They believe the deck is stacked against them.

I have a very different view of the market.

I believe the market is designed to pay you money.

I agree the market is fixed – that the deck is stacked.

It is stacked in your favor if you do three things:

• You consistently execute setups that have an edge;
• You cut their losses when you are wrong; and
• You exploit your gains when you are being rewarded.

If you start with an edge in your setups and you cut your losses and let your profits run, then the following is true:

When a trade immediately takes off in the trader’s direction, surprisingly, most traders cannot get out of it fast enough.

They cannot believe their good fortune.

You should view this favorable explosion as the norm and let the market go in your direction until the market either stalls or retraces by a preset amount.

If the market is designed to pay you money, then each trade has the potential to be a home run.

Of course, we know that most trades do not immediately explode in your direction.

When faced with a trade that does not move or, worse, drifts against the trader, most traders make excuses for the trade and think of reasons to hold onto it hoping it is still going to work.

You should do just the opposite.

A trade that does not go in your direction should be given the minimum amount of room to work and, if it does not, it should be exited.

After all, each trade is just a small probability.

It is important to keep in mind that when you are in a trade that is not working, you are not able to see the next trade which has a better chance to reward you.

In conclusion, the deck can be stacked in your favor if you just understand that:

• The market is designed to pay you money;
• A good trade works immediately and profoundly; and
• Any trade that does not work immediately and profoundly is suspect.

Wishing you success in your trading,

They think their dog remembers everything that happens.

Take my neighbor’s dog Fritz as an example.  Fritz is smart, but his short term memory is hazy at best and his long term memory is almost nonexistent.

The markets have a memory just like Fritz.

The more in the past a price is, the less likely it is to be helpful in making trading decisions.

However, just like a dog owner’s belief that his dog remembers things, many traders memorize past prices in the hope that the market will repeat itself in the future.

Traders have told me triumphantly that the market bounced off last Tuesday’s lows or rallied to Friday’s high.

Maybe it did.

But is this occasional return to a past price really helpful in making trading decisions?

After all, there are so many supposedly important price points in the past that the market is likely to randomly bounce off seemingly important points again and again.  But, how can you know which prices from the past are important and which are not?

My answer is that looking too far in the past for indications of where the market will head is wasted energy.

Instead, I believe that the market moves in waves.  It rallies and retraces and rallies again until the rally exhausts and it sells off, retracing again and again.  This is the way the market moves.  It is more likely to respect recent support and resistance than it is to care about price levels from the past.

No offense to Fritz, but the market has the memory of a dog.