According to independent trader Joe Stowell, persistence and courage are two key characteristics necessary for success in trading. Persistence certainly has paid off for Stowell, who traded part time off and on for 20 years, before leaving his job as a school teacher to trade full time.
Stowell first became intrigued with the futures market when, as a young man, he worked in a potato packing shed. The farmers around him were trading the Maine potato futures contract, either hedging or speculating. "I started to follow the price quotations in the newspaper," he said.
In college, Stowell attempted to learn more about the futures markets, but in the early 1960s there were few books available on the subject. He was able to locate a book in the library called Commodity Speculation- With Profits In Mind by L. Dee Belveal. At the time, Stowell had opened a trading account with a broker in Rochester, New York, where has was in graduate school, and "they would send me these reports on technical and fundamental factors and I had no idea what they were talking about," Stowell said.
But then, Belveal wrote a second book entitled "Charting Commodity Price Behavior" and Stowell bought it. "I soon started hand charting. I attempted to trade off and on for a 20-year period, whenever I would accumulate enough money to trade," he said.
But it wasn't until 1984 that Stowell devised his "cups and caps" pattems-a three-bar technical chart formation that signals short-term trades. "I thought I had finally found something that I could trade the market and be profitable with," Stowell said.
Stowell began trading his cups and caps technique, which is a purely technical approach, with a $5,000 account in 1985. "Just a little over two years later I had $100,000. All I ever did was take money out of the account, I never put money in," he said.
"In 1987 after making $100,000 1 finally thought I could do this, and that's when I decided to try it full time," Stowell said. He took a two-year leave of absence from his teaching position to trade. "When it came time to go back, my heart and soul was in trading and the markets ... so I resigned my position," Stowell said. Since then, his trading and investing has expanded to include individual stocks and gold mutual funds, but Stowell calls the cups and caps pattern his "bread and butter."
Stowell limits his futures involvement to the Treasury bond market. He likes the bond market, and they fit his short-term trading technique because they have "good volatility, and it doesn't take a big move to make a nice return on a two- to three-day basis," Stowell said.
Stowell shys away from the S&P 500 contract because "you are getting into large margin requirements, and you are at the mercy of the trading programs. The overnight session in the bonds doesn't really pose any problems, but that's not really so in the currencies," Stowell added. The often large moves in currency prices overnight don't make these futures a suitable match for Stowell's trading style.
"I've learned that if I stick with the one (futures) market and apply my energies and talents that I do much better. I've broadened out my trading and investing life by going out into stocks and gold mutual funds," Stowell said.
The basics of his cups and caps pattern "follows the concept that markets go up and markets go down," Stowell explained. "Once the market has gone up, I look for a cup pattern, made up of at least three bars. I look at the three closing prices, or the lows. In a cup, the first bar would have a higher close (or low), the middle bar has a lower close (or low) and the third bar has a higher close (or low)," Stowell added.
"It is a reversal formation. Once the market has rallied and has stalled, if you get a daily close below all three lows of the cup formation, it will trigger a selling point," he said. The cap formation is essentially the opposite of this. "The market has got to sell off first and then the next move in the market will be up," Stowell explained.
On taking profits, Stowell generally looks for "two profitable doses ... and stops are set to the extreme of the formation." He doesn't leave his stop-loss orders in place during economic reports, though, as that is "inviting the market to pick your stop off and you get huge slippage," Stowell said.
Overall, "when I start a trade, I know the risk I'm taking, but the reward is open ended," he added. "I just look to take a chunk out of the middle (of a move). I don't try to pick a top or a bottom," he said.
While Stowell developed this and other technical chart pattern trading techniques after studying his hand charts for over 20 years, he says that success in trading also comes down to 'a lot of discipline, courage and persistence.' "If a person has persistence---that's very, very important and you have to have courage. You've got to be willing to step up when its time to pull the trigger when your signals are there," he said.
He cautions that traders "need to find their own comfort level. If you have too much exposure to the market, then you get away from things you want to do, and then the market forces you to pull out," Stowell said. However, all beginning traders will "have to pay their dues," Stowell believes. "They have to learn about the excitement of trading and the fear, and you have to make mistakes. They have to go through a learning process," Stowell said.
"Every day is a new day. It's always new. You have to continually work at your skills. You keep having to apply yourself," Stowell ended.
Author Resource:-
Martin Chandra is a full-time investor. He has been researching investment strategies and make his own living. For more information please go to here.
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