Tewles, Harlow, and Stone (1974) report a study by Blair Stewart of the complete trading accounts of 8,922 customers in the 1930s. That may seem like a long time ago, but the human psychology of fear, hope, and greed has changed little in the last 60 or so years. The results of the study are worth considering seriously.
Stewart reported three mistakes made by these customers. (1) Speculators showed a clear tendency to cut profits short, while letting their losses run. (2) Speculators were more likely to be long than short, even though prices generally declined during the nine years of the study. (3) Longs bought on weakness and shorts sold on strength, indicating they were price-level rather than price-movement traders.
I should contrast this experience with the TOPS COLA philosophy discussed earlier. By taking profits slowly and cutting off losers at once, you will avoid the first mistake reported by Stewart. Second, by being a trend follower, you will avoid the next two mistakes. If you follow trends, you will be long or short per the intermediate trend, and avoid any tendency to be generally long. Third, if you follow trends, you will follow price movement, rather than being a price-level trader.
You will win in the trading business if you have a specific trade plan that contains all the necessary details. You should focus much of your effort and energy on implementing the trade plan as accurately and consistently as possible. Thus, you must go beyond technical analysis, deep into trade management and organized trading, to win.
Beyond Technical Analysis
The usual advice for technical traders is a collection of rules with many exceptions and exceptions to the exceptions. The trading rules are difficult to test and the observations are hard to quantify. I want you to go beyond technical analysis by converting an art form into a concrete trading system, and then focusing on implementing the system to the best of your ability. Trading is analysis in action. Thus, this book is an attempt to bridge the gap between the development and the implementation of a trading system.