Today's Quote: “Discipline is not something I impose on you so I can control you. Rather, it is something you must develop within yourself so you can become the best person you can be, not the one who could have been.” Timothy F. Hough.

Webster’s defines trading as: “to engage in frequent buying and selling of (as stocks or commodities) usually in search of quick profits”. Notice the key words that even Webster knew to include; “…in search of…” making an implication to the fact that ‘quick profits’ are ever so illusive.

This definition works fine if you are learning English as a second language. It gives you a notion of what the word means. It does not due justice to the process. We are going to take a couple of articles to share some ideas regarding what makes up the essence of trading. Look for part two tomorrow when we will focus on the stages that many traders go through to realize what is needed to trade.

Here is a definition to consider. Trading is “Using technical analysis to find a moment in time when the odds are in your favor. Then trading becomes a matter of your entry and management.” In other words, it is having the KNOWLEDGE to know when the odds are in your favor, having the PATIENCE to wait for that moment, then having the DISCIPLINE to handle the trade properly when goes in your favor and properly when goes against you.”

Let us dissect a little. The opening words are ‘using technical analysis’. Now, I know Webster’s definition would let you trade with fundamentals, but not ours. We feel there can be no argument that the opening words are not a misprint. We begin our search on the charts. This is the only place where we find truth and useful information in the markets. We do not find useful information from analysts, not from brokers, and not from accountants.

Next comes ‘a moment in time’. How long is a moment in time? It depends on your time frame. For a core trader that moment may be a day, for a swing trader several minutes, for a day or scalp trader, perhaps only a few seconds. The point is that there is only ONE moment when that exact trade is proper. Any thing past that moment, and that trade is gone. Note, there may be other similar trades that occur later (such as buying the first pullback), but these are separate trades, each one of them will have their ‘moment’.

Next, when are ‘the odds in your favor’? Well, that comes down to a matter of knowledge and technical patterns. Every so often a stock will ‘show its hand’ and give away a key secret. Letting you in when a pattern develops that appears to be something other than just random noise.

“Then it becomes a matter of entry and management”. In other words, here is where the psychology comes in to play. Once you learn how, the intelligence actually required to enter and manage a trade is minimal. The ability to do so; is rare. This is where you become your own worst enemy, and is the level that even the most astute traders seldom pass.

Then notice the three capitalized words in the last part. KNOWLEDGE to know; PATIENCE to wait; and DISCIPLINE to handle. It sounds like the beginning of the Boy Scout Creed, but is a sentence you may want to cut out and put on your monitor.

Monday we will examine some of the finer points, such as how many traders arrive at their own definitions.