Consistent analysis

Posted on by Anatoliy Schneider

Different trading terms

Depending on whether you trade intraday, swing trading or position trading your analysis goals will be very different. Let’s define these types of trading:

  1. Intraday, also called day trading, is when you are aiming to open and close your position inside the same day;
  2. Swing trading is when you are aiming to hold the trades for the length of daily timeframe swings, which generally results in holding the trades for 1 to 4 weeks;
  3. Position trading is usually defined as holding your trades for long term trends, such as weekly or monthly. The trades can be held from 1 month to a year or even more.

I believe that your trading style is a function of both your psychological preferences and the time you have available for active trading. Some people cannot sleep at night, worrying about their trades, if they know they didn’t close everything. Others lack extreme concentration required to watch the position nonstop from start to finish.

With day trading you need to develop a strict market analysis routine during the same hours each day and then watch the price according to your entry system for a couple hours while looking where to place the trades and where to close them. Usually you will want to schedule your trading hours according to main market sessions: Europe and US. Most day traders will close their trade in the end of the trading session if their profit target was not reached yet.

With Swing trading, you are mostly interested in daily charts and H4 to confirm the entry point further. The market can be analyzed one or two times a day, trades placed with SL and TP (ideally with 3 position system we discussed in issue 02, and automatic breakeven and trailing stop management). Each day during the same hours you reanalyze the market to see if there are new entry signals or if your current trades should be closed.

Position trading, in my opinion, allows to trade while doing analysis only once a week. You are looking for long term investments and any price action signals on H1, H4 or even Daily timeframes can easily distract you from the overall picture on weekly and monthly timeframes. Daily can still be used for price action confirmation along with the weekly trend.

Psychologically I prefer swing and position trading styles much more, but it certainly hasn’t been always like that. The allure of “easy” money made inside of just one trading day and desire to go to bed knowing that your net worth is greater than in the morning got me into day trading when I just started. As I mentioned before, it never worked out for me and I switched to trading midterm. It took a good deal of time and effort to change my mindset about trading and stop worrying about positions left overnight. In the end I am much more comfortable with this trading style.

Another important aspect to consider when choosing your style is the time you have available (or willing to spend). I do not know about you, but I see very little excitement in watching the market unfold on M1, bar after bar, hour after hour, looking for the entry point – only to continue watching all the same, now looking where to close the trade. Because of the amount of paper work (trading log, trading diary, system improvements diary, pictures with your trading patterns updated daily, etc.) necessary for any trading style, there is considerable amount of time to be invested in it. I consider such journaling to be the most essential step to success in trading business so if I have to choose whether to spend my time watching the trade unfold on M1 or finding more pairs to trade on higher timeframes, while having more time left for journaling, I will not hesitate to choose the later.

And yet another part of it, is the amount of rush you have to be in, possibly causing considerable stress as well. I love chess, but I never want a 30 second turn timer to be ticking beside me. Such skill of decision making under stress can be very important in life, but when you have a choice wouldn’t you rather allow yourself enough time to think and consider all options when making important business decisions? Every trade you take is a business decision and if you are willingly forcing yourself to make it under 30 seconds when trading M1 timeframe you might be adding unnecessary stress to your work.

All that said, every trader is free to choose any trading style they feel fits them best. However, one important point is that once you’ve chosen your trading timeframe, you’d better stick with it. It is one of the most common trading mistakes to constantly jump from one timeframe to another, hoping to see some signal you might have missed on your main trading timeframe. It is a particularly difficult issue to overcome for me personally so I can share a lot of experience actually making these mistakes again and again.

Greed driven inconsistency

Imagine that day trading is our preferred style and we decided to fade pullbacks along with the higher TF trend. We’ve chosen M5 as our trading timeframe and the goal is to take entries along with the H1 trend.

The following charts show exactly the kind of entry we are looking for.

M5_entry

 

Now, let’s say we entered the trade, it went our way and we moved SL into breakeven, as marked on the chart. We are analyzing the market in general and see that trend on Daily is really strong: the price just closed below the lowest of the previous 3 days and it seems that it will go on forever. We entered with 0.5% risk and SL was just 8 pips. At the lower prices shown on the chart we already had 20 pips profit, resulting in 1.25% paper profits. Now we project the daily trend further into the future and start thinking about holding the trade along with it: with the average range of daily candle in this trend being ~70 pips we make more than 4% every day while the trend continues! That’s a nice profit, and we don’t have to do anything to get it. Right now we have 1.25% in the market already, but it does not seem that much anymore. We decide to ride along with the daily trend.

Right at the moment of that decision not only have we broken the system rules (Daily timeframe is not even mentioned in our strategy) but we are also inconsistent in our analysis and in expectations. The next picture shows that the trade is stopped out in breakeven, but the Daily trend is far from reversed – it continues down for hundreds pips more. That’s a really frustrating moment in our trading: not only we gave up 1.5% profit already in the market, but also missed a move that seemed so obvious AND we were actually right about that move. How did it happen?

eurusd_daily_trend

 

One thing we failed to realize is that the whole move we were trading on M5 is nothing but noise on Daily. If we want to ride the Daily trend, the SL should be positioned in such a way that when it is triggered, your original premise is canceled and has to be reviewed. In this case a proper SL would have been at least above the previous day’s high – 70 pips away compared to our 7. As we can see on the charts the market could have hit our 7 pips SL day after day as we would keep on trying to enter using M5 timeframe, and the Daily trend would still remain intact.

The original premise was to take H1 trend, according to our system rules. We already took a good portion of it and because the trade seemed to be without risk (SL at breakeven) we decided to ride the Daily trend as well. But inside of that Daily trend there are countless bullish and bearish H1 trends starting and ending every single day. The market can easily reverse against our position, taking out the SL while not affecting the integrity of the Daily trend in the slightest.

Driven by greed, we broke our strategy rules trying to hold for the move that was never planned. In the end we failed to take the trend that was properly analyzed, executed and already in profit – it only remained to take the money according to our rules.

Fear driven inconsistency

I started with a very common example, a mistake I am guilty of making countless times when I was just starting trading intraday. However, there is a reverse situation that I would like to review as well. This time let’s use a higher TF perspective.

Let’s say our rules are very similar to that of the previous example. We want to take our entries on pullbacks along with the higher TF trend. The only difference this time is that our trading TF is H4 and we are aiming to take the Daily trend. The following picture shows our hypothetical entry where we fade the pullback, expecting the price to bounce from resistance. For simplicity, we use the same EURUSD pair, selling it on almost the same day, but this time with different goals in mind.

h4_entry

The entry worked out just fine, we have a protective stop order just above the Weekly pivot (marked on the chart) and now we get ready for a long ride, possibly 500-800 pips.

One psychological problem with longer term trading is that it is certainly not as “exciting” as intraday. Even on a relatively low timeframe, such as H4, you get no more than 6 candles a day – no matter how hard you try, there is not much to analyze the whole day. Swing traders rightly consider it to be a great benefit, freeing the trader from staring at the screen nonstop and allowing sufficient time to make proper trading decisions.

But there is also another side to this, a problem I experienced firsthand so many times. When your trading is going for days, even weeks, your brain really wants to “explore the market”, make sure nothing is wrong with the trade, that the market does not reverse against you and does not take your paper profits away. Given the lack of market information on your trading timeframes (6 candles a day on H4, 1 on Daily) such “exploration” is often done on lower timeframes that are really not part of your system.

There were times when I saw the price come to some level of support and bounce from it a couple pips – hardly visible on H4. Losing control of my brain and lacking proper discipline (in the beginning lacking proper strategy definition even) I would start looking for confirmation on H1 that the market is not reversing. Seeing that the bounce certainly looks bigger on H1, but still clearly not predominantly bullish, I would very soon find myself starring at a powerful bullish move on M15, breaking through all the levels of resistance and leaving no chances for the bears to counterattack. Closing my short entry then seemed only logical, common sense – the market is clearly reversing against me.

You know the rest of the story – after I took my position out it didn’t took much effort at all for Daily bears to push lower through that insignificant support (especially given the fact that M15 bulls were taking their 50 pip profits (i.e. selling their buys) by the end of the day).

Let’s take a look at the next chart, picturing the exact same scenario with our hypothetical EU sell entry.

eu_M15_false_reversal

Starting building a consistent approach

After we defined the problem of being inconsistent in our approach and analysis, it still remains necessary to find a way of dealing with this issue. We will go into this subject in more detail when we start discussing building and refinement of different strategy elements. Today, however, let’s start with a general outline to get us thinking in the right direction.

The starting point must be the clear definition of our trading strategy. Before we can do that, we have to think about the general psychological preferences by asking ourselves these questions:

  1. Do I prefer to watch the market on lower timeframes to find the entry and monitor through it to the exit point?
  2. Am I susceptible of jumping the gun, closing prematurely, making some technical mistake (buy instead of sell, wrong SL or TP, etc.) if I watch the market nonstop and have to make a trading decisions in a matter of minutes?
  3. Do I possess the level of concentration required to watch the market unfold, candle after candle, possibly for a couple hours?
  4. Can I imagine myself concerned about my position if I leave it over the night? What about leaving it over the weekend? Over the holidays, such as Christmas or New Year’s Eve?
  5. Am I likely to be tempted checking on my trades every couple hours if I leave them long term?

Here is an example of what simple psychological preferences might be (note: these are not my answers, nor will they be correct for you, but hopefully it can get you started putting your own on paper):

  1. I would not like to watch the market nonstop, many hours a day
  2. If the decision is required right this moment I believe I am susceptible to making trading mistakes
  3. Even though I believe I can concentrate on the market for an extended period of time, I cannot imagine doing it each day for many hours non stop
  4. There might be some concern about the positions left overnight, but it is something I can deal with and eliminate completely with experience. I am hesitant, however, leaving my positions over the weekend, since the market can gap greatly against me. The same goes for the holidays.
  5. Checking my positions 2-3 times a day should be sufficient.

Now that we defined our hypothetical psychological profile, we can see what strategy will suit better here. Clearly, this trader would be better off trading midterm strategy, aiming to get weekly trends and preferably not leaving any positions over the weekend. His goal would be to get the trend on H4, with H1 being his entry timeframe. Because the amount of time he can spend watching the market is limited, an acceptable strategy would be to watch the price action for breakouts during the open hours of UK and US sessions. His strategy might look something like this:

  1. Define the prevalent trend on Daily timeframe
  2. Find a pullback on H4 with slower price action
  3. Watch breakout entry points on H1 in the beginning of UK and US sessions

Given this definition, would it be helpful for his trading to go to M5 to look for a more precise entry? Similarly, would it be helpful to try and leave his positions along with the Weekly or Monthly trend (that he is not watching nor analyzing)?

Because he is not able to watch the price action nonstop, during the whole trading session, M5 is not likely to help him find better entry, as he can be easily stopped out and left without a position. His goal is to see a breakout pattern on H1, put his SL and let the market unfold.

At the same time, if he leaves the position along with the weekly trend after he set it in breakeven, he might easily find himself stopped out once again without the weekly trend being canceled. The distance of 100 points to his stop loss is nothing but a small correction on Weekly timeframe.

Summary

No matter how hard we try it is simply not possible to take every single move on the market. We cannot expect to take a bearish Weekly trend, while fading it on Daily, trying to catch every correction up, and also scalp up and down inside of each trading session. As was already mentioned in previous issues, trader’s expectations can be his worst enemy. When you start on the market with the premise of taking each move, never accepting a loss, finding the best price to enter in the market or any other common trader’s dreams, you are preparing yourself for a disaster. If your expectations are clearly unrealistic and you are not willing to accept that, each time the market proves you wrong will generate a lot of frustration and will fuel the desire to “get even” with the market.

At the end of the day it all comes down to our mindset and the amount of control we have over our brain – our desires, fears and expectations.

 

Being in control of your trading

Posted on by Anatoliy Schneider

The article is from Market Advance newsletter, issue 3

Three aspects of trading

In last article we explored three parts that in my opinion make up a successful trader. The most general assumption is that trading is about analyzing the market and predicting where the price will go. As we discussed, being an analyst is important – you do need a plan to execute in the market. However, that’s where most traders are stuck – finding a method they believe will make them rich, taking a couple trades that do not work out and then jumping to another method, assuming that they do not have sufficient knowledge about the market and therefore cannot open “the right” trades. The belief that I found to be groundbreaking in my own trading, however, is that there are NO “right” trades. There are simply trades offered by your method of market analysis and you have to take them all, before you make any judgments.

Therefore, the most essential addition to the set of skills of any trader, who desires to make profit consistently, is his ability to execute the trades with no hesitation, trade the plan exactly as his rigid rules are saying to trade it. The plan might as well be faulty and simply not provide the trading edge necessary to win, but without executing a sequence of flawless trades (not from the profit/loss perspective, but in terms of absolute discipline in following the system’s rules) you will never know that and very likely will switch to another Holy Grail only to find yourself with another set of potentially good rules that you cannot follow.

Five or even ten trades is not enough to judge any trading method. Your edge is not going to be visible and such a small set of data bears little to no statistical significance. Imagine a casino operating a slot machine with 4% advantage (meaning that they win 56 times out of 100 on average) calling a mechanic to repair the machine, or suing the gambler for somehow rigging it, just because after 10 customers the casino is in net loss.  Changing the machine after each 10 customers if their gambling produces a loss is just as absurd as changing your system after you have a couple losses in a row, especially if you “jumped the gun” on half the trades.

Mastering trade execution and getting a method of analyzing the market that provides you with some consistent edge are essential for any good trader. However, there is another aspect to trading we briefly discussed in the previous issue and arguably it can be even more important because unwillingness or inability of learning that aspect can help you decide pursuing a career elsewhere, long before you leave your life savings in the market.

Trading is a business

Like in any business, in trading it is most important to stay in control of what you do. First of all it implies having control over yourself, getting your mindset right and acting appropriately on each trading opportunity the market is offering. But when we see that opportunity and ready to enter in our direction, what do we really control in that trade?

I prefer to think of the trader as a small business owner. Anyone can open a small shop as a pursuit of having more freedom in one’s life, but interestingly enough 50% to 80% fail in the first 3 to 5 years. In trading I would argue that the failure rate is closer to 90%. My belief is that the reason for their failure (in business or trading) is defined primarily by the attitude they start with.

As we discussed before, the entrepreneurial freedom NEVER implies freedom from responsibility. In fact, starting out on your own increases the responsibility in almost all areas of your life:

  1. Your level of income
  2. Your medical insurance
  3. Your taxes and book keeping
  4. How you manage your time
  5. Your own development

It is my opinion that the understanding and full acceptance of this responsibility is what defines you as a success or a failure in business or indeed in trading.

In this issue we start our detailed discussion of managing your trading like a business. Being in business means being in control and yet I find that most traders have none –  often unknowingly giving up the only thing they have true control over in trading.

Being in control

If you are a small store owner and you are just starting out you can control quite a few things. First of all you control the stock in your store. You decide how you spend your initial investment. In trading that is your starting capital and in turn you control your Money Management and decide how many positions you can hold simultaneously.

In the store, when you spend $1000 to stock up, how do you know what your returns are going to be? Well, you know for a fact:

  1. The rent you are going to pay this month
  2. The salary to your employees
  3. You know the average bills you have to pay
  4. The advertising costs to attract the customers to your store

It is obviously an oversimplification, but it will do for our comparison. With that information on hand you add it to $1000 you just spent and now you know the amount of money you need to make in order to breakeven. Let’s say it is $1500. Everything above that is your profit (don’t forget the best part – the taxes!). Now, if you want to get $500, you have to sell your stock for $2000.

At that point you’ve already done your research and know that compared to your competition it is a reasonable price tag and given your location you should have no problem selling it at that price point. If (and it’s a big “if”) everything goes well, you just figured out your profit for the month.

Now, in trading you have some benefits, such as:

  1. No additional rent is needed (unless you like working in the office)
  2. There is no one to pay the salary to
  3. The bills are the same as if you would be living your normal lifestyle
  4. You have no product to advertise

In other words, you don’t have that extra $500 minimum you need to make this month just to get out in breakeven. In fact, the only thing you need to do in to order to stay breakeven is to do nothing!

The bad news though is that you have no expectancy for the amount of money you are going to make this month. On the one hand, you know your statistical results over the past months and if you are extremely consistent they can give a good average expectation for your profit (or loss). While the store owner can try to increase his sales in numerous ways by expending more money into advertising, introducing new services, etc., we can only do trades, and usually trying to trade more actively than our system allows will not increase the income by the end of the month – quite on the contrary, you stand a good chance to lose what you earned while following your system as it is.

When a customer enters into our hypothetical store, we don’t know what he is going to buy, if anything. He can go away empty handed or leave half his savings with us. We do know, however, that on this day we already invested ~$500/30 (our monthly expenses divided by the amount of days in this month) into our business in bills alone. We never know how this money is going to come back to us.

When you start your trade, similarly you have no idea what it produces. Yes, your edge provides you with statistics, saying that 12 trades out of 8 will make money, but you can never know the exact winners before they are closed and cashed in.

In reality, when you open your trade, there is one and one only variable that you have certain control over: how much money you are willing to pay the market in order to find out if the trade is going to work. In other words, your risk on that trade. You put your stop and you know where you get out if the trade doesn’t work. Everything else is only your expectation.

Giving up the control

Imagine that in our little store we decide to cut the costs on the salary by declining the medical insurance to our employees and instead paying the direct costs for any accidents they have. Yes, we are happy to know that we saved $100 extra every month but now we never know the costs of doing business. Another unfortunate day a fridge falls down and crashes our clerk’s leg, resulting in $100 000 hospitalization costs and ruining our business, all our savings – our car and the house taken away in addition.

Trading without a SL is exactly the same. If you give up control over the only variable you have in your hands in the market, you are going to do fine until one day you lose it all.

To emphasize the point, I offer this quote by Larry Hite in his interview in Market Wizards:

         I will tell you another story. I have a cousin who turned $5,000 into $100,000 in the option market. One day I asked him, “How did you do it?” He answered, “It is very easy. I buy an option and if it goes up, I stay in, but if it goes down, I don’t get out until I am at least even.” I told him, “Look, I trade for a living, and I can tell you that strategy is just not going to work in the long run.” He said, “Larry, don’t worry, it doesn’t have to work in the long run, just till I make a million. I know what I am doing. I just never take a loss.” I said, “OK…”

In his next trade he buys $90,000 worth of Merrill Lynch options, only this time, it goes down, and down, and down. I talk to him about one month later, and he tells me he is in debt for $10,000. I said, “Wait a minute. You had $100,000 and you bought $90,000 in options. That should still leave you with $10,000, even after they expired worthless. How could you have a deficit of $10,000?” He said, “I originally bought the options at $4k. When the price went down to $1k, I figured out that if I bought another 20,000, all it had to do was go back to $2k for me to break even. So I went to the bank and borrowed $10,000.”

Summary

The difference between any entrepreneur (traders included) and usual paid worker is in the acceptance of the risk and the responsibility. Most people prefer to live in the comfort of some assurance in life that they get a pay check every month as long as they follow the rules – and in the current economy that assurance is very tiny indeed. Any entrepreneur accepts and embraces the risk, giving up that assurance in exchange for control over his or her life.

As traders we can learn a lot in regular business. The costs of doing trading business must be defined as rigidly as possible.

We can:

  1. Set our monthly loss limit
  2. Set our daily loss limit
  3. Given the expected activity of our trading system, work out the amount of money we can risk in each trade, so that we do not exceed our daily loss limit after we fail a couple signals in a row

We cannot:

  1. Set a rigid profit expectation for every trade
  2. For every day
  3. Even for every month

Unfulfilled expectations will lead to frustration and mental disturbance, undermining our success in trading.

Being a Trader

Posted on by Anatoliy Schneider

The article is from Market Advance newsletter, Issue 2

Today we are going to look at the 3 main parts of trading profession, the essential treats of character for any successful trader.

Being a businessman

Trading is first of all a business. It is about embracing the risk, taking the action and accepting the full responsibility for the actions we take.

When I read about trading online, I always see that trading is about being home, waking up whenever you want to, and taking a couple trades with an easy to follow trading system that you can conveniently buy on the same website for $99.99. Even better, the system can be fully automated, a miniature variant of money printing machine at the convenience of your home office! Sure, I get the fine print required by the government about how risky it is (you can find it in the beginning of this newsletter as well), but the big letters right here say clearly “90% success rate on any timeframe, any trading pair, any account size!”

That was the general mental state I was in when starting to trade.  However, trading turned out to be one of the most difficult paths one can take in life. I was lucky enough to find an online community of professional traders where I learned not only all the basic and advanced technical analysis but more importantly the right attitude to trading. The rules for all newbies were the same: not only had you pay the monthly fee to be allowed in, but every day you had to be there in the discussion from 8am GMT+3 (start of the European session) to 6pm (after the start of US session) and had to create pictures for every single post that pros make. Only by going through that, following them word to word, typing in their comments in the pictures, could you understand what trading is about.

Of course, it was strictly intra-day short term trading – It is a little bit slower pace of action on higher timeframes. Either way, anyone expecting to have a relaxed time trading should seriously reconsider his goals.

Having said all that, it is not just hard work that make the trading difficult for most people. Being a businessman implies another important character trait – the ability to accept full responsibility for one’s life. Most people can never truly exchange the comfort of day job with an expected paycheck by the end of each month, employer provided benefits and a relative sense of stability for more freedom. Freedom of being self-employed implies the ability to make your own choices and decisions in life. It never implies freedom from responsibility. Only by embracing the risk, the unknown, being responsible for each moment in your life you can truly succeed as an entrepreneur.

Being a trader

What does it mean being a trader? If we had to define one core function a trader has to perform, what that would be?

Trading, like any other profession requires a particular set of skills. We teach economists, analysts, bankers, but I will argue that having all these skills, even at a very high level, does not guarantee any success in trading. In fact, I found that studying the market only made it more difficult for me to actually trade.

First of all, let’s define what trading is NOT about at its very core.

Trading is not about analysis of the market. It is not about forecasting the price, knowing where it will go. Trading is also not about understanding the underlying economic reasons why the price moved where it did. Sure, all these things can and will help in trading and I am not denying the great value in this additional knowledge, but at its core these skills are not definitional of trading.

Let’s take a look at an example. A musician, just like a trader, needs a certain set of skills to become successful. He can learn all he wants about the history of music, understand all different musical styles, become very knowledgeable in works of every major composer, learn all ins and outs about musical theory and harmony, etc. All these things are extremely important but in themselves they will only make a good historic of music, or (god forbid) a music critic.

What defines a musician, however, is first of all his ability to play, to perform. There are countless successful musicians, especially in modern popular music, that reached success with no knowledge of musical theory but simply by superb performance of their original or someone else’s work. The technique, the ability to make the sounds pleasant to our ears is the core of any musician.

Coming back to trading, let’s see if we can define a trader’s core skills in a similar fashion. Just like musician final creative output is the sound he produces, the trader’s final output is the money. There is nothing else a trader generates by the end of the day but a balance – negative or positive – in his account.

Musician’s ability to produce sounds pleasant to our ears is defined by his technique – his ability to execute every single note in just the right way. Similarly a trader can produce money by his technique – his ability to execute every single trade at the right time in just the right way.

I accept that one can be a high level composer, writing music for the orchestra or solo performers, without having the ability to perform his work himself to a high standard. You can also be a good market analyst, forecasting the price with high precision. You can plan your perfect trades all day long, and still be unable to trade your plan.

So, at the core, being a trader means executing the trades, pulling the trigger with no hesitation and great consistency. There may be bad trades indeed, but I never said that trading is only about taking the trades – I only shared my opinion that without that ability no one can be called a trader.

Being an analyst

This is where you plan your trades. We discussed trading the plan in the previous section, when in reality you have to plan the trades before you can trade them. However, I feel it is important to emphasize how much more crucial it is to execute the plan then to write it.

When I started my main goal was to analyze the market the best I can, try to forecast the price, predict every single move of the market. I read and learned everything I could find, starting with simple charting tools such as trend lines and channels, then trying every single indicator, hoping that I can find “the one” that works more often than it doesn’t, exploring the Fibonacci set in great detail (going as far as reading his original work), getting stuck with Elliot Wave theory for at least 5 years and then finally programming the most complex automated trading strategies I could imagine, powered with desire to have my own money-printing machine in the office. Naturally, none of that worked.

It was a very vicious cycle indeed, something many traders get stuck in for many years. You find something that seems to work on the history, start using it life, fail with the first couple of trades and quit before too long, swearing never to come back to the markets again. However, as frustration wore down with time I was ready for another try, another great idea to make me rich overnight.

Many traders are lucky to end that cycle either by becoming totally hopeless or losing enough money to quit for good. I did not have such luck on my side. Being careful enough to follow money management rules and never risking more than 1% in a trade I was going in circles for more than 7 years. When I was ready to quit after the first 4, I started programming for other traders and that was fueling my desire to come back to the markets all the time, nonstop.

I never actually did badly, I had many good trades and was considered a good analyst. The fact that I did not get at the time was that being a good analyst, predicting the price and winning consistently in trading have very little in common.

Until very recently I never even considered that my problems could be in trading execution. Any time I would miss a good signal that I planned to take, I blamed my analytical abilities – they are not good enough to provide the confidence to take the trades I plan. And so I searched for the next golden trading rule. When I took the trades that failed, guess what, I blamed my analytical abilities again. When I took the trades I never planned I once again reasoned that I do not have a trading system good enough to trust and not consider taking any trades that are not part of it. You see, our brain is extremely good at finding excuses.

Putting it all together

Just like any other profession or pursuit in life, trading is a journey. In this series of articles on trading mindset and psychology I am attempting to draw a map that we can rely. It is not going to be a perfect map that can change us from failure to consistent success overnight, to follow the map precisely we will need a key. That key is our understanding of ourselves – our own beliefs, fears, expectations, the excuses our brain makes. Developing such deep understanding that is necessary to succeed goes well beyond the scope of any writing – it is the pursuit of one’s whole life.