Tom Busby, trading close to 30 years, has learned valuable trading lessons each time he has traded. He’s been through it all, from losing money, to gaining profits, to mastering the markets, authoring books and becoming one of the most nationally recognized trading educators. Below are 7 insights acquired by Tom Busby along with a Bonus Q&A session.
1.) The market is open 24-hours, take advantage of it.
It is a firm belief at DTI that in order to be successful you must possess a global perspective on a 24 -hour market. Those who focus solely on the US market only see a part of the puzzle as the world markets unfold. What happens in Asia will impact Europe and the US. Some recent examples of this include the Japanese Tsunami, Interest Rate Announcements in China and debt woes in Greece. It is important that traders understand how to take action in the overnight future trading markets to help them protect their portfolio, take advantage of trading opportunities and also prepare them for the next day’s trading in the US.
2.) When a stock crosses the $100 price, there is a good chance it will go to $110.
This is an old rule of mine that was learned from shorting stocks as they approached $100 thinking the $100 mark would prove as major resistance. After watching those trades go against me, I noticed that many times the break of $100 provided a sharp move higher. A great example from 2011 year is CAT. Remember, when you see stocks approaching the $100 area to not simply look at it as resistance. Instead, ask yourself, why is this stock continuing to trade higher, and is there an opportunity for a sharp move once $100 is broken? The same applies to the $200 mark; there is a good chance it will go to $220.
3.) Date stocks, don’t marry them.
Many traders make the mistake of selling their good trades and riding out the bad ones. A dangerous thought in the market is, “well I can’t sell it down here,” when many times that is exactly what a trader should do. Remember that as traders, we are all equal opportunity investors, and we want to have our money working for us in the best and brightest performers so as not to tie it up in non-performers. The best insight I have found to avoiding this trap is to always focus on the numbers (price action) of the stock as opposed to the dollar amount you are up or down. The market does not care about the location of the entry price or your target; TRADE THE NUMBERS!
4.) Bullish stocks typically fall the fastest in a down trending market.
This is a very important insight to remember when things have been going well because too many traders have seen large profits evaporate before their eyes. A good way to guard against this is to continually update stop prices or use options to hedge. Fast moving momentum stocks drive the market higher, but when the market turns think about it in the sense that they have the furthest to drop. It is an old analogy that the market can take the stairs up but the elevator down. Always use stops, and take profits along the way to reduce risks.
5.) Take losses more quickly than profits.
Many traders fall in love with stocks in the sense that they do not want to “take a loss”. Think about it this way, the profit and loss color can be one of your best indicators. If it is green, that affirms that you are on the right side, and if it is red, you should be cautious and think about what you are doing. Too many people see a quick pop and take profits but see a large drop and either double down or just stay to wait it out. There are too many stocks out there in the stock graveyard that people are waiting out when they could have their money working for them on strong companies that are making money and moving higher. Set a realistic stop loss, keep track of your trades, and if the market tells you that you are on the wrong side, LISTEN!
6.) Go with the direction of the market; don’t fight it.
Too many traders believe the market must go up to make money. However, that is not necessarily true. Do you know that if you had bought Forever stamps 5 years ago, that you would have outperformed the S&P 500? Now, I am not saying to put your savings in US Postal Service Stamps, but I do want to point out that if you only looked at the market as trended up, you missed several years of potential down moves. With inverse ETF’s and options, there are more ways than ever to play a long or short market. Therefore, get a trading education, and take advantage of a down turning market.
7.) Remember, always be open-minded and continue learning.
One thing I know with 100% certainty is that I do not know everything and will not ever know everything there is to know about trading. The markets are dynamic and always changing, and in a way, you have to be nimble enough to change with the market. With that being said, I have found the following skills to hold up in any market: discipline, proper risk management, and reading the tape of the 24 hour market. There is no better indicator than price, and if you can understand how to read the tape, discipline yourself and manage your risk, you will be a few steps ahead of the trading world.
BONUS Q&A with Tom Busby:
How do you think the markets have changed past 30 years?
I think the markets have changed the past thirty years by a few examples. Commissions have been lowered, access has been broadened and online versions of entering and exiting trades is the predominant way of the active retail trader right now.
What hasn’t changed is what moves the markets. What moved the market 30 years ago moves the market today, and that is news. It affects the economics of the times we’re trading in.
What is a little known fact that most traders don’t know?
The day after Thanksgiving is a huge day in trading. Just look at the Trader’s Almanac and see the opportunity. Most people assume the markets are closed. In reality, the day after Thanksgiving can be one of the most bullish day of the year. DTI teaches classes around that time on how to create opportunity over the Thanksgiving holiday.
How have global markets impacted trading success/advantages?
The trading day is no longer an 8 hour day. The day actually starts in Asia, ends in the US. Opportunities are created, and money is being made in the overnight markets. However, many traders do not know how to maximize this opportunity. The amazing part of this is that you can coordinate your personal schedule, work schedule and trading schedule by utilizing a 24- hour market; the key is balance. You create flexibility in the market to accomplish things you wouldn’t normally be able to if you limited the trading day to only 8 hours.
What are you currently trading?
It varies but right now I’m heavily into trading crude oil, because crude is active. Volatility has created opportunity. I have traded silver as well, but not trading it as actively. I always try to look for volatility because it provides areas of opportunity. That’s the key to thinking like a professional trader.
How can ordinary traders become professional traders?
I think it’s important for you to first decide on your real goals. How much time and resources do you have to dedicate to trading? Then, you need to find a market trading educator that fits your personality. The best market trading educators provide support, much like we do at DTI. Furthermore, discipline in the markets is important. To have discipline means to have good support which is why you need an education.
For more information on trading or formulating a trading plan, please contact DTI Partners, Inc. at:
DTI Partners, Inc.
1555 University Blvd. S.
Mobile, AL 36609
Tom Busby is the founder, President and Chief Instructor of the Day Trading Institute in Mobile, Alabama. Tom has traded the S&P 500 every day (but six) since its inception in 1982, and is well known throughout the trading community. In 1996, he founded the Day Trading Institute to teach others his unique method of using the S&P 500 as the market leader for trading futures, options, equities and other securities. The Day Trading Institute teaches its students how to approach the market using technical analysis combined with risk management techniques. More information about Tom Busby and the educational and informational services of the Day Trading Institute may be obtained by calling toll-free 800.745.7444 or by email to firstname.lastname@example.org. Visit their web site at http://www.dtitrader.com.