Today's Quote: “Don't gamble; take all your savings and buy some good stock and hold it till it goes up, then sell it. If it don't go up, don't buy it.” Will Rogers

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…

HOW THE MARKET SPEAKS TO US

The market, looked at properly, should be considered a friend, but a friend who is mute and incapable of common speech as we know it. This friend cannot pull up a chair and verbally anoint us with its plans to interrupt its steady course of action. It cannot speak of its intentions to take a wild and unexpected turn to the downside. What it can do is warn us via its actions. As a friend, it speaks to us in the form of failures—failing leadership in , or failed attempts to rally beyond 2 or 3 days. Also, failure to respond to powerful, historical periods of strength, such as the late-year Santa Clause phenomenon, is part of its language. This is how the market communicates with us. This is how it warns us. This is how it speaks to us, through failure. Isn't that interesting? The market uses the language of failure to spread its gospel. And the players attentive and astute enough to receive the message early (easier said than done) will be the survivors, or at least the ones who fare the best. So the next time the market flat out refuses to do what it "should," consider it a friendly message of fatigue, and get the heck out of Dodge!

Every master trader has learned how to decipher the market's hidden messages. If you watch them carefully, nothing seems to bypass their keen eyes, and no matter what the market delivers, these masters almost always seem to know how to interpret it. What is their secret? How are they able to do this? Their secret lies in their ability to understand failure. If a stock they bought should have acted one way, but suddenly acts another, handing them an unwanted loss in the process, they don't cry. On the contrary, they say "thank you." Why? Because they recognize that it is through failure that the market sends them warnings. If a reliable technical concept suddenly breaks down, they do not start doubting the efficacy of technical analysis. Instead, they see that as a friendly wink from the market, a forewarning of more ugliness to come. And let's say a proven trading strategy suddenly starts to lose its accuracy. Do you think they would scrap it? No. They would see that as the market quietly whispering the words, "Just wanted to let you know, my friend, that I'm changing my character again. Did you get the message?" Every aspiring trader who hopes to reach mastery must learn to do this. They must study and learn to understand the language of failure. It is one of the very few ways the market is able to communicate with us.