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The Struggling Forex Trader

Mindset.
You`re psychologically trapped inside the circle of
doom, discover how to break out of it.
By Thabo StPatrick Moloedi
Copyright
Copyright <2017>
All rights reserved. This book or any portion thereof may not be reproduced or
used in any manner whatsoever without the express written permission of the
publisher except for the use of brief quotations in a book review or scholarly
journal.
<11141 Harry Gwala>
<Sasolburg>
<Free State>
<1949>
<South Africa>
Contents
Introduction
Chapter 1:
Discover the ideas that YOU came into trading with which are HOLDING
you back.
Chapter 2:
Your Psychological Challenges REVEALED.
Chapter 3:
Learn how to "RESET your mindset and develop NEW and CORRECT
ideas.
Chapter 4:
You "MUST" make a Paradigm Shift.
Chapter 5:
Develop the entrepreneurial mindset, and PROSPER trading like a Business
person.
Chapter 6:
Develop a PROFESSIONAL trader`s mindset.
Conclusion
Introduction
Have you been trading unsuccessfully for quite some time now? Have you been
trying to make some real money trading but nothing seem to come together?
You have studied all there is about trading, Fibonaccis, Elliot Waves,
Harmonic Patterns, Moving Averages, MACD`s, RSI, etc.
You have found a number of strategies on the internet based off of this tools but
none of them proved to be consistently profitable, let alone to be even
working? Have you been putting more and more indicators together and having
different combinations of indicators and nothing worked?
You have been trading on a demo account and making a lot of money but
immediately when you try to duplicate that demo success on a live account you
lose your money instead?
You have been sitting in front of your charts for hours watching as price ticks
up and down, and as it seem to be moving up you hit a BUY but immediately
after that, things goes against you? Are you frustrated because you kind of
know there is a way, but you cant quite find it? Are you embarrassed because
your friends and family are saying, Hey, hows your trading going? Hows this
Forex thing, this gambling type of thing that youre doing. Are you making a lot
of money or are you losing all your money?
Are you embarrassed because youre not actually making money, and yet only a
couple of years ago you were almost showing off with your demo account
statements, saying hey look at all this money Ive made. You were making a
fortune, tens of thousands of dollars every day, week and month back then on
demo accounts, but now that success just can`t be transferred into real time and
with real money?
In this book, you`ll discover that you have been psychologically trapped inside
what I call, the circle of doom. I will show you that the kind of your current
mindset is what is holding you back. I will show you exactly what is happening
with you psychologically which is hindering your progress.
I will show you why and how you must reset your current mindset and make a
paradigm shift. You`ll discover the reasons why you must develop the
entrepreneurial mindset if you want to take your trading career to the next level
and how to develop the right kind of a professional trader`s mindset instead of
the one you currently hold with yourself. This book will serve as a proof as to
why the most important factor for trading successfully is psychology.
Imagine if you knew exactly what to look for on your charts and that is perhaps
different from what you currently look for, which would only require you to be
patient and disciplined? As you`ll see, it`s not something complicated, you just
sit on the sidelines and wait for the markets to develop into that what you have
to be looking for, and as long as it doesn`t happen, you stay patiently on the
sidelines.
What this will do for you is to clear up your mind, clear up some time for you
to do other things rather than staying glued in front of your screen for hours
forcing trades that are not there. Your friends and family would be asking you
how you do it and if you could teach them, completely having forgotten that
they had no faith in you and what you have been doing. And this is when you`ll
want to charge people and pay yourself all the money that you have been losing
all along. Trading can truly be that simple.
In this book Ill show you how to get yourself psychologically in perspective,
and finally show you exactly the tools that the professionals are using daily,
which some of them you have been aware of but perhaps never knew how to
use them.
I will be showing you in conclusion what you should be looking for on your
charts rather than what you have been look for all along whenever you sit in
front of your charts.
I won`t be giving you a strategy that will make you an overnight success, but I
will reveal exactly the tools that the professional traders are using daily and
which should form your trading basis. I will set the stage for your final
breakthrough, guaranteed.
If you stop your trading activities right now, and read this book completely, you
would have literally made an intelligent decision ever, and have shaved off
more coming years of your struggles because you`d remain trapped inside the
circle of doom.
Chapter 1:
Discover the ideas that YOU came into trading with
which are HOLDING you back.
I know, it must have been so much exciting- the exhilaration of it when you first
got the exposure right into the world of trading, be it Forex, Stocks, Indexes,
Futures, Commodities whatsoever, but why? Simply because there are plenty
of millionaire traders these markets have produced to date, some of them you
have recently read about or have heard about from the social networks or from
some other social media platforms or perhaps from the word of mouth or most
fortunately you may have just happened to find yourself in the same radar as
one of the millionaire traders. Whichever the way you got exposed into trading
through, surely induced the adrenalin rush inside of you.
The first few days of it gets you ticking and so much excited- hungry to begin
your trading journey, you immediately begin to search on the internet as you are
constantly imagining yourself a millionaire trader and the luxury lifestyle that
comes with it as well by the end of the following year without the knowledge
that the learning curve of it is just not going to be a straight line.
Google Search for the word Forex Trading, and there you are, a huge ton of
information that is perhaps overwhelming, you begin to ask questions like
How long does it take for one to learn to trade?, How long does it take for
one to become profitable?, How much money does one need to start?,
What is the timeframe should one choose for trading?, How much position
size must one risk per trade? and so on and so forth.
After months and months of the learning curve, for me, I began to realize that
these type of questions I also used to ask, were all personal to some extent, and
only you, not anybody else can or should decide and provide from your own
discretion the answers to them.
The internet is full of trading wannabe`s, and asking some of the critical
questions from them is a recipe for a prolonged rough learning curve and this
is exactly when confusion would begin to set in because a typical trader by
then, would tell you that (as he answer such questions), you must know first
which type of a trader you want to become, and that the learning curve takes a
certain specific period of time, and as for the position sizing you must not
risk anything more than 2%, and a few days later the other knowledgeable
trader would advise you that you should never trade anything more than 1%,
and the other one would say no, you should not risk anything more than 5%.
This people confuse you because what they are really doing is to play back and
forth with your belief system, how? this one says this and you believe them,
and later on that one says that and you begin to doubt the previous one or
perhaps decide to believe them both and perhaps ponder that you would rather
use their both advises interchangeably, but again it confuses you further now
because these people are talking like well-established traders and there is no
way they could be misleading you so why they would give you different
advises? You ask yourself.
I know I may be getting irrelevant to you more especially if it has been a while
since you have ventured into the trading business, and that`s exactly one of your
problems, you are looking for a quick fix to your trading struggles, but anyway,
we are having a talk here, and what I am trying to do is to relate my friend, and
that is the thing, these people bombard us with their personal beliefs about
trading and because of our vulnerability as the beginners, we tend to absorb the
information they feed us regardless of its possible ineffectiveness or
illegitimacy, after all we are not well informed so we wouldn`t know if what
they are advising us on is ineffective or illegitimate.
So at some point in our journey as we develop, we begin to realize that those
early days questions we used to ask around, were simply silly and that the
advices we used to take from the otherwise successful traders on the web
were not a good thing to do because up to this point they have proved
themselves rather ineffective for us and hence when other people reminds us of
those old days we tend to get bored or develop resentment.
But it would be better if instead of getting bored, be excited, why? Because it`s
literally indicating that you have improved to this date, simple. This is how our
minds works I guess in determining whether we become better individuals
overtime or not. I mean think about it, if someone relates a bad or a rather
uncomfortable old story with you and you get bored by it, take that as a sign
that you have at least improved since back in the days and convert that
boredom feeling into an excitement one as you tap yourself on your back.
Look, our emotions and ultimately the way we feel about everything else
outside our inner world, depends on how we perceive and interpret those
external things. If you interpret a single failure in any endeavor as a literal
failure instead of as a lesson teaching you what didn`t work, and that you
should rather try a new way of doing things, you will never get anywhere
because you will lack all the positive emotions to hinge your perseverance
against, and to try and develop a new strategy, not a trading strategy though, I
am just speaking in general terms. As you progress further into the future with
your trading career, you`ll begin to notice that a lot of life experiences or
situations do relate to trading.
Imagine the one thing you have been doing all your life, be it academic or
sports activity or an artistic activity. Did you succeed in that activity? Did you
excel in it? Yes, academically I personally excelled but only starting from my
11th grade and more in my 12th grade. I had failed too much over my schooling
years to a point I had thought to myself that this was certainly not for me. I had
thought of giving up and dropping out, but my background would not allow me.
I never gave up immediately after I had failed and had to repeat my 10th grade
when my class teacher told me I was actually good but was just being held
back by the types of friends I had then.
Psychologically, she influenced me. She made me realize the things about me
that I was never aware of, she changed my paradigm about myself and thats
exactly what you should do if you are to succeed in the trading business. You
must change your paradigm about trading, the ideas that you are coming into
trading with, but to do so there must be at least someone who will point you to
the correct Lake that you have not been aware of all along if you are to catch a
significant number of fishes, this is how we improve as individuals, by getting
exposed and absorbing new insights about the world around us.
The bottom line is that you were not born good at whatever you excel or
excelled or have been excelling at. You have had a number of failures but you
never gave up just because of you perceived those first few failures as literal
failures. You learned from them and improved, practiced and practiced, got
better and better every day until you were a master, and that is the same
mindset you must apply in the trading business. No matter what the
circumstances along your journey, never give up.
Never perceive your failures in trading and life as they are, but rather perceive
them as lessons and learn from them, remember no one was born a trader, they
all learned. This is one of those clich advises I used to overlook too, just for
the reason of being clich.
The ideas that trading is an answer to your current financial situation, an
answer to how you can economically emancipate your family, an answer to
how you can make an impact in the world, are great ideas which you can bring
them to life, but the time it takes in the process of bringing this ideas into life is
distorted and prolonged by the idea of getting rich quick.
The get rich quick mindset will make you think that the millionaire traders got
that way by trading every day and placing many trades in a day and that you too
should be doing the same, this mindset will make you think that there must be
some secret holy grail method they are all using and have been using all along
that you just have to search for it on the internet.
The get rich quick mindset will make you think that by placing a huge sized
trade will quickly bring back your previous losses and leave you at the level
your account was sitting at, this mindset will make you chase the green
candles. Hoo! It`s going up let me hit buy.
The get rich quick mindset will steal away your patience, sitting and waiting
on the sidelines is something you wouldn`t understand, you would be thinking
that because the market is moving that means people are in it and making
money and so you too must be in it.
Trading will never make you an overnight millionaire if you are not already a
millionaire, it will not make you rich overnight if you are not already rich. You
can`t expect to be a millionaire by the end of your first year with a $100
account start-up. ($100-$1000), this is the bracket in which many usually start
at or including myself started at, and turning that into a $1,000,000 takes years
of hard work and dedication.
One thing that the internet would never teach you is that trading consistently
profitable is not easy, however, it can be easy only if you are willing to put in
the necessary efforts to make it easy, this takes a hard sickening work ethic.
Successful trading takes a huge ton of perpetual learning, but then, it depends
on whether you have the money to invest into mentors, relevant books and
seminars or the time to dedicate for trial and error.
If you have money, you can invest it into mentors, books and seminars and
shave off years of trial and error, but if you don`t have it like I never did, you
must spend the time searching, downloading, learning, testing and filtering the
right from the wrong trading materials and wisdom or knowledge, you must
spend the time for trial and error, either way, there`s a price to be paid and this
is where winners and losers go apart because those who do succeed, are those
who are willing to pay the price.
The will to succeed, the will to put on the efforts and work really hard, the
will to continually learn, practice and improve is what will set you apart from
everyone else because some people tend to get to a point where they think they
now know everything.
I remember when I had read so much about trading that I began to think to
myself that I knew everything, and had thought it was finally the time for me to
trade live, I stopped learning and searching for new insights, I thought all that I
had learned so far must be enough to get me going, only to find out later on that
what I knew was just the tip of an iceberg.
Your entire learning curve will be easy only if you are not disparate for money,
for people who have no other sources of income, it becomes difficult
psychologically because they feel the pressure to make money so that they can
survive, they are disparate and so they can`t stand the time it takes for them to
succeed. These people usually have no money to even buy a simple book, let
alone to pay for a mentor.
If you are like this, it would be very much better if you found yourself even a
lousy job aside while you learn, this would remove a lot of financial pressures
from you, remember, to be a millionaire trader, your account must be fat first,
and to make it fat, you must feed it money regularly, and that`s exactly what a
lousy job would help you to do. You`ll even afford to buy books and pay for
mentors.
Never worry about being in the markets and trading for now because the
markets have been here for decades and are still to remain in place for decades
to come, you`ll grow very old with the markets still in place, no one will ever
take the markets away, the markets will be here forever because they were
established by the greatest world economies that operates on the basis of
capitalism, an economic system that`s running the world right now.
You think just because you are coming to trade the global financial markets like
everybody else there will be a market crash and eventually a market
extinction? You are wrong, just find yourself a job while you learn.
The key take away from this chapter is:
1. Don`t think you`ll become successful or a millionaire overnight from a small
account.
2. You`ll never get rich over a period of a single or two years starting with a
$100 account.
3. Abandon your get rich quick mindset because that holds your progress
back.
4. Never compare yourself to other successful or millionaire traders.
5. Most of the things you`ll learn and/or have learned on the internet are
mundane.
6. Trading successfully is not easy without a mentor.
7. Adopt a perpetual learning mindset because you`ll never know enough.
8. You can become successful without a mentor but you have to put in the time
and necessary efforts to search, learn, test, evaluate and filter the right from
wrong information you learn.
9. Everything you need is there on the internet and if you dont have the money
for mentors, there are free trading eBooks to download, if you have an all-day
up proper internet connection, you have everything to carry out take away
number 5.
10. If you need money now, find yourself a job while you learn.
Chapter 2:
Your Psychological Challenges REVEALED.
In most cases, before everything else, comes winning by luck, followed by
greed, and the thought that it`s easy, then a first loser comes, and induces
anxiety, but the ensuing winner eventually overrides the anxiety, and induces
the thought that it was just a short coming, and hence overconfidence, but then
along with overconfidence, comes a denial mode in which the victim never
want to accept that things have changed but remain fixated to the old belief that
he/she is a great trader, and eventually after a huge first ever loser, fear sets in
and brings with it the distorted psychological decision making process which
tends to perpetuate the struggle.
If people were able to duplicate themselves, and therefore were to put one
copy of themselves in a single room with an experienced trader without the
copy-self and such a trader communicating to each other whilst they are both
trading, and the original copy to observe both traders, we would be ashamed
of how stupid we can sometimes behave.
We read everywhere on the internet that successful trading is more about the
psychological part of it than a trading strategy, a number of books have been
written about the subject of trading psychology but a number of them still
remain practically useless.
Trading principles works similar to the traditional business principles, in any
business, entrepreneurs or wannabe entrepreneurs lose their money more often
than not, wannabe`s because you cannot call yourself an entrepreneur If you do
not understand the basic business principles like managing your finances, being
able to identify risks and opportunities, being able to take advantage of such
opportunities and to mitigate prevailing risks and so on and so forth.
If you lack the knowledge and are not willing or open to learning, how can you
expect to succeed in business? In the trading business, if you want to succeed,
you must know how to identify the opportunities but most importantly,
understand that there are risks involved and that one way or the other you stand
a chance of losing your money.
Imagine, you open a new fast food restaurant, you lack the basic sales &
marketing knowledge and hence suffer the lack of customers, your food would
inevitably rot and you would have lost your money but in a form of rotten
cooked food. Whenever you don`t get people to buy your food, they will rot
and you will lose. Even after you learn the sales & marketing skills; that would
only put the odds of success in your favor but no to guarantee you success.
Making money or a positive cashflow in any business is not a guaranteed thing,
but you must possess the right knowledge to put the odds of success in your
favor. All this on its own is a form of risk, whenever you embark in a business
venture, you must understand that you are taking a risk and that you might lose
all that you have invested in your new business venture.
In trading, people are not willing to accept when they lose, they don`t want to
acknowledge something that is inevitable, something that they cannot do
anything about to change or avoid. Losing in trading, is the same thing as losing
in a fast food business for example, the only difference is that with trading, you
lose money in its literal form hence many tend to equate trading with gambling,
and in a fast food business you lose it in a form of rotten food, but then people
tend to place differing psychological weight to this. For many, losing money in
trading is more emotional than losing money in a fast food business.
An understanding and acknowledgement of the risks involved in a trading
business, and the uncertainties it comes with, will play a pivotal role to your
chances of success. People who are not willing or cannot see the importance of
this, usually get emotionally hurt over and over again because they place their
first trade and it works and they eventually assume that it is easy and hence
stretch their greed.
These people seek to make more, they take bigger risks without understanding
and acknowledging them, they don`t exercise the necessary risk and financial
management principles even if they had previously learned about them, their
focus get concentrated on making more money, they ignore the fact that they
might lose all that they have in their accounts by taking bigger risks, and hence
when that time comes for them to lose, something with their emotions slightly
changes, they sweat slightly, they get anxious, but learn nothing or put nothing
back into perspective and therefore get back to taking even bigger risks in
hopes of bringing back what they had just lost, sometimes they make it, but now
it gets even worse, like something waiting to explode is building up in them,
now they get overconfident, they think that their last loss was just a
shortcoming and now they are back at it, killing it, beating the markets.
What overconfidence now do to them is put them into a denial mode because
as the markets moves against them, they remain fixated at the idea that the
market must eventually return in their favor, without realizing that the market
has in actual fact changed its course, they widen their stop loss and go deeper
in the red, and when they are now sweating bullets, unable to take it anymore
they exit their big ever losing trade.
At this stage, it`s when fear starts to set in, from there on, whenever they take a
trade, they remain afraid of losing big again, they miss good opportunities, they
hesitate when good opportunities come, they get in late, they exit early or
prematurely when they got a chance to take a good opportunity, all these
distorted decisions governed by fear reign.
People who are the do it yourself in most cases are the ones who tends to
experience all this emotional ups and downs but also, in some trading firms,
the seniors tend to leave their interns to trade by themselves in order for them
to gain experience regarding all this types of emotions before they can give
them an intensive training.
Remember, if I am somehow not yet relevant to you, for that reason,
congratulate yourself for having come all the way up from the beginning of
your trading journey to the state of knowledge you are in now. But what I am
pretty sure of is that, in one way or the other, you have once acted impulsively
and perhaps you still do, as you looked at the price on the market moving up
and down and thought to yourself that, hey! I`m missing out let me jump in,
and before you knew it, you were bumped out of that random trade.
The bad thing about being exposed to the millionaire-traders publicity is that,
such exposures instills inside your mind the belief that you too can become a
millionaire within a short space of time or overnight to be more intense, and
that on its own serves as a fuel for the impulsive behavior you tend to make
when you trade. And it becomes worse if you are from a devastating
background, because the thought of you soon coming to emancipate your family
out of poor conditions, also add up to the motivation for making quick money.
These of course are very good motivations you know, seeing yourself
providing everything that your family has never had before, being a better
person, contributing to charities of your choice, changing other peoples lives.
But what all these are is that they are just the byproducts of doing the right
things to succeed in trading but yet are the dominating motivations for your
trading.
When I began to consider becoming a professional trader and running a
successful trading business instead of using trading as a sole means to the ends
of my fantasies, a wall began to crack out of my sight. It was like I had been
unfair to the markets. Like I wanted to use it. I wanted to use it as a means to
fulfill my fantasies.
I can bet you wouldn`t like it as well if someone attempted to use you, exploit
you, to meet their personal ends, to fulfil their personal dreams would you? But
if someone came to you and said instead, Hey Man!, come and join me here,
let`s do this particular thing together and see if we can succeed, you
wouldn`t resent such an individual would you?
You see, he would not be making you feel used; he would be making you feel
like an important contributing factor to his course. And that is exactly how you
should treat the markets, allow them to be the contributing factor into your
success and they will guide you, they will tell you what they are doing at any
moment in time and all you would have to do is to listen and follow.
I think people fail a lot because they never seem to allow the markets to guide
them; they never seem to be willing to follow the markets instead they want the
markets to follow them and to confirm to their well ingrained beliefs. Trading
can be simple and fun, but the simplistic and the fun doesn`t come easy, why?
Because it has never been an easy task for anyone to change their deep
ingrained beliefs they already have about certain things like trading in this
case.
It takes changing your current beliefs and paradigms about the markets if you
are to succeed in them. All the bad emotional elations you experience when
you are sitting in front of your charts, the fear to take a trade, the fear to be
wrong or take a loss, the fear of missing out on a big move, the greed to take
more and more, the denial state you find yourself into when the market is
moving against you, are all caused by the fact that you don`t have a plan or
your plan is incomplete.
If you had a plan that was complete, the fear of taking a trade wouldn`t be there
because your entry rules would be there to tell you to enter a trade.
You wouldn`t fear being wrong or taking a loss because your exit at a loss
stop-loss defining the maximal risk threshold of your account balance your
plan say you must risk per trade would be in place.
You wouldn`t fear missing out on a big move because your entry rules would
be your guiding parameters telling you whether entering then is valid or not.
You wouldn`t be greedy to take more and more because your exit at a profit
rules would be there to tell you whether it was time to exit at a profit, as the
trend might soon change or not.
You wouldn`t find yourself in a denial space as the market is telling you that
you are wrong, and catch yourself moving your stop loss far away from your
entry point praying and hoping that the price turns back in your direction
because your stop loss would be there to say well, up to this point you must
exit this losing trade.
Without a plan you cannot succeed in the trading business same as without a
map you cannot arrive at a desired destination. Have you ever noticed, the
universal wisdom or the universal guiding principles, when preached by
everyone, it is hard to believe them until you experience their need in your life
and you begin to wish that you had listened to them from the first place?
Yes we must as individuals choose the things that we decide to believe but it
takes examining both sides, the beliefs you already have and the many new
incoming ones that you have to choose from. You may be currently having a
number of limiting beliefs that may be of no substance into your life and
constantly blocking away the new incoming one`s that are of vital importance
and would serve you greatly if you allowed them in, and hence the option must
be to keep an open mind.
Keeping an open mind means taking in new incoming information from the
external world, analyzing it, testing it and thus concluding whether you take it
for life or not. If you could check, most of the beliefs we already have about
the world were instilled in us from the young age by our teachers and mostly
our parents or guardians. We never had a chance to make our own choices,
most of the things where decided upon us, our names, our surnames, our
lifestyles, (boys from their dad`s in many cases), religion, political views,
football teams to support and many others.
Although at times we do manage to substitute some of the beliefs ingrained in
us by our elders with the new ones we adopt ourselves as we grow up, some
are still difficult to change. But if you take a look at the ones we do manage to
change to suit us, we manage to change them simply because of the new
experiences we gain that comes with the circumstances which invalidates those
believes. We manage to change some of our beliefs simply because of our new
experiences invalidates them.
With the same analogy, looking into the early days of our trading journeys, the
trading community ingrains in us many beliefs, their beliefs, about trading and
trading success, and as we grow in trading, we gradually eliminate or change
some of those beliefs because of our struggling experiences which invalidates
them, but some are still hard to change especially if they were ingrained by
people like millionaire traders we eye witnessed.
We experience streaks of losing trades and that experience alone turns out to
invalidate the beliefs (The Trading strategies) we learned and from which we
acted based on when we took those loosing trades and immediately we
eliminate them from our belief systems, we get rid of such strategies to search
for the next rather 100% working ones. That`s why you must test and evaluate
strategies before you believe in them.
To some individuals it takes years to eliminate and change some limiting
beliefs about trading and taking in the new ones that works, and this duration of
the time is proportional to the time it takes for them to succeed in trading. As
long as you possess wrong beliefs about trading you`ll continue to struggle.
The beliefs are not only related to a trading strategy but also to other critical
parameters like risk and money management and the psychological part of it. If
you believe that risk management is not that important, you`ll continue to
struggle, period.
Remember a successful trader is the one who makes money consistently by
following their logical plans. Now if you want to be successful within a short
space of time, you must work very, very, very hard doing research, evaluating,
examining and testing the things you learn from the trading community, and of
course this applies to the do-it-yourself individuals.
To shorten the learning process, avoid the believing by seeing mindset and
keep an open mind instead. For example, if someone advices me that I must
make the trend my friend, I must ride my winners, I must cut my losers short,
without explaining the underlying details or principles, then it is my job to get
to work, analyze these statements, evaluate them and find out exactly what do
they really mean rather than just taking those advises for what they are and
trying to implement them.
Take for instance the statements Cut your losers short, initially I had thought
this meant that I must close my losing positions before the market price could
reach my stop loss level and yet all it meant was that I must always put a stop
loss for every trade I take. Ride your winners, initially I had thought that all
it meant was that I shouldn`t set a take profit level, rather, I should trail my stop
loss to lock in profits and yet all it meant was that as a short term trader, I
should set my take profit and never attempt to take premature profits.
For long term trend traders, Ride your winners means they must never set
take profit levels and should allow the trend to unfold and stay in it until it
turns around and then exit it. But this ride your winners principle has never
worked for me as a short term trader because of I looked at it from a long term
perspective, if you are a short term trader, you must set a take profit level and
manage your risk to reward parameters otherwise you`ll find yourself sawing
back and forth, one moment your account is upwards of $1000 and the next
moment is back at $200 or -$200 even.
These statements and several others essentially meant nothing to my trading,
they never seemed to work for me because I believed them to be the working
guiding principles but never really understood what they really meant, I had
even written them down as the rules and these are the rules I always thought
must be written in every successful trader`s trading plan as the inevitable
trading rules for success yet the rules they intended to for building a trading
plan were the entry rules, exit rules, and risk/money management rules.
All these realizations took me a very long time and a hard sickening work,
analyzing, evaluating and testing these statements to find out what they really
meant, all these realization came from reading more and more. Before all these
that I had learned as I was improving to date, I was caught up unaware in a
vicious circle like most of you are, it`s a circle in which all the 95% losers are
caught up in. I spent months and months running the rat race because I had no
one to guide me through the right steps and to show me exactly what I had to be
only focusing on, that`s what mentors are all about after all. The circle I call,
They Search, They Execute and They Blame circle. Switching. The circle of
doom.
Stage 1: They Search
At this stage, you and your folks in the 95% side are searching all over the
internet for the next awesome trading system that will turn your accounts into a
million dollar accounts. You download trading books, you search in the online
trading forums, and up in the trading educational websites.
At this stage, for you it is not important where you find such a powerful trading
system, only if you can find that one trading system that rather appears
beautiful, sophisticated and successful, that is what is important to you.
At this stage, the only thing that you assume is that the solution to your trading
success is a trading strategy, and perhaps this assumption is perpetuated by
those in the trading forums and social media pages that continually iterates that
for one to succeed, they must have a good strategy that wins more often than it
loses.
This is simply a circle of doom and if you currently have a strategy in place
that is not even a week old, and you think it`s not working for you and hence
considering looking for the next one, then you are caught up in it.
Well, after finding that one next system, you`ll be reading through its rules and
how to use it, you`ll get so much excited that you just wouldn`t wait to trade it
for the first time because by the look of things, this system is so promising. You
won`t probably even bother reading everything else about how the system was
developed and the story about the author telling you how he has been
successful using this system because already by just reading about how to use
it, you can tell that this is awesome. You don`t test, evaluate or anything like
that.
Stage 2: They Execute
Then, comes the time for you to take action and begin your million dollar
journey. This becomes the fun part of it; you begin to manually back test your
newly found trading system because you read somewhere were they said,
before anyone can use any strategy they must first back test it and calculate its
expectancy, but then with that too, you don`t get to finish collecting those time
wasting statistics on how many times on average does the system win and how
many times on average does it lose, you just want to trade this system because
even on your charts when you were busy back-testing it, you saw many
previous signals that you thought, had you found the system weeks or months
ago you could have been making a lot of money.
The excitement to begin trading this system is so intense that you think to
yourself Finally, I found it, well that was quick, making money trading can
really be this much easy? But then the problem is that, you haven`t actually
began to trade the system, for some, they could be waiting to get their internet
to work or anything technical that may be holding them from beginning to trade
and yet you are so excited and even began to draw up the mental pictures of
how successful you`d be, how much money you`d be spending for this and how
much for that, how you`d be looking like and who you`d be traveling with
when you head for the bank to withdraw your first hard earned money.
Amid your rather newly found excitement, you begin to trade the system with
your high expectations. Often, some may find that the trading system does work
for some time, and then eventually get their excitement, their elation and
confidence marching above the roof.
However, at some point, things begin to tear apart. Profits begin to evaporate
at a pace so fast that it looks like it`s pushing below the account starting point
into the P&L negative territory. You remain seated there in front of your charts
for hours trying to fight back without realizing you are actually forcing trades
that are not there.
Things have been promising but now they just began to deteriorate and losses
began to pile up, a period of drawdown has now come, but then you don`t
understand things like drawdowns and therefore can`t stand what you are
witnessing with your account.
The thought of all those previous rather lucky winning trades you had, keeps
you or balances off your confidence and doubt in the system. You begin to take
larger positions hoping that with just a single winning trade you would
eventually bring back what you had lost and at least take your account balance
back to where it began, but nothing like that ensues, and eventually you
probably blow out and hence lose a complete faith in your trading system.
Stage 3: They Blame
Now you are angry and sad or depressed at the same time about your incurred
losses, the system never kept its promises and doesn`t seem to promise
anything anymore moving into the future and instead of leaving you with what it
had made for you it rather decided to take all that back and even chopped
down through what you initially invested in your account.
Now you have lost a complete faith in the system, you eventually think to
yourself that they had lured you into some kind of a scam because you had read
somewhere before, that brokers send people to give away strategies that at first
look promising but eventually will lose as they are trading against their clients
because they are aware of where and when their clients would place their
trades.
For some who may have not yet come across such claims, they rather think to
themselves that people gave them or sold them something that doesn`t work and
that the person who gave it to them perhaps in a certain forum is a liar when he
said he has been successful using the system, and you begin to wonder why you
bought into that crap from the first place and look now it has made you lose
plenty of your money.
Then at this moment in time, you probably begin to think of taking no more a
trading system from any forum. You begin to think of searching for a rather
genuine system that is consistent and that if you could search for a trading
educational website instead of a forum, you`d eventually find it or if you could
find a trading book about certain indicators you`d eventually find a rather
working one that is based on such indicators.
Immediately after you land onto such websites, you begin to subscribe to email
lists that promises you a free report about an awesome trading system, and you
think to yourself that this might be the one because it comes from someone with
a website and so that makes it a good system.
From there, the loop rounds back to They search stage once more. This cycle
of doom goes on and on because many aspiring traders have a tendency to think
that profits come from trading systems. They fail to realize that profits do not
come from trading systems. Rather, trading systems are just there to put the
odds of success in a traders side.
Consistent profits, are made by the traders who know and understand that their
psychology is the most important thing defining whether they succeed or not.
From the decision to adopt a strategy, to knowing when to use it and under
what conditions not to use it all the way up to risk and money management and
an understanding that systems have periods of drawdowns and that, one should
continue to follow their plan regardless of whatever the circumstances, this is
all psychological.
Running the rat race
Many successful traders, the professionals and the retail including myself are
familiar with this circle. Jarratt Davis calls it switching, meaning you switch
from one system to another without finding any long term success.
I was stuck as well in this rat race for months but certainly not years as is the
case for others. Losing money consistently is so frustrating, especially for
someone like myself who just dropped out of the university solely to trade the
markets and for the ones that left their jobs for the same reason.
I often got to a point when I thought I would never make it at trading, and for
others, they usually think just because they can`t make any money trading,
therefore there`s no one making money trading and that all those who claim to
do they are just lying and that all those millionaires got so because of the
trading classes they charge people for.
Reaching a point of trading success is unbelievable, at this point, all the
confidence and excitement you used to get out of the trading systems that were
promising things, develops back but at this time, they are genuine because you
are getting them from actual results and not from what a system was promising
you before you could even begin to trade it.
My first breakthrough toward profitability came after I had learned that I had
been literally caught up in a circle of doom, and realizing the importance of
keeping things simple. Many traders on the web do provide valuable clich
information and advices, but often as the new comers, we tend to overlook
their advices because of the way they sound simple, so they therefore can`t be
working, we tend to think that only sophisticated systems must be the real gold
mines.
After learning that I had been running a rat race, I got to ask myself then that if
all these systems on the web constituting the circle of doom are not the route to
success then what could that unknown secret to success be? And once again,
the simplicity advice is what everything came to boil down to.
Keeping things simple begins with removing everything from your charts and
thinking of what is it that you want to be looking at in the markets before you
can decide to take on or place any trade; Momentum, Volume, Volatility, Trend
and trend strength and acceleration or the fundamentals?
What market conditions based on the combination of this factors you want to be
looking at before you can decide upon taking any trade? Or are you going to
trade only based on the fundamentals, assuming that you would take the time
and efforts to study them, and execute your trades technically? Or are you going
to trade based on pure price-action; that is, based on the chart patterns, support
and resistance levels and candlestick patterns? Either way, it really does
depend on how bad you want it, and how bad are you willing to learn about
these concepts.
Breaking out of the circle
Moving out of the circle of doom is possible but not so easy because by that
time when you think it`s time you remove everything and start afresh from clean
charts, you look in your email box and find another new email message
informing you about a new rather simple trading system, and that tempts you so
much that you eventually go for it, and after the circle had taken a round again,
you already forgotten that you actually wanted to start afresh with clean charts.
However, I have broken out of that circle, and many other successful traders
have also done it. One thing you should certainly know is that, the majority of
successful traders have been through what you are going through if you are
struggling to find a working system and of course you too can certainly break
out of this cocoon to finally get to experience the humidity of the real world of
trading.
I iterate once more that your will to become a professional trader will play a
vital role in your success because it would force you to want to do only that the
professionals are doing even if you may not know exactly what they are doing,
but what I can tell you is that finding out is simple, why? Because many
preachers of simplicity all iterate that that is what the professional traders do
or look at, simplicity and nothing else, yet those simplicity preachers are the
same people we ignore or tend to overlook their advices for those who sell us
beautiful promising sophisticated strategies.
The desire to want to be a professional will allow you to remain motivated at
learning simple principles even if some of them may not be obvious at first as
is the case with the fundamentals, but your efforts to learn and understand them
would eventually pay off tremendously at the end.
Myself, I began learning about the Dow Theory which explains the
development of technical analysis, out of this studies, I learned all about the
theory behind the chart patterns. The funny thing for me was that, I knew all
about this chart patterns, your double tops, your head and shoulders and all that
but because I hadn`t learned how to classify them as one being a reversal or a
continuation pattern, therefore I couldn`t trade them, let alone to identify them
on my charts. I therefore continued to look at the wrong things, that is, the
indicator based strategies that I didn`t even knew how they were developed or
what market conditions, momentum, volume, trend, etc. they were developed
based on.
The indicators are constructed with price values, and for that reason they lag
because each indicator must wait for the next price value before it continue to
draw up on your chart. When you apply indicators on your charts they hide
smaller details like your hummer or pin bar candlestick information, they hide
high probability signals.
The key take away from this chapter is:
1. You must have a trading plan outlining clearly your trading rules.
E.g. My trading plan in order of importance.
Which currency pairs, indexes or commodities to trade? (Fundamental
analysis).
What is the maximum risk I should take per trade? (Risk Management).
What are my Entry rules and Exit rules? (Technical Analysis and
Risk/Reward)
2. You must keep things simple and stupid.
3. Jumping from one strategy to the next simply means you are caught up in the
circle of doom. Never look for information in the Forums.
4. A strategy is not a solution to your trading profitably.
5. Trading is not as easy as they make it to look on the internet, you must be
willing to put in the necessary efforts and never give up.
6. Adopt the get rich slow mindset.
7. The way you approach trading is what is holding you back, treat the market
as a contributing factor to your success, listen to them and follow the
information they generate.
8. Remove the indicators from your charts if you don`t know what are they
measuring and if they are not part of what you look at before you place a trade.
9. There will never be enough to know about trading even if you are trading
successfully.
10. Develop the will to become a professional trader and adopt only the
methods that the professional traders are using like the fundamentals.
Chapter 3:
Learn how to "RESET your mindset and develop
NEW and CORRECT ideas.
Our brains are like canvases, they come onto earth clean & clear, but the world
paints up a huge ton of information in them, although some parts of the real life
canvases are hard to erase the painting errors from, that is not how our brains
are, we can erase any type of errors off our brains anytime we want as long as
there`s a convincing new wisdom to motivate us to do so.
Resetting your mindset is about abandoning all that they have previously taught
you, in this case about trading, clean your mental canvas and learn the right
principles that you must now evolve around as you grow in trading. You can
keep all the basic knowledge like what is a currency pair, a pip/point and all
that pre-school knowledge, but when it comes to the ideas that they have taught
you about trading successfully, you must erase them because they are the ones
that are keeping you in a rat race.
Who said there`s a holy grail strategy?, a sure fire thing?, a positive outcome
guaranteeing system? Who said that there`s a software that can make you
forever profitable? If you look on the internet, there`s a huge ton of different
trading systems including robots/expert advisers, some of them are promising
huge daily returns and if you would just invest a little money in them you could
become and overnight millionaire, people have developed systems that turn
red when it`s time to sell and green when it`s time to buy and all this hype is
what many are looking for because they lure in the belief that such systems will
bring answers to their trading struggles.
They search, they Execute and they Blame circle never ends and will never end
if you don`t reset your mindset and begin to understand and believe that there is
no a 100% working system out there.
Developing new and correct ideas begins with the will to learn about the
markets including yourself. The idea that the indicator based strategies are
more important to your trading success needs to be erased, indicators are
derived or constructed or calculated with the market price numbers or values,
the developers developed formulas for those indicators and used the markets
price values and punched them in their indicators formulas, these formulas are
embedded inside the trading platforms like your MT4 for it to do all those
calculations.
Indicators are good at distorting the information that the market would be trying
to tell you at any moment in time, they simply hide important information, but
not to say there`s no one who is using indicators successfully, there`s plenty of
traders who do make consistent money using indicators, the separating line is
that they understand such indicators and you don`t.
There are lagging and leading indicators, of these two types of indicators,
which one`s would you rather remain with or use? I prefer the leading
indicators although they cannot tell me where the price will be heading next,
but they are not lagging and that`s what matters to me. The leading indicators I
know of are the support and resistance areas, trend lines, Fibonacci levels,
psychological levels or round numbers and prevailing trends, not some form of
indicators that turns red and green to signal buy and sell moments.
I`d say I used to lose too much money because I used to think there must be a
great secret method out there and used to search for the next awesome strategy
made up of indicators plotted on my charts, I never thought the traditional
candlestick patterns were that important, I never thought that the basic chart
pattern formations like double tops were that important and hence never was
able to identify them on my charts other than to identify when my new
indicators turned red or green.
Think about it, if the indicators or systems on the web were truly that great as
per their developers proclamations, why so many people would continue to
lose? Remember, some of these people, actually, most of them are not even
trading profitably, why? Because they have the time to share their rather
profitable systems freely when we in actual fact know that people are never
willing to share their gold nuggets with others for free.
These individuals are simply taking an advantage of the fact that many others
are desperate to make easy money trading, and not to say that those that are on
sale are the effective ones, no, because even the very same free ones can be
decided to be sold too. Resetting your mindset is about forgetting all about this
fluff.
When we begin our trading journeys, there`s an urge which develops in us, a
very strong one, an urge to make quick money, or to get big returns within a
few days, but this can`t happen, more especially if we lack a long time
profitable experience. This urge if you have it now, you must erase it and
replace it with the longer term looking expectations, rather than expecting big
quick returns out of a small account, look at it with a long term eye, expect
such big but slow returns over the long run, this will allow you or will leave a
room for you to learn more and improve overtime without any pressure to
make money right away.
Erase the idea that you must make money now, only draw on inspiration from
successful traders but never compare yourself to them. One of the wisdoms by
one wise man I learned previously is that, people tend to judge others
successes based on their harvest periods, they fail to realize that those people
have gone through the plantation and cultivation periods, and hence many
people have the tendency to think that those who are financially successful got
lucky or they had inherited huge sums of money, they fail to realize that behind
such successes, lies longer dated hard sickening work.
I mean who is it that you know or ever knew who shows/showed off their
struggling periods publicly? People find pleasure in showing off their
successes because they know they earned it and that`s their way of rewarding
themselves, but for many struggling individuals, that`s not how they look at it,
they rather think to themselves that such people have probably inherited all
their fortunes, but I say, these type of thinking people are those that don`t know
the meaning of hard work, what they are good at is to assume.
They assume that because they are struggling to make money that means there is
no one who is making money at this, and that those who claim to be making
money are lying. They are good at assuming but the bad thing is that they
assume wrong things. One of the effective things I ever did and has helped me
very much was to think to myself and affirm to myself that I was to begin to
think like a professional trader.
I began to look at myself as a professional trader, what this did was to force
me to question myself then that, how do the professional traders think? How do
they behave and conduct themselves in the face of the markets? How do they
make their trading decisions, what are the specific things that they look at
before they can take any trade? What are the things which allows them to make
consistent profits? Why is it that 95% of retail traders lose? What is it that they
are doing which tends to perpetuate their losing streaks? Then I decided to
give all the things I had overlooked a chance to see how they would help me.
Things like a trading journal, a trading plan and keeping things simple.
What`s the importance of a trading journal? A trading journal helps you to
identify the bad trades you took and the good ones, it allows you to compare
the underlying decisions you took for placing lost trades with the ones you took
for placing won trades, it allows you to see which patterns do work and which
ones doesn`t work overtime. It allows you to identify your strengths and your
weaknesses. A trading plan guides your actions, and simplicity allows you to
take quick decisions and to act fast unlike a typical strategy with which you
would look at many parameters for confirmation before you can act.
The key take away from this chapter is:
1. Forget about everything you learned about indicator based strategies on the
web.
2. Indicators hide important information.
3. If you use indicators you must know what each is measuring, momentum,
volatility, volume or trend and understand what each of this means.
4. Unless you know and understand the above, remove every indicator from
your charts and look at pure price action.
5. Next to a trading plan, a trading journal is crucial for your development too.
6. Never compare yourself to successful millionaire traders, only draw on
inspiration from them that you too can make it one day because they too have
had their part like you do now.
7. Develop the desire to become a professional trader and only search for the
things that the professionals are doing.
8. Develop a long term view and a delayed gratification belief.
Chapter 4:
You "MUST" make a Paradigm Shift.
The word Paradigm defines the way we perceive things, the beliefs we have
ingrained deep down our hearts about things. Some beliefs we have do work
for us, for example, the belief in the law of gravity. A paradigm shift can be
thought of as the Aha moment, when you suddenly see things in a different
profound way, the more bound a person has been by their initial perceptions,
the more powerful the Aha experience would be.
The Classical Newtonian Physics brought one paradigm to the world of motion
and mechanics, but Albert Einstein`s era came and everything was changed by
his Relativity theory, and suddenly there was a whole new way of looking at
things in the world of motion and mechanics. The Egyptians paradigm about the
Earth being the center of the universe was changed when Copernicus placed
and demonstrated that the Sun was the center of the universe instead. Centuries
back it was believed that the world was flat, until the other planets were
discovered and a new paradigm came in that the world was really round
instead.
What do you think would happen to the perception of an individual who
believes not in the law of gravity as soon as he climbs on top of the house in
attempts to test it and eventually falls over? He will believe immediately.
Some beliefs are irrefutable but some are definitely not.
It has been said that the tech stocks investors believed that the technology
market would never come back to hit the bottom until around the18th March
2000 right up to the 10th May 2003, what do you think happened then,
optimistic beliefs changed, perceptions about the tech stocks changed, there
had been a shift in the then tech stocks investors paradigms, and only those
investors who had the correct perceptions and beliefs about the tech stock
markets reacted accordingly and eventually made fortunes.
Now, thats what this chapter is about, the change in perceptions and beliefs
about the markets, perceptions and beliefs that blurs you from seeing the
markets for what they are. Do you remember back in the days when you first
declared an interest in trading? You probably watched every video, read books
and attended seminars about trading, each book written by individuals like me
and you explaining most of the things in differing ways, from the candlestick
analysis to indicators analysis.
One would say No you must cut all the crab when it comes to candlesticks,
rather, you must only focus on the dojis and hummers as they are more effective
than your engulfing candlesticks, and some would say exactly the opposite.
On the other hand, you`ve been bombarded with the High Probability
Strategies, jumped from one to the next, but why have you been doing so? I
think it`s because of you haven`t been making any progress with your previous
strategy and so you felt that there must be the one that really works, this is what
you believe, you believe that your success lies in a certain powerful strategy
out there.
Stochastic is overbought therefore you must sell, Fibonacci 61.8% has been
fulfilled therefore you must pull the trigger, draw the channel lines and when
price hit the bottom of it buy the market. Bollinger Bands are compressing
therefore wait for the expansion move and take it. But the reality becomes that
none of this advices prove to be consistent overtime. Price fell right beyond
the Fib 61.8% and took you out when you thought it would turn around at
61.8%.
Stochastic was overbought but remained above the 70-80 level for hours. Price
never reached exactly your 61.8% retracement but did rally instead from
38.2% to the upside like you anticipated while you were waiting for it to reach
your 50%-61.8% little trap Fib area. Your moving averages crossed but the
big move you thought should occur after pulling the trigger never
materialized, instead you were taken out at a loss and eventually the market did
what you thought it would do. You perfectly identified and drew a harmonic
bat, gartley or a cypher pattern but the price decided it will not hit your take
profit but to take you right out at a stop loss.
But why is this the case, why things tends to turnout this way when you thought
you had did the right things, you get to ask yourself? These are but a few of the
situations in which many of us had gone through and some are still going
through. The market Should, Would, Supposed to, Have to. These are
the words used by the market analysts.
They speak as if they know what the market should do, what the market would
do, what the market is supposed to do, what the market have to do based off of
the indicators, and as novices, our struggles forces us to believe everything that
comes our way from this so called Analysts as long as it makes sense, we
adopt this kind of thinking and looking at the market, which makes us believe
that ohh! this means we must be good at predicting what Should, Would,
Supposed to happen next at any moment in time in the markets.
It is true that the market doesnt always respect the Support & Resistance
areas; otherwise we would all be profitable because that would make us
awesome market predictors. Have you ever wondered why the scientists can`t
predict on any day or forecast with precision and accuracy the weather
conditions for the next day? why they can`t determine or calculate the size of
any mountain or the volume of the clouds in the skies or which portion of the
clouds will move west while the other moves to the east as they depart?, or at
least explain why trees grow in a manner in which they do?
Throughout my schooling years I have been taught to disregard such phenomena
as irregular and shapeless but the fact is that these objects form part of the
matter which is reality, and we all know perhaps that physics is the study of the
properties of matter and materials, and these are real life objects that do not
belong to the fiction world.
Trees have been regarded as irregular and dont need consideration when it
comes to taking their measurements, but yet science proved that trees helps us
with the oxygen supply in exchange for carbon dioxide, and in this event it is
only when they are being taken into consideration because they serve humanity.
Why not study their shapes and perhaps their likely lengths in attempt to find
out which are the most effective ones at serving humanity, and then preserve
them? Because they`ve been all along regarded as irregular and cannot be
physically measured and studied. Perhaps the shortest ones with the biggest
trunks and tall multiple branches and with the most leaves that are the widest
could prove to be the most oxygen abundant trees.
Tree trunks grow bigger, branches grow taller while other branches develop
and newer leaves evolve, but all this takes place at a different pace for every
tree. Trees are selfregulating systems that appear to grow in a random
irregular fashion, but when you remove all the leaves and study them from
branch to branch you`d start to see self-replicating patterns. The trunks has two
or three or four branches, each branch has two or three or four branches and so
on and so forth, this behavior is said to be the fractal behavior.
Your charts have Monthly MN, Weekly W1, Daily D1, 4 Hourly H4, 1 Hourly
H1 timeframes and so on, but what you would see or do on a monthly chart is
the very same thing that would apply on an hourly or a one minute chart.
Now if the trees as part of nature, are self-regulating systems which appear
random in terms of their development and possesses the fractal behavior, and
the markets as part of nature too also possesses the fractal behavior, we can
then come to conclusion that the markets as well, are self-regulating systems
which appear to be random.
This observation is so profound and it immediately guides us to discard the
idea that the markets are a random walk and instead acknowledge them as self-
regulating systems which behaves and develops on their own will and not
anyones will.
How many branches a tree trunk is going to grow into? We don`t know. How
many branches each branch is going to grow into? We don`t know. How many
similar branches a tree in going to develop into? We don`t know because we
can`t predict nature but what we know is that a tree with the tallest branches
and the most leaves will definitely protect our homes from heavy winds.
What we know is that the market with the most extended bullish or bearish
trends will make us fortunes. But these long trends doesn`t just develop, there
are the underlying forces which drives them heavily in one direction, and if we
could just study and understand such forces, that would skew the odds of
success heavily in our favor.
It is so sad more especially when you are a self-taught, when you have gone the
route all alone with no one to guide you because the trading community on the
internet is so misleading 90% of it. They give all this kind of information
which is based on their own beliefs and perceptions, and that`s the thing, you
don`t know what and who to believe, you try all those sorts of ideas they give
you, but they dont happen to work, after all they are not yours, they belong to
those on the internet from whom you have adopted them, and because of they
never explain and provide proof that they work, hence you remain to struggle
because you just copy and paste everything they leave in the forums.
Many of the traders on the internet develop strategies, tests them and finds
out that they seem to be working and hence raise funds by selling them to us in
the forums or perhaps they seek endorsements for their systems so that they can
later sell them, these people develop ideas and lures us into believing them
because we are desperate, we take this ideas but nothing of value we
ultimately get out of them, or is it us the 95% losers who just can`t get these
ideas right? But who doesn`t know how to read and identify a Stochastic
oversold/overbought condition?
Who can`t tell when MACD is above/below the zero line? Or perhaps is it
because of we have no idea about what MACD is measuring just yet? No I
don`t think so because many traders use MACD for different purposes and so
we, the novice tend to pick up all this methods and try them out ourselves
only to get hurt and ultimately decide that MACD is not working or reliable or
perhaps we should use our own parameters and change the default ones, but
what, it doesn`t work still, then what? Crap MACD, I will search for a more
perfect strategy.
And by doing just that, jumping to another Holy Grail, you have just had a
psychological challenge which has just taken you down, and I know, it`s not
easy to acknowledge the fact that there is truly no perfect strategy out there, but
once you realize that your mind is literally your holy grail, your paradigm
about strategies will completely change.
It`s like getting on a motorbike and trying to ride it and then the next thing, it
takes you down, and a typical driver comes along and recommends that you
ride in a car instead, and as you do so, the car immediately begins to stall,
Vroom! Vroom! Vroom! And stops, you try again and it does nothing but only
rev, and you decide it doesn`t work for you as well and eventually head up for
a truck, but there, nothing really happens other than igniting it. And you begin to
think that those who claim to know how to drive all these vehicles are lying or
are the lucky ones and that perhaps they were born with the driving skills or
inherited them.
Your whole perception has changed in an instant about the drivers and driving,
and you begin to assume that this is not for you and eventually gives up. But if
only you gave yourself some time to learn how a bike or a car or a truck
works, you would have not listened to the driver who recommended you a car
instead of a bike but would have just learned how a bike works and how to
ride it, and that is the thing, the typical driver who advised you for a car may
be fond of cars because they believe a car is more comfortable than a bike,
but that is not what you were looking for, you were rather looking for a
transport to take you from point A to point B regardless of the comfort.
Again, if you had rather paid a tuition fee for the driving lessons instead of
taking a long time to learn on your own, you would have had a different
perception about driving. Can you see here, the perceptions are not the same?
Psychologically deciding to take time or pay a tuition to learn how the vehicles
works and psychologically taking other peoples ideas and advices about
which of those vehicles would work for you, and you trying to mold them into
yours?
Perhaps you thought that the bike was like a microwave oven in that it is
written, set the timer, start, and stop. And the typical driver validated your
thinking and made you to believe that what you already wanted to see, you
would find it in a car instead of on a bike.
You wanted to see the Set the timer, Start, and Stop buttons, a straight
forward guide, but that, you didn`t find in a car like you didn`t with a bike, you
wanted an easy to drive vehicle without doing much work as if you were a
passenger. Your mind was blocked from seeing things for what they were; your
mind was filled with its own ideas, the microwave oven kind of a thing with
obvious operational parameters on which you would just press and turn and
things would automatically serve your desires.
You couldn`t realize that the machine was a different model from a microwave
oven obviousness and hence it never came to you to consider learning about
this rather different machine.
Perhaps you may be wondering how does all this connect with trading, but I
want to give you a challenge to relate all this to trading because this is
analogous to how our perceptions work with regard to trading strategies, we
don`t see the markets for what they are and what they are doing at any moment
in time, indicators are hiding important information from us, we are filled with
our own ideas, the ideas we adopted from the trading community about what
the markets should do, would do, have to do, or will do based on the
indicators.
Oh! The market is overbought and therefore we should see it move back down
anytime soon, let`s wait for a red color and sell. What if the red color doesn`t
turn on yet the market is overbought? Then what? You miss the upside move
that is driven by a fundamental force. You don`t think in terms of what the
market is doing instead you think in terms of what the market should do, will
do or must do based on indicators which doesnt even have the influence to
drive the markets significantly.
What if when you set a little blind Fibonacci retracement trap for price and
it doesn`t come into it, Oh! You must think like a predator waiting in ambush
for its prey, what if that prey doesn`t even come close to your hiding spot but
instead moves further away? For how long will you keep adjusting your hiding
spots/positions to catch what`s not appearing to be confirming to your
expectations?
It`s insane. Now I want to tell you, while you adjust your price ambush spot in
the market, the winning traders are already in it winning more, why? Because
they react to what the market is doing and telling them based on the real market
driving forces and not to what they think it should do based on some technical
indicators. They technically don`t predict the future, they don`t analyse the past,
but they react to what is fundamentally happening now.
These are the real winners when everyone is losing. These are the traders who
have been riding my losing trades when I started my trading journey and this is
where your blow ups have been dissipating to. They don`t call themselves by
the names, Technical Analysts, Fundamental Analysts or Economists
whatsoever, they don`t wait to catch the big banks smart money actions for big
daily moves but they are already in when all this events occur. These are the
real professional traders, this is what they call themselves, professional
traders.
The paradigm shifting I am referring to in this chapter is about changing or
abandoning the ideas that you`ve acquired from the general trading community
on the internet and/or biased finance media houses since you started trading,
and picking up the new ones that you perhaps have once heard of or have read
about but never understood them well or never took the time to learn what they
really meant or just overlooked them.
Which or what new ideas about trading are you referring to you may be asking,
isn`t everything that I have already read about trading all there is? Of course
not, It`s like with any business, you begin at level 5, and unfortunately fail and
fall down to level 3, and 2 and 0, But as you get to level 0 you realize that
there`s a different way in which you should be doing things instead, and get
down to it, and then rise up to level 4, 6, 7 and eventually 10. In this scenario,
what matters is that you never gave up, and as soon as you got to level 10, you
began to get the feeling why have I never done things this way from the
beginning?
I remember when I began my own trading journey, I consumed just about every
information I could ever get my hands onto about trading, even about the
simplicity the professionals keep which I overlooked. But of everything that I
had acquired, I never got any close to being profitable, simply because I had
been thinking I knew everything only to realize later on that everything that I
knew till then was just a piece of the puzzle, what made me realize was that I
was losing so much and even experiencing the very same trading emotions I
had read about and had made a conviction to myself that I will never allow
myself to experience them whenever I trade.
The new ideas I am referring to here are the fundamental analysis trading
ideas. Fundamental analysis studies the cause of the markets up and down
fluctuations while technical analysis studies the effects. The fundamentals
drives the markets, Inflation, level of employment, economic performances
even the earthquake, let alone the government`s political issues.
On this basis, which method then would you rather base your trading approach
on? The cause or the effect? For me, I`d rather go with the cause because the
cause constitutes the underlying powerful forces which dictates in which
direction or how the markets behaves at any moment in time. The fundamentals
will give you what I call, an extremely high C & C level. Confidence &
Conviction.
This is like being in a particular city and seeking to go from one point to the
next, but in your hands you are holding the map of another city, the only thing
blindfolding you from noticing this is that the map is written erroneously at the
top the name of the city you are actually looking to navigate, but the details, the
underlying structure is of a different city.
I bet you can have the best positive thinking ability or a motivation to look hard
and discern the map in attempts to join the points together, the best attitude and
discipline, hard core resilience and never give up easily, as long as you can`t
see the map for what it is instead of what it should be, based on the name
written at the top, as long as you can`t recognize the underlying structure, you`ll
remain to struggle.
The name on the map says Map of Chicago but the streets details, the
underlying structure is that of Detroit. For the sake of the name Map of
Chicago, you are so convicted that this should be the right map, forgetting that
human beings can make mistakes because even computers are programmed by
them, one may have mistakenly instructed it to type that name on a wrong map.
Look at the market for what it is and not what it should be, look at what it is
doing and why is it doing that, and not what it should be doing just because
some trading guru or anyone for that matter said that, that is how the market
should behave when the stochastic is overbought or a fib retracement has
completed.
Here is the thing, our attitudes, our moods or emotions and ultimately our
actions are shaped by the way we see the world, the way we perceive things,
our paradigms and the extent to which we believe how things should be. Our
beliefs make us not to question things, thoughts, and ideas. Our beliefs are our
convictions and this is exactly what moves the markets, professional traders,
studies and analyses the fundamentals and therefore develop opinions about
what they mean for the markets and hence act accordingly, collectively, their
opinions are referred to as sentiment.
Change your limiting beliefs
Our beliefs are like unquestioned commands, telling us how things are,
whats possible and whats impossible, what we can and cannot do. They
shape every action, every thought, and every feeling that we experience.
Hence, changing our belief systems is central to making any real and lasting
change in our livesTony Robins.
The world is a complex place, a wonder would be, why if we as human beings
are of the same specie would develop different beliefs about the same
enclosed environment we all live in? The world is a complex of those who
believe the world is flat and therefore has an edge and those who believe the
world is round and therefore has no edge, yet both parties inhabit the same
world they are referring to, they experience the same environmental conditions
and all that. The world is a complex of those who believe that there`s god and
those who believe there`s no god, and therefore both parties always works
hard in trying to convince each other that one theory is correct and not the other
one.
All I`m trying to say here is that, the world is occupied by many groups of
individuals with their own respective sets of beliefs, but for certain groups,
their sets of beliefs holds them back from prospering certain important areas of
life, look at those who believe money is the root of all evil and that financial
riches are not the only way of life, these people likely never get a chance to
experience things like travelling the world, leaving inside big mansions with
no worries or resentment towards the kind of food they eat daily, with no
worries about the possibility of conducting terminal or chronic diseases and
having to be taken to a public health facility which lacks proper health care
material and personnel.
Often, these type of people spend most of their lives in devastations, their kids
grow under poor circumstances, they attend poor public schools, and they walk
long devastating distances just to get to school. These are the kids with parents
who believe money is not the only way of life.
Yes they may be right, but the fact is that their way of life is not a good
quality way of life, that means they think small of themselves, that means, they
are being selfish towards themselves and their kids, they don`t see themselves
as deserving to have a better life, that`s self-sabotage.
Our beliefs can mean life and death to us, some African men believe so much
in ancestors that they even hold casual and perhaps huge ancestral ceremonies
at times, many go through very dangerous proceedings in the process of being
baptized into traditional doctors, some of them even die because they never
carry the ancestral instructions with them in every days of their lives.
But all these began with a belief. There`s a famous saying that stipulates that
the only thing that`ll ever work for you is what you believe would work for
you, but what you don`t believe in would never work for you. So, do you want
to be financially free through trading the financial markets or what? Do you
believe you can be successful? If you do then why does it have to be so
difficult for you to do the right things that would ultimately allow you to be
successful?
Things like being disciplined and patient, things like executing proper risk and
money management, things like having a trading plan and a journal? You can
either believe in one thing or another, but the difference is that any one of them
can either push you towards your goals or hold you back, and so the question
is, does that which you believe in really pushes you towards your end goals or
is it holding you back?
The belief that there must be a Holy Grail strategy out there is clearly holding
you back because you have been searching but cannot find it. So, your belief is
simply holding you back and limiting you within the search, execution and
blame circle. The belief that your streak of losing trades is a function of your
strategy is a doomed belief, it is because you have, by conscious decision or
by default, chosen to empower those loses to have control over you by letting
yourself become reactive every time you lose. Reactive people are often
affected by the weather, proactive people carry their own weather with them.
Being proactive means recognizing your responsibilities to make things
happen. The people who end up with trading success are those who seize the
initiative to do whatever is necessary, consistent with correct principles, to
realize such success. Being proactive means recognizing that the problem is
you and not your strategy and that you must change and become the solution.
If you ever think some problem to your trading is out there somewhere, stop
yourself. That thought is the problem. Being proactive means recognizing that
what you believe in is a wrong thing to believe in. One of the things that could
ever define you as a professional is discretion, knowing when not to trade and
when to trade, knowing which trades to take and which trades not to take, but if
you are clanged on the idea that there must be a turn red turn green strategy that
will make you a millionaire, you`ll remain a loser because what happens is
that whenever such a strategy turns green, you would have to click a buy every
time, after all, what would be the reason for you not to take that signal if it
appears?
This therefore wouldn`t allow you to exercise discretion, you just take every
signal that your beautiful strategy is giving you. Remember I said, indicator
based strategies have a tendency to hide important information that the market
is trying to tell you, therefore, if the market were to generate a NO
information but your indicator based strategy a YES signal, do you think you
would make it in that situation?
Remember, all the indicators are derived or are based off of the market`s
information, that is, price. Without the market, there`s no an indicator, but what
you do?, you believe in the indicators and ignore the market. But I know that,
for many of us traders, especially the self-Learning, it`s not obvious to
distinguish between which one is the leader or which one defines the other one
between the indicators and the market.
An understanding or a realization of this distinction is pivotal to your trading
success. What you must do is to change your already held beliefs about
indicators and rather believe in the market, this means that every decision you
would take when trading would have to be based on the market`s information,
if the market says YES you may then look for a confirmation of your indicators
and take action only when your indicators also say YES too, and realize this,
for the market to say YES, there must be a fundamental reason behind it 90% of
the time.
For me, the ability to distinguish between the markets and indicators in terms
of which leads which came when I started questioning myself, Who in history
has made tremendous fortunes trading solely based on this particular idea of
indicator based strategies? Of course I wouldn`t know, but for the mere fact
that many people on the web are teaching about strategies that are based off of
this indicators and yet many people including myself continued to lose, then
there can`t be anyone who is or has made a lot of money using them alone.
This is how it went, I started by look at a simple Stochastic and an RSI and
other popular indicators that many strategies are built on and asked myself,
how successful are the people who are the teachers of this strategies?, do they
have a track record of success that is built with this strategies?, then I thought
to myself that, when everyone is teaching about their successful strategies, that
should mean they are all successful, but why when Im following their
instructions I continue to lose?
Then I thought again, if these people were really successful given how many of
them there are on the web, would they really be giving away their profound
gold nuggets to everyone for free? I don`t know if it`s fortunate or unfortunate
for me that I never happened to purchase the strategies that were on sale and so
I can`t say much about their effectiveness.
But having seen on the web many of those indicator strategies that were on
sale, their descriptions informed me that they were also built on the very same
popular indicators that I have lost my money on, and if that was the case, then
how can they be different and special from those that were for free?.
95% of retail traders continues to lose very much as it has been reported, and
yet there are plenty of strategies on the internet that promises overnight riches,
so this means that many are trapped in the search, execution and blame circle,
the circle of doom, these are the very same many who form this group of
95% losers.
It`s like two jungles, in the other one, plenty of strategies are being dumped and
there are special agents who are being assigned to keep the losing group
engaged in the search of the holy grail in that jungle, these agents are those
rather successful traders who teaches their strategies, and therefore only
those who have the capacity to recognize and realize that they are actually
being trapped in the wrong jungle can join the other jungle occupied by the 5%
winners.
It`s like being in a treasure hunt of some sort, you are searching for something
that you know if you found it, it would take you to the paradise but the problem
is that you don`t exactly know what is it that you must find or how it looks like,
the only thing you know is that if you found it, you would see paradise. This
means that if you wouldn`t find someone to tell you or show you how that what
you must find looks like, you would continue to search and perhaps like many
others give up.
Our belief systems are vulnerable because they are affected by any incoming
information as long as it makes sense regardless of its effectiveness, there is no
filter to the effectiveness of the information that comes into our brains, our
brains only filters out the information that makes sense from that that doesn`t
make sense, but the information can make sense and yet be ineffective and for
this reason, you must consciously filter any incoming information in terms of its
effectiveness.
I mean, if I come to you asking for your money in exchange for a money-
making strategy, you must question me and my ideas instead of just taking in
whatever that I may be selling you to make it yours. Simply put, never
believe anything you hear from anyone before you evaluate it yourself first.
This people on the internet whom we usually hardly know, tend to donate
things to us and lures us into believing that they work, and to our misery, we
end up jumping from one thing to another, thinking that we would eventually
stumble upon the one that really works.
The key take away from this chapter is
1. Change your perceptions about trading strategies, there is no a holy grail.
2. Your psychology is your holy grail, learn more about it.
3. The best strategy is the one that is based on the underlying forces which
drives the markets.
4. Technical Analysis only studies the effects and fundamental Analysis studies
the cause.
5. Every Strategy out there is a winner only if you trade it in line with the
fundamentals, the underlying driving forces.
6. The markets are a self-regulating environment from a technical point of view
and trying to predict them technically is a disaster.
7. In a self-regulating environment, you want to learn the underlying
causes/reasons of such behavior.
8. There`s only a few people on the internet that teaches effective methods or
correct ways of trading.
9. Your beliefs about trading may be holding you back.
10. Evaluate and test the things you learn before believing in them.
11. Seek proof that the things they are trying to teach you are really working.
12. Be proactive and take responsibility for your success.
13. Be willing to pay the price, either buy paying money for a mentor of taking
the necessary time to learn.
Chapter 5:
Develop the entrepreneurial mindset, and PROSPER
trading like a Business person.
When you develop an entrepreneurial mindset you don`t approach trading like
everybody does, rather you genuinely think of it from a business perspective,
true entrepreneurs and not aspiring entrepreneurs, understand the ups and
downs that comes with being an entrepreneur, they understand that a path to
success as an entrepreneur in not a smooth sailing and that it requires
resilience, persistence, patience, discipline, hard work, lifelong learning, a
burning desire to succeed and all the necessary habits that are to support them
along their tough journey.
To keep themselves inspired, motivated and pushing forward, entrepreneurs
read self-help books about personal development and business to draw out
wisdom. One thing that I have noticed out of reading non-fiction self-help
books on this topics is that, most of them do relate to trading, and for me, they
are the reasons I managed to developed the ability to even write this book.
Most people after getting exposed to the world of trading, they begin to think of
it as one of those internet investment schemes, even for those who do
understand that it is not some form of a scheme, they rather think of it as some
source of extra income, these are the people who don`t think they can
actually live off of trading full time, they have their jobs in place, some don`t
even like such jobs, but because they provide a sense of security for them, they
therefore never stand to think or imagine themselves leaving those jobs for
something that doesn`t guarantee consistent income.
Entrepreneurs embrace risks, they don`t cling to the idea of security and
benefits, for them, hassling is what makes them tick, and of course, hassling
comes with a lot of uncertainties. The motivation for entrepreneurial activities
is to make profits, these are the rewards, but with rewards in the world of
business comes risks, the bigger the reward potential, the bigger the risks and
vice versa. An entrepreneur is a person who is able to identify an
opportunity in the market, gathers resources and creates and grows a
business venture around that opportunity. He or she bears the risk of the
venture and is rewarded with profit if it succeeds.
Readiness to take risks involves a preparedness to make use of opportunities
that are identified, even if there is a possibility of financial loss. Successful
small business owners are always prepared to take calculated risks, they
evaluate potential rewards and risks critically.
There is a clear relationship between chasing after big rewards and the
readiness to take the necessary and calculated risks to realize such rewards,
and a hesitation to take such risks would hamper such potential rewards.
Successful entrepreneurs do not take chances, but sometimes feel it is
necessary to take calculated risks. Unsuccessful entrepreneurs on the other
hand, do not take any risks and if they do they take expensive ones out of
impulsive decisions that they did not think through.
In a nutshell, true entrepreneurs are able to identify the opportunities and the
potential rewards in the market and are aware of the risks involved for chasing
after those rewards and therefore knows how to manage such risks. That is
why as a trader, it is essential that you develop an entrepreneurial mindset.
Self-Awareness
This is one of those areas that I used to overlook, but the reason for that was
that too much abstract has been written about self-awareness for me.
Understanding yourself is something that is not obvious more especially if you
don`t really know what exactly to monitor on yourself, but it becomes simpler
if we seat to take a look at a person as an individual being, a person can either
be short or tall, light skinned or dark skinned, an extrovert, or an introvert,
short tempered, or emotionally intelligent, a leader, or a follower, a senior, or
a junior, and the list goes on.
But, some characteristics I just mentioned are not relevant to our topic here,
which is trading and entrepreneurship. If we look at traders, their biggest
challenge is managing their emotions or psychology in general terms when
trading. We can therefore narrow our focus down to the characteristics that are
only psychological, meaning, they has to do with the way we think and process
new and old information about trading, how do we filter it and eventually
arrive to the conclusion based off of that information we have decided to
absorb and hence, feel or develop emotions about such information and
ultimately react according to the way we feel about it.
We can ignore the physical traits and other traits that are not relevant to our
trading activities or business activities. Often, short tempered people never
make it in social spaces, they can blast at any time. Impatient people never
make it to the end because they never indulge in long activities that only brings
delayed results, so they give up along the way.
Entrepreneurs who are not organized often get burned because they usually
don`t even know how to manage their time well. Business people who lacks
the ability to plan and prepare in advance usually misses opportunities. If you
are the kind of a person who justifies instead when you are supposed to wake
up early in the mornings to plan and prepare for the business day, you are
likely to remain frustrated by your perpetual struggles.
If you are the kind of a person who hates long hours of reading or studying, you
are likely to remain mentally fixated, you won`t improve. Some of this traits
are what hard work is all about, so if you lack this traits, you are not a hard
worker, and given that successful trading requires hard work, therefore you are
likely not to succeed.
Taking inventory of yourself in my understanding relating to trading and
business in general is simply identifying if you have this type of traits, and if
not, then if you are willing, try to develop them one by one, for example,
waking up every day at 5 am is one thing you can work on and develop into be
your second nature, followed by not only waking up but also planning and
preparing for the day, spending your day executing your pre plans and trying to
identify new opportunities. If you are the kind of a person who tends to blame
other people or things, you won`t be able to identify the opportunities to learn
from your mistakes, rather you will always justify why you are not the one who
is wrong.
Market Awareness
At the time of this writing, exactly on this day, I have been logged on Facebook
and came across a post with the content I would like to join Forex trading,
how do I join, any advice and how much is the joining fee? one person asked,
and what came into my mind was what I have been talking about on the
previous sections, that is, people think of trading as some kind of a get rich
quick scheme mainly because of the excitement dust created by the
millionaire traders with their luxury lifestyles, the beginner traders judge those
who they see successful from their harvest times, they never think of the
plantation and cultivation periods such people have went through, and hence
they approach trading with wrong ideas and therefore overlook all the
essential areas that if they were aware of, they would have right away began to
focus on.
These people tend to focus on the end results over the actual process of
acquiring such results, when what they should be focusing on instead is the
vice versa, that is, the process over the outcomes.
Understanding the markets is something that many aspiring traders often are not
aware of as something essential. As an entrepreneur, it is essential that you
gain an understanding of the market in which you`re or you`d be operating in. In
the trading business, an understanding of the markets you`re or you`d be trading
is essential. This is something I was never aware of that I needed to look into, I
only thought that knowing how or when to buy/sell based on a strategy signal
was the only thing I needed to know.
As an entrepreneur, before you can start with your venture, you must analyse
and study your competition, these are the same people who do the same
business as yours and hence, developing a competitive edge against them is
something that would put you far ahead in the game.
If you want to succeed in the world of trading, you must have a competitive
edge that would position you far ahead of other traders, remember, trading is a
zero sum game, the 95% statistic that lose, lose to the 5% that win. Having a
competitive edge would allow you to participate in tandem with the big 5
and win many times against the 95%. This then requires you to understand how
the market operates and what makes it tick as well as what the big 5 players
are doing that the 95% are not doing.
The markets, as pure technical traders define them, discounts all known
information, meaning that, the markets are a reflection of all behavioral
patterns by the participants [traders] in them based on the information
[Fundamental, political and natural disaster/crisis] and how they interpreted
that information in terms of how they think it will or may affect the economy of
the countries such information is coming out of.
The markets evolve in repetitive patterns which had led to the conclusion by
the technical traders that, history repeats itself in the markets. The ability to
identify such patterns is what would add to your competitive edge in the market
place. Indicators based strategies do not allow you to identify such patterns if
you`re relying on them, and this I think is one of the reasons why many newbies
lose because the majority of them uses and relies on indicators based
strategies.
The markets moves in trends and often takes short term retracements or pull
backs as the trends unfold and again, the ability to identify when a trend has
established itself, when it is rather temporarily pulling back and when it thinks
of changing its direction is what would also add to your competitive
advantage.
The markets moves because of the daily global events such as the economic
indicators reports, central banks announcements or speeches, trade flows and
capital flows all referred to as the fundamentals, along with the political
events such as elections and global crises events or regional crisis events such
as earthquakes and the likes of the natural disasters.
Investors and speculators alike respond to all this information based on how
they think it would eventually affect the economies of the countries they are
coming out of. Some traders are pure technical analyst traders, some are pure
fundamentalists but who do apply some technical analysis, both of these groups
interprets the markets in different ways and therefore reacts in different ways
at any moment in time and hence the prices are always ticking up and down.
The fundamental analysis studies the causes for the markets movements, they
tell us why the markets move up and down every day, and the technical
analysis studies the effects of the fundamentals. Although the fundamentals
dictate the markets price movements, that doesn`t mean pure fundamental
traders have more power over the technical analysis traders, both of these
groups have their respective influences in the markets.
Big commercial banks, hedge funds and other financial institutions are some of
the big players in the markets, these are the institutions which manages millions
and billions of dollars and hence only the professional traders work for them.
Institutional traders have the access to much more effective and essential tools
such as the premium news feeds out of which they receive first hand global
news events which may affect the markets at any moment in time because they
can afford them, these are usually inaccessible to typical retail traders because
the cost for subscriptions are calling for financial advisers.
All this factors and others not mentioned affects the markets on a daily basis
and being aware of them is obviously something pivotal to ones trading
activities.
The key take away from this chapter is:
1. Approach trading like the entrepreneurs approach their businesses
2. Acknowledge the risks involved in trading and always take calculated ones.
3. Big risks coms with big rewards, and conversely, small risks comes with
small rewards.
4. Try to learn about yourself, how you think and what you believe about
trading and decide if that`s the correct way to go.
5. Learn the markets you are trading, study those charts and the patterns they
develop all the time, and most importantly, learn the fundamental analysis
which form the reasons why the markets move.
Chapter 6:
Develop a PROFESSIONAL trader`s mindset.
Objectivity and Subjectivity, I may not be defining it correctly but from my
experience, I came to understand what it meant to operate from an objective
mindset, again, this is one of those conventional wisdoms I had taken from the
trading psychology preachers and the trading community in general from the
internet, I can still remember, that one day I finally thought I knew what it
meant to have a complete written out trading plan and thus drew it, although it
was at least the most logical well written out document judging from the way I
had structured and written it, the things I had written in it, I unconsciously
didn`t understand what they meant when I thought I did.
Always think objectively was one of the statements I wrote under the title,
Traders rules, but up to this moment in time, I must say, experience is the
only thing that taught me what that statement really meant for a trader. But, it
didn`t have to take me whatever the time it took me before I could understand
what it meant for a trader to think objectively when trading. Had I had the
wisdom to take the time to make my research, I could have cut short my
learning curve.
This is where I could have started, the oxford dictionary states it this way
Objective: 1 real; actual, 2 not influenced by personal feelings or opinions.
Translating it into trading, firstly, I would have understood that what it meant
was that I must never allow myself to be influenced by the things that are not
real or actual, I must never allow myself to be influenced by other peoples and
my personal opinions about the markets because opinions are influenced by
personal feelings and secondly, when I analyze the markets, I should never
depend on the methods that are dependent on how I feel about what the
market should be doing at that time based on some indicators. I should stay
objective and avoid taking decisions based on emotions, feelings and opinions.
Developing a traders correct mindset in this context means developing the
objective trading mindset. But in general terms, developing a trader`s correct
mindset involves many other things such as discipline and patience. But the
truth is that, patience and other trading crucial traits automatically develops in
you when you have a complete robust system, why is that so? It is so because
as long as your system says don`t trade there are no valid signals, you will
automatically wait patiently until it say now you can trade here is a signal.
Trading objectively means having a system that follows the market price but
most importantly, what drives price, and with you following it religiously
instead of depending on systems that depends on how people feel about the
MACD being above or below the zero line because usually, those people who
feel are not always consistently right, in fact those people are more often
wrong and that is not the side you ever want to find yourself in, if you don`t
believe me, just spend one week analyzing how often the market responds to
the stochastic overbought and oversold conditions, and how big the moves
produced are. One statement that I had picked from the internet is not to follow
the herd and its mentality because in the main, they are always wrong.
Trading in the Zone
Getting in the zone, that is what they call it in sports, particularly in athletics.
It`s about challenging yourself to deliver the best results you possibly can.
Getting in the zone means shifting your state of mind into a care free, stress
less, worriless sort of a psychological dimension in which you are only
focused at the current moment and not the future or the past, in this state you are
focused at the process of delivering the results and not the possible outcomes
of the process itself, so in trading it means focusing on doing the right things
right now as you are watching your charts and judging whatever you see the
markets do now from an objective point of view.
Trading requires a very deep understanding of the markets in terms of how they
work and which events they are influenced by and of course, without leaving
out an understanding of your intentions for endeavoring in the trading career.
Until then, when you finally understand deep down how the markets work, that
would be when half of the wall in front of you begin to show that it`s
weakening and hence about to fall over.
It begins with risk comprehension and acknowledgement. In his book, Trading
in the Zone, Mark Douglas, addresses the importance of understanding the risks
inherent in trading the financial markets. I have had the pleasure of having to
read this profound book on trading psychology, and the insights it provides
literally turned my whole trading world around.
That is when I began to think independently from the entire trading community,
that`s when I began to develop a mental filter with which I would choose
which trading ideas I shall pick up and which I shall simply ignore from the
trading community moving forward.
Sir Mark D says, when you sit in front of your computer, and observe the
charts, spot a trading opportunity and thus take it, do you consider yourself to
be a risk taker? In fact, he asks, as a trader, do you consider yourself a risk
taker? Of course he stipulates, he says when you embark on any risky activity,
you are taking a risk and therefore that renders you a risk taker.
But, he says as he asks, do traders really accept it, acknowledge it, and
appreciate it that they are taking risks whenever they put on a trade? And the
answer turns out a No! The markets are inherently risky, do you hear that?
Inherently risky, meaning risk is what the markets own and there will never
ever be someone who will ever take the risks away from the market because
the markets legally own them.
Road trips are inherently risky, whenever you travel to the other side of the
town you stand a chance of getting involved in an accident. No one can ever
take the accidental risk inherent in road trips away. But then tell me, whenever
you take a road trip, do you think and worry about the risk of finding yourself
in an accident along the way? Never, but you do know what you have to do and
will do to protect yourself in case the accident occurs right? The airbags in our
vehicles are there to protect us against the possible major damages in an event
of an accident.
The road trip risks are inevitable and there`s no one who will ever take them
away, the same way as the markets risks are inevitable and there`s no one who
will ever take them away. You never worry yourself about the road trips risks
whenever you embark on a journey, why, because you already know that the
airbag and the sit belt are already in place to protect you against major losses
such as your life, but obviously it would be better to lose one leg in an
accident than to lose your whole life wouldn`t it be?, but in an accident, you
can still lose your life even if you have been fastening your belt and the airbag
has popped out.
But unlike an accident, in trading you get to choose how much you would
prefer to lose in case the market goes against you. In an accident you cannot
choose that you want to lose only a single finger for every accident you find
yourself in. On these basis then, we can come into a conclusion that road trips
are more and worst risky than trading in the financial markets.
But why then do we usually get to worry less about a worst and a more risky
embark and worry more about a less risky embark? For road trips, our
protection devices are the airbags and seat belts, in trading, our protection
devices are position sizing (choosing how much you would prefer to lose), and
putting on a stop loss.
Focusing on the process over the outcomes is one of the conventional
statements of wisdom I had learned too from the trading community but never
understood what it really meant, again, experience taught me that what this
meant was that, always, I must only focus on following my trading rules with
discipline, that is, selecting which instruments to trade based on their current
individual conditions, pre defining my risk or how much Im willing to lose for
the next trade I will take, waiting for the trading signals as per my entry rules
state, an exit as per my trading rules state. And repeating the same process
over and over again regardless of what outcomes I got from the previous trade,
whether I had lost or had won.
This is clearly a process and it is way different from focusing solely on the
outcomes, that is, focusing on the fact that you lost on a previous trade and
worrying that you will lose on the next trade. So essentially, what all this
means is that, never worry about the past, in fact forget about it, and never
worry about the future but only focus at what you must and are supposed to do
right now this moment. Focus on the process over the outcomes.
Mr. Richard Dochian, I have read, once said, Consider your trading account
balance as nothing but just the numbers to score you for taking every trade as
per your rules, although It was not written exactly as I have quoted it, but from
the way it was written, this is how I understood it.
So in a nutshell, focusing on the process more than the outcome means, follow
your risk management rules, follow your entry rules and exit rules with
patience and discipline, stop worrying about the outcomes of each and every
single trade you take but instead worry about whether your trading system
improves your score[Account Balance] overtime. So in essence, you become
future oriented in terms of where you want to go with your trading career into
the future. Sir Mark D speaks of developing the probabilistic mindset. Note I
call him Sir because that is how deep I personally respect him.
Developing and maintaining the probabilistic mindset when trading, eventually
positions the risk management task as the most logical thing to do. The goal for
developing the right mindset is to be able to master the markets with
confidence, discipline and a winning attitude as Sir Mark D puts it. Think
about this, on a toss of a coin you choose heads, and you are told that for every
loss you might take, you stand a chance of winning twice as much a single
possible loss with a winning toss, with a limited money that you have, would
you rather bet too much of it or to be specific, would you bet something like
50% of it per toss of a coin? I bet not because chances are you`d definitely be
out of the game after 2 coin toss, why? Because the probabilities of you being
correct on any one coin toss are 50%.
I believe this is something you may have learned or read about on the internet
under the trading psychology teachings, yeah it also forms part of the
conventional wisdom I had learned but never understood what it really meant
for my trading success, or to say it differently, it was actually difficult for me
to develop and maintain this type of a probabilistic mindset because I always
operated from a mindset that, I should be right this time, I have correctly
analyzed the market and therefore there is no way I shouldn`t be right because
again A, B and C supports my bias.
I was not aware that, that kind of a mindset I was operating from was an
expectations mindset, the one that attempted to lead the market instead of
following it. It was like on a coin toss game, choosing tails and being so sure
that I will be correct and betting all that I had. It was like testing the depth of
the river with the whole leg if you will.
In his words again he says, There is a random distribution between wins and
losses for any given set of variables that defines an edge in this statement,
what he is driving home is that, for every trading system, there is a random
distribution between wins and losses, meaning that, for every trading
opportunity your system produces, there are no guarantees that it will be a
winner or a loser at any moment in time, and he goes further to say, you may
know based on the past performance of your trading system that for the next 20
trades, 12 trades will be winners and 8 trades will be losers, but what you
dont know is the sequence of winners and losers or how much money the
market will make available on winning trades.
This truth makes trading a probability or a numbers game, and that when you
really believe that trading is a probabilistic game, concepts like right and
wrong or win and lose no longer have the same significance, as a result,
your expectations will be in harmony with the possibilities.
My expectations were simply not in harmony with the possibilities because I
would usually think to myself that, for any trade I took, this time I should be,
must be or have to be right. And you can guess the emotional distress I would
get there after my expectation were not fulfilled by the markets, and that`s the
thing, even with life in general, as individuals we tend to hinge our
expectations on things we have no control over, instead of developing the right
attitudes about when certain things happen, how we are going to protect
ourselves emotionally or physically, we expect them not to happen yet knowing
that we cannot control them to conform or to validate our expectations about
them, and this is when reckless or impulsive behavior sets in.
We then seek vengeance, we want to prove the markets that we are the right
ones here and not the other way around and as for trading, we place too much
risks on the ensuing trades in attempts to get back to where our core equity or
account balance was sitting at before. Deep down, we are simply trying to
prove that hey! I was right.
Sir Mark D says, When you learn the trading skill of risk acceptance, the
market will not be able to generate information that you define or interpret as
painful. If the information the market generates doesn't have the potential to
cause you emotional pain, there's nothing to avoid. It is just information, telling
you what the possibilities are. The probabilistic mindset involves using, the
if-then thought process kind of thinking, if price does A, I will do A, but if it
doesn`t do Z along with A then I won`t do anything.
Going a bit deeper, just to give an understanding of what makes the markets to
be inherently risky; I am going to define the markets unknown variables. These
are all the other traders on the other side of your charts, these are the people
who you are competing against because really, as I have already said that, the
markets are a zero sum game, meaning whenever you lose, someone is winning
on the other side.
If someone is winning when you lose, it is clear that you two had different
perspectives about what the market was doing at that particular moment, with
this truth we can conclude that, when we look at the entire active trading
community, each trader in it has its own opinions and perspective about the
market and thus acts or behaves differently from other traders.
Remember, here we also include big trading firms that can place a huge amount
of a single order at any moment in time and significantly push price in one
direction.
Armed with the truth that this entire people are unknown to us, we can then
again come to conclude that we can never technically know at any moment in
time, in which direction the market or price will significantly move due to a
very large order by a certain bank.
Think about it, you place a trade on and the market moves a bit in your favor
and suddenly, a large order is placed and the price then turns against you and
takes you out, how would you feel? Or perhaps you watch it as it approaches
your stop loss and decide to move that further away from your entry point on
assumptions that you were right because your technical analysis said so.
The markets are inherently risky because this people or traders including
institutional traders, whom you completely don`t know about, have different
paradigms about the markets, paradigms that makes them act differently from
you and because of their financial weight, you stand a chance of getting ruined
if you don`t understand the importance of risk acceptance, acknowledgement,
embracement and ultimately, risk management.
Sir Mark Douglas summarized these insights in the following point form.
1. You don`t need to expect to win or to lose in any trade you take, instead you
need to know that since anything can happen, you might win or lose on any
particular trade.
2. There is a random distribution between wins and losses for any given set of
variables that define an edge.
3. An edge is nothing more than an indication of a higher probability of one
thing happening over another.
4. Every moment in the market is unique.
5. You don`t need to know what will happen next.
Because anything can happen in the market, and with our understanding that,
this is the reason why trading is inherently risky, then your edge, strategy or
trading system must simply be seen or perceived or considered as something
that its sole job is to put the odds of success in your favor.
You don`t need a Holy Grail strategy that will forever win because there is no
such, remember anything can happen once you are in the market, forces of
supply and demand. If the demand is perceived to be greater than supply, then
the market should be seen as bullish and that`s where your edge comes in, it
puts you on the high probability spot or price where the demand force is highly
likely to continue until the supply force overrides it and the market reverses.
If you have an edge that produces repetitive patterns and you are able to
recognize and take them, since our knowledge tells us that anything can happen
in the market once we are in, and if this is the true case, then it automatically
tells us that there is indeed a random distribution between winners and losers
because anything can literally happen, and if the outcomes of every trade we
take according to our edge are random, it should naturally tell us then that
every moment in the market is unique.
You can`t associate the current trade or the current pattern`s outcomes with the
previous pattern`s outcomes although the patterns looked similar. Think about
it, dogs looks similar to each other but not all dogs are dangerous or bites. So
it doesnt mean every dog you come across will bug or chase you or attempt to
bite you.
If all the trades were the same and had the exact same outcomes each, then for
every one losing trade you had, the ensuing trades would all be losers, the
same is true with the winning trades, but this has never been the case in reality,
the reality is that, for all the trades you took in your lifetime up to this point,
you had the loosing trades and the winning trades.
So this should also confirm that you truly must believe that every trade is
unique because there are random distributions between their individual
outcomes. If you lose one trade why don`t you completely stop trading for good
but instead you put on the next trade even if you are afraid of losing again?
That`s because you think you might win this time around right? But your
intentions for putting the next trade is not because of you know that every trade
is unique, but because of you want to prove to the market that you can win, you
are trying to take revenge against the market and end up doing the market errors
of getting in too early or too late, chasing the market and so on, and hence the
circle goes on and on and prolong your frustrations till you are blown out of
the game.
This happens because you are afraid and anxious and these emotional pains
blocks all the right information the market is trying to tell you but because of
being afraid and angry at the market you keep on trading in attempts to pay
revenge.
Now, if every moment in the market is unique because of anything can happen,
then there`s no need for you to blame the market, your strategy or praise
yourself when you lose or win.
But disassociating and unlinking different trade`s outcomes from one another is
a difficult thing to do, because of the beliefs you already have about losing
trades, for example, you may develop new beliefs about dogs due to the
previous experiences you had with a single or two dogs.
Because of one dog bugged and chased you yesterday, that information has
been stored in your mind in a form of a belief and so when you come across
another dog your mind evokes that memory it stored about a similar object, that
is a dog, and because you already believe that every object that looks, sounds
and moves like a dog is dangerous, your flight and fight mechanism will
provoke fear, with fear then you are susceptible to doing errors such as crying
or perhaps wetting yourself.
In the markets, if you had 1 or 2 consecutive losing trades your mind stores that
information as painful in a form of a belief, you tend to strongly believe that
every next trade might be a losing trade and whenever you place another trade,
what you do is hope that you don`t lose again.
But then the reality is that, you`ve had both winning trades and losing trades
before that did not come in a predictable sequence, but because of what your
mind already believe, on every next trade it`ll tap your fight and flight
mechanism because what it only see at that moment is danger and nothing else,
hence when you are afraid you won`t see any other possibilities about the
information the market is telling you and hence begin to doubt if the signal you
are watching really is valid or not, you simply lure in the analysis paralysis
and end up entering the market too late or missing out an opportunity.
I iterate, aspiring traders tend to be mistaken by the thought that trading success
is all about a strategy, but the professional traders would tell you that that is
very far from the truth.
Most of the trading success is attributed to the psychological part-approaching
trading with a rather long termed view and a delayed gratification,
understanding and acknowledging the risks involved, managing and controlling
such risks, knowing when to trade and when not to trade, waiting patiently for
the odds to stack up in your favor and hence executing your plan/trades when
the time comes to do so and acknowledging that the outcomes of that one trade
are probable, these are all psychological functions.
Your strategy rather is a method of stacking up the odds of your trades being
successful in your favor that`s it. And therefore I say, to trade successfully, at
first you have to master your trading psychology and getting it right is simply a
question of self-awareness.
By learning how your brain is wired to react to different scenarios, you can
dramatically improve your ability to make the correct decisions when it comes
to trading. Below are some of the psychological challenges you may want to
begin monitoring about yourself as you trade.
Recency Bias
Recency Bias is the process of being influenced in thought and then taking
actions based off of the influence of the most recent events that have occurred.
This is not simply a trading phenomenon but one that is present in every aspect
of our lives. Recency bias is when traders become influenced by their most
recent trading strategy results, without considering the long-term view.
In trading, Recency Bias means that the most recent trades will cloud your
view of the entire trading strategy or system. A few losses can cause you to
feel that the system is not working. When this happens you may think you need
a new one. This can occur despite the fact that you probably have little or no
actual evidence of this being the case.
In fact, your strategy may likely be going through a simple drawdown. So the
net effect of recency bias is that any trading strategy you have will likely last
only until it results in a losing position.
Consider this, what if after a particularly pleasing run of results, your most
recent trades lose? Does this mean your whole trading strategy is failing? Of
course not, the longer-term view of the strategy may still be looking positive.
But these losses can cause traders to doubt their strategy and hence this can
affect whether or not they can generate consistent profits trading into the
longer-termed future. Doubt therefore leads to rushed, impulsive and costly
decisions.
The way to overcome this problem is by following that clich advice again,
that is to keep a detailed record of your trades in a journal, this would allow
you to make note of the trades that you took based on bad decisions and hence
lost and those that you took based off of your plan and hence won, and it would
also give you confidence about the fact that you can actually take intelligent
trades that have been well thought out, and would allow you also to eliminate
worry that comes out of the trades that lost but were taken according to plan.
From there then, your goal would be to eliminate the thinking process that you
engage in that leads to you taking bad decisions and hence losing trades. So
you would be looking at the hard evidence from your last ten trades and
therefore would amend your strategy from there.
You are bound to feel disappointed when your last trade didnt work out the
way you wanted it to. But keeping your mind in perspective and maintaining
the long term view wouldn`t cause you to doubt your trading approach. What
you may do rather is you may change to a different strategy when the overall
losing position is generated, meaning, your strategy is losing for quite a
substantial period of time and for you to be able to march through a drawdown
period, around this time it is when risk and money management becomes more
significant.
With recency bias, usually, just before you stop taking new trades completely,
you may catch yourself increasing your leverage so to quickly make back the
initial losses. This can result in losing more money from your account. It can
even mean your account blowing up completely. If you can notice, recency bias
is the actual driver or simply put, it fuels the circle of doom, the rat race and it
is this psychological factor which hinders your progress.
Recency Bias is pretty much linked to all common trading mistakes that you
probably read about on the web or anywhere, therefore it would make sense to
instead of trying to find ways to overcome all of the different individual
trading errors that traders make, stop the consequences of Recency Bias in the
first place.
The answer to how you can do this is through the simple act of recording your
trading data and then regularly analyzing the results. This would serve as the
primary goal of reducing the impact of Recency Bias because it would allow
you to actually see, at a glance, how your strategy is performing overall.
If you were going through a drawdown or a series of losses, you would almost
instantly know whether this is something to be concerned about. Remember that
something only needs changing when the overall performance shows concern
beyond doubt. This is when you should take action.
Under the influence of Recency Bias, there is Luck & Greed and Fear. Luck
and greed is a dangerous combination when it comes to trading the financial
markets. As frustrating as it may seem, some traders take some incredible risks
that make them wealthy in a very short space of time. But this risk taking
mindset will lead to failure over the long-term.
Luck always runs out in the markets, but greed can stick around for much
longer. Traders who implement high-risk techniques can fall into the trap of
believing in their own ability and bravery.
Unfortunately, this sort of thinking has led to many traders becoming broke
when a high-risk trade fails. If youve made profits from a risky trades, be
wise enough to accept that you were lucky. Invest your profits into developing
a conservative long-term trading strategy that will bring you low-risk and
reliable profits.
Fear is a psychological challenge that all including professional traders face. It
comes from many situations, but if left unchecked, fear can be the thing that
stops a trader from progressing. As paradoxical as it may sound, fear usually
comes when a trader is ready to increase the amount of money they trade on the
market which is something that is necessary to make substantial profits. The
cash value figures can appear daunting and the natural reaction of an
inexperienced trader is to become overly cautious and pass upon profitable
trades.
Its a delicate balance, but if youre feeling fear, it can actually be a good
indicator that you have the right characteristics to be successful. It will mean
that you are likely to think carefully about your trades and have a low-risk
mindset, which are all key traits of a good trader. The trick is to not let fear
paralyze you into inaction, that is, analysis paralysis. Make your judgments on
the hard recorded evidence and have the courage to pursue a trade if you have
calculated that it has a strong chance of success.
Patience and persistence, high probability trades are the only trades that will
ever make you a success in trading the financial markets, they can be thought of
as timing the market, waiting for the right moment at which the odds of success
would have hugely skewed in your favor, after all, that`s what your trading
system should be all about, to put the odds of success in your favor.
Speaking of the odds, you can certainly realize that I am speaking of chances
here, the word odds is just an alternative to the word Chances, now this is
the probabilistic mindset that as a trader the markets expects you to think in
terms of, as you might realize maybe that, most, if not all of the trading success
traits are interrelated, if the odds are not in your side as per your markets
analysis, you must surely wait for the right time, that takes a huge amount of
patience.
But in order for you to maintain your cool, patience and discipline, you must
first understand that you don`t have to trade every day, that`s the truth of it, you
don`t have to. I guess the words like Intraday Trading, Scalping and the
likes are the same ideas that tend to lure you into thinking that trading everyday
must be the real route to riches, that`s a myth, the people who succeeds trading
based on this ideas are the people who are knowledgeable than the average
ones who are not, they are the people who appreciate the idea of the bigger
picture.
This people develop their trading ideas starting from the bigger quantitative
analysis, and then scrolling down to the smaller timeframes to perform their
intraday or scalping trades, so they simply scalp or trade intra-daily with the
bigger picture in mind, the bigger picture is nothing but simply an outlook of
where the bigger trend may be heading.
For professional traders, it takes starting from the fundamentals perspective,
dissecting the economic indicator`s trends and their meaning to the markets
within their portfolios, for example, one trader may look at the interest rates
differentials and the bond yields differentials for specific currency pairs they
are trading, identify their previous 3 to 5 time horizon trend behaviors- has the
interest rate of the U. S FED been declining, remaining flat or hiking for the
previous specific number of months/years? Has the one for the Japanese BOJ
been acting opposite to the U.S one? How about their respective bond yields,
have they been developing in opposite manners?
And after finding a clue from the economic perspective they would then go
over their long term charts to see if the trend confirms their economic
perspective`s bias as to where the market could be heading from the long term
perspective, then scroll right down to their intraday charts to look for the
trades that are only in the direction of the bigger picture.
Because it takes or rather consumes a huge amount of time in order for one to
have a full grasp of the fundamental analysis, it therefore takes patience,
objectivity, persistence, pig headed discipline and determination in learning.
But then if you are only in it for the sake of self-seeking purposes, from which
planet then are you going to get the motivation to do all the tedious necessary
work?
A lot of people tend to argue around the issue of which between the technical
analysis and the fundamental analysis is the most significant one, and I will tell
you my opinion about this people, the ones who are the sole technical analysts,
are probably not or can`t stand it to take the amount of work it takes to study
the fundamentals because I can tell you, fundamental analysis studies will make
you feel like you are taking a long distance economics course if you are
learning on your own, with all these type of jargon that you would have to
understand.
So the sole technical traders probably remain clueless about how to perform
the fundamental analysis, but as for the sole fundamentalists, a sure thing is that
they had done their part of the work in discerning the fundamental studies and
getting a grasp of them, and I can confess that, the fundamentals really have the
potential to place one far ahead of the game.
With the fundamentals you can literally predict with accuracy where the
markets might be heading in the next 3 months to 6 months unless something
fundamentally suddenly change.
But it`s only with hard work, patience, persistence, pig headed discipline and
determination, and lastly, a burning desire to archive a trading professional
level, that you would finally become a better and an effective trader you want
to be.
The key take away from this chapter is:
1. Develop the objective mindset and eliminate subjectivity from your decision
making process.
2. Remain focused at the current moment, forget about your previous loses and
wins.
3. Focus on the trading process and not the outcomes of the process itself.
4. Develop the probabilistic mindset.
5. Consider your trading account balance as nothing but just the number to
score you for taking every trade as per your rules.
6. Become future oriented in terms of where you want to go with your trading
career.
7. Manage your expectations.
8. Develop patience and discipline.
9. Amend or change your strategy after a substantial period of streaks of losers.
10. You don`t need to expect to win or to lose in any trade you take, instead
you need to know that since anything can happen, you might win or lose on any
particular trade.
11. There is a random distribution between wins and losses for any given set
of variables that define an edge.
12. An edge is nothing more than an indication of a higher probability of one
thing happening over another.
13. Every moment in the market is unique.
15. You don`t need to know what will happen next.
Conclusion
As we conclude, I just want to show you exactly the tools that the professional
traders are using in their daily trading activities, but because I won`t be going
much deep into details, but rather leave you with the structure you can work
around and build your professionalism around, I recommend that you do more
research on how to effectively use this tools.
You may be asking yourself why I won`t just be going deep into more details
and provide you with a complete plan and a strategy, well, the reason is
because that would take another complete book which I will consider writing
in future.
With this book, because I used to struggle so much, I used to be trapped in the
rat race, I felt that I should write it to help those who are going through what I
have been through psychologically.
Now, let`s get cracking.
Below are all the tools that the professional traders use in order of importance:
1. Fundamental Analysis
They analyse the Central Banks Monetary Policies.
Central Banks makes their Monetary Policy Decisions based on
Economic Indicators reports and the governments fiscal policy.
Economic indicators measures the economic performances of their
respective countries.
A positively growing economy means higher currency value and vice
versa for a poorly performing economy.
Trade flows (Businesses imports and exports) and Capital flows
(Foreign Investors money).
The more a country exports than it imports, that is positive for that
countrys currency.
The more foreign investors money flows into a positively growing
country, the more the value of that countries currency gets.
The more jobs are created in a country and the higher their salaries, the
more that countries economy grows and the higher the inflation gets.
The higher the inflation, the more the Central banks move towards rising
their interest rates so that loans from all the banks in that country
becomes more expensive for both consumers and businesses.
The three major economic indicators that the central banks monitor are,
Employment level, Economic growth and Inflation.
These are the major economic indicators that the professional Forex
traders looks at simply because the Central banks looks at them in order
to make their monetary policy decisions.
Geopolitical issues like presidential elections and natural disaster
events like earthquakes or a hurricanes have the potential to move the
currency values depending on in which country those events occur.
Professional traders use fundamental analysis to decide upon which currencies
to trade in every upcoming session, Asian-Pacific, London and New York
sessions.
Professional traders use fundamental analysis to determine which currencies
are likely to move significantly in the upcoming session, in which direction
those currencies would likely move. The fundamentals gives them the reasons
why those currencies would likely move in certain directions.
2. Technical Analysis
Trend lines to identify the trend direction. Some use Moving Averages.
Support and Resistance
Psychological Levels. Numbers ending with 00 and 50 like 1.2200 and
1.8450.
Pivot Points
Fibonacci Retracements and Extensions.
Price action
Chart Patterns. The trend reversal patterns (double tops, head and
shoulders etc.), trend continuation patterns (Flags, Triangles, etc.).
Professional traders use technical analysis to determine at which level to enter
a trade, for example, if the trend is fundamentally up, they would wait for price
to retrace to a support level which may be in confluence with one Fibonacci
retracement level or with a pivot point level or a psychological level.
Professional traders also use this levels not only to enter their trades but also
to determine their exit points, for example, after one taking a long trade, they
would look for the next potential resistance level at which price may reverse
and set their take profit level just below that.
As you can see, professional traders doesn`t look at some form of indicators
which turns red or green when it`s time to buy or sell, they perform their
markets analysis based around this tools.
From now on, moving forward, you should only look at this tools alone and
forget about all this fluff they`ve been selling you in the forums. Your searching
from now on should be to find out how to use all of this tools effectively.
But, it would be better if and I recommend you learn how to use one at a time
instead of trying to put all of them together. I promise you, if you give yourself
some time or pay a mentor who is teaching about this tools to teach you, soon
everybody would be asking you how you do it and that you teach them and this
is when you`d bring back all that you have been losing and had invested in
mentors perhaps.
Let me take this opportunity to thank you for reading this book up to this point,
it has been a pleasure sharing with you some of the insights that turned my
trading around and I am confident that they will turn yours too around, only if
you remain dedicated, hardworking, patient, disciplined and willing to learn.
Thank you.