Successful traders examine the current market conditions to determine if they are bullish, bearish, or a trading range environment. After determining the current market environment traders can select the tools from the their trading tool box that perform best in the current conditions. When the market conditions change then traders need to adapt to the new market environment by selecting new tools that are most appropriate for the new market conditions.

In addition to adapting to the current market conditions by using the appropriate tools from the trading tool box there are several practical aspects of trading that traders need to master.

Never enter a position without having a plan for exiting the position. If you Do not know where to get out of a position you should not enter it in the first place. In swing trading time frames stocks often run to the next resistance or Support level and then stall. We have seen that stocks rarely remain outside the Bollinger bands for long, so when a position reaches the Bands it is often a good Place to look at profit taking, especially in trading range environments.

There is usually no need to rush in when the markets trend changes. Any trend worthTrading does not require you to be in on the first day, by definition. It is usually better to make sure the trend change is real and then react rather than assuming that the first Day of a potential change is something that is going to continue.

There are a lot of jobs where people get paid every Friday. Trading is not one of them. There will be profitable weeks and losing weeks as the normal statistics work out. Remember that if you make enough trades there is a reasonable probability of seeing…

ten losing trades at some point, even with good trading systems. This is part of trading and traders need to allow for it when they work out position sizing and money management techniques.

You do not have to trade every day or take trades just because they came upon the evening scan. Carefully consider the recent price and volume action in the market before taking positions. Look for the best trades, consider long trades that have not shown a lot of recent distribution and have ‘room to run’ before hitting the next resistance area or the upper Bollinger Band.

Make sure that your position sizing is such that if all your current positions were stopped out that the total loss is something that is still comfortable. This happens from time to time and wishing it did not will not change it. Be prepared by using sensible position sizes.

Review each of your positions every evening and determine if it is something you still want to be holding based on the recent market action and the price volume patterns of the position. Longs going up on declining volume are showing weakness and I generally close out those positions and put the money to work in something stronger. You are hiring a stock to do a job for you, if it is not doing the job fire it and hire another.

Do not get caught up in forecasting where the market is going or listening to those who do. Focus on determining the current market environment and selecting the best tools. 

Market conditions determine risk, and risk should determine position sizing and the number of trading positions used. When the market is strongly trending I will trade more positions and use larger position sizes than when it is in a trading range environment.

Stocks tend to ‘pop and drop’ when the market is in a trading range. If they all moved out of a setup and kept going then the market which is the sum of a large number of  stocks could not be in a trading range. When the market is in a trading range it is  telling you that the typical stock is not going to run far. This indicates that profits should be taken more quickly than in a trending market. In a trending  market most stocks are moving longer so holding times can often be lengthened. 

When the market is in a trading range I am not trying to ride a trend in individual        stocks, by definition most are not trending, instead I am trying to make a trend in my account by picking off a series of pops in different stocks.

In trading range market environments the bollinger bands often act as support or    resistance and so I take profits when a position approaches these areas. In a strongly  trending market stocks may ‘ride the bands’ by moving along them which implies not to use the bands as profit taking opportunities. As always adapt to the current market  conditions.

During trending market conditions I use the 3-5 day holding period as a guideline. After this ‘time stop’ period I examine the position to determine if there is a good reason to continue holding. Stocks showing accumulation are bullish and so I consider holding longer. Stocks moving up on strong volume and retracing on light volume are strong and I will often manage the exit using trend lines during bullish market conditions. Stocks approaching strong resistance are likely to stall so I take profits before they get there. When in doubt take profits, it is hard to go broke taking profits.

Narrow trading ranges, ones where the distance between support and resistance is small enough for the market to cover the distance in two or three days do not happen often, but when they do they are best left along. Y the time you get confirmation of a move the market reverses. These conditions do not happen often, and the good news is that they frequently lead to strong moves. Narrow trading ranges are the markets way of telling traders to take a few days off.

When the market is in a wide trading range I try to concentrate my trades during times when the market is bouncing off support or retracing from resistance. Trading in the middle of the trading range carries additional risk since the market has the least   distance to go either way. Increased risk implies smaller position sizes and fewer trading positions to compensate for the risk.

Trading is about managing risk, not eliminating it. Be positioned to profit if the market does the usual, or normal thing.

Ignore the talking heads on financial TV and the internet chat rooms. No one cares more about your money than you do. Focus on extensive testing, then trade what you know and understand.

Get a trading partner, work with someone who has significant experience. Doctors,       pilots, engineers, and most professions learn from someone with experience after they get out of school. I publish the TImely Trades LEtter twice a week which is my trading plan for my account. I also share trading tips and answer subscribers questions. If you want to see more about what I am doing in the current market and learn from my experience go to www.daisydogger.com or send a request to [email protected].

Steve Palmquist a full time trader who invests his own money 

in the market every day. He has shared trading techniques and 

systems at seminars across the country; presented at the Traders 

Expo, and published articles in Stocks & Commodities, Traders-

Journal, The Opening Bell, and Working Money. 

Steve is the author of two trading books: 

“Money-Making Candlestick Patterns, Backtested for Proven Results’, 

in which he shares backtesting research on popular candlestick 

patterns and shows what actually works, and what does not. 

“How to Take Money From the Markets, Creating Profitable Trading Strategies“

in which he uses the results of extensive backtesting techniques to smash

trading myths and get to the truth of what has worked and what has not. The

book provides six fully analyzed and tested trading systems and shows how

they have performed in different market conditions.