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54a2c31af38b-0 | capital to risk per trade, is a reflection of the trader’s inherent preference curves. In fact, Mastering the Trade begins by emphasizing the importance of the proper approach to trading prior to discussing methodology. Once the book turns its attention to the process of trading, it sparkles once again. Regardless of how long one has been in the | Page 104 |
69b3db0bb7f8-0 | markets, there are new approaches or enhancements to existing ones that I find quite beneficial. For example, from an active participant in the stock index futures markets, John’s unique application of extreme tick readings is very insightful. I can then decide whether to apply it to my own trading, test it further, or ignore it entirely. The beauty of trading is that there is not | Page 105 |
e6f21824aed3-0 | one size that fits all, and John does not try to force fit his ideas on anyone. They are presented, discussed, and then demonstrated. Amazingly enough, not every trade is always a winner. The setup is a probability outcome that, if followed over time, should lead to trading success. That is the essential message that John drills repeatedly. Bad trades happen all the time; it is how | Page 106 |
27b646eff663-0 | one reacts to them that determines one’s future success. Another point that Mastering the Trade makes is that there is no single answer to the question: should one be short or long a market? There are always valid reasons to be both ways. The markets provide some clues, but one’s trading style needs to provide the | Page 107 |
4007261f62f8-0 | rest. That is why John shows how to use everything from monthly charts to one-minute pivots. A full-time trader should have different volatility and risk parameters from one who can examine the market only before the open and after the close. Trading is an emotionally debilitating business. One can always explain yesterday perfectly. The weekly trader | Page 108 |
b8aeecefc12e-0 | says, “If I had only followed the one-minute chart, I would not have gotten caught in that position.” The one-minute, intraday trader says, “If I had only leaned against that weekly pivot point, I wouldn’t have gotten stopped out, and I would have had a huge winner.” John doesn’t play this game. He applies an intellectually honest process to trading, suggests risk/reward setups, and then | Page 109 |
710fd35aa92c-0 | lets the markets do the rest. Remember, the market is always right. It is the analysis or setup that is wrong. Mastering the Trade reinforces what successful traders intuitively do every time they place a position: trade small, stay in the game, and try to let time be your ally. Losing streaks are bound to occur, but knowing that they will occur and | Page 110 |
25beb18e3f26-0 | living through them are two different things. Diversify across markets. Some setups will be working well in a market and then stop. The market hasn’t changed or the setup failed; the more opportunities, the greater the chance of success. But if one is trading too large, then one may not be able to initiate the next trade after a series of losses. John is very helpful in outlining what unit sizes to | Page 111 |
a539bbc9a6a9-0 | trade. I would suggest studying the list of markets recommended and being prepared to participate in many of them. We all have a tendency to pick and choose the setups in those markets for which we have a predefined bias. The message of Mastering the Trade is that the setups are objective and can help eliminate the | Page 112 |
2bd8537c6dbe-0 | emotional battles that are constantly being fought. Today a single-stock future will look great on a chart, but the setup will indicate that it is time to sell. If you are looking for excuses not to follow the signal, then don’t buy Mastering the Trade . However, if you are tired of saying, “I knew this would happen,” but you do not have anything to show for that knowledge, then John | Page 113 |
0ce404430d91-0 | Carter’s new book is an outstanding place to start a realistic, grounded approach to mastering the trade! P ETER B ORISH Chairman, OneChicago Former Head of Research for Paul Tudor Jones | Page 114 |
0bb94cbb44f9-0 | Introduction The best lesson I’ve ever learned about short-term trading happened while I was on a white-water rafting trip. Eight of us were in the raft when it hit a rock and flipped, launching us into the air like a catapult and sending everyone headfirst into the icy water. Half of us | Page 115 |
3350e694a81d-0 | remembered that, in the event of a spill, we needed to stay calm and position ourselves on our back, feet facing downstream. We zipped around rocks and through cascades of water, eventually dragging ourselves safely ashore. An hour passed before we learned what had happened to the rest of the group. For them, a rescue operation went into effect, and the end | Page 116 |
91d392c99101-0 | result was a gashed leg, a concussion, and a near drowning. Later, when speaking to the other group, I learned that all of them had experienced a type of brain freeze. They could see the danger around them. They knew they were in trouble. They even knew that they needed to act, to do something. But they literally could not make a decision about what action they | Page 117 |
bbf9ccb9ab45-0 | should take. So, they took the one option left to them: they froze like the proverbial deer in the headlights and did nothing. In the absence of a decisive path of action, the river grabbed them by their lapels and, like an angry pimp with bills to pay, slapped them senseless. I remember one member of the group saying, “That river was out to get me!” | Page 118 |
8e46c92f2414-0 | Extreme paranoia and self- centeredness aside, the river was not out to get anyone. It did what it was supposed to do: move quickly and rapidly through a canyon in order to get to the ocean. The riders who understood the nature of the river were prepared and took the roller-coaster journey in stride. The riders who fought this trend got thrashed. | Page 119 |
5a81e15eaf64-0 | The similarities between this event and a typical trading day are nearly identical. The unprepared trader (newbie) is in the same situation as the unprepared white-water rafter. In the event of extreme conditions, both will freeze, and both will be lucky to survive the experience. One bad trade can wipe out months or years of profits. | Page 120 |
e5a95edccdc2-0 | Professional traders make money not because they are right more often than not, but because they know how to take advantage of all the “fresh meat” that is sitting out there in the form of amateur, unprepared traders. “Fresh meat” refers to anyone who has been trading for less than 10 years. That said, many traders never make the leap, and remain in this victim-like state all of | Page 121 |
0133efc64c96-0 | their trading lives. The minority who endure and join the ranks of consistently winning traders are the ones who have learned the following truths: • The financial markets are naturally set up to take advantage of and prey upon human nature. As a result, markets initiate major intraday and swing moves with as | Page 122 |
d10685651d77-0 | few traders participating as possible. A trader who does not understand how this works is destined to lose money. • Traders can know more about a market than anyone else in the world, but if they apply the wrong methodology to their trading setups, they will lose money. • Traders can know more | Page 123 |
33a7fa1fd302-0 | about an indicator or group of indicators than anyone else in the world, but if they apply the wrong methodology to those indicators, they will lose money. • Traders can know exactly what they are doing, but if they are trading the wrong market for their personality, they will | Page 124 |
2a54706b970b-0 | lose money. • Traders can know exactly what they are doing, but if they apply the same strategies that they used to make themselves successful in other areas of their life, they will lose money. Without this knowledge, a trader is like a wounded antelope in the center of a | Page 125 |
3177ec1b64d7-0 | pride of lions: it is not a question of “if” the antelope is going to get torn to shreds and swallowed, but rather of “when.” For a trader without this knowledge, the possibility of ruin is not a question of “if.” It’s only a matter of “when.” Nevertheless, even with the odds stacked against them, each year tens of thousands of unprepared | Page 126 |
2b7a1d604413-0 | traders flock to the markets like lemmings to the sea, their heads filled with visions of easy cash, first-class tickets, and telling their boss to go pound sand. By the time most of them sense the spark of an idea that would have allowed them to understand how trading really works, they have already flung themselves over the cliff and are plunging toward the rocks | Page 127 |
0ed403068e46-0 | below. All they have to show for their hard work is ample amounts of frustration and despair, perhaps a furious spouse, and a trading account that has been ravished and ripped off by a professional. Trading is not about everyone holding hands, belting out the lyrics to John Lennon’s Imagine , and making money together. The financial markets are truly | Page 128 |
aee4c6850c4d-0 | the most democratic places on earth. It doesn’t matter if a trader is male or female, white or black, American or Iraqi, Republican or Democrat. It’s all based on skill. The only way to become a professional trader is to obtain an edge, a weapon that can separate you from the rest of the migrating sheep. That edge is gained by | Page 129 |
af6d26a6868d-0 | utilizing specific chart setups and trading methodologies that take into account the five key points listed previously, as well as the psychology of the trader taking the other side of the trade. Without this, as you enter the revolving door to the financial markets, filled with excitement and anticipation, the predators are merely licking their lips, because what they see is a slab of | Page 130 |
95cf8fbe37ee-0 | freshly cured meat, ripe for the eating. And feast they will. Who Should Read This Book? This book discusses a unique approach to the markets that focuses on the underlying reasons that really cause market prices to move; it is applicable to trading stocks, | Page 131 |
2fd03cddf944-0 | stock options, futures, and forex. In reality, markets don’t move because they want to, they move because they have to. Margin calls, stop runs, and psychological capitulation all force a series of rapid-fire market orders in a very short period of time. These generate sharp intraday moves lasting from a few minutes to a few hours, and, on a bigger scale, swing moves that last for a few | Page 132 |
63188fe9e772-0 | days to a few weeks. These moves inflict pain on a lot of traders who do not understand how this process works. Yet, there is always a group of traders who profit from these moves. This book discusses specific ways to get positioned “on the other side of the trade” in order to take advantage of these moves, relying on a unique interpretation of many classical technical analyses | Page 133 |
338930bc68cc-0 | and chart patterns. More specifically, in discussing strategies, the book gives exact entry, exit, and stop loss levels for the intraday trading of stocks, options, ETFs, various futures and commodity markets, and the forex currency markets. Strategies focus on daytrading, swing- trading, and position-trading various markets and asset | Page 134 |
5f9c7cf37bd7-0 | classes. It is my hope that traders at all levels of experience will welcome this book’s broad market overview and specific trading strategies. Beginners will be treated to a no-hype reality check on how the markets really work, will be introduced to clear concepts and trade setups, and will come to understand why newer traders are | Page 135 |
267878d5fe75-0 | destined to lose money until they grasp the basic market mechanics that are constantly happening behind the scenes. They will also understand how they are repeatedly taken advantage of. It is my goal that intermediate traders will appreciate the knowledge included in this book, which is designed to take them to the next level of trading. In | Page 136 |
ed4d3332602e-0 | addition, I hope that professional traders and other market insiders will find that this book is able to clarify some of the truths that they have instinctively found to be true, in addition to providing fresh ideas to improve their bottom line. Stock traders who have never traded E- mini futures or forex will learn how these markets work and how to get enough information to decide | Page 137 |
aad90e009f3d-0 | whether the addition of these markets would be appropriate for their own trading. They will learn how the futures markets affect specific stocks and will thus be able to better position themselves to profit from their stock trading. Day traders will learn why relying on indicators alone is a losing game, discover specific strategies for getting | Page 138 |
7a0131664009-0 | into a trade early, and learn the differences that will let them know when to bail and when to hang on for the ride. Swing traders and pure stock pickers will learn how to read the ebbs and flows of the market, and know whether they should be focusing on the long or the short side. Investors who are overseeing their retirement accounts will discover specific ideas for timing their | Page 139 |
c9eaf535fa0c-0 | investments on a monthly and quarterly basis in order to improve their returns. While this book is aimed at full-time traders, there are special sections throughout the book that focus on individuals who are working full time and are able to trade only part time. This does have advantages if it is done correctly. While I feel that this work | Page 140 |
ba470a539de8-0 | will be a welcome addition for anyone who is interested in the financial markets, it is important to realize that it assumes a working knowledge of the basics. There won’t be a chapter discussing the nuances of support and resistance, or a chapter with 25 examples explaining the differences between an uptrend and a downtrend. While I’m going to spend a chapter on option | Page 141 |
307e43d4fc76-0 | plays and I dig into some basic option strategies, it’s not my intention to cover all the different ways in which options can be utilized. In other words, if it has already been written about, or if it can be Googled, then it won’t be rehashed here. This book focuses on new concepts that have not been written about before. That said, the work does provide an introductory chapter on futures and forex | Page 142 |
08891905ace7-0 | trading and the types of markets that are focused on in this book. If you’re not sure what a bond tick is worth, or what 10 euro pips mean to your P&L, then this section is for you. I will also discuss websites and other books that are great for getting up to speed. In addition to specific trading setups, the book discusses practical aspects of | Page 143 |
c8d3daa6afef-0 | trading, such as the type of hardware and software to use, money management allocation, and developing a game plan that fits the trader’s personality. Finally, there is a strong focus on specific information that can be used during the next trading day. A Few Notes on This Updated Edition | Page 144 |
65bf18802d69-0 | I first wrote this book during most of 2005. While I still utilize many of the techniques described in the original book, I’ve updated some of them, thrown out others, and added techniques, chapters, and examples that are completely new. I’m the first to admit that I had mixed feelings about updating the book. A common question I receive is something along the lines of, | Page 145 |
d27a783084d9-0 | “If these trading strategies are working for you, why in hell would you want to share them, and aren’t you worried that once everyone starts using them, they will become less effective?” Those are fair questions. One of the casualties of writing Mastering the Trade was “the 3:52 trade,” which was one of my favorite setups for a long time. As more people read the book and started | Page 146 |
a9a0d5e88a97-0 | doing that trade, it became less and less effective. The main issue was that it was a low-volume setup at a specific time of day, so it didn’t take a lot of additional volume pouring into the trade to make it less effective. I’ve had to toss that one out and replace it with an “end-of- day trade” that is based more on market internals. However, I left this chapter in the book because it | Page 147 |
2edf9eccb544-0 | illustrates very clearly who is on the opposite side of a trade. Understanding this will lead you to find similar situations in other markets into the closing bell. The rest of the setups haven’t been affected. Much of this has to do with the markets I’m trading, which are highly liquid. Hedge funds are too big to do these setups on an intraday basis, and there aren’t enough retail traders | Page 148 |
2e451d6bd51b-0 | out there to move these markets and offset what the hedge funds are doing. In addition, in working with traders over the years, I’ve learned that even if you do show a trader a winning setup, about seven trades into that setup, she will start tweaking the parameters to fit her own personality— especially if the setup loses money two times in a row (hey, I can tweak that so it | Page 149 |
4e4849f535f5-0 | doesn’t happen again!). The net result is that there isn’t a massive button being pushed every time one of my setups fires off. In terms of, “Why in hell would I want to share them?” I’m not totally sure. Although I enjoy writing, putting together a book is a huge ordeal and requires a lot of time, focus, and commitment. I meet a lot of | Page 150 |
5cc0aaf52cee-0 | people who tell me that one day they, too, would like to write a book, although most of them have yet to get started. I don’t blame them a bit—it’s a bitch! From talking to other writers who have published books in multiple areas of interest, I’ve discovered a trend: the only way a book will get written by your own hand (that is, without using a ghostwriter) is if you feel | Page 151 |
0bced4de8d11-0 | obsessed to push it out of your body. For whatever reasons, I had to get Mastering the Trade out of my head the first time around, and the same feeling emerged six years later when I realized that I had to get these updates I kept thinking about out of my head as well. I suspect the reasons are both short-term and stupid as well as long-term and lasting. | Page 152 |
56d35672b86c-0 | By short-term and stupid, I mean things like being able to say, “Look, Ma, I wrote a book” (although I don’t think she’s read it yet; it’s too technical). Medium-term, the book has helped our online research business, which will grow only so long as we are putting out high-quality, straightforward information. Longer-term, I fully realize that one day, a day that’s going to sneak up on me | Page 153 |
d42e840053db-0 | much sooner than I’d like (hey, it doesn’t seem like that long ago that I was a teenager), I’m going to die. Maybe this is a way to have a part of me still live on long after I’m rotting in the ground. I don’t know anything about my great- grandfather. Maybe this is a way for my great-great- grandkids to get to know me a little bit. And if they do decide to trade, hopefully I | Page 154 |
d258436874ab-0 | can share with them enough information so that they can cut their learning curve way down. Trading evokes painful lessons. If my great- great-grandkids can read this book and pick up a few things that help them navigate the path toward being successful traders (with a minimal amount of screaming at their computers in frustration), then I’ve accomplished what I’ve set | Page 155 |
b47da491b320-0 | out to do. I’m grateful for everyone who has read the book and truly gotten something out of the material and my own lessons along the way. I meet a lot of people at Traders Expos who have read the book, and I’ve signed copies and heard the stories. This book isn’t for people who are looking for the Holy Grail of trading, or for some simple | Page 156 |
8a8b6d78e27a-0 | system that they can trade mechanically for the rest of their lives. It’s for people who are going down the path of testing their trading skills and personality against the market. It’s a day-to-day process, which is what makes trading for a living so damn interesting. In the end, I’m flattered and grateful than anyone would deem this work important enough to read, learn from, or critique. | Page 157 |
689c84c5b5b5-0 | It’s truly an honor. In terms of specifics, there are simply things in the original book that needed to be updated. The first two chapters have been updated with extended and more in- depth thoughts on the psychology of trading. The chapter on technology, of course, had to be expunged and updated. One gig of RAM just ain’t what it used | Page 158 |
f68c35289976-0 | to be. Technology continues to change at a lightning pace. The chapter on commodity descriptions also had to be updated. After this, there is one chapter on market profile that I threw out—there are entire books on the subject. Since the book was first published, I’ve done a lot with reversion bands, trend bars, waves, and a few other strategies. These are included in this updated edition. One | Page 159 |
8341b7d19ddd-0 | of the biggest pieces of feedback I received concerned the section on health—and I’ve continued on that trend and updated that section as well as continuing to act as the proverbial guinea pig. Trading and life are tightly intertwined. The better you understand yourself, the more likely it is that you will be able to find a | Page 160 |
5bc0d1056aac-0 | market, a strategy, and an overall trading philosophy that best fit your personality. Let’s dive in. Written April 9, 2011, London, Leister Square, Costa Coffee shop at the corner of Wardour Street and Shaftesbury Avenue during the London | Page 161 |
d9bdc3f25365-0 | Traders Expo. (What a cool place to write about trading!) | Page 162 |
440be7999c4a-0 | PART I TRADER’S BOOT CAMP How Do the Markets Work and What Are the Best | Page 163 |
40f82ebfcbd1-0 | Ways to Get Mentally Prepared for Successful Trading and Investing? I don’t want the | Page 164 |
ce7611c015c1-0 | cheese; I just want to get out of the trap. S PANISH P ROVERB Some of us think holding on makes us strong; but sometimes it is letting go. H ERMANN H ESSE | Page 165 |
ed47f4428c1b-0 | 1 What Really Causes the Markets to Move? Did You Know That Most People Who Lose Money in the Markets Do So Because of These Four Things? Individual traders live in a | Page 166 |
feebab417f29-0 | state of constant flux, stuck between two worlds that combine both the best and the worst that trading has to offer. On the one hand, they can move into and out of markets with an ease and efficiency that large funds can only dream of. Have you ever wondered what it would be like to have to dump 200 million shares of AAPL (Apple) stock—without drawing attention to what | Page 167 |
de534bbef760-0 | you are doing? Well, like trying to hide a pregnancy, it ain’t easy. It’s a process, not a mouse click. On the other hand, you can get into and out of 1,000 shares of AAPL or 10 E-mini S&P 500 futures contracts instantaneously, and it won’t even register as a minor blip on the day’s trading activity. In other words, a smaller trader can move about undetected—a huge | Page 168 |
41ff8f999fb0-0 | advantage. Funds need days, and sometimes weeks or months, to move into and out of sizable positions without showing their hand. If they do show their hand, then other funds will front-run them (jump in front of their orders) and bury them if possible. That is how money is made in the markets—by taking it from other traders. If you think this sounds ruthless, you are right. It is. | Page 169 |
6a14d4ce26b6-0 | This isn’t a holistic coming together of like-minded souls to celebrate the meaning of life. This is trading. Then why are so many people attracted to this profession? It’s exciting, yes. It’s engaging, definitely. It’s a chance to make a lot of money. In a word, though, it’s freedom. In every area of our lives, we are told what to do. Some people don’t like | Page 170 |
393d41a9c847-0 | that. Traders have the freedom to carve out specific niches for themselves that other people on the planet can never achieve or duplicate. Most centimillionaires and billionaires don’t have freedom. They have obligations, although they can fulfill those obligations in style. Retirees have a sort of freedom, but at what price? And many that I talk | Page 171 |
6a25d8163c90-0 | to are bored out of their minds. Stay-at-home moms? That’s the hardest job on the planet (as is marrying rich). The only professions I’ve seen that have a large amount of freedom are prostitution, homelessness, and trading. Since I knew I didn’t have much of a future as a prostitute (I got nothin’), and since I’m a wimp when it comes to sleeping (I need a clean mattress), trading won | Page 172 |
a727ca204fa5-0 | out. Traders, at least traders who learn the art of being consistent, have the opportunity to create an independent life, free from the hassles of the average Joe. These perks are extremely appealing and impossible to duplicate in many other professions. Reasons for trading full or part time are many, and can include wanting a career | Page 173 |
c4246ceea4d9-0 | change, a wish to be more independent, the desire to escape the responsibilities of running a large corporate division or individual business, or choosing to be a stay-at-home parent. A lot of would-be traders I meet are already successful in other areas of their lives—they are just bored with those other areas of their lives. I call these folks “doctors who hate their jobs,” although they can | Page 174 |
878ec90abe75-0 | include anyone who is in a high-paying career. They like the income and the prestige … they just don’t like the bubble in which they are now trapped. Others have been burned by the financial markets and are now interested in taking control of their financial future. And many have put together a small stake and want to give it a go and pursue their dreams of becoming a trader. | Page 175 |
6c000b94fcb6-0 | I see this firsthand in my office, watching guys like Henry go through the painful cycle from “the excitement of discovering trading” to “wow, I can’t believe that option expired worthless.” This is a “job” that provides the chance to make a very nice living, and it’s a lot more interesting and fun than any other profession—except being a rock star, of course. But if sharing the stage | Page 176 |
16a4566f840a-0 | alongside U2 seems slightly out of reach, then trading is a good alternative. It can be done from anywhere that has reliable Internet access—and as I’m writing this update in 2011, that means just about anywhere. There are no bosses spewing forth inane, ever-changing contradictory orders as they struggle within a system that has promoted | Page 177 |
3b5694c4f7c9-0 | them right up to—and through—their level of competence. For some people, working for a corporation is a way to gain power, which is more important to them than financial independence. Working for one of these clowns is enough to drive anyone to drink. In addition, in trading, employees are not necessary, although at some point they can be very | Page 178 |
e3e22b1e1189-0 | helpful if you decide to trade many markets and watch many different time frames (I’d love to trade the European session, but I have to sleep sometime— however, I can hire someone to do that for me). Those of us who have survived the corporate world can find nothing on this earth that’s equal to the freedom and beauty that come from no longer having to manage a | Page 179 |
14f7c420d2d7-0 | large group of dispassionate human beings: “I’ll pretend to praise you, and you’ll pretend to love your job.” The good news is that if you hire someone to help you out with your trading, he will generally be as passionate and excited as you are about the adventure. Start-up costs are minimal thanks to leasing programs from companies like Dell. | Page 180 |
a2316dd3a1d4-0 | Trading in your robe or nothing at all is perfectly fine. Best of all, a trader can choose her own working hours. Some examples of schedules from successful traders I work with include trading actively from October through April and then taking the remaining five months off; trading only the first two hours of the market open and taking the rest of the day off; and | Page 181 |
daccd1d77dc6-0 | trading until they make 50 percent on their capital and then taking the rest of the year off. The list goes on and on. By the way, one of the common fallacies of trading is the idea that “to make more money, I need to trade more.” Nothing could be further from the truth. Trading smarter and less frequently is one of the hidden secrets of doing this for a living. There is no need | Page 182 |
4edc5f11ec23-0 | to catch every move. Since trading has so much to offer, it is no wonder that tens of thousands of people toss their hats into the ring, trying to make a go at this most appealing of professions. It truly represents the proverbial American dream, and traders from all over the world are giving it a shot. Since this book first hit the shelves, | Page 183 |
c0a19812a2be-0 | I’ve had the opportunity to speak to traders in China, Taiwan, India, Sweden, Australia, England, France, Singapore and many other countries. The bottom line is that traders sweep aside political and philosophical differences when speaking to other traders. Traders around the world are linked together by a single idea—to generate cash with their mind and to reap the benefit that this cash | Page 184 |
366a59f99a44-0 | creates: freedom. It’s a beautiful thing. I love traders and all the craziness they represent. And I’m not kidding when I say “craziness.” The University of St. Gallen, Switzerland, has come out with a study that compares traders with psychopaths. The study reviewed the results from an existing study comparing 24 psychopaths in | Page 185 |
b09068a82fb3-0 | German high-security hospitals with a control group of 27 “normal” people. The funny thing is, this control group of “normal” people turned out to be traders. Stock guys, currency and commodity traders, and derivative types happened to be the normal control group that was stacked up against the high-security, barbed- wire-enclosed psychopaths. In the end, the performance | Page 186 |
8d7cd077b6e9-0 | of the trading group was actually worse than that of the psychopaths. The study indicated that traders, “Have a penchant for immense destruction,” and that their mindset would lead them to the logical conclusion of “beating one of the neighbor’s expensive cars with a baseball bat with the sole objective of owning the most beautiful car in the neighborhood.” In other | Page 187 |
8c504e502d42-0 | words, traders are nuts. Indeed if you look up the textbook definition of a psychopath, here are some of the tidbits you’ll uncover: antisocial behavior, poor judgment and failure to learn from experience, inability to see oneself as others do, inexplicable impulsiveness … sounds like a typical trader who is struggling against the market and can’t figure out why. | Page 188 |
b0c2d94beea0-0 | So it’s the freedom that attracts traders. And it’s the freedom that is the undoing of many, because with so much freedom comes a cruel price. Simply put, the markets cannot protect a trader from herself. Individual traders, unlike fund managers (most of them, anyway), are unsupervised and have the freedom to act unchecked in any way that they choose. | Page 189 |
d459d35a557d-0 | And for many traders, this means they live a life where they are one mouse click away from disaster. The markets lull them, encouraging and even reinforcing bad habits. Have you ever removed your stop and had the trade then go on to hit your target? Well, the market just taught you that it is perfectly okay to do that, at least once in a while. That can work 999 times in a row. | Page 190 |
e9e124b9c84b-0 | It’s the one time where it doesn’t work that wipes out the profits from all your previous trades, and can potentially wipe out your entire account. It’s the day you buy gold on a dip, remove your stop, and it falls $80 an ounce. “Wow,” you think, “I can’t believe it fell that far!” Exactly. It’s what we don’t see coming at us like a runaway freight train that destroys us. It’s the | Page 191 |
fd6a43077b15-0 | classic bad habits—chasing a market higher or lower, trading too large for your account size, not having a firm idea of your loss limits, and so on—that creates a market that moves and thrives in such a way as to prevent as many people as possible from consistently making money. Remember the psychopath trait, “Failure to learn from experience”? Why is this? Why are traders | Page 192 |
c558ac98cab2-0 | so good at sabotaging themselves? After all, nobody, and I mean nobody, enters a trade with the idea of losing money. In a nutshell, it has to do with traders being the best salespeople in the world. Introverted, yes, but salespeople nonetheless. Although used-car salespeople are saddled with the reputation of being pushy and dishonest, they don’t | Page 193 |
4292998fa3c7-0 | hold a candle to the average trader. A trader, once in a position, can deceive himself into believing anything that helps to reinforce the notion that he is right—or at least “not wrong”—on this particular trading idea. Nobody likes to be wrong. In a job, a person who is wrong can typically blame it on someone else. “It was those stupid delivery people,” he says. “They screwed it up.” | Page 194 |
fdabfe7e7da0-0 | In trading, there is nobody to blame but yourself. And human beings have a very difficult time accepting that they might, in fact, be wrong. “If a husband expresses a thought alone in the middle of the woods,” so the joke goes, “is he still wrong?” Probably so. When faced with a loss, Joe Trader will look at a chart and tell whoever is | Page 195 |
cebc4388e48a-0 | nearby, “See that spike? That’s the hedge funds running stops.” He then says with a knowing grin, “As soon as they’re done, just watch; this market is going to rip higher.” Net result: he does not exit the position, and his losses mount. When faced with a profit, Joanne Trader hesitates to pull the trigger, telling her cat, “The market is acting fantastic here. There is a ton of good | Page 196 |
eecdbe288d18-0 | news on CNBC. I bet it goes a lot higher.” Net result: she does not exit the trade, and it turns into a loser. The mistake these traders are making is a common, yet fatal affliction that most traders suffer from: they are unaware that the market naturally programs their reactions into a losing trader’s mindset. And they are unaware of the key factors that really move the | Page 197 |
37107faf531c-0 | markets. The net result is a trader who “eats like a sparrow and defecates like an elephant.” This is a situation, of course, that no account can withstand. Worse, this cycle of emotional slavery will not end until it’s met head on, until a trader can “pull his head out” and realize that trading is unlike any other activity on earth. Trading has a lot more to do with repeatedly admitting | Page 198 |
929ecb9320e7-0 | that you are wrong than with trying to make a lot of money. Unfortunately, professional traders understand this all too well, and they set up their trade parameters to take advantage of these situations, specifically preying on the traders who haven’t figured out why they lose. One trader’s disaster is another trader’s bread and butter. | Page 199 |
8432c5dffc14-0 | And there you have it, the four things that cause traders to lose money. First, anyone who is attracted to trading shares the same characteristics as a psychopath. Second, the inherent freedom is destructive—after all, we spent our first 18 years of life learning that it’s better to follow the rules and do what we are told. Third, the markets actually encourage | Page 200 |
1ea65f56df3b-0 | and reinforce bad habits. And fourth, traders are seduced into taking every opportunity to sell themselves on the idea that they are right. There is always someone on the other side of your trade. Start being that trader. Not the one who chases, but the one who knows that other people are chasing. Not the one who removes stops, but the one who knows that | Page 201 |
c86ed13fd599-0 | traders tend to remove stops. Not the one who trades too big for her account size, but the one who trades just the right size, or smaller, for her account size (two points a day is fine, even though deep down we all want ten). Not the one who frantically feels that he has to be in every move, but the one who is content to wait patiently for the one setup that falls within his trading plan, even if it | Page 202 |
5b3909aca9c5-0 | means not having a trade that day. Be the trader that wants to make money over time, not the one that needs to be right, right now. How Do Our Odds for Success Increase Once We Understand the Pain and Suffering of Individual Market Participants? The problem is simple and | Page 203 |
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