USDPLN - Daily TFTrade Plan:
Analysis Time Frame: Daily
Order - Instant Execution
Risk on Account 2%
Entry Price: 4.01739
Stop Loss: 3.9304
TP1: 4.1044
TP2: 4.1914
USDPLN trade ideas
AI in trading - 6 hottest topics (part 1/2)In this article, you'll learn about six of the most critical and "hottest" elements that make up or are associated with AI today. In addition, you'll learn the basics of the tools that will shape the future of trading. First in the biggest and wealthiest funds and then in smaller ones as well.
I invite you to take a journey into this near and far future of trading.
NLP
Natural Language Processing is the common name for many tools to analyze written and spoken text: company documents, press articles, news, analysis, web pages, social media posts, company’s product reviews.
Advanced NLP software recognizes context up to about a thousand words. That's a lot, and soon, there will be more.
NLP allows you to analyze many features of text, such as:
- whether the text about a particular company is positive or negative,
- whether it is clear and transparent or obscure and convoluted,
- whether the authors express themselves positively or negatively about the future.
When we analyze texts of reports and press statements, it turns out that all of the above elements can be a good indicator of future financial performance.
Social media texts
Already now, the analysis of posts in social media and online shops allows determining the sentiment - the opinion about the company and its products, which usually precedes the financial results.
Sometimes it is also possible to find and analyze the sentiment of different investor groups about the company and its future which also affects the share price.
"The stripper that will change our World"
The next gigantic step in the evolution of NLP come from extracting written knowledge from millions of books, academic articles and other texts and help create coherent theories of how the economy, or supply chains, works.
This development will give theoretical and practical insights into the factors that affect the financial performance of companies, industries and all relevant economic processes. Already today, we see the first signs of the creation of such tools.
Spoken text
NLP also covers spoken word analysis: statements from TV news, films, other video material, or telephone conversations are automatically transcribed and subject to the same analysis as written content.
Thanks to this, we now have access to knowledge about the level of Forex volume. The systems analyze the volume at major banks and brokers and traders' volume over the phone. Until last year, data on this was not available in real-time. I will find out if anything has changed yet and write about it in future issues. I know that there were plans to provide this volume in real-time as well.
Machine Learning
Machine learning is dozens of tools for machine problem-solving.
But today is different than you might think. We are in the first phase of the evolution of these tools. To understand this and to understand their potential, I will give a practical example: how does solving a problem using machine learning tools look like...
In simple terms:
1. the process consists of problem formulation and preparation of a mathematical model (specialist),
2. further collection and preparation of data (specialist),
3. selection of one of the ML solutions (specialist),
4. feeding the software with data (specialist),
5. data processing (software),
6. finally, we have the interpretation of the obtained result (specialist) - someone has to explain the result in non-mathematical terms.
Only one element of this sequence is automated - the fifth. All the rest requires the use of specialists' knowledge and experience.
Today, the real driving engine of AI is... the specialists. And it will remain so for a long time to come. "Real AI" is still very, very scarce.
Over time, each step will be done automatically. Only then will we see the true power of machine learning and AI. We are at the beginning of this journey, the first stage of evolution (and I believe there will be five).
I didn't want to start this thematic series by describing ML tools. I preferred to show their current place in general. In the future, I will describe some Machine Learning solutions and how they are used to create trading systems. I will also give examples of such systems so that you can form your own opinion about them.
What is worth knowing is that despite the impressive achievements of AI-related technology, this is just the beginning of this revolution.
It will change everything we know.
We are only at the beginning of the AI revolution. It will change everything we know.
XAI or Explainable AI
It is currently probably the hottest topic in AI.
Some ML tools are so complex that we don't know how the machine got the result, how it made the decision or the recommendation.
We call them "black box" for short - it's dark inside, and we don't know what's happening there. Nevertheless, the math behind it is excellent, and the results are often astounding.
So, we have a result, but we don't know how it was achieved. We don't know because the process leading to the development is very complex and has many steps. And if we don't understand "how it works", then several problems arise. I will describe them for the case where we have a black-box that gives input and output signals:
- beyond simply allocating a small % of capital to the position, risk management becomes problematic;
- we have little or no control over the position (except for the exit);
- we don't get the most out of a tool we don't trust. And this is a problem when we have spent several million in its creation;
- we don't know if a given series of losses is temporary because the market has changed, or maybe the system has stopped working for a given market. So it will only lose from now on.
And since the results are good, we will try to explain how it works in one way or another. The problem of finding an explanation and education for exploiting the potential of AI will also run through the following issues.
For a fund that employs traders, this problem is as practical as it gets.
A trader in his seventies would like to know how much money can be made on a "black box."
For example, let's take a trader who is 75 years old, active and, on top of that, a co-owner of a fund. And he would like to find out how "this new thing" works because it may be worth increasing the capital that this "new toy" has to use.
But how, without knowing what's going on inside, define the trading framework? What risks to assume, a reasonable capital commitment, when difficulties arise, and what to do when they do?
Moreover, after all, we have to adapt to the boss's scope of knowledge and experience. Thus, for example, we cannot start the lecture with the geometry of differentiable manifolds and Kullback - Leibler divergence for probability distributions (such mathematics can be used there) if he has no idea about it.
It is a fascinating problem. Important enough that we are preparing for publication a broader article on this topic: how to explain and help traders understand new tools, in particular black-boxes. How to estimate risk, build confidence, define a framework in which they will feel safe with the new device.
Someone who has an easygoing boss already thinks they can relax and not bother explaining the operating principle of their wonderful black box. But, unfortunately, this is not the case because other people on the horizon would like to know how it works.
There are several groups of such people.
Those who want or need to know what's going on inside
The first would be the law regulators and the courts. The Financial Supervisory Commission may want to know if, by any chance, the recent large positions, as claimed by us placed by a "black box", are not an instance of insider trading.
If you have a similar idea of defending yourself in court (from being accused of insider trading), then know that it makes no sense. We may not know what is inside, but the signal must appear again after simulating the conditions created by the signal.
Then we have the risk management department, which would also like to know how it works or at least what it resembles. All they have left is to allocate a small amount of capital to the signal.
A black box position is like a plane without windows. We take off on command, fly with no way to tell where we are and land on command. The only assurance of safety is the statistic that, for example, a position is profitable six times out of ten. This value means that we have four hard landings per every ten take-offs. It is a moderately comfortable situation, although in some cases, it will suffice.
Has the system already stopped working?
Now, we have something even less pleasant: if we do not know the rules of decision making, we cannot be sure that a given series of losses is not the end of the system because the market has changed and the previous rules no longer work. Exaggerated? Maybe, but only a little.
The use of various AI tools will only grow, including black-boxes, and this has to be dealt with one way or another. The major funds already have some prescriptions for what to do. In future articles, I will describe them.
The topic is even more important because, for the vast majority of non-mathematicians, i.e. traders, portfolio managers, C-level managers, practically every AI/ML tool is a black box. For some reason, explanations such as dealing with a multidimensional, differentiable manifold immersed in a vector space do not help.
Explainable AI fits into a broader trend - most people and traders have no idea what new tools do.
There is a great need to explain to users how AI/ML tools work, what they provide, their limits of use and when they stop working. Education is vital because a fund's competitive advantage will soon be created at the interface between the team and the tools, AI systems.
Competitive advantage in the future will depend on the so-called structural intelligence of the company. The largest funds are already working in this direction, although they can not name it so cleverly. We will also devote quite a few articles to this in the future, which is one of this magazine's goals.
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Improve your decision-making process in tradingThe trader's decision-making process is one of the most important concepts in trading for me. Why? Results depend on a good process.
So what is a trader's decision-making process?
Generally speaking, these are all the thought processes, analytical processes and decisions you make from the initial analysis ("idea") to the closing and analysis of a position. The entire thought process that goes on in your head.
This approach came to my mind, even imposed itself when I thought about how AI in trading would make decisions - the best possible ones. Then the same principles were already obvious in application to traders. And still later it turned out that the best traders have specific elements of the decision-making process, practically absent in other traders.
That's enough history, now what came out of it...
What is a trader's decision-making process?
A trader's decision-making process (or the decision-making process in trading) consists of two components: rational (analytical) and emotional. The more experienced the trader, the more importance he attaches to the emotional component - but in a specific sense. This does not mean that emotions dictate to the trader what to do.
Very experienced traders treat their emotional state as an additional source of information, and are able to "stand by" and hear the voice of intuition above and beyond the emotional noise. To quote one experienced trader:
"If I feel pressure in this situation it means that others in the market also feel it. The one who can withstand it better will win."
What does a trader's decision-making process consist of?
Let's break down your decision-making process into components.
1. It starts with analyzing the markets and choosing an instrument (specific stocks, specific currencies from the available pool - for example). What factors drive your choice, why did you choose this instrument and not another? Here we have the first decisions. On what basis do you make them?
This is important, because if you start thinking about how to improve your decision-making process in order to have better results - you will understand that... perhaps it is possible to choose better. I'll state how the best do it: they learn to choose the best inputs from those available to them. In the sense that if they specialize in a certain sector of companies - they choose shorts or longs with the best views of profits. Of the many opportunities that are available, they try to choose the ones with the best prospects.
The best traders try to choose only the best opportunities from among what is available in the markets they trade. They don't trade on everything.
What does this mean for you?
It means that you can, and even need (!) to work on your criteria for selecting an instrument, so that you choose the one on which you will find it easiest, on which you will earn the most (potentially). The selection criteria may be different for different Treders.
In the case of AI systems, their development goes something like this: searching for the best opportunities from what is available. At the same time, it will take a fraction of a second to search, for example, five thousand companies in this regard. And from this vastness, the system will select, for example, 100 for further analysis and trade. I mention this to begin to slowly make you aware of what analytical and decision-making power you are dealing with, because you won't jump over it.
But let's get back to the decision-making process.
2 We have selected for example, the best companies, what next? Let's assume that we want to enter the market, as long as the criteria are right.
And here comes another question: where, among the selected companies, are the best situations?
A simple example: we want to trade longs on companies with good fundamentals. Our selection factor at this stage of the decision-making process may be volume behavior. We are concerned with entering such movements, where volume is clearly increasing - which suggests that the interest of buyers is growing. At this stage we will rank the selected companies according to the best situations of increasing volume.
Somewhere the volume is too low, somewhere it is too high, and the price is not rising much (which is not the best option). So we have several companies with the best situation at this stage.
In this example we used volume, but we can analyze more elements: candlestick formations, Fibonacci levels, MACD, CCI and thousands of other indicators. We can also use confluence of indicators and situations, for example, the price reaches the average 200 from the top, is close to resistance and at the Fibonacci 62% level. Here several things meet at once, it can be an interesting decision-making place.
With several combinations to choose from, ask yourself which indicators are best for your purposes?
3. Now it's time to decide how much capital you will invest.
A trader's decision-making process is a series of analyses and decisions.
Each distinct element of the decision-making process you can improve, address from different sides, analyze and improve according to different criteria. This gives you the opportunity to improve your results - improving one by one each element on which these results depend.
How does the trader's decision-making process differ between experienced and novice traders?
According to a study of institutional traders - less experienced traders use emotion avoidance strategies in the same situation. This makes a difference and a barrier for beginner and intermediate traders. The best traders are able to withstand a lot of long-term pressure by entering into it consciously, while less experienced traders at some point succumb and run away from the same position.
Both groups of traders differ in experience, but not only - they differ in their strategies for dealing with emotions while trading. Because it turns out that not only experience matters.
Studies show that traders with very high trading experience (e.g., more than 20 years) and not using strategies for working with emotions like the best traders - have poorer results.
To give just one example: getting to the TP - due to the pressure of the markets, traders often run away from positions, emotions, the pressure on the psyche is too strong. The psyche is the filter through which all decisions pass. And it can disturb each decision and each step - from the initial analysis to the execution of the entry.
The way you handle your emotions in trading allows you (or not) to survive chaos, volatility, uncertainty and panic, allows you to continue to enter the market when others have long given up, opens new doors to results. Proper handling of emotions is essential to a trader's correct decision-making process.
A recipe for improving trading performance with the help of a trader's decision-making process
In short: break down the way you make decisions into components. Learn as much as you can about how you can improve each of them.
That's not everything, of course, but that's all you need to start with. In the future, I'll write more about the next steps and the best practices you can use there (click follow to get notified).
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What are the traits of the best traders?This article is hugely important, especially for traders outside the funds. The basis is to observe the best traders, specific behavior when they are successful. Interestingly, the same behavior is observed in the most outstanding athletes, businessmen, members of elite special units.
The best of the best, when they are successful - they want to be even better. That's why - they don't stop educating themselves. They continue to learn about their strengths and weaknesses and work on them. They continue to train, research, develop technical skills - in our case, knowledge of markets, new analytical methods, new sources of advantage, new strategies, indicators and tools to facilitate their work.
Professional development has become a lifestyle for them, something they do regardless of success or failure.
The success they enjoy is certainly rewarding, but it is also contextual, an (inevitable) by-product. Interestingly, they often derive more satisfaction from this effort than from the success itself: in the market, in business, or from completing a very difficult mission.
For them, learning, developing, overcoming themselves is a way of life, a passion that consumes them, a blessing that brings them success and a curse that consumes virtually all their time.
In short - their secret is passion
Passion enlightened, by that I mean that you know your strengths and weaknesses well and work with specifics. And if we're talking about specifics, we're also talking about measuring results, states, progress.
But that's a story for a completely different article, which I'm sure will be written at some point.
What are these qualities of the best traders?
The trump card of the best trader consists of 2 parts, and in order to systematically make money you should have both.
technical
psychological
Technical advantage - I understand it as all the skills and knowledge that make up your trading system.
Do you know what exactly your advantage is?
To show the extreme advantage I will use the example of the best traders. Everyone else has some kind of advantage "between" the best and the weakest (who do not have these qualities at all or at a very low level).
What creates the advantage of the best traders?
Access to unique knowledge, preferably before everyone else.
Knowledge of companies' plans, new products (which is unavailable to others), especially in the case of stocks.
The ability to reliably estimate the performance of companies before they are published
Knowledge of political changes and their impact on markets
Use of alternative data
Taking advantage of market formations that pay well and that others don't know about.
To this we can add:
knowledge and ability to use technical analysis
finding specific entry points and methods
using formations that others have overlooked or
using what is known, but in your own unique way
How to build an edge in trading?
The advantage of the best traders is usually built from several things at once. It can be a hybrid of several things, for example, they can use their knowledge of company movements, identify entry points through technical and volume analysis, and execute the entry itself through an automated system that makes great use of liquidity.
The advantage of the best traders can come from better tools, e.g. to build positions, to maximize positions (there are some in the largest funds) improve performance and simplify life.
You will find your advantage if you answer the question: on what basis do I make decisions about the choice of an instrument (company, commodity, currency...)?
Some systems are based on fundamental analysis, macro analysis, company analysis, supply and demand analysis (e.g. commodities), then we have technical analysis, price and candlestick formations and a host of indicators.
You will see your advantage (or lack thereof) when you ask yourself, what is unique about your system?
You may answer that you are using, for example, well-known price formations, triangles, flags or similar. However, this may mean that you are doing the same thing as everyone else. There is nothing wrong with that if you are trading on a small scale, privately or as a hobby.
However, if you are or want to be a professional trader this is not enough. Formations, elements of technical analysis sometimes work and sometimes not. If something is repeated over and over again, large traders will enter the market and use the accumulated orders for their own entries (stop hunting is an example) and your advantage will disappear sooner rather than later. A pattern that worked very well will suddenly cease to exist.
The best traders not only know exactly what their advantage is, but also go to great lengths to improve it.
This article is not intended to give you a ready answer of what to do and how to do it, but rather to point out a problem that could cost you a lot in the future. You should, like the best traders, know exactly what your trading advantage is and build on it.
If you don't know that, I hope I patted you on the shoulder and told you that you fell asleep at the wheel. Nothing bad has happened yet, but you've already fallen asleep.
So what is your advantage? Let us know in the comments!
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Elliott waves - a tool to predict the most rapid ups and downsOn January 22, 2020, the rising cycle on the S&P ended and the declining cycle began.
Apart from this one tool, there was no indication that we were about to experience historic declines and the biggest panic in the markets so far.
On March 6, 2020, the correction ended and the oil market entered a downward cycle.
Only one group of traders was not surprised by this, they were prepared for it and made money on the huge declines. The others were able to read about the reasons for the declines in the newspapers - but only after the fact.
This is not a coincidence
There is one group of traders who systematically discover market turning points, regardless of the news hype and expert opinions. While others panic, these ones are prepared...
That tool is Elliott Waves.
A large number of institutional traders use Elliott Waves, either as a main or companion tool.
One way to do this is to analyze closed structures. If an upward structure closes then we know that we have declines ahead. In January, it was clear that we were facing declines at a minimum to the 2500 levels on the S&P (that is, by about ¼, we just didn't know how fast they would happen). But within a few days the real drama began and the market fell even lower.
Elliott waves work on currencies, commodities, stocks and indices (there is some specificity here, due to the composite nature of indices). Waves also help predict the movements of cryptocurrencies.
A personal note about Elliott waves
I have been watching waves for about 10 years, accounting for more than 6. Like many people, I consider it the most advanced tool of Technical Analysis. It is more than 90 years old, and is used by many traders from large banks and mutual funds.
An in-depth understanding of wave action will come, I believe, in a few years with the development of Artificial Intelligence. Then we will be able to understand the interaction of factors that affect the price. Our current model is only in the preliminary stages of construction.
The biggest benefits of using Elliott Waves
No matter what system you use Elliott analysis will show you the possible course of the market situation. Sometimes it is well predictable. You will avoid many unpleasant surprises that will surprise other traders.
Many traders use Elliott analysis to forecast possible movements, and use their systems to enter when the expected movement has already materialized. In other words, they trade after confirmation.
Combining Wave Analysis with other Technical Analysis tools increases the likelihood of good entries.
Focusing on:
1. trading in the direction of the trend indicated by the waves,
2. and on the strongest movements
allows you to improve your results.
Elliott Analysis helps to indicate which entries are better or best in a given market situation. It allows you to approximate the ranges of movements - both impulses and corrections. It is a good way to look independently at the TP (take profit of a movement).
Wave analysis helps identify situations preceding strong directional movements.
In such a situation, if you use another system you may have several, a dozen or dozens of good signals in one direction. Such situations are rare, but... they allow you to systematically build capital with low-risk entries. I will describe these situations in a moment: how to recognize them, how to prepare, how to enter them.
Elliott analysis helps determine whether the market is in an impulse or in a correction, and often helps determine when, or at what level, the correction will end and we can have another strong impulse.
Elliott analysis often provides early signals of the end of trends and the ends of corrections.
Why do Elliott waves work?
In part, it is a selffulfilling prophecy.
Since the 1970s, waves have been widely used in large companies at least, as a context to describe market behavior. There are also funds, or divisions of investment banks using waves as a primary tool.
Knowing exactly why they work is a matter of research. We will have the right answer in a few years. It will include the impact of seasonal cycles on demand and supply, the impact of other types of cycles, statistical analyses of market behavior and anomalies, analyses of social moods, analyses of the impact of production processes and supply chains, the context of political events (in the case of commodities, gold and currencies).
Elliott waves may be the missing piece of the puzzle to build, test and refine the highest form of Artificial Intelligence in trading - General AI.
What tools do the greatest traders use, or how it all started?
I have often wondered what tools are used by the greatest, those who move the markets. This is how my adventure with waves began. One day I picked up George Soros' book "The Alchemy of Finance".
The foreword was written by prominent billionaire trader Paul Tudor Jones. In the second paragraph, he mentioned Elliott waves as a tool that captures the economic, social and political context into one.
At this point I stopped reading further, my interest turned to waves, I thought it was worth learning more.
Today (2020) the situation has changed somewhat. For a dozen years or so, there has been an increase in the use of mathematical strategies (quant strategies) based on the study of statistical relationships. It has reached the point that today already most orders are executed by algorithms (more than 50% of the volume).
Algorithms are based on a few market observations (underpinned by strong mathematics) and virtually every major strategy supports... the natural behavior of the markets. That is, markets act the same as they used to only... more. Certain classes of movements are stronger because a lot of algorithms go into them.
This means that Elliott waves (in general) work the same way, only some movements are amplified.
What tools are the biggest traders using, that is, what will the future look like?
Algorithms analyze many types of data and, based on this, type the size and location of entries. Among the data we have fundamental data, alternative data (very fashionable for about 3 years), statistical data, technical data (in the sense - using technical analysis, but for now quite simple). This will be the future - currently built algorithms will use dozens of sources, analyze signals, manage risk.
I believe that Elliott waves are one of the most advanced tools of technical analysis, and sooner or later they will be included, as one of the decision-making factors. Perhaps one of the main ones, just as the big "manual" traders do today. And this means one thing - waves will work even better.
If one has experience with waves then one knows that one can try to account for all impulses and corrections, but from a trading point of view it makes no sense - there is no money there, the movements are uncertain and short. It is best to focus on the best situations, the least risky, and build entry strategies based on them - manual and algorithmic.
The best will certainly be the well-known: wave 3, wave C, setup for wave 3 in wave C, trade for a reversal after a wedge in wave 5. There are also several less well-known.
What's the fastest way to learn the waves? There is not much choice.
The topic came up again in a conversation with a bank trader a few months ago. His new job uses waves, while he had his first contact with them. His problem was that he wanted to learn them as soon as possible - at least enough to understand the analysis he gets from the Analysis Department.
He asked about books, about training, and for the first time I began to wonder what to suggest to someone who wants to learn waves quickly?
The problem with current books is that there are too many words in them and not enough examples. In particular, not enough examples of waves and situations that traders most often trade on.
Learning Elliott waves requires having a very large number of good examples. This is the fastest way - reviewing how the price drew impulses and corrections in the past. After a while, you learn to intuitively recognize possible settlements and set-ups to trade.
This also applies if you want to use external analysis, you need to have your own independent view.
Many details come out only when analyzing a specific chart.
In a few years, with the maturation of AI, having alternative data and mathematical statistics, we will be able to determine which settlement - basic or alternative - is more likely. What are both types of settlements - will also show with examples.
This is a key thing when building larger positions.
One of the best books for waves
The best book I know for waves is the position written by trader and head of the Technical Analysis Department of Union Bank of Switzerland (today's UBS) Robert Balan - head of global technical research (London AND New York).
The book "Elliott Wave Principle" was recognized by the London Society of Technical Analysts as "the best book ever written on the subject".
Indeed, it is the best. Few words, lots of diagrams and explanations. Due to the time (it was written in 1988) and publishing limitations - it is also not able to quickly convey the essence and show it with a large number of examples.
In the meantime, several "shortcuts" used by wave traders have also been created, and I think they are also worth showing. The idea is to systematically repeat market patterns that are fairly easy to identify. I will show a few of them, because they help to better understand the operation of waves and for beginners can be a great help.
A few sentences about waves in the context of the upcoming Artificial Intelligence revolution in trading
Waves can complete the picture of market behavior when we use machine learning techniques. I think this will allow us to create an early warning system - when the characteristics of the market can change dramatically in a few minutes, when the algorithm holds a position or builds it.
The market can go from weak, corrective behavior with low volatility to huge volatility, or when a strong and violent movement suddenly changes direction. These are typical problems known, predicted and solved by Elliott waves.
Typical wave behavior (sudden changes in volatility /volatility/ and direction) is critical to the selection of samples on which we build the model. And here an important note - in addition to other characteristics of sample selection, we must have a way to estimate these two factors, otherwise any model we create will produce systematic losses. Every single one, 100% of the time.
Good use of FE can improve both the profitability of the models and speed up the calculations, because we will take into account the (dramatic) variability in the nature of the data (strong variance change). By good use here I mean understanding, finding the regularity that governs consecutive cycles of low and high variance. This is a rough mathematical description of the situations that Elliott waves describe.
A short note for beginners and intermediate learners
You do not need to be able to account for all waves and every situation, because in retail trading it is not necessary. Stick to the best situations. The simplest ones.
Waves in a nutshell:
Elliott waves are used, as a tool to show the context of movement by professional traders.
Major algorithmic strategies (quantitative strategies) amplify the action of Elliott waves in the market, based on several typical strategies replicated statistically.
Over the next few years, there will be a struggle to create better forecasting tools to get into movements faster and build larger positions ahead of other participants.
Nowadays, Elliott waves can serve you as a source of additional strategies as markets become more crowded with algorithms.
They can also be used to find even better timing of entries so that positions get in before others.
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Checklist: Challenges that even the best traders face (part 2/2)Challenge: Inner Strength - Uncertainty.
Uncertainty is also a weakness that must be eliminated. It is the negation of "inner strength." An investor or trader who is uncertain about himself, his skills or his system is an investor who suffers systematic losses. Remember, however, that both overconfidence and overconfidence lead to losses. Mature traders are in an intermediate state, neither weak nor arrogant - they are attentive and alert, ready to react to the situation.
Challenge: Inner Strength - Learning self-discipline.
Any experienced trader you talk to will tell you that discipline is critical to their performance. I once read a study that traders who return from vacation have trouble disciplining themselves for a short time. This made me think that if self-discipline can be weakened by a vacation, perhaps it can be strengthened? From there it was only a step to looking for methods on how to do it. With help came modern brain research, neurophysiology and, again, special forces methods.
How does a discipline learn the best? Most often through difficult experiences. Severe losses and mental transitions that force them to stick to rules and certain behaviors.
A bank trader who started on his own account when asked how he learned discipline answered:
Thru trial and error, I found whenever traders diverged from their routine they have the tendency to become sloppy and that usually is a sign of an impending losing streak and I have the scars to prove it.
If you lose in three days the earnings you've worked six months for, you won't do certain things again. Meanwhile, difficult experiences are not the only way to learn discipline - just a rather arduous and risky way. I'm not just talking about the financial losses that are the inevitable consequence of a lack of discipline. I'm talking about something more serious - your psyche may not be able to withstand the strain.
After a loss, you may want to trade back and, as a result, lose all your capital. I know traders who lost fortunes and left the markets. For some, the markets have damaged their psyche and they are unable to return. They would like to, but are unable to. That's why it's better to follow the right path, that is, not to expose the psyche to either too much loss or too much gain. Both can put a heavy strain on the psyche.
Challenge: Inner Strength - Resistance to market pressure
After learning self-discipline, we have building resilience to market pressure. The idea is that when entering the market with an order, traders feel different emotions and it is necessary to know what to do with them. For example - soldiers train shooting, but only on the battlefield it turns out whether they can act under pressure or not. That's when emotions and stress turn on, sometimes so great that it prevents action. I remember a story, probably from the Civil War, when it turned out that during a battle soldiers literally didn't know what they were doing.
Back then, rifles were loaded with powder poured through the barrel. After the battle, many rifles were found loaded several times in a row. Soldiers loaded and did not fire. The record holder loaded the weapon more than 21 times! A trader needs mental toughness "in the heat of battle" in the market. Otherwise he won't get far.
Challenge: the glass ceiling
Let's go further. Another important element hitherto inaccurately known was the glass ceiling. This is the level of cash handling at which stress suddenly increases a lot. I have seen this in many traders, for example, one started with very small accounts and had this level at about $1,000. He was not able to break through, he was reaching and losing due to stress. The other, also a beginner had it at about 20 thousand. He felt severe stress, so he came up with his own way of managing cash. He started with a few thousand and when he got to 20 he would withdraw, leaving a few thousand. This gave him a comfortable trade and quite reasonable earnings.
Challenge: Reacting to losses and... profits
The next challenge is the reaction to losses and profits. This is actually one of the central themes in trading, along with stress, the glass ceiling and taming market uncertainty. This is where all the trader's skills come together. What we currently know: we have three areas of dealing with losses. Within them we have 23 methods, including basic and advanced methods, I will cover some of them in the future.
Challenge: Zona
For professional traders, a key element in their success is a state of mind, the so-called "zona." This is a state in which you are, on the one hand, focused and, on the other, fascinated by the subject of what you are doing. "Zona" is not specific to trading, it is specific to the human mind. Recall when you let yourself get caught up in a very interesting movie, book, something you were doing with distinct pleasure and satisfaction. Your senses are then sharpened, your concentration increases and everything goes as it should. It took us quite a while to understand two key things - where it comes from and what hinders it. We will address zonation in more detail later.
Challenge: Correct decision-making process
If you have it then your analytical skills harmonize with your decision-making skills, you make quality decisions. This is the most advanced level, where thoughts, feelings, emotions converge. Here the signal from the system should be made very and well, the execution must be of high quality and it is the product of high quality decisions. This may sound a bit esoteric, the topic originated as part of the management of quality policy in investment funds. An incentive system that does not burn out the best traders can later be based on HQT.
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Checklist: Challenges that even the best traders face (part 1/2)You are about to learn about the range of challenges and dangers that can make it difficult or even impossible for you to succeed in the market. Remember: it is believed that most traders do not make money! I want you to familiarize you with these challenges today. We will look at them in more detail later. Getting to know yourself and your "opponent" is the first step to overcoming them and achieving success.
These are challenges that, if not addressed properly, lead to losses. If you are already investing then you have probably encountered some of these problems. If not - everything is still ahead of you…
Challenge: the system
In addition to finding a good system and testing it, the main challenge is to learn this system to the expert level as soon as possible, because only at this level you can not only systematically earn, but also increase your position.
You can use here the methods which accelerate learning. The simplest are: make your setups simpler, make relevant study materials, setting right goals for the next stages of learning, post trade analysis. At further stages of development - at the near-expert level, it is also worth using the Japanese Kaizen improvement method adapted to your trading.
Challenge: Systematic Analysis
If you want to make money it is not enough to just trade. You need to conduct analysis of your trading in the right way. I've seen studies of traders that unequivocally show that long-term, only those who learn from their mistakes, make money.
Post-trade analysis is just a more fancy name for learning from your mistakes. If you don't learn from your own and others' mistakes then you just keep making them.
Challenge: Milestone - convincing yourself that you can… earn on the market
This is part of one of the areas of every trader's challenge - "Mind Management". In our research, we found that you have to go through a period of convincing yourself that you actually can systematically make money with the system you have.
If you don't spend enough time on this - you will usually look for another system. Your path to profits will lengthen or you may give up. Therefore, the next goal after mastering the basics of trading (system) is precisely to convince yourself that you can make money with what you have. Without this, you won't be able to increase your positions peacefully later. If this stage is not there - traders enter a turbulent period of struggling with themselves and with systems. They buy and try every now and then another system, another, another, ... , and so on endlessly.
Challenge: Mind Management (managing states of mind).
The idea here is to provide methods of working with the mind so that you know how to eliminate your weaknesses as a trader. Interesting fact: methods practiced by the most elite special forces like NAVY SEALS apply here. If you are serious about your work then you should know what to do when something bad happens around you, how to deal with difficult situations - after all, this is about your money, the result of your work, sometimes many years.
Mind Management consists of 3 levels:
1) The first is the level of the novice trader, who experiences all or most of the problems mentioned earlier. For the sake of argument, let me remind you that we approach them as challenges.
2) The second level is STM (Stable Traders Mind Basics and Advanced). Here the trader should know techniques for dealing effectively with stress, losses, glass ceiling. The time comes for techniques to "turn off" stress, control the internal dialogue, control the emotional stream and control the imagination function. The goal is to stabilize the mind and learn to actively manage it. The idea is to ensure that various states do not interfere with our trading.
3) The third level is MTM (Mature Traders Mind). Here the trader learns how to effectively deal with the extreme states that the market can induce in the psyche, and learns what elements of traits are worth working on in order to look at the market and trading the way very mature traders - the best ones - do. At this level, one of the goals is to achieve mental comfort in the market.
Challenge: Recognizing and responding appropriately to emotions
Greed, fear, hope, desire for a rematch, hesitation and confusion. Familiar? Some are unfavorable some can be favorable. It is important to know how they work, what they lead to and how to "manage" them.
Challenge: Stress management
Stress is unfavorable because it weakens your memory and reduces, the quality of your trading decisions, and this is a path to losses. There is a number of methods at our disposal, which have been instigated by the best, on how to deal with e stress in trading. These include, for example, controlling your state of arousal, managing your internal dialogue, or techniques borrowed from Navy Seals training. I will cover some of them in the future.
Challenge: Inner Strength - Weaknesses and Strengthening Confidence.
Let's start with the fact that each of us has some weaknesses. This is very human, we are not robots. The problem arises when someone wants to use these weaknesses against us. And that's how markets work. The best traders are aware of this and most often have learned it by trial and mistakes.
What is internal strength? What is internal strength in trading?
We will define it by listing a few situations and qualities that are necessary at that time:
- When you are waiting to trade you need patience.
- When you are entering the market you need courage.
- When you are in the market you need mental resistance to pressure.
To coerce yourself if you need to act or not act you need a strong will. In the long run, a strong will gives you self-discipline. In the area of "inner strength", the trader faces several challenges. If you are not self-confident, internal weakness makes it 9 difficult for you to place orders and then make it to the end of the order. Internal strength is not a sure recipe for success, but the lack of it is a sure recipe for failure.
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USDPLN is time to UP?!USDPLN reached the long-term growth base plotted since 2011 - there was the first important minimum in the white growth tunnel. Interestingly, each subsequent minimum every few years is practically exactly 30 polish "groszy" (polish cents) higher. Would this indicate that what we see here is the place to start? :) For a long-term purchase of the dollar on this instrument? We reached the bottom edge of the tunnel. However, this is a bit tenous, because if EURUSD still has growth potential, it is rather impossible for the USDPLN instrument to stand still (consolidation) and the zloty not to strengthen further. Movements on USDPLN are always inversely proportional to movements on EURUSD in 95%. If you buy EURUSD, sell USDPLN. CPI in Poland is still falling every month - 6,5% in November this year. I wonder how much level 3.75 is possible to achieve currently on sale? Several zones of demand (tf 1 Month) are also important here on the way down, they can brake this move ...and other TL's. Also check Fibo levels. On oscillators in long terms the instrument is practically sold out. The idea is interesting and the place is worth paying attention to now all the time. Because if the zloty starts to depreciate, it will automatically start to lose against the Euro, the Swiss Franc and probably also against the British Pound, as is usually the case. However, currently the GBP and EUR have little room to fall against the zloty.
How to choose a trading system to fit you?Today I want to address the answer to a question that is asked very rarely but is critical to long-term performance. This question has the following form:
What is the best system for me?
Imagine that you have a system that is easy to understand and use. You spend no more than half of the month in the market, and during this time you earn enough to not only cover your monthly expenses, but you will also be able to allocate more capital to further trades and to increase your positions. You spend up to 2 weeks a month on trading. You can use the rest of the time for whatever you want, such as relaxing, visiting family and friends, whatever interests you!
Most beginner traders I have met want to learn a system that will allow them to make money as quickly as possible. Preferably very fast and very much. BUT instead of achieving their goal, they become providers of capital to the market. This is the result of this very approach.
I want you to realize that there is a whole industry: books, system providers, analysts, media - that knows how to lure a newcomer into the market and extract money from him. To do this, they use simple tricks - they target your greed: "you can make a lot of money, very quickly, here's the recipe, here's the magic indicator, here's the fantastic system that will make you rich very quickly, the Holy Grail"... and so on.
I want you to realize that novice traders are lured into a trap by the fact that someone has used the way their mind sets goals to manipulate them.
Today we will use a similar mind mechanism, but for a completely different purpose. Let's break it down...
You work two weeks a month, which gives you 10 trading days, the rest is spent on other activities.
Your total monthly costs are... (X)
Let's assume that you want to "earn a living," i.e. cover your monthly costs, but also save some money and increase your trading capital (Y).
So, by a simple calculation we find out that you should make a profit every month on the market (W): W = X + Y
Now consider, how much is 'X' and 'Y' for you?
The amount of money marked 'W' will be our benchmark: you need a system that will give you exactly that much or more per month. You need a system that will allow you to do it in 10 trading days or less (as we planned).
10 trading days you can do 20-30 trades, because 3 trades a day is really a lot! It's important that they are good, well-prepared - only then they have a chance to bring you the expected result. Regardless of the system, probably/average 10-12 of them will be profitable, the rest will be loss-making or will reach or close to breakeven.
Most traders, after making these simple calculations, change the way they view their system, change their perspective, this means that they begin to see the system as what it should be: a good tool to achieve their own goals. They calm down, they know what they are looking for, and they know that they have the basis for a realistic plan to achieve their goals. They are less susceptible to primitive manipulations based on greed - to which we are susceptible until we become adults.
The basis for changing our view of gains - as a necessary result of actions and losses - as an indelible effect of the system. And at the end of this part of the lesson, let's directly answer the question... So which system should you choose? - The one that will help you achieve your goals.
Let's now go to the story...
John likes to drive fast and participates in street racing. Adrenaline, risk, quick decisions, control over himself and the car in narrow streets is what he likes. Charles is a phlegmatic, he likes to think everything through, he doesn't like to make hasty (read quick) decisions. He prefers when events unfold calmly and he has time to think about how best to react to them.
John and Charles are two different people with different temperaments. Let's consider what systems will work best for them and why?
What trading systems are best and why?
1. Imagine now that we have a super great scalping system. It can produce excellent results as shown by the statements (account results) of people who play with it. It gives several signals a day, the position itself lasts from a few to several minutes. Such trading requires concentration, quick analysis of the situation, ability to make quick decisions.
Who do you think is more likely to consistently make money with this system? The active John or the phlegmatic Charles
The answer is John, the system is more suited to what is natural to him and what he likes. Karol will not find himself in situations of making dozens of quick decisions a day. That is, he can force himself very, very hard and even get results, but it will be hard for him because his mind and psyche function in a different mode.
2. Now we have a second great system: long-term, where we hold positions for weeks or even months. Here we have a very long time to decide on the entry, including what size we will enter. Here Charles, on the other hand, may have a definite advantage, this is the time scale he likes and is mentally prepared for such a mode of operation. For John, on the other hand, it can be an ordeal, not enough that nothing happens, in addition, when the system enters at a loss it sits there for two weeks and "you can go crazy."
A colleague who made his money from scalping told me that once when he entered a long position (by accident, he entered a scalp but there was a big move so he left the position) the situation destroyed him mentally. From scalping he had a habit of constantly controlling the position so for nearly a month he slept only on weekends. He made excellent money on the position, but the experience so exhausted him mentally that he told himself never again, this money is not worth his damaged psyche.
On the other hand, a long-term trader, after training in scalping, said that it's not for him, because "on the minutiae is pure chaos, nothing here gets to me."
As you can see from these two examples - depending on what you are used to and what mode your brain is comfortable with - you will have the best results with a system that is tailored to your temperament, risk appetite and decision-making mode.
By playing with other systems you can achieve success, but it will require you to work and change within yourself. I have seen situations where Charles, forced by life to change, was able to quickly mobilize and change his mode of work, thinking. He was able to learn new things quite quickly and did well in the new situation.
Was it the discovery (out of necessity) of new talents far removed from what he knew, or was he simply malleable enough that he had to find himself, and tried for so long until he found himself? I don't know, many times working with people I have seen how they can mobilize incredibly when needed. Based on this, I can say that most of us have reserves, possibilities and abilities that we are completely unaware of.
The rocks are changing. Systems that worked a year ago don't work today, systems we know today won't work tomorrow or a year from now. Trading requires following the changes. Take the example of Charles and John, two people who play with a scalping system.
Of the two, John is likely to see changes sooner. Charles, struggling with himself and his natural inclinations will be more preoccupied with himself, it just won't reach him as quickly that something has changed.
Our main brain mode will either help or hinder us from noticing market changes. Charles will adjust more slowly, that is, the same system in his hands will have more losses than John, who will adjust smoothly to the changing situation.
Summary
1. We have some main mode of mind and psyche and some systems will suit us better and others will not. It's worth trying different approaches to see what we'll feel most comfortable with and where we'll get good results most easily.
2. It's worth trying different things, including extreme ones - from scalping to long-term trading.
Also because short- and medium-term traders, when successful, usually move to longer terms, also because their systems don't work like they used to, as entering with larger positions starts to affect the markets (here Forex is an exception, due to the liquidity and depth of the markets).
3.When trying different things, be aware that it will require you to learn new habits and find your way into other ways of thinking. That is, work not only on learning the system, but also on yourself.
As a result, you will become more flexible and responsive to change, expanding the number of your mental tools with which you perceive, analyze and understand markets.
It's also a step toward being one of the top earners.
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Top traders' methods: A scenario-based view of the marketsThe best traders think in scenarios of market events. They know from experience that the market can do "anything," so it is better to be prepared for any eventuality. This approach is part of mental flexibility. It can take several forms.
Flexibility in approaching the market reduces stress
Flexibility in our approach to the market reduces stress - if we are prepared for different scenarios of events it is certainly hard to surprise us isn't it?
A lot of stress comes from the fact that we like to attach ourselves to our analysis and our rationale, and we feel annoyed when the market acts differently.
If you take several options for the development of events and prepare for each of them - you are already taking into account that, for example, one or even several orders will go to cost. With this approach, you are already prepared for the matter.
You also don't succumb to the illusion of your own infallibility and need to be right. Experienced traders know that being right is useless and even harmful, what matters is making money, not being right.
Flexibility can promote better profits.
Flexibility can promote better profits when you think through several possible scenarios and prepare to... make money on each of them.
- If the market falls, I'll do this, enter here and the TP will be here, and if it rises I'll enter at that place and set the TP like this.
You prepare your psyche to act according to what the market will do - just like a hunter waits for the game to come out in one place or another.
The market's subsequent denial of being "right" can take a toll on your self-esteem, and as you already know, this is an unfavorable phenomenon. Therefore, think in open-ended terms - that the market can rise or fall in different scenarios. Think how you will make money on each of them, and don't be attached to any direction, any behavior and any "right." Think how you will make money on possible ups and possible downs, and don't be tied to any direction, any behavior and any "rationale."
Flexibility over the long term
In the long run, you can simulate for yourself many different profit and loss scenarios. Especially simulating, recalculating a series of losses works positively. It is sobering. If you are prepared for the worst that can happen, and you are able to survive it and come out on top - you are on your way to professionalism.
Be prepared for a series of battles and for the fact that even though you will lose some of them, in the end you must win the war.
Tip:
When preparing to enter the market, think about where you will enter, where you will put SL and where you will put TP. Think about the different ways you can manage an open order: what are your choices? Exit because the system gives a signal in the opposite direction? Exit because the market froze instead of moving in your direction? Exit because the indications of the indicators are changing?
Think through the different possibilities of market behavior. Together with them, think through your reactions and your decisions.
If you prepare in advance - the management of the order itself will no longer require thinking, but only the execution of the strategy adopted earlier. Such a situation is more advantageous, because the decision-making process in conditions when there is no pressure is better.
If you think through your reactions and decisions earlier order management will no longer require thinking, but the execution of the strategy adopted earlier. Such a situation is more advantageous because the decision-making process in conditions when there is no mental pressure is better.
Also think about what can knock you out, pull you away from your plan? What kind of distractions? Pets at home, family, phones? Think about how to eliminate these distractions or how to prepare for them when they occur.
Traits of master traders
Trading, systems, psyche is something unique. That is, every trader is different. At a certain level, traders participate in competitions, struggles with other traders.
At the next level they are left alone, especially the best. And the best of the best start struggling with themselves. They are themselves yesterday's benchmark for what they want to achieve today.
Thus, they enter the struggle with themselves, with this most important opponent.
Therefore, think about it and imitate them. Be better today than who you were yesterday. And tomorrow be better than who you are today.
Your new goal, which will lead you to the level of Master: "I will be the best trader I can be."
An component of every success story: Mental TaughnessIn whatever way you define your success - satisfying money, a good job, a happy relationship, financial security, the freedom to do what you feel like doing, we will always mention inner strength and discipline as factors that contribute to "someone succeeding."
What is mental toughness in trading? We will define it by listing several situations and qualities that are then necessary. To begin with, I will just point out that at the root of each of them we have discipline and willpower.
When you are waiting to play you need patience.
When you are entering the market you need courage.
When you are in the market you need mental resilience to pressure.
When you are waiting to play and "something happens" you need resistance to temptation.
To compel yourself, if necessary, to act or not act you need a strong will. In the long run, a strong will gives you self-discipline.
Willpower is also another line of defense against toxic emotions.
You need willpower when you are possessed by feelings of greed, fear, or a desire to get back at yourself.
You need willpower so that when emotions arise, you can tame them so that they don't interfere with your ability to make good trading decisions.
In addition to the above, you need motivation and its long-term, stronger relative - determination - to achieve success.
Another element that we include in "internal strength" is resistance to failure. This is the ability to return to action after unfavorable events.
Self-discipline is the ability to adapt over a long period of time to established (or imposed) rules, restrictions, plans of action.
"Long term" is the key meaning here. This is important, because it is from the perspective of long-term earnings that we must now look at self-discipline. A good trader needs it over the long term, for many years. In fact, this is good news, as I will explain in a moment.
This is because I am assuming that your level of self-discipline is not high, or even if it is to some extent - it is not fully conscious. And if it is - you will have enough time to raise and maintain your level of discipline.
This is possible because the source of self-discipline, which is willpower can be trained, just like human muscles.
The most important conclusion from modern research: discipline depends on willpower, willpower is an acquired trait, just like muscle strength, and it can be trained.
What are discipline AND self-discipline?
Self-discipline is the ability to adapt over a long period of time to set (or imposed) rules, restrictions, plans of action.
It is assumed that their source is willpower. Willpower is similar to muscle strength. Willpower is your trait or skill that you acquire in the course of your upbringing and life.
By doing systematic physical exercise, such as lifting weights, you will be able to, for example, double the weight you are able to lift after a certain period of time (assuming you haven't exercised before). The key here is a proper exercise program prepared on the basis of your knowledge of muscle structure and muscle strength building.
Think of self-discipline as an opportunity to apply, to use willpower whenever you need it. And whenever you want it.
Willpower is
The ability to overcome your internal resistances,
the ability to resist impulses, thoughts and desires.
In trading it is important because:
you must be able to accurately enter the market at the moment the system signals it - regardless of what is going on in your psyche,
you must be able to resist the urge to enter the market when there is no signal from the system and the market has "just moved."
you must be able to resist the impulse to increase the size of the order beyond what is reasonable (eliminate the danger of overtrading), you must be able to resist pressure and fear, both when you enter the market and when you are in it,
you must be able to walk away from the market when you see that you are tired, broken internally, distracted, even when a signal is just coming in,
you must be able to force yourself to analyze, to keep a trading journal - if you understand that it matters to your results.
How do you accomplish all this?
By using educated willpower (mental toughness). It has the advantage that you can train it in one field and transfer it to another (trading). If you have willpower "in life" then you can easily transfer it to actions in the market. It's the same as with muscle strength: if you have it in the gym you also have it when you want to move furniture at home. This is one of the most important discoveries of the last few years that we rely on.
There are no different kinds of discipline, another in life and another in trading, so trained in one field it works in all.
If the price breaks out and stays above my red trend line.If the price breaks out and stays above my red trend line.
My target is 4.16889
Areas of coping with losses: preparation for tradingKnowing the system
As you may have guessed, I will revisit the substantive preparation - I mean the bore about the need for comprehensive knowledge of the system. This will help us know whether a loss is a natural operation of the system (and everyone has individual losses or periods of loss) or whether there is something else behind it.
You need to get used to natural periods of loss (in fact, not allowing it creates a strong psychological mechanism that can end up in the so-called "loss trap").
Securing capital - good management of the size of the position
Stress (and therefore the possibility of making a bad decision) and the risk of loss is lower when we have correct management of position size. When we follow the order: demo, minimum stake, then smoothly increase the position. And, of course, not exceeding the maximum size for the system, that is, 1, 2, 3 percent.
Take a look at the periods of "natural" losses of the system (yes, such a thing exists, it's normal) - what did the longest series look like?
Take into account that your capital will have to survive it - do a simulation of how it will decrease when such a period occurs.
Take into account that if you are at the beginning of the road - your loss period will probably be longer.
Your primary task as a trader is to protect your capital.
Mental preparation - accepting different possibilities of market developments
The unpredictability of the markets does not prevent the best traders from earning systematically - they take it into account and earn in spite of it.
Such a state of mind - acceptance of the unpredictability of the market and various possibilities for the development of the situation (including losses!) is also a good protection against foolish or emotional expansion of positions.
The scenario method helps here, which not only protects the psyche to some extent, but also has a direct beneficial effect on profits.
Mental preparation - meditation
Meditation is beneficial for obvious reasons. It calms the mind before entering the market, streamlines and lightens thinking, helps to deal with the "sludge" from previous orders. As a result, our decision-making process is better, so the risk of losses is lower.
Well-conducted meditation after a while becomes second nature in front of the screen and any sudden emotional processes have less force.
Mental preparation - learning attitude
The stress of a possible loss and the loss itself reduces the positive attitude towards the result: in the sense that from the order we can have three types of benefits:
- we can increase the account,
- we can learn something about ourselves, the system, the market, which will pay off in the future with high, stable earnings,
- we can, undergoing a "baptism of fire", getting in touch with our own reactions, emotions - learn something about ourselves and also strengthen mentally, which will eventually give benefits as above.
This is a good reason to look into them from time to time and read, think again. You'll see many things from a new perspective, it's natural, you're still learning and not standing still.
Slightly generalizing, we can say that the loss can be due to either the system (natural operation of the system) or another reason, our mistake, weakness, oversight, inattention.
When we catch this - we are already one step further, because by taking countermeasures now we can already have peace of mind about the subject in the future - where the consequences, for example, financial or psychological, could be much greater.
In the initial period, we should look at the losses with a kind eye, because if they are not due to the system and we can improve them are the staircase on which we quickly climb upwards.
Excerpt from an interview I did with Todd Judkins:
What experience do you remember best from your early days?
What I remember most is that in the beginning I did everything, literally everything, that my mentors said I shouldn't do!
Todd Judkins
Mental preparation - the mind-set of hitting the psychic
The element of surprise, when we don't expect a loss and it happens, is also important for the strength of the psychological resonance.
If we are prepared and expect it to occur - it is smaller. Over time it will be small, experience and traders' maturity makes us accept and get over it, knowing that at the end of the week or month we will still come out on top.
The period of testing the system is also a time to get used to losses. Then experimentally counting orders step by step for the first time we see that they are a natural consequence of the system. We can even estimate to some extent how much in the "worst case scenario" can disappear from our account.
This step is also intended to sensitize us to the issues of proper management of position size (position size within reasonable limits).
From the point of view of minimizing the negative resonance of losses - it is necessary to be proactively prepared for them, when, for example, we open a platform and previously had an order on the market, or when we have an order and look somewhere on the market to see what the current rate is.
Mental preparation at this point is a protective barrier against overreaction. It works well to recall a picture of the whole process that leads us to our goal - and to recall a picture of the goal itself. This gives a mature distance from a single outcome.
Look at a single order as part of a long series of events leading you to the realization of your goal. That's what the best traders in the world do.
How to break the "freeze" due to emotions?Sometimes traders freeze up in the face of some market event. I had that myself, which led to the loss of my first deposit. Many years later, I remember it as if it were today: I drew a trend line on GBP/JPY and set an order as I thought right above it. It was Sunday evening - in a moment the market was about to move.
In a moment it did. For an hour I watched it slowly but steadily move towards my trendline, then touch it....
Suddenly, to my surprise, I saw that the order was triggered for me! This is not how it was supposed to be! It was supposed to trigger only after piercing the line - and on the chart it touched it perfectly!
Emotions, stress appeared and... I froze. I simply did not know what to do. I watched helplessly as the market fell within a dozen minutes.
Dozens of thoughts flew through my head. I was unable to make the slightest movement. I froze with emotion like an animal blinded by a car headlight at night on the highway.
These were my beginnings, absolute beginnings. I knew there was such a thing as SL, but I didn't consider it necessary, after all, I was here to make money, not lose, and "the market always turns"! Right? :)
This time it did not "turn" and I scored the first margin call.
I was surprised and then heartbroken.
A colleague in a similar situation watched six thousand dollars evaporate from his account in 9 minutes, having previously tripled his account (as did I at the beginning), he was unable to do anything.
How to deal with such a situation, when we are suddenly surprised and "freeze"?
3F reaction
In situations of very high stress, we have 3 types of natural reactions of the body. Let's call them "3F": fight, flight or freeze.
These are reactions inherent in all living beings. The first two are well known: living beings, when faced with a threat (such as an attacker), flee, engage in a fight or freeze in immobility. This is a survival mechanism, encoded deep in the genes.
However, in market situations, as the stories above indicate - this is a rather undesirable reaction.
Dealing with such a situation consists of two elements.
Prevent the "freeze"
First, prepare yourself mentally for what can go wrong. Prepare for the fact that the order may run you differently than you want, not where you want it to. Your electricity or internet may go out (I recommend UPS and backup connections). There may be a sudden huge amount of traffic due to news (I had this happen too, I entered without checking the news calendar...).
Knowing already several possibilities of "what can go wrong" you are in a completely different situation, the chances that something surprising will happen and you will "freeze" quickly decrease.
Expect the unexpected. And when it occurs make a quick assessment of the situation and be ready to take immediate action. If you think through in advance what you would do in a given situation you have a good chance of acting correctly. And the situation will not find you "with your pants down".
Stop the reaction
If you see someone in such a situation shout loudly or if you are standing close push them, this is usually enough.
Apply the same to yourself: shout loudly, use the "Polish universal word for k", get up abruptly from the computer. Clapping your hands loudly works well.
Any loud or violent action will break the "frozen" state and unlock your mind.
What is the "glass ceiling" in trading?The glass ceiling is the level of cash at which the stress level suddenly and unexpectedly increases. Thinking of a specific sum that "causes" this effect in the psyche will indicate the size of the position exposed to risk.
It also happens that traders talk about the "glass ceiling" when specifying the size of the account they have with a broker, but even so, the problem of the size of a single position remains at the root, since it is most often referred to as a percentage of the total account.
Explanation of what is the size of the position exposed to risk. For example - with an account of $100,000, the size of 2% of the account is exactly $2,000. When we enter the market with a position of such size and in a situation when it is closed at SL we lose it - we say that we have exposed such a position to risk (losses).
It happens that such feelings are aroused by the size of the position expressed in lots.
Keeping an eye on the right profit/risk ratio gives us "mathematical" but not psychological security
Many experienced traders say that you should not put, for example, more than 2% of your account at risk on a single position and no more than 6-8% of your account on several positions at the same time. This 2% has more of a mathematical rationale and less of a psychological one.
Note that dividing an account of 100,000 into parts of 2,000 each (i.e. 2%), you would theoretically have to have 50 losses in a row to lose it all. Having a decent system and making sure to stick to the rules of the system this is unlikely, isn't it?
Choosing a position with a profit to risk of three to one gives us "mathematical" safety.
Simplifying - using systems with a profit to risk ratio of more than three to one, already with 30% of profitable trades (which is about one in three) we will get a nice profit.
Simulation of 30% of profitable closed at 3:1 and 70% of losing at SL
With 30% profitable trades on 100 trades, we will "earn" 30 x 3 x 2000 = 30 x 6000 = 180,000
Here 30 means the number of positions per hundred, the part 3 x 2000 means positions closed at a profit of three to one.
In the same 100 transactions, losses will be: 70 x 2 000 = 140 000
Here we have 70 positions each of 2,000 closed at a loss.
Profit = 180,000 - 140,000 = 40,000
Conclusion - even if only every third transaction results in a profit and the others in a loss - we come out with a profit.
Percentage-wise, with a very good profit, over the course of 100 transactions we "earned": initial capital = 100,000, final capital = 140,000, percentage profit = 40%
Learning to think in terms of multiple transactions allows you to keep a healthy distance from each of the individual inputs. Thinking in "series of trades" frees the psyche from having to focus on the importance of a single result, makes it easier for a trader to get over a single "profit" or "loss" and thus his trading is burdened with less stress. It is worth recalling this, as it is one of the necessary elements of maturing to the level of the best.
However, it turns out that such calculations are less important for our psyche, which pays more attention to the size of the actual capital.
In this regard, the level of the glass ceiling begins to have a critical psychological significance.
6 reasons for losing discipline in trading and recommendationsWhy does trading discipline weaken or disappear altogether, and it happens that in retrospect we see that we did a lot of stupid things?
Let's start with some clarification. When talking about discipline we will have two things in mind.
The first is discipline as a single act - an act of willpower. The second is discipline as the ability to repeatedly apply willpower which manifests itself in sticking to a specific plan of action. This second discipline is the basis for sticking to the system.
We have twelve basic reasons why our trading discipline weakens. Today I will give half of them.
Lack of goals and action plans
In order to talk about discipline as sticking to a plan first we must have a plan. Otherwise we have nothing to "stick to." We make a plan when we define some goal and the steps by which we can realistically achieve it.
In a narrower sense, we have discipline as the ability to execute a signal correctly. Again, I will "tack on" to the terms we use. After all, what does it mean to "correctly execute a signal"? Well, it is sticking to the rules set for entry, position management and exit. Therefore, don't talk about discipline if you don't have a good understanding of the following:
how the signal from the system looks like,
how proper position management should look like,
where and by what rules you exit the market.
To sum up - we do not talk about discipline if we do not have a plan and do not know "to the end" what any of the three stages of the trade looks like. Until we know this we have nothing to "stick to".
I know I'm repetitive, but again some time ago a trader (more than five years of market experience) with whom I was talking asked me questions about whether he was managing the position properly, perhaps he should have done otherwise.
He asked me, who do not know his system at all!
This is very common - traders use systems they do not fully understand.
Recommendation of action
By the way, I advised him to take 100 screenshots of complete entries and analyze them (to see what the market can do and prepare action strategies for any eventuality) and then to practice these management strategies on a demo or simulator.
A good system and a good trading plan are like two railroad rails on which a heavily loaded train can run. If these rails are absent or weak then the result will be poor.
A good, well-rehearsed system plus a trading plan is the foundation to which, adding discipline and more generally inner strength, you will achieve success.
Lack of life discipline, quitting exercise
There are not two "disciplines" - life discipline and trading discipline, but there is one, and that is the ability to apply willpower.
A trader may have trouble with discipline if he is poorly disciplined in life in general.
With the right exercises, the level of discipline will slowly begin to rise. However, when you stop - it will slowly begin to fall after a while. The level of discipline drops when we laze around for a long time, for example, during vacation trips. Of course, holiday laziness is nothing bad, sometimes it is a blessing :) However, it's also a good idea to impose some minimal tasks on yourself - like swimming x meters every day, morning jogging, push-ups, tummies, etc.
This will keep your willpower levels up. When you return from vacation, you need to take a moment to "get into the cogs" again, and this is also natural.
Experienced traders in such a situation use, for example, reducing their normal rate by half for the first few trades.
Bad feeling, illness
Like laziness and vacations, illness, a cold or a bad mood (such as a hangover) can work. The state of the body has a big impact on the state of the mind, when we have a high temperature, for example, we usually do not think soberly. This also applies to the application of willpower and therefore discipline.
Recommendation
Avoid situations where we have to sit down to the market and we are not in shape. We can figuratively say that the market, the system and... our state of mind pays, so we avoid situations when we have a problem with it.
Overtrading
Overtrading comes in two main forms:
- trading with too high a stake,
- execution of too many positions during a single session.
The first form gives emotional unrest (just entering too high a position is already a violation of discipline) the second causes fatigue followed by loss of concentration.
Recommendation
The recommendation can be only one - we avoid such situations and treat their mere occurrence as a serious warning and a reason for immediate exit from the market, because something is wrong.
Fatigue
Fatigue from earlier work, for example, or fatigue from sitting for hours waiting for a signal. Often it doesn't make sense, because let's say we let one pass and the next one may be in an hour or two.
Sleep
Recommendation
Set your alarm clock for 30 minutes, no more, and lie down, preferably in bed. Sometimes it's like I get up after 12-15 minutes, my brain is calm and rested, as if I were starting the day all over again. Try it out at the earliest opportunity.
NOTE: no more than 30 minutes, because if you get sleepy you feel worse and concentration is worse.
The second thing - use professional solutions and replace bright screens with dark ones with dark backgrounds. They are less glaring to the eyes and you will tire slower.
Exercise your eyes' focal length. Exercise your eyes every hour - look out the window at some distant point on the horizon, then move your gaze to the window frame, do this 3-4 times. The exercise counteracts cumulative eye fatigue due to constant focus at close range.
Regular breaks. While sitting in front of the platform, take breaks of about 10 minutes each hour. Don't sit for more than 3 hours at a time; most people have trouble focusing after 3 hours. If you want to sit more - do two sessions with a longer break - but use it by going for a walk, lunch.
During the break, change the type of stimuli - that is, drop out of turning on a computer game or watching a movie, that's not how you will rest. Get some fresh air, your brain needs oxygen. Swapping the trading platform for a game or movie and continuing to sit in front of the computer is a bad idea, it's best to ventilate yourself. Lack of oxygen makes us tire faster, hence the need to ventilate the room. "Cigarette during a break" is a mistake.
Force air circulation in an enclosed room. A good solution is a small fan that forces air circulation in the room. It gives air movement, meaning we breathe easier and tire slower. Can be used all year round, including winter.
Loss of faith in the system
Loss of discipline can be caused by loss of faith in one's own system. That's why I talk so many times about comprehensive testing and exhaustive learning of the system. The point is to have confidence in the system, in yourself, in your understanding of the market. This confidence comes through competence - comprehensive learning and practicing of the system.
Here, once again, I want to draw attention to simplicity - the more complicated a car you have, the harder it will be for you to master it. So keep it as simple as possible.
Stress, loss and further implicationsIn the shorter term - high levels of emotion and stress cause lower intellectual performance.
Lower intellectual performance is, in other words, less efficient thinking. This is the reason that we generally perform less well on any exams, such as forgetting the simplest and most obvious things.
In the long term, constant stress - can lead to irritability, headaches, migraines, heart rhythm disturbances, stomach ulcers.
Some believe that the biochemical reactions that stress causes in our bodies can cause heart attacks, strokes, and may be one of the causes of the formation and development of cancer.
Attempts to relieve stressful situations with alcohol can lead to alcoholism.
In trading, stress can not only lead to losses, I know of traders who are unable to continue their profession at all due to high levels of stress, had to stop.
So this is a serious matter, and practically every trader I know has some way of dealing with stress and its effects.
And I know that what I'm going to say now may be taken as boring, but I really have hundreds of pieces of evidence for this... In which situation on the exam do you have more stress:
out of a pool of 500 tasks, you have rewritten all 3 times
out of a pool of 500 tasks, you only did 100.
Are you now able to tell how many times one situation is more stressful than the other? Try to estimate it, e.g. 1.5 times, 2 times, 3 times... 5 times....
Those who are asked indicate that it is usually 3 or more, rarely anyone indicates less. That's why I say that good preparation, good, comprehensive knowledge of the system and practicing it in a myriad of equal situations is the best recipe for good results and low stress.
Because you will be very, very, very well prepared.
Causes of stress in trading
Losing money in the market can be a source of stress reaction. Especially if it is a significant sum for us. For everyone this sum can be different, and for everyone such a level exists, this is the so-called glass ceiling, which we will address in future texts.
Profit can be the cause of a strong stress reaction, the bigger the more likely. I know of cases of traders in whom a large profit caused a traumatic reaction (mental shock). In one extreme case, a trader who made a huge sum on options in one day experienced such a strong mental shock that he was unable to show up at his office for a year.
Just being in the market can cause a stress reaction. This is how it becomes associated in the trader's psyche at some point, so that later the stress reaction occurs constantly. We will soon see how this happens and how to change it to a positive reaction.
Being out of the market can be stressful, especially if you wait a long time for a signal. Another case is when we exited the market, for example, under the influence of emotions and the market continued to move strongly in our direction and "if we had stayed in position we would have made a very good profit." Yet another example of a stressful situation is a lost opportunity, a clean signal that passed us by.
Uncertainty is another source of stress, pointed out by virtually all researchers of the phenomenon. Trading is, in fact, the skill of managing uncertainty and risk - we enter the market with money not knowing "how it will turn out". It is necessary to become accustomed to this situation, experienced traders pay practically no attention at all to "uncertainty" - they know that the outcome of each individual order is not known, but nevertheless, at the end of the month, after a series of orders, they will still come out on top.
Two primary sources of stress: external triggers and imagination
The first is the very situation we are in, for example, with an open position in the market. The second source is our thoughts and the imaginations we create for ourselves. I have mentioned several times that our mind does not fully distinguish between reality and imagination. That is, the mere imagination, the memory of a stressful situation, can generate for us the same reaction as the event.
Example: If you stop reading for a moment and recall a situation: an exam, an accident, a difficult interview, for example, for a job... in a moment you may have the beginnings of a stress reaction in your body.
This is how worrying and uncontrollably imagining all kinds of negative scenarios works - it causes stress and robs you of your strength.
Note: What is different is mental preparation - imagining black scenarios with the intention of dealing with them, preparing your own psyche and sometimes coming up with a response and line of action - such a proactive approach builds mental strength and makes us feel in control.
Stress as the sum of stress from different sources
I will conclude this brief introduction with another important point: if you have other stressful situations besides investing and trading then your stress level will usually be the sum of stresses.
That is, other stressful life events, e.g., an argument, accident, illness, theft, stress in traffic on the street, jet-lag can also have a negative impact on your market performance, as can stress caused solely by factors related to investing.
It is worth knowing that strong noise, crowds of people can also be a source of stress. The U.S. stock market, where traders shout bids one by one, where there is a crowd and noise is even an icon of a stressful environment.
Each of us reacts differently to a potentially stressful event. There are those who will not experience a stress reaction in most of the situations described. According to researchers, their high resilience to stress may be related to the absence of several factors that foster stress: internal sabotage, internal conflicts, fear of success, tying the results.
Here we are not without specific techniques not only to directly affect your stress levels in investing and in general - but also to improve your outlook on life, building optimism, strength and inner resilience. They are also designed to help you become a more relaxed and happier person pursuing your goals by playing the markets with as little stress and emotion as possible.
High and low susceptibility to stress vs. performance on different time frames (TF)
Stress arises as a result of our reaction to external events, and we can also generate it ourselves - by thinking. People who worry have elevated stress levels because of this.
In extreme cases, people who worry can fund themselves with constant high levels of stress. Often these people perceive virtually any event as stressful. If this is the case, they will find it difficult to invest, not only because there are new stressors, but because the overall stress level can quickly spiral out of control. And high stress levels mean poorer market perception, poorer quality analysis, poorer quality decisions.
On the other side of the scale, we have people who can get through a lot of stressful situations without any special problems.
Putting things in perspective and generalizing slightly, we can say that people with higher levels of stress can achieve better results with higher time scales (weekly, daily, four-hourly) and worse results with speculation on lower TF: day trading, quarter-hour, five-minute, one-minute.
Tip: two phases of "getting by" in the market for people with high stress levels. I understand the situation of many investors who want to start with a small capital and "make a quick buck." This usually requires a lot of transactions in a short period of time, just to build up capital.
I don't want to comment on this right now, I just want to share one observation. If you are a less stress-resistant person - consider two phases of your game.
The first, when you accept a higher level of stress and actively apply the exercises and tips I give in the lessons - keeping an eye on your stress level.
The second - when you consciously move to higher TF, where the strain on your psyche will be lower.
The point is to make sure you don't overdo the level of stress on your psyche, because many traders had to leave the market for this reason and there was no one to get them out of trouble.
Another important point: if you have a high level of stress in your life think of some way to change it before you get serious about investing or trading because you may not work out mentally.
Stress levels decrease with increased experience and skill
Of course, it is also the case that the level of excitement and stress decreases over time. Recall what it's like after taking a driving course, when after a while driving is no longer stressful and often becomes a pleasure. In trading, it can be similar. The more competent you become, the more familiar you are with the system and the market, the less stress you will experience. Of course, we have a level of glass ceiling when stress suddenly builds up, but we'll address this topic too in future lessons.
How to recognize a stress reaction?
Read the following description very carefully, because based on it we will learn how to deal with stress: short-term and long-term.
When something sudden happens, you are the object of an attack on the street, you are about to be hit by a car your body reacts automatically with a reaction we call "fight or flight" or "fight or flight".
These reactions occur automatically:
Muscles tighten in anticipation of action.
Breathing speeds up and deepens. You may also hold your breath for a moment in a situation of imminent danger.
The heart rate increases, the volume of blood ejected during each contraction increases, and blood pressure rises.
The glands inject hormones into the blood that speed up the heart rate, respiratory rate, muscle activity, and the breakdown of nutrients needed by the muscles.
Pulmonary tubules dilate, blood vessels in the muscles and brain expand.
Pupils dilate and auditory sensitivity increases.
The body prepares itself for action: fight, defend or flee.
This is a reaction inherited from ancestors, assisting a person at the time of danger.
The first step to professional tradingThe first and primary challenge for you in the first step of learning the system and trading is to commit all your efforts to learning the system.
The result of your work should be:
correct identification of the signal from the system,
correct placement of an order,
correct management of it until you exit the market.
Therefore, your first step towards professionalism is correctness.
When you reach this level it will be time for the next one: Convincing yourself that you are capable of making money with this system.
Important note: The first goal is the correctness of the signal execution. It is not to make money in the market.
Making money as a goal will come a little later (as soon as possible so be patient).
Learn to walk first before you think about running. Learn to stay afloat first before you think about competing in swimming competitions. :)
Quick entry with money into the market pleases the great and experienced traders - they know that if you are with money in the market they will make money.
We have the same attitude among other representatives of the other side of the transaction - some of the brokerage companies.
Remember: your first step towards professionalism is the correct execution of all elements from analysis, market entry, position management and exit.
Correct signal execution and a loss is a reason to be happy! You stuck to the rules and they are the ones that pay (later I will explain to you very important reasons why).
Take an important rule at the beginning that will stay with you forever: you can have two benefits from an order. Either earnings or learning. A clear awareness of your goal will help you. The goal contains two elements: the what and the why. The first defines what is to be done and the second motivates you to act.
Now we will focus on your goal. The first is to make money in the markets and have long-term success allowing you to realize your dreams and aspirations. The freedom to live where you want and do what you feel like doing, without a boss, without someone telling you what to do and when to do it.
The way to do this is by learning to make money systematically in the markets - over many years. A very important step to this is to convince yourself that you are capable of making money with the system you have. To do this as soon as possible it is worth having some helpful tools:
- A System Manual - you can get one from an author or system trader, or you can prepare one yourself. It should contain dozens of examples discussed.
- Analysis and Trade Book - containing your historical analysis, perhaps simulations and then trades. Its periodic review is to help you learn the realities of the system as quickly as possible.
Review the trades at least once a week and analyze them. It helps a lot if they are printed out and you can make notes in the margins.
- A short - written down on one page (max two) the main rules of the system and the types of inputs (if there are several). Have it always at hand when trading.
If you have 30 examples of analysis (from the Book or Manual) - then periodically return to them, for example, every day (at the beginning) you can review five trades each. The next day - another five. The next day - another one. Within 7 days you repeat all of them. Then start over again, until it takes you 5-10 seconds to look at a trade, you already know everything about it and nothing new comes up.
How do you organize your study time?
Allocate some time each day to study, let it be a minimum of a quarter of an hour per day, but systematically. Start thinking of time as your resource to invest. Start investing your time, ask yourself "what can this time bring me useful"? Maybe it's worth spending it on my life goals? This is a completely new approach for many people: start thinking of your time as something you can invest - good or bad.
Take advantage of "empty runs" - time on the bus, subway, train. Take notes and review them.
Limit the amount of TV, it's opium for the masses, it annoys, stupefies and manipulates. A good movie is one thing, but stupid series or news full of manipulation is something else.
Take care of yourself and don't try to do everything at once or at any cost. Don't become a machine to achieve your goals. Be gentle and good to yourself, enjoy and reward yourself for being on the right track.
Don't punish yourself for not doing something "on time." Reward yourself for what you have done, your work is worthy of respect and admiration and associate it that way, not with something negative.
Devote the best time of the day to investing in the future: learning the system and trading. The best time is when you are at your best intellectually.
The best work plan (always) is a step-by-step plan.
If you don't get a "System Manual" from someone - prepare it yourself (with a trader friend, with a group). Break down each major thing into smaller ones and focus on each one in turn.
For example: spend consecutive days on descriptions of historical trades. It may take you up to two days to prepare the first one. And celebrate that success already! That's a big deal!
Successively prepare the next ones - this way you slowly but steadily move forward. And in a month you may already have, for example, 15-20 analyses. And in two months - 30-50. Do it this way with each major challenge - break it down into smaller ones.
Don't forget to enjoy and reward even small successes. This is an important signal to your psyche that you are on the right track, it builds good associations.
In this way, the time spent studying will be nicer and more enjoyable than if you demand harshly of yourself and punish for "deviations from the plan." Believe me the latter is a road to nowhere.
The smaller the portion to learn the better to start with.
The simpler the system the faster you will master it. If you have several types of inputs limit yourself to one - two of the simplest and set yourself the goal of mastering them to perfection and then - reach profitability with them.
The more complex the system - the more time it will take you to master it, the more frustrations you will have and the more chances you will give up on it. Therefore, focus on the simplest inputs that pay and leave the rest for later.
There will always be time to expand your system.
Set aside complicated systems with complex, elaborate decision-making processes for later years.
An introduction to building your decision-making skills
Once you've tackled the system learning materials, the next important step is to train your decision-making skills. This process looks different for different systems - so I'll simplify it to asking two questions:
Where on this chart would you make a decision to enter the market?
Where would you put SL and where would you put TP?
It is important to realize that being a trader is quite different from being a good analyst. Good analysts rarely become good traders - these two skills (analytical and decision-making) stand in some opposition to each other.
At some point a trader - analyzing the situation and comparing it with the requirements of the system - makes a decision to enter the market. We practice these skills by observing the charts and studying whether the criteria that our system implies are met. And if so - we indicate where the market entry would occur.
Speaking of the number of such simulations - we can say that an experienced trader-expert has, for example, two or three thousand such decision-making processes behind him. We will not need such a large number, about a maximum of 100-200 will suffice and this is for two reasons.
The first - after such a number of examples, we will have a fairly good picture of how the system may work, but it will be incomplete. No simulation can replace reality: stress, emotions, market pressure.
Second - after such a number of examples, there will no longer be a growth in understanding of the system.
Self-made screenshots with the further part of the chart obscured can help here - only the part needed to make a decision is visible. The next page can be shown the later course. Dozens of such sheets - drawn up and prepared in the form of tasks for us will allow our brains to quickly become familiar with the system and the critical moment of entering the market.
It is puzzling that, for example, mechanics for any car have several hundred pages of manuals explaining the operation, assembly and disassembly, while traders learning to invest tens or hundreds of thousands of dollars - have nothing even close.
This kind of help, whether prepared on your own or received from outside, is simply invaluable in terms of getting to know the mechanics of the system inside out, and is hard to replace with anything else.
Therefore, if you do not yet have your "Task Collection" prepare it at the earliest possible time. If you work in a group - share the work with your colleagues and let each prepare tasks for the other. Divide by month, for example, and let each prepare the tasks of a different month with a separate document containing the answers. Then have everyone rework the tasks from their colleague(s).
How to make decisions in tradingAn investor (trader) is an analyst plus a decision maker. But the system and correct recognition of signals are not enough. Investing (trading) is an activity that requires making good decisions. And it is decisions of a specific type - under the conditions of the existence of risk. This very important topic. Today we will cover the first step towards making your decisions the best they can be.
Step 1.
The first step is to get a certain amount of tasks to solve. The idea is that in the market, you will make a decision on the signal you see when trading.
Looking only at historical signals, you see both the signal itself and the movement that followed.
But in a real market situation you will only see it as it draws up. Hence, prepare yourself a dozen (several dozen) screenshots (graphics) with the movement that followed the signal removed.
The idea is to make the situation realistic: to get your brain used to seeing the signal as it will look in real time.
The more examples you have of this:
the faster your brain gets used to seeing the signal "in real time"
the faster you will make good decisions - correctly identifying the signal.
Note: many people do not know moderation in analysis, they learn more and more tools and become analysts. However, analysts do not earn as much as traders, and in general you should be very careful with these analyses. Analytics can and often are an instrument for fooling and misleading the masses of traders and investors who trust them. This ends in losses, of course.
Your task is to become a good analyst (from your system) and immediately educate your decision-making skills as well.
The first goal you strive for is to correctly execute the trade from start to finish. And this is what you should focus all your energies on at the very beginning of using your new system.
Correct execution of the trade consists of the following:
correct pre-trade analysis and preparation.
Correct identification of the signal and entering the market, knowing that you may feel pressure to trade, greed, fear, etc. emotions.
Correctly managing the order from opening to closing.
Corre
ctly closing the order at SL or TP - or exiting for some other but well-founded reason.
Step 2.
Post-Trade Analysis. Studies show that only those traders/investors who perform post-trade (after-the-fact) analysis systematically increase their profits.
That is why it is so important that you do it systematically as well. Analyze your preparation (pre-trade analysis before trading - whether it was done correctly), entries, position management and exits.
I will suggest a few questions that will speed up this process (of learning and earning):
did I make a correct analysis of the market and was I well prepared to trade (about that in a moment)?
did I correctly identify the signal and enter the market in a good place?
did I put SL and TP in the right place?
did I manage the order (and myself) correctly - minute by minute?
did I exit the order correctly? In the right place?
You may already see - that by making a trade you can benefit in two big ways: either you learn something or make money, or both.
You have above a ready-made excerpt to analyze your own trades and learn from your experience. And if you have a problem with something - you will know (when it occurs) what part of your trade you should work on.
When learning and then making trades, systematize your analyses:
1. the first analysis can be right after trading, fresh, whether you performed everything correctly (according to the questions above).
2. The second analysis can be at the conclusion of the week: e.g. you sit down on the weekend when there is no market and review the trades of the whole week and once again analyze them with your notes.
3 You can also do periodic analyses - for example, once a month, at the end. It's worth doing them because you'll see that you're moving forward and gradually, systematically learning and being at a higher level. You will then realize that your learning a new profession is a certain process, that you are on the right path (of the best) and that in some time you will realize your life plans thanks to your success in the market.
As you can see, we consistently set everything up so that you learn the key things as quickly as possible and can systematically earn and live from the markets as soon as possible.
How to effectively start learning the systemThe path from "zero" to "Top Investor" requires knowledge of how our brain learns the fastest. This is part of the knowledge of the path of success in trading.
The best traders started from scratch - they knew nothing. One of the critical moments of their development was when they began to understand the system. It was often preceded by various events, moments of resignation, discouragement, parting ways with the market and subsequent returns.
Many trading systems are based on recognizing formations (price and candlestick), recognizing signals from indicators. In other words - you need to see a certain number of examples to be able to correctly identify signals when they will draw in real time in the market.
Usually this process goes as follows:
observation on the historical chart, when we see the signal and the subsequent course of the movement,
observation of what the signal looks like without what happened next,
observation of the signal in real time,
learning how to make a decision to enter the market on the drawing signal.
If you want to speed up this process as much as possible - then know that the fastest to develop (and the fastest to reach the level of independent, correct identification) are people who have seen a lot of examples.
When you look at the perspective of what I wrote - it's pretty obvious, right?
If so, why do 90% of books describing systems contain only a few or a dozen graphic examples? I have seen 120 or so such books. The pinnacle of modesty was one (about a fairly popular system), which contained only nine screenshots. Nine!
With such a number of examples, do you think you can learn anything enough to risk your money on this system? I'm sure you won't.
No one can succeed in this way. Our brain needs to see a lot of examples - preferably in the most market-like conditions. Only then will it correctly solve the tasks posed by the market situation.
This is simply how our brain works, and if we want to follow the path of development quickly, we should respect these laws.
Introduction to rapid learning of systems
Imagine that you have a system and you know it very well. It is easy to understand and apply. The signals are clear. Their identification leaves no doubt. As a result, trading becomes simpler and more rewarding for you.
Every day when you sit down to trade you have at hand a document in which you have briefly written down the next steps of analysis you perform on the market before taking a position. This document is called "Market Analysis."
On the second sheet, "List of trades," you have written down the set-ups you trade. Your market activity boils down to doing some simple analysis and then setting an alert and waiting for one of the setups to be drawn.
If you had any doubts you still have another powerful document at your disposal - detailed descriptions and analyses of 100+ signals, which you can always refer to in case of even slight doubts. "System Manual.
You look at the market from a long perspective, if even one, two or three entries do not pay, the next ones will more than make a profit. You are not in a hurry, you have a plan that you follow without haste. Looking at the growing account you begin to realize that your earlier dreams were too modest, you will be able to afford more.
Nice description of your possible future, right? Then let's make it a reality.
I described above three documents: "Market Analysis", " List of Trades" and "System Manual". And here is the easiest way to get into possession of such:
1. if you are lucky - you will get such documents from someone who teaches you the system. However, this is rare. In most cases you will not have them for two reasons:
some vendors don't think they are needed ("it's enough for me to show the system") and that's OK, their right
some system vendors know they can't provide them, because either their systems are a scam or a short-lived ephemera. Then such a document would work against them. Without a system manual, however, it is difficult to achieve any success, it is virtually impossible.
2 You can prepare such a document yourself The plus side of this solution is that you will learn a lot with it, and there is not much work involved. The second plus is - that with it you will learn the system much faster. So let's move on to a description of how to prepare such materials yourself.
Step 0.
Take a book or training on the system you have. Perhaps you are already a more experienced trader and have a system "in your head" and it is, for example, a modified version of some other system. In this case, the preparation of the mentioned documents will give you a lot: it will clearly reduce the stress before and during the trading and will clearly increase your profits.
Step 1.
Analysis. If your system requires you to analyze markets before entering - list one by one what you are analyzing and how. Strive to make the criteria you use objective. Example "is condition X met or not".
Entries. Write down all the types of entries your system has. If it is an indicator system and you have one type = signal from the system, describe exactly what should point to which indicator.
Fundamentals. If the system requires some additional situation, for example, some information about the instrument ("fundamental" data) then write that down too. What information is needed, what values the fundamental indicators must take.
Position management rules. Write down the rules for entries, position management and exits.
Itd.
Note what the goal here is: I would like you to have a complete description of OBJECTIVE criteria for entries, position management and exits. So that nothing will depend on your mood, your vision, or your "intuition".
Having such detailed descriptions - you will know at any time:
1. what you should currently focus your attention on.
2. What decision to make based on the reading of what you see.
This is very important, because if you enter the market with money and emotions are turned on - you will be compounding losses and cutting profits, as most beginners do (why they do this I will describe later). And you have NO CHANCE of achieving success.
With money in the market and under pressure - if you don't have objective, independent criteria, your decisions will be bad and it's only a matter of time when someone will take your money away from you.
Step 2.
Once you have the rules of analysis written down (the first sheet) and entries, exits and position management (the next pages, 2-3 at most) then analyze about 30 historical signals.
1 "Reverse" the market on your platform, for example, by a few months.
2. Open the platform with news from the markets of that day. If you have not taken them into account before - add what you do when the strongest movements/news are approaching (most day traders pull back from the market then).
3. Analyze the market according to your documents.
4. Take screenshots of entry and exit signals.
5. Answer the questions:
a. What readings did the indicators have?
b. What did the set-ups look like?
c. Where exactly did we enter the market?
d. At which point did we exit?
e. What did the indicators look like at the time you managed the position?
6. Make notes of your observations in an additional section "What I learned today".
If you do 2 analyses a day according to your written rules, in 30 days you will have as many as 60, and that's a lot - your understanding of how the system works will be very good.
There are two types of investors in the world, those who make money and those who are providers of capital to the market. If you put work into your education you have a good chance to be in the first group, if not - you will definitely be in the second.
Long position on USDPLNLong position on USDPLN based on M1 and lower timeframes as we reached lower area of up trend channel formed from 2008
USDPLN 4h sellPolish currency strengthening after govt election and still is getting stronger what is confirmed in TA. USDPLN just printed nice bearish candle still being under 200EMA and that's for me is a bearish signal. Its not an advise its only my opinion.
