Charted Territory: How to Stay Zoned Out

Eight tips, plus a poll.
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In Monday's

column, I discussed a variety of ways to get into the zone. And you tried them. Or you tried something else. Or you didn't do anything at all.

But whatever you do or don't do, one day you will find yourself there. In the zone, that is. But, if you've never been there, how in the heck do you know when you've arrived?

Well, because this is exactly what you'll be thinking: You'll be thinking you're a freakin' genius! (I'm betting those who have been in the zone are right now nodding and saying, "Uh-huh!")

Look, for the sake of argument, let's just assume I'm your average flesh-and-blood trader. I have my strengths; I have my weaknesses. So do you. But one thing I've found in common among all traders is that little smile at the end of good days. And after many good days in a row, it becomes a big smile.

And it's that big smile that signals one thing: "Hey, baby, I have this trading thing knocked!" And I know that's true because every single time I go through a great stretch, I think I have things figured out! I mean, I start thinking of myself as God's Gift to Trading. Mr. Gary Good Trade.

Pretty bad, right? Oh, but it gets worse. Yeah, you start going back over the trades you passed up and see that they would have worked out also. So you start analyzing your method and think, "Shoot, if I hadn't been so darn cautious, I'd have doubled my profits right now."

So, you start stretching your method a bit. "Hey, who needs those extra filters, anyway? I'm so good, I can pick charts out of a hat and turn them into winners."

And you start taking more and more trades, loading up on whatever side, short or long, is working.

And initially, it works like a charm. Man, the profits are pouring in. Boy, were you ever stupid to doubt yourself.

Do I need to go on? Or can you guess what happens next? In fact, if you've been there, you don't need to guess. You know. Crash! Bang! Boom! You're like a scene where

Batman

and

Robin

(West and Ward version) are battling the

Joker's

henchman.

Only you're the one getting hammered. And, yes, at the end of the scene, you're tied to the conveyor belt as it's moving closer and closer to the Joker's "Bat-saber saw."

But nothing on your utility belt is going to save you, my friend. No, because remember all those extra trades you added to take you up to 200% of equity? Yep, they're the extra ropes keeping you pinned to that conveyor belt! Those extra know-it-all trades are now going to kill you because they're all going to be losers, and now it's to the tune of a lot more money than you anticipated putting at risk. So, say good night, Batman. Maybe

Michael Keaton

will play you in the movies.

But it doesn't have to end like that. No, you can extend your stay in the zone by following some of these guidelines below. Think of them as your trader's utility belt.

    Remember who brung ya. Right, stick to your method. It works. Thank the trading gods. And don't make them mad by deviating. Look hard for the opposite side. My biggest fault is always watching my longs work miracles, for example, and then subconsciously favoring that side. Slowly, every single chart looks like a great long. And then I end up saddled with a bunch of idiotic trades I'd never have taken even two weeks earlier. To prevent that, or at least modulate my portfolio a bit, I try hard to look for trades on the other side. If all I'm seeing are longs, I really try to get some shorts on the books. I mean, I don't force them on, but I don't ignore them either, even if the long side is working perfectly. Be picky (again!). Of course, if I absolutely cannot find anything on the opposite side, I at least try to be as picky as possible with the side I'm playing. I'm not much for oscillators and the overbought/oversold stuff. Nevertheless, I am subtly aware there is always going to be some sort of reversal, normally when I'm least expecting it. And if it's more than a short reversal, I certainly don't want to be exposed with too much inventory on the books. Never discuss your trades. I will talk about my trades in print if I'm doing a chart. Or on the new "TheStreet.com" TV show if I have a position in the stock. But other than that, there are rare times that anyone else knows what I have in play. Look, it's not a question of being paranoid. No, it's a question of being weak, I suppose. I just don't like saying I'm long IBM (IBM) - Get Report, for example, and having the other person react in any way. If I say IBM and he or she says, "Great company," I might think, "Hey, I can stretch this trade a bit further." Or if that person frowns, I might be tempted to close the trade prematurely. No, I made my decision, and unless my method says sell, I'm sticking to it. Watch what you read. In a similar vein, I never read the chat boards about specific stocks. I don't know if folks on there know what's up or not. All I know is I don't want to hear their opinion, regardless of how valid it might be. In fact, I even have to be careful when reading TSC, Fortune, The Wall Street Journal, etc. I am weak! But at least I recognize it. Be confident. If you've done everything right, you deserve to run the table. So, if you have a bad day in the middle of your streak, don't automatically start second-guessing yourself. Then you'll start changing your method, and sure enough you'll find yourself derailed and out of the streak pronto! Be humble. I always brag and boast like crazy about my family. Yes, and sometimes even my alma mater. Occasionally, maybe even my golf game of yore. But never ever about my trading. Look, I don't think of myself as a superstitious guy. But say what you will, the moment I open my big mouth and tell anyone how great I'm doing, you can bet the trading gods will immediately take away any magic I might have had. That's just the way it works. So if I'm having a great day, week or year, my answer is always, "My trading is OK." If I'm having an exceptional run, I might upgrade to: "Things are going pretty well." But, boy, I never stretch it past that. The trading gods are always listening! Write some of your success off to dumb luck. Sometimes you make terrible trades, but the market bails you out. Or the stock is in the dumper, but before you can close it for a big loss, trading is halted and there's an announcement it's being acquired. Yeah, I wish luck wasn't involved, but it is, a lot. Therefore, recognize you're probably better than you give yourself credit for. And not nearly as good as you think you are.

So, there they are, eight ways to stay in the zone to go along with eight ways to get there in the first place. I know, all this talk for a phenomenon that a) is undefined and b) may be a pile of nonsense to begin with. But I am curious what you think, and as far as I can tell, the survey below has never been done. Therefore, vote away and let me know what you think.

Is there such a thing as a 'zone'?

Oh, there's a zone all right. I just can't wait to get there.

Zone, schmone. In a flip of a coin, common sense says you're going to get 10 heads in a row at some point. That's not being in the zone. That's dumb luck.

Gary B. Smith is a freelance writer who trades for his own account from his Maryland home using technical analysis. At time of publication, he held no positions in any securities mentioned in this column, although holdings can change at any time. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Smith writes five technical analysis columns for TheStreet.com each week, including Technician's Take, Charted Territory and TSC Technical Forum. While he cannot provide investment advice or recommendations, he welcomes your feedback at

gbsmith@ibm.net.