Month: May 2019

A professional fisherman has much in common with a professional trader. They both must learn their craft to the point of mastery and doing so develops a refined ability to ‘feel’ the sea or the market. There’s much you can learn from a professional fisherman that will help you improve your trading…

The example of a highly-skilled yet sickeningly patient fisherman out-fishing all his competitors is a very good metaphor that we can use to help you better understand what it takes to become a professional trader. Both professions require many of the same attributes such as; an insatiable desire to master the craft, continuously learning and expanding one’s knowledge and skill, the desire to do whatever it takes to win, and more. All of the aforementioned attributes require intense passion, discipline and patience; things that those who never go pro simply do not have, at least not at the necessary levels.

Let’s dive into this in more detail…

Read the market like a fisherman reads the water…

The first thing you need to learn from successful fishermen to apply to your trading, is that you need to read the market like a fisherman reads the water conditions. As I alluded to above, a fisherman will consider many variables BEFORE they cast their line into the water, because they know that to not do it will essentially mean they are shooting in the dark, so to speak.

As discussed in an article by Discover Boating:

Experienced anglers will even tell you that when to fish can also be affected by where to fish. Too many hot days during the summer can adversely affect fishing in shallow lakes, ponds, and rivers since higher water temperatures can reduce oxygen in the water and cause fish to become sluggish.

Commercial and recreational fishermen use their extensive knowledge of both when and where to fish to significantly improve their catches. These fishermen take various factors into account, including but not limited to; predicting tides as well as understanding tidal currents, how much sunlight an area of water has received recently, warming or cooling trends, the depth at which fish are found, storm and weather patterns, wind and tidal flows when saltwater fishing. In some areas, strong tidal currents will concentrate bait and small fish, which attracts larger fish. As you can see, there is a multitude of variables that go into professional fishing operations, much more than the average person thinks.

As a trader, you need to understand how to read the market just as a fisherman reads the water. You must understand the market’s ebb and flow before you go ‘casting your bait’ or your money into the market. It’s important that you study the market and read it like you would a book; you should know what happened on the previous page to understand the current page. So, get intimate with a market and really learn it’s idiosyncrasies and become a master of it, just as a fisherman is a master of reading and understanding the different variables that affect water conditions to attract fish.

Professional fishermen are ‘snipers’…

Professional fishermen behave very much like a sniper in the military, a concept I have discussed in a past article here. A pro fisherman doesn’t move around constantly because they would cost more fuel, time and labor preparing rigs each time they move, and of course more bait. They are seasoned professionals who strategically plan where to fish, reading the ocean and weather as discussed above, to give them an edge.

How many times have you heard me talking about your trading edge in my articles? Well, there’s good reason for it. Just as a fisherman needs an edge or a strategy to catch fish, so you need an edge in the market. Your edge is what puts the odds of trading success in your favor, and it requires you to be educated and prepared, just as a professional fisherman is.

Does a professional fisherman just wake up and run out to his boat and zoom off to the middle of a lake or ocean and cast his line into the water? No. Of course, now, and you know he doesn’t. So, when looking at it from this perspective, how silly does it seem for you to go open your charts up and just enter a trade for basically no reason? Very silly indeed.

Just as a fisherman plans when and where to fish for the best possible haul, you need to plan how you will trade; what your trading edge is, how you will manage your risk and your exits as well as yourself! You must do this BEFORE you enter the market if you want to give yourself the best possible chance of trading success.

Patience is key in fishing and trading…

If you’ve ever gone fishing, you know it requires a lot of patience. However, unlike trading, you are basically forced to be patient in fishing. IN trading, you can just set up a trade up and enter it for no reason other than you want to risk some money, this will of course destroy your trading account but you can do it if you want to.

A successful fisherman will remain in his pre-planned high-probability fishing spot for as long as he deems necessary. He will not give up after 20 minutes with on bites, he will persist and wait patiently, perhaps re-casting, but not moving areas frequently. Similarly, as a trader you may have to wait days or even weeks for a high-probability trade setup to come along, before you should put your bait or money into the ‘water’ to try and catch a big move in the market.

Patience is truly what separates successful traders from the masses of ‘sheep’ who lose their money.

You need the mindset of a winner

As discussed in an article on Bassmaster.com:

Another thing that winners have — and this might be the most important trait they carry — is the ability to put their mistakes and shortcomings out of the picture. They don’t blame anyone or anything for their mistakes or problems. They never make excuses, and they don’t forget. They just move forward.

It’s like they can flip a toggle switch in their mind that allows them to turn those bad days into a non-issue. The past is just that, nothing more. It has no effect on the future. The next cast is a new opportunity and so is the next day. They don’t say they’ll make a clean break. They make a clean break.

Now, the above quote is obviously discussing the mindset needed to win at professional bass fishing. But, this is basically the same mindset you need to win at professional trading. You have to move forward and not dwell on bad days, or losing trades. You are going to have losing trades, but if you let them stew in your mind and take over your thinking, you will end up losing even more money as a result.

Just as a fisherman has to accept bad days with little or no good catches are part of his gig, so you have to accept that there will be many slow days in trading where there either are no good trades to take or you get a loss instead of a winner. How you handle these situations and if you can move forward without being bogged down by them, will significantly influence your long-term trading results.

Conclusion

If you’re out fishing and you immediately dump all your bait into the water once you get out on your boat, how are you going to catch the big prize fish? Well, you aren’t, of course! When you’re trading, if you immediately go and risk way too much, and lose a large portion of your risk capital, how are you going to stick around long enough to catch some big trades? You won’t! A fisherman needs to manage his bait properly just like a professional trader manages his bankroll properly. You must not over-trade or over-leverage just like you must not waste your bait if you’re a pro fishermen.

A good fisherman is nothing if not prepared. He must learn to cast his line in the right places, first and foremost. Eventually, being well-prepared and well-educated on all the various variables of fishing, will result in developing successful fishing skills that put a fisherman into the upper-echelon of fishing professionals. Ultimately, what this does is develop a gut feel for fishing; a sort of ‘sixth sense’ that allows these fishermen to instantly recognize where and when to fish. Similarly, after learning how to trade and putting that knowledge to practice, you will develop deep trading skill that ultimately results in a refined gut trading feel that will put you in the top 10% of traders who are successful.

I WOULD LOVE TO HEAR YOUR COMMENTS & STORIES BELOW 🙂

The idea for today’s lesson came to me from a member who emailed me recently asking for help with his trading. He had become so frustrated with his trading that he was ready to throw in the towel and give up on trading completely.

This members story is very real, but I have changed the name to keep his identity private. You will probably identify with much of this story if you’ve been struggling or have become frustrated with your trading recently.

Here’s the plan of action I gave to this member, to help him re-ignite his passion for trading and start improving his results…

Meet Johnny

Johnny had spent years trying to trade. He felt like he tried everything and after much trial and error, he was finally getting confident in his trading abilities. Yet, he still couldn’t seem to make it work. He still wasn’t profiting, after nearly 10 years in the markets. He was feeling jaded, like he was ready to throw in the towel and simply admit defeat and give up on trading forever.

However, he wasn’t one to admit that he wasn’t good at something, and so it was a hard pill to have to swallow, that maybe trading just wasn’t for him. Maybe he simply didn’t have the genetic makeup for it or maybe he wasn’t using the right method. He wasn’t sure. Yet, he still didn’t’ want to totally give up hope.

The same things that drew him to trading were still calling to him from the back of his mind; no more working a job he hated, no more bosses telling him what to do, no more sacrificing family time to work to pay bills, unlimited income potential. The allure of total freedom was what initially drew Johnny to the markets, and it has such a huge pull, that it was just too hard to give it up completely.

So, after reading Johnny’s story, I sent him a detailed email, outlining some psychological pitfalls I saw he was making, as well as an outline of how he could get his trading back on track. Here are some of the points I included…

Remember what first attracted you to trading…

What drew you to trading in the first place? How did you feel about it when you first found out about it? Just as in a marriage, to keep the flame alive in trading, we sometimes must stop and remind ourselves what we liked so much in the beginning. For me, it was the opportunity to truly be free, to not have to do boring work every day, to not have to be another drone, endlessly typing in a cubicle all day, or doing mindless physical labor that rendered my body useless right at the age I was finally ready to retire.

If you need a refresher, go read my article on why it rocks to be a trader, it will remind you the main reasons why we trading can be so awesome.

Read about successful traders

If you feel isolated and like no one is making money trading, you can simply go and read some interviews with very successful traders. There are many people who have already achieved great success in trading, myself included. But for some good reading recommendations on this topic, go and read some of the Market Wizards books by Jack Schwager. These books will tell you the story of real-world, very successful traders, and it will motivate you to read about how other people did what you are trying to do.

I would suggest that whilst you are doing the above things, you are not in any live trades. If you’ve been losing and feel lost in your trading approach, give it a break. You will come back feeling better and more clear-headed when you’re ready to trade again. This break is meant to re-calibrate your mind and help you re-discover your trading passion.

Stop trying to get rich fast

One of the primary reasons so many traders get burnt out and eventually want to give up trading or do actually give up, is simply because they are trying to get rich quick.

I have good article on why trying to get rich fast never works and you should definitely read it because it has a great metaphoric story about this topic. But just to expand on this topic a little bit…

Obviously, trying to get rich quick in trading means you’re probably doing almost everything wrong. It means you’re probably trading too frequently and risking too much per trade, which are two things that quickly lead to a lot of lost money as well as frustration and mental anguish.

I strongly urge you to change your perspective on trading and stop trying to think you’re going to make a lot of money fast. The ironic and difficult part about trading, is that to eventually make a lot of money at it, you must start out slowly and methodically and totally unconcerned about making money.

FINALLY make a trading plan

I know that everyone knows about trading plans and knows they should make one. But, I don’t think most people actually ever make one, which is a huge mistake. Especially, in the beginning, it’s very important you spend time writing out a trading plan and trying to follow it with discipline.

After you learn an effective trading strategy, making yourself boil it down and aggregate it into a comprehensive yet concise plan is something that will help you further understand your method and when you should trade it. You will also then have a physical / tangible document to guide you and to help eliminate emotional trading mistakes.

You have to stay accountable to your plan. If you break your trading plan rules you essentially are proving to yourself that you don’t have what it takes to be a trader, and to me, that is something I always wanted to avoid. I have always had a trading plan; at first it was a physical one that I read and followed each day, but now, due to my experience and developed skill, it is more of a mental checklist, but I remain disciplined and accountable to it. However, if you are new, or ready to give up at trading, you need to go though the process of making a physical trading plan, for the reasons mentioned above. (fyi – I provide a detailed trading plan template at the end of my trading course.)

Take calculated risks

Here’s an easy way to figure out how much you can risk per trade. Sit down and think about how much money you have that you consider risk capital; money that you can potentially lose in the market. Now, divide that amount by 20 and that is your per-trade or 1R risk amount.

Your risk should be a dollar amount that you could lose 20 times in a row and still be able to take another trade with the same risk. This will make it so you aren’t risking too much per trade, which in turn, will greatly help you develop and maintain the proper trading mindset.

I promise you that if you get into the habit of risking more than you’re comfortable with losing per trade, you are going to start having some big losses and quickly blow out your account which will lead you to wanting to give up on trading. So, let’s avoid that!

Demo trade

If you aren’t sure what you’re doing or you have an overly complicated method, you will lose money and eventually give up. Keep it simple by sticking with simple price action methods, ‘naked’ charts and higher time frames.

Make sure you aren’t trading live without having first learned and mastered the trading strategy you are using. You also should not trade live before having made a trading plan, as discussed above.

Demo trading is a critical component to getting back your trading passion. If you’ve recently felt burnt out and ready to quit, stop trading live for a while and just go back to demo. Demo trading returns you to a neutral, emotionless mindset, which will help you regain focus and perspective. It also restores the market to more of a competition or a game, rather than just about making money, which is a huge help in getting back your passion. When you think of trading as a game that you are just trying to play as good as you can, so that you win, you will be in a much more effective frame of mind than if you are just thinking about it from a profits / money perspective.

When you are ready to go live again…

When you feel like you want to give live trading a shot again, I recommend you try aiming for smaller wins for a while, maybe 1 to 1 risk to rewards up to 1 to 2, to build some confidence and get some wins under your belt.

Once you have some runs on the board and if you’re confident, you can increase risk gradually up to your 1R amount, whilst remembering each trade needs to be carefully planned and shouldn’t exceed your pre-determined 1R amount.

Conclusion

When you feel frustrated and ready to give up on trading, just remember that it’s not the ‘end of the world’. Take a big step back and remove yourself from live trading for a while to get back on track. Reassess your trading method and make sure you like the method and it’s not overly-complicated and that it makes sense to you. All you need is a method that gives you an edge that provides slightly more than a 50/50 chance over series of trades, you don’t need the ‘Holy-Grail’ of indicator-infused perfection (also it doesn’t exist).

The determining factor in one’s success or failure in the market is always their own mind. That is why I cover trading psychology in my professional trading course, in addition to the other topics. Anyone will get burnt out and want to give up if they don’t have the right trading method, mindset and money management approach, I call this the 3 M’s of trading.

Good trading, and let me know if you have any questions by contacting me here.

I WOULD LOVE TO HEAR YOUR COMMENTS & STORIES BELOW 🙂

How can you attain something you are striving for if you do not possess the proper mindset to achieve it? One thing I have learned through the years in my trading and business ventures is that if you want to become successful, you must control the narrative in your mind. If you constantly focus on negative things and let fear control your thoughts, you are going to go nowhere, fast. I would not have achieved the success that I have in trading, business or in my personal life if I was not consciously working to control the focus of my mind.

Today’s article is going to provide you with a way to start each trading day in the best mindset possible. As I’ve written about often, your mindset is critically important to your trading; if your head isn’t right, you aren’t going to make money at trading, that is a fact.

What we are aiming to achieve here, is to guide our thoughts to a place of positivity and confidence in one’s self. What you focus on and how you think is what determines your outcomes in life. There has never been a successful trader who didn’t fully believe they were going to be a successful trader beforehand. You need to work to cultivate the best possible mental environment to succeed at trading and this lesson will help you to do just that…

Why Affirmations Work

According to the website learnmindpower.com:

When you verbalize something and repeat it to yourself, it will influence your thoughts. This is why affirmations are successful. If you say to yourself, “I will have a great interview”, you will automatically begin thinking about your upcoming interview as a great interview. What you focus on, you attract so begin using affirmations to focus on what you desire.

There are three rules to remember when using affirmations:

Always affirm the positive.

Avoid asking yourself, “What if it’s a terrible interview?” or thinking things like, “I’m so nervous”. These statements focus on the opposite of what you want. Be positive, and use words that reflect what you want to happen. If you want to be confident, use that word in your affirmation.

Make your affirmations short and simple.

Use a short phrase, or one sentence at the most. Your affirmation should be like a simple mantra that you can repeat over and over again, without thinking.

Don’t force yourself to believe it. Just say it.

You don’t need to force yourself to believe your affirmation, simply repeat it over and over and it will naturally have an effect on you. Repeating the statement many times will cause it to work for you.

Affirmations are simple, easy to use, and very powerful. Many professional athletes use them to perform well.  Successful business people use them to close deals and run their businesses, and artists use them to be creative and come up with innovative ideas. You can use them too, in any area of your life.

Now that you understand why affirmations work and some simple rules to use them, let’s go over 10 trading affirmations you can use to not just start your trading day on the right note, but to help you develop a consistently profitable trading mindset:

1. “My mindset and mental skills are the key to making money in the market”

Perhaps the most important thing to remind yourself of everyday is just how important your trading mindset is in relation to your performance in the market. As I said in a recent article on trading educator Mark Douglas, one of the most important things he wanted to convey to traders was that even if your method is a high-probability method, it’s the proper execution of that method that you need proper mental skills for. If you don’t have those mental skills, even a winning strategy will lose.

A lot of people seem to be unaware of the fact that they are trading with a mindset that is inhibiting them from making money in the markets. Instead, they think that if they just find the right indicator or system they will magically start printing money from their computer. Trading success is the result of developing the proper trading habits, and habits are the result of having the proper trading psychology. – Nial Fuller

2. “Trade and think like a ‘Baller”

Continuing with theme of positive thinking and ‘fake it till you make it’ mentality, you really do need to believe in your ‘heart’ that you will become a successful trader, a baller, so to speak. The only way to achieve something is to prime your mind to achieve it, because your mind directs your actions. If your mind believes you can achieve something, then it will direct your behavior to turn those beliefs into actions and those actions will become habits, the habits that lead to consistently profitable trading.

To read more about this, check out my article on how to trade like a ‘baller’.

3. “Trading is a game of probability, not certainty”

So many traders get caught up believing every trade will be a winner, and they forget that there is simply no such thing as a 100%-win rate. It’s critical to remind yourself you will have losing trades, so that you do not become over-confident and end up risking too much or trading too much. You must remember that trading is a game of probabilities, not certainties. For example, even if you win 75% of the time, it means you lose 25% of the time, right? The CATCH is; you do not know WHICH trade will be one of the 75% winners and which will be in the 25% losing camp. It also means, that you could conceivably have 25 losing trades in a row, out of 100. You probably wouldn’t, but you could, so knowing that it’s a possibility to have a large string of losers, how are you going to approach risk management?

Are you going to manage your risk like every trade will be a winner? Or are you going to be realistic and try to remain neutral to the outcome of any one trade? If you are going to do the latter of those two, it means you would absolutely dial your risk per trade down to a dollar amount that you could stand to lose multiple times in a row, without become emotionally or financially damaged. Remember, your trade outcomes are randomly distributed, please click on the link if you don’t know what that means.

If you have a weighted coin that will be heads 70% of the time, you still don’t know the sequence of heads and tails, all you know is OVER TIME 70% of the flips will be heads.

4. “I always use a stop loss to protect my money”

First off, you must use a stop loss on every trade, always. I get emails nearly every week from traders telling me they either don’t use stop losses or asking me if they should use them. It only takes one huge move against you without a stop loss in place, to destroy your account. So, just accept right now that you MUST ALWAYS have a stop loss in place.

Second, you must know how to place stop losses properly. I’ve written multiple articles about this topic (one I just linked you to) and I also discuss it in-depth in my trading course, so you can study those resources to learn more about it. For now, here is a quote about stop losses from one of the trading legends I wrote about in my Market Wizards article, Bruce Kovner:

“Whenever I enter a position, I have a predetermined stop. That is the only way I can sleep. I know where I’m getting out before I get in. The position size on a trade is determined by the stop, and the stop is determined on a technical basis.” – Bruce Kovner

5. “I enjoy taking profits, I will take the money when it’s there”

This one may seem odd, but it’s important to remind yourself you need to take profits. Many traders hold and hold their trades until they turn into losses. In a recent article on this topic, I wrote about why you should ‘take the money and run’, regarding cashing out of profitable positions and booking profits. Too often, traders have no logical exit strategy in place and they just end up holding trades for way too long.

I would even recommend, in the beginning stages, you look to take 1:1 risk: rewards, rather than holding for big profits all the time. This will help to build your trading account as you will hit more winners, but more importantly it will build confidence in your abilities and the method you are trading and will also allow you to get a good view of how accurate your trading edge (entry strategy) is over a large enough series of trades.

6. “I will not be influenced by news or other outside sources of ‘noise’”

As I have written about previously, fundamentals and market news events are typically gigantic wastes of your time and energy and usually result in over-analysis, over-complicating things and as a result, losing money. But, you don’t have to take just my word for it, here is what trading legend Ed Seykota has to say about fundamentals:

“Fundamentals that you read about are typically useless as the market has already discounted the price, and I call them “funny-mentals”.

I am primarily a trend trader with touches of hunches based on about twenty years of experience. In order of importance to me are: (1) the long-term trend, (2) the current chart pattern, and (3) picking a good spot to buy or sell. Those are the three primary components of my trading. Way down in a very distant fourth place are my fundamental ideas and, quite likely, on balance, they have cost me money.” – Trading legend Ed Seykota

7. “I will let the market do the ‘work’, I will not meddle in my trades unnecessarily”

The market is going to move up, down and sideways, it’s up to you find high-probability entry and logical exit points. What happens in between the entry and exit is typically what separates the successful traders from the masses of sheep / losers. Successful traders are not meddling in their trades unnecessarily, they are letting the market do the ‘work’.

Markets move, so let them move after you enter. Do not sit there staring endlessly at the charts in hope you are somehow going to will the price into moving in your favor. You are there to read the price action and find potential entries that MIGHT yield profit, not to try and control the market, which you cannot do, so do not behave as if you can or you’ll just end up losing money.

8. “I will be a professional trader, not a professional gambler”

Are you going to be a gambler or a trader? Gamblers play games of chance and understand they are not making skilled, high-probability decisions. They do not have planned approaches or methods (most anyways). It is incredibly easy to click your mouse, enter a trade and get that injection of adrenaline that makes you feel alive (just like a gambler), but is that going to lead to long-term success in the markets? Well, I think you know the answer to that.

I suggest you focus on learning an effective trading approach like price action strategies and develop that into a trading plan you can implement to make yourself into a skilled trading machine instead of a random gambler with no discipline.

9. “Trading can be simple and easy, I will make it as such”

Trading doesn’t have to be complicated or difficult, yet many people make it that way. You must remind yourself that it can be simple and easy, and you start by learning a simple yet effective trading method like price action. All you really need for technical analysis is an understanding of price action, trends and levels, or T.L.S – Trend, Level, Signal, something I teach in-depth in my trading courses.

You don’t need messy indicators, period. You don’t need messy charts or messy thinking (fundamentals, news, etc.) All you need is your own mind and an understanding of T.L.S, money management and trading psychology.

10. “Trading success is not dependent on luck or intelligence”

Here is a good quote from The Turtle Traders co-founder, William Eckhardt on intelligence in relation to trading success:

“I haven’t seen much correlation between good trading and intelligence. Some outstanding traders are quite intelligent, but a few aren’t. Many outstandingly intelligent people are horrible traders. Average intelligence is enough. Beyond that, emotional makeup is more important.” – William Eckhardt

“In conducting the interviews for this book and its predecessor, Market Wizards, I became absolutely convinced that winning in the markets is a matter of skill and discipline, not luck. The magnitude and consistency of the winning track records compiled by many of those I interviewed simply defy chance.” – Jack D. Schwager

If there is one key trait that trading success is dependent on more than any other, I would say it is persistence. Not everyone will succeed at trading, but of all that do, persistence is one thing they all have in common. You must believe the dream enough to turn that belief into action and action into habits, once you do that, you will be well on your way to becoming a professional trader.

I WOULD LOVE TO HEAR YOUR COMMENTS & STORIES BELOW 🙂

Are you listening to what the market is telling you or are you only listening to yourself? The market ‘speaks’ its own language, that language is price action, and not only do you need to be fluent in the language of price action, you also must be able to apply what the price action is telling you in an objective and neutral manner.

Watching the price charts of any given market is something you must do every day if you want to really stay connected with that market and learn how to trade it. I like to think of following price charts like reading a book – to understand the story, you must read each page because what happened before will help you to make sense of what is happening now and where the market might go next.

How to ‘listen’ to what the market is telling you and apply it

Each day, at the close of the market you should check your favorite charts, it’s like reading a page of the market’s story for that day. You can see what happened, who won the battle between the bulls and bears and whether any price action signals formed as a result. It’s important to make this a daily routine so that you don’t forget what has happened and what the market is doing, otherwise, it will take you some time to get back into sync with the market’s rhythm.

When you look at a zoomed out daily price chart or a weekly chart of any market, it’s not hard to quickly see the primary direction that market is headed. This is going to be the ‘right’ direction to trade in, 90% of the time. Yet, time and time again, traders over-complicate this. Rather than zooming out, and getting a feel for the overall dominant direction of a market, many traders want to zoom in, further and further, down to minute charts, where they are basically seeing nothing but noise.

The most obvious direction is usually the right direction

If you remember nothing else from today’s lesson, remember this point: the most obvious direction is usually the right direction. What that means is basically what I said in the previous paragraph – the primary direction, from left to right that a zoomed out daily chart is moving, is typically the direction you want to look to trade. So, determining this direction is the first step of ‘listening’ to what the market is telling you. Don’t over-complicate it! Just zoom the chart out and see which way it’s generally moving from left to right.

Look at the weekly EURUSD chart below, we are looking back at about 4 years of price data here. This is how you quickly determine what the ‘story’ of a market is. On this chart, what I see is a large downtrend that unfolded, followed by a large period of consolidation within a large trading range, and most recently we can see price broke up through that trading range and is now trending higher. So, the current most obvious direction of this chart is up. You see how simple this is?

Next, let’s move down one-time frame, to the daily chart time frame (my favorite). Here, we can see the market found a lot of support at 1.0400 and has recently taken out the highs at 1.1100 – 1.1300 and more importantly, the highs of the previous trading range up near 1.1615.

This is how you read the market from left to right. It’s not hard, it’s just like reading a book, you need to understand where the market has been and where the key levels are to understand what is happening now and what it may do next…

Path of least resistance

We always want to trade in-line with the path of least resistance. In the EURUSD examples above, the current path of least resistance is up. So, that means we will look for price action buy signals on pull backs to support or value areas.  The market will TELL YOU what the path of least resistance is, all you must do is zoom out and ‘listen’.

It only pays to be contrarian sometimes, not always. Don’t let your ego take over.

Whilst I am a fan of contrarian thinking and contrarian trading, everything has its exceptions.

It’s important to not become so contrarian that you are no longer listening to what the market is telling you. For example, if you get long on a breakout that ends up becoming a failed breakout, do not simply stay in the trade because you feel so strongly about it. If you do, you are no longer listening to the market, you’re listening to only yourself. A false break is a like a big warning signal and you need to listen and take heed of that signal, not ignore it.

In this way, price action can help you exit bad trades just as it can help you enter a trade. A massive bearish or bullish tailed bar against your position or false breakout as just mentioned, can often be a signal that the market is going to reverse, so if you arrogantly stay in a trade even considering such a reversal signal, you are not listening to or trading in-tune with the market, which is a very good way to lose a lot of money, fast.

Remember, trade what you see, not just what you think, and don’t get emotionally attached to any one trade. Trade in harmony with the market, not against it.

The importance of price action signals

As we are reading a market’s price action and ‘listening’ to what it’s trying to tell us, one big obvious piece of data that we need to pay special attention to, is a price action signal. Price action signals often convey very important information about a market and so we need to not only be aware of them and on the lookout for them, but understand what they might mean.

Perhaps the most important thing about price action signals, especially those on the daily charts, is to not be the proverbial deer in the headlights when you see one. In other words, don’t freeze up and (or) panic when you see an obvious price action signal, don’t over-think. An obvious daily chart price action signal can act as either an entry signal or an exit signal and is something you should always take note of either way. They are important clues in the ‘story’ the chart is trying to tell you and they can often help you figure out what the market is likely to do in the near-term.

Confluence – when you see price action signals at event areas or key levels, the market is telling you something.

Let’s look at another chart. You will notice in the Gold chart below, price formed two bullish tailed pin bar signals at a key support level and event area down around $1215.00 – $1200.00; an area we had discussed extensively in our members daily trade setups commentary as a strong buy area in early July. When you get a clear price action signal at a clearly obvious level like this, you are looking at a confluent price action signal and this is a core pillar of my trading approach…

Conclusion

As a beginning trader or as any trader looking to learn to trade with price action, it’s critical you understand how to read and interpret the ‘story’ a chart is trying to tell you. You do this by first learning to read the chart from left to right and then learning to interpret individual price bars. This gets easier the more you do it, but it is important you check in with your favorite charts almost every day so that you stay connected and in-tune with the market.

Eventually, you will begin to develop a trader’s intuition and when you see certain market conditions or patterns, you will simply ‘know’ what the market is trying to tell you, like a flashing light saying, “I’ve seen this before”. The journey of trading never truly ends, but if you are passionate about it, you will look forward to learning how to read the price action and learning to ‘hear’ what the market is telling you.

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I think we can all agree that habits are what determine our success or failure in any endeavor, trading included. So, how do we go about developing the type of habits that will lead us to profitable trading?

The answer: Routine.

Proper trading habits do not just magically appear out of thin air (unfortunately). They can sometimes take years to form. However, luckily for you, you have the power to put into motion a plan that will bring forth the proper trading habits sooner than otherwise possible. The development of positive habits, the ones that lead to success in any field, is something you can make a conscious effort to achieve simply by implementing consistent daily routines.

When you think about your daily trading routine, what do you think about? Do you even have one? Are you aware that ALL professionals, whether it’s a professional trader, athlete or doctor, have strict routines whether they realize it or not? They follow these plans and routines like clock-work, everything from diet, exercise, sleep and meditation. One thing that any successful professional has in common is that they have gone from daily routines to ingrained habits that virtually guarantee consistent and on-going success in their field.

“Look at the lives of famously gifted and creative people—including Freud, Beethoven, and Georgia O’Keeffe, to name but a few—and you’ll see that many of them optimized their daily lives to get on top of their games. Routine was their secret weapon.” – headspace.com

Once an effective daily trading routine has turned into an ingrained habit, it has essentially become a part of you and at that point you are effectively on success ‘auto-pilot’.

The power of daily trading routines…

Let me get this out of the way early: Without a daily trading routine, you won’t make it.

I am not talking about just having a trading plan either, I’m talking about what you do from the time you wake up to the time you sleep, this is all part of your daily trading routine.

Professional traders have developed a daily routine that maximizes their ability to trade properly and successfully. What does this look like? Well, it inevitably will vary from one trader to the next but many of the elements of a daily trading routine will be universal:

Get a good night’s sleep, ideally 7 to 8 hours.

Eat a good, healthy breakfast.

Identify the daily chart trend of the markets you trade at week’s start.

Identify key horizontal support and resistance levels at week’s start.

Check your favorite charts once in the morning, scanning for price action signals that have confluence with the daily chart trend and / or a support or resistance level.

Check your favorite markets once again after the New York close, again scanning for any obvious price action signals that may have formed.

If a trade setup formed meets your trading plan criteria, set the trade up and walk away until tomorrow morning. If no setup was there, walk away until tomorrow morning.

If you have an open trade, check it in the morning and just note what has happened, do not take any action unless there’s an obvious, logical reason to do so. Most of the time you should just be observing, remember, set and forget.

Whilst brief and simple, the above is an example of a solid trading routine. The biggest thing to notice about the above routine is that we are not spending a lot of time analyzing the market or entering trades. Instead, we are approaching the market the same way and at the same approximate times every day, this way, our brains are primed to begin turning this low-maintenance, simple routine and trading approach into a positive trading habit.

It’s important that you develop your own trading routine, one that makes sense with your schedule and daily life. The same routine will likely not work for every trader.

The lifestyle of an ‘end-of-day’ trading routine

In a recent article I wrote about end of day trading, I discussed some of the many benefits of this trading approach, but one thing I didn’t touch on very thoroughly was the lifestyle of an end-of-day trader.

Not only will trading in an end-of-day manner improve your trading, it will also allow you to have a better life and enjoy the ‘fruits’ of trading.

The trading routine that myself and many other successful swing traders implement, like the one outlined above, allows us to have a lot of time away from the charts each day. After all, part of the reason any of us get into trading is to not have a regular 9 to 5 monotonous time-consuming job, right? So, if you want to really have that freedom, you need to trade end-of-day and make it a routine.

I typically only spend about an hour a day analyzing the markets and looking at charts. So, that obviously leaves me a lot of time to do whatever else I want or attend to other tasks and businesses.

All you need is your laptop and an internet connection when you trade ‘end-of-day’ with a set and forget trading routine. You could, if you wanted, be a coffee shop trader and trade from anywhere in the world since you do not have to be in front of your charts more than twenty or thirty minutes at a time once or twice per day.

The science behind routines

If for some super strange reason, you are still not convinced of the power and importance of implementing a daily trading routine, let me share with you some information on the science of why routines are so powerful and effective…

As pointed out in an article tiled The Secret Benefit of Routines…

“Daily practice is a game-changer for creativity. Among other things, it keeps projects constantly percolating in the unconscious mind—and research shows just how powerful the unconscious mind is, helping us to reach better decisions than active thought

As Marty Nemko told me: “Having a routine helps ensure you do things well. For example, if your routine includes a daily shower, you’ll continually get better at it.” Sure, it’s harder to perfect your prose style than the way you wash your hair, but the same logic applies: daily practice is where the magic happens.”

A routine not only helps you naturally because it keeps you in-tune and intimately connected to the most important things you need to do each day (like analyze the charts), thus making you better at them (think practice), but it will also give you the best chance at implementing your trading plan successfully and following your rules of engagement in the market (since you will already be behaving in a consistent and disciplined manner – following the trading plan becomes more natural and easier).

Conclusion

It’s always good to remember why we got into trading in the first place. For me, it was to escape the 9 to 5 ‘grind’ and monotony of work, bosses and what I call modern-day ‘slavery’. So, it’s important to keep that in mind so we don’t end up turning trading into the same exact thing we were trying to escape. Trading is about freedom, so don’t become a slave to the markets and your charts.

Perhaps one of the trickiest things traders must figure out all too often through trial and error, is that to achieve the type of trading lifestyle they dream about, they must first realize that the only thing they can control is themselves. Spending a lot of time in front of your charts does not mean you are going to be a successful trader. The trading routine required to become a successful trader who doesn’t over-trade and become emotional about trading, is a laid-back, relaxed and minimalist type routine.

In my trading course and members area, I teach my students the importance of implementing a trading strategy and following a plan, but more importantly, I teach them the importance of sticking to an end-of-day trading routine that yields both improved trading results and improved lifestyle.

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What is the single biggest reason why most traders end up losing money in the market? It’s simple: They do too much – they think too much, they look at charts too much, they trade too much, they risk too much and on and on.

The most successful traders and investors of our time spend 99% of their time waiting for opportunities and studying the markets, rather than trading them. Approximately 1% of their trading effort is spent executing trades and managing positions. In other words, most of the time they are doing NOTHING. Can you say the same? Or, are you spending 99% of your time entering and managing trades and only 1% of your time waiting patiently?

If you have ever read my articles on What Crocodiles Can Teach us about Trading or The Sniper Trading Approach, it’s obvious that my trading style is a low-frequency, high-conviction approach. So, why should you adopt a similar approach with your trading? Read on to find out…

The ‘hunt’ involves A LOT of waiting.

Just as a Crocodile spends most of its time stalking its prey, a profitable trader spends most of his or her time stalking good trades. You want to trade like a predator, not the prey in the market, what I mean by that is, you want to be the trader who is waiting patiently in the ‘bushes’ for the ‘easy kills’. You do not want to be the masses of prey (amateur traders) who get ‘eaten’ by the professional traders every week.

How do you accomplish being the predator and not the prey? It’s simple really, waiting, waiting and more waiting.

I like to say I am in “hurry up and wait” mode for the right market conditions to present themselves. What this means is, I am actually excited to wait, because I know waiting means I am exercising self-control and being patient and disciplined, and I know this is how you make money in the markets. I have no problem waiting for the right setup to form with the perfect market confluence, sometimes for weeks or even months.

The reason is simple, because I know for a fact that trading with high frequency is how you lose money in the market and trading with low frequency is how you become a profitable trader. Every trader eventually learns this fact given enough time and experience in the market.

Warren Buffet is a master of doing ‘nothing’

My favorite concept and metaphor for teaching people how I trade is that of a sniper. The sniper trading approach as defined in my article on this topic, is basically that I wait patiently like a sniper for my predefined trade criteria to align, rather than trading or ‘shooting’ at everything like a machine-gunner.

Perhaps not surprisingly, this is also how the ‘greatest investor ever’ manages himself and his activity in the market. I’m talking about none other than the great Warren Buffet, of course. Think about how he manages billions of dollars – it isn’t by entering the market every day, that is for sure! All you need to do is read a book about him or watch the recent documentary on him, “Becoming Warren Buffet”, and you will see he is an extremely patient and precise investor.

Not only is Buffet patient and precise about the transactions he makes in the market, when he is ready he dives in, boots and all. Sometimes, he even buys the entire company! You would call Mr. Buffet a low-frequency and high-conviction investor. As traders, we can learn a great deal from Mr. Buffet. Whilst we are doing something a little different than long-term investing or ‘buy and hold’, we should indeed model our swing trading approach after Mr. Buffet.

Here is a good quote from commodity trading extraordinaire, Mr. Jim Rogers from The Market Wizards

I just wait until there is money lying in the corner, and all I have to do is go over there and pick it up. I do nothing in the meantime. Even people who lose money in the market say, “I just lost my money, now I have to do something to make it back.” No, you don’t. You should sit there until you find something.

You see? The point here is that most of the time, profitable investors and traders are doing ‘nothing’ and by nothing, I mean they are not entering trades or managing trades. They may indeed be studying or analyzing the market in the meantime, but this would count as ‘stalking’ their prey.

Change how you think about doing ‘nothing’

It is innate for us humans to want a ‘quick thrill’ in all that we do. Constantly checking social media on our phones has been proven to increase the amount of dopamine (the feel-good chemical) in our brain, for example. We are a society addicted to doing what feels good more often than doing what IS good. We are born with a gamblers or speculators brain, seeking instant rewards and thrills in life and with money.

When it comes to trading, the ramifications for such behavior can be severe.

It can lead to treating your trading account as if it is a slot machine. Many traders end up entering trades, one after another, as if they are pulling the arm of a slot machine over and over in a casino. Of course, the difference is, we typically expect to lose at a casino, so most of us don’t take money that we need. In trading, many people believe they will be profitable because of some ‘innate ability’ they have and so they often risk more than they should or trade with money they really can’t afford to lose. Of course, once they start trading and get the dopamine fix, it becomes an addiction that leads to blowing out their trading accounts.

How do you change this poisonous trading mentality?

One of the best rules anybody can learn about investing is to do nothing, absolutely nothing, unless there is something to do. Most people – not that I’m better than most people – always have to be playing; they always have to be doing something. They make a big play and say, “Boy, am I smart, I just tripled my money.” Then they rush out and have to do something else with that money. They can’t just sit there and wait for something new to develop. – Jim Rogers

The way that we circumnavigate our own flawed trading mindsets, is to simply understand, accept and then embrace the idea of doing nothing. Embrace what you consider ‘boring’ and mediate on it. Eventually, after a few big trading wins that resulted from you waiting patiently for highly confluent trades, you will start to re-align your thought processes and the dopamine rush you used to get from entering trades and messing around with them while they were live, will shift to the periods of time you are waiting and stalking the market. When you feel like you’re not doing enough, you’re in the right zone, you must master being able to do nothing and you can do this by finding something else to replace that ‘void’.

Once you realize that being patient and studying the market or simply not even looking at the market at all, will make you more money in the long-run than the opposite, your brain chemistry will begin to ‘flip’, and soon you’ll be looking forward to the ‘hunt’, even if it means waiting two weeks between trades.

Conclusion

The Market is slower than we imagine, and trades can take a long time to play out. Take the chart below for example: It shows that patience is needed to grab the big moves, and we must ignore the short-term ‘shake outs’ that cause most traders to over-think and exit prematurely…

The price action setups that I trade don’t appear extremely often, and when we apply my TLS filtering rule and wait for that confluence, the trading opportunities are reduced even more. My trading courses can share my trading strategy but they can’t force you to be patient and wait it out for the right opportunity to arrive. It’s one thing to be confident in spotting trades, but are you confident in your ability to not over-trade even in the face of constant temptation by the charts? If you know this is your weakness (and I assume it is for most reading this), spend MORE time getting that aspect of your trading right, and I guarantee you that your account balance will thank you.

I WOULD LOVE TO HEAR YOUR THOUGHTS, PLEASE LEAVE A COMMENT BELOW 🙂