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Trading with the Day Trading INDU model

Speculating on financial markets is a highly competitive business, because it's a zero-sum game: any new winner creates a loser. Players are tough, well trained, organized. Academic studies from behavioural finance, and empirical examinations of the "market efficiency" theory, have shown that short term individual investors tend to buy their stocks high and sell them low: they tend to be the losers. Large, organized financial institutions - on the contrary - tend to be on the winning side: they extract (on average) speculative profits from individual investors' losses. Their success is due to their superior standards on two points: research and discipline.

The Day Trading INDU model provides Hedge Funds and individual investors with adequate research on the US stock market. The INDU model's forecasts outmatch (on average) those of most private investors, and match those of the largest international Financial Institutions and Investment Banks; they are regularly posted on this website. The INDU model also offer traders an investment strategy; and fosters discipline by suggesting a simple but sound approach to money management; it helps stabilize emotions and curtailing actions that constantly play to fear and greed.

However, the model cannot beat financial markets unless traders do their own job. Money management and accounting are essential ingredients of success. To implement the model's strategy, orders have to be correctly placed every day, market on close. Positions should only be closed either on a stop-loss order or at the close of the following trading day. (See also Actual Performance).

The model does not promise to deliver profits in one week or month, but it will often produce substantial profits in a 6-12 months period (in exchange for taking a risk), and the more so after a period of weak performance. Nerve, patience and discipline are enhanced when only proprietary capital is used, and when the capital is only a fraction of total personal wealth. The presence of economies of scale suggest that a minimum capital of $50,000 is required to reward the time and effort dedicated to trading. Such an amount allows to trade three "Mini-Dow" futures contracts at a time while keeping the probability of "total loss" below 2,5% every year.

A more aggressive money management strategy is: trading three "MiniDow" futures for every $50,000 of initial capital in normal circumstances, and increasing to four only when cumulative losses amount to 60% of the initial capital, reverting to 3 contracts after a few winning trades. Actual trading with an initial capital of less than $12,500 per "MiniDow" traded is not a prudent approach. The INDU model requires positions to be maintained overnight, in order to capture favourable opening gaps the morning after; this implies also suffering some negative opening gaps as well: profits and losses are therefore inherently volatile.

A final warning on the psychological consequences of speculating. Actual trading (especially daily trading) may turn into a lonely, stressing, and at times financially disruptive activity. It is no coincidence that large financial institutions are financial markets' systematic winners. How can they match competence with discipline? Their secrets are: team work, routines, and control. These lessons should be kept in mind by non-professional traders planning to start a trading activity.

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