lows, in all time frames are just the reverse: the closer the closes of the bars are to the low then 
the closer we are to a market upturn. This is market reality; this is how the world of speculation works, 
always has, always will. 

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Chapter 3 
The Real Secret to Short-Term Trading 
The "secret" is the shorter your time frame of trading the less, money you will make. 
Sad but true. Think about any investment you have ever been in. Did you make a killing in one day? 
And, if you were so lucky, how many times were you able to repeat it' Not many. That is because the 
universal rule of life. Of ain, is the same as the universal rule of speculation: 
It takes time for profits to grow. 
Successful traders know that a market can only move so far in 1 minute that a market can move 
further in 5 minutes, even more in 60 minutes and a heck of a lot more in a day or a week. Losing traders 
want to trade in a very short time frame and thus automatically limit their profit potential. 
By definition, they have limited their profits and kept an unlimited loss scenario. It is no wonder so 
many have done so poorly at this of short-term trading. They have boxed themselves into a no-win situatio 
under the guise, often promoted by brokers or system sellers. That money can be made calling market highs 
and low’s during the day. The merit is bolstered with the seemingly rational statement that by tading within 
just one day and never holding anything overnight. you cannot be exposed to news or major changes; thus 
you limit your risk. 
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That's flat-out wrong, for two reasons. 
First, your risk is under your control. The only control we have in this business is to set a stop-loss 
point, a level at which we exit the trade, all trades. Yes, a market could gap beyond your stop the following 
morning, but that is a rare experience, and even then we are still able to limit our loss with our stop-loss and 
absolute willingness to get out of losing trades. Losers hold on to losses, winners don't. 
Once you establish a position with stops, you can only lose about that much money. No matter when or 
how you got into the trade, your stop limits your risk. Your risk is the same if you buy at an all-time new 
market high, or low. 
Not holding overnight limits the amount of time your investment has to grow. While sometimes the 
market will open against you, if we are on the right track even more of the time the market will open in our 
favor. 
More importantly, by ending our trading at the end of the day, or worse yet at some artificial cutoff 
point such as a 5- or 10-minute chart, we have drastically limited the potential for profits. Remember I said 
the difference between losers and winners is losers hold on to their losses? Another difference is that 
winners hold onto their winning positions while losers get out "too early." It is almost as if losers can't stand 
being in a winning trade. they are so damn happy to get a winner, they bail out of it far too early (usually, by 
getting out during the day of entry). 
You will never make big money until you learn to hold on to your winners, and the longer you hold the 
more potential you have for making a profit. Successful farmers don't plant a crop and then dig it up every 
few minutes to see how it is doing. They let it germinate, let it grow. We traders could learn a great deal 
from this natural process of growth. Our success as traders is no different; it takes time to create winners. 
It Is All about Time 
What I have just told you is an absolute unequivocal investment truth. It takes time to make money 
regardless of the activity. Thus short-term traders, by very definition, are limiting their opportunities. 
The fallacy of day traders is their belief that they can actually call the short-term swings of the market, 
tell where price is going the vast majority of the time, predict the highs and lows as well as the precise time 
markets will top and bottom. Sorry to tell you this, folks, but it cannot be done with any consistency. It is a 
day trader's dream, a pipe dream at that. 
But don't give up hope, my years of market analysis and trading have revealed one fundamental truth 
about market structure, which is the secret to making "short term" trading profitable. 

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By now you understand that (1) short-term swings are very difficult to predict; (2) we must limit 
losses; (3) as short-term traders, we will only do well when there is an explosive move in our favor; (4) 
time is an ally because we need time to create profits. 
To make significant money as short-term traders, we have to be able to sense how long the most 
profitable short-term swings usually last. This is not just a question of time, it is also one of price. Just as 
there are no straight paths to heaven, price can only go straight up, or down, to a certain point. The question 
I needed to answer was, What usually represents that balance of price and time? Note I said usually; many 
times, price swings will go further and take longer than you could ever imagine; and just as often, they 
falter and fizzle out just when you think you finally have outwitted the market. 
Keeping all this in mind, I am now going to reveal my biggest shortterm secret of trading to balance 
the trade-offs of price and time swings. This secret consists of two components: