5 Fatal Flaws of Trading - Why Do Traders Lose | Cannon Trading

May 20th 2016 Newsletter

Weekly SP 500 chart produces a sell signal. The five fatal flaws of trading.

May 20th, 2016 - Issue #830

In This Issue

1. Trading 101: Five Fatal Flaws of Trading
2. Hot Market: Weekly SP Chart Produces a Sell Signal
3. Economic Calendar

1. Five Fatal Flaws of Trading

Why Do Traders Lose?

From our friend Senior Analyst Jeffrey Kennedy. Eliott Wave

If you’ve been trading for a long time, you no doubt have felt that a monstrous, invisible hand sometimes reaches into your trading account and takes out money. It doesn’t seem to matter how many books you buy, how many seminars you attend or how many hours you spend analyzing price charts, you just can’t seem to prevent that invisible hand from depleting your trading account funds.

Which brings us to the question: Why do traders lose? Or maybe we should ask, 'How do you stop the Hand?' Whether you are a seasoned professional or just thinking about opening your first trading account, the ability to stop the Hand is proportional to how well you understand and overcome the Five Fatal Flaws of trading. For each fatal flaw represents a finger on the invisible hand that wreaks havoc with your trading account.

Fatal Flaw No. 1 – Lack of Methodology

If you aim to be a consistently successful trader, then you must have a defined trading methodology, which is simply a clear and concise way of looking at markets. Guessing or going by gut instinct won’t work over the long run. If you don’t have a defined trading methodology, then you don’t have a way to know what constitutes a buy or sell signal. Moreover, you can’t even consistently correctly identify the trend.

How to overcome this fatal flaw? Answer: Write down your methodology. Define in writing what your analytical tools are and, more importantly, how you use them. It doesn’t matter whether you use the Wave Principle, Point and Figure charts, Stochastics, RSI or a combination of all of the above. What does matter is that you actually take the effort to define it (i.e., what constitutes a buy, a sell, your trailing stop and instructions on exiting a position). And the best hint I can give you regarding developing a defined trading methodology is this: If you can’t fit it on the back of a business card, it’s probably too complicated. 

Fatal Flaw No. 2 -- Lack of Discipline 
When you have clearly outlined and identified your trading methodology, then you must have the discipline to follow your system. A Lack of Discipline in this regard is the second fatal flaw. If the way you view a price chart or evaluate a potential trade setup is different from how you did it a month ago, then you have either not identified your methodology or you lack the discipline to follow the methodology you have identified. The formula for success is to consistently apply a proven methodology. So the best advice I can give you to overcome a lack of discipline is to define a trading methodology that works best for you and follow it religiously.

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2. Hot Market: Weekly SP chart

By Ilan Levy-Mayer

Click on image below to enlarge

mini SP futures; I actually read about this topic on a blog I follow which prompted me to look at it my self using my own charts. I have had a bearish bias towards stocks for the past two weeks and you can look at a piece I wrote for TheStreet.com from May 3rd 2016. Using my own charting analysis, the weekly chart of the mini SP is showing 2 moving averages, the 50 and the 100 MA. You can see that last week these two moving averages crossed, some in the industry refer to this as the "death cross". The last two times this happened on a weekly chart, were back in March 2001 and June 2008. Both times the market had a correction of approximately 30%! The main difference this time is that so far we do NOT have any major news events or economic reasons for a sell off and in addtion, the last two times we saw the “death cross”, the market started declining before generating the signal, this time the market is still moving up...My bias has been bearish for a bit and wrong for a bit....not sure this "death cross" will amount to much but using some other techincal indicators I feel the market is running out of steam. Plan your trade and trade your plan!

3. Economic Calendar

Source: Moore Research Center, Inc.

Date Reports Expiration & Notice Dates
2:00 PM CDT - Cold Storage

9:00 AM CDT - New Home Sales(Apr)
FN: Jun Crude Lt(NYM)
6:00 AM CDT - MBA Mortgage Purchase Index
8:00 AM CDT - FHFA Housing Price Index
9:30 AM CDT - API & DOE Energy Stats
2:00 PM CDT - Dairy Products Sales
LT: Jun Copper Options(CMX)
Jun Gold Options(CMX)
Jun Silver Options(CMX)
Jun Natural Gas Options(NYM)
Jun RBOB & ULSD Options(NYM)
7:30 AM CDT - USDA Weekly Export Sales
7:30 AM CDT - Initial Claims-Weekly
7:30 AM CDT - Durable Orders(Apr)
7:30 AM CDT - Durable Orders-Ex-Transportation(Apr)
9:00 AM CDT - Pending Home Sales(Apr)
9:30 AM CDT - EIA Gas Storage
3:30 PM CDT - Money Supply
LT: May Copper(CMX)
May Gold(CMX)
May Silver(CMX)
May Platinum(NYM)
May Palladium(NYM)
May Feeder Cattle(NYM)
Jun Natural Gas(NYM)
May Feeder Cattle Options(CME)
7:30 AM CDT - GDP-Second Estimate(Q1)
7:30 AM CDT - GDP Deflator-Second Estimate(Q1)
9:00 AM CDT - Michigan Sentiment-Final(May)
FN: Jun Natural Gas(NYM)
FN=First Notice, OE=Option Expiration, LT=Last Trade

* Please note that the information contained in this letter is intended for clients, prospective clients, and audiences who have a basic understanding, familiarity, and interest in the futures markets.

** The material contained in this letter is of opinion only and does not guarantee any profits. These are risky markets and only risk capital should be used. Past performances are not necessarily indicative of future results.

*** This is not a solicitation of any order to buy or sell, but a current market view provided by Cannon Trading Inc. Any statement of facts herein contained are derived from sources believed to be reliable, but are not guaranteed as to accuracy, nor they purport to be complete. No responsibility is assumed with respect to any such statement or with respect to any expression of opinion herein contained. Readers are urged to exercise their own judgment in trading!

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