Discover what legendary trader Dick Diamond knows about tradingthat you don't Trading as a Business: The Methods and Rules I've Used ToBeat the Markets for 40 Years gives you a behind-the-sceneslook at how Dick Diamond has become a successful independent traderfor more than four decades. This vital resource reveals Diamond'smethods for analyzing the market and knowing the right time to getin and out of trades. With this book in hand, you'll be able to tapinto Diamond's strategy of 80/20 trading which offers an 80% chanceof making a winning trade. Diamond also includes his six statisticsthat are critical for determining where the stock market isheaded. This book is written for anyone who wants to learn the methods,tools, and techniques that will transform them from an ordinaryinvestor into a trading force in the marketplace. Once you masterthe trading secrets from Dick Diamond, you will have the ability tomake money in a business where you call the shots. * Filled with Dick Diamond's trading secrets for beating themarket * Includes a wealth of trader strategies including Diamond's80/20 technique * Discover how to identify and take advantage of the market's buyand sell zones * Learn what it takes to become an independent trader who makesmoney over the long-haul Break free of your old trading habits and discover DickDiamond's tools and techniques for financial freedom.
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Chapter 1: My Life as a Trader
Trading as a Business
Chapter 2: Emotional Discipline
Why Traders Fail
Core Position and 80/20 Trades
The Emotions of Trading
The Importance of Commitment
Chapter 3: Principles of Successful Trading
Trade within Your Capital
Sell Too Soon, Not Too Late
Take Personal Responsibility for Your Trading
Wait for 80/20 Trades
Play Great Defense
Pull the Trigger
Opinions Are for Pundits, Not Traders
Strictly Follow Technical Data
Market Entry Tactics: Use Limit Orders, Buy/Sell Zones, and Position Scaling
Use Defensive Stops
Track Your Results
Managing Your Trading Account
Take Advantage of Market Conditions
Review the Rules Every Week
Chapter 4: Technical Analysis and Trading Concepts
Chapter 5: Trading with the Moving Average Template
Chapter 6: Trading with the Moving Ribbons Template
Chapter 7: Trading with the Bressert Template
Chapter 8: Trading with the RMO Template
Chapter 9: A Day of Trading
Appendix About MetaStock Pro Templates
Creating the Dick Diamond Templates
Template 1: Walter Bressert
Template 2: Moving Ribbons
Template 3: RMO
Template 4: Moving Averages
Applying an Existing Template
Making Changes to a Template
Saving a Template
The Default Template
Creating the Diamond Work Space
About the Author
Make Market Veteran Dick Diamond Your Mentor!
End User License Agreement
Table of Contents
The Wiley Trading series features books by traders who have survived the market's ever changing temperament and have prospered–some by reinventing systems, others by getting back to basics. Whether a novice trader, professional or somewhere in-between, these books will provide the advice and strategies needed to prosper today and well into the future. For more on this series, visit our Web site at www.WileyTrading.com.
Founded in 1807, John Wiley & Sons is the oldest independent publishing company in the United States. With offices in North America, Europe, Australia and Asia, Wiley is globally committed to developing and marketing print and electronic products and services for our customers' professional and personal knowledge and understanding.
Cover image: © iStock.com/ricardoinfante
Cover design: Wiley
Copyright © 2015 by Dick Diamond. All rights reserved.
Published by John Wiley & Sons, Inc., Hoboken, New Jersey.
Published simultaneously in Canada.
Charts in the book were created using the MetaStock trading platform, and have been used with permission.
© MetaStock 2014.
No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording, scanning, or otherwise, except as permitted under Section 107 or 108 of the 1976 United States Copyright Act, without either the prior written permission of the Publisher, or authorization through payment of the appropriate per-copy fee to the Copyright Clearance Center, Inc., 222 Rosewood Drive, Danvers, MA 01923, (978) 750-8400, fax (978) 646-8600, or on the Web at www.copyright.com. Requests to the Publisher for permission should be addressed to the Permissions Department, John Wiley & Sons, Inc., 111 River Street, Hoboken, NJ 07030, (201) 748-6011, fax (201) 748-6008, or online at http://www.wiley.com/go/permissions.
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Library of Congress Cataloging-in-Publication Data:
Diamond, Dick (Stockbroker)
Trading as a business : the methods and rules I've used to beat the markets for 40 years / Dick Diamond.
pages cm.—(Wiley trading series)
ISBN: 978-1-118-47298-9 (paperback)
1. Investment analysis. 2. Speculation. 3. Investments. 4. Portfolio management. 5. Stockbrokers. I. Title.
In 1979, I was sitting between two traders at a specialty brokerage firm. The one on my left was on the phone all day, working his contacts to get preopening shares in initial public offerings, which he would jettison at a profit shortly after the deals. He solicited opinions from friends to figure out hot stocks to ride. He was always long, never short. The guy on my right was a plunger who would identify markets that were extended and then bet huge wads on a reversal. I was there when a reversal didn't come, and he was gone.
Sitting across the room was a loner who quietly worked his system. The friend to my left suggested I meet him, so I did. I asked him what he was doing. He said he traded options, and I could sit and watch if I wanted. His name was Dick Diamond.
Most of the traders in the room were chatty, but Dick was quiet. Mostly, he just watched the screen and updated his indicators. Then every now and then he would sit up straight and become hyperalert. Then—bam—he would call in a trade. (There were no electronic trading platforms back then.) He would stay on edge for a period of time, maybe an hour, and then call to close the trade. Then he relaxed again.
When I pressed him about what he was doing, he would talk about waiting for the right “setups,” acting swiftly and getting out while momentum was still in his favor, an absolute must when trading options. He seemed more disciplined than other traders. He wasn't trying to win a war; he was in a bunker, taking the occasional shot when his odds of a hit were 80/20. He never changed his tactics, never asked other people their opinions, and never bet big. Incredibly, unlike almost everyone else, he was also making a very good living, every single month.
I liked Dick right away because he was a pure technician. He never acted on news; he didn't care about valuation; he didn't try to solicit inside information; he didn't factor in what the economy was doing, or the president, or the Fed. He just waited for the market to signal the start of a volatile move; then he grabbed a piece of it, time and again. We struck up a friendship that's still ongoing.
In the mid-1980s, Dick and I talked about teaching his method. Subscribers were always asking me about where they could learn trading, and he was ready to show a few people how he did it. So for several years, he taught would-be traders, usually about four at a time, in his Long Island home. They would sit with him for a week as he showed them exactly what he did all day. Despite being shown the ropes, most students, for psychological and other reasons, never became as successful as he is. But every now and then he would report on one who “got it” and was doing well.
In the 2000s, after Dick moved to Florida, he set up seminars that would accommodate 20 or more people. Dick was trading futures by then, but he never changed his entry and exit methods. He and his partners, Roberto Hernandez and Brad Marcus, kept to the format of allowing prospective traders to learn what he was doing, in real time, for a week. Often, he would get dumb questions such as, “When you get stopped out, why don't you just reverse your position?” Dick's usual answer was, “That's not what I do.” Secretly, he was thinking, “If you want to lose money on some random idea, go ahead.” But, occasionally, an attendee would adopt his method and start winning more than losing.
In the 1990s, I started bugging Dick about writing a book. I said, “Lots of trading books are about making killings and getting killed. Yours will be about chopping it out every day, not for a thrill but as a business. It will be a first.” His wife took up the cause.
Many years went by, and no book. Dick is not a writer; he's a trader. After a false start or two, my firm put Dick together with seasoned editor Kevin Commins, with whom we had worked on several projects. Soon the trading book began to take shape.
And here it is!
If you're looking for colorful “war stories,” you won't get any. But if you read this book, you will know—as closely as you can absent mathematical codification—just what Dick has been doing all these years.
Dick's approach is so conservative that he's still trading at an age when most people are retired. And he still doesn't have a boss or employees. For most people, trading produces sleepless nights. For him, it produces steady income at retirement age. What a difference! Incredibly, this is absolutely not what most traders want. Consciously or unconsciously, they want big scores. That's one reason they end up losing.
Anybody can adopt Dick's method. Whether you do is another question. But it's all here, and it's very clear.
ROBERT PRECHTERSeptember 2014
I've been around the trading game for over 40 years. I've seen a lot of traders come and go. But while it's a tough and unforgiving game, it is possible to make a great living from trading. The keys, as I discuss throughout this book, are emotional discipline and risk control.
I've organized this book, Trading as a Business, in much the same way that I teach attendees at my seminar. I recount a little bit about my own history as a trader. I discuss the principles that I use to guide my trading and explain the technical indicators that I use. Finally, I reveal my four trading templates and provide dozens of examples of how I use the templates to place trades.
I would suggest reading the entire book from beginning to end and then returning to Chapter 2, “Emotional Discipline”; Chapter 3, “Principles of Successful Trading”; and Chapters 5 through 8, which discuss trading with four different templates. After you've mastered the material, I suggest you set up the trading templates on your computer and begin analyzing the markets every day using the templates. Just as I do in Chapters 5 through 8, you should try to identify 80/20 trades (trades that will produce a profit four out of five times).
I have taught many traders, and I certainly understand that readers will come to this book with different levels of trading experience and expertise in technical analysis. Many of my most successful students adapted parts of my methods to their preexisting approach and evolved into better traders. Roberto Hernandez, a former student who now teaches with me, uses his own trading template, which incorporates some indicators that I do not use at all. If you're going to modify the templates or use your own template, I would suggest a few things. First, and most importantly, do not rely on a single indicator or even two indicators. The markets are too complex to be reducible to a single indicator at all times. I advocate using three to five indicators in a template and waiting until all the indicators align before putting on a trade. Second, make sure that your template is effective in identifying 80/20 trades. From my experience, it's tough to maintain emotional discipline when your template is wrong almost as much as it is right. Finally, read and reread the chapters on trading principles and make them part of your trading DNA. Trade small, use tight stops, and cultivate emotional discipline.
While it's fine to modify my templates or create your own templates, I believe the majority of traders will be better off using the templates in the book. They are the templates I use in my own trading; I know they work.
As I discuss in the chapter on emotional discipline, it's essential that you feel confident in your trading strategies and your trading rules. A trader without confidence will have a hard time pulling the trigger and will constantly second-guess his/her system and rules. A trader with confidence will consistently follow his/her trading signals, will adhere to his/her trading rules, and will accept with equanimity the occasional loss. Remember, as long as you followed your signals and followed your rules, you made a good trade—regardless of whether it produced a profit or loss.
My goal in this book is to give you all the tools you need to trade successfully and to trade with confidence. If you study the material here and work hard to implement the strategies and rules in the market, there's no reason you can't become a consistently profitable trader.
I would like to thank several people who helped me on my path as a teacher of trading and assisted me in the preparation of this book.
First and foremost, I want to thank my wife, Sharie, for giving me motivation, support, and encouragement. Without her, I don't know if I ever would have finished the book.
In many ways, this book is an outgrowth of my trading seminars. I would like to thank Brad Marcus, who got me into teaching in a classroom setting. After I moved to Florida many years ago, I began to take in one or two students for a week. Brad was one of those students. He loved his week with me and proposed that we start a business in which I would teach a group of students for a week three or four times a year. Brad was terrific at organization and he was instrumental in making the business successful.
Bob Prechter has been a close friend and business partner for many years. Bob appealed to me to begin teaching people to trade. For a long time I said no. Finally, we were on vacation together with our families and I told Bob I would try it and see how it worked out. Well, when Bob mentioned that I was providing trading sessions in one of his columns, the phone rang off the hook. Right off the bat, it was a huge success.
Steve Sweet, a partner in Zaner Group, has been very helpful in assisting students with setting up trading accounts and placing trades. I deeply appreciate his presence at our trading seminars in recent years.
Kelly Clement of MetaStock has also been very helpful at seminars, showing students how to create trading templates on their computers using MetaStock. I've used a number of trading software packages over the years, and I consider MetaStock to be the best.
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