Money management

1. 1% risk per trade of the allocated capital and 5% risk for all open position.
2.First target (first partial) at 1% gain, second target at 2% gain. Rest of the open position will be keept open till the system say different thing.
3.ATR allows the open position to breathe in the market volatility .Setting stop at the ATR level is most logical and effective.
4.If the ATR does not apply ,high of the consolidation is the second best place to set stop.
5.Consolidation some times become too large to set stop, in that case we will use 1% rule.

Trading with Dow Theory

There are many times in a bear market when people (especially the media) start getting excited. The market starts to rally, and before you know it we have truck loads of market experts calling a new bull market. But how do you look through all the news and noise and really tell if a new bull market has really started?
Here is one way that has been very successful in keeping out of bad trades and staying in good ones over the last 50 – 100 years. Originally coined from Charles Dow’s own writings (if his name sounds familiar, it’s because it is one half of the “Dow Jones Index”) Dow Theory, as it is now called, is simple and quick to use. But why would we use Dow Theory?
Here are the main benefits:
1: Dow Theory is an easy and measurable way to recognise when the market is heading up, and when the market is heading down (and likely to continue).
2: As Dow Theory is viewed on a weekly chart, you only need to scan the market once a week. This means you can work full time and still trade successfully.
3: Being a weekly strategy, you get to capture the longer weekly trends. These will usually range from 5% to 30%, but can stretch out to 50%, 100% or more.
4: Dow Theory is easy to recognise. You do not need to have any fancy indicators, volume, or astrological charts on your screen to recognise a Dow Theory signal.

Now, according to Dow Theory, to have a bear market we must see a peak in price, followed by a trough, then followed by a lower peak. Once price trades through or closes below the previous trough, this is our signal to sell.
By the same token, to have a bull market we must see a trough, followed by a peak, then followed by a higher trough. Once price trades through or closes above the previous peak, this is our signal to buy. If this all seems confusing, I find a picture says a thousand words:

http://www.asxmarketwatch.com/2009/06/trading-with-dow-theory/

Pending orders

After two weeks of sell off, it seems like market having some rest. Consolidation period might be over at any time or be extended for weeks. Some of my pending orders have been set to the important levels, if the market takes my order I will add some to it.

Making Millionaires Out of Average Joes

Sometimes that magic million dollar mark can seem out of reach. I mean – you earn your $50,000 paycheck, and by the time you’ve paid the mortgage, the car, the kids, the wife / hubby, the insurance, the rates, the groceries, the renovations (this list could go on for a while) there is hardly anything left for yourself – let alone to invest!

The good news is that a million dollars and beyond is actually not out of reach, and you can achieve it with less effort than you’d imagine. You don’t even have to do anything crazy like sell your grandmother or walk across hot coals – you just need to know how to use a simple mathematical tool called “compounding”.

The Eighth Wonder of the World

Compounding – a wise man once described it as “The eighth wonder of the world”. You may have heard of him – his name was Albert Einstein. Others have said that the moment you understand it your world will never be the same again. But, what is it exactly?

Compounding is when you have some money, earn a return on that money, and then re-invest the returns and do not take any out. This has the effect, over time, of earning “returns on your returns”. Now it can start out slow, like growing grass, and this is why many people give up. But with time these small returns grow exponentially, and your grass instead grows into mountains.

Let’s check out an example with a young man we’ll call Jake:

Jake used to buy two coffees and lunch at work every day – costing him around $15 a day. Over lunch one day I pointed this out to him, and also pointed out what would happen if he invested this money instead. Jake was dumbfounded - he vowed right then to change his ways. Over the course of time Jake earned a 15% return on his money – let’s see what happened:


In his first year Jake saved $5,460, but had $5,851 in his account after his returns.
In his second year Jake had saved $10,920, but had in his account $12,643 after his returns.
After five years Jake had saved $27,300 of his own money, but actually had $40,301 in his account. As you can see, the gap between his own money and investing his own money was starting to widen.
After 10 years, Jake had an amount of $125,223 in his account (the grass was really starting to grow).
After 20 years Jake had a nice $681,243.
But this is where the real magic happened (remember those mountains I told you about). In the next five years Jake earned a massive $794,562 from his investments, bringing him to a total of $1,475,805. Jake was officially a millionaire, and all because he started bringing his own lunch to work.

By the way, Jake didn’t even miss the $105 a week by the end of this – it left his account first and he didn’t even see it. And he can now afford to buy any lunch he pleases, whether he wants to continue working or not.

How Can I Get Started?

As you can see the really magic happened in the last 5 years – so I can’t stress enough that the longer you delay the longer it will take you to get there. Now of course you do need some money to invest. If you haven’t got any (or even if you do) the best way to get started is to “pay yourself first”. Set up an automatic transfer into another account so you never see the money, and set aside at the very least 10% of your net income each pay. There is a great book called “The Richest Man In Babylon”, which describes this perfectly. Go for it! A regular person really can become a millionaire, and that makes me happy.
By Dave McLachlan