Today's Quote: “Hope is nature's veil for hiding truth's nakedness” - Alfred Bernhard Nobel.

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 03: PROFESSIONAL SELL HOPE; NOVICES BUY HOPE

Many traders new to the market-and some not so new-think that given enough time and money trolling the aisles of the nearest bookstore, thumbing through the pages of one trading tome or another, they will find it: the holy grail of indicators, sure to make them a fortune by its ease of use and inherent logic. Others hold a similar hope that perhaps it will just be the next trade that will deliver the mother lode, the out-of-the-park grand slam, or maybe just bring them back to breakeven in one glorious round trip. But every master trader knows that hope is a dangerous thing when it comes to the market. While it is often that which initially brings people of all persuasions to the market, hope itself rarely helps one achieve success in the market. It is rather the ability to see what IS that leads to consistent profits. By this, we mean the ability to read what is displayed in the price chart without projecting one's hopes, desires, and fears upon it. As with most things worthwhile, this is much easier said than done. The level of parity required is one of mature, healthy detachment. In other words, rather than the focus being on oneself and the fortune to be had just around the corner, it demands complete focus on the facts of the potential trade. It demands that one adopt the attitude of the scientist, diligently gathering all the facts before reading a conclusion. Facts such as the nearest support and resistance areas, the direction and age of the current trend, the relationship between the last price and the aforementioned facts in order to determine the entry price, the stop and the price objective. It also demands that one ask uncomfortable, yet realistic questions like "What if it doesn't work out?' "Am I prepared to lose that amount of my precious capital, or should I go lighter, or simply sit tight?" And "Am I disciplined enough to get out according to my plan?" It is this process of seeing what is—a process that eventually becomes speedier and ultimately second nature that allows one to make informed trading decisions, stay in the game, and, most importantly, be a winner in the end.

MASTER TRADING TIP

Hope is a state of mind that the professional traders do not often partake of. Whenever they feel themselves hoping for something that does not exist, they know they are in trouble and immediately take the necessary steps to get out of the trade. Hope is something reserved for novices, those individuals devoid of knowledge and a concise trading plan. The master trader fully knows that selling hope is far more profitable than buying it. The options game, for instance, is largely a game of hope, so much so that we refer to it as the poor man's racetrack. It is not a coincidence that the biggest winners in the options game are those who sell options (hope), not those who buy the options (hope). When given the choice, the master trader will always be a seller of hope, rather than a buyer of it. It's more profitable.