Whether we like it or not, our actions are programed and directed by our belief system. We all want to believe we make choices completely of our own free will, having complete control of our choices. The truth is however, our belief system, which has been developed over many years, controls our thoughts which drive our actions. Whether we’re successful in trading, or anything else we take on, depends on whether our belief system drives actions that lead to success. Can we change our belief system? Sure, but it’s not an easy task for most. It all begins with understanding who we are and why we do what we do.
Moves in markets are a result of mass psychology (belief systems). We make money in the markets by being masters of human psychology and supply and demand. Winning in the markets is as defined as much by our mental make-up as it is by our trading or investing style.
This being the case, what’s more important than chart reading is first understanding our own belief systems. Next time you’re struggling to achieve the results you want, instead of focusing on changing your actions, take notice of where those actions come from. Moving backward, one step at a time, trace your actions back to the behavioral patterns they stem from, and then to the origin of those behavioral patterns, your beliefs. It’s at the level of beliefs (thoughts) that decisions are made, and moreover, where your ability to differentiate reality from illusion lies. If you want different results, then it’s time to start considering where your beliefs about what works and what doesn’t in trading and investing comes from.
In life, which includes trading and investing, most of us tend to repeat the same processes over and over, expecting a different result. During my many years in the financial world I’ve noticed some very clear differences between the consistently profitable trader and investor and the novice. They are:
- Tends to follow the herd
- Avoids taking risk unless others are sharing the risk as well
- Feels that if others are buying then it is ok for them to buy too
- Acts on the advice of so called experts
- Tends to complicate the financial markets and ignore the important simplicity of markets
- Tends to make the same two mistakes; they buy and sell after a move in price is well underway (late and high risk) and they buy into price levels where the smart money is selling.
The Consistently Profitable
- Leads instead of following the herd. They can identify opportunity before others.
- Tunes out all the subjective noise that can get in the way of making proper buy and sell decisions. They don’t care what others are doing and make decisions based on a very mechanical and unemotional set of criteria based solely on the laws and principles of supply and demand.
- Learns to identify the proper low risk entry that most people never see
- Buys after a period of selling and into demand (wholesale prices). They buy fear.
- Sell after a period of buying and into supply (retail prices). They sell greed.
- They have the ability to clearly identify whether a bank or retail trader/investor is on the other side of their transaction in any market and any time frame.
- They have a rule-based strategy that quantifies real demand (wholesale price) and supply (retail price) in any market and time frame.
- They play the bandwagon correctly instead of getting played by the bandwagon. Meaning, they know how other market participants think and react when they are correct and, more importantly, when they are wrong. Price patterns are thought patterns.
One of the most important things to understand about proper trading and investing is that conventional visible confirmation and low risk opportunity are completely inversely related. This is why those who know what they are doing get paid from those who don’t, that’s how markets work.
Live the life you choose.
Sam Seiden – firstname.lastname@example.org