Secrets of successful_traders

SECRETS OF SUCCESSFUL TRADERS
2007
Edition
1
Secrets of
Successful
Traders
Make Money From The Stock
Market…Guaranteed

2007
Edition
2
TABLE OF CONTENT
From The Desk of CEO
The Game Plan
Chapter 1 Why Trade In The Stock Market
Chapter 2 Path To Profits
Chapter 3 It Begins With You
Chapter 4 Roadmap To Profitable Trading
Chapter 5 Question Answer Session
Chapter 6 How Stock Market Works
Chapter 7 Some Key Terms You Must Know
Chapter 8 Trading Secrets
Chapter 9 How to Select A Good Broker
Chapter 10 Trading Rules

2007
Edition
3
FROM THE DESK OF CEO
First of all, I would like to thank you for taking the time to download and read this E-Book
and secondly I would like to congratulate you.
What you are about to read might be the answer to help you to make more money in
your life. To make the learning process easier and more enjoyable, I've presented the
lessons with the help of examples and images. You'll find it more entertaining. If you are
a quick reader, you might read through the whole book in less than 4 hours.
Lot of people has the misconception that trading the stock is an easy task. The physical
act of trading is easy but making money consistently is not; otherwise everyone would
be rich.
The tips we're about to give you probably won't make you millionaires OVERNIGHT. But
They WILL give you that tasty edge you need over your other traders.
Reminding You that "Knowledge Is Power"
A FEW ASSUMPTIONS ABOUT YOU
1. You haven't spent your last dime to buy this EBook. You will need some money
(though a lot less than any traditional stock trading system, say $1000) to trade in
the stock market following the strategies I am going to discuss in this EBook.
2. You need to have a burning desire to make money from the stock market. What you
are going to learn in this EBook is not at all complicated but it would require some
concentration and consistent effort.

2007
Edition
4
If you make half-hearted attempt to complete to complete the tasks and small
assignment then please do not expect to get extra-ordinary results.
To your trading success
2StockTrading Team
Website: http://www.2stocktrading.com
Email: support@2stocktrading.com

2007
Edition
5
THE GAME PLAN…!!
The book is broken up in two sections. The first section is called “Skills You Need” and
is made up of all the skills you must have to be successful in the trading business. These
include ideas like setting and accomplish goals, skills you need to be successful and lot
more.
This section is also going to reveal that Killer Strategy that is going to
make your $1000 into $1,000,000 in 5 years or less…
The second section is called “Insider Secrets” and is made up of trading secrets Wall
Street people don’t want you to learn. This section begins with the basics of stock
market- how does stock market functions and cover everything else you need to know
about it.

2007
Edition
6
SECTION 1

2007
Edition
7
WHY TRADE IN THE STOCK
MARKET…!!
Somebody has rightly said -
"If you don't know where are you going…
…you will probably end up nowhere."
So the question you should ask yourself is:
Why should I start trading in the stock market?
Is it the fun and excitement? Do you want to be rich? Perhaps you enjoy status of being
a trader? Do you want to do a part-time trading or a full time trading? Or maybe you just
want to secure your future.
For some traders, it's an escape. They hate the world around them-their job, their boss,
their spouse. No matter what is your reason behind trading, but trading has to be about
only one thing...
...Making A Profit

2007
Edition
8
But making profit doesn't mean that you'll double your money every few weeks and start
dating Hollywood movie stars with your newfound wealth. If anyone tells you that, please
laugh at him loudly.
Trading is NOT A Get-Rich-Quick Scheme. It takes time to earn money and become
successful.
The most basic problem that we have found most traders struggling with is lack of
direction.
Traders come into the market hoping to make money, but without any strategy. Many
traders fail because their plan is too shallow or they don't even have a plan.
Planning is a critical ingredient in a successful trading decision. It is rightly said-
Failing To Plan Is Planning To Fail".
We know quite a few traders who have made a tremendous amount of money in the
market, but within a year or two, they lost all of it.
What Is The Reason...!!
These traders viewed trading as a "Get rich quick scheme" and not as a real business.
Their only true objective was to make as much money as possible, without any plan or
consistency.
These traders believe that the "End justifies the means", which means that making
money, despite bad habits and reckless trading is good enough for them.
They end up losing everything.

2007
Edition
9
Trading is a perfect business. And the best part is you can do it full time as well as part
time. The choice is completely yours. But both type of trading requires a different set of
rules, strategies, mindset and lot many things.
We will talk about that in the later section of this book. But for now, you must decide-
Why do you want to trade?
STOP
I want you to do a little exercise and please don’t skip this. If it is here then it is
important.
Close your eyes and visualize what being a successful trader means to you. See
yourself doing trading and making money consistently days after days and week after
weeks.
Imagine the feeling of happiness it creates when you see money keeps on going to your
bank account. How does it feel getting richer every passing day?
This is really a great exercise and works in almost any situation. It helps you formulate a
solid, worthy, personal goal and keep you motivated and focused throughout this EBook.
ASSIGNMENT NO#1
Write down one primary goal you want to accomplish by
trading in the stock market.

2007
Edition
10
Take that goal and write it (-It is important) on a 3 X 5 card and put it where you see it
when you wake up in the morning and before you go to sleep each night.
If you really want to burn this goal into your subconscious mind you should read it aloud
each morning and before you go to sleep each night.
Believe me, this technique really works. This is not some "corny" technique I am writing
here- this is one of the key technique Napoleon Hills teaches in "Think and Grow
Rich", the classic book on how to turn your thoughts into riches.
REMEMBER
I’ve included this excellent EBook in the package as a bonus. Must have for
everybody…!!
You can see this technique live in action in some of the books written by marketing guru-
Yanik Silver.
So do you have your goal clearly stated and written down?
Good. Let's move on to the next part...

2007
Edition
11
Have you completed the assignment given in the lesson # 1?
If not, please complete it before you go ahead.
THE PATH TO PROFIT
Recently we conducted a survey. We asked a very simple question to thousands of
traders-
"What is the one thing you must start out with to become a successful
trader?"
We got answers like - Good knowledge, Determination, Insider news, Patience,
Technical Analysis.... The answers are all on the target. But in trading to score big you
need to hit the bull's eye. And none of them did.
The bull's eye answer is –
Sound Preparation- An Excellent Trading Strategy

2007
Edition
12
It is amazing to see how so many people think they can enter into this business and be
successful without any training, knowledge, or plan of attack. Think about it.
Can a person living next door just open up an office and be a successful doctor or an
engineer? Can he beat Ricky Ponting or Sachin Tendulkar in cricket without practice and
lot of hard work?
No way, it takes knowledge and training. Well, it's the same in trading stocks.So here's
your first very important trading lesson. In just seven words-
The Path To Profit Begins With Preparation
There are a lot of people these days investing and making money in the stock markets
all over the world. It can really be profitable, safe, fun, very exciting and sometimes, it's
almost fascinating.
Trading in the stock market is the world's fastest route to freedom
Yes, get it right and trading is the world's fastest way for you to get rich and be free. Get
up when you wish, go out where you want. Meet up with friends or spend time with the
family. You could just sit around and do nothing!
And that's just the start...
...Imagine All Those Things That You Can Achieve Trading Successfully.
But at the same time, trading could be the fastest way to go bankrupt. It should be no
surprises to learn that over 90% of the traders FAIL to make money from the stock
market.

2007
Edition
13
Reason….!!
Quite often, the problem begins with the Preparation. Traders are so eager to enter the
market and make money; they sometimes forget one very important thing Sound
Preparation.
We have designed this book that will take you through the entire trade preparation
process. This book will provide you the enough information to put you into the top 10%
of traders who consistently make money from the stock market.
We can't guarantee that you will become an expert trader instantly after reading this
book. What we can guarantee is that if it's in here, it's important. Don't skip a line.
Read the book online. Or print it out. But either way, read it when you don't have a lot of
other things to do and can concentrate.

2007
Edition
14
I am not saying that you have to read the whole book in one sitting. It doesn't matter how
long it takes you; what matters is that you do work through it, understand it - and
apply the lessons.
The fun and the cash come after the foundations are properly laid. The wrong mindset
and lack of preparation only leads to one thing….FAILURE

2007
Edition
15
IT ALL BEGINS WITH YOU…!!
Ready to start..?
Great! Let's get started...
Let me share this funny abstract from Norman Hallett's Mental Fitness For Traders.
The story given below may sounds little bit funny to you but this is how most of the
traders trade in the stock market.
I will also tell you the reason why I am sharing this abstract with you. But first, you go
through this...
A Typical Trading Scenario
You've done your homework.
Countless hours of seeking out the right guru (or piecing together your own system).
Weeks of monitoring your guru's daily trade picks (or paper-trading and back-testing
your homemade system)
No seat of the pants trading for you!
OK, now you're confident. It's time to put your money where your homework is. You've
had your coffee and your first trade signal is before you.
Confidence high. Trade made. First loss. Not a problem.

2007
Edition
16
You understood before you started that successful traders both win and lose and "losing
is part of the overall winning". You've also heard more than once that "successful traders
don't win on every trade."
Moving on, still confident. Next trade made. Another loss, but...
This one hurt your pride a little because you got stopped out early in the trade, and then
the market rebounded and would have hit your profit target if you weren't stopped out.
You double check.
Yep, you placed the stop where your trading system told you to place it. You kind of had
a feeling that the early weakness in the market was just profit-taking from the previous
day's trading, but you're trading a system and you must stick to it.
Wounded, but resilient.
After a good night's sleep and a few mouse clicks, your new daily trades are in front of
you. Hey, this one looks good! It's a little bit more risk than yesterday's trades had, but
look at that profit potential!
With a smiling face, the trade is executed. With a nice start to the trade, you're feeling
good and you've moved your stop to breakeven, just like your system said.
Surprise piece of news! Market reverses - blows through your stop – an
"unexpected" loss.
Is something wrong with the system? Has the overall market "personality" changed,
affecting your system to the core, rendering all your back-testing irrelevant?

2007
Edition
17
Your confidence turns to doubt.
You decide to "watch" the next trade... I mean, isn't it wise to make sure the system gets
back on track before you "throw good money after bad?"
Isn't that what a conservative trader does?
Trade watched. It wins!
In your head, you beat yourself up a little because you know that when you started your
"live" trading, you made an agreement with yourself to take the first 10 trades "no matter
what"... and here you wimped-out and missed a big winner that would have gotten you
even.
What's happening…?
“What's happening is that you are out of control. Your emotions are ruling your
trading.”
Did you like the story?
Click Here To Claim Your Free Copy of Mental Fitness For Traders
But do you know why I shared this story with you?
Because, the above scenario plays out in every trader from time to time... newbie and
veteran alike.
And hence, trading in the stock market doesn't begin with the trading.

2007
Edition
18
...It begins with you
You have to know yourself before even you think about the stock market. To become a
successful trader, you must have what it requires. There are certain qualities, which you
need to develop in yourself.
It's not talent, not luck that decides how much money you can make from the stock
market, but self-motivation, enthusiasm and discipline.
Any successful trader bound to have qualities like- focus, direction and commitment. To
trade like the professional traders, you are going to need all these skills.
Do you have these qualities?
Determination
Enthusiasm
Focus

2007
Edition
19
Adaptability
Discipline
Money Management
Self-Motivation
Patience
Commitment
Perseverance
Become successful is a major commitment. If you're afraid of long hours, hard work,
hate risk, aren't committed to doing whatever it takes to win -
Do yourself a favor: Stop reading and send this book on to a friend. I don't know you,
but I do know one very important thing about you: You don't have what it takes. Face it,
and get on with your life.
But those who are still reading this book, here's some good news-
You can minimize the risk involved in the stock trading by following the advice in the
book. Your decision to become a successful trader indicates that you are determined to
win. You are a person with positive mind.
Successful trading requires all the above-mentioned qualities and you must acquire
them in order to come under the 10% category of the successful traders.
Remember, 90% of the traders fail to make money from the stock
market.

2007
Edition
20
Do not expect to be successful at trading instantly, you have to learn this business as
well, the same way you learn any other.
Your attitude towards trading will affect your outcome. Trading is a business, so treat it
like one. Being over confident could cost you money, just as being under confident could
mean you miss opportunities.
REMEMBER
When trading goes right, it can be a great feeling. When trading goes wrong it
can be a nightmare
Fortunes are made in a matter of weeks and lost in a matter of minutes". Why the failure
rate is so high? Why can't we start trading without any planning and preparation and why
90% of people fail to make money from the stock market?
And most importantly, is there any way to make “Sure-Shot money” from the
stock market without taking much of risk?

2007
Edition
21
ROADMAP TO PROFITABLE
TRADING…!!
So let's begin our journey of knowledge and profit with a very simple question.
How Much Money Do I Require To Invest In the Stock Market?
Isn't it simple? But the answer is not that simple.
Do you know, thousands of people don't even invest in the stock market because they
think that to earn BIG you need to invest a lot of money into the stock market.
Let's take an example to get the better understanding of the concept.
Example
Suppose you want to earn $10,000 from the stock market. Now out of
hundreds of companies listed in the stock exchange, you found out one
company that can give you 100% return on your investment.
So what is the minimum amount you will have to invest so that you can
make $10,000 even if the company gives you 100% return on investment?
Yes. It is $10,000
Sounds like TRUE???
But would you believe if I say that this is one of the BIGGEST mistakes you can ever
make as a trader.

2007
Edition
22
Firstly, how many companies do you know that can give you 100% return on your
investment?
Moreover, stock trading is always risky, no matter how well you trade. Majority of people
end up losing after an initial earning. You can lose your whole investment in the stock
market.
So, wouldn't it be nice if you can start trading with a small amount of
your hard-earned money and can still make huge profit?
Always remember, the more money you use, the more emotional fuel you are pouring
onto the fire. And as I already explained that to trade successfully you need to remove
all emotional influences. Any emotion that you have in the trading equation, spells bad
news.
QUESTION
So what method can you use to reduce emotions in the trading?
Yes, I know it's not easy for beginners to start making money from trading stocks without
any knowledge. I know the frustration of losing because I was once a beginner and lost
all my money trading stocks.
In high school, I was interested in the stock market. But because I was an ordinary guy,
without any special advantages, I had no money to invest. I went through engineering
school and I invested my savings into the stock markets.
You know what; I lost all that hard earned money.
It wasn’t a very good situation...

2007
Edition
23
Newsletters, bulletin boards, books, courses, software, data services, tips and more. I
tried everything. Oh man, give it a rest!
I tried all trading strategies Day Trading, Swing Trading, Trend Trading etc. And the
trading results? Well if there had been an award for the world's worst trader, I would
have got the prize annually.
Week after week, month after month, I was losing all my money. In fact I was only days
from being forced to quit trading because my account was nearly dry. The stress was
intolerable.
But then one day it happened, I made Money.
Yes, I have discovered a unique Fail Proof trading strategy and I started earning
money consistently.
Within few months profits started rolling in. Initially few hundred dollars, then few
thousand and more. It just kept on going - I was amazed and wondered where it was
going to end. And all of this from an account that was only days away from total wipeout.
Can you imagine the feelings of happiness this creates?

2007
Edition
24
Okay, No more suspense. Here is the secret of my success. Remember, it could be
yours. But you have to promise that you will not disclose this to everybody.
So here we go...
Earn only 1% profit on your trades on an average interim of 5 days a week and you
can-
"SAFELY Turn $2,000 into the HUGE 1 Million
in 5 years or Less"
Stop…!! I’m not done yet.
Earn 1% profit every 3rd day a week and you can be a millionaire in just 5.7 years.
But if you can earn this 1% profit on your trade 7 days a week, you can achieve your
target of 1 Million in JUST 1.9 Years

2007
Edition
25
QUESTION
What do you mean by average interim?
Average Interim is the time gap between two profitable trades. For example, if you earn
1% on Monday and another 1% on Thursday, then your average interim time would be 3
days.
Shocked?
Need Some Math Calculations?
Okay, let’s do it.
Let's assume that the initial amount you want to invest in the stock market is $2,000.
STEP 1
Let’s calculate number of times you need to earn 1%
profit to safely convert $2000 into $1 Million.

2007
Edition
26
Open your windows calculator by clicking on Start > Programs > Accessories >
Calculator. Now set your calculator on scientific view by clicking on the "View" tab at the
top and then "Scientific". (See Below)
Now the formula to calculate the number of times is given below
PROVEN FORMULA
(Log 1,000,000 – Log 1,000
--------------------------------------------
Log (1+0.01)
NOTE
Please remember this formula. We are going to use it quite often
To calculate the logarithm of a number, you need to enter the number and then press
the LOG button in the calculator.

2007
Edition
27
Log 1,000,000 = 6
Log 2,000 = 3.301
Log (1+0.01) = 0.00432
Put these values into the formula and you will get number of times you need to earn 1%
profit to convert your initial amount of $2,000 into $1,000,000
6 - 3.3
---------- = 625 times (With $2000)
0.00432
Just Imagine 1% return on your investment then re-investing it all over again and doing
the exact same thing for just 625 times can turn your little investment of $2000 into $1
Million.
NOTE
You can replace $2000 (your initial amount) with any amount of your choice.
Increase the initial amount to reduce the number of times you are required to
earn 1% profit
For example, if you start with $3,000 instead of $2,000, then number of times you need
to earn 1% profit would be:
Log 1,000,000 = 6
Log 3,000 = 3.477
Log (1+0.01) = 0.00432
Put these values into the formula,

2007
Edition
28
6-3.47
---------- = 586 times (With $3000)
0.00432
STEP 2
How long will it take to convert your initial amount into $1 Million?
Well, that depends a lot on your average interim. As I already told you, this is the time
gap between two profitable trades.
Lesser the gap, sooner the target...
Number of days you are away from $1 Million can be calculated using this formula:
PROVEN FORMULA
Number of Days = Number of Times X Average Interim
NOTE
Please remember this formula. We are going to use it quite often
We have already calculated that if you are starting with $2000 then you need to earn 1
% profit 625 times in order to convert that into $1Million.
Let's say your average interim time is 5 days. (By average interim time of 5 days I mean
that there is a time gap of 5 days between two profitable trades. Or in other words, you
are earning 1% profit every 5th day a week)

2007
Edition
29
Therefore, number of days = 625 X 5
= 3125 days or 8.5 Years
CONGRATULATION…!!
If you can earn 1% profit every 5th day, then re-invest it all over again
and do the exact same thing for 625 times. I guarantee...you will
have $1 Million in your account after 8.5 Years.
And that's not all.
What will happen if you can earn this 1% profit every 3rd day instead of
5th?
Hummm.... Let's find it out.
Average Interim = 3 days
Therefore number of days = 625 X 3
Amazing. Isn't it?
ONE GREEDY QUESTION
What will happen if I manage to earn 1% profit every day?
Don't be ashamed. Little bit of greediness is acceptable. After all, you have just got an
amazingly powerful and proven strategy.
So let's try to find the answer for you.

2007
Edition
30
You are asking, what will happen if you can 1% every day or 7 times a week. It means
that now your average interim is now just 1 day instead of 3 days.
Let's put the values into the formula,
Number of days = 625 X 1
NOTE
The time you will take to become a millionaire is directly dependent on your
average interim and amount of money you are starting with.
The more frequently you average those profitable trades, the lesser time you will
take to become a millionaire. Similarly, the more money you begin with, the fewer
the years.
Let’s repeat the whole process again but this time you are starting
with $1000 instead of $2000 or $3000.
STEP 1
Calculate number of times you need to earn 1%
profit to safely convert $2000 into $1 Million.
Proven Formula
(Log 1,000,000- Log 1,000)
--------------------------------------------
Log (1+0.01)

2007
Edition
31
Log 1,000,000 = 6
Log 1,000 = 3
Log 1.01 = 0.00432
Put these values into the formula,
6 – 3
-------- = 694 Times.
0.00432
STEP 1
Calculate number of days you are away from your $1 Million goal.
Proven Formula
Let’s say, your average interim is 3 days. Put these values into the formula,
= 2082 days or 5.7 year
If you start with $1000 and earn 1% on an average interim of 3 days, I promise, you
will have $1 Million in your account after 5.7 years.
Remember, whether you do it not, these years are anyways going to
pass away.

2007
Edition
32
Enough Reading. Let me give you an assignment now.
ASSIGNMENT NO # 2
You want to start investing in the stock market. The initial amount you want to
invest is $15,000. Calculate number of years you are away from your goal of $1
Million if your average interim period is 3 years.
I will give you the answer in the next lesson…

2007
Edition
33
Have you completed the assignment given in the lesson # 4?
If not, please complete it before you go ahead.
QUESTION ANSWER SESSION
Okay, here's the answer to the question we asked in the previous question.
Answer
Number of Times = (Log 1,000,000 – Log 15,000) / Log (1+0.01)
= (6 – 4.17) / 0.00432
= 423.6 or 424
= 424 X 3
= 1272 Days or 3.4 Years
$15,000 To $1,000,000 in just 3.4 Years…
But before we go further, I'm sure you probably have some unanswered questions and
concerns. And you want me to answer all of them one-by-one.
So let’s take your questions one-by-one and try to answer them..
QUESTION NO # 1
I am slightly confused, Can you suggest me an amount
I should start trading with?
Well, if you ask me I would say you should always trade the amount you can afford to
lose.

2007
Edition
34
And that’s not only me saying this. You go and ask any successful trader and I’m sure,
everybody would be telling you the same thing.
The beauty of this system is you can actually get started with any amount you want and
can still make huge amount of money. With this trading method, it doesn’t matter
whether you have $2000 in your trading account or you are starting trading with $50,000.
But this should be the money you can afford to lose.
NOTE
This is one very important rule of trading- Never trade with the amount you can’t
afford to lose.
I recommend you to begin with a smaller amount until you build trust on this system.
$2000 or even $3000 is not a very big amount of money that you can’t live without. If you
follow this system correctly, you are bound to succeed. There is no way to fail.
But if you happen to be the most unlucky person in the world and you lost all of your
money, it is after all only two thousand dollars. You can always earn it again.
And if you can’t afford to take this much risk, then you have no business trading stocks
using anyone’s strategy. Stock market is always risky, no matter how you well invest.
Please remember, whether you follow this method or not, these years
are anyways going to pass away.
But there are two conditions you need to fulfill -
1. You have to be consistent in making 1% PROFIT.
2. You cannot withdraw any amount from your account until you have reached your $1
Million goal. If you do that, the whole system will get disturbed.

2007
Edition
35
QUESTION NO # 2
What will happen if I start making 1% profit more frequently?
As I told you in the previous chapter as well, the time you will take to earn $1 Million will
depends upon these two factors-
1. The time gap between the two profitable trades.
2. Amount of money you are starting with.
Lesser the gap between two profitable trades, sooner the target of $1
Million
Similarly, if you are starting with bigger amount of money, then you need to earn 1%
profit less number of times and hence you can achieve the target of $1 Million in much
less time.
For example, if you are starting with $10,000 then you just need to earn 1% profit 463
times. And if your average interim time is 3 days, then you are just 3.8 years away from
your goal.
But that doesn’t mean, you cannot repeat the same result if you have less money to get
started. You can achieve even better results with the lesser amount but then you need to
be little bit more frequent in earning 1%.
Let’s say, you are starting with $2000. So number of times you need to earn 1% is 625.
Now if you can earn 1% every second day a week, or in other words, if your average
interim time is 2 days, then…
= 1250 days or 3.42 years
Isn’t it interesting?

2007
Edition
36
QUESTION NO # 3
Brokers like Ameritrade charges $20 as combined buy and sell
commission. If I start with $2000 and go for 1% rule, there
will be nothing left for me. What should I do?
Yes, it is true that there are some brokers who charges you $20 as a combined buy and
sell commission. So in order to get past your broker's commission either you sell you
stocks at 1% + Commission or you can start with any amount greater than $2000.
This is the reason why I recommend people to start trading with at least $2000 in
account. But if you don't have $2000 to start trading with, don't worry.
NOTE
In chapter 10- How to Select a Broker, I have given you a list of some of most
cheapest yet reliable brokerage firms.
Their commission rates are quite reasonable and some of them won’t even ask you for
any opening balance. You can literally get started with no money - $0.00! This can be a
standard interest-earning trading account or any kind of IRA.
We have not considered the commission into the formula because it varies a lot. The
day when you are trading with $25,000 in your account, this $20 commission would be
insignificant.
Forget about everything else. You just have to keep earning 1% or
more...

2007
Edition
37
QUESTION NO # 4
Can I go for 2% profit instead of just 1%?
Yes certainly.
If you wish, you may definitely stay for 2% gain as well. In fact, it would be a better idea
to consider 2% return instead of 1% in the initial stage if you starting out with a low
balance like $2000 and wish to recover your commissions in order to meet the goals of
the system.
QUESTION NO # 5
Will this system really works?
This system is incredibly simple. Anyone can use it. You can get started with practically
very less amount of money and the risk is almost zero.
You don't need special training or even a high school education. It doesn't matter how
young or old you are and it will work for you at home or even while you are on vacation
but there is a catch....
It only works if you have an investment strategy that can produce 1% gains or more on a
regular basis.
QUESTION NO # 6
I cannot make profit every time I trade. What to do?
You are absolutely correct. Nobody can make profit every time he trades. That’s
impossible.

2007
Edition
38
Profit and loss are the part of trading and you cannot avoid losses in any condition. No
trading system in the world can claim to be 100% profitable. And hence it is the average
interim we are focusing on.
Your focus should be on earning 1% PROFIT regularly as frequently as you can rather
that worrying about the losses.
It is the average interim of 3 days that is turning your $2000 into
$1,000,000 in 5.1 years.
In the coming chapter, we will talk about how to minimize the loses, what is risk/reward
ratio and lot many things but for now just remember-
It is the average that spells the future.
QUESTION NO # 7
Okay, give me the proof that this formula is correct?
Good Question. I’m glad, you asked this.
Okay, to find out the genuineness of this formula, let’s take some help from Microsoft.
After all, they can’t be wrong.
I want you to open Microsoft Excel Sheet. Now in the cell A1, I want you to enter the
amount you are going to start with say, $2000.
Now go to the cell B1 and type =1*A1/100 in the formula bar located just above that.

2007
Edition
39
NOTE
1*A1/100 is the 1% of whatever amount we have entered into the cell A1.
Go to cell A2 and type =A1+B1
NOTE
A1+B1 is the sum of the “1% of whatever amount we have entered into the cell
A1” and “your initial amount”. This will actually give you the amount you will get
after adding 1% into your initial amount.
That’s it. Now point your mouse cursor at the bottom right hand side of the cell A2 – it
should change your pointer to “+” kind of symbol and drag it down the page (at least up
to 630 rows down).
Do the same with cell B1 - take your mouse pointer at the bottom right hand side of
the cell B1 and drag it down the page (at least up to 630 rows down)
Now your next task is to locate the figure that says 1,000,000 in the column A. If you
have done everything correctly, then you should get this on the cell number A626.
That’s exactly we were looking for, This shows that you need to earn 1% profit for 625
times and on 626th
time you will have $1Million in your account if you are starting with
$2000.
NOTE
You can replace $2000 with any figure of your choice. For example, if you wish to
start with $10,000, simply enter $10,000 instead of $2000 in the cell A1.
Similarly, if you wish to stay for 2%, type =2*A1/100 in the cell B1 instead of
=1*A1/100.

2007
Edition
40
PLEASE REMEMBER…
You are not required to use this excel sheet at all. This is just to verify
that the formula we are using above is correct.
So, what are you waiting for?
Choose any reputed broker of your choice and give him a cheque of $1000 or maybe
$2000 to start trading.
Just Imagine 1% return on your investment then RE-INVESTING it all over again and
doing the exact same thing for just 625 times can turn your little investment of $2000 into
HUGE 1 Million.
Still not impressed? Well, let me tell you initially even I wasn't impressed with a small 1%
either. I wanted to make "MONSTER TRADES", ones that would produce bigger returns
like 100%, 200%, 300%, 400%, even 500% or more.
But when I began to look much closer at the power of compound interest, I found it much
easier to earn 1 % return consistently instead of waiting for the stock to go up by 50%.
Forget about the huge returns, because the point I am trying to bring home here is...
You don't have to make the “Monster Trades" to make big profits.
The greatest feature about this trading system is that you can make a one-time
investment payment into your trading account and never make another payment from
your own personal budget — and you can still become a millionaire easily because of
how this system works. Even if you opened your trading account with as little as $2000
or as much as you want. Just be consistent and keep locking in the small profits. Over
time the power of compounding can achieve some eye-opening results!

2007
Edition
41
QUESTION NO # 8
Hey…! Can you suggest me a way to ADD some more spice into this?
Yes.
There’s even a better strategy if you are already trading into the stock market or if you
wish to divide your money in two parts.
You can divide your money in 2 parts. Follow this 1% rule with half of your money (or as
much as you want). Place the sell order above 1% as soon as your order gets
confirmed. This way you don't have to watch the stock market again for the whole day
and you can get on with your life. Actually many people find it difficult to watch the
market for whole day due to their jobs or studies...
Now the remaining half of your money can be invested in the stocks for swing trading or
very short term trading. Here you are looking for better profit margins of 5-15% with a
holding period of 1-2 weeks.
It is very simple. Nothing can be better than this. You are slowly but consistently
increasing your money using our 100% Proven and easy to implement 1% rule and at
the same time, you are making even more money using swing trading stocks.
QUESTION NO # 9
So, how do I earn 1% or more profit EVERYDAY trading stocks?
Well, I want to be honest to you. Earning money is an easy task but earning money
consistently is NOT.

2007
Edition
42
You will require a fail proof strategy to achieve the target of 1% profit on your trades
consistently. You cannot expect to become a professional trader just by reading this
EBook. It takes little bit of time, knowledge and practice.
But once you see how easy it is to make money from the stock market following our sure
shot method, you will not only use it but will also be telling everyone you know. Read all
the steps given below CAREFULLY.
Now I want you to have a look at the following chart. This stock was upgraded before the
open on 25th May. Now if you look at the stock carefully you will find one very interesting
thing and trust me, it is something that I found occurred in almost EVERY single stock’s
performance chart that I examined (and I examined a lot) on the day the given stock is
upgraded.
American Mortgage Acceptance Company (AMC)
You’ll notice that the stock had closed the day before at about 9.9 (The dotted red shows
the Prev Cls line). You’ll also notice the stock shot up to 10 on open in the morning. But

2007
Edition
43
then it gets interesting: the price of American Mortgage Acceptance Company (AMC)
dipped considerably in the period between the open at 9:30 am and 10:00 am.
In fact, had you bought this security at precisely 10:00 AM New York time at about 9.9
dollars per share, then set a limit sell order for just $10 per share, you would have had
your sell order filled in just about 40 minutes. A 1% gain. I did it. And you can probably
guess where I’m going with this.
Virtually every upgraded stock, (with significant research qualifications in place),
dips around 10:00 AM in this fashion. And if you can place an buy order at
precisely 10:00 AM New York Time and sell at 1% profit every third day, you’ll
turn two thousand into one million in just 5.1 years.
The dip is caused, naturally, by intraday profit-taking. In fact, even when a qualified (and
I will explain these qualifications shortly) upgraded stock doesn’t climb on open or
appear to dip, a 10:00 AM purchase of that stock normally will net you your 1% profit
anyway, easily within a 7 day period on average, sometimes in a day, and often in just
minutes.
Now, this doesn’t mean you can just plunge into any randomly chosen upgrade after you
learn about it on the Web as long as you buy into it at 10:00 AM and expect to see
miracles happen. There are a few pre-screening steps needed to ensure that your
speculation is safe first.
Now I know there is one question that must be coming to your mind and you want me to
answer that as soon as possible. Well, let’s do it.

2007
Edition
44
ONE URGENT QUESTION
How safe is it to put your whole account balance into one stock?
Okay let me ask you a question, how safe it is to invest in some blue chip stock for a
year. You see, one year is quite a good amount of time and anything can happen in
between. You just cannot predict the future and your investment may erode before their
eyes.
But here in this strategy we are not going to buy any randomly chosen stock without
doing proper research. I will tell you all the necessary steps that you need to perform so
that you can choose that winning stock among all other losers.
And remember, one of the very important rules of trading is that- “never to put
money into a trading account that you can’t afford to lose”. I’m only recommending
that you begin with $2000. If the unthinkable happened and you lost it, you can decide
that, well, it is after all only two thousand dollars. You can always earn it again. If you
find that attitude unthinkable, then you have no business buying stocks using anyone’s
strategy. The market is risky no matter how you invest.
QUESTION
How do I find the upgraded stock that will rise 1% from my
purchase price at 10:00 A.M?
I am glad you asked this question. Finding that winning upgraded stock would require
little bit research. This is accomplished by following these steps:

2007
Edition
45
STEP 1
Check upgrade / downgrade listing of the stock in MSN Money or any other
online financial website and make a checklist of the stock symbols.
One key condition of purchasing any upgraded stock is that another firm has not also
simultaneously downgraded it. Stocks that are both upgraded and downgraded the same
day make poor picks, and often fall.
Upgrade: A positive change in the rating of a security. For example, an analyst may
upgrade a stock rating from 'buy' to 'strong buy',
Downgrade: A negative change in the rating of a security. This situation occurs when
analysts feel that the future prospects for the security have weakened from the original
recommendation, usually due to a material and fundamental change in the company's
operations, future outlook or industry.
An analyst may downgrade a stock from a buy to a sell, after the company released
information about a Securities and Exchange Commission investigation into the
company's operations.
NOTE
I have taken MSN Money into consideration. If you use another service, you may
not find some of the features we are going to discuss very soon, so I do suggest
using MSN Money. The service is free, fast and accurate as well.
The picture shown below is a snap shot of MSN Money for upgrade/downgrades. Here
is the URL that you can use for your purpose:
http://moneycentral.msn.com/investor/calendar/ratings/current.asp

2007
Edition
46
Upgrades / Downgrade: May 25
Write down the symbols so that you can use it as a checklist in order to facilitate the
elimination of disqualified stocks. You can either use your computer’s notepad or a
paper for this purpose but I want you to keep these stock symbols available because we
are going to need them very soon.

2007
Edition
47
STEP 2
Determine one year performance chart of each and every stock available In
your checklist and eliminate those who do not meet our criteria.
Next, one at a time, copy and paste each of the symbols from your checklist into an
online financial website like MSN Money, Yahoo Finance! Etc.
Here’s the direct URL of MSN Money where you can paste the stock symbol into the box
and search for it.
http://moneycentral.msn.com/investor/research/welcome.asp
This snap shot will give you a better picture…
Let’s take BMC Software (BMC) to continue the process. We will paste the symbol,
BMC, into the “Name or Symbol” field and click on go. This is what going to come up.

2007
Edition
48
Here, we need to look at the one - year performance chart of the stock. So we’ll click
on “SNAPSHOT” which located at the right hand side of the page. (See Red Arrow in
the above shown picture). Now as soon as you click on the ‘Snapshot” link, it will
open a new page which would look like this:

2007
Edition
49
IMPORTANT
Following are some of the points that you must take into consideration
while looking at the one-year performance of the stock:
1. It should not be a low priced or a penny stock.
2. It should not be under-performing for a longer duration of time.
3. It should not be downgraded in the past week.
4. It should not be a highly volatile stock.
Let’s have a look at the one year performance of some stocks to have a better
understanding of all the points given above:
RESULT: Doubt
REASON: The stock has started rising up recently but has not been performing
very well for the last one year.
ELIMINATE IT

2007
Edition
50
RESULT: Pass
REASON: The stock has been an excellent performer over the last one year
TAKE IT
RESULT: Fail; REASON: The Highly volatile stock
ELIMINATE IT

2007
Edition
51
NOTE
Repeat this step for each stock in the list and eliminate or disqualify the ones
who does not meet the criteria.
STEP 4
Determine the stock ranking with the help of “StockScouterRating” and
eliminate the one who are below five.
Now your next step would be to check out the rating of the stock. Here’s the snap shot of
BMC Software Scout Rating Summary:

2007
Edition
52
You would also like to check for the recent headlines. Make sure that they are saying
nothing of a recent downgrade. Repeat the steps until you have left with just a few
stocks that have not been disqualified.
STEP 5
Determine the Earning per share, P/E ratio, Earning growth rates and
Analyst rating for the remaining stocks.
Now, for each remaining stock we need to know just a few more things before making a
determination of which of the day’s upgrades are suitable, if any.
Earning per share & P/E Ratio

2007
Edition
53
The P/E ratio is the Price to Earnings ratio, which tells us, in the example above, that
BMC Software stock price, is currently trading at 33 times its most recent earnings per
share. This is also called a stock’s multiple. If the stock had no earnings, the Earnings
per Share would be zero or a negative number and the P/E would read N/A or
something similar to that.
If there are earnings shown, that is all we need to OK it. No earning shown
means DISQUALIFY THE STOCK.
Earning Growth Rates
Now, the next two tests are absolutely the most important tests you will perform. First,
we need to examine Earnings Growth Rates. This can be found using the “Earning
Estimates” under Fundamentals on the right hand side of the same page.
Look for the Earnings Growth table on the Research page. Make sure that the estimated
percentage figure is:
a) Not zero or a negative number
b) Greater than the figure presented for its Industry for the current financial year.
This helps ensure that the business is expected to perform at or above the expectations
for its competitors and that a subsequent downgrade or decline is less likely. The
snapshot of BMC Software Inc. from MSN Money will give you some idea about “Earning
Growth Rates”. Please have a look at that:

2007
Edition
54
As you can see in the picture that earning growth rate of BMC Software Inc, is greater
than the respective industry growth rate and therefore we will keep this stock for the
further consideration.
The second thing we need to look at is “Consensus EPS Trend” which can be found
on the same page. Make sure that EPS Trend for this quarter from 90 days, 60 days, 30
days, 7 days and current must be flat or rising.
Let’s compare Eldorado Gold Corp. and Palm Harbor Homes, Inc. in order to have a
better understanding of EPS Trend.

2007
Edition
55
RESULT: Pass
REASON: Consensus EPS trend is FLAT
TAKE IT

2007
Edition
56
RESULT: Fail
REASON: Consensus EPS trend is FALLING DOWN
ELIMINATE IT
Analyst Rating
Next, (and on the same web page in MSN Money) take a look at the “Analyst Rating”.
Here we can see the rating given by analyst to any particular stock. Make sure that
average brokerage recommendation should be “Buy” or “Moderate Buy”.

2007
Edition
57
RESULT: Fail
REASON: Average brokerage recommendation is HOLD
ELIMINATE IT

2007
Edition
58
RESULT: Pass
REASON: The average brokerage recommendation is MODERRATE BUY.
TAKE IT
Disqualify a stock that is even or outweighed in the opposite manner, i.e. in favor
of Hold, Hold/Sell, and Sell.
That’s it!
Simply compare the equities on the list in these areas, and choose the one that “wins.”
In every case there are invariably items of criteria that cause one stock to be more
valuable than another. If you get to this point but have difficulty deciding on one over
another, look deeper, if you like.

2007
Edition
59
Check recent news for any negativity in the stocks using the financial resource content
provider. Disqualify the one with the most recent mention of anything negative in its
news stories.
The idea is to select the qualifying stock based upon these tests. It may come about that
no stocks that morning fit within the specified criteria. In that instance, simply sit
out that session’s trading.
This is not day trading; we do not gamble blindly on any stock which has seemingly
favorable news, or plunge in with an attitude that we simply must be in some security
each day. We carefully do the research.
The fact is, the upgrade behaves as a signal to us of two things. It tells us someone else,
hopefully more educated than us, has risked his or her reputation on improving the
recommendation rating of an equity, thereby producing in the marketplace an actual
short-term addition of value for the security, not just a positive news story open to
interpretation which may or may not already be priced-in.
And, it signals the possibility of a strongly valued stock in the long term, which we test
for, and which gives us the needed safety to risk going after the short-term gain from the
stock’s newly upgraded status.
What’s Next…!!
Wait until exactly 10:00 A.M NYT before placing the buy order. You can also place the
sell order immediately above 1% + brokerage of your buy price. This way you don't have
to watch the stock market again for the whole day and you can get on with your life.

Question
I cannot do that alone, can you help me with this?
Our strategy is extremely simple as it does not involve any chart reading, technical
skills or complex mathematical formulae. It may look like a lot of work but trust
me, it is extremely SIMPLE. Do it yourself for couple of times and I am sure you
will find it very easy and interesting.
But if you are still finding it difficult to earn 1% profit consistently, I can suggest
you an easier way.
Wouldn't it be nice if you could simply place your trades before the market even
opened, and then go about your life - free of being forced to watch the stock
market? You could have the potential of making serious amounts of money with
minimal effort.
You see, me and my 5 other colleagues have recently launched an exclusive stock
market community. This is our dream project and we're committed to make this
one of the biggest stock market communities in the world.
It's called 5MinuteTrader.com
The website is already live and doing extremely well but we want to make sure that
our subscribers are getting at least 1000 times the value for their money.
And therefore we're looking for some beta-testers who can help us to add some
more value to the membership area. And this is where you come into the picture
because without your help it is not possible for us to know what exactly are you
looking for and where are we lagging behind?

What else can we offer you to make this exclusive membership even more
valuable?
Your feedbacks not only motivate us but they also help us to improve and serve
you better. And to encourage you to take part in this exclusive stock market
community, we would like to offer you a deal. Here's it is –
You give us your feedback and let us know what do you like about this
membership, what else do you expect and what can be done to make it
even better...
I’ll give you 50% discount on the subscription fees. Plus, every time you'll
renew the subscription, you’ll be paying just 50% of the subscription fees.
So that's 50% LIFETIME discount.
Click here to know more about the 5MinuteTrader.com
Click here to subscribe at a discount price of $48.50
What benefits does this have over the
“Secrets of Successful Traders” EBook?
Our strategy is extremely simple as it does not involve any chart reading, technical
skills or complex mathematical formulae. In fact, a 10 year old kid can understand
and implement it easily.
But there is one problem – It may not work every day.

There are about 5 very simple steps described in EBook which you need to perform
to find out the wining stocks but sometimes you won’t find any stock passing our
selection criteria.
And in that case, we recommend you to skip trading for that day. And there’s
nothing wrong about it – you just can’t trade the market every single day.
And this is where 5MinuteTrader.com can be of great help.
It is an exclusive membership that is going to provide you 89.3% accurate stock
market recommendations in any market condition with exact entry price, exit price
& stop loss
...along with hundreds of articles, interviews, tutorials, EBooks, Videos, Quizzes,
Forum, Discount and much more.
Yes, it will be something that will hold-your-hand and put you among those 10%
traders who consistently make money from the stock market no matter what.
This membership is going to blow you away. It will be unlike anything you've ever
seen or heard about.
Each and every section of the membership area will contain priceless information
that will have you scratching your head. You'll constantly be saying to yourself,
"Why didn't I think of that?"
Believe me or not, this surely going to be one of the biggest stock market
communities in the world.
And I hate to sound 'cheesy' but I truly think there's a 99.99999% chance that if
you just follow what I'm saying right now it will...

CHANGE YOUR LIFE!
Yes, that sounds a bit "hypey" and bold but it's the truth. You must be thinking how
can I say it with such a confidence?
Because... 5MinuteTrader.com™ is going to give you so much stuff to learn and
sharpen your trading skills that you just can't stop loving it.
Note: Please remember, 5MinuteTrader.com has nothing to do with our
strategy and you are not bound to take their subscription at all. We’re
telling you about 5MinuteTrader.com, just to give you one more option to
make money from the stock market.
Our strategy is really simple and you can follow it yourself without any
help. The only thing which is required from your side is consistency. As I
already told you that you don't have to make the “Monster Trades" to
make big profits.
Click here to know more about the 5MinuteTrader.com
Click here to subscribe at a discount price of $48.50
Please note: This $48.50 special price is only available for "secrets
of successful traders" customers. You won't find it anywhere else on this
internet

2007
Edition
62
A Quick Review

2007
Edition
63
SECTION 2

2007
Edition
64
HOW THE STOCK MARKET
WORKS…!!
Well, I am in no mood to write 100 pages just to tell you how the stock market works. I
think 10-20 pages would be sufficient to give you the clear picture. So let's not waste
time...
Let's imagine that you want to start your own pizza shop. Now starting the pizza shop
would require some investment.
For example, you would be investing in equipments, land, furniture, food supplies etc. All
the money that you invest to start your pizza shop business is called as capital. Let's
say, you would be requiring the investment of $2000 in order to start your pizza shop
business.
But what will happen if you do not have the investment of $2000 in order to start your
pizza shop? In that situation, you have 2 options.
1. You would take a loan from somebody that need to be paid with interest. Or,
2. Issue stock (or share the ownership in the company) to people who may be
willing to invest in your pizza shop in return for a proportional share of profits that
your pizza generate.
Okay, let's take both the situations one-by-one and find out the advantages and
disadvantages with them.

2007
Edition
65
Take Loan from Somebody
Disadvantages
It is not very easy to take loan. In our example, if we want to take loan from
anybody, then the first thing we would be doing is to convince the person that his
money is safe and we will be able to return his money back. The person who is
giving us loan would certainly be interested in knowing about the future plans of
the business and lot more things.
Next, we will have to return all the money that we have taken as a loan with
interest. This interest would increase as the time passes. The more time we take
to repay the principal amount, the more interest we would be paying.
Advantages
You do not have to share the ownership of the company.
Issuing Stocks
Advantages
A company can raise more money than it can borrow.
You do not have to make periodic interest payments to your creditors.
And you do not have to make the principal payments.

2007
Edition
66
Disadvantages
You have to share your ownership with the other shareholders
Your shareholders have the voice in company’s policies that affects the company
operation.
So we can say that...
Companies sell stock (pieces of ownership) to raise money and provide funding for the
expansion and growth of the business. The business founders give up part of their
ownership in exchange for this needed cash.
The total number of shares will vary from one company to another, as each makes its
own choice about how many pieces of ownership to divide the corporation into.
One corporation may have only 2,500 shares, while another may issue over a billion
shares such as IBM and Ford Motor Company.
The very first sale of stocks to the public is called Initial public offering (IPO) and
occurs on primary market.
I know there is one question coming to your mind and you want to know the answer
before you go ahead.
QUESTION
Why would anybody invest (or buy stocks) in my pizza shop? What if my
company fails?
Your question is quite right. Why should anybody invest in your company?

2007
Edition
67
Advantages to Shareholders
When you buy stock in a corporation, you own part of that company. So as a part of a
corporation, shareholder will be entitled to share the profits of the company.
Now all the shareholders can be benefited by 2 ways:
When a company pays out profits to the shareholder, the money received is
called a "dividend". The corporation's board of directors chooses when to
declare a dividend and how much to pay.
Or when performs well, the stock price will go up and shareholders can sell their
stocks at a profit. This will happen when more investors want to buy stock in a
company than wish to sell.
So if someone sees a good future of your pizza shop and they can expect that their
money is going to grow with the company, they won't mind investing in your pizza shop.
Example
If you have invested $1000 to buy 100 shares of a company at $10 each and
the share price rose to $13 each, you would gain $300. That is equivalent to
30% return.
Why People Sell Stocks
There can be so many reasons behind that. A person may just need the money. He or
she may have watched the stock price go up, and have a feeling that this is the right
time to get out of the trade and lock in some profit.

2007
Edition
68
Any bad news about the company or the industry, or a disappointing company's earning
report can also motivate him to sell the stock. He may also sell stocks because he sees
a better opportunity in some company.
For example, one may sell IBM shares, which is not moving, because
he thinks he can make better profit in Microsoft.
Most of time, investors sell the stocks because they have watched the price fall and in
panic, they just want to get out of the trade before they lose even more.
The Process of Issuing Stocks
Corporations sell stock to public as one way to raise capital. They are not allowed to sell
shares of stock on the open market without the approval of the Securities and Exchange
Commission (SEC).
A 20 days wait is required before it can sell the stock.
Companies may make their statement public with a preliminary prospect called "Red
Hearing". Basic information about the new offering is provided including how many
shares are being offered, which brokerage company will distribute the stocks to the
public.
Now the company cannot sell the stock directly to the company. So they hire an
investment banker to help it sell its stocks. The process is called "Underwriting". The
investment banker works as a intermediary between the company and the public.
In most cases, underwriter purchases the stocks from the company for resale to the
public at higher price.

2007
Edition
69
The difference between the price the underwriter pays and the price the public pays is
called as "Underwriting Spread".
A stock issue can be underwritten by several methods.
The underwriter can act as an agent, in which it tries to sell as much of the issue
as it can at market prices. This is a best effort arrangement.
The issuing company can also agree to issue new stock on the condition that all
of it is sold. If all of the stock is not sold, then it will withdraw the issue. This is an
all-or-none arrangement.
A negotiated underwriting is when the issuer and the corporation negotiate the
terms of the issue, the price, the size and other details.
The issue may be subject to competitive bids from investment bankers. The top
bidder underwrites the issue and resells it to the public.
When a public company issues more of its stock, it must first offer that stock to
existing shareholders; that is their preemptive right. A standby is the public sale
of whatever stock the existing shareholders have not yet purchased.
A firm commitment arrangement is when an investment banker buys all of the
stock from the corporation and then resells it to the public at a higher price.
A private placement is an offering in which the company sells to private investors
and not to the public. Private placements do not have registration fees.
The Prospectus
Prospectuses are legal documents that explain the financial facts important to an
offering. They must precede or accompany the sale of a primary offering.

2007
Edition
70
The law requires companies selling primary offerings to send prospectuses to anyone
who wants to buy a primary offering. Customers should read a prospectus carefully
before purchasing any primary offering.
Prospectus must include but are not limited to the following:
Offering Price
Legal Opinion about the issue
Underwriting Method
The history of the company
Other costs related to the investing in the stock
The management Team
The handling of proceeds

2007
Edition
71
SOME KEY TERMS YOU MUST
KNOW…!!
Ask
The lowest price a seller is willing to accept when selling a security (stock). This is the
opposite of bid, which is the price a buyer is willing to pay for a security, and the ask will
always be higher than the bid.
The terms "bid" and "ask" are used in nearly every financial market in the world covering
stocks, bonds, currency and derivatives. An example of an ask in the stock market would
be $5 x 1,000 which means that someone is offering to sell 1,000 shares for $5.
Bear
An investor who believes the market as a whole or a particular stock will decline. Bears
attempt to profit from a decline in prices. Bears are generally pessimistic about the state
of a given market. A bear is the opposite of a Bull.
Bid
An offer made by a trader to buy a security. The bid will specify both the price at which
the buyer is willing to purchase the security and the quantity to be purchased. This is the
opposite of the ask, which stipulates the price a seller is willing to accept for a security
and the quantity of the security to be sold at that price.
An example of a bid in the market would be $25 x 1,000, which means that an investor is
willing to purchase 1,000 shares at the price of $25. If a seller in the market is willing to
sell that amount for that price, then the transaction is completed.

2007
Edition
72
Book Value
The Book Value is simply the company's assets minus its liabilities.
Book Value = Assets – Liabilities
In other words, if you wanted to close the doors, how much would be left after you
settled all the outstanding obligations and sold off all the assets.
A company that is a viable growing business will always be worth more than its book
value for its ability to generate earnings and growth.
Broker
A person that buys or sells an investment vehicle for you (securities, bonds,
commodities, etc.,) in exchange for a fee, which is called a commission
Bull
An investor who believes the general market or a particular stock is going to increase in
price.
Buy Back
The buying back of outstanding shares (repurchase) by a company in order to reduce
the number of shares on the market. Companies will buyback shares either to increase
the value of shares still available (reducing supply), or to eliminate any threats by
shareholders who may be looking for a controlling stake.

2007
Edition
73
Cash Dividend
Money paid to stockholders, normally out of the corporation's current earnings or
accumulated profits. All dividends must be declared by the board of directors, and are
taxable income to the recipients.
Long-term investors who want to maximize their gains should consider re-investing the
dividends. Most brokers offer a choice as to whether you wish to reinvest or take cash
dividends.
Closing Price
The final price at which a security is traded on a given trading day. The closing price
represents the most up-to-date valuation of a security until trading commences again on
the next trading day.
Dividend
A portion of a company's income that is paid out to shareholders on a quarterly or annual
basis. The Board of Directors declares dividends. Dividends may be in the form of
cash, stock, or property. Most secure and stable companies offer dividends to their
stockholders. Their share prices might not move much, but the dividend attempts to
make up for this.
Earning Per Share (EPS)
Suppose there are 2 companies- A and B. Both earn $100, but company A has 10
shares outstanding, while company B has 50 shares outstanding.
Which company's stock do you want to own?

2007
Edition
74
It makes more sense to look at earnings per share (EPS) for use as a comparison tool.
You calculate earnings per share by taking the net earnings and divide by the
outstanding shares.
EPS = Net Earnings / Outstanding Shares
Using our example above, Company A had earnings of $100 and 10 shares outstanding,
which give an EPS of 10 ($100 / 10 = 10). Company B had earnings of $100 and 50
shares outstanding, which equal an EPS of 2 ($100 / 50 = 2).
So, you should buy Company A with an EPS of 10, right? Maybe, but not just on the
basis of its EPS. The EPS is helpful in comparing one company to another, assuming
they are in the same industry, but it doesn't tell you whether it's a good stock to buy or
what the market thinks of it.
An important aspect of EPS that is often ignored is the capital that is required to
generate the earnings (net income) in the calculation. Two companies could generate
the same EPS number but one could do so with more equity. This tells investors that the
company with the most equity is less efficient at using its equity to generate income.
Investors also need to be aware of earnings manipulation that will affect the quality of
the earnings number. It is important not to rely on any one financial measure but to use
them in conjunction with statement analysis and other measures.
Earning Yield
The earnings per share for the most recent 12 months divided by market price per share.
Earnings yield is the inverse of the price-earnings ratio.

2007
Edition
75
Face Value
The nominal value of a security stated by the issuer. For stocks, it is the original cost of
the stock shown on the certificate.
Initial Public Offer (IPO)
It stands for Initial Public Offering. An IPO is when a company sells stock in itself for the
first time.
Joint Stock Company
An organization that falls between the definitions of a partnership and corporation. This
type of company issues stock and allows for secondary market trading; however,
stockholders are liable for company debts. This is a type of company that has access to
the liquidity and financial reserves of stock markets, but also has the restrictions of a
partnership.
Market Capitalization
A company's market capitalization (or "market cap") is calculated by taking the number
of outstanding shares of stock multiplied by the current price-per-share. It is the amount
of money you would have to pay if you bought every share of stock in a company.
No. of Outstanding Shares X Current Price
Market Cap = -----------------------------------------------------------------------
Share Purchase Price

2007
Edition
76
The price that an investor pays for a security. This price is important, as it is the main
component in calculating the returns achieved by the investor.
For example, if an investor buys XYZ at $35, then this would be the purchase price.
When looking at the return on the investment, the investor would compare the purchase
price of $35 to the price the investment was sold at or the current market price for XYZ.
Share
Certificates representing ownership in a corporation. Shares are also known as stocks or
equities.
P/E Ratio
The P/E ratio is how much money you are paying for $1 of the company's earnings. If a
company were currently trading at a P/E of 20, an investor would be paying $20 for $1 of
earnings
The P/E looks at the relationship between the stock price and the company's earnings.
You calculate the P/E by taking the share price and dividing it by the company's EPS.
P/E = Stock Price / EPS
In other words, if a company is reporting a profit of $2 per share, and the stock is selling
for $20 per share, the P/E ratio is 10 because you are paying ten-times earnings
[$20 per share dividend by $2 per share earnings = 10]

2007
Edition
77
In general, a high P/E suggests that investors are expecting higher earnings growth in
the future compared to companies with a lower P/E.
However, the P/E ratio doesn't tell us the whole story itself. It's usually more useful to
compare the P/E ratios of one company to other companies in the same industry, or to
the market in general, or against the company's own historical P/E.
It would not be useful for investors using the P/E ratio as a basis for their investment to
compare the P/E of a technology company (high P/E) to a utility company (low P/E) as
each industry has much different growth prospects.
Price / Earnings To Growth - PEG Ratio
A ratio used to determine a stock's value while taking into account earnings growth. The
calculation is as follows:
PEG Ratio = Price to Earnings ratio / Annual EPS Growth
PEG is a widely used indicator of a stock's potential value. It is favored by many over the
price/earnings ratio because it also accounts for growth. Similar to the P/E ratio, a lower
PEG means that the stock is more undervalued.
Keep in mind that the numbers used are projected and, therefore, can be less accurate.
Also, there are many variations using earnings from different time periods (i.e. 1 year vs.
5 year). Be sure to know the exact definition your source is using.
Short Selling
The selling of a security that the seller does not own, or any sale that is completed by
the delivery of a security borrowed by the seller. Short sellers assume that they will be
able to buy the stock at a lower amount than the price at which they sold short.

2007
Edition
78
Selling short is the opposite of going long. That is, short sellers make money if the stock
goes down in price.
Stock
Stock is ownership. A business is divided up into shares of stock and parts of the
company (the shares) are sold to investors to raise money.
A holder of stock (a shareholder) has a claim on a part of the corporation's assets and
earnings. In other words, a shareholder is an owner of a company. Ownership is
determined by the number of shares a person owns relative to the number of
outstanding shares.
For example, if a company has 1000 shares of stock outstanding, and one person owns
100 shares, that person would own and have claim to 10% of the company's assets.
Stock Signals
These are recommendation given by the experts about any stock. Various types of
recommendations are given below:
Strong Buy: Very high recommendation given by the analyst to purchase a specific
security.
Buy: A recommendation to purchase a specific security. "Buy" is better than neutral but
worse than "strong buy.
Buy and Hold: A passive investment strategy in which an investor buys stocks and
holds them for a long period of time, regardless of fluctuations in the market. An investor
who employs a buy-and-hold strategy actively selects stocks, but once in a position, is
not concerned with short-term price movements and technical indicators.

2007
Edition
79
Hold: An analyst recommendation to neither buy nor sell a security. Exact definitions
vary by brokerage, but generally this rating is better than sell and worse than buy. The
hold rating is right in the middle of the rating system. It means that if you own a security
you still shouldn't sell, but you also shouldn't buy the security if you don't own it already.
Also known as neutral.
Sell: A recommendation to sell a particular security. This rating is generally worse than
neutral, but better than strong sell.
Stop Limit Order
An order placed with a broker to buy or sell at a specified price (or better) after a given
stop price has been reached or passed. This is essentially a combination of a stop order
and a limit order into one order and allows the investor to better control their entry or exit
price of a security.
A stop order is an order that becomes executable once a set price has been reached
and is filled at the current market price. A limit order is one that limits the entry or exit
price to a set price or better. By combining the two orders it prevents the stop order from
being executed at the market price which could be much different then what the investor
originally wanted by putting a limit on the price.
For example lets assume that ABC Inc. is trading at $40 and an investor has put in a
stop-limit order to buy at $45. If the price of ABC Inc. moves above $45 the stop order to
buy the security becomes executable but because there is also a limit order attached it
limits the price that the shares can be purchased to $45 or less.
In terms of buying a stock it allows investors to buy when the stock has upward
momentum behind (moving from $40 to $45).

2007
Edition
80
Stop-Loss Order
An order placed with a broker to sell a security when it reaches a certain price. It is
designed to limit an investor's loss on a security position. This is sometimes called a
"stop-market order".
In other words, setting a stop-loss order for 10% below the price you paid for the stock
would limit your loss to 10%.
It's also a great idea to use a stop order before you leave for holidays or enter a situation
in which you will be unable to watch your stocks for an extended period of time.
Under performed
An analyst recommendation that means a stock is expected to do slightly worse than the
market return. Also known as market under perform moderate sell, or weak hold.
Exact definitions vary between brokerages
Upgrade
A positive change in the rating of a security. For example, an analyst may upgrade a
stock rating from 'buy' to 'strong buy'.

2007
Edition
81
TRADING SECRETS…!!
Although I can't discuss in very detail because of time and volume constraint, but for
those of you who are either considering starting, or have already started trading in the
stock market I would like to share few very essential elements of trading.
To begin with, let's me ask you again-
Why few people always make money in the stock market?
These people have few unknown amazing secrets of successful traders. In this chapter,
I am going to disclose all those secrets. So keep reading...
The secrets are trading psychology, proper money management and basic stock trading
system (entry, exit & trading rules). If you can master these three techniques, money will
surely flow into your hands.
I call them secrets NOT because very few of us are aware of them, but because very
few of us use them. Have a look at the pie chart given below.

2007
Edition
82
It has been found that the entire trading process can be divided into these 3 elements.
Trading Psychology
Money Management
Basic Stock Trading System
I am going to reveal these secrets one-by-one. And I want you to pay some special
attention here. Let's begin with Psychology...
TRADING PSYCHOLOGY-
KNOWING YOURSELF IS A KEY

2007
Edition
83
Let me share a story with you-
This story is about two young men. Both of them graduated from the college on the
same day. Both of them have a passion towards stock trading, both were intelligent, both
of them were full of aspirations and wanted to become successful in the stock market.
Both of them started trading at the same time. They started trading with same capital,
same type of trading software and tools along with the same type of trading system with
the precise rules for entry and exit.
But after one month, there was a difference in the amount they have earned during that
month trading stocks. After one month, one trader gone broke and other returned with
25% returns on his investment.
Any guess work???
What makes this kind of difference in their trading results?
Do winning traders have some special talent...? Do they have some inside knowledge of
the stock market that is not available to others...? Is it that they have some kind of
positive winning attitude...? ...a better computer and software?
It's none of the above!
The difference lies within you. Psychology plays a very important role in your way to
trade. It is the relationship between your thoughts and actions that will determine how
successful you are as a trader and ultimately how much money you make.
Your feelings have an immediate impact on your account equity. You may have a
brilliant trading system, but if you feel frightened, arrogant, or upset, your account is sure
to suffer.

2007
Edition
84
When you recognize that a gambler's high or fear is clouding your mind, stop trading.
Your success or failure as a trader depends on controlling your emotions.
When you trade, you compete against the sharpest minds in the world. The field on
which you compete has been slanted to ensure your failure. If you allow your emotions
to interfere with your trading, the battle is over.
You are responsible for every trade that you make. A trade begins when you decide to
enter the market and grids only when you decide to take yourself out. Having a good
trading system is not enough. Most traders with good systems wash out of the markets
because psychologically they are not prepared to win.
You must win the BATTLE WITHIN YOURSELF first, before you can win in the markets.
The pie chart given in the beginning of this chapter shows that 50% of your trading
depends upon your psychology. As traders we have to realize that we have no control
over the market and we cannot influence the direction of the market.
You must develop the mindset (and the true understanding) that you are a winning
trader whether you are experiencing a run of losing trades or winning trades.
Treat yourself as a professional trader. Know what motivates you, understand your
limitations and become familiar with your strengths. This will help you to move smoothly
through losing streaks so you can be there for the winning streaks.
Most new and "intermediate" traders do NOTHING about their mental trading fitness.
And this is how they trade in the market:
"My god, Here I go again ! Can't I do anything right ! What will my wife
say if I lose this one !”

2007
Edition
85
They are willing to spend thousands of dollars on "use-less" systems and out-of-town
seminars, but are totally neglecting mental conditioning.
You should be training as hard on your mental fitness as you do on preparing your
trading signals. Don't get emotional about trading. Always remember, the current trade is
only one of a long series. You are in this business for the long term.
Remember that and don't, ever, get too attached to any one trade.
It is highly unlikely that you will become a successful trader if you allow your emotions to
control your trading decisions.
Identify The Blocks To Winning Psychology
The most destructive emotions leading to poor trading decisions are:
Greed
Fear
Pride.
Let’s talk about them one-by-one:

2007
Edition
86
GREED
Greed tends to keep a trader from closing out a position when a reasonable profit has
already been made, in the hope that the stock price will go even higher.
It’s very easy to be greedy in this business. You always want more. If you have made
100 points profit in a trade, you want 200. And the moment you have 200 points profit,
you start looking for 300. This lack of satisfaction is one reason why some people get
themselves in trouble.
So how would you avoid this feeling of greediness?
To avoid being greedy with your trading, you may want to know the reason behind that-
why is it so easy to be greedy with the trading?
Greed stems from a belief that there’s never enough and there won’t be enough. A
greedy person will never be satisfied; he will always look for more no matter how much
he already has.
It seems that the reason people are greedy when trading is because they take non-
market factors (like how badly they want money, why they want it, can they afford to risk
etc.) and apply them to the market and their trades.
But it makes no sense because your non-market factors will NEVER decide that which
way market should move. So your non-market decision like I want to buy a fancy watch
from this trade is not at all going to change the market direction.
Market will move the way it wants to move.
So when you cannot change the direction of the market, don’t let your non-market
decisions make you greedy. Your greed makes you want more than the market may be
offering and it certainly influences you into not acting in your own best interest.

2007
Edition
87
ALWAYS REMEMBER
Wishing and hoping is never going to take you anywhere. Be practical. Do what
market is telling you to do…
Staying in the market for too long (hoping for a huge windfall) is a strategy that backfires
more often than not. Greed also tends to result in rash or impulsive trades.
FEAR
Fear will have traders selling existing positions too soon or avoid buying a stock that
should be bought. In other word, fear leads to trading decisions becoming "paralyzed".
Mark Douglas's four fears are:
Fear of Loss
Fear of being wrong
Fear of missing out
Fear of leaving money on the table
I was once sitting in a room and trading futures. There I met a guy. I noticed that he was
very unhappy and distressed. I asked him the reason. He had bet the farm shorting a
strong bull market. He said-
"I don't know why I just didn't cut the position earlier; anyone would
have seen the strength- why didn't I?"
I never saw him again.

2007
Edition
88
That is the effect of fear - it drives out knowledge; it leads to shortsightedness, it
immobilizes us and leads to inaction.
Let me share an example offered in “The Discipline Trader”.
A child bitten by a dog would quite often associate all dogs with the threat of pain, and
consequently generate an intense fear or even terror whenever he encounters any dog
in the future.
The child’s fear of all other dogs other than the one that bit him is real. He has no way of
making a distinction between a friendly and a dangerous dog because his personal
experience leads him to believe that all dogs are dangerous.
However, the truth is something else…not every dog is dangerous. In fact, some of the
dogs are quite friendly and wants to play with the child.
But the child has no idea about that and his fear continues to grow even further
whenever he encounters any other dog. He thinks that the source of his fear lies in the
outside world.
But that’s not the case here. His fear actually lies within himself. He has a wrong
perception that ALL DOGS ARE DANGEROUS.
The same goes to stock market. We could experience the similar fear during trade.
When we focus on our losing trades, mistakes, etc. we give our subconscious mind
powerful direction. We could then end up with those same loses that we are trying so
hard to avoid.
Winning and losing are the part of the game. If you fail to make money once, it doesn’t
mean that you not make money from any stock you trade in the future.
This type of feeling makes no sense and you can get yourself in trouble while trading.

2007
Edition
89
PRIDE
Pride tends to keep a trader in a losing position for too long because of unwillingness to
admit that the original trading decision may not have been the right one.
Let's take an example to have a better understanding of Greed, Fear
and Pride.
Our Trader Harry is an inexperienced trader like most of the traders in the stock market.
He is a kind of trader who wants to earn money from the stock market but he doesn't
have proper knowledge, equipments, tools and strategies.
The figure given below illustrates the way our trader Harry follows while trading in the
stock market
Behavior of an Inexperienced Trader

2007
Edition
90
The typical inexperienced member of trading Harry enters the market at point A. At the
point A, the price of the stock is increasing and due to this increase in the price; he buys
it and wants to earn some money out of an ongoing rally.
Once a trade is entered, stock immediately moves strongly in his favor. Harry will
suddenly start seeing a villa in the sun or a new sports car flashing before his eyes.
“This trade is going to the moon so he removes his price target and
decides to let it go.”
Greed has now completely taken over his trading decisions and the previous plan (if
any) is ignored.
Of course, markets rarely move in one direction for long so trade starts moving against
him because experienced traders start to cash in (Profit booking) on their profits and
the rally quickly starts running out of steam.
When the market turns, the greed turns to fear as the dream slips away and Harry tries
to hold on until the price gets back to where it was. The daytrade becomes a position
trade...
Now Harry will fear that he has made a mistake. He fears making loss so he waits and
hopes that the market moves back in his favor.
The fear of taking loss now controls his trading decision. He is expecting that market will
bounce back and he refuses to get out of the trade
- the day trade becomes a position trade of a few days and then it becomes a long
term 'buy and hold' strategy.
When the stock declines to the point where Harry cannot take any more pain he gets
out at point B, just before the stock finally hits its bottom. If for some reason he didn't
exit at point B, he will most likely exit at point C being happy to recover some of his
losses.

2007
Edition
91
Our trader Harry is exactly the kind of "herd" trader that successful
traders prey upon.
On the other hand,
The successful trader will have tested their strategy extensively and will be aware
that a losing is also a part of the game. They will also measure their success on
whether they place the trade according to their system rather than whether it is
purely a winner or a loser. The fear is removed from the trade because they
know that several losers in a row is to be expected.
The successful trader has set a target, either a certain price or a timed exit and
will stick to it. If the trade only takes 5 minutes then that's just great, there's
plenty that won't.
To trade successfully you need to remove all emotional influences. Here's a little
exercise for you and believe me it can do wonders. So read it carefully.

2007
Edition
92
At the start of each trading day, before the market opens, take a few minutes for
yourself. Close your eyes. Start visualizing the market. See the real time chart on your
computer screen.
Watch as the price goes up and down.
See yourself entering the trade. Notice you feel relaxed. You are alert but calm.
Completely non emotional. Observe how the price moves after you enter.
How it comes close to your stop loss.
Mentally place a number of trades. Follow them through. You get a losing trade. Notice
you see the big picture. You are unemotional. Completely calm
You put on another trade. Again, another smaller loss. You are still calm. Next a winning
trade. Again, you are relaxed. It's all part of the job.
This takes practice. And you must do it regularly to get the maximum benefit. Try it every
morning, and any time you even begin feel stressed or you lose you focus.
The advantage of this technique is it's FREE. And payoff is excellent.

2007
Edition
93
MONEY MANAGEMENT…!!
Warning ... money and portfolio management is one of the most important parts of
successful trading. In this Ebook we are only going to touch upon money management.
Let's first define money management:
Money management evaluates the risk and reward of a trade and determines the
best use of investment money. It tells you how many shares to purchase and how
much money to place at risk.
It is the difference between great trading performance and poor performance. It will
make the difference between making money and going broke.
Smart money management doesn't just involve risking the right amount on every trade, it
also involves managing a winning trade from start to finish.
This is an important part of any good trading methodology that is often overlooked by
beginning and expert traders.
One of the main ideas behind money management is to preserve capital so as to enable
one to live to trade another day. Before you ever enter a trade, the first thing you should
ask yourself:
How much money am I risking here and can I afford to lose it?
The first goal of money management is to ensure survival. You need to avoid risks that
can put you out of business. The second goal is to earn a steady rate of return, and the
third goal is to earn high returns- but survival comes first.
Attempting to get the big win may be exciting, but failure in the attempt can wipe you out.

2007
Edition
94
You have to know in advance how much you can lose - when and at what level you will
cut your loss. Professionals tend to run as soon as they smell trouble and re-enter the
market when they see fit. Amateurs hang on and hope.
"What do I do after I enter a trade and it begins to make money?"
You hear so-called experts often make general comments such as "Don't let a winning
trade turn into a loss," "You'll never go broke taking a profit" or "The trend is your friend"
and other similar remarks.
These general pieces of advice can do more harm than good because -THEY ARE TOO
GENERAL!!!
A beginning trader cannot be left filling in the blanks. Everything must be defined. That is
why a complete trading strategy must include specifically how winning trades will be
managed until the position is closed.
Believe it or not, many people have trouble closing-out a profitable trade. It is a greed
problem. If you are showing a large profit and you are a beginner, you got lucky. Go
ahead and take the profit! To wait, just to see the profit disappear, is a classic beginner's
mistake.
Don't end up saying, "I should have sold when I was up".

2007
Edition
95
One of the most common mistakes new and inexperienced traders make is that they
start trading without any planning.
They don't have any clue about the amount of money they can afford to lose if the trade
does not go in their favor.
There is a term associated with the money management called "Risk / reward ratio",
which plays a very important part in your trading.
Risk / Reward Ratio
Risk / reward ratio is a measure of reward obtained from the trade compared to
the amount of risk taken for the trade.
Let's take an example to understand the concept of risk / reward ratio.
Example
Harry purchases 100 shares of a company "A" at $10. His initial stop on
this trade was set to $9.5 which means that, he will sell all his shares if the
price of "A" drop to $9.5.
Hence, Risk = Cost Price - Selling Price (Stop Loss)
= (10 X 100) - (9.5 X 100)
= 1000 – 950
= 50
Therefore, the amount he is risking on this trade is $50.

2007
Edition
96
Now suppose, the trade goes well and he sells all his shares in the company "A" at $12.
Hence profit = Selling Price - Cost Price
= (12 X 100) - (10 X 100)
= 1200 – 1000
= 200
Therefore, his reward for this trade is $200.
To calculate the risk / reward ratio, we will determine ratio of risk taken in the trade to the
reward.
Risk / reward = 50 / 200
= 1 / 4
This means that for every $1 risked in this trade, he was rewarded with
$4.
The conventional wisdom is that you should only take trades that deliver a risk/reward
ratio of 1:3, or in other words, reward should be 3 times a risk.
This is a BIG NO in today's trading scenario.
The trouble with that approach is that in the real world of trading, such trades are usually
only successful less than 35% of the time. That means
65% of the time the trade is a loser and that the probability of losing 5 trades in a row is
about 11%.
On the other hand, our 1% rule follows the strategy that delivers at least a 1 to 1 risk /
reward ratio. This strategy has the potential to be profitable about 65% of the time.

2007
Edition
97
In this scenario, 35% of the trades will be losers and probability of 5 losing trades in a
row is only about half percent (0.5%).
Most traders would be happy to win 65% of the time with 1 to 1 risk
reward ratio with little chance of an extended losing streak.
You should understand that every time you enter a trade you take a certain amount of
risk. A prudent approach to trading is to identify this risk before the trade is entered.
This will help you to place the stop loss and preserve your capital to make sure you can
trade another day.
We will talk about the Stop loss later.
BASIC STOCK TRADING
SYSTEM…!!
A well defined trading system is essential in trading. Trading system can be divided into
3 parts
Entry
Exit
Stop Loss
Let's begin with Entry and Exit

2007
Edition
98
Without a specific entry & exit system, traders are like soldiers without a mission. The
system has to specify when to get in and when to get out of a position.
Taking a loss can be emotionally hard, but taking a profit can be even
harder. The outcome of every trade is dependent on the exit.
If we enter in a timely fashion and then exit poorly, the trade is likely to be a loss. If our
entry happens to be poor but our exit is good we might still save some profit.
You can take a small loss automatically if you have the discipline to set a stop the
moment you enter a trade. Taking a profit requires more thought. When the market
moves in your favor, you need to decide whether to stay put, get out, or add to your
position.
An amateur can tie his mind into a knot trying to decide what to do about a profit. He
multiplies the number of ticks by their dollar value and feels a surge of greed: Let the
trade run, make even more money. Then the market ticks against him, and he is hit with
a jolt of fear: Grab that profit now, before it melts. A trader who acts on his emotions
cannot make rational decisions.

2007
Edition
99
NOTE
You can go back to the Greed and Fear example we have discussed earlier if
you need a quick revision.
One of the worst mistakes of traders is counting money while they have an open
position. Counting money ties your mind into a knot. It interferes with your ability to trade
rationally. If you catch yourself counting paper profits and thinking what you can buy with
them -get rid of those thoughts!
“If you cannot get rid of them, get rid of your position.”
If a beginner cashes out too early, he kicks himself for leaving money on the table. He
decides to hang on the next time, overstays a trade, and loses money. If a beginner
misses a profit because of a reversal, he grabs the first profit on the next trade and may
well miss a major move. The market tugs on the amateur's emotions and he jerks in
response.
A trader who responds to his feelings instead of external reality is certain to lose. He
may grab a profit here and there but will eventually bust out, even if his system gives him
good trades. Greed and fear destroy traders by clouding their minds.
The only way to succeed in trading is to use your intellect.
The exits, not the entries, determine the outcome of our trades. Bad exits can make a
good entry look bad and good exits can make a bad entry look good.
...Always have a proper Entry and Exit prices before even entering the
trade.

Secrets of successful_traders

Empfohlen

Empfohlen

Weitere ähnliche Inhalte

Kürzlich hochgeladen

Kürzlich hochgeladen (20)

Empfohlen

Empfohlen (20)

Secrets of successful_traders