If you are trading without first assuring your survival, you are just playing a game, a crazy gamble that a drunkard places over the weekend in Las Vegas casino. No real trader who aspires to reach constant profitability will participate in the Market without first assuring their survival.
The above is absolutely essential and goes without saying. It is assumed by default that your risk and money management, as well as psychological well-being, are taken proper care of.
Before anything else, you need the willingness to put in countless hours of work into the Market. Only this will allow you to gain this important subjective feel of the Market as you watch it. The trading ideas will come to you effortlessly and it will only remain for you to execute them. This is how you build your trading system.
Ask yourself: “Why am I not putting enough time into watching the Market? Why am I not willing to take losses, make mistakes and yet continue with my method, learning and improving with each passing day?” Find the answers. Write them in your diary. Propose the solution and implement it.
When you spend enough time on trading and seemingly totally committed to your success in trading, ask yourself this: “Why am I not acting on each and every idea I have? Why am I closing the trades before my targets are reached or my system tells me to close them? What am I afraid of?”
Honestly answering these questions in your daily diary will lead to important improvements to your trading system. Go back to the first step – putting countless hours of work – and repeat the process times and times again, with humble understanding that you will never be good enough to cease improving your method and your execution of it.
Above all else, remember – it is only possible to go through this difficult process when you have absolutely, perfectly ensured your financial and psychological survival! You cannot be worrying about your well-being or losing more than you can afford to lose AND going through the mandatory learning process of taking losses, making mistakes and being clueless.
Imagine how difficult it must be trading with such belief. In our daily lives we constantly strive for certainty, we want the outcome to always be expected, and yet there is just too much we can’t account for.
How do you behave and feel when you try trading with this belief?
Afraid – The Market can take my money at any given moment!
Helpless – Anything can happen and I have no control!
Restless – How can I be at peace when I have no control over my trading even a minute from now?
Frustrated – All my work is for nothing, because no matter what I do, I am not certain of any single trade!
Miserable – I try so hard, but all I get is more frustration each day!
Lost – There are no trading opportunities I can see! Any trade I consider might lose!
Panicking – I just placed a trade and the Market already behaves not the way I expected!
Embarrassed – All I do is making a fool of myself, I always buy at tops and sell at bottoms!
Withdrawn/Apathetic – I don’t even want to look at the Market, there is no doubt it will just go against me yet again…
Tired – The more I analyze, the worse results I get, my efforts – all for nothing…
Well, I don’t want to go to “Suicidal”, but it is true that our beliefs can push us into dark corners of our minds indeed.
Why are we doing this to ourselves? Why do we need to be certain of the future, when we know for a fact that it’s impossible? If you need to be certain, be certain of this:
I have no idea how the Market will look a second, a minute, an hour, a day or a year from now!
So how do you trade, when nothing is certain? Just like Bruce Kovner said in “Market Wizards”:
…making your best judgment, being wrong, making your next best judgment, being wrong, making your third best judgment, and then doubling your money.
Let’s see if your thinking changes when you consider just the opposite of the belief we started with:
I completely accept uncertainty on the market. I have no idea where the price will go.
How do you feel now?
Liberated – How great it is not having to know!
Concentrated – Now that I know what I don’t know, I can concentrate on my analysis better, without having to be right.
Confident – Actually, now I know exactly what the outcome of my trade will be – uncertain!
Relaxed – My job is to explore the opportunities, Market’s job is to show me if they work or not. I simply concentrate on my business and let the Market do its own.
Amused – Each single step the Market makes is always a pleasant surprise for me – it simply teaches me and shows me where it goes.
Fascinated – It is amazing how balanced, harmonious the Market is, if I but let it go!
You can have the best trading system in the world, only to be ruined by your own thinking.
True, you might not become profitable even when your beliefs are in harmony with the nature of the Market, but you will become the greatest learner, watching and following the greatest teacher there is in trading.
We can all agree about the value of books, from which we learn so much. But how about the most important book you could every have?
The book that matters most in your life can only be written by you. No one (at least of this world) knows you better than you are. Much of this knowledge is hidden deeply in your unconscious mind and it is up to you to uncover it.
I consider my habit of writing in my diary as the most important aspect of my personal, professional and spiritual development. Your diary is the best friend you can ever hope to have in this physical world and it will honestly reflect the most important lessons back to you.
How many words have you already written in your diary this year? Six months have passed, how much did you learn, how many lessons did you uncover? How many mistakes have you documented, hopefully never to be repeated again?
If your answer is “zero”, you honestly can say that most of the past six months have been wasted for your growth. You are not aware of where you were going, and therefore, you cannot know where you are. But I can assure you of this – where you’re right now, is the only place you need to be. This is your path, you had to live these last 6 months unconsciously. And reading these words right now is not an accident either. Now, you may decide to change the road you’re on, never to look back.
If you say “less than 10 000”, you may have skipped many days, or even weeks, not reflecting on your day, not being aware of your path. Or maybe you are so concise that less is really more for you – not having such gift myself, I can only congratulate you!
“About 50 000” would mean an average of about 300 words a day. A great point of balance – just enough to state yourself clearly, reflect upon your lessons and move on with your life. On a couple more difficult days, however, you may consider expanding the self-analysis.
And if your answer is “more than 100 000”, I am glad I am not alone in knowing not the limit and suffering from verbal diarrhea.
One of the biggest problems of any trader is accepting this essential part of trading business.
So how do you feel and behave when you believe this about yourself?
Scared – “I cannot pull the trigger because it could end up being a loss!”
Powerless – “It seems there is nothing I can do to remove the possibility of losing”
Hesitated – “Something must be wrong with this trade, let’s wait another day, the Market just does not feel right”
Annoyed/Frustrated – “I am trying as hard as I can, and yet here is another loss!”
Angry – “Damn this Market and its stupid rules!”
Reckless – “I am sure this trade is right, I will not let the Market play against me and stop me out with another spike, I will just put this trade on without a stop loss…”
Inconsistent – “My trading system is just not working, I must change the rules to avoid such stupid trade in the future”
Depressed – “It is all hopeless – how can I ever win if I keep allowing these losses?”
Disgusted – “I swear I’ll never trade as long as I live!”
Foolish/Embarrased – “I was so sure about this trade, I kept telling everyone how much money I’ll make in this one!”
Notice when you allow your brain to enter into any of these patterns of thinking. Take a look through the list, see what applies to you personally.
It is a great thing if we are able to catch ourselves breaking predefined trading rules, such as our Risk Management or Entry rules. However, it is our thinking patterns that lead to breaking the rules or to any other problems in our trading. Consider for a moment, have you ever caught yourself thinking any of the above thoughts?
Being aware of our thinking is much harder than being aware of the fact that we did not put a stop loss in a trade. If you learn catching the moment when you talk yourself into not putting the stop loss you will start working with the cause of the problem, not the effect.
So let’s reverse the original statement:
I can easily accept the losses
Now, this may not be true for you at the moment, but try to imagine how you would feel, behave and trade if this thought would be your reality.
I am confident – the losses do not frighten me.
I am comfortable with my trading system – I accept all parts of it
I am at peace with anything the Market will do – I allow it to behave in any way it needs to.
I am grateful for every opportunity to place a trade – whatever the outcome of that trade might be.
I find all the circumstances helpful – any outcome is completely acceptable to me and therefore I am making myself available to learn from it.
I am looking forward to getting a loss – it is the greatest signal the Market could possible offer to me.
Consider the last point – isn’t it really the greatest feedback the Market could ever possibly offer to you? The Market is not against you, it is simply there to teach. It is clearly telling you, from its perspective, that your view of the circumstances was not correct at the moment when you placed the trade. What did you believe about the current market situation just before you pulled the trigger? Take that belief, reverse it and you have the corrected point of view, available to you with Market’s help.
The Market can do nothing to hurt you, nothing can cause any damage to your reality, so why is it that we find it hard to just relax? How much easier our job would be if we would follow the Market, instead of following our thoughts about the Market?
The reality of the Market can never do anything that would cause you stress. Only your interpretation of the Market – your thoughts about it – cause emotions and prevent you from being detached.
Yes, it is important to have a trading system – a framework inside of which you view the Market. A trading system will cause you to interpret Market’s actions, so it must be constructed in a way that avoids all inner conflict. However, if you are unaware of your thinking, even the best trading system will fail because you will not be able to follow it precisely. You will never notice when faulty thinking enters your mind and causes you to choose incorrect interpretation of the information Market puts in front of you.
Until we learn to just relax and listen to what’s going on inside, there is no point to try building a trading system. The conflict our unconscious mind tries to hide will be projected into our trading and ensure our failure.
By far the most important belief on the Market is in myself.
Throughout the years I’ve been always trying to perfect my trading system, analyzing each losing trade and trying to figure out what went wrong. I always assumed that any loss means that I didn’t recognize some obvious hint the Market was giving me. I assumed I made a mistake that must be fixed before I take the next trade. That kept me going in circles for many years.
The problem with that attitude is that I was believing that it is possible to be always right. I wanted to be always right. In essence, I didn’t have any belief in myself so I was trying to build an ideal trading system that I could believe in.
A breakthrough was the realization that some trades are simply not working out. There is nothing wrong with them whatsoever. They were taken at the right time and at the right price in the right direction. And yet, the Market did not go in that direction.
When I define “the right trade” or “the right direction” in terms whether the trade made profit I am in for trouble. Basically, I am making sure that any loss will make me “wrong”. A different attitude is to define “the right trade” as the trade that has been taken according to my trading system, without any anxiety or hesitation. The trade might still lose me money, but it is “right” because it wins in the long term. Even when the trading system is not good enough to give me a winning edge, the trade is still “right”, because by following my rules I will soon find out the problems in my system and improve it.
On the other hand, when I judge every losing trade as “wrong”, I will experience emotional pain. If a trade is capable of causing me pain, disturbing my emotional balance, I will soon develop a fear of taking a trade. When I start hesitating pulling the trigger, my belief in myself is further diminished. Before I know it, I am trying to improve my trading system again, trying to make sure it will never lose and become the Holy Grail I can believe in.
Until we can fully believe in what we are doing we can never become consistent in trading. If there are no rules in your trading, you are going nowhere. If there are rules in your trading, which you constantly adjust to make sure the Market does not cause you emotional pain, you are going in circles still. We have to change what’s inside before we can start seeing what’s outside clearly.
Whenever I look at a price chart I want to make sure that there is no rigid preference in my mind for it to go in whichever direction. If I happen to “know” where the Market will be going, I am setting myself up to a failure in the long term.
And still, I do know something about the market. I am certain that the Market will move, and it is about the only thing I can trust it to do. It may take its time, but eventually it will move sufficiently enough up or down to create an outcome for my trade.
Before I even think about placing any trade, I want to build an acceptable scenario how the Market will be moving up as well as how the Market will be moving down. I am building these scenarios fully acknowledging that the Market does not know about them, could care less about them, and ultimately will move only in such a way that it needs to move in.
I then accept the possibility of either scenario to work, and in case my (limited) understanding of the current market situation suggests that one scenario is more probable than the other, I establish the trade.
What’s so great about the market, is that it is a great teacher, and it never hesitates to provide clear, unbiased, very useful feedback about my trading decision. Soon enough it will show the reality of the current market situation and I will be able to compare it with the possibility that I outlined in my trading scenario before establishing the trade. The actual outcome of my trade is completely irrelevant. What’s important is the feedback I get each time I choose to participate in a trade.
Trading in this way, I am making the Market my most valuable ally, instead of trying to make an enemy out of it. It teaches me, guiding me to greater understanding of its actions. Really, all the Market is trying to do is tell us where it is going. Unfortunately it does not speak English, and so it is our only job to learn the language that it does speak – the language of Price Action.
However, like with any other language, we cannot perfect it by concentrating on just the theory – we have to engage in a conversation with the Market by establishing a trade and learning from its response.
When anyone who knows about Your Trading Coach, reads back into my old blog posts, it should become obvious to them that my understanding of Price Action was heavily influenced by Lance’s approach. Even though my trading system is mid to long term, I am reviewing his Price Action articles anytime I feel like I cannot read the current market structure.
I am very pleased that he decided to show some of my trades on his blog, so that his readers can see that the same principles apply to any market, on any timeframe.
I would like to emphasize, that when I say his blog influenced my understanding of the market, I do not mean that I read it once, had an “a-ha” moment and realized how to trade profitably, never to lose again. The only reason his writing is helping me is because I am coming back to it every single week – not only to read his new article, but to look through the old posts in all categories that he writes. We do not learn by reading some idea once, we learn by systematically reminding ourselves the important principles in that idea and applying them in our daily practice.
If you read “Market Wizards” by Jack Schwagger, you will note that the best traders in the world are constantly improving by learning from other professionals in the field. I do not recall a single interview in the book where the trader would not show his respect for other’s work and would not acknowledge the fact that he is still learning from other traders, books, market newsletters and of course the market itself. It goes to show that no matter how successful a professional trader is, he still needs to constantly learn and improve.
Eleven years ago, when I was just starting getting interested in the market, I was believing that I need to learn for a year, possibly two, and then I will just enjoy trading my system and spending the profits. Now, more than a decade later, I am learning much more than when I started, spending more hours each day on learning (certainly spending more time studying the market than actually trading it) and only recently starting to open trades in the right places. I came to realize, that the essence of anything we want to do well in this life, is in constant studying and practice. There is no point where we can stop learning and relax. Instead, we relax by enjoying the learning process, constantly fascinated by the infinity of knowledge we are yet to learn.
Part of my everyday trading process, is reading selected market books. Along with new books I add to my library every couple months, there are some that I continue reading every single day. “Trading in the Zone” by Mark Douglas and “Market Wizards” by Jack Schwagger are only two examples without which any progress in my trading would not be possible.
I have read “Trading in the Zone” in Russian when I just got interested in trading eleven years ago, but unfortunately I could not see how it will help me to make any money trading. I put it aside, and continued pursuing more “Holy Grail” trading methods, confident that I will find the one that NEVER loses – why do I need any trading psychology then? Nine years later I was still learning about the market, developing new trading systems, still unable to make any consistent profit, still not finding the “Holy Grail”. Realizing that I am not getting anywhere I started looking for answers, and noticed the book again on Amazon, while shopping for new technical analysis bibles. I bought it in English about a year and a half ago and it made all the difference for my trading performance (I was very lucky to stumble upon Lance’s blog about six months later as well).
Since then I have read “Trading in the Zone” fifteen times, taking notes, highlighting important parts. I cannot emphasize enough how many new insights I am getting with each new reading. Every single day I put a timer for 10 minutes and read it again. Today I am on page 87, and as soon as I am done, I simply go back to page 1.
Last year I was living in Cabo San Lucas, Mexico, and on 15th of September we had the biggest hurricane in modern Baja history – Odile – hit the town. After one scary night we found ourselves in a house without a single window, ocean water covering everything. Almost all the books in my library got damaged. Still, I decided not to buy them again and instead try to restore them. Here is a photo of my copy of “Trading in the Zone” today:
I am not trying to say that this particular book or Price Action based trading system is a “Holy Grail”. Instead, I am saying that the attitude of constant learning and improvement, such as you can clearly see in Your Trading Coach blog, is that illusive “Holy Grail” that every trader is trying to find outside, not realizing that it’s always been inside – hidden by our ego and only waiting to be developed.