Trading through round and whole numbers like .25  .50  .75  and .00 are of psychological importance to many traders.  Big money managers and old time professional traders don’t care about the pennies that scalpers and algorithms try to capture.  These people are looking for some type of move and they are always thinking ahead to the next important price level.  Of course now, the more even the number, the more powerful the psychology.  So .50 and .00 are considered more important in terms of buying and selling in the active trader’s mind.  With the bigger money not putting buys or stops at odd numbers like $52.57, you can expect prices like $52.50 or $52 getting more action resulting in refreshing sellers or buyers.  Big money likes to think in half and whole dollars when making purchases or sales.  Studying the intra-day market strength and understanding how level 2 reacts in your individual stock right before it turns coupled with focused round and whole number trading can increase your chance of making sizable trades for great profits.  Here’s a sample chart of RIMM and how it looked at every round number during some type of consolidation.

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If you’ve been trading for some time now, you’ve either noticed it for yourself, or you’ve heard a seasoned trader say it.  The reality of it is this. In the morning, the markets are not yet established with sizable bids and offers.  So what ends up happening is that the retail accounts that still put their orders in with their brokers don’t have a grasp on what the market or their stock is doing during the trading day.  And because they’re not active traders they usually make their decisions after the trading day is over.  Orders are then placed by these accounts after the market close and are executed at the market right at the open.  Market makers then capture these easy bait-like orders by suckering in immature traders into what looks like selling or buying depending on the situation.  Then after 15- 20 min of the market being open, professional market participants begin digesting news and start to anticipate market strength and/or weakness therefore placing orders that fill the books of level 2.  Keep in mind that the market and it’s innerworkings are a combination of psychological and social factors.  Thinking shapes our reality even if the reality of the market doesn’t reflect present economic conditions.  The point is, is that thinking and surrounding yourself with the ideas of successful people can increase your chances of making money.

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It takes practice and experience to understand the difference between a calculated risk, and a careless and thoughtless risk. Being able to determine this is paramount to creating trading success as you should only take on trades that are within your risk constraint. Once you are able to both identify and act on appropriate risk trades, you will able to relieve yourself of the negatives of risk aversion or overly riskiness.

Risk aversion occurs when you are trading scared. By this it means you are shying away from trades because of the potential loss. Remember you will never know the outcome of your trade, but you can at least define the amount of risk you are willing to take. When you trade scared, you let emotions control you and often will stray from your trading plan. On the other end you can also become overly risky and end taking on trades you never should have. This occurs when you feel compelled to make profits and positive returns. You will force yourself in to trades and disregard whether or not they are right trade to make. In either state, the trader is letting emotions control them and ultimately hindering their trading progress and performance.

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In the field of trading, there is a constant unknown. This unknown of course is the future movement of price. Although you may think you know where the price is heading, or what will happen next based on signals or patterns, there is no way to be 100% certain of this. However if you are able to come to terms with the fact you will never completely know what will happen, you can prepare yourself for what is ahead, and avoid the burden of worrying about the unknown.

An important part in mitigating risk of unknown is to have a set plan. Not only should your plan take in to account what you plan on doing right, but it should also take in to account the losing trades, bad weeks or months, and even forced and unforced errors. If you experience an unexpected loss that one thing, however when you also do plan for it or create room for error, then you place yourself in an area of extreme emotions and run the risk of adverse trading performance.

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·         Have a game plan. Without a plan or strategy you are ultimately ensuring your trading failure.

·         Losing is a normal part of trading. Accept that you will have losing trades. Focus on how to control your losing trades, rather than trying to avoid making them.

·         Stay true to your trading strategy. Focus more on sticking to your plan than making profit. If you have a sound strategy and stick to it, results will come.

·         Learn to control emotions. It is impossible to completely eliminate emotions, however it is vital to understand how to have control over your emotions, and not have your emotions have control over you. 

·         Start slowly; do not rush your trading as it will affect your results. You will not get rich over night and until your are comfortable with both winning and losing you should

·         Always manage your risk. Never risk more than you are willing or able to lose, you should always be prepare for the worst case scenario.

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My name is Alberto Cruz and I am an instructor and senior trader here in the 5th Avenue Equity Trading Academy trading floor. My experience in the United States Air Force has given me the priviledge and experience of dealing with stress and emotions effectively, especially while overseas. However, the amount of training received in the military never prepared me for the constant fluctuations of prices in the stock market. Let me tell you right now that the ability to not be affected emotionally by the volatility of the markets isn’t an over-night achievement. Its takes time to become consistent in your trading and following by your specific trading rules with discipline. Its impossible to change human behavior and we will always be affected someway by our trades, but an astute trader  will always meet his/her trading goal and know when to exit a trade regardless of market conditions.

The 5th Avenue trading floor gives junior traders the opportunity to learn alongside professional technical analysts who have over 20 years experience in the street. The guidence we offer is in real time while we ourselves have positions in the market and will always be available to uplift traders  from uncertainty. The markets will always go up and down and the art of day trading allows a trader to profit not only while the markets go up, but also while the markets go down. Give it time and you will develop not only the discipline to pocket your profits and minimize your losses, but also to develop the confidence in your ability to trade.

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