27 Nov The Holy Grail of Trading

 

The Holy Grail of Trading

 

I know I know. Click­bait tac­tics putting the title up as ‘The Holy Grail of Trad­ing’. I hope though that by the end of this arti­cle you see that it actu­al­ly is. Just not the way you thought it to be. Noth­ing in life worth get­ting comes eas­i­ly. Espe­cial­ly in trad­ing. There are many things one needs to ‘mas­ter’ about him/herself before one can mas­ter the art of trad­ing. In this arti­cle I will describe the things I need to do to become a suc­cess­ful trad­er. The points that I will out­line here are from a video I saw on YouTube. It’s by a guy called Dave West­gate. Please check out his YouTube chan­nel as all cred­its go to him for mak­ing the video. Since he only has one video on his chan­nel I will just link to that one. Watch the video on ‘The 20 habits of wealthy traders’ here. When I watched his video so many things clicked in my mind. Most of these points I had been think­ing about myself and some were just lin­ger­ing in a dark cor­ner of my mind. Wait­ing to get addressed but by self-sab­o­tage nev­er got addressed the right way. So when I watched his video I decid­ed I am going to use his video to help my pro­gres­sion. I thought it would be a good idea to keep it as 1. a man­u­al with instruc­tions on how to trade, and 2. a check­list to keep track of if I’m on track or not. I’ll explain more as I go along. 

 

DISCLAIMER

 

Click here for my dis­claimer. It basi­cal­ly says that I am on my path to becom­ing a trad­er and these are just my opin­ions on how to approach learn­ing to trade. Feel free to check it out and com­ment on it.

 

Here it goes…

 

 

• Wealthy traders are patient with win­ning trades and enor­mous­ly impa­tient with los­ing trades.

 

How often does a trade go against you and you keep telling your­self it will still turn around and go your way? I know I do that a lot. Instead, wealthy traders, cut their loss­es short and let their win­ners run. Be patient with your win­ners but very impa­tient with your losers. 

 

• Wealthy traders real­ize that mak­ing mon­ey is more impor­tant than being right.

 

In the end, it is all about the mon­ey. You are not a char­i­ty giv­ing your mon­ey to the mar­kets. Not much of a char­i­ty either. When you see that a trade goes against you just get out. Same as num­ber 1. Just get out. It is not about being right. It is about mak­ing mon­ey. The mar­ket is always right. 

 

• Wealthy traders look at charts as a pic­ture of where traders are lin­ing up to buy or sell.

 

Since we are all watch­ing at the same charts and we all have learned the same tools and indi­ca­tors. That means many peo­ple will be look­ing at the charts with the same ‘gog­gles’ on if you will. This means that you can think how oth­ers might be think­ing about the mar­ket and how they might be trad­ing it. 

 

• Before they enter any trade they know exact­ly where they will exit for either a gain or loss.

 

They fol­low their plan. They know when to get in and when to get out. You will find that many of these ‘habits’ are similar. 

 

• They approach trade num­ber 5 with the same mind­set they did on the 4 pre­vi­ous los­ing trades. 

 

It’s like in sales. You get many no’s before you get a yes. Same in trad­ing. It’s about the num­bers. In the end it is just about the sta­tis­tics. Sta­tis­ti­cal­ly speak­ing the mar­ket works in a cer­tain way. SO if you keep doing the same thing every time, sta­tis­ti­cal­ly speak­ing you will even­tu­al­ly get a win. 

 

• They use “naked” charts and focus on zones.

 

This goes togeth­er with the book that I am cur­rent­ly read­ing called: “Naked Forex”. There are thou­sands of indi­ca­tors that are derived from actu­al ‘naked’ price action. So if you can just under­stand price action then there’s no need for indi­ca­tors. Just focus on the zones and you’ll see patterns. 

 

• They real­ized a long time ago that being uncom­fort­able trad­ing is OK. 

 

They real­ized that they will nev­er be win­ning all the time so there’s always a lev­el of dis­com­fort. I think that’s good since it keeps you on your toes and adds to the adven­tures of trading. 

 

• The mar­kets are their work­place. They are a par­tic­i­pant — not an on-looker.

 

You have the right to be in the mar­ket and par­tic­i­pate even though you aren’t as well-fund­ed as say a hedge fund. Many peo­ple will give you a thou­sand rea­sons why you shouldn’t play the mar­kets. And that’s OK. They are speak­ing from their own per­spec­tive of inse­cu­ri­ty. If you tell them about a prod­uct you want to launch they would tell you the same. Ah it’s nev­er going to work. You don’t have enough mon­ey to invest. The game is rigged. You know what I say? Good! The more peo­ple think like them the more spe­cial I am when I do suc­ceed. And suc­ceed I will.

 

• They stopped try­ing to pick tops and bottoms.

 

This is such a cru­cial one for me. I am so guilty of doing this many times. I keep think­ing it has gone up far enough, it has to go down now. But more than not, it doesn’t. “SAD!” (Trump’s voice). SO the thing to do is to buy high­er highs and sell low­er lows. Just keep going with the trend. 

 

• They stopped think­ing about the mar­ket being “cheap” or expensive.

 

The only ques­tion that is impor­tant is: “Do I think the price is going to go up or down?”. You need prices to move in either way to make mon­ey. Prices are nev­er cheap or expen­sive. They are just the price at that moment in time. 

 

• They are will­ing to change sides if the mar­ket tells them to do so.

 

So just that you have estab­lished your bias in the morn­ing doesn’t mean that bias can’t change for the rest of the day. If some­thing hap­pens in the mar­ket that alters the cur­rent trend. Change with it. Don’t be stub­born and hold onto your bias because you always need to be right. Remem­ber, you’re here to make money.

 

• They trade aggres­sive­ly when trad­ing well and mod­est­ly when they are not.

 

Often times when you start los­ing in the mar­ket you start get­ting more aggres­sive try­ing to make up for lost mon­ey. This is not the way to do it. You’ll just make more mis­takes. When things are going well you can be more aggres­sive. Be mod­est when they are going against you. 

 

• They real­ize the mar­ket will be open again tomorrow.

 

‘We live in a world of abun­dance’ I believe Stephen Cov­ey said in the 7 habits of suc­cess­ful peo­ple. The same applies here. The mar­ket will be open again tomor­row and it will pro­vide enough oppor­tu­ni­ties to earn some money. 

 

• They nev­er add to a los­ing trade…. EVER.

 

As I men­tioned before, many of these points are very sim­i­lar. How­ev­er, it is always good to point things out in a dif­fer­ent way. When you are los­ing, just get out. Nev­er EVER add to your already los­ing posi­tion. I know I have done this many times. 

 

• Cash is the goal, but nev­er the mea­sure of success.

 

We are all here to make mon­ey. How­ev­er, we should keep in mind that it is our plan that we should fol­low. We should always trade our plan and that is how we deter­mine our suc­cess. Not by winning/losing money. 

 

• They read books about mobs and riots.

 

Dave sug­gest in the video to read up on mass psy­chol­o­gy. Because it is mass psy­chol­o­gy that dri­ves price action on the charts. The ones he sug­gests are:

1. The wis­dom of crowds, James Surowiecki
2. Art of strat­e­gy, Avinash K. Dixit
3. Mar­kets, mobs, and may­hem, Robert Menshel

 

• They pro­vide liq­uid­i­ty to the mar­kets while watch­ing price and volume.

 

As he says him­self, he’s a bit vague on this because he can’t real­ly put it in words. I think what he’s try­ing to say is that by mere par­tic­i­pa­tion they keep the mar­kets going. Fur­ther­more, they keep prices at the ‘right’ val­ue. When prices soar to high than they’re actu­al­ly worth they start sell­ing, bring­ing prices down and vice versa.

 

• They have a way to gauge fear, greed and speed of the mar­kets: tick charts 233, 612.

 

They have some way to see when some­thing is up and rep­re­sents more activity.

 

• They prac­tice see­ing the right side of the chart, not the left.

 

They prac­tice see­ing how the chart will devel­op in the near future based on past experience. 

 

• Every wealthy trad­er has an “edge” they can explain to their mothers. 

 

Be able to explain your trad­ing to some­one else in basic terms. Dave’s point is that if you can’t explain it to your moth­er in a way that she’ll under­stand it, you don’t have an edge. Thus not much of a plan. 

 

• Their posi­tion size is cal­cu­lat­ed exact­ly on risk tolerance.

 

They don’t just have one posi­tion size that they use in every sit­u­a­tion. In my per­son­al expe­ri­ence when I have a bet­ter ‘under­stand­ing of the direc­tion of the mar­ket com­bined with it’s volatil­i­ty I might trade a big­ger posi­tion size or less.

 

• Prof­it tar­gets are based on aver­age range or some­thing objective. 

 

This is very good. I used to just do 20 pips prof­it tar­get and 10 pips stop loss. I was already feel­ing that I should just let the charts dic­tate where to go. Look at the aver­age ranges to deter­mine your take prof­it and stop loss. 

 

• One or two trades a month, make their month.

 

You only need a few win­ners. You can have many losers but cut your loss­es short. Let your win­ners run and that’s how you make your month. Have con­fi­dence in your strat­e­gy and set­up and trade only your plan. 

 

• Con­fi­dent deci­sion mak­ers in the face of incom­plete information.

 

There is nev­er room for inde­ci­sion. A bad deci­sion is always bet­ter than to not make a decision. 

 

• A los­ing trade does not mean they are a loser.

 

They don’t take it per­son­al­ly. They know they trad­ed their plan and that’s what they should be doing. A well per­formed plan is a win regard­less of mak­ing or los­ing money. 

 

• They buy the high­er highs and sell the low­er lows. 

 

They don’t try to find the tops or bot­toms. They go with the gen­er­al trend and nev­er swim against the current. 

 

• Their busi­ness isn’t trad­ing — it’s find­ing the right trades. 

 

You are there to find your trades. Not to just trade when­ev­er. This means that you can’t always trade. And that’s OK. You only trade your plan. 

 

• They write down or record every trade — price, thoughts, news, attitude.

 

Look for pat­terns that are keep­ing you from trad­ing well. Write them down and be con­scious of them. 

 

• Their con­vic­tion on an active trade remains unless some­thing major changes. 

 

Set it. For­get it. Take a posi­tion. Trust in it. Walk away from it. Often times this has worked for me. I just take a posi­tion and then stop look­ing. Now as an intra­day trad­er this might become a lit­tle bit hard since we take many posi­tions. But try it. 

 

• A win­ning trade does not result in tak­ing on extra risk on the next trade.

 

Just because you made some mon­ey that doesn’t mean you can risk more on the next. Always trade your plan. 

 

• They trade the reac­tion — not the news.

 

Don’t trade the ini­tial reac­tion, but the reac­tion to the reac­tion. For exam­ple when a trad­ing ses­sion opens it doesn’t mean it will keep going that way. Wait to see what the reac­tion to the reac­tion is before par­tic­i­pat­ing in the move. 

 

What does this mean for me?

What I am tak­ing from this is a foun­da­tion for affir­ma­tions that I can tell myself before trad­ing. Fur­ther­more,  it has giv­en me a guide­line to what cri­te­ria I can judge my own trad­ing. I will focus on these points for a month and draw a con­clu­sion of it. What did I do right, and what not. This way I hope to improve my trad­ing. Please watch the orig­i­nal video by Dave West­gate here on YouTube.

 

Thank you

 

As always thank you for read­ing and please leave a com­ment if you have any­thing to add or to ask.