Today's Quote: "I am an optimist, but I'm an optimist who carries a raincoat" Harold Wilson.

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…

SECRET #10: IT'S ALWAYS DARKEST BEFORE THE DAWN

We've got a dark secret to reveal to you. Something many of our followers would never expect. In a sense, it's an admission. One that communicates a very important message to all active traders. Every time we've decided to list all short plays in our daily newsletter, the market actually quickly reversed back to the upside. That's right. Reversed. And rather sharply at that. Now, many may not find our little secret comforting at all. In fact, there was a time when this revelation would have made us feel somewhat embarrassed. Today, we've either grown too callous to feel the sting of embarrassment, or we've simply grown up. At any rate, the question I know you're asking is "Why?" Why is it that with all our knowledge, skill, and talent, our timing on the market is usually wrong whenever we see only short plays? Well, in reality it's quite simple. A long list of short plays testifies to how negative things have become. Note here that "become" is the operative word. The market is not becoming ugly when we recommend only shorts. It has already become ugly. In other words, it's usually the darkest just before dawn. If the market has gone through an extended period of selling, at some point things will look so bad that not a single leading stock will look even close to a long play. And that is when the astute short-term trader will recognize that the crack of dawn—a relief rally—is close at hand. We've decided to reveal this because the "darkest before dawn" concept is an important one to know. It is something that every master trader we know is fully aware of, and it will forever keep you watchful. It will prevent you from committing too much to one train of thought, which, as you know, can be harmful when dealing with the market. Tip: The master trader reserves a small portion of uncertainty at all times, even when things appear very certain.

MASTER TRADING TIP

Whenever things seem the most certain, the master trader knows they are extremely uncertain. Whenever things seem too one-sided, the master trader knows to consider the opposite side. It does not even matter that he or she is the one doing the seeing. The trader has learned that the market is nothing more than a reflection of what the crowd is experiencing. And when the crowd has already experienced a great degree of pain and anguish, nothing, nothing at all, will look appealing. But oddly enough, that will be just when things are about to improve. Ugliness and sloppiness in the market can only be caused by those who have already sold. Get it? Already sold. Once the selling is over, once the darkness is complete, the buying part of the cycle is right around the corner. It is always darkest before dawn. Whenever things look their worst, you are likely to be in the final hour of darkness. Never forget this simple fact.