Lessons from the Pros

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You Already Have a Trading Style

You already have a trading style, it’s your belief system. Whether that is the trading style you end up with or not depends on whether you change your belief system or not, and this is not an easy task.

Moves in markets are a result of mass psychology. We make money in the markets by being masters of human psychology and supply and demand. It is well known that trading is nearly 100% mental. Winning in the markets is more defined by your mental make-up than your trading style. What is more important than chart reading is to first understand how people think. Instead of focusing on changing our actions if you’re having issues with trading, it’s time to notice where those actions come from. Moving backward, one step at a time, actions stem from behavioral patterns, and behavioral patterns stem from beliefs. So, it’s at the level of beliefs (thoughts) that decisions are made, and moreover, where your ability to differentiate reality from illusion lie. It’s time to start considering where your beliefs about what works and what doesn’t in trading come from. In life which includes trading and investing, most of us tend to repeat the same processes over and over, expecting a different result. Over my many years trading, there are some very clear differences between the consistently profitable trader and the consistent losing trader.

The Novice Trader

  1.  They tend to follow the herd.
    • Watch and do what others are doing
    • Comfort in numbers
  1. They avoid taking risk unless others are sharing the risk as well.
  2. They feel that if others are buying then it is “ok” for them to buy too.
  3. They act on the advice of so called “experts”.  i.e. the advice of market gurus, CNBC, analysts, and their brokers.
  4. As humans, they tend to complicate the trading process and ignore the important simplicity of markets.
  5. They always 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 our strategy tells us supply exceeds demand (low probability).

The Consistently Profitable Trader

  1. They lead the herd.
  2. They tune out all the subjective noise that can get in the way of making proper trading 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.
  3. They learn to identify the proper entry that most people never see.
  4. They buy after a period of selling and into support. They buy fear.
  5. They sell after a period of buying and into resistance. They sell greed.
  6. Successful traders:
    • Can identify opportunity before others.
    • Execute trading plans mechanically.

Successful Trading

  1. Having the ability to clearly identify whether an institution or retail trader is buying or selling in any market and any time frame.
  2. Having a rule based strategy that quantifies real demand and supply in any market and time frame.
  3. Play the bandwagon correctly instead of getting played by the bandwagon.
    • Proper trading is knowing how other market participants think and react when they are correct and, more importantly, when they are wrong.  Price patterns are thought patterns.

Mental Musts…

  1.  Confidence
  2. Discipline
  3. Patience

How to get these…

  1. Reduce and eliminate subjective analysis.
  2. Learn to fight the urge to do what others are doing and make decisions based on a very mechanical and unemotional set of rules and criteria.

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 in trading. This is such an important point if you understand it. This is why those who know what they are doing get paid from those who don’t, that’s how markets work.

Hope this was helpful, have a great day.

Sam Seiden


DISCLAIMER This newsletter is written for educational purposes only. By no means do any of its contents recommend, advocate or urge the buying, selling or holding of any financial instrument whatsoever. Trading and Investing involves high levels of risk. The author expresses personal opinions and will not assume any responsibility whatsoever for the actions of the reader. The author may or may not have positions in Financial Instruments discussed in this newsletter. Future results can be dramatically different from the opinions expressed herein. Past performance does not guarantee future results. Reprints allowed for private reading only, for all else, please obtain permission.