Welcome to the November 2008 issue of The Trading Game Newsletter.

With western governments the world over currently making snap decisions to 'ban this' and 'guarantee that', its no wonder most market participants aren't sure what to do next in this current market, if anything.

Most of the many experienced traders I know are following trading plans that currently have them sitting in cash and waiting for the wild moves to settle and new trends to appear.

Some people may have experienced a larger than normal drawdown and are now wondering what to do. Well, as I often tell myself, its not what happens to you, its how you handle it that counts. What does your trading plan say about drawdown? Making decisions without emotion is what separates the professionals from the amateurs.

Don’t you agree that people like Donald Trump, Bill Gates, Steve Jobs and Oprah Winfrey would be able to rebuild their wealth incredibly quickly if they lost all of their money? That’s because they’ve developed the financial life skills to drive them towards success, and they know that their biggest attribute is their knowledge about how to create money out of thin air. We want you to have the skills required so you can hit the ground running when the trends start to present themselves again.

This month’s newsletter is choc-a-block full of information and expert views, designed to push your trading to the next level.

Happy trading, Louise Bedford

In this issue:

- The Start-Up Trader - Trading Psychology Counts
- Free Articles
- Mentor Program
- Rave Reviews
- Discovery Sessions
- Tate on Trading - Sector Rotation
- Free Trading Game Short Seminar Series
- Summary

The Start-Up Trader - Trading Psychology Counts

Ego is an amazing thing isn’t it! We need just enough of it to give us the courage to trade, but if we have just a little too much … then we make poor trading decisions based on the belief that we could not possibly be wrong. Greed takes over. Before you know it, we are facing a loss that we don't want to realise because we were so sure our analysis was correct.

When I first started trading I oscillated between joy and despair, joy and despair, joy and despair … and that was all within the first 5 minutes of entering a trade! Over time I have learned to gain some control over my emotions, but it is still a challenge that all traders must face.

As I have a degree in Psychology, the mind of the trader began to fascinate me, (especially since I was experiencing many of these psychological effects first-hand). Once we can become aware of our reactions, we have more of a chance of mastering our emotions. Knowledge is the key.

When you have made a loss, how do you react? There is nothing more debilitating than the emotional reaction that we may experience after taking a loss. You may feel drained of energy, or perhaps you would like revenge on the market and as a result, enter foolish trading positions. If you can understand your likely reactions, you'll be more inclined to overcome your own emotional responses.

Cognitive Dissonance is the tendency to reject information that is contrary to the trading decision that has just been made, and to look for information to confirm that the trader is correct.

None of us like to be ‘wrong’, so we will often look for evidence that we are ‘right’, rather than accept the fact that we are not perfect.

Imagine that you have just purchased a new BMW. What a wonderful feeling you would have as you zoom around to your neighbours and relatives showing off your new acquisition. When you drive up to your brother-in-law’s house, he rushes out to inform you that BMWs have just rated below Audis in terms of Australia’s best value prestige marque. You now have a choice… either you could believe your brother-in-law and feel miserable or you could reject everything he has said and decide to feel good about your BMW purchase. To confirm your view you may tend to search out information about BMW’s magnificent safety record, superb design and superior resale value.

So often we seek out confirming information and reject contrary information. This can be very damaging to a trader’s bank balance. If we are in a trade and that share has made us money, we are bound to feel nice warm emotions of gratitude to that share for supplying us with a profit. That share could become our ‘favourite’.

Remember the 11th commandment of share traders: ‘Thou shalt not kid thyself’. The first step is to admit when we require radical improvement in a particular area. The second step is to act on what we have discovered.

- Louise Bedford

An ideal resource to help develop a sound mindset for all types of trading is the Trading Psychology Home Study Course. Click here for more information and ordering details.

Free Articles

Mark Bull is one of Chris Tate's and my favourite mentorees, and you can read about his trading experiences in this month’s Your Trading Edge magazine. Kel Butcher, who I have also trained, is the author of this article and he organised this interview with Mark. I’m sure you can learn a heck of a lot from both of them. Click here to read it. This article first appeared in the Nov/Dec 08 issue of YourTradingEdge magazine www.yte.com.au. All rights reserved. © Copyright 2008, MarketSource International Pty Ltd. To subscribe see www.yte.com.au/Subscribe.asp

This month, Chris Tate was interviewed for the CFD Trade Review magazine, issued by CMC Markets. Chris has seen all types of markets, traded every instrument available, and profited in every one of them. His views are in constant demand. Click here to read Chris’ views on how to trade during volatile times.

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with Chris Tate and Louise Bedford - February 14th, 2009

This is the last ever Mentor Program to be run in the current format.

Make a decision to change your trading forever!

The Mentor Program for 2009 is now open for enrolment. This is an intensive course conducted over 4 months designed to streamline your trading activities. It is derived from Chris and Louise's 40+ years of trading experience and condensed into a jam-packed, action filled course.

• You'll learn how to design a unique individual trading system for you.
  

• You'll create a bullet-proof trading plan that will set you apart from other traders.
  

• You'll learn from successful fellow traders who have gone down the same road as you and therefore understand the pitfalls of the journey.
  

• You'll learn the importance of advanced money management and how it is applied across a broad range of instruments.
  

• You'll learn how to trade different instruments in today's market conditions.

If you're serious about trading effectively, book in today.

Attendees will also be given the opportunity to participate in the next program and to remain a part of the mentor program trading community for as long as they wish.

Bookings will close on Sunday, January 31st, 2009.

To hear more about the Mentor Program to begin on February 14th, 2009...

and here are two videos featuring some past 'mentorees'...

Chris and I have been so excited to see the growth you have been experiencing as traders. Contrary to what is happening in the ‘general public’, we’ve been informed by our key brokers that none of their clients who we have trained have suffered significant losses. On the contrary, a bucketload of them have been raking in the type of quick money that can only be made by engaging a raging trend and following an exceptional trading plan.

The advice we give is current and active. We talk about strategies that work today. That’s important when you're deciding who you want to listen to, and who to follow. Below is a short video where you can hear what some of our Trading Game members have to say about our services and the incredible results they've achieved.

Discovery Sessions

Gary Stone, Managing Director of ShareFinder Investment Services, will be presenting FREE ‘Discovery Sessions’ in Brisbane (November 18th 2008), Melbourne (November 27th 2008) and Sydney (December 3rd 2008).

These sessions will help you to manage your capital and maintain your profits during a volatile share market.

Click here for more information and booking details.

Tate on Trading - Sector Rotation

Much has been made of the extension on the ban on short selling, and whilst it is about as useful as a chocolate teapot, it is nonetheless a fact of life. However, it is not the end of the world since the market has a variety of instruments that can be traded on the short side. It is this diversification across instruments that I want to talk about this month.

In the July 2008 issue of the Trading Game Newsletter I spoke about the need to have an 'off switch' for your long sided trading system in response to changing conditions. The value of such an off switch is obvious and essential to any trading system, but just because you have switched off the long side does not mean that the short side cannot be brought to bear. I want to look at diversification from the perspective of a longer-term system and the use of what might be loosely called sector rotation.

One of the most useful features that CFD providers have brought with them is the capacity to trade sectors as well as their component shares. Before looking at the notion of sector trading, I will mention that it is possible to trade the index on the short side over the long term. In the October 2008 issue I mentioned the potential use of STW as a surrogate for the index or as a potential portfolio trade. It is also possible to trade this instrument from the short side as well. This gives portfolio traders with an alternative to simply moving into cash when the market turns.

By way of background, CFD providers generally offer the following sectors:

ASX Equities Sector Consumer Discretionary
ASX Equities Sector Consumer Staples
ASX Equities Sector Energy
ASX Equities Sector Financials
ASX Equities Sector Financials excluding Property Trusts
ASX Equities Sector Health Care
ASX Equities Sector Industrials
ASX Equities Sector Information Technology
ASX Equities Sector Materials
ASX Equities Sector Telecommunication Services
ASX Equities Sector Utilities

Sectors within Australia can be quite small in composition because of the small size of the market. I don’t view this as a disadvantage, merely a fact of life when dealing with a small index within a relatively small market.

The use of sectors as an instrument does provide an advantage over short selling the underlying shares. The short sale of shares requires a fairly rigorous selection process since you are attempting to reduce your number of candidates down to a reasonable number. In the current bearish climate this can be difficult. For example, at present within the All Ordinaries index there are some 466 shares that are below their 30-week moving average. This number of shares makes the information management process more difficult when compared to selecting a sector to trade.

Part of the rationale for the banning of short selling was to protect shares within the finance and banking industry. It was somehow believed that short selling was going to send companies broke. This logic was adopted from the US where for some reason it was thought that short selling had sent Lehmann Brothers under. This of course neglects the banks policy of lending money they didn’t have to people who couldn’t afford it for houses that where not worth the money they had borrowed. However, I can still participate in the pain of the financial sector via the short selling of the finance index.

Consider the chart below of the ASX 200 Financials Sector Index.

This chart has a 60-week moving average plotted along the bottom. This is the same average I used as an example of how to switch your long system off. This sector began to falter in December 2007 at the same time that the broader market began to struggle. This parallel movement was to be expected because the financials sector contains many index heavyweights.

The trading of a sector is very similar to the trading of any other instrument. However, there are some pitfalls to watch out for.

1. Spread – many CFD firms generate their income via the spread they charge on a given instrument. Often this spread is charged as a percentage of the level of the index. So the higher the index the higher the fee can be. Pay careful attention to what you are being charged.

2. These are good tools for going short because the interest charge is in your favour but be wary of the costs involved in going long. I have spoken about selecting the right vehicle at the right time in order to lower your transaction costs. Remember, in trading we have few fixed costs and whatever we can do to lower them will be to our advantage.

3. Be wary of your position size. Traders can be over optimistic in the size of position they think they can afford. As an extreme example, the current ATR on the energy sector contract is 1,498 points. If you were to have a two ATR stop this would be 2,996 points. Even at $2.00 per point your account would have to absorb a $5992.00 movement before you could trade this instrument. So if you were operating on the 1% risk-per-trade rule your account would need to be a very healthy $599,200.00 to trade this instrument.

The use of sectors highlights two related points I have raised over the past few years. Firstly allow your thinking to be flexible and instead of being stymied my government interference, look for alternatives to pursue. And secondly apply the notion of diversification to more than buying things with different names. Diversification also means trading different instruments in different ways. If you can incorporate the flexibility that both these points require into your trading plan, you will find that they allow you much more room to move. In doing so they may open potentially new areas for profitability.

- Chris Tate

Free Trading Game Short Seminar Series
- Random Thoughts

With so much doom and gloom in the media, it’s not surprising that some traders have begun to hang their heads. This market is forcing even experienced traders to focus and be flexible with their attitudes and approach. I just want to encourage you that as long as there is a trend, there is a way to suck some money out of the pool of crazy so-called traders who are running around like doomsday soothsayers. If you have decided not to be in the market at the moment, this is also a valid decision. However, don’t waste your time and attention. Now is the time to sharpen your axe, and finesse your skills. You need to rely on cutting edge information to unlock your hidden potential.

As an exclusive for our Trading Game Newsletter members, Chris Tate has put together the most up to date and applicable market comment available specifically created for traders. The techniques and information that Chris is about to share with you will ensure you’ll consistently perform at your peak, even in this turbulent market. If you have a ferocious curiosity for learning, and you’re looking to experience accelerated growth, you need to listen to Chris Tate’s latest video podcast below.

Summary

The market will just love to give you money when you follow a trading plan which is  based on solid success principles. We aim to empower people with our concepts that we have learned the hard way, through trial and error - by trying something, perfecting it and then passing it onto you. You don’t need to change your personality to trade, you just need to apply discipline. Embrace the knowledge we can provide. If you put into practice the principles we are discussing, we can be your unfair advantage in the sharemarket.

Remember, if you’d like to provide some positive feedback about your terrific experiences with our site and products, please email me (louise@tradinggame.com.au) and I will be overjoyed to send you a free trading gift. I have a real passion for showing people from all walks of life that they can trade successfully, and there is simply no better way to do this than to spread the word. Providing feedback to us is a spectacular way that you can positively impact the lives of other fellow traders. Can’t wait to hear from you!

Until next issue,

Happy Trading!