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The purpose of this book is to educate and entertain. The author and/or publisher do not guarantee that anyone following these techniques, suggestions, tips, ideas, or strategies will become successful. The author and/or publisher shall have neither liability nor responsibility to anyone with respect to any loss or damage caused, or alleged to be caused, directly or indirectly by the information contained in this book.

The medical or health information in this book is provided as an information resource only, and is not to be used or relied on for any diagnostic or treatment purposes. This information is not intended to be patient education, does not create any patient-physician relationship, and should not be used as a substitute for professional diagnosis and treatment.

It is also dedicated to the late Mark Douglas, author of the book, Trading in the Zone. The simple exercise in that book had a dramatic effect on my understanding of market randomness. Also, once I internalized Mark’s five fundamental truths of trading, my understanding of trading dramatically improved.

When I look at where I am today, it is very apparent that multiple people have influenced me over specific time periods of my life. I would not be where I am today without their love, guidance, assistance, knowledge, and support. The list below is basically in chronological order, and I believe I have mentioned everyone who has made a memorable impact on me. Thank you for being supportive.

I am deeply appreciative of my parents, Roger and Louise Kelly, without whom I would not be in existence. Their love and support during my early developmental years was critical. Growing up in a supportive environment gave me a head start before I left home. By following my father around a pulp and paper mill on his Sunday morning rounds, he ignited a passion within me for chemistry, which ended up being my career.

To my grandmother, Mary Daoust, who watched over me while I was growing up, and who instilled the values of simplicity and righteousness. By living to 100 years old, she gave me the impetus to do the same.

To my brothers, Philip Kelly and Brian Kelly, who have been lifelong companions and are always available for discussion. Also, to Brian for providing guidance through editing a few chapters in this book.

To my godfather, Dr. Nino Campana, for unknowingly sparking my interest in compound interest when he provided me with three “bonds,” which would be worth $10 provided I held onto them to maturity. This gift potentially initiated my desire to learn more about the stock market.

To the Moluch street gang, Alex Campbell, Grant Cameron, Jeff Holmes, and Steve Coulter, who I grew up with. Together, we had a truly remarkable childhood, where we got into way too much trouble, built forts, became explorers, and had many crazy adventures. We still get together after all these years and are able to share a laugh about our venturous beginnings. Our exploits likely taught me far more about life than I have learned in any other vocation.

To Edward D’Agostino, who I met in high school and became very good friends with. We had some amazing times together, and traveled by bike and camped in different campgrounds throughout the area. We both enjoyed university, traveling back and forth to visit each other, and had many long and interesting conversations. Ed is the type of friend you might not see in five years but can pick up the conversation as if it were yesterday.

Upon reflection, I consider I am where I am today in part by being hired by Dow Chemical after I graduated from the University of Waterloo with a BSc in chemistry. To this, I believe I owe a great deal of thanks to Darwin Wilson. While at Dow, I worked with and became good friends with Don Schieck and Jim Cosman. They provided constant companionship and much-needed social interaction. We still enjoy great evenings when I get a chance to visit the Sarnia area.

Another great friend, whom I met at Dow, is Allan Rey. Allan and I played tennis together, and it was through Allan that I met my wife, Carol Wei. Allan and I both ended up getting our PhD in chemistry, and pursued this area as a career.

To Dr. David Holden, my MSc supervisor, who taught me to fight to the end and that doctors make mistakes. David died way too early due to a missed cancer diagnosis. To my PhD supervisor, Dr. Scott Collins, who provided me an opportunity to explore various research ideas, and who meticulously read over my thesis multiple times to ensure its correctness. To Dave Ward and Bill Gauthier, my fellow graduate lab mates, who provided ample opportunity for great discussions and amusing times.

To Dr. Alexander Ostoja Starzewski, who hired me as a postdoctoral fellow within the laboratories of Bayer, in Leverkusen, Germany. Alexander had faith in me that I could turn his ideas into tangible compounds, which we did by creating donor acceptor metallocenes. This opportunity allowed me to explore Europe for three years with my wife, Carol, and son, Daniel.

To my colleagues at NOVA Chemicals, who have allowed me to explore various avenues of creativity, provided interesting conversations, and made going to work every day an enjoyable experience. As there are so many to list, I have chosen to list those that I worked with for extended periods of time. To add one more, I would have to add at least 20 more. Thanks goes to: Bob Quaiattini, Nick Bohnet, Perry de Wit, Peter Hoang, Shiv Goyal, and Victoria Ker.

To Tyler Bollhorn, creator of the Stockscores Approach, from whom I have taken several trading courses. He has taught me that as new information comes into the market, traders will act on this information in their own best interest, and their decisions can be monitored within a stock chart.

To the authors and coaches who have written books on trading methods and psychology, and have taken the time to educate traders. Listed here are authors and teachers who have had the most impact on me, and what I learned from them: Adrienne Laris Toghraie – body part conflict resolution; Dr. Alexander Elder – look at the risk on a per trade and a per account basis; Dr. Barry Burns – momentum; Cameron May – written trading plan; Denise Shull – treat emotions as data; Jack Schwager – there are thousands of profitable trading systems; Jake Bernstein – create a schedule; Mark Douglas – think about a group of trades instead of individual trades; Rande Howell – develop one system and learn to trade it successfully; Stan Weinstein – the four stages of a major cycle; Van Tharp – position sizing.

To the many mentors from whom I have taken courses, or just read their books. In some way or another, all these great teachers taught me something. Listed here are my main mentors and the most impactful lesson I learned from them: Andrew Barber-Starkey – develop structure and prioritize; Andy Shaw – the difference between knowing and believing; Anurag Gupta – the difference between creation and consumption; Bill Harris – awareness creates choice; Bob Proctor – my potential is limitless; Brian Tracy – you become what you think about; Jack Canfield – take 100% responsibility for your life; Ken Beaton – finding your why; Napoleon Hill – every failure brings with it the seed of an equivalent advantage; Robert Kiyosaki – the velocity of money; Shawn Bearman – plan for down time; T. Harv Eker – the only way to change your outer world is to first change your inner world; Wallace D. Wattles – there is a certain way to do things; and Wright Thurston – for introducing me to Raymond Aaron.

To Raymond Aaron, author and educator, for his wisdom and teachings. I want to thank Raymond as well as Lisa Browning, Naval Kumar, Waqas Ahmed, Chinmai Swamy, Liz Ventrella and Christina Fife for giving me the opportunity and providing guidance in writing and publishing this book. This book has transformed my trading.

To Barry Powley, Greg Schnell, and Mark Soehner of the Calgary chapter of the Canadian Society of Technical Analysts (CSTA), for keeping the club going and providing me opportunities to sharpen my speaking skills while I speak to the club about trading.

To my three children, Daniel Kelly, Claire Kelly, and Michaela Kelly, for just being there. They provide me with inspiration and entertainment, keep me young, bring me challenges to solve, allow me to be a teacher, and are three of the reasons I strive to enhance my being.

To my wife, Carol Wei, for her continuous support and for providing me with a lifelong, loving partnership. She is always available to offer guidance, encouragement, and alternate viewpoints; and through her editing skills, she enhanced the delivery of the information in Dating the Stock Market.

Trading looks so simple. Find a stock, click buy, wait, and a few days later click sell and voila, you just made $1,000. You think, in a few years you are going to be able to retire and live your dream. While the first few trades may put money into your account, eventually you will more than likely give it all back, and then some. What once seemed simple is now frustratingly difficult. You watch from afar as others appear to easily pull money from the market. To correct this situation, you purchase proven trading systems. Unfortunately, after following the rules, you still cannot trade profitably.

Are you tired of giving your hard-earned money to other traders? Have you asked yourself, why can’t I figure this out? Do you want to take your trading to the next level?

In Dating the Stock Market – 10 Key Mindsets you Need to Excel as a Trader, you will learn that your attitude towards yourself and the market can make all the difference to your success. Once you realize that the gap between making and losing money in the markets is deep within you, you will have taken the first step. Trading the market will very quickly identify all your weaknesses. To progress, your mission will be to become aware of these issues and correct them.

In Dating the Stock Market, Mark Kelly identifies 10 key areas which you need to be aware of as you begin your journey to becoming a consistently successful trader. You will uncover why you need a systematic approach when entering the unpredictable markets. You will also be provided insights into how seemingly small changes in your profit targets will have a tremendous effect on your results. Using real trading examples, Mark will improve your understanding of the infinite ways to enter and exit a trade.

In the midst of market uncertainty, you need to quantify how much you are willing to risk to achieve a specific reward, the probability that you will be right and where you will exit the trade before you enter the trade. You will also have to learn to wait patiently until the odds favor your strategy.

While the 10 key areas discussed in this book will enlighten you towards becoming a better trader, Mark will provide you some extra bonuses on his website DatingTheMarket.com to enhance your understanding of the material. Your journey is about to begin.

In 1981, fresh out of the University of Waterloo, with a BSc in chemistry, I landed a job at Dow Chemical, in Sarnia, Ontario, Canada. One of the first things I did was open a trading account and began to dabble in the markets. I started receiving weekly charts in the mail and then moved onto monthly charts. At this stage, trading was something I did occasionally. I had some success, a few lucky breaks, and no clue what I was doing.

I left Dow in 1988, and returned to the University of Waterloo to obtain a PhD in polymer chemistry. From there, I ended up at Bayer, in Leverkusen, Germany, where I purchased a computer and some charting software, and started to monitor and trade the markets on a more frequent basis. At this point, I was reading Technical Analysis of Stocks & Commodities, yet still had not developed a defined method to get in and out of the markets.

In 1997, after 3 years in Germany, I returned to Canada and began my career as a polymer chemist with NOVA Chemicals, in Calgary, Alberta. I attended numerous trading workshops and purchased many courses, yet I soon tired of them and continued to search for something that would work for me. In 2007, I knew something was missing and that I should be doing better as a trader than I was, so I joined ProCoach. It was through this coaching program that I became aware of my first mindset shift, which started to move me toward becoming a better trader.

While I learned many things along the way, another quantum leap came when I completed a very simple trading exercise outlined in one of the many trading psychology books that I had read. That was my 3^rd mindset shift, and while it seems simple to do, for some strange reason, most readers of that book do not do the exercise. Yet it had a profound effect on me, so I trust you will do the exercise.

For myself, the last major shift occurred when I developed a better understanding of the randomness of markets, through a Monte Carlo Simulator that I developed. This is described in Chapter 7. The other 7 key mindsets have been placed in an order in which I think are appropriate concerning your development.

As the author, it is difficult to know if you just need to learn about one key mindset shift or all ten. When you are doing well as a trader and are just looking for that one extra idea to move you to the next level, then you can incorporate them into your trading and see what happens. When you improve, great, keep using them. When there is no change, or worse, you regress, then re-evaluate your situation and move on to the next mindset change. Traders face many challenges, and it is unlikely that you will find all the answers you require in one book, seminar, or workshop.

One of the challenges you may have in trading is that you have not aligned a feeling or emotional event in your life to trading. Simply put, you have nothing to compare trading to. You likely did not start trading stocks until you were over the age of 18. More likely, you started trading the markets after you landed your first job and had some money left over.

Once you start to trade, you will experience varied emotions and feelings, from pure ecstasy to the fear of a loss. As you are likely unprepared for this emotional roller coaster ride, I have used dating as an analogy to trading. I am assuming that you have experienced many of these emotions and feelings at some point in your life while dating. As many of the emotions and feelings you went through while dating will be similar to those you experience while trading, by associating dating and trading, it is my expectation that you will learn how to incorporate these emotions and feelings into your trading and, ultimately, become a master trader.

Think back to when you became interested in starting a romantic relationship— how someone drew your interest, made your heart throb and your mind go crazy. What was your game plan? Did you admire from afar or did you make a move?

In the dating world, once they muster up the courage, typically guys will ask girls out. Girls, on the other hand, are more subtle in their approach. They will normally drop indirect hints to “alert” the guy that they are interested in them. While this approach may take longer, especially for guys who just aren’t there yet, the ultimate result is the same—the guy will either ask the girl out or he will not. In either case, one or both individuals involved will either be elated or broken-hearted, and possibly embarrassed.

Bear with me as I attempt to get you to look at stock trading like the above dating scenario. Consider the stock chart as the girl putting out “signals” that the trader, the guy in the dating analogy, needs to interpret. When a trader finds the signals enticing, there is a good chance that they will purchase the stock. This commitment is similar to a guy asking a girl out on a first date. Once a bond is formed, the trader’s passion has been aroused. In the beginning, just as in dating, the trader does not know where the relationship is headed. They just know that, for the moment, they have a connection with the stock.

As time progresses, the stock either advances, and you sell at a profit, or it goes against your expectations, and you sell at a loss. When a stock goes up and you sell at a profit, this would be comparable to dating someone for a while and then realizing that you have irreconcilable differences, so you part as friends. On the other hand, when things go bad in a trade, they usually go bad quite quickly, and you are out of the trade shortly after initiating it. Consider a relationship in which you realized (perhaps within the first hour of the first date) that this relationship was not going anywhere, and you desired to end the night as soon as possible.

Let’s look and see how you can relate a stock chart to the emotions you feel during two dating experiences (Figure 1.1). In January 2017, you are in a relationship and it is going well. Unfortunately, in mid-February, the relationship breaks down, and you find yourself once again looking for your soul mate. Between March and July 2017, you are actively looking for someone but to no avail. Then, in July, a person of interest comes into your life, and a first date is arranged. You go on your first date in mid-July and enjoy yourself immensely. The relationship continues to do well up until early December. In December, you notice that the emotional charge, which you had in the beginning, is starting to wane, and there are several issues with the relationship. By early January, you realize that it is time to part ways, and with a final kiss, you say goodbye.

Now I will explain the LAC.TO trade I did in 2017 (Figure 1.2). I became interested in this stock when it signaled a breakout, on July 24, 2017, using my new 8-day high scan. I purchased the stock on July 25, at the July 24 closing price. I sold three times on the way up, as detailed on the chart, and then the remaining 200 shares were sold on a lower low, which occurred in early January 2018. The run-up, which occurred in early 2017, was potentially an indication that traders were starting to get interested in this stock, prior to an approximate five-month waiting period where they showed little interest. Once interest started to peak in late July, LAC.TO had a good run before giving up much of its gains. This is the main reason why it is important to get out of your positions when they start to weaken. Like a short-term relationship, once they start breaking down, it is best to part ways and move on.

You have likely experienced the emotional high of a newfound relationship. Although filled with some trepidation, first dates are typically a lot of fun as they are full of excitement and possibilities. Even for relationships that end shortly after they begin, you can still experience some level of joy. Sometimes, however, the relationship is mediocre right from the beginning, and you wonder what you saw in the person in the first place. Similarly, both scenarios play out in the stock market as well.

In the next section, you will discover how completing a trade, instead of always searching for stocks that have great potential, will make you a more profitable trader.

In my day job, I am a scientist. I spend much of my time identifying new ways to improve what the company currently has, as well as developing new ideas to provide innovative products. When I started to trade online, I looked for a website that I could use to scan the market with simple code (a set of instructions to tell the online software what I am looking for), to help me find setups that historically had produced good results. Once I identified patterns that produced good results, I would persistently work away at developing a code to find these patterns. After spending days coding the software to find the setup that I was looking for, I would trade it for a short period of time before getting bored with it. Then I would find another trade setup that looked equally as compelling, and start to develop a code to find that setup. In early 2012, I had 86 different trade setups that I had developed, and while they all had the potential to work, in hindsight, I likely did not spend enough time with any of them to properly understand them, to trade them, and to also become aware of the small nuances that each pattern and setup provided.

Figure 1.3 illustrates a pattern that I call a strong push with a week or two of rest. The setup is defined as follows: First there needs to be a strong week [defined as (High-Low)>1.25 x ATR(14)] that occurs on above average volume. This is then followed by a week or two in which the close is less than or equal to the high of the strong week, and the bar height is equal to or less than the 14-period average true range [ATR(14)]. The entry point is defined by a break above the high of the setup. For CMMC.TO (Figure 1.3), the buy point was $1.07, and occurred on August 18, 2017. This is shown by the oval above the consolidation area in Figure 1.3. On September 5, 2,000 shares were sold at $1.37, and another 1,500 shares were sold on December 5, at $1.44. The remaining 1,500 shares were sold at $1.42 on January 17, 2018, on a break below the low, which occurred during the week of January 12, 2018.

The theory behind the setup seems logical. There is a large move on high volume, followed by one or two weeks where investors digested the information. During this period, there is a short consolidation, which reduces risk. Once the stock breaks above the consolidation pattern, the exit point is just below the low of the consolidation pattern. In the case of CMMC.TO, this pattern worked well; however, this is not always the case.

I truly enjoyed finding stocks that made large moves, and developing codes to find these stocks. I found this challenging and interesting. The more stocks that I looked at, the more ideas I came up with, and this became a bit of a game. I was spending more time developing code to find specific setups than I was trading.

The first step that I took to improve my trading was when I joined StockCharts, which is a website that carries both Canadian and U.S. data. It has scanning and charting capabilities and allows me to see 30 charts on one screen which speeds up my reviews. StockCharts allows me to scan for stocks anywhere in the world, provided I have a computer and an internet connection. Unfortunately, StockCharts does not have backtesting capabilities, so I needed to research for an offline technical analysis software program.