Hello again - and here we are fast approaching mid November with the leaves falling a whole lot faster than the markets - why can't I simply accept that we're in a nice secure long term bull market and forget all this nonsense about a crash lurking in the shadows under my (soon to be chopped down) sycamore tree? Probably because I'm a scaremonger, or a contrary, stubborn, ill natured curmudgeon, or possibly because I'm right - to be on the safe side, tick 'yes' to all three of the above.....
However - as you'll have hopefully noted from recent WICS offerings, my overall bearish view does NOT imply that I won't meantime seek viable 'buy' trades - the whole point being that in any BULL market there will always still be SELLS, and in a BEAR market there will always still be BUYS to be found - markets 'ebb and flow' within any overall trend, as in fact we'll probably see next week when the major indices fall back a bit within their current overall upward trend. I fully expect to see the likes of the Dow Jones, S&P 500, FTSE100 and so on, take a bit of a tumble during the coming week before resuming their upward path towards the sheer cliff face that's still hidden in the fog of euphoria - and which won't be seen until far too late by those who lack foresight.

By the way, when I mentioned the other weekend that the Dow was 'making new highs', I completely forgot to point out that in 'real terms' it's nowhere near making 'new highs' - in fact, if you take inflation into account, along with dollar depreciation, currently the true worth of the Dow Jones is somewhere about level with its value in 1929. Wow.

Moving along before my sanity is (yet again) questioned in too much depth for comfort, there have been even more emails this week concerning the matter of Stop Loss (SL) management as recently discussed - 'fear' seems to be the theme that runs through these questions.

Now of course we have frequently discussed 'fear', both here and in the manual, but I'm all too aware of the fact that we can 'discuss' things as much as we like, but simply blethering on about such a visceral issue doesn't of itself provide a solution to the problem.

Can I offer a solution? I wish I could! I'm afraid that it would simply be a lie to suggest there's a truly easy way to overcome trading - related fear. You have heard it all before anyway - "Don't commit more money than you can afford to lose", "Accept the inevitability of losing trades", "Don't try to compete with the markets", "Don't take losses personally........." and so on. All stuff that I too use in my answers to your emails. Listen, NOBODY can 'afford to lose money'. EVERYBODY 'takes losses personally'. In fact, maybe there's a bit of help there for you - we are ALL in the same boat with this, including Yours Truly.

"Ah" - I hear you retort - "But it's easy for YOU, because you CAN afford your losses, and you CAN smile when a trade goes against you...." Well, I'm afraid that comments like that cut no ice at all with me. Such remarks ignore the glaringly obvious fact that once upon a time, a long long time ago, in a far off galaxy called Scotland - maybe I should write a film script? - I too had to take my first somewhat timid steps into this environment. Was Williams any different from YOU at that stage? I rather think not! 'Paralysis by Analysis' was my somewhat unwieldy middle name and I would do just about anything NOT to commit to a trade. Why? Because I was SCARED! Frankly, looking back at that time, I'm not entirely sure what scared me the most - fear of financial loss certainly was an issue, but I think fear of 'being wrong' was the biggest one for me, having been a bit of an arrogant brat back then. (Other than fear of my Really Scary Granny of course - which eclipsed any kind of trading - related fear.)

Anyway, that longwinded bit of probably useless information leads me to suggest that what I said in the manual about 'not paper trading' is most likely the best piece of advice I can reiterate to help you overcome fear in all its market - related forms. You can analyse charts till you're purple in the face but if you can't (or won't) 'pull the trigger' on a trade then you'll never know how it really feels to have one running, which means you'll never experience real trading fear, which in turn means you'll never find a way to accommodate it. I don't normally tend to recommend any particular spread bet provider over any other, but perhaps you should check out Finspreads at www.finspreads.com and ask them about their 'Trading Academy' facility, where you can trade for a tiny amount per point for a couple of months during the start of your 'apprenticeship'. You might decide to limit losses on any specific trade to say £10 - or even less - and that of course can be a great way to get rid of the 'fear of loss' part of your overall trading fears.

As regards 'fear of being wrong' - well, the ONLY way to overcome that aspect, is to get used to being wrong! Believe me when I say that being able to say "Sorry!" is probably a difficult attribute to acquire in all spheres of human activity but it's a great thing to develop if you can - and in the world of trading, if you're wrong, why not just say "Sorry!" to yourself and move on? (My own synonym for 'sorry' in that context tends to be "Oh b****r" but that's just me of course.)

Anyway, why not go back to the manual and revisit the idea of a 'perfect trade' where you'll note that even a losing trade does NOT necessarily mean you were 'wrong' in having taken it - in which case an apology to yourself is superfluous.

The main thing to bear in mind, as touched on above, is to recognise that ALL traders, at whatever level, experience the same emotions - but with time and experience, a FEW traders arrive at a point where they more or less effortlessly control these emotions - but at some earlier stage, even those few were just as badly blown off course from time to time as everyone else.

And of course that statement leads on to the whole point of TTEW - if you can mentally 'sit back and relax' and do just TWO things: 1) let the markets come to you by choosing your entry price in advance of events, and 2) let your chosen moving average deal with your stopouts - then trust me, your trading fears will slowly but surely diminish to a point where they're all but forgotten. THEN it's time to be afraid....to be very afraid....of thinking you're a star trader - because that's when you'll begin to believe you're actually about to get rich - and THAT's when your emotions move from 'healthy fear/respect for the markets' to 'I can do no wrong'....which of course is when you'll discover that Mr Market has very sharp teeth and a liking for flesh. And believe me, when Mr Market bites your posterior, it hurts more than a little - I know that from personal experience! (In fact you could almost chart the progress of a successful trader as looking like a graph showing a long, slow upwards slog with lots of retraces, followed by a sharp jump to much higher levels, followed almost immediately by a collapse to new lows.....and eventually steady upwards progress with only occasional minor retraces.)

In a nutshell - if you're experiencing the 'fear emotion' in this environment, then be assured you are perfectly normal!

OK - enough already - on to a couple of charts for your delectation.

First we'll look at the gap down on CSR and what it might mean as regards SL positioning, then we'll examine Intermediate Capital to have a wee think about 'psychology' and what perhaps might happen next as a result.

And that will do for this weekend - I have a few somewhat dodgy trees to deal with in a drastic fashion before we depart for our winter quarters and in the interests of safety the electricity line that runs among them is about to be switched off for a few hours. (I was about to say 'cut off' but hopefully the guys' chain saws will keep well away from the wires!) Anyway, I'm off to operate the log splitter on this beautiful autumn afternoon, so I'll talk to you again next weekend. (By the way, there will be no WICS on the first weekend of December - just to let you know in advance - because that's when we'll be heading back to the ski slopes for the winter - yippee.)

All the best,

Ian.

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'IMPORTANT NOTICE: These WICS charts are for EDUCATIONAL PURPOSES ONLY. They represent only MY understanding of what is happening in the market for any particular share, stock, commodity or index. In NO circumstances should they be construed as recommendations to trade. If I choose to trade what I see, that is MY decision. YOU must, in turn, come to YOUR OWN conclusions about what action, if any, YOU might choose to take'.