EDUCATION – A trader’s Journey, December 17th, 2013

Hello traders,

this article sparkled from the comment of a fellow trader and follower and provides some information useful for your trading journey.

A trader’s journey

Trading is easy but not simple. As most of you have already realized the main problem is the education we go or went through, or we are obliged to go through and, especially, the lack of mentors who.

Finding a good mentor is not only a matter of luck, but also putting efforts into it and researching the internet wide and large, ask people, buy monthly services, etc.

Then there are the skills: 1) trading methodology, 2) money/risk management; 3) psychology.

I rate them as follows, in terms of importance:

  1. 10/15%
  2. 10%
  3. 75/80%

1) Trading Methodology: There are a different methods available: traditional technical analysis (?), price action (?), there–is–an–other–in–the–universe (cycles, Elliot), band trading (?), strategy trading, sentiment trading (?), program trading ().

You have been there and, maybe, tried different options, but do they really provide an edge? It is 50/50%, so people who make money with the majority of these methods do it because of superior MM and psychology and because they stick to the winners when they have good trades. Low reliability, high expectancy also due to large occasional R/R with a small, controlled risk. This is the secret for low reliability methods, you know it already. I deeply respect traders who can make consistently money using these methods. They are not a lot, though.

If you know my work a bit, you also know that I am a proponent of observing Program Trading (a powerful class of algorithmic trading) and guarding against HFT (especially in entries on 15min and lower). I have got into it before joining SIAT/IFTA and studied and researched it for a long period of time.

If you have time and are interested, watch a few videos on this blog, and you will get an idea of what I am talking about. Notice that the method only works on high volume instruments: forex majors, indices and commodities and high volume stocks. This is a very important point, because we need to make sure that Program Trading is active on the market we analyze and trade.

It is a brand new approach that attempts to spot Algorithmic Trading footprints and incorporates the traders` group psychology, so it makes it easier to trade with the natural market flow, which also means it is more difficult to trade, and it has certainly been for me at the beginning, because we all are mentally wired in a way very different from that required to be successful following Program Trading footprints. Program Trading is the way to go for me, it gives very good results and, as a matter of fact, methods based on algorithms are getting a lot of coverage on, one of the largest global Forex portals, that has also recently awarded my efforts in this area .

2) Risk/Money Management: If you have good risk and money management (MM) in place you can can do well, provided you are disciplined, but if you want to do very well you have to have a good trading method too, with high reliability. Generally MM is not an issue. There are two aspects of it:

  1. having MM right for the market you trade and in relation to the type of entry you use (I have 4 classes of entries, on different timeframes, with variations that take into account all the cases that can actually materialize in price action);
  2. having an MM in place that allows you to grow your profits faster. I have studied this second aspect deeply in one of my research paper, which is available for free on this blog (browse the eBook & Papers section of the blog).

While the research paper focuses on the links between MM and trading goals, it shows two important things in the process:

  1. a rigorous methodology on how to study and simulate your system with different MM techniques, provided you know the trades results distribution (and you have more than 30 trades in it, but the more the better)
  2. a showcase on how to use market money techniques to boost profits. Nothing complicated in fact, which demonstrates that part 2 of MM above (i.e.having a way to grow profits faster) is not a big deal; however part 1 must be in place and done in the right way, which requires a method to firmly frame price dynamics.

3) Psychology: is the cat to skin. This is the real deal. We are wired to not perform correctly in the markets as we only want to get involved when we are sure about it (e.g. breakouts?), while we should get involved when the risk is minimal (e.g. on retracements). This requires acting when the fear is highest and confidence is lowest. Risk acceptance is key. Some people even propose to trade without a stop, in which case I do not understand how they do define their unit of risk, which is also fundamental to calculate the trading method’s expectancy . More power to them if it works for them (I doubt): it does not work for me.

Then we need to accept the principles and truths of the market (well explained in “Trading in the Zone”), which requires not just reading the book, but thinking a lot about it, relating its content to actual trading, taking notes, coming back after weeks, months and years, appreciating the changes, noticing what must be done still, and so on. This is the only way I know to internalize good psychology and behavior. I did this exercise, also studying other material, for more than 2 years. And I keep doing it.

This, and a lot of other work, must be done to undo and build the right psychology (e.g. study Van Tharp`s “Peak Performance Course”), but I still believe that the majority of success in managing our psychology in the right  way is just related to building confidence in a method that works (again, high reliability) and learn to stick to it. Much of the psychology work we need is related to “undoing” or “unwiring” our trading from what we would naturally do, or what we have learned in the past.

Do you want the proof?

Give a newbie a method that works and rules to trade it and manage risk properly and she will do exceptionally well! That will be the only way she will know how to trade as she will not have in her mind non–useful beliefs. She will probably be among the elite 5% traders in the world. I wish I had this benefit when I started.

Some readers asks for mentors` names. The following people helped me actively in the past or I have been able to get their attention:

  • Toni Hansen
  • Ivica Juracic
  • Van Tharp
  • DR Barton
  • Eugenio Sartorelli
  • Andrea Unger

It is difficult to find good mentors, but it is not impossible!

Finally, just study as much as possible in this blog. It also contains a lot of original research I have been doing on the markets. There are almost 400 videos with reviews and method explanation and I also share some of my research articles.

Hope this post will help you.

Notice that price projections in my method are not from/to random levels and do not follow Elliot Wave, DiNapoli levels or other methods, but rather a proprietary way to frame price based on modeling the effects of Program and Algorithmic Trading on price.

My method helps “level plain” the trading game showing what banks, institutions and big hedge funds are actually doing (and not what they are saying they are doing). Follow me to learn how to spot the Algorithmic Trading footprints.

I send a free Newsletter in the weekend and provide updates throughout the week. The newsletter typically includes 3 video reviews for (1) EUR/USD, Dollar Index, S&P500 e-mini and Gold e-mini; (2) the Japanese Yen majors, i.e. USD/JPY, EUR/JPY and GBP/JPY; (3) the other majors: GBP/USD, AUD/USD, USD/CAD. Please, register here to receive the free weekly newsletter.

If you like this article, please share it with your friends and fellow traders. Thank you (use the buttons below the article). Sharing is caring…

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Should you decide to operate based on this information you are invited to do your own due diligence, consult a registered trading professional, as well as, understand the risks involved. This information is for educational purpose only. Please read the Disclaimer and accept all involved risks.

Have a great day.

Till the next post

Giuseppe Basile, ~the FibStalker


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Filed under Articles, Education, English language, Money Management, Program Trading, Trading Method, Trading Psychology

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