Today's Quote: “Once a decision was made, I did not worry about it afterward.” Harry S. Truman.

There are several good books out there about trading that should be on every trader’s must read list. If you were forced to choose one and only one, the only possible pick would be “Tools and Tactics for the Master Day Trader”. We are going to run a series of excerpts from the best selling book for the next series of lessons. Now in the words of the master trader himself, Oliver L. Velez…

LESSON #4: THE ULTIMATE DECISION-MAKING TOOL

It is our belief that far too many traders overemphasize the importance of the overall market and its potential direction. This tendency is largely due to the media, which has to report a more macro view of the financial climate. While market climate and direction have their place, direction should not be entertained at the expense of proper trading technique and proper money management. This is why we focus primarily on providing our subscribers and private students with helpful trading tips, which in our opinion is far more valuable than giving them our view of what the market "might" do. This is certainly not to say that market direction is unimportant. In fact, there are times when having an accurate assessment of the general market will mean the difference between winning consistently and winning only sporadically. However, the shorter one's time frame, the less important macro or overall market analysis becomes. Why is this so? Because short-term price moves (up or down) can be found in virtually any market environment. But far more important than this point is the fact that market direction should never be a trader's ultimate decision maker. One should almost never decide to liquidate an existing position on the basis of what a specific index is doing or not doing. The ultimate decision maker must be your stop loss order or your predefined sell point, not the market. Let's look at it this way. If the Dow is down 200 points and your stock hits its stop loss, the master trader sells! If the Dow is up 200 points and the stock hits its stop loss, the master trader still sells! Where does market analysis come into the picture? Nowhere. Not if the ultimate decision maker is your stop loss. So while market direction does have its place when considering entering a new position, if you are already in a stock, it should be secondary to your initial sell strategy. This rigid approach does require very strict discipline, but if adhered to, the trader will be richly rewarded with very small losses.