How to Determine the Health of the Market

by Darrin Donnelly on February 16, 2016

Nicolas Darvas (along with so many other legendary traders) said that knowing the health of the general market was CRUCIAL to his strategy’s success.  Darvas knew that one couldn’t rely solely on the action of individual stocks.  The market’s overall direction had to be clearly determined before Darvas would make a trade.

Determining the health of the market isn’t as easy as it sounds.

In hindsight, anyone can see when the market was bullish, when it was bearish, and when it was choppy.  You simply look at a long-term chart and say, “Here’s where it was going up, here’s where it was going down, and here’s where it was moving mostly sideways.”  Sounds simple enough, right?

But when you’re trading the market every day and you’re in the heat of the battle, it can be much more difficult to rationally decipher just how healthy or unhealthy the market is.   [click to continue…]

How to Set Trading Goals

by Darrin Donnelly on January 6, 2016

I’m a big believer in the power of goal setting. There’s plenty of data to back up the fact that people who set and write down clear goals are much more successful than people who don’t.

However, traders need to be careful about HOW they set goals. Many traders start the new year, quarter, or month by setting a goal of achieving a specific percentage return on their portfolio. For instance, a trader may set a goal of making a 100% gain in the next year.

Setting trading goals like that is a big mistake and here’s why. [click to continue…]

A Billionaire Trader’s Surprising Secret to Success

by Darrin Donnelly on July 28, 2015

Paul Tudor Jones II, one of the most successful traders ever.

Paul Tudor Jones II, one of the most successful traders ever.

Paul Tudor Jones II:
“The most important rule of trading is to play great defense, not great offense. Every day I assume every position I have is wrong. I know where my stop risk points are going to be. … If they are going against me, then I have a game plan for getting out.

“Don’t be a hero. Don’t have an ego. Always question yourself and your ability. …

“My guiding philosophy is playing great defense. If you make a good trade, don’t think it is because you have some uncanny foresight. Always maintain your sense of confidence, but keep it in check.” [Source]

Paul Tudor Jones II is one of the wealthiest men in the world. Forbes says he’s worth $4.6 billion. He started out as a broker in the late 1970s and earned $1 million in his second year on the job. He decided he wanted to be a self-reliant trader instead. [click to continue…]

Trading the Trend in 2014

Trading the Trend in 2014. (Click on the chart to enlarge.)

The Darvas System is a trend following system. As trend followers, we know we can make big money during Uptrends and big money during Downtrends. Sounds simple enough.

But then, there are Neutral Trends.

Neutral Trends are those tricky “consolidation” periods between Uptrends and Downtrends. They are a necessary part of the market’s ongoing cycle as they give quality stocks the opportunity to form new sound bases and they allow the general market time to digest recent up (or down) moves before continuing in the same direction or reversing course.

Neutral Trends are a constructive and necessary part of trend following. They usually represent the “calm” before the storm. The lull before the next big trend, when the big money can be made.

The most frustrating Neutral Trends are those that are exceptionally choppy. This past year, we saw several of those choppy market periods.

The good news is that these choppy periods always come to an end. Eventually. The trend follower must be patient and disciplined as they wait for that new trend to emerge.

As an example of trend following in action, let’s take a quick look back at 2014. [click to continue…]

A Timeless Lesson from Jesse Livermore

by Darrin Donnelly on January 7, 2015

Jesse Livermore, the legendary trader who started from scratch and traded his way to a fortune of more than $100 million by 1929, offered traders many invaluable lessons on discipline, focus, and following the market’s trend. Livermore would admit that he ultimately had trouble following his own advice, which makes it all the more important that traders today continue to remember his lessons.

One of my favorite stories from Livermore was included in his classic book, How to Trade in Stocks. If only more people would follow this advice today… [click to continue…]

How Great Traders Thrive Under Pressure

by Darrin Donnelly on September 4, 2014

Over the past seven years, I’ve been coaching stock traders from all over the world. I sort of stumbled into this career as a trading “coach.”

After updating and revising the legendary Darvas Trading System for modern market conditions, I started a small little newsletter to share my implementation with those who were interested. This service grew faster than I expected and I now teach fund managers, financial advisors, and independent traders from all over the globe. Some of these traders are beginners, some are managing small personal accounts, and some are rich enough to have stadiums named after them.

While my newsletter is a how-to guide with predetermined buy points and exit points for every stock trade that fits the strategy, I also make it a point to answer every email I receive from my readers. This is where I went beyond simply writing about the Darvas System and became more of a trading “coach”.

I love being a coach for other traders. I love teaching and interacting with ambitious individuals. I learn so much from our interactions and it helps me become a better trader in the process.

Not surprisingly, after years of doing this, I’ve started to see some common recurring problems emerge. Regardless of background or experience level, some traders will struggle with the exact same issues again and again. [click to continue…]