Every day intelligent traders blow out their accounts. Why? Because trading is not about how smart you are. Intelligence and trading success do not go hand in hand. First and foremost you have to know what a high probability opportunity looks like. It’s visual. You can’t “think” a trade. You can only “see” a trade. If you don’t know what a high probability trade looks like, how will you take it? Not using a calculator. Not using volume. Not using tick charts. None of that changes the facts that you must know what you are looking for in order for you to see it. And when you identify an opportunity based on your rules, you do your job, you take the trade. Then you start the process all over again. Every tick, every candle or bar, is not a trade. There are not 15 to 20 high probability opportunities each day. There are 5 to 7 on any given day, and that is if you stay there all day. Any more than that borders on overtrading. Any less than that, the market is usually moving, trending strongly.
The first order of business is to establish a simple set of rules based on observation. Where you have observed, over time, certain things, certain patterns, that have a very high probability of moving in your direction if and when you take a position. If the market does not provide those opportunities, you stand aside. Even if it means all day you do nothing (you won’t). Every day there is always something to do, something to “see”, that will meet your criteria when you know the odds are in your favor. If not, then you just stand aside, which is also your job. We don’t trade because we want to, or because we “think” the market is going higher or lower. We trade because certain things have taken place that show us, we can see them right on the chart that says, the path of least resistance is lower, and we short. Or the path of least resistance is higher, and we buy. Anything more than that, you will more than likely be over trading, and without valid reason. That never works in the long run.
You don’t get up in the morning asking “how many trades can I take?” Or “how much can I risk today?”. You want to ask, how few trades can I take, how little can I risk, and still reach my personal trading goals for the day? And when you reach those goals, walk away. Why? Because that is the reason you got in to trading. So you can have more free time to do what you want, when you want. Don’t spend that time tied to a screen.
Walking away takes discipline. That is the hardest part of trading. Once you understand and know what you are looking for and are able to identify a few trades each morning, then it is up to you to take those trades according to your plan and leave. You will have to exercise self control to get your job done and keep the odds in your favor. And when there is nothing to do, you do nothing. You stop. By definition, and through observation you created your set of rules of engagement. You know they put the odds of success in your favor. You also know that taking trades that do not meet your rules put you in a low probability trade, one that has the least chance of success.
It’s not the analysis that makes trading difficult. A few rules and a basic understanding of how the market moves is all you need. It’s self mastery, standing aside even when the market is moving 3, 4, 5 points and you have nothing to do. It’s self control and following your personal trading plan and rules to keep you safe ultimately from yourself.
If you don’t have a clear and concise set of rules. If you don’t have a personal trading plan. Stop by our room and see what a little self control and self discipline can do for your trading.
As always, keep it simple
