Traders often suffer from "Grass Is Always Greener Syndrome."

Jack Schwager interviewed dozens of the world’s most successful traders for his famous Market Wizards series of books.  In The New Market Wizards, Schwager summed up THE critical element that separates good traders from bad traders:

“When asked to explain what was important to success, the market wizards never talked about indicators or techniques, but rather such things as discipline, emotional control, patience, and mental attitude toward losing.  The message is clear: the key to winning in the markets is internal, not external.”

Few successful traders would argue with Schwager’s point.

Those who have survived the trading wars year after year will tell you how important the emotional elements are.  They’ll tell you how hard it is to persevere during a brutal drawdown, how they learned the importance of staying humble during a winning streak, how the real money is made by having the discipline to wait for just the right moment, etc.

Even beginning traders learn quickly how brutal the emotional side of trading really is.

Not surprisingly, the demand for help with these internal factors has created a large industry of books and services focused on helping traders master their emotions.

These books and services have benefited many traders, myself included.

But through the years, I’ve found one common and devastating psychological issue consistently ignored.  It’s what I call the “GIAG Syndrome.”  That is, “the Grass Is Always Greener Syndrome.”

This GIAG Syndrome is actually an “effect” of all the internal “causes” traders struggle with.  It’s a RESULT of worry, stress, fear, lack of discipline, and anxiousness.

It works like this.  A trader hits a losing streak, suffers a drawdown, or just gets plain bored with his recent trading.  So, he goes searching for an answer to his “problem.”  This answer, the trader believes, lies in finding a new system, guru, or overall trading philosophy.

Instead of trying to solve the internal issues that are creating this urge, the trader erroneously thinks that the problem is the system.  The day trader becomes a swing trader, the technical trader becomes a value trader, the stock trader becomes a Forex trader, and so on.  Whatever the trader was doing before is no longer working and the new system or guru that has caught his attention would be a much better fit, so he thinks.

This is a losing battle because the trader is trying to solve an internal problem with an external solution.

Ironically, a lot of the well-intentioned books and services that aim to help traders with their internal game actually end up ENCOURAGING the trader to go down this “grass is always greener” external path.  They tell traders to go out searching for the system that is just right for them.  They tell traders, “There’s one strategy out there that you are meant to trade and once you find this perfect fit, you’ll be effortlessly in-sync with your internal bliss.”

Unfortunately, this causes traders to embark on a never-ending search for the system that fits just right; their own little “Holy Grail” of trading.  And thanks to all the financial news and aggressive Wall Street marketing, there will always be an endless supply of trading systems with greener-looking grass just around the corner.

But isn’t there some validity to this advice?  Isn’t it extremely important for the trader to find the right system that fits their lifestyle and their personality?

Absolutely.  But chances are, you’ve already found it.

Sure, you don’t want to blindly jump into some unproven and over-hyped trading strategy that you stumbled upon when surfing the Internet or browsing a magazine.  A little common sense and a lot of thorough research is a must before committing yourself to a trading system.

However, if you’ve been seriously following the markets for any longer than a year or so, chances are high that you’ve looked into a few different strategies and found the one you’re most comfortable with.  At the very least, you’ve found the overall trading philosophy that is most appealing to you.

You won’t hear many “gurus” tell you what I’m telling you, which is to stop trying new systems.

The reason you don’t hear this is obvious.  Like many other traders, I offer a newsletter that adheres to a specific system (the “Darvas System,” in my case).  If you’ve stumbled onto this article, you may in fact be open to trying a new trading system.  Yet, here I am telling you that trying a new system – even if it’s MY system – is highly unlikely to solve the trading problems you’re dealing with!

Regardless of this fact, I think it’s hugely important to acknowledge this problem among traders.

To sum it up: If you’re not getting the trading results you want, the system you’re already trading is more than likely NOT the problem.  The problem is much more likely to be internal, which can’t be solved by changing your external strategy.

Sure, you want to be certain you’re trading a strategy that has been proven to work and not something being sold right next to the snake oil ads.  But once you’ve found a strategy you like and you know it works, stick with it.

Don’t blame the system when you should be blaming yourself.

* Learn to trade the Darvas System with a risk-free 30-day trial subscription to Darvas Trader PRO.  Each issue of Darvas Trader PRO includes our current portfolio and our watchlist of Darvas Stocks on the verge of breaking out – with EXACT buy points and sell points.  You can instantly download the latest issue of Darvas Trader PRO by clicking here.

Why Do You Want to Be a Trader?

Just about everyone who enters the world of trading, even on a very limited basis, dreams of one day becoming a full-time, professional trader.

Trading for a living is certainly a worthy goal held by many talented and hard-working people.  But whenever this subject comes up, I like to ask hopeful traders exactly WHY they want this to be their profession.

There are two very common answers to this question.

1. MONEY

There’s no doubt about it, few professions can take someone from so little capital to extremely high levels of capital in such a short amount of time and with so few barriers to entry.

The stories of people like Nicolas Darvas, who turned $30,000 into more than $2 million in roughly 18 months, remind us all of just how quickly extreme wealth can be created as a trader when all the pieces fall together just right.

Plus, you don’t have to start with a ton of cash or earn some degree or cut your way through a bunch of red tape to try your hand at trading.  You can start your own little trading enterprise rather quickly and cheaply.

Thus, when one considers different ways to turn a small amount of money into an extremely large amount, trading often seems like a quick and easy way to get rich.  (It never works that way, of course, but that’s a topic for another article.)

2. FREEDOM

The other reason becoming a professional trader appeals to so many is the promise of total freedom and self-reliance.

As a trader, there is no boss to answer to.  You can trade from virtually wherever you want.  There are no employees or coworkers to worry about squabbling with.  You can trade from your bathrobe in the morning and then head off to the golf course in the afternoon and there’s nobody there to tell you it shouldn’t be done that way.

The appeal of this type of freedom is fueled by the idea of total self-reliance.

As a trader, you and you alone are responsible for your success.  You don’t have to convince a boss or a partner that your idea is a good one.  You don’t have to worry about the guy on the other side of the business deal living up to his end.  You don’t have to worry about that top client of yours dropping your business at the last minute.

As a trader, only YOUR results matter.  No other person or entity can stand between you and your potential for success.

That’s true self-reliance.  That’s true freedom.

However, as appealing as MONEY and FREEDOM are as motivators to become a successful trader, I’ve found that they are not the BEST reasons to become a trader.

In studying the most successful traders in the world, you will find something else that drives them.

After all, money and freedom (self-reliance) can be achieved in a number of other professions.  Why become a trader instead of an entrepreneur, a professional golfer, a poker player, a writer, or a musician, just to name a few options?

Success in any of these professions would certainly lead to an abundance of money and freedom.  And the barrier of entry and starting capital required is in the same ballpark as it is for the wannabe trader.  (The competition for success in these fields is also equally high.)

So, why trading?  Why do you REALLY want to be a trader?

The best traders are driven by something other than money and freedom.  They are driven by something I refer to as…

INTELLECTUAL GAMESMANSHIP

Put another way, top traders choose to be traders because they LOVE the idea of making a wealthy and self-reliant living by implementing the power of their intellect.

You will find that successful traders are BIG thinkers.

Read an interview with Ed Seykota and you’ll find that he talks more about the convergence of psychological tendencies and metaphysics than about trading techniques.

Read the Wall Street classic, Methods of a Wall Street Master by Vic Sperandeo, and you’ll find that this renowned trader turns much of his book into a manifesto on the political and philosophical virtues of Ayn Rand’s Objectivism.

Read Mark Ritchie’s autobiography, God in the Pits, and you’ll find it to be more about this legendary commodity trader’s spiritual journey than it is about his journey as a successful trader.

Notice how famous traders like Richard Dennis, George Soros, Jim Rodgers, Larry Williams, and William O’Neil are so deeply involved in politics – either as thinkers, fundraisers, writers, or active participants.

Check out James Altucher’s excellent blog and notice how few of his articles have to do with trading at all.

The point is, with very few exceptions, the most successful traders are drawn to the world of trading because they see it as one big intellectual game.  They’re intrigued by the idea of being able to make a living relying only on the power of their mind.

And don’t be fooled by this “make money with your mind” concept.  We’re not talking about the latest self-help fad or the lazy man’s guide to riches (“just think positive and the money comes flowing in”).

Being a great trader requires an EXTREME level of mental toughness.  Few other professions will test you quite so severely and quite so regularly from a mental aspect.

If you want to be a professional trader only for the money and the freedom, you may want to reconsider.  While the allure of money and freedom are excellent short-term motivators, it takes more than wanting to be rich and self-reliant to succeed in this game.

Why DO you want to be a trader?

If you’re drawn to trading because of the intellectual game that drives the markets, you’re in good company.  If you’re drawn to trading because you LOVE the idea of making a living by utilizing your intellect, you’re on the right track.

Consider exactly why you want to be a trader.

And, if nothing else, be wary of the trader whose office contains more monitors than books.

* Learn to trade the Darvas System with a risk-free 30-day trial subscription to Darvas Trader PRO. Each issue of Darvas Trader PRO includes our updated portfolio and watchlist of current Darvas Stocks – with EXACT buy points and sell points.  You can instantly download the latest issue of Darvas Trader PRO by clicking here.

Click on chart to enlarge.

As a Darvas System trader, I typically avoid “penny stocks.”  (I define “penny stocks” as low-priced stocks, anything under $10.)

The reason for this avoidance is that low-priced stocks are more easily manipulated and often swing wildly.

Following a trend is much easier when price action remains fairly stable.  In such conditions, you’re able to avoid getting whipsawed out of positions during “normal” pullbacks.

However, you can use a trend-following method like the Darvas System to profit with penny stocks.  It’s riskier and rarer, but every so often a penny stock comes along that would have worked perfectly with Nicolas Darvas’ method.

One such recent trade is Pizza Inn; ticker-symbol: PZZI.

This stock has spent most of the last two years trading in the $2 range.  But this past summer, earnings began to explode for PZZI and the stock surged to a high of $3.54.

PZZI then spent the next three months working on a decent Rounded Base.

On October 17th, this stock broke out in a big way as it surged more than 10% on incredible volume (see the chart attached to this article).

The stock then built a nearly ideal Darvas Box, with $5.00 as its top, before breaking out again.

As it stands on November 17th, one month after its breakout, PZZI is up a cool 58%.  Not bad for a single month in shaky market conditions.

When you see gains like this, it’s easy to get lured into the world of penny stocks.  But you must recognize that these stocks can fall just as quickly as they climb.

And that’s where the big danger lies.  When penny stocks fall, they fall hard.

You need to identify proper support levels and adjust your stops appropriately, just as you would with any stock.  But with penny stocks, you also must be fully prepared to get lousier fills when you exit.  Exiting a position ten cents below your stop order isn’t a big deal with a $40 stock, but with a $2 stock, you’re talking about leaving 5% of your profit on the table.  That can add up quickly.

If you’re going to trade penny stocks with the Darvas System, know this going in: your individual trades ARE more likely to fail than succeed due to their erratic nature.  You WILL get stopped out more frequently and with larger spreads.

Therefore, if you decide to implement the Darvas System with penny stocks, make sure you adjust your expectations and risk levels.  Trade penny stocks with smaller positions and be prepared mentally for more breakout failures than you’re used to dealing with.

It’s not easy and it certainly isn’t for everyone, but every so often a stock like PZZI comes along and makes a trend trader reconsider penny stocks.

UPDATE: Almost on cue, PZZI showcased the risks of fast-moving penny stocks.  By the end of the Thursday, November 17th session (the day this article was published), PZZI had dropped 10.9% during a market selloff.  It doesn’t mean PZZI is finished, but it serves as a good reminder that penny stocks move extremely fast, in both directions. Be aware of this fact before you start trading them.

* Learn to trade the Darvas System with a risk-free 30-day trial subscription to Darvas Trader PRO.  Each issue of Darvas Trader PRO includes our updated portfolio and watchlist of current Darvas Stocks – with EXACT buy points and sell points.  You can instantly download the latest issue of Darvas Trader PRO by clicking here.

Click on chart to enlarge.

Last Thursday, we finally got the big Follow-Through Day (FTD) we’d been hoping for since this rally began on October 4th.

The NASDAQ led the market higher with a 3.3% gain on heavy volume on Thursday.

Volume was not only increased compared to the Wednesday session, but it was well above average and the highest it had been in weeks.  This price-volume action left no doubt that the big institutional funds were participating in the rally.

The powerful Thursday session “officially” shifted us from a Neutral Trend to an Uptrend.

The glaring red flag is that this FTD on the NASDAQ comes nearly one month into the rally.  The most reliable FTDs occur four to seven days into a new rally.

When a FTD occurs this late, you want to exercise caution because it may be occurring right when the market needs a rest.

Indeed, the NASDAQ is up an amazing 19% since the October 4th bottom was put in.  That’s an incredible leap and common sense tells us that this market probably needs to catch its breath soon.

Still, leading stocks are acting very well.

Last week, we saw excellent follow-up action for stocks that broke out.  Adding to gains or pulling back slightly on much lighter volume is exactly what you want to see happen following a proper breakout.

The key right now is to be very selective with the stocks you consider.  Stick with only the best of the best in terms of both fundamentals AND technicals.

If your watchlist includes more than a handful of stocks, your search is too broad and you’re not focusing on the true leaders.

* You can access our list of current “best of the best” Darvas Stocks – with EXACT buy points and sell points – by clicking here and instantly downloading Darvas Trader PRO.

Click on chart to enlarge.

On the surface, this market appears to be in the middle of a major bull run.  Key phrase: “on the surface.”

Over the past nine trading sessions, the NASDAQ has rocketed to a 16% gain off of the low it set on October 4th.  It has retaken the 50-day moving average line and jumped past the previous resistance level of 2600 with no signs of trouble.  The other major indices have acted similarly.  The S&P 500 broke through its previous resistance level of 1220 on Friday and closed the week above that key mark.

However, when you look below the surface of price action alone, you’ll notice one glaring problem with this recent rally attempt: there is VERY light volume behind this move.

While the NASDAQ finished in the green each day last week, every session occurred on volume that was well below average.  In fact, volume on the NASDAQ last week was the LOWEST OF THE YEAR for a week that was not shortened by a holiday!

In other words, volume isn’t just light, it’s historically low right now.

What is the reason for such low volume?

It appears that the big institutional money is taking a “wait and see” approach.  These institutions are waiting on the sidelines for the European debt crisis to resolve itself and also to digest the latest round of earnings.

This hesitation should not be ignored.

Weak-volume rallies should be approached with extreme caution.  They often have a way of reeling in excited traders just before a forceful pullback.

Until we see some strong volume coming in on the upside – both in the general market and for individual leading stocks – we’ll remain in a Neutral Trend.

A Neutral Trend is a “yellow-light” environment and even though we have the o.k. to buy into Darvas Stocks that give us proper breakouts, initial positions should be kept smaller than normal – until we enter a healthier Uptrend environment.

* The Darvas System is a powerful trend-trading method that makes money whether the market is going up or down.  It also tells you exactly when you should be sitting on the sidelines.  You can access our list of current Darvas Stocks – with EXACT buy points and sell points – by clicking here and instantly downloading Darvas Trader PRO.