Trading Notes

Some notes from a book im reading, I though it would be a good idea to cut n paste them in here as and when I come across for future ref.

• The business of trading is to identify conditions with a high probability outcome and acceptable capital exposure. We will not be right all of the time. But we should be right most of the time, and when wrong, the cost is acceptable.

• The key is to identify if a market is making a correction. Why? If a market is making
  a correction, it should not take out the extreme that began the prior trend, but should
  eventually continue the trend direction prior to the correction and make a new extreme.

• There is one simple pattern guideline that is very reliable to warn if a market is probably making a correction and not a new trend to a new extreme. If a market overlaps a section, more than likely it is making a correction. An overlap is when a market makes a new low or high, and then trades back into the range of the prior section. (see chart exmaple below)