5 ways to improve your trading

Editor's note: This week, we welcome guest columnist Lisa Erdmier. Lisa has been involved for over 20 years in the commodities and equities markets as a trader and technical analyst.

Golf clubs theoretically are put away from summer play. With the drought like conditions in Chicago last summer, I took advantage of the weather and played golf and played more golf. Living in the Chicago land area all my life I have learned that when the sub zero winds blowing off of Lake Michigan aren’t whipping in your face, take your clubs out. If you play golf, I am sure that you understand.

To ease my guilty feeling about playing so much golf, I decided to write an article on the mental similarities of playing golf and trading. The more I played, the more ideas I got. The best of both worlds.

Below is a summary of my thoughts and hard work on the golf course on the similarities of Golf and Trading:

1) Before you take your first swing, you evaluate the course conditions. Is it windy or still, where the tee box is aiming you, is there a dogleg in the fairway, location of hazards that might come into play, is the ground soft or hard, is the hole going to play long or short, and the pin placement.

1) Before you make your first trade, you evaluate the market conditions. Where did the market close the day before, what is the pre-opening call, what is in the news, what economic data is coming out and what are traders looking for in these numbers, where are the support and resistance areas.

2) You tee up the ball, get your direction and keep your eye on the ball. You need confidence in your shot.

2) You get your entry/exit points and keep your eye on the numbers. You need confidence in your execution.

3) You need to focus on every shot. Is the ball in the fairway, first cut, sand, or in the woods? Your position will determine your next shot.

3) You need to focus on every trade. Is your trade in the money or out, are you on the right side of the trend, is the market volatile? Your position will determine your next trade.

4) No “Hail Mary’s.” You have a bad shot or a bad trade; you get yourself back into play and take the penalty.

5) The objective of golf is score well. Maximize your good shots and minimize your bad shots. Make money if you are the betting type.

5) The objective of trading is to make money. Maximize your good trades and minimize your bad trades. Make enough money to play golf. You want to “play” the course and “trade” the market. Be aware of how each is set up, don’t try and beat either. The golf course and the market will tell you what to do, you just need to: “LISTEN.”

Traders can confirm there entry/exit points by “listening” to Volume at Price data.

Since this is a financial publication and not a golfing publication, I will expound on a trading strategy rather than on a golf strategy.

The reason why I used the analogy of “listen” in the paragraph above, is that with the explosive growth of electronic trading, traders today want trading tools that give them an inside edge as to what the market numbers are telling them. “Volume at price” is a trading tool that allows traders to “listen” to the market; you hear where the demand is or isn’t.

Markets seldom go straight up or straight down; there is a lot of sideways trading. Odds are in your favor that many market numbers are going to be revisited. The upper and lower boundary market numbers in a sideways trading range will give traders the general area where the market is facilitating to make its next move. To be able to pinpoint the pent up demand in this area, traders can more accurately gauge their entry/exit market points; i.e., If the resistance number in a sideways trading pattern is 10560, and the cumulative high volume area starts at 10580, you would want to have your first entry/exit points starting at 10580. The reason being is that if the market has enough momentum to break through this high volume area in the sideways pattern, the chances that the market will break through the resistance number of 10560 have been greatly increased. “Listening” to the volume numbers will give traders the inside edge of the markets dynamics.

Below, the standard bar chart for the CBOT’s mini-sized Dow shows sideways trading between 10680-10560, for four trading days, and then breaking out of this area at 10560 to move sharply lower.

STANDARD BAR CHART

The Chart-Ex Month vs. Day chart for the CBOT’s mini-sized Dow display’s the historical cumulative volume at each price. You can confirm;

1) There was heavy volume in the sideways trading range of 10680-10560

2) Pinpoint the lower band of the high volume area at 10580-10560 (The chart-ex website provides a java applet that displays volume at each individual price).

The trading strategy in this sideways market would be to have your 1st entry point for setting up a short position at the 10580-10560 area. Once the market has broken through the lower band of the high volume area of 10580-10560, you have confirmation that the sellers are in control. I would add on to my short position slightly below 10560, keeping my stops close to confirm the break out and the downward market momentum. Chart-Ex volume at price data confirms the relative strength and/or weakness of the markets price action.

CHART-EX MONTH VS DAY

As in the game of golf, you want to equip yourself with the best tools. Volume at price will enable you give it your best “shot.”

About the Author
Lisa Erdmier is President of Chart-Ex, LLC. Chart-Ex is a web-based company that offers a new proprietary data visualization tool that displays comparative price action on a single central axis with cumulative volume at each price. The Chart-Ex display keys into the growing demand from traders and investors that want to see volume at price in one concise model.

The Chart-Ex displays above allows traders to “listen” to the market numbers. Click on www.chart-ex.com to use the FREE trading tool that uncovers the dynamics of the market's momentum by offering Market numbers and Volume at price.