In my last newsletter I began my discussion relating to the secret difference between profitable traders and non-profitable traders. I stated that people who consistently win the stock market battle are those individuals who remain focused on "the basics." I promised to continue the discussion in this newsletter. I ended the last article with a "cliff hanger" ending, where I promised to talk about charting patterns, entrances and exits, and more.



If you do not remember receiving the July 1st newsletter, or if you need a fresh copy, please feel free to send a note to DARLENE@darlenenelson.com. In the subject line include the following: "Please send a copy of the July 1, 2004 newsletter." I'll get you a fresh copy as soon as possible.

Chart Patterns

There are many great books on "charting" and "technical analysis." In fact, when I did a quick search for books on these two subjects I discovered more titles than I would be able to read in my lifetime. There are so many books written on the subject, how can a mere mortal make the "right" book buying choice? I'll fill you in on a little discovery I made a few years ago - the books are 90% the same! What I mean by this is a book that discusses the basics of charting will cover the basics. An advanced book is more of the same with a little more intensity, formulas, examples, and impressive language (for the average person). How do you choose the right book? Get a couple of books in the mid price range and walk away happy.

Of course, if you are a technically minded person, you will enjoy the books that require an IQ of 155 to understand. If you are not technically minded, you need to find books that use language that fits your comfort level, or stretches your mind a little. Do you want me to provide you with a list of suggestions? Please send me an e-mail at: DARLENE @darlenenelson.com. In the subject line include the following: "Please suggest books for me to read." If enough people send me requests I will be happy to provide a list of books that I have read, which would make wonderful additions to your stock market education library. You can even tell me which subjects you have a thirst for more knowledge on.

What chart patterns are most important? I like to keep things simple; I also like to keep my life manageable. Which means that I do not keep a list of 35 different chart patterns on my wall! I tend to use a very small group. Keeping things very simple, it's the secret of my success.

In my July 1st Newsletter I discussed Support & Resistance and Volume. In this newsletter I'll continue, starting with W & M patterns.

"W" and "M" Patterns

The "M" pattern is similar to the "Double Tops" pattern. Where you have a stock that has reached a high point twice, and in between there is a dip forming a "V" shape. The "M" pattern is fully developed when the second leg of the "M" reaches the low point of the "V" dip. The time to make the play is when there is "CONFIRMATION" by the stock continuing the down trend past the "M" pattern. It's a great pattern that has been very kind to me in the past.

If you see an "M" forming expect a drop, if it breaks through the middle of the M (bottom of the "V" dip) expect a HUGE drop. Thus the term "M" stands for MURDER, as is the stock price is getting killed (falling).

The "W" pattern is simply the reverse of the "M" pattern. "W" also stand for a double bottom or J Lo (Jennifer Lopez - look it up in a stock dictionary it really exits)! The "W" stands for WIN because the stock is expected to make a huge move UP so the stock is winning the battle.

With "W" patterns the stock is moving up, and the "M" patterns means the stock is moving down. The way I remember is by the association of "W" stands for WIN and "M" stands for MURDER.

Trends

I am sure you have heard the phrase "THE TREND IS YOUR FRIEND"! This is very important. Don't fight the trend because there is too much risk of loss. It is important to understand that the TREND is relative to different periods of time. For example, a stock may have a general up trend when looking at a 20 year chart, where each bar of the chart is one year of movement. However, when looking at a monthly chart the trend for the last 14 months has been down. You need to stay in the relative framework of the time period you are playing. If you plan to get in and out of a play in a few hours, you will need to use 5-minute, and 60 minute trends. If you also look at the daily trend and all three (5 min, 60 min, daily) are all moving the same way, you have a strong pattern. If you plan to get in and out of a play within the next 20 minutes, you would look at the tick, 1 minute, and 5 minute charts. You might also look at the 1 hour chart for added clarity.

Entrance and Exits

I generally like to play stocks that have just bounced off of support or resistance. It's the most logical time to start a play, because I have habit on my side, as in the normal up and down movement of the stock. My 40 cents to wealth DVD series is perfect for teaching you this concept and it helps you become a master of self control and a great trader. When people are frustrated in their investing efforts I suggest that they watch the 40 cents DVD's and follow the guidelines. Guess what happens? They become great traders and their frustration is changed into excitement and confidence.

When you take the time to look for perfect entrance and exits, you put the law of averages to work for you and profits are the result. Almost everyday there are plenty of stocks bouncing off of support and resistance, all you have to do is pick the best ones, and let the stock market do the rest. When a stock is bouncing off of SUPPORT it's time to do UP plays, when stocks bounce off of RESISTANCE it's time for DOWN plays.

I am sad when I see friends and associates compromising their potential by opening their trades at the wrong time. I see so many people jumping in when the stock is in the middle of the support / resistance cycle. It seems like they have not learned the profit power of patience and self control. It's critical for all of us to get very picky at choosing stocks that are prime for the start of a play.

Why You Should Not Trade Without Safety Nets And Insurance

Let's put it this way - how has it been working for you not to have safety nets and insurance on your trades? I think about the thousands of people who let their trading accounts vaporize because they did not have a clearly defined exit for plays that moved the wrong way. In 1999 / 2000 when the technology bubble burst, these poor souls watched their dreams disappear. Most trading accounts look like a sad NIGHTMARE when compared to where they should be now!

Can you afford things to get worse? NO!!!! If you are not using safety nets (alerts to bail you out when the stock moves the wrong way and stop losses when you can't watch the trade) and insurance (counter plays to protect you) then you need to stop trading until you can either get to my two day LEAPS class and perfect this step or take my LEAPS DVD's home with you. I teach you how to use both Safety Nets and Insurance in my LEAPS class. Of course, my 40 cents DVD's also teach a form of self protection which works perfectly for those types of trades. People need to stop the bleeding at all costs, and FAST! If the American public had used insurance and safety nets in their portfolios when the bubble exploded, they would be happy campers today. In fact, their investment accounts would be up not down right now.

Walking Away and Pulling the Plug

I have always said:

"IT IS BETTER TO PASS ON A POOR PLAY

THAN TO END UP POOR PLAYING!"

It seems hard for most people to pull the plug whe" you should not be trading! You need a written trading system that guides you through the process immediately if the trade goes against you. If you don't have one, start out by getting my 40 cents DVD's. After you have a firm grip on the techniques in that program, you need to come to my LEAPS two day class for the most incredible system ever invented! One student, Norval Griffin who attended my California LEAPs class said he instantly turned his trading around from 20% to 80% success overnight using my system, and that he now makes four times as much money on his winning trades and his costs are small compared to his losses from before using my system.

Don't let your hard earned money slip through your fingers! Start using safety nets, insurance and learn to have a quick trigger finger when the trade goes wrong.

Happy Trading,

Darlene with BetterTrades