Oil sector stocks lost enough significant support Thursday, to target a price of 75 in the future for OIH. A head and shoulders pattern from 95-115 equals a measured move 20 points below the 95 neckline.

I did think about taking a shot at ERY overnight on Wednesday, but didn’t. The ETF had pulled back seven days to it’s 20-day moving average. This pullback was the first since it’s big gap higher, and day high close.

Since I didn’t buy overnight, I bought the 5-minute high. I also bought SKF pre-market, and TZA fairly soon after the bell. Holding 50 percent of the positions into the holiday weekend played out with no significant pullbacks hitting my stops.

With this shocking news (BSC avoids bankruptcy by selling itself to JPM for under $300 million, when it’s stock price showed a value around $30 billion a few weeks ago!) out of BSC – Bear Stearns, the VIX spiked to 35.6. It reached 37.57 during the panic lows in January of 2008, and 37.5 in August of 2007. A chart is a chart, and this could end up being a double top for the VIX chart.

If you look back on the VIX a few years, the VIX reached as high as 45 during the strong selloffs of 2002.

The other indicator I watch for sentiment is the equity put/call ratio. I like to use the equity figures alone. You’ll get skewed numbers sometimes when the index figures are included.

The ratio has been over 1 lately. I’ve read an interpretation of the number, that says over .80 can indicate market bottoms. So when you get to 1.3 on the equity p/c it’s reaching a turning point. The longer it stays that way during the day, the better it is for the chances of a turn.

As with any market indicators, these are two tools to help traverse your way through the market, and should be used in combination with others in your trading arsenal.

The Bull/Bear Ratio shows the percentage relationship between the bullish and bearish advisors. High readings of the Bull/Bear Ratio are bearish (there are too many bulls) and low readings are bullish (there are not enough bulls).

Current levels indicate the bulls down to 36.7%, and the bears at 35.6%. When the bulls get below 40%, it’s usually time to start thinking long. While it’s time to start shorting, when the bulls get over 60%.

Cramer mentioned it in a column on Wednesday,

“OK, this is really important. One of my most beloved indicators, the bull-bear ratio, has hit a level that simply means you cannot have a big hit to this market, and that level is the 36% bull level.

I know I am not a chartist, but I have sworn by two technical indicators all my trading life: the S&P Oscillator and the bull-bear ratio.

Any time we get severely oversold, I hold my nose and buy, any time we get the bull cohort below 40%, I have to buy something, and when it gets too close to 35%, you have to cover all shorts and get long.”

An indicator to ponder as the market tests important levels here intraday.

To keep a trading journal, your first step is to record the details of the trade. You should include the date, symbol, entry and exit prices, slippage, commission, and most importantly, why you entered the trade.

The second step is to evaluate your trades. Record any mistakes that you may have made. Was it a proper entry? Did you sell too early? Did you panic sell? Then group those errors so that you can track them.

Finding the area where you’re making your most mistakes is step three. When I started doing this, I found that my biggest mistake was consistently taking trades without proper entries. Can you guess what the next step is?

Eliminating the mistake that you’re committing the most, is next on the agenda. Step four may take some time, but you want to fully discard this error from your trading.

Step five is to continue down the list until all your errors are eliminated.

You see, by correcting your mistakes, it leaves you with only winners. And we like winners! How do you treat your losing trades? Do you ignore them? Why not try discarding them with a trading journal. My guess is that if you’re disciplined about doing this, you won’t have to worry about finding winning trades.  They’ll come naturally.

I’ll borrow Michelle B’s description of market action during specific times of the day for emphasis here;

’1) 9:30 AM ET to 10:45 is a time of high volume, where usually a trend happens after a breakout in the opening range or consolidation.
2) 10:45 AM ET to Noon ET is when, following whatever trend that happened after the open, price will often consolidate during this time period on low to moderate volume.
3) Noon to 1:30 PM ET is when slow and steady trend continuing or reversals can happen on low to moderate volume.
4) 1:30 PM ET is when abrupt and pronounced continuation of trending or reversal on high volume can happen.
5) 2 PM ET (better known as POT) is also when abrupt and pronounced continuation of trending or reversal on high volume can happen.
6) 3 PM ET is yet again a possible time for either a high-volumed, abrupt, and pronounced continuation of trending or reversal happening.
7) 3:30 PM ET, yup, you guessed it, this particularly tricky time can trigger a very abrupt trend continuation or reversal on high volume.’

This mid-day antics trading can be emotionally nervewracking if you’re staring at your screen constantly. A snippet of Maoxians dummy trading advice is a prudent way to avoid getting emotionally involved. Maoxian often advises you stop trading after entering a stock or at lunch time. Heck, get a bite to eat, or do some exercise even. Remember, I’m not talking about a total disregard for stops here. You must follow those, but know what time of day is the best trading for you.

next day edit… see the result

Have you ever tried to follow someone else’s trading style, only to pick all the losers, and miss the winners? I’m not sure why it works that way, but it frequently does. It’s an issue of self confidence. Don’t get me wrong, I believe in sharing stock picks, but when you pull that trigger, you should know all the reasons behind the buy or sell. It makes us feel secure getting second, or third opinions to justify our trades. Look at the success of Jim Cramer’s Mad Money. Sure, Cramer is a professional, and has more insights than the regular investor. You just have to make sure you know why you are trading, on what you believe, the stock is going to do.

Today, I took a trade in QLD where I had to face intuition, others’ beliefs in market direction, and my own decision. When the stock market started it’s afternoon slide, I looked at the daily Nasdaq chart. The index had put in an outside day, engulfing yesterday’s candlestick. Trade was at the low for the day, and had formed a sell signal. I monitor a stock chat room of 600+ members, basically to get a feel for sentiment. The feeling was that the market would keep sliding into the close. Who wants to hold stocks into a weekend? My intuition was telling me that next week is options expiration, the market has already produced a large amount of fear in the last few weeks. My gut said go long QLD, and fade the market signals.

I saw that QLD put in a bottoming tail on the 5-minute chart. Volume was high for that bar. The boat was leaning too far to the side of the bears.

I had to fight the emotions of being wrong. I had a stop of .50 for R, and set my targets for selling.  So what was I worried about? Psychology is definitely 99% of this game.

Most people have a passion. It doesn’t matter what that may be. It matters if they pursue it or not.

Last night, on The BigIdea with Donny Deutsch, they had guests on who pursued the passions they loved. One man went from working at NASA, to designing video games. Another quit a high paying job as a corporate lawyer. He now builds lego strutures for a living, and has become quite successful (some of his pieces are shown in museums). On my blog, I discuss my passion for online stock trading. John Chow is another blogger who muses about his passion for technology, fine dining, cars, and investing. The common thread between us, is that we are in pursuit of what we enjoy. We follow our passions.

Take John’s blog for instance. He doesn’t talk about topics that bore him. He muses about subjects that excite him. He says, “I never started John Chow dot Com to make money. This was just a place for me to post my miscellaneous ramblings about whatever was on my mind. While I cover a number of topics, from cars to fine dining, the main focus of this blog is about making money on the Internet.” Has John made any money?

With jests about playing with his food, to discussing maximizing your RRSP, John pulled in over $7000 with his blog for the month of February. In September, his income for the blog was $352.94. That’s what I call growth! Now it helps that John is the mastermind behind the popular computer hardware review site, The Tech Zone. That brings us back to passion though. John took his passion for technology, and turned it into a business he could enjoy and live off of. He’s now doing the same thing with his addictive blog. Is it luck, or is it seizing opportunity when it strikes?

Are you following your passion?

Psychological Rule #1: You Create Your Trading Results

‘If you assume that you are totally responsibile for your trading results, then you’ll be continually eliminating mistakes. If you blame your results on someone or something else…’

Creating a trading journal, and logging your trades will help find those mistakes.

Psychological Rule #2: Success Requires Commitment

‘If you are 100% committed to success then the universe will help you create miracles to get it. But if you are not committed, then you will find lots of distractions that will seem like major roadblocks.’

Psychological Rule #3: Human Beings Are Inefficient

‘Psychological research over the last 20 years has proven that human beings are very inefficient decision makers.’

Psychological Rule #4: The Key to Efficiency is Eliminating Mistakes

‘The key to your success is clearly moving from 4% efficiency to 100% efficiency. Most people spend a lot of time trying to improve their system. But quite often it’s not the system at all — it you.’

Psychological Rule #5: Repeating the Same Mistakes Over and Over is Self-Sabotage.

‘Let me repeat the title. Repeating the same mistake over and over again is self-sabotage and still holds, even when you don’t know you are making a mistake.’

Psychological Rule #6: If it’s Self-Sabotage, the Problem/Cause is Not What You Think

‘My experience always is that something like not executing trades properly is the result of some emotional trauma that usually happened in the first five years of life. And most of the time the client has totally forgotten about it.’

Psychological Rule #7: Self-Honesty is Critical

‘…you need to commit to a lifetime of working on yourself. I’ve been doing it for over 25 years and I’m just now discovering elements of self-sabotage and that includes elements that I have not been willing to look at before.’

Psychological Rule #8: You Never Trade the Market, You Trade Your Beliefs About the Market

‘…beliefs that are supported by strong emotion are usually difficult to change if they have a strong charge on them due to some psychological trauma. Even if you decide they are not useful, they’ll be difficult to release.’

Psychological Rule #9: Trading is A Game

‘However, once you understand that trading is a game, you can (within limits) make up your own rules for how to play the game and especially your own rules for how to win the game.’

Psychological Rule #10: Money Issues Influence Trading

‘psychological issues you have with money will also influence your trading.’

Some interesting twists on a subject many traders should really think about. It’s true. When you get down to the nuts and bolts of trading, we’re basically trading beliefs. Have you ever caught yourself buying a stock on what someone else believes? I know I have, and the trade usually ends up not working.  Trade consciously.

Steve writes, ‘Unless you’ve somehow opted out of the monetary system, you’re using one or both of these two strategies right now. One strategy will likely be dominant in your life — either you’re creating genuine social value and being paid for it, or you’re mooching off the value created by others.’

When trading stocks, the main objective is making money. I’m a moocher. I admit it. Is this wrong though? Are all stock traders moochers?

I think not. My making money in the stock market, contributes to the store I buy my caviar from. It allows the salesman, I purchased my new Porsche 911 Turbo from, to earn a nice commission. It allows the man who cleans my pool to earn a living and support his family.

Yes. I’m a contributor. I’ve found a way to ‘contribute social value while achieving alignment’ with my personal values. The more money traders make in the stock market, the more they can contribute to society.

Steve sums up his post by pointing out the beliefs that can align your thinking about making money, and making a contribution. Interesting points to ponder for the weekend.

Once you have that stock trading plan in place, you need to follow it. That’s not so easy sometimes. The strong force of emotions can play games in the stock traders head. This leads to two of the biggest challenges many traders face, yet fail to realize.

The first problem is totally failing to enter the trade. As an example, today the stock market was receiving news from the Federal Reserve on the Fed funds interest rate. The stock trader writing this knew that the market would react on that news. The news however, would not come out for another four hours. A stock trading set up formed, yet the online trader failed to execute the trade. The trade would have worked. Had the stock trader planned the execution of the trade ahead of time, there would have been no emotional bias. Not taking the trade in the first place leads to second guessing.

A second challenge facing many online traders, is exiting the trade too early. This can often occur when a stock reaches a nice profit, yet the trader doesn’t sell. He lets the stock dip back down, and then possibly lets the stock trade back up, or worse, the trader turns it into a loss. Before entering any trade, the stock trader should know where the exits will be. Your trading plan should include the stop loss and the profitable exit points. As an example, your exit strategy may include selling all of the trade at a certain price point. Preferably though, the stock trader will plan selling the stock in partial lots.

Let’s say you buy 300 shares of a stock. An exit strategy for the trade may include selling 1/3 of the lot, or 100 shares, at 1R. R is = to the risk taken. So if you had a stop loss of one point, R would equal 1, and you would sell the 100 shares at one point profit. The other 200 shares may be sold using a target approach or stop loss method. The main point here is that you, the stock trader, will be using technique to know when to sell, instead of exiting the stock based on emotions. A pilot doesn’t fly a plane without knowing where she’ll be landing does she? The risk and reward of the trade is defined.

When the stock trader is successful in pulling the trigger on his trades, he’ll soon realize larger profits. He takes defined trading setups, and exits those trades to their fullest potential possible, using a tested stock trading methodology.