UNDERSTANDING MARKET SENTIMENT

Market sentiment refers to the prevailing attitude of investors in a particular market.

■ Always Consider Whether Your Idea is Already Discounted by the Market

You must always consider whether the market has already discounted your trading idea. If your idea is based on news, consider that at least 90% of news is already incorporated in the prices.

Michael Marcus says that you must always ask yourself: "How many people are left to act on this particular idea? -You can evaluate that by using the classic momentum-type indicators and observing the market tone. How many days has the market been down or up in a row? What is the reading on the sentiment indexes?”

MONEY MANAGEMENT RULES & GUIDELINES

Money management refers to a set of rules that aims to minimize your losses in the short term and maximize your profits in the long term.

■ Balancing your Decisions Between Reward, Time, and Risk

At any given time, the market offers a great number of risk/reward trade combinations.

• Asset A has the potential to move to Price X+5, but also the risk of going to Price X-5, in N days

• Asset B has the potential to move to Price X+12, but also the risk of going to Price X-10, in 2N days

• Asset C has the potential to move to Price X+32, but also the risk of going to Price X-20, in 4N days

When you select a trade, you must consider all these variables:

• Reward | Risk | Time

Carefully balance every trading decision between these three variables. Don’t underestimate risk and don’t underestimate time.

TRADING RULES

Trading is a zero-sum game, and as a few people are making a lot of money, there must be a lot of others who lose. That means that basically, you should trade against the crowd.

■ Your Trading Style must Match your Personality

Your character and personality play a major role in your decision-making process. Fear and greed can lead to weak hands and catastrophic decisions. Your trading style must match 100% your personality, in a way that our hands will always be strong no matter the market conditions.

• If you are a risk-averse person avoid trading intraday and don’t use capital leverage

• If you are a beginner, start by using a demo account to test your skills before trading for real money

PERFORMING MARKET ANALYSIS

Market analysis refers to the process of studying market fundamental data and measuring the dynamics of future demand and supply to identify risks and spot trading opportunities.

■ Think Long-Term and Invest in the Future

Invest in the future, not in the present. Focus on the big things coming in the future and ignore the small things happening today. As Larry Hite suggests you may not know what will happen tomorrow, however, you can have a very good idea of what will happen over the long run.

Your decision-making should be based on events that will take place in the next semester, not on events that take place today and are already discounted by the market.