Eight Habits of Highly Zoned Traders

Everyone wants to be in the zone. Here's how to get there.
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In last Wednesday's

column, I started talking about the "zone," that wonderful time when every trade you touch is gold, those days when every long on your screen is green, every short, red. I call those rare days no-hitters. And when you're in the zone, every day feels like a no-hitter. At the height of my powers, it's sometimes better than ... well, you know.

Ah, but how does one get into the zone to begin with? What's the magic formula? Where's the trader's code that gets you the backstage pass?

My friends, if I knew for certain, I'd be very, very rich. No, make that very, very, VERY rich. I can't even venture a guess as to how often I'm there myself. Maybe 10% of the time. And when I'm there, maybe I stay in the zone for a few days at most. The rest of the time, I'm just a lunch-pail-carrying position trader, slogging through the daily ups and downs just like everyone else.

Still, I've been there enough over the years to figure out a few things that work -- at least for me. If they work for you, great. If not, well, we all have to find our own way eventually.

Herewith then, Gary's eight ways to get to the zone.

    Trade for a long time. Yeah, I know, this is the hard one. But the fact is, you need to experience just about everything regarding trading before you can adequately weed out the good from the bad. I mean, heck, you have to know what to avoid, as well as what to look for, to have any chance of visiting nirvana. Honestly, I think you need at least five years under your belt. Maybe more, maybe less, depending on market conditions. If you're a daytrader, maybe six to nine months, if you can last that long. Never look at a chart when you're tired. One of the reasons I take my laptop to the girls' swim practice is so I can look at that morning's potential trades. After one cup of coffee, I am surprisingly fresh at 5 a.m. And when I'm fresh, the good trades jump right off the screen. But catch me looking at charts at 8 p.m., and yuck: They all look bad. Look at a lot of charts on the weekends. During the week, I'm looking solely for trades. But during the weekend, I'm looking solely for trends. My software has charts broken into industry groups as well as new highs, new lows, etc. You don't get a very good feel for what's strong, what's weak, what's hot and what's dying by looking at the A/D line and the indices. No, you get that by looking at hundreds of charts. As an example, a few weeks ago I discussed my feeling that the Internet stuff was dying. (I was right, as it turned out, but only briefly!) But did I just wake up and think, hey, let's short eBay (EBAY) - Get Report today? No, my "feeling" came from looking at nearly 150 charts in the Internet sector. And that's really all you need to do. Look at a lot of charts just for overall trends. You don't need to look for triangles, pennants and flags, though. Just see what's in an uptrend and what's in a downtrend. Pretty straightforward if you keep it simple. Look at your potential trades quickly. Once my scans are done running, I might get 100 charts to look at. And you might think it takes me a long time to go through those charts. It doesn't. It takes me about 10 minutes to decide which five or six I might want to trade. That's it. Granted, I've been looking for the same pattern for a few years so I have an advantage. But think about anything you have an aptitude for. Say it's piano playing. If you're really good, you can probably watch another person play for 20 or 30 seconds and tell if he's ready for Carnegie Hall or the Carnegie Deli. (Of course, you'll need experience to do this, and that's where No. 1 comes into play.) If your scans have narrowed down the acceptable candidates, your only job is to let the good charts make themselves apparent. It's at that point I let my intuition lead the way. Be picky. To expand the previous point just a bit further, I actually try hard not to take any picks each day. That is, I really want my candidates screaming at me to be taken. There are many, many times you will be faced with a chart that is technically sound and would make a perfectly acceptable trade, but for some reason, you just can't get excited about it. I've learned to pass on those. There'll be more to take the next day. Get away from the charts. Previously, I said to look at the charts. But also get away from them. I find I am always more excited about trading and TA just after I've worked out or have been away for the weekend. Everything looks and feels fresher, and I can't wait to dig back in. It's when I feel dull and I'm going through the mechanics that my results start to become dull. I feel nothing because I'm bored stiff. And invariably, I start losing money. No, better to tackle the charts only when you're fresh and ready. That's easy to do when you first start trading. After a few years, the trick -- like marriage, I suppose -- is to keep things fresh. In that vein, I do a lot of paper-trading. Believe me, I'm always coming up with cockamamie ideas that are totally worthless. But, it keeps me interested, and more important, I constantly learn something new about charts, patterns and price movements. And sometimes I learn that I have no idea what I'm doing. That's OK, too. Realize that sometimes it's just the market. For long stretches this year, my trading has inched along. I just couldn't get anything rolling. And then I realized, yes, sometimes it was me. But, most of the time it was just the market. The irritating thing is that you can be perfectly in sync with what's going on and come to the conclusion that the only sensible thing to do is sit on the sidelines. It's frustrating, but often the only profitable course of action.

Well, that's what I've learned so far, but I learn more and more every day. On Wednesday, I'll talk about that most dangerous time: when you're in the zone and think you're bulletproof.

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.