idaxtrader

Specific Skills that Comprise Trading Mechanics Trading Mechanics • Idea development. Translating observations about the market into specific trade ideas; gathering information the right way to produce useful conclusions. • Assessment of market conditions. Evaluating whether the market is trending, rangebound, volatile, or slow; ensuring that the trade idea is appropriate for the present market. • Order placement. Using the kinds of orders appropriate for market conditions to maximize the likelihood of getting filled at desired prices. • Order location. Selecting prices for orders that correspond to turning points in supply and demand, thereby minimizing drawdowns and maximizing opportunity. • Order division. Scaling into positions to reduce initial risk exposure and obtain superior average entry prices; scaling out of positions to secure profits and benefit from favorable movement. • Position sizing. Risking enough on a trade to make a meaningful contribution to profitability while avoiding risk of ruin under adverse circumstances. • Position diversification. Spreading risks among uncorrelated trades so as to benefit from market participation but limit risk exposure; selecting trading instruments most likely to benefit from the trade ideas. • Exit determination. Defining clear criteria for when your trade ideas are wrong; implementing proper stops to manage the risk exposure of each trade. • Exit flexibility. Moving stop-loss points to protect profits while retaining profit potential. • Speed of execution. Making and implementing decisions rapidly. • Accuracy of execution. Minimizing errors in order placement. • Efficiency of information processing. Monitoring relevant variables in real time to properly manage trades. 140 they traded well, they do not necessarily mean that they made a lot of money. They mean that they were fundamentally sound. Mechanics are rarely glamorous, but they account for a surprising degree of profitability. 141 Carl was a study in poor mechanics. Let’s play observer and review his shortcomings: • He had no real trade idea. “We’re not going lower” is not a firm foundation for a rational wagering of one’s trading stake. The reality was that we weren’t going anywhere, as long as the market was trading a few dozen contracts per minute on average. Without a valid trade idea, he had no edge in the marketplace. • He gave up the edge needlessly. In a slow market, there was no urgency to getting in. If he had a valid reason to enter the market, he could have worked a bid and gained a tick simply by being patient. Instead, he took the offer after the market had already ticked higher, exposing him to those who had worked bids and now could take their scalping profits. • He wagered impulsively. A good trending market will give multiple opportunities for entry, making it easy to scale into a trade even if you do have to go at the market as the trade picks up on a breakout. Entering with his maximum position exposed Carl to maximum risk before he had an opportunity to see if the position would move his way. • He exited emotionally. Instead of exiting when the trade didn’t go his way, he exited when it went against him. If his trade was truly predicated on a breakout move or surge of buying, it should have gone his way promptly. Instead, he waited until it reached his pain threshold before exiting. • He did not process information effectively. At no time during Carl’s trade was there evidence of bidders entering the order book or lifting offers in size. He failed to see bidders cancel their orders prior to the market moving against him, so he could not exit quickly. 142 My goal in working with traders such as Carl is to enable them to become keen observers of their own mechanics. This means emphasizing trade execution as much as overall profitability, and it means placing emphasis on the management of trades, from position sizing through exits. The majority of traders want to think about trades as things: events that are either profitable or not profitable. The mechanics approach to performance, however, views trades as processes. 142 Much of profitability, I’ve found, is simply staying away from markets and market periods that do not offer a distinct edge. 151 To the extent, however, that you can break your information gathering down into the kinds of checkpoints described by Nolan Ryan, you turn much of the process of selecting tactics into one of mechanics. The bottom line is that, for any style of trading, there are mechanically sound and unsound ways to gather information and make decisions from the data. 151 One mark of a truly expert trader is the ability to rapidly adapt trading tactics to shifting market conditions. When you think about it, this is also a hallmark of expert emergency room physicians, battlefield commanders, and coaches. 151 Nothing so interferes with a performance as thinking about the performance while engaging in it. Most of us are familiar with the performance anxiety that affects speakers and test takers: The worries about how one is doing take one out of the flow of doing. For this reason, your observation and evaluation of your mechanics, tactics, and strategies need to occur outside of trading. While you’re trading, you’re the trader. All other times, you’re the mentor to that trader. 157 The structural edge, to which I have alluded earlier, is based upon knowledge of the participants in the equity index marketplace. Many of these are day time frame participants, and many are highly leveraged. This creates situations in which traders behave as a herd, jumping aboard whatever movement they can detect in the market. It also creates situations in which these same traders have to exitpositions quickly as part of risk management. Because of this, much of the day’s trade in the ES consists of waves of buying and selling attributable to herd behavior and the mass exiting of positions that are going underwater. Identifying spots where the herd is loaded up in one direction and will need to unload their holdings if their anticipations prove incorrect provides a structural edge. 160 Profits take care of themselves when you have a legitimate edge and execute properly. 161 Pele blended speed, vision, and accuracy as no one had previously. His formula for success? “Practice is everything.” 164 performance is not about speed, but rather about process. “Being fast comes with having lean processes. If you just focus on speed, you wind up with mistakes.” This is why instructors at PIT advise aspiring crew members, “Go slow to go fast.” The goal is smooth, lean operation— not hurried behavior. 165 Surprise is the great enemy. All training is for naught if we are taken by surprise and cannot make sense of our experience. 166 Markets will move—or fail to move—just beyond the level of expectations of participants. That is the only way the ambusher can take money from the ambushed. Preparing for expectable market events is important, just as preparing for routine car maintenance is the bread and butter of any pit crew. It’s the preparation for the unexpected, however, that, over time, wins the Winston Cup. 167 his challenge that he could win any dogfight—ride the tail of any challenger—within 40 seconds. His ability was to operate from inside the mind-set of his adversary: what he called the OODA (observation, orientation, decision, action) loop. 167 When you become predictable in a dogfight, you are inside the OODA loop of the other pilot. The pilot who wins is the one who stays outside the opponent’s loop. This is why the surprise, speed, and violence of action mentioned by Machowicz are so effective. A predictable attack, such as when British troops would line up in formation in their red coats, complete with flags flying and music playing, was within the OODA loop of savvy colonists. It is the swift, unexpected, violent attack of the guerilla force that can unnerve a much larger opponent. 167 What is well known and well publicized—from chart patterns to news stories—represents the OODA loop of the average market participant. If what you lean on for your edge is information that can be readily accessed by any trader possessing a decent real-time charting or market depth application, you are within the OODA loop of the pros, not outside it. 167 My particular focus would be on the triggers for this frustration: the market and trading events that precede her loss of control and deviations from sound mechanics. We would then work on specific brief therapy techniques for deprogramming these triggers and gaining cognitive and physical control over frustration 174 The bottom line is that we cannot improve what we do not observe. Most traders haven’t the slightest idea where they stand on these various metrics, nor are they aware of how their metrics are impacted by shifts in market conditions. We spend far more time studying markets than studying ourselves, and that is at our peril. The metrics will identify trading problems before they become financial problems. They will alert you to potential blowups before you incur devastating losses. Metrics complete learning loops, linking self-observation to self-improvement. 178 The key is selfobservation: constantly knowing—and wanting to know—what works and what doesn’t. Do you really know your strengths as a trader? If not, how can you build upon them and extend them? Are you aware of the weaknesses of your strategy, tactics, or mechanics? If not, can you truly improve them? We as traders are every bit as patterned as the markets we trade. Exploiting our patterns is an essential part of profiting from those in the market. 181 Journals contain a variety of information, but usually consist of the following: • A trading plan. How one intends to trade. • Goals. Things to work on in trading. • Observations. About oneself and the market. 182 The evolving performer asks: What will I work on today? How will I work on it? How will I know if I’m successful? What have I learned from today that can be utilized tomorrow? The role of a diary is to structure responses to these questions and keep them in conscious awareness. This allows us to focus on achieving process goals rather than profits. 183 The value of the real-time diary is that it pushes us to stand outside ourselves and remove the prisms. To simply ask the questions “What is my state right now?” and “How is my state affecting my perceptions and behaviors?” requires that we stand apart from our frames of mind. The diary cultivates the self-observer in all of us, building our capacity to shift our own states intentionally. 184 “The difference I havefound between the good and the great traders is that great traders are always acutely aware of areas where they need to improve and they work very hard to eliminate those weak links. . . . There is no greater tool in my opinion than a good trading diary of things you’ve learned. When I read my trading diary from several years ago, I’m always amazed how many things I’ve actually forgotten.” 184 When you examine the field of performance coaching, whether in trading, athletics, or other fields, two interventions stand out: goal setting and visualization. 185 Performance goals such as these reflect mechanics: concrete actions that, performed well, contribute to results. They keep traders in a state of flow rather than compete for trader attention and concentration. 186 the acronym SMART to capture the common features of effective performance goals. Such goals are Specific, Measurable, Action- Oriented, Realistic, and Timely. 187 Common deficiencies of goals include: • Not specific. The goals are framed in general terms, such as “I will trade with more discipline” or “I will let my winners ride,” so that they cannot guide specific actions and facilitate the development of positive habit patterns. • Not measurable. The goal is framed as a state of mind—“I will trade with greater confidence”—or as an outcome that cannot be tracked with metrics, as in “I will trade well,” preventing any assessment of progress. • Not action-oriented. Goals are stated as end points rather than as activities to perform, such as “I will make money today.” • Not realistic. Goals are pie-in-the-sky, as in “I want to be green every day this month,” or are so numerous that they cannot be addressed effectively at one time. • Not timely. Goals are so far into the future that they cannot guide current performance, as in “I want this to be my best year trading.” 187

McNab describes a variety of training strategies that thoroughly and competently train ordinary soldiers and bring them to the elite levels of Special Forces troops. The key to such strategies, he emphasizes, is realism. For example, soldiers must be exposed to the sights and sounds of the battlefield or they will become disoriented under actual wartime conditions.Without prior exposure to the intense fighting conditions that they encountered, they froze under pressure. This is highly relevant to trading, where the real-time conditions of risk and reward create their own battlefields. 92 Traders progress from simulating skill modules—entries, risk management, and so on—to placing and managing trades, then trading full days in simulation mode, and eventually putting money on the line with one-lots. Facing—and mastering—challenges time after time creates the battle inoculation that allows traders to keep their cool under the most pressured circumstances. 92 It is the role of the mentor to ensure that the increasing demands of training build the confidence of performers, rather than defeat them. 92 Your greatest challenge will be to create learning conditions that test you but do not break your spirit. 92 As your own mentor, you provide that competent and confident leadership by creating a steady stream of challenging goals that build upon one another. After struggling with one goal after another and succeeding, you will face the markets with a reservoir of confidence unknown by most market participants. Like the soldiers, you will be battleproofed—the hallmark of true competence. 93 Let’s step back and summarize. When we look at the training of athletes, professional musicians, therapists, physicians, soldiers, and chess players, we see the same three-step progression: 1. Breaking performance into component skills 2. Assembling modules of skills into simple simulations of performance 3. Requiring skill enactment in simulations of gradually increasing complexity This is why every single elite training program I have been able to find—in sports, chess, health care, and the military—emphasizes progressive skill building through a structured program of practice. 100 Your exercise is to find your frame and just one way of trading it. Keep it simple. Become good at one kind of trade. That will provide you with a foundation for further development. 107 Guided activity in the form of training and mentorship challenges the performer and builds the sense of competence, sustaining a flow state of high motivation, concentration, and learning. In this state, growth proceeds rapidly. 111 Expertise is skill internalized to the point of habit.116 Ericsson’s research suggests that the concentration of the performer is an essential element in deliberative practice—another factor that distinguishes it from playful experience with a performance field. This means that the duration of effective practice sessions must be limited to allow for rest and recuperation of attention and focus. Naps and rest periods are common among elite performers, reflecting the intensity of activity during practice. In addition to recuperative breaks, the presence of concrete goals and immediate feedback help to keep performers focused on learning during practice sessions. 118 Eventually you could do those things in your sleep. In fact, given the frequent occurrence of hallucinations among sleep-deprived recruits, there’s a sense in which they are doing it in their sleep—which is the whole point. Through repetition, even extreme challenges become automatic. 119 The elite in any field move from competence to expertise by creating performance challenges more demanding than anything they’re likely to experience day to day. We evolve by creating and adapting to challenges that lie outside our comfort zone. 120 These traders have seen so many markets and market scenarios that they develop an anticipatory sense—a conviction that something is likely to happen because it has happened so many times before. 120 His formula for hitting success was simple: “Get a good pitch to hit.” 122 In a very important sense, when traders develop expertise, the markets they see are different from the markets everyone else sees. 125 Expert traders similarly chunk information into meaningful groups, aiding their recall and speeding their responses to market events. 126 Rather, experts have accumulated so much implicit learning that they process events more efficiently and effectively than their counterparts. Their training has provided them with new ways of seeing the world based upon the grouping of their perceptions. 126 Novice traders reason in the backward fashion: They look for information to support their opinions rather than assemble their trade ideas from their readings of the market. Expert traders often talk about “letting the market come to me”—another way of saying that the right trades, like the right diagnoses, will emerge from gathering the right data. This is only possible, however, when traders, like physicians, have internalized a kind of decision tree that guides the circular process of collecting information and formulating tentative ideas. 128 Decisive action begins with efficient perception and organized information. 128 Cleeremans and colleagues found that implicit learning is actually an acquisition of knowledge about the statistical structure of events. Williams and Starkes, writing in a completely different field, find that experts possess knowledge about situational probabilities that guide their actions. 130 This accounts for an interesting finding from the research: Not only do expert players make more accurate assessments of ball location, they are also more confident in their assessments than nonexperts. 130 He has learned that, when he sees X, he should do Y. The X-Y linkage, repeated many times across varying conditions, becomes part of his instincts. My explicit processing cannot hope to keep up with such automatic, implicit thinking. 131 This is not merely the will to win, as Bob Knight emphasizes, but the will to prepare to win. 133 Contrary to the advertisements common in the popular media, trading expertise is not a function of possessing a superior indicator, mind-set, or chart pattern. Expert traders process market information differently from nonexperts, cultivating sophisticated mental maps that enable them to eliminate irrelevant information and implicitly process the patterns amidthe market noise. Armed with such maps, expert traders respond more rapidly, confidently, and accurately to market events than do nonexperts. 134 Like Tiger and Nolan, Ted Williams dominated his sport by the consistent application of proper mechanics. 137 Great results come from small improvements that are implemented with consistency. 138

At this optimal state of arousal, the performer is divided by neither the understimulation of boredom nor the overstimulation of anxiety. Nor is there a divide between real and ideal that cannot be bridged. Flow occurs when there is a perception of likelihood of success at an important task, but not certainty. 71 Boredom, anxiety, and depression interfere with learning because they are distractions: They divide attention. Positive thoughts born of overconfidence are equal distractions. Interestingly, we need to feel competent to develop competence: The perception of competence generates the flow that enhances concentration and learning. He was like the ordinary student, trying to build competence through normal efforts and practice. He could not immerse himself in markets to achieve the competence that leads to expertise. 72 Divided attention is the source of most performance shortcomings. 72 First-order competence is optimism about doing; second-order competence is optimism about competence building itself. A first-order performer feels competent to navigate through New York City but not London. A second-order performer feels competent to quickly learn the layout of any city. 72 Once they realized they could bridge the gap between real and ideal, they could face their shortcomings without fear or distraction. 73 Those who bounce from strategy to strategy are apt to pursue each one until it produces failure, leaving behind a string of disappointments. The resilient performer has cultivated enough second-order competence to stay in the zone even when the inevitable strings of setbacks occur. 75 Armstrong reveals an important secret about his ability to overcome this late-stage and often-fatal cancer. He explains that cancer gave him “a new sense of purpose” (page 151), replacing biking as his reason for being. He would start a cancer foundation and help others fight the disease. His role was no longer cyclist; he now defined himself as a survivor who would help other survivors. 75 His new goal—and his redefinition of who he was—no doubt contributed to that recovery. 75 This pervading sense that one is competent to master changing conditions allows performers to develop resilience to setbacks that would overwhelm their peers. Very often, as with Armstrong, this resilience is fueled by the performer’s creation of a new identity—one that redefines the challenge ahead. 76 The rage to master is fueled by the sense of self-mastery, and that is generated by experiencing and overcoming changing conditions. 76 If cancer and concentration camps cannot keep the human spirit from mastery, no challenges in markets, careers, or relationships are too great to overcome—as long as you have the why. 79 There is no performance without purpose. 79 What does it mean to structure learning for success? Csikszentmihalyi outlines several preconditions of the flow experience in his book Creativity: Clear goals at each step of the learning process. Immediate feedback regarding one’s actions. A balance between challenges and skills. 80 He could not have experienced himself as competent. The coordination exercises, visualizations, and practice sessions for his swing, however, allowed him to master basic skills and develop a sense of confidence and ability. Cordoba’s feedback was essential to this process. He helped his student feel like a winner, and his student responded. Cordoba’s genius in working with Sharon was his breaking down of complex tasks into component skills that could be rehearsed with clear goals and feedback. This is close to a universal principle in performance development: Wherever we encounter expertise, we see the intensive rehearsal of component skills. Not only does this drilling build performance to the point where it becomes automatic, it also cultivates the sense of mastery by creating positive mirrors. 83 Dan Gable explains how he consistently elicited excellencefrom his teams. He broke each skill into several segments and then demonstrated each with a clear explanation. 83 For now, the important thing to realize is that you can break trading down into bite-size pieces, rehearse those, develop mastery, and keep yourself in the flow state. Drilling is fun once we get it, and we are most likely to stick with something that feels good. The perfect practice that makes perfect develops performance-specific skills but also cultivates the conditions for sustained concentration, enhanced learning, and increased confidence. 84 Set goals for each practice session to generate immediate feedback. Each practice session’s objectives would be based upon progress from previous sessions. Goals would be specific, to track gains in learning. 87 Drill skills to promote implicit learning. We would make skills automatic through rapid repetition, solidifying learning, and providing resistance to emotional interference. 87 Competence requires curriculum: a systematic approach to learning. 87 As skills are brought to increasingly realistic performance settings, coaches generally advocate working thoroughly on one cluster of skills before starting others. Chris Carmichael and Lance Armstrong, detailing performance programs for cyclists, use the analogy of painting a house. Painting a wall of one room, then going to the ceiling of another, and then to a hallway would be inefficient. It makes more sense to complete one room at a time. 88 Carmichael and Armstrong describe four-week blocks of practice for each skill module before working on subsequent modules. Thus, for example, a cyclist may spend four weeks working on sprinting, the next four on climbing. 88 Divide overall performance into a set of skill modules that include the processes of monitoring markets for favorable trading conditions, researching/identifying trade ideas, working orders/entering positions, managing trades, and working orders/exiting positions. Assign time periods to each module to create a curriculum, with the most basic skills preceding more specialized ones. Within each period, break each module into component skills and mix the drilling of these skills to create realistic enactments. Establish explicit, challenging, but attainable training goals for each practice session and period and collect feedback about performance to track progress toward goals. Utilize feedback to set goals for the next practice sessions. Utilize feedback to make changes in the pacing of the curriculum, extending periods if progress is slower and moving ahead if progress is rapid. 89 Amateurs learn by performing, creating repeated experience without structure or feedback. Professionals learn by drilling, progressing through structured sequences of skills with the assistance of feedback and mentoring. 90 Despite this seemingly obvious truth, we see few traders attempt to learnthrough training. Instead, they approach trading in the amateur mode, only to lose money and court frustration. 90

I thought I would post my notes from one of my favorite books. Enhancing Trader Performance by Brett Steenbarger. This is a great book I highly recommend that people read it in its entirety. Its very concrete unlike some other good books such as Trading in the Zone. Perhaps my greatest shock has been the recognition that a significant proportion of emotional problems affecting traders result from departures from the principles of sound training. XIII When they do not employ systematic training to translate talents into skills, and when they violate prudent risk management in eager hopes of rapid profits, they create needless frustrations and even traumas. XIII He was cut from his team in his sophomore year of high school. Any hopes of obtaining a college scholarship were quickly receding. Most aspiring athletes would take their lumps, join a local league or intramural squad, and move on with their lives. Michael Jordan, however, was not like most young athletes. 1 He responded to the cut by practicing day after day. When he felt too tired to continue, he forced himself to recall his cut from the team and drove himself harder. 1 One of those factors is finding a performance niche: a specific activity that is most likely to capitalize on your talents and interests. 2 Al kept himself emotionally balanced, taking liberal time away from the screen after setbacks. He honored his stops religiously and didn’t become irate at losses. He consistently expressed optimism over his development and a love of trading. 3 Mick was anything but balanced, taking losses almost as personal affronts. He periodically violated his risk management guidelines and could not break from the markets until he had rehashed all his mistakes and fumed over each. 3 Most of the trading psychology books you’d read would give the trading edge to Al, the more disciplined, less emotional performer. But Al, the novice, never did succeed at trading. Mick was—and remains—a multimillion- dollar performer. The experience of working with many Micks and Als—and seeing common wisdom about trading success shot down time and again—convinced me to write this book. 3 No doubt, there’s a bit of the young Michael Jordan in Mick. He doesn’t accept defeat lightly, and he uses losses to drive himself forward. That is characteristic of elite performers, we shall learn, but there’s something even more basic that distinguished Mick from Al. In fact, it’s so basic that K. Anders Ericsson, perhaps the most prolific researcher in the field of performance, considers it the cornerstone of expertise. Think of the difference between Al and Mick as something that occurs every day, for approximately 250 trading days a year. Both Al and Mick trade frequently enough that they have winning and losing trades each day. Al puts his losses behind him and clears his head, to focus on the upcoming trade. Mick fusses and fumes, but uses the losses to review his trading, figure out the market (and his mistakes), and get his money back. Over the course of a year, Mick’s reviews ensure that he has easily experienced twice as much market action as Al. Moreover, Mick has systematically reviewed his performance and made constant adjustments. Al, though more relaxed, has little basis for detecting and correcting his errors. Mick, for all his emotionality, has become a learning machine, using losses to improve his trading. Ericsson refers to this as deliberative practice, and it is a hallmark of expert performers. Through guided practice, experts open themselves to feedback and, as a result, become better decision makers. We often hear the phrase “practice makes perfect,” but performance experts in sports emphasize that it is perfect practice that makes perfect. 4 Competence precedes confidence: Winning mind-sets result from mastery, not the reverse. 4 Practice is the cornerstone of expertise because it multiplies experience. It provides us with far more experience than we could ever gain during formal performance or competition. 5 The essence of deliberative practice is what I call the learning loop. A learning loop is an attempted performance, followed by specific feedback about the success/failure of the performance, followed by renewed efforts that incorporate the feedback. 6 Take conscious steps to stand outside themselves and watch their performances, correct mistakes, and jump-start a learning process. 7 An inner urge to reach ever higher levels of performance. 8 Next to the leave-everything-on-the-mat work ethic of a Dan Gable, the effort of maintaining a trading journal hardly requires a laboring instinct. Yet the majority of traders won’t sustain even this level of performance commitment. Why is that? 8 There it was. This was not a trader who was drawn to markets the way Gable fiercely embraced wrestling or Jordan pursued basketball. He wanted to trade because he didn’t like the alternatives. The alternatives meant eight hours a day of effort and the loss of the freedom to do what he wanted to do. But elite performers are doing what they want to do when they labor far more than eight hours a day on their craft. 8 A middle phase. At this point of development, the performer concentrates on one or more specific fields of performance for serious pursuit. 10 A late phase. For a limited number of individuals, mastery of the performance activity becomes a primary life focus. The goal is no longer competence, but the development of one’s talents and skills to the fullest. There is a commitment to self-development. 10 The aim of such practice is the internalization of complex skills, so that high levels of performance become routine. 10 Without a middle period of competence development, there is no readiness for the rigors of mastery. Absent the joys of an initial, exploratory phase, there will be no sustained commitment to skill development. 11 How much time does it take to develop expertise? Research tells us that a minimum of 10 years is required. Indeed, this “10-year rule” is one of the more durable findings in expertise research spanning sports, the arts and sciences, chess, and medicine. There is so much knowledge and skill required by most fields that elite performance necessitates years of development. 12 The greats do not become great by working hard; they work hard because they find a great niche: a field that captures their talents, interests, and imagination. 13 He watches what large traders are doing by monitoring volume on a trade-by-trade basis and tries to decide when they have strong or weak hands. He religiously avoids thinking about the market lest he become locked into opinions the next day. 15 Finding the right niche makes all the difference in the world when it comes to performance. 17 Each group finds its own path through the developmental process, cultivating what comes naturally and most enjoyably to them. 18 It’s not whether you can be a good trader; it’s whether you can find the trading that’s good for you. 19 We started by distinguishing experts from novices and found that experts are engaged in learning loops fueled by deliberative practice. 19 Key to Collins’s findings is the notion of the Hedgehog Concept: the idea that great companies simplify by focusing on their strengths. The three elements of the Hedgehog Concept are: 1. What you can be best at 2. Where you can be most profitable 3.What you are most passionate about 23 Good companies that never reached greatness, Collins found, strayed outside the circles defined by each of these elements. The great companies focused all their efforts at the intersection of those three circles. 23 What are your talents? Where is there opportunity in the markets? What turns you on? There you will find your learning efforts turbocharged by multiplier effects, yielding not just competence, but expertise. 24 An initial step in finding your distinctive place in the trading universe is self-assessment. 25 When you have found your niche, you don’t need discipline to do the right things; you won’t want to do anything else. 29 People develop their potential by building on their strengths, not by trying to overcome their weaknesses. Successful performers, they argue, work around their shortcomings, but achieve great things by making maximum use of their strengths. 40 Your ideal trading niche will be one that allows you to exercise your greatest talents while working around your weaknesses. 40 You will know that you are close to your market niche when you develop a feel for market patterns quickly, find yourself fascinated by the patterns you see, and act readily upon your perceptions 42 Other traders who are less emotional, more disciplined, and more systematic may fail because they lack strengths that readily translate into trading edges. 43 Only such a bond creates the immersion that leads one to internalize a field, not just learn about it. 53 Stated differently, ordinary learning generates ordinary performance. Immersive learning—sparked by the crystallizing experience—is the motive force behind Collins’s flywheel, generating multiplier effects that build expertise. 55 Creativity—the novel seeing and doing born of unique, immersive experience—be the ultimate source of edge in the markets? Is it creativity that distinguishes great traders from those who are merely good? 55 Equally important, he shifted his perception. What had been a threat was now a source of opportunity. Chad now began to scan the market for places where sharp moves left overexposed traders vulnerable. 57 Indeed, he became so adept at recognizing when others were trapped (as he had been) that other traders would immediately seek him out following sharp market moves to get his read on the market. 58 This new perception—his crystallizing experience—reorganized his views of the market. What was danger became opportunity; what was frustrating now was exciting; what was incomprehensible made sense. The competence he developed was not just that of self-control. He developed new ways of seeing and doing. His was an exercise in creativity, not therapy. 58 “Only those who have the patience to do simple things perfectly,” the saying goes, “will acquire the skill to do difficult things easily.” 60 His rage to master the game was so strong that it obliterated the normal distinction between work and play. 62 At some point in the development process, performers begin to integrate their activities into their identities. 62 The kiss of death for expertise is comfort. 64 The performer becomes so absorbed in the performance that it seems to flow effortlessly. 65 Our ability to sustain the immersion that generates multiplier effects depends upon the experience of competence. Without the perception of mastery, there can be no learning that generates expertise. 70 To a large degree, our moods are moderated by our perceptions—and especially our perceptions regarding our own competence. 70 We cannot be divided and also immersed in the flow experience that generates expertise. 71

General wisdom is less valuable than specific savvy. Without any effort on their part they would have been in the strong strategic position that I always try to find myself in when I am manipulating a stock. The absence of inside support is generally accepted as a pretty good bear tip. All I considered was what should, could or might help or hinder me in that task. Nothing but a gambler, but he had real ability and a strongly developed aptitude for the speculative game. At the same time his reputed indifference to highbrow pursuits made him the hero of numberless anecdotes. I suppose that helped, for nothing succeeds like success. But on general principles it is just as well to provide for any and all contingencies. It's plain sense. If the most successful manipulation consists of that in which the desired end is gained at the least possible cost to the manipulator. Getting angry doesn't get a man anywhere. More than once it has been borne in on me that a speculator who loses his temper is a goner. In this case there was no aftermath to the grouches. Carefully laid plans will miscarry because the unexpected and even the unexpectable will happen. Disaster may come from a convulsion of nature or from the weather, from your own greed or from some man's vanity; from fear or from uncontrolled hope. The old-fashioned bucket shops are gone, though bucketeering "brokerage" houses still prosper at the expense of men and women who persist in playing the game of getting rich quick. The speculator's deadly enemies are: Ignorance, greed, fear and hope. In addition to trying to determine how to make money one must also try to keep from losing money. It is almost as important to know what not to do as to know what should be done. The public always wants to be told. The experience of years as a stock operator has convinced me that no man can consistently and continuously beat the stock market though he may make money in individual stocks on certain occasions. No matter how experienced a trader is the possibility of his making losing plays is always present because speculation cannot be made 100 percent safe. There is no asphalt boulevard to success in Wall Street or anywhere else. Why additionally block traffic?

You can get all three books you have listed on the internet for free if you look hard enough.

This is a very intelligent post by Brownsfan. Most specifically these few words. I now 'get' what candlesticks do... I understand what the candles are 'saying'. It's much more than hunting for shapes, which is what many noobs do and then claim that candles do not work... If someone would take the time to really think about that statement they may reap great rewards. That is the real key to the method part of your trading plan. There are three parts to trading mind,money,and method. That statement deals exclusively with method and to be successful one must master all three not just one. Now dealing with the actual statement. I now 'get' what candlesticks do... I understand what the candles are 'saying'. It's much more than hunting for shapes, which is what many noobs do and then claim that candles do not work... Steve Nisons book is a great place to start and learn about the candles. However, I think that he doesn't elaborate to much on how to really trade the candles. This is no real fault of his because its next to impossible to really explain it. Its similar to having a child learn to ride a bike by reading a book. It simply wont help. The child must internalise how to ride a bike from genuine practise not stimulation of his brain from book knowledge. Nisons only real suggestion is trade the candles when a confluence of things are lining up at the same time and always trade in the direction of the major trend. I personally think this is a real good idea for active investing but not trading. These type of occurrences are rather rare, it doesn't provide enough frequency to trade like a professional. A professional knows that any trade can very easily fail therefore his job is altogether different than what most traders think it really is. His real job is to intelligently increase his sample size so that his confirmed edge has ample opportunity to play its self out and deliver its statistically reliable results.In my mind trading is not a game, or a skill, or a competition, or any other thing that most traders like to call it and get their ego involved. Trading is simply having an edge and letting the edge work by itself for you. Most people really believe that over trading is bad or wrong. This is of course true if you are incompetent. On the other hand if you are qualified over trading is your best friend because it allows you to increase your sample size. Enough rambling here is my suggested reading and it cant be done in only one book. However, it could be done in only five. Mind- 1. Trading in the Zone Mark Douglas 2. Reminisces of a Stock Operator Edwin Lefreve Method- 3. Japanese Candlestick Charting Techniques Steve Nison 4. John Murphy's book on technical analysis (I cant think of the correct name off the top of my head) Money- Trade your way to financial freedom Van Tharp

I suppose, was the need to satisfy the public's insatiable demand for reasons for each and every price movement. Was invented as an easy way of supplying reasons to those speculators who, being nothing but blind gamblers, will believe anything that is told them rather than do a little thinking. She knew how I felt about stock speculation as practised by outsiders. There are some who can't resist the craving and always look forward to those jags which they consider indispensable to their happiness. Men do not take tips because they are bally asses but because they like those hope cocktails I spoke of. Somebody asked him if making money in the Bourse was not a very difficult matter, and he replied that, on the contrary, he thought it was very easy. "That is because you are so rich," objected the interviewer. "Not at all. I have found an easy way and I stick to it. I simply cannot help making money. I will tell you my secret if you wish. It is this: I never buy at the bottom and I always sell too soon." Investors are a different breed of cats. Most of them go in strong for inventories and statistics of earnings and all sorts of mathematical data, as though that meant facts and certainties. He believed in asking his own questions and in doing his seeing with his own eyes. He had no use for another man's spectacles. That is, it did not behave as it should have behaved to make me feel I was wise in buying it. The training of a stock trader is like a medical education. The physician has to spend long years learning anatomy, physiology, materia medica and collateral subjects by the dozen. He learns the theory and then proceeds to devote his life to the practice. He observes and classifies all sorts of pathological phenomena. He learns to diagnose. If his diagnosis is correct, and that depends upon the accuracy of his observation -- he ought to do pretty well in his prognosis, always keeping in mind, of course, that human fallibility and the utterly unforeseen will keep him from scoring 100 per cent of bull's eyes. And then, as he gains in experience, he. learns not only to do the right thing but to do it instantly, so that many people will think he does it instinctively. It really isn't automatism. It is that he has diagnosed the case according to his observations of such cases during a period of many years; and, naturally, after he has diagnosed it, he can only treat it in the way that experience has taught him is the proper treatment. You can transmit knowledge -- that is, your particular collection of card indexed facts, but not your experience. A man may know what to do and lose money -- if he doesn't do it quickly enough. Experience has taught me that the way a market behaves is an excellent guide for an operator to follow. Observation gives you the best tips of all. When the men who ought to want a stock don't want it, why should I want it? I am a trader and therefore looked for one sign: Inside buying. There wasn't any. It was the difference in behaviour. My years of experience in trading told me that the line of least resistance had changed from up to down. It was not difficult to be both fearless and patient. A speculator must have faith in himself and in his judgment. It is the character of the advance or of the decline that determines for me the correctness or the fallacy of my market position. Knowledge is power and power need not fear lies -- not even when the tape prints them. The retraction follows pretty quickly. "The principles of successful stock speculation are based on the supposition that people will continue in the future to make the mistakes that they have made in the past." I can generally tell the moment the character of the buying in the stock makes it imprudent for me to be short of it. In the stock market, as in warfare, it is well to keep in mind the difference between strategy and tactics. He had in superlative degree the qualities of mind that are associated with successful speculators anywhere. That he did not argue with the tape is plain. He was utterly fearless but never reckless. He could and did turn in a twinkling, if he found he was wrong. (??? Nearly 100 years before Mark Douglas) Manipulation is the art of advertising through the medium of the tape. The tape should tell the story the manipulator wishes its readers to see. The truer the story the more convincing it is bound to be, and the more convincing it is the better the advertising is. A manipulator today, for instance, has not only to make a stock look strong but also to make it be strong. I neither have nor adhere to an inflexible system. I modify my terms and conditions according to circumstances. Well, when the price line of least resistance is established I follow it, not because I am manipulating that particular stock at that particular moment but because I am a stock operator at all times. I wasn't looking for the good or the bad points, but for the facts, such, as they were. Realise the wisdom of playing the game dispassionately. Well, you would be surprised at the frequency with which some of our most successful promoters behave like peevish women because the market does not act the way they wish it to act. They seem to take it as a personaln slight, and they proceed to lose money by first losing their temper. And is not governed in his actions by conditions but by fears,

In every one of them I lost money. It served me right, because I was trying to force the market into giving me what it didn't have to give to wit, opportunities for making money. More than once in the past I had run up a shoe string into hundreds of thousands. Sooner or later the market would offer me an opportunity. I convinced myself that whatever was wrong was wrong with me and not with the market. Now what could be the trouble with me? I asked myself that question in the same spirit in which I always study the various phases of my trading problems. I thought about it calmly and came to, the conclusion that my main trouble came from worrying over the money I owed. I was never free from the mental discomfort of it. As I studied the problem I saw that it wasn't a case that called for reading the tape but for reading my own self. I quite cold-bloodedly reached the conclusion that I would never be able to accomplish anything useful so long as I was worried. To take the cold-blooded, dispassionate attitude toward the game that comes from the ability to afford a few minor losses such as I often incurred in testing the market before putting down the big bet. Must also know himself and provide against his own weaknesses. There is no need to feel anger over being human. I have come to feel that it is as necessary to know how to read myself as to know how to read the tape. I have studied and reckoned on my own reactions to given impulses or to the inevitable temptations of an active market, quite in the same mood and spirit as I have considered crop conditions or analysed reports of earnings. But I sat tight and instead of listening to my loud-mouthed hopes or to my clamorous beliefs I heeded only the level voice of my experience and the counsel of common sense. As a matter of fact I wasn't the same man, for where I had been harassed and wrong I was now at ease and right.

The professional concerns himself with doing the right thing rather than with making money, knowing that the profit takes care of itself if the other things are attended to. That is, he looks far ahead instead of considering the particular shot before him. It gets to be an instinct to play for position. He was no novice in Wall Street, but he was thinking of the market from the point of view of the newspaper man and, incidentally, of the general public. The price certainly ought to go down on the news of inside selling. The point I would make is his habitual attitude toward trading. He didn't have to reflect. I am fairly immune from the commoner speculative ailments, such as greed and fear and hope. But being an ordinary man I find I can err with great ease. I wish to know my own limitations and habits of thought. Another reason is that I do not wish to make the same mistake a second time. "What are you working for then?" "For the commission and the record," he answered. "What record?" "Mine." "What are you driving at?" "Do you work for money alone?" he asked me. "Yes," I said. "No." And he shook his head. "No, you don't. You wouldn't get enough fun out of it. You certainly do not work merely to add a few more dollars to your bank account and you are not in Wall Street because you like easy money. You get your fun some other way. Well, same here." "I know exactly what I am doing. That's all the secret there is. But he can be talked into a state of uncertainty and indecision, which is even worse, for that means that he cannot trade with confidence and comfort. Of all speculative blunders there are few greater than trying to average a losing game. To learn that a man can make foolish plays for no reason whatever was a valuable lesson. If you know much about the average customer of the average commission house you will agree with me that the hope of making the stock market pay your bill is one of the most prolific sources of loss in Wall Street. You will chip out all you have if you adhere to your determination. In fact, of all hoodoos in Wall Street I think the resolve to induce the stock market to act as a fairy godmother is the busiest and most persistent. What does a man do when he sets out to make the stock market pay for a sudden need? Why, he merely hopes. He gambles. He therefore runs much greater risks than he would if he were speculating intelligently, in accordance with opinions or beliefs logically arrived at after a dispassionate study of underlying conditions. To begin with, he is after an immediate profit. He cannot afford to wait. The market must be nice to him at once if at all. He flatters himself that he is not asking more than to place an even-money bet. Because he is prepared to run quick -- say, stop his loss at two points when all he hopes to make is two points -- he hugs the fallacy that he is merely taking a fifty-fifty chance. I was sick, nervous, upset and unable to reason calmly. That is, I was in the frame of mind in which no speculator should be when he is trading. A man must know himself thoroughly if he is going to make a good job out of trading in the speculative markets. To know what I was capable of in the line of folly was a long educational step.

A loss never bothers me after I take it. I forget it overnight. But being wrong -- not taking the loss that is what does the damage to the pocketbook and to the soul. The message of the tape is the same. That will be perfectly plain to anyone who will take the trouble to think. He will find if he asks himself questions and considers conditions, that the answers will supply themselves directly. Therefore the thing to determine is the speculative line of least resistance at the moment of trading; and what he should wait for is the moment when that line defines itself, because that is his signal to get busy. It sounds very easy to say that all you have to do is to watch the tape, establish your resistance points and be ready to trade along the line of least resistance as soon as you have determined it. But in actual practice a man has to guard against, many things, and most of all against himself -- that is, against human nature. When a man makes his play in a commodity market he must not permit himself set opinions. He must have an open mind and flexibility. It is not wise to disregard the message of the tape. A speculator must concern himself with making money out of the market and not with insisting that the tape must agree with him. Never argue with it or ask it for reasons or explanations. It would not be so difficult to make money if a trader always stuck to his speculative guns -- that is, waited for the line of least resistance to define itself and began buying only when the tape said up or selling only when it said down. He should accumulate his line on the way up. Let him buy one-fifth of his full line. He is wrong temporarily and there is no profit in being wrong at any time. The same tape that said up did not necessarily lie merely because it is now saying NOT YET. It is simple arithmetic to prove that it is a wise thing to have the big bet down only when you win, and when you lose to lose only a small exploratory bet, as it were. If a man trades in the way I have described, he will always be in the profitable position of being able to cash in on the big bet. He did not stick to his own proved system. That's the trouble with most of them," The speculator's chief enemies are always boring from within. It is inseparable from human nature to hope and to fear. The successful trader has to fight these two deep-seated instincts. He has to reverse what you might call his natural impulses. Instead of hoping he must fear; instead of fearing he must hope. He must fear that his loss may develop into a much bigger loss, and hope that his profit may become a big profit. It is absolutely wrong to gamble in stocks the way the average man does.

I had been gradually approaching the full realization of how much more than tape reading there was to stock speculation. Old man Partridge's insistence on the vital importance of being continuously bullish in a bull market doubtless made my mind dwell on the need above all other things of determining the kind of market a man is trading in. There was not so much need as I had imagined to study individual plays or the behaviour of this or the other stock. Obviously the thing to do was to be bullish in a bull market and bearish in a bear market. Sounds silly, doesn't it? But I had to grasp that general principle firmly before I saw that to put it into practice really meant to anticipate probabilities. I always had or felt that I had to make my daily bread out of the stock market. It interfered with my efforts to increase the stake available for the more profitable but slower and therefore more immediately expensive method of trading on swings. You see, I had observed certain facts but had not learned to co-ordinate them. My incomplete observation not only did not help but actually hindered. But if he didn't profit by his mistakes he wouldn't own a blessed thing. But I can tell you after the market began to go my way I felt for the first time in my life that I had allies -- the strongest and truest in the world: underlying conditions. They were helping me with all their might. Perhaps they were a trifle slow at times in bringing up the reserves, but they were dependable, provided I did not get too impatient. The market would not be right for me to trade in for a while. I lost because I traded in and out of season, every day, whether or not conditions were right. I wasn't making that mistake twice. However, the real joy was in the consciousness that as a trader I was at last on the right track. I still had much to learn but I knew what to do. No more floundering, no more half-right methods. Tape reading was an important part of the game; so was beginning at the right time; so was sticking to your position. But my greatest discovery was that a man must study general conditions, to size them so as to be able to anticipate probabilities. In short, I had learned that I had to work for my money. I was no longer betting blindly or concerned with mastering the technic of the game, but with earning my successes by hard study and clear thinking. I also had found out that nobody was immune from the danger of making sucker plays. And for a sucker play a man gets sucker pay; for the paymaster is on the job and never loses the pay envelope that is coming to you. It marked the successful ending of my first deliberately planned trading campaign. What I had foreseen had come to pass. But my biggest winnings were not in dollars but in the intangibles: I had been right, I had looked ahead and followed a clear-cut plan. I had learned what a man must do in order to make big money; I was permanently out of the gambler class; I had at last learned to trade intelligently in a big way. It was a day of days for me.

I thought I would post some of my notes while I read REMINISCENCES OF A STOCK OPERATOR. Of course there is always a reason for fluctuations, but the tape does not concern itself with the why and wherefore. My plan of trading was sound enough and won oftener than it lost. If I had stuck to it I'd have been right perhaps as often as seven out of ten times. What beat me was not having brains enough to stick to my own game. But there is the Wall Street fool, who thinks he must trade all the time. No man can always have adequate reasons for buying or selling stocks daily or sufficient knowledge to make his. play an intelligent play. The desire for constant action irrespective of underlying conditions is responsible for many losses in Wall Street even among the professionals, who feel that they must take home some money every day, as though they were working for regular wages. It takes a man a long time to learn all the lessons of all his mistakes. They say there are two sides to everything. But there is only one side to the stock market; and it is not the bull side or the bear side, but the right side. It took me longer to get that general principle fixed firmly in my mind than it did most of the more technical phases of the game of stock speculation. My losses have taught me that I must not begin to advance until I am sure I shall not have to retreat. But if I cannot advance I do not move at all. I do not mean by this that a man should not limit his losses when he is wrong. He should. But that should not breed indecision. I was still ignoring general principles; and as long as I did that I could not spot the exact trouble with my game. I can't tell you how it came to take me so many years to learn that instead of placing piking bets on what the next few quotations were going to be, my game was to anticipate what was going to happen in a big way. Their specialty was trimming suckers who wanted to get rich quick. I had to make a stake, but I also had to live while I was doing it. I was twenty when I made my first ten thousand, and I lost that. But I knew how and why, because I traded out of season all the time; because when I couldn't play according to my system, which was based on study and experience, I went in and gambled. I hoped to win, instead of knowing that I ought to win on form. And when you know what not to do in order not to lose money, you begin to learn what to do in order to win. Did you get that? You begin to learn! No diagnosis, no prognosis. No prognosis, no profit. The average chart reader, however, is apt to become obsessed with the notion that the dips and peaks and primary and secondary movements are all there is to stock speculation. If he pushes his confidence to its logical limit he is bound to go broke. The game of beating the market exclusively interested me from ten to three every day, and after three, the game of living my life. I couldn't afford anything that kept me from feeling physically and mentally fit. I was acquiring the confidence that comes to a man from a professionally dispassionate attitude toward his own method of providing bread and butter for himself. It taught me, little by little, the essential difference between betting on fluctuations and anticipating inevitable advances and declines, between gambling and speculating. He knows all the don'ts that ever fell from the oracular lips of the old stagers excepting the principal one, which is: Don't be a sucker! It never was my thinking that made the big money for me. It always was my sitting. Got that? My sitting tight! That is why so many men in Wall Street, who are not at all in the sucker class, not even in the third grade, nevertheless lose money. The market does not beat them. They beat themselves, because though they have brains they cannot sit tight. Disregarding the big swing and trying to jump in and out was fatal to me. Nobody can catch all the fluctuations. Without faith in his own judgment no man can go very far in this game. It was that I gained confidence in myself and I was able finally to shake off the old method of trading.

The nature of probabilities is that each individual hand played is statistically independent of every other hand. This means that each individual hand is a unique event. 102 If you focus on each hand individually, there will be a random, unpredictable distribution between winning and losing hands. But on a collective basis, just the opposite is true. If a large enough number of hands is played, patterns will emerge that produce a consistent, predictable, and statistically reliable outcome. 103 Here's what makes thinking in probabilities so difficult. It requires two layers of beliefs that on the surface seem to contradict each other. We'll call the first layer the micro level. At this level, you have to believe in the uncertainty and unpredictability of the outcome on each individual hand. 103 The second layer is the macro level. At this level, you have to believe that the outcome over a series of hands played is relatively certain and predictable. 103 It's the ability to believe in the unpredictability of the game at the micro level and simultaneously believe in the predictability of the game at the macro level that makes the casino and the professional gambler effective and successful at what they do. 103 They have learned and completely accepted the fact that they don't know what's going to happen next. More important, they don't need to know in order to make money consistently. 104 Because they don't have to know what's going to happen next, they don't place any special significance, emotional or otherwise, on each individual hand, spin of the wheel, or roll of the dice. In other words, they're not encumbered by unrealistic expectations about what is going to happen, nor are their egos involved in a way that makes them have to be right. As a result, it's easier to stay focused on keeping the odds in their favor and executing flawlessly, which in turn makes them less susceptible to making costly mistakes. They stay relaxed because they are committed and willing to let the probabilities (their edges) play themselves out, all the while knowing that if their edges are good enough and the sample sizes are big enough, they will come out net winners. 104 Don't try to predict or know in advance the outcome of each individual event. Aside from the fact that it would be extremely difficult, given all the unknown variables operating in each game, it isn't necessary to create consistent results. All they have to do is keep the odds in their favor and have a large enough sample size of events so that their edges have ample opportunity to work. 106 It may look exactly the same on a chart as it did at some previous moment; and the geometric measurements and mathematical calculations used to determine each edge can be exactly the same from one edge to the next; but the actual consistency of the market itself from one moment to the next is never the same. It is extremely important that you understand this phenomenon because the psychological implications for your trading couldn't bemore important. 107 The most fundamental characteristic of the market's behavior is that each "now moment" market situation, each "now moment" behavior pattern, and each "now moment" edge is always a unique occurrence with its own outcome, independent of all others. 107 Being aware of uncertainty and understanding the nature of probabilities does not equate with an ability to actually function effectively from a probabilistic perspective. Thinking in probabilities can be difficult to master, because our minds don't naturally process information in this manner. 108 I responded that just because he put in a stop it didn't mean that he had truly accepted the risk of the trade. There are many things that can be at risk: losing money, being wrong, not being perfect, etc., depending on one's underlying motivation for trading. I pointed out that a person's beliefs are always revealed by their actions. We can assume that he was operating out of a belief that to be a disciplined trader one has to define the risk and put a stop in. And so he did. But a person can put in a stop and at the same time not believe that he is going to be stopped out or that the trade will ever work against him, for that matter. 109 He said that he had been waiting for this particular trade for weeks and when the market finally got to this point, he thought it would immediately reverse. I responded by reminding him to look at the experience as simply pointing the way to something that he needs to learn. A prerequisite for thinking in probabilities is that you accept the risk, because if you don't, you will not want to face the possibilities that you haven't accepted, if and when they do present themselves. 109 The mental work necessary to "let go" of the need to know what is going to happen next or the need to be right on each trade. In fact, the degree by which you think you know, assume you know, or in any way need to know what is going to happen next, is equal to the degree to which you will fail as a trader. 110 They commit themselves to taking every trade that conforms to their definition of an edge. They don't attempt to pick and choose the edges they think, assume, or believe are going to work and act on those; nor do they avoid the edges that for whatever reason they think, assume, or believe aren't going to work. If they did either of those things, they would be contradicting their belief that the "now" moment situation is always unique, creating a random distribution between wins and losses on any given string of edges. 110 For the typical trader, determining what the market would have to look, sound, or feel like to tell him that a trade isn't working would create an irreconcilable dilemma. 111 The degree of clarity or relative lack of inner conflict. 112 Looking at the process of convincing yourself that you're right from this perspective, it seems a bit absurd, doesn't it? 112 For the traders who have learned to think in probabilities, there is no dilemma. Predefining the risk doesn't pose a problem for these traders because they don't trade from a right or wrong perspective. They have learned that trading doesn't have anything to do with being right or wrong on any individual trade. As a result, they don't perceive the risks of trading in the same way the typical trader does. 112 Any of the best traders (the probability thinkers) could have just as much negative energy surrounding what it means to be wrong as the typical trader. But as long as they legitimately define trading as a probability game, their emotional responses to the outcome of any particular trade are equivalent to how the typical trader would feel about flipping a coin, calling heads, and seeing the coin come up tails. 112 A wrong call, but for most people being wrong about predicting the flip of a coin would not tap them into the accumulated pain of every other time in their lives they had been wrong. 112 So when we believe in a random outcome, there is an implied acceptance that we don't know what that outcome will be. When we accept in advance of an event that we don't know how it will turn out, that acceptance has the effect of keeping our expectations neutral and open-ended. 113 Now we're getting down to the very core of what ails the typical trader. Any expectation about the markets behavior that is specific, well-defined, or rigid—instead of being neutral and open-ended—is unrealistic and potentially damaging. 113 If each moment in the market is unique, and anything is possible, then any expectation that does not reflect these boundary-less characteristics is unrealistic. 113 The potential damage caused by holding unrealistic expectations comes from how it affects the way we perceive information. 113 We have to be careful about what we project out into the future, because nothing else has the potential to create more unhappiness and emotional misery than an unfulfilled expectation. 113 Here's where we run into problems. Because our expectations come from what we know, when we decide or believe that we know something, we naturally expect to be right. At that point, we're no longer in a neutral or open state of mind, and it's not difficult to understand why. 114 If we're going to feel great if the market does what we expect it to do, or feel horrible if it doesn't, then we're not exactly neutral or open-minded. Quite the contrary, the force of the belief behind the expectation will cause us to perceive market information in a way that confirms what we expect (we naturally like feeling good); and our pain-avoidance mechanisms will shield us from information that doesn't confirm what we expect (to keep us from feeling bad). 114 Defining and interpreting information is a function of what we assume we know or what we believe to be true. 119 When we expect to be right, any information that doesn't confirm our version of the truth automatically becomes threatening. Any information that has the potential to be threatening also has the potential to be blocked, distorted, or diminished in significance by our pain-avoidance mechanisms. It's this particular characteristic of the way our minds function that can really do us a disservice. 119 As traders, we can't afford to let our pain-avoidance mechanisms cut us off from what the market is communicating to us about what is available in the way of the next opportunity to get in, get out, add to, or subtract from a position, just because it's doing something that we don't want or expect. 119 There is nothing at stake because there's no expectation. You haven't projected what you believe, assume, or think you know about that market into some future moment. As a result, there's nothing to be either right about or wrong about, so the information has no potential to take on a threatening or negatively charged quality. 120 We have to be rigid in our rules and flexible in our expectations. We need to be rigid in our rules so that we gain a sense of self-trust that can, and will always, protect us in an environment that has few, if any, boundaries. We need to be flexible in our expectations so we can perceive, with the greatest degree of clarity and objectivity, what the market is communicating to us from its perspective. 120 To eliminate the emotional risk of trading, you have to neutralize your expectations about what the market will or will not do at any given moment or in any given situation. You can do this by being willing to think from the markets perspective. Remember, the market is always communicating in probabilities. 120 To think in probabilities, you have to create a mental framework or mind-set that is consistent with the underlying principles of a probabilistic environment. A probabilistic mind-set pertaining to trading consists of five fundamental truths. 1. Anything can happen. 2. You don't need to know what is going to happen next in order to make money. 3. There is a random distribution between wins and losses for any given set of variables that define an edge. 4. An edge is nothing more than an indication of a higher probability of one thing happening over another. 5. Eveiy moment in the market is unique. 121 When you adopt these five truths, your expectations will always be in line with the psychological realities of the market environment. With the appropriate expectations, you will eliminate your potential to define and interpret market information as either painful or threatening, and you thereby effectively neutralize the emotional risk of trading. 121 The idea is to create a carefree state of mind that completely accepts the fact that there are always unknown forces operating in the market. When you make these truths a fully functional part of your belief system, the rational part of your mind will defend these truths in the same way it defends any other belief you hold about the nature of trading. This means that, at least at the rational level, your mind will automatically defend against the idea or assumption that you can know for sure what will happen next. 121 When I put on a trade, all I expect is that something will happen. Regardless of how good I think my edge is, I expect nothing more than for the market to move or to express itself in some way. 124 The best traders are in the "now moment" because there's no stress. There's no stress because there's nothing at risk other than the amount of money they are willing to spend on a trade. They are not trying to be right or trying to avoid being wrong; neither are they trying to prove anything. If and when the market tells them that their edges aren't working or that it's time to take profits, their minds do nothing to block this information. They completely accept what the market is offering them, and they wait for the next edge. 124 And all that's required to put us into a negatively charged, "I know what to expect from the market" 128 Consistency is the result of a carefree, objective state of mind, where we are making ourselves available to perceive and act upon whatever the market is offering us (from its perspective) in any given "now moment." 129 When you are in a carefree state of mind, you won't feel any fear, hesitation, or compulsion to do anything, because you've effectively eliminated the potential to define and interpret market information as threatening. To remove the sense of threat, you have to accept the risk completely. When you have accepted the risk, you will be at peace with any outcome. To be at peace with any outcome, you must reconcile anything in your mental environment that conflicts with the five fundamental truths about the market. What's more, you also have to integrate these truths into your mental system as core beliefs. 129 Making yourself available means trading from the perspective thatyou have nothing to prove. You aren't trying to win or to avoid losing. 129 Market information is only threatening if you are expecting the market to do something for you. If you don't expect the market to make you a winner, you have no reason to be afraid of losing. 131 On the other hand, if you believe that all you need to know is: 1. the odds are in your favor before you put on a trade;2. how much it's going to cost to find out if the trade is going to work; 3. you don't need to know what's going to happen next to make money on that trade; and 4. anything can happen 131 If you're never certain about the viability of your edge, you won't feel too confident about it. To whatever degree you lack confidence, you will experience fear. The irony is, you will be afraid of random, inconsistent results, without realizing that your random, inconsistent approach is creating exactly what you are afraid of. 133 The task is to learn how to properly integrate these truths into your mental system as core beliefs that are not in conflict with any other beliefs you may hold. 137 There are three basic characteristics you need to understand in order to effectively install the five fundamental truths about trading at a functional level in your mental environment: 1. Beliefs seem to take on a life of their own and, therefore, resist any force that would alter their present form. 2. All active beliefs demand expression. 3. Beliefs keep on working regardless of whether or not we are consciously aware of their existence in our mental environment. 153 The easiest and most effective way to work with our beliefs is to gently render them inactive or nonfunctional by drawing the energy out of them. 154 The belief was transformed into a nonfunctional, inactive concept about how the world works. 155 The difference between them is in the amount of energy they contain. The first has virtually no energy; the second has energy. So from a functional perspective, there is no contradiction or conflict. 155 This is an example of what I call an active contradiction, when two active beliefs are in direct conflict with each other, both demanding expression. In this example, the first belief exists at a core level in the boy's mental environment, with a great deal of negatively charged energy. The second belief is at a more superficial level, and has very little positively charged energy. 162 But if there are conflicting beliefs and we aren't willing to de-activate the conflicting forces (expending some effort), especially if they're negatively charged, then acting on what we've discovered will be a struggle at the very least, and perhaps down right impossible. 163 When you believe at a functional level that every edge has a unique outcome (meaning that it's a dominant belief without any other beliefs arguing for something different), you will experience a state of mind that is free of fear, stress, and anxiety when you trade. 164 To do so he had to create a new belief and de-activate the conflicting ones. This is the secret to achieving consistent success as a trader. 166 The first stage is the mechanical stage. In this stage, you: 1. Build the self-trust necessary to operate in an unlimited environment. 2. Learn to flawlessly execute a trading system. 3. Train your mind to think in probabilities (the five fundamental truths). 4. Create a strong, unshakeable belief in your consistency as a trader. 172 If producing consistent results is your primary objective as a trader, then creating a belief (a conscious, energized concept that resists change and demands expression) that "I am a consistently successful trader" will act as a primaiy source of energy that will manage your perceptions, interpretations, expectations, and actions in ways that satisfy the belief and, consequently, the objective. 173 He desired to express himself in a way that he found, at least initially, virtually impossible. To satisfy his desire, he had to step into an active process of transformation. His technique was simple: He tried as hard as he could to stay focused on what he was trying to accomplish and, little by little, he de-activated the conflicting belief and strengthened the belief that was consistent with his desire. 174 When it comes to personal transformation, the most important ingredients are your willingness to change, the clarity of your intent, and the strength of your desire. Ultimately, for this process to work, you must choose consistency over eveiy other reason or justification you have for trading. 174 The first step in the process of creating consistency is to start noticing what you're thinking, saying, and doing. 174 If producing consistent results is a function of eliminating errors,then it is an understatement to say that you will encounter great difficulty in achieving your objective if you can't acknowledge a mistake. Obviously, this is something very few people can do, and it accounts for why there are so few consistent winners. 176 When our intent is clear and undiminished by any opposing energy, then our capacity to stay focused is greater, and the more likely it is that we will accomplish our objective. 177 What separates the "consistently great" athletes and performers from everyone else is their distinct lack of fear of making a mistake. The reason they aren't afraid is that they don't have a reason to think less of themselves when they do make a mistake. 177 Belief that mistakes simply point the way to where they need to focus their efforts to grow and improve themselves 178 Remember that every thought, word, and deed reinforces some belief we have about ourselves. 178 All you have to do is decide why you want to monitor yourself, which means you first need to have a clear purpose in mind. When you're clear about your purpose, simply start directing your attention to what you think, say, or do. 179 If and when you notice that you're not focused on your objective or on the incremental steps to accomplish your objective, choose to redirect your thoughts, words, or actions in a way that is consistent with what you are trying to accomplish. 179 The more willfully you engage in this process, especially if you can do it with some degree of conviction, the faster you will create a mental framework free to function in a way that is consistent with your objectives, without any resistance from conflicting beliefs. 179 Initially, my desire to be a runner had no foundation of support in my mental system. In other words, there was no other source of energy (an energized concept demanding expression) consistent with my desire. 182 I actually had to do something to create that support. To create a belief that "I am a runner" required that I create a series of experiences consistent with the new belief. Remember that everything we think, say, or do contributes energy to some belief in our mental system. Each time I experienced a conflicting thought and was able to successfully refocus on my objective, with enough conviction to get me into my running shoes and out the door, I added energy to the belief that "I am a runner." And, just as important, I inadvertently drew energy away from all of the beliefs that would argue otherwise. 182 Now I can effortlessly (from a mental perspective) express myself as a runner, because "I am a runner." That energized concept is now a functioning part of my identity. When I first started out, I happened to have a number of conflicting beliefs about running 183 If there's anything in your mental environment that's in conflict with the principles of creating the belief that "I am a consistently successful trader," then you will need to employ the technique of self-discipline to integrate these principles as a dominant, functioning part of your identity. 183 I AM A CONSISTENT WINNER BECAUSE: 1. I objectively identify my edges. 2. I predefine the risk of every trade. 3. I completely accept risk or I am willing to let go of the trade. 4. I act on my edges without reservation or hesitation. 5. I pay myself as the market makes money available to me. 6. I continually monitor my susceptibility for making errors. 7. I understand the absolute necessity of these principles of consistent success and, therefore, I never violate them. 185 Keep your expectations neutral, focus your mind in the "now moment opportunity flow" (by disassociating the present moment from your past), and, therefore, eliminate your potential to commit these errors. 187 When you genuinely accept the risks, you will be at peace with any outcome. When you're at peace with any outcome, you will experience a carefree, objective state of mind, where you make yourself available to perceive and act upon whatever the market is offering you (from its perspective) at any given "now moment." 187 A clear desire aimed squarely at a specific objective is a very powerful tool. You can use the force of your desire to create an entirely new version or dimension to your identity; shift energy between two or more conflicting concepts; or change the context or polarity of your memories from negative to positive. 187 The implication of "making up our minds" is that we decide exactly what we desire with so much clarity (absolutely no lingering doubts) and with so much conviction that literally nothing stands in our way, either internally or externally. 187 To get there, you must "make up your mind," with as much convictionn and clarity as possible, that more than anything else you desire consistency (the state of mind of trust, confidence, and objectivity) from your trading. This is necessary because if you're like most traders, you're going to be up against some very formidable conflicting forces. 188 From a probabilities perspective, this means that instead of being the person playing the slot machine, as a trader, you can be the casino, if: 1. you have an edge that genuinely puts the odds of success in your favor; 2. you can think about trading in the appropriate manner (the five fundamental truths); and 3. you can do everything you need to do over a series of trades. Then, like the casinos, you will own the game and be a consistent winner. 189 This means that we have to expand our definition of success or failure from the limited trade-by-trade perspective of the typical trader to a sample size of 20 trades or more. 196 By setting up the exercise with rigid variables that define your edge, relatively fixed odds, and a commitment to take every trade in your sample size, you have created a trading regime that duplicates how a casino operates. 199 If you believe in the five fundamental truths and you believe that trading is just a probability game, not much different from pulling the handle of a slot machine, then you'll find that this exercise will be effortless—effortless because your desire to follow through with your commitment to take every trade in your sample size and your belief in the probabilistic nature of trading will be in complete harmony. 199

It sounds like your just getting your feet wet in the world of trading. Its my opinion the best book for an absolute beginner is John Murphy's book introduction to technical analysis. If you look hard enough you can get an ebook for free on the internet. i won't give the exact link here because this site (T.L.) is a top notch reputable site. However, over at the stock market forum for India at http://www.traderji.com they don't respect copyrights and you can find links to just about any trading ebook floating around the net.

Professionals don't perceive anything about the markets as painful; therefore, no threat exists for them. 69 You must be able to see the market from an objective perspective, without distortion. You must be able to act without resistance or hesitation, but with the appropriate amount of positive restraint to counteract the negative effects of overconfidence or euphoria. In essence, your objective is to be able to create a unique state of mind, a traders mentality. When you've accomplished this, everything else about your success as a trader will fall into place. 70 Doing this effectively will require an understanding of the nature of mental energy and how you can use that energy to change a perspective that is generating an unwanted, negative, emotional response to market information. 70 Energy from the outside, in the form of whatever is expressing itself, gets transformed by our nervous system into electrical impulses and then gets stored in our inner, mental environment. 71 They act as a force on our senses from the inside, expressing their form and content, and, in the process of doing so, they have a profoundly limiting effect on the information we perceive in any given moment, making much of the information that is available from the environment's perspective, and the possibilities inherent within that information, literally invisible. 74 The energy that's inside of us will categorically limit and block our awareness of much of this information by working through the same sensory mechanisms the external environment works through. 75 People see what they've learned to see, and everything else is invisible until they learn how to counteract the energy that blocks their awareness of whatever is unlearned and waiting to be discovered. 76 Each trade is simply an edge with a probable outcome, and statistically independent of every other trade. 79 So, instead of perceiving this next encounter with a dog as an opportunity to experience something new about the nature of dogs, he perceives a threatening and dangerous dog. 83 If you can accept the fact that the market doesn't generate positively or negatively charged information as an inherent characteristic of the way it expresses itself, then the only other way information can take on a positive or negative charge is in your mind, and that is a function of the way the information is processed. 85 Developing and maintaining a state of mind that perceives the opportunity flow of the market, without the threat of pain or the problems caused by overconfidence, will require that you take conscious control of the association process. 86 If there is such a thing as a secret to the nature of trading, this is it: At the very core of one's ability 1) to trade without fear or overconfidence, 2) perceive what the market is offering from its perspective, 3) stay completely focused in the "now moment opportunity flow," and 4) spontaneously enter the "zone," it is a strong virtually unshakeable belief in an uncertain outcome with an edge in your favor. 88 The best traders have evolved to the point where they believe, without a shred of doubt or internal conflict, that "anything can happen." They don't just suspect that anything can happen or give lip service to the idea. Their belief in uncertainty is so powerful that it actually prevents their minds from associating the "now moment" situation and circumstance with the outcomes of their most recent trades. 88 They are able to keep their minds free of unrealistic and rigid expectations about how the market will express itself. Instead of generating the kind of unrealistic expectations that more often than not result in both emotional and financial pain, they have learned to "make themselves available" to take advantage of whatever opportunities the market may offer in any given moment. 88 A perspective from which you understand that the framework from which you are perceiving information is limited relative to what's being offered. 88 You've built a mental framework that allows you to recognize a set of variables in the markets behavior that indicates when an opportunity to buy or sell is present. This is your edge and something you know. However, what you don't know is exactly how the pattern your variables identify will unfold. 89 With the perspective of making yourself available, you know that your edge places the odds of success in your favor, but, at the same time, you completely accept the fact that you don't know the outcome of any particular trade. By making yourself available, you consciously open yourself up to find out what will happen next; instead of giving way to an automatic mental process that causes you to think you already know. Adopting this perspective leaves your mind free of internal resistance that can prevent you from perceiving whatever opportunity the market is making available from its perspective (its truth). Your mind is open for an exchange of energy. 89 There are two mental hurdles to overcome. The first is the focus of this chapter: learning how to keep your mind focused in the "now moment opportunity flow." In order to experience synchronicity, your mind has to be open to the market's truth, from its perspective. 90 Acting appropriately on anything requires belief and clarity of intent, which keeps our minds and senses focused on the purpose at hand. 91 Success as a trader cannot be realized until you develop a resolute, unshakeable belief in uncertainty. 91 But having an awareness or an understanding of some principle, insight, or concept doesn't necessarily equate to acceptance and belief. When something has been truly accepted, it isn't in conflict with any other component of our mental environment. 92 They simply don't do the mental work necessary to reconcile the many conflicts that exist between what they've already learned and believe, and how that learning contradicts and acts as a source of resistance to implementing the various principles of successful trading. 93 Not predefining your risk, not cutting your losses, or not systematically taking profits are three of the most common—and usually the most costly—trading errors you can make. 97 And if every trade truly has an uncertain outcome, then how could he ever justify or talk himself into not predefining his risk, cutting his losses, or having some systematic way to take profits? 98 The only reason why he would believe it isn't necessary is that he believes he already knows what's going to happen next.99 Believing, assuming, or thinking that "he knows" will be the cause of virtually eveiy trading error he has the potential to make (with the exception of those errors that are the result of not believing that he deserves the money). 99 The most effective and functional trading belief that he can acquire is "anything can happen."99 Without that belief, his mind will automatically, and usually without his conscious awareness, cause him to avoid, block, or rationalize away any information that indicates the market may do something he hasn't accepted as possible. 100

If we are denied the opportunity to pursue the object of this need or desire, it literally feels as if we are not whole, or that something is missing, which puts us into a state of imbalance or emotional pain. (Do our minds also abhor a vacuum, once one has been created?) 23 What happens to all of these impulses that have been denied and left unfulfilled? Do they just go away? They can, if they are reconciled in some way: if we do something, or someone else does something, to put our mental environment back into balance. 24 The problem is that, most of the time, events are not allowed to take their natural course and the denied impulses are never reconciled 24 What's important for us to understand about these unreconciled, denied impulses (that exist in all of us) is how they affect our ability to stay focused and take a disciplined, consistent approach to our trading. 24 No matter how good a trade looks, it could lose. Without the presence of an external structure forcing the typical trader to think otherwise, he is susceptible to any number of justifications, rationalizations, and the kind of distorted logic that will allow him to get into a trade believing that it can't lose, which makes determining the risk in advance irrelevant. 26 The unlimited characteristics of the trading environment require that we act with some degree of restraint and self-control, at least if we want to create some measure of consistent success. 27 It usually takes a great deal of pain and suffering to break down the source of our resistance to establishing and abiding by a trading regime that is organized, consistent, and reflects prudent money-management guidelines. 28 How much effort and focus you may have to put into building the kind of mental structure that compensates for the negative effect denied impulses can have on your ability to establish the skills that will assure your success as a trader. 28 The way to avoid responsibility is to adopt a trading style that is, to all intents and purposes, random. I define random trading as poorly-planned trades or trades that are not planned at all. It is an unorganized approach that takes into consideration an unlimited set of market variables, which do not allow you to find out what works on a consistent basis and what does not. 29 Randomness is unstructured freedom without responsibility. When we trade without well-defined plans and with an unlimited set of variables, it's very easy to take credit for the trades that turn out to our liking (because there was "some" method present). At the same time, it's very easy to avoid taking responsibility for the trades that didn't turn out the way we wanted (because there's always some variable we didn't know about and therefore couldn't take into consideration beforehand). 29 Even though the outcome of each individual pattern is random, the outcome o f a series of patterns is consistent (statistically reliable). This is a paradox, but one that is easily resolved with a disciplined, organized, and consistent approach. 29 This is a classic example of how we become susceptible to unstructured, random trading—because we want to avoid responsibility. 30 It takes effort to create the kind of disciplined approach that is necessary to become a consistent winner. But, as you can see, it's very easy to avoid this kind of mental work in favor of trading with an undisciplined, random approach. 30 However, we can control our perception and interpretation of market information, as well as our own behavior. 32 Instead of controlling our surroundings so they conform to our idea of the way things should be, we can learn to control ourselves. Then we can perceive information from the most objective perspective possible, and structure our mental environment so that we always behave in a manner that is in our own best interest. 32 If you want to create a new version of your personality that expresses itself as a consistently successful trader, you have only your beliefs and attitudes. 34 Your ultimate goal is consistency. 34 They have acquired a mental structure that allows them to trade without fear and, at the same time, keeps them from becoming reckless and committing fear-based errors. 34 The bottom line is that successful traders have virtually eliminated the effects of fear and recklessness from their trading. 34 If we start from the premise that to create consistency traders must focus their efforts on developing a trader's mind-set, then it is easy to see why so many traders don't succeed. 35 It's attitudes and beliefs about being wrong, losing money, and the tendency to become reckless, when you're feeling good, that cause most losses—not technique or market knowledge. 35 Use a simple, possibly even mediocre trading technique, but possess a mind-set that is not susceptible to subconsciously distorting market information, hesitating, rationalizing, hoping, or jumping the gun. 35 This lack of fear translates into a carefree state of mind, similar to the state of mind many great athletes describe as a "zone." 36 There is absolutely no fear and you act and react instinctively. 36 Most athletes never reach this level of play, because they never get past the fear of making a mistake. 36 Set up the kind of mental conditions that are most conducive to experiencing "the zone," by developing a positive winning attitude. 36 Others get bogged down in negative self-criticism, regret, and selfpity. Not many people ever develop a positive winning attitude. 37 When you're feeling confident and unencumbered by fears and worries, it isn't difficult to put on a string of winning trades because it's easy to get into a flow, a kind of natural rhythm, where what you need to do seems obvious or self-evident. 37 You just need a genuine winning attitude. 38 What happens when the novice trader finally does lose? What effect will it have on his carefree state of mind? The answers will depend on his expectations going into the trade and how he interprets the experience. And how he interprets the experience is a function of his beliefs and attitudes. 38 What if he is operating out of a belief that there's no possible way to avoid a loss, because losing is a natural consequence of trading — no different from, let's say, a restaurant owner incurring the expense of having to buy food? 38 With these beliefs and expectations, it is unlikely that he would experience a deterioration of his attitude, and would simply go on to the next trade. 39 What if his expectations didn't take into account any market behavior other than what he wanted? From this mental perspective, if the market doesn't do what he wants, he is going to feel pain—emotional pain. 39 The bottom line is that, as adults when we get into a trading mode, we don't realize how natural it is to associate the instantaneous shift from joy to pain that we experienced so often as children with the same instantaneous shift from joy to pain that occurs when we trade. 41 Only the very best traders have reached a point where they can and do accept complete responsibility for the outcome of any particular trade. Everyone else to one degree or another assumes they are taking responsibility; but the reality is that they want the market to do it for them. The typical trader wants the market to fulfill his expectations, his hopes, and dreams. 41 The market's sole purpose is to extract money or opportunity from you. 42 Taking responsibility means acknowledging and accepting, at the deepest part of your identity, that you—not the market—are completely responsible for your success or failure as a trader. 42 Taking anything less than complete responsibility sets up two major psychological obstacles that will block your success. First, you will establish an adversarial relationship with the market that takes you out of the constant flow of opportunities. Second, you will mislead yourself into believing that your trading problems and lack of success can be rectified through market analysis. 43 From the market's perspective, each moment is neutral; to you, the observer, every moment and price change can have meaning. 44 If you want to start sensing the flow of the market, your mind has to be relatively free of fear, anger, regret, betrayal, despair, and disappointment. You won't have a reason to experience these negative emotions when you assume absolute responsibility. 45 The sudden shift from joy to pain usually creates quite a psychological shock. Very few people ever learn how to reconcile these kinds of experiences in a healthy way. 46 He was having fun; he was in a carefree state of mind; he had no personal agendas and nothing to prove. 48 In other words, he made a dramatic shift in his perspective from carefree to preventing pain by avoiding losses. 49 So again, there is no possible way to avoid losing or being wrong. 49 What he doesn't realize is that, in spite of his enthusiasm, when he went from a carefree state of mind to a preventand- avoid mode of thinking, he shifted from a positive to a negative attitude. 49 It's when you're winning that you are most susceptible to making a mistake, overtrading, putting on too large a position, violating your rules, or generally operating as if no prudent boundaries on your behavior are necessary. 51 The drawdowns they do experience are the type of normal losses that any trading methodology or system incurs. 51 They have learned how to make money, but they haven't learned there s a whole body of trading skills that have to be mastered in order to keep the money they make. 52 If these conflicts exist, it means that your mental environment is not completely aligned with your goals. In other words, not all parts of you would argue for the same outcome.53 Developing a winning attitude is the key to your success. 56 However, you can greatly increase the possibility of your being happy by developing fun-type attitudes and, more specifically, by working on neutralizing the beliefs and attitudes that prevent you from having fun or enjoying yourself. Creating consistent success as a trader works the same way. 59 They don't have to try to be consistent; they are consistent. This may seem like an abstract distinction, but it is vitally important that you understand the difference. 59 You didn't have to try to make them easy; they were easy. There was no struggle. You saw exactly what you needed to see, and you acted on what you saw. You were in the moment, a part of the opportunity flow. When you're in the flow, you don't have to try, because everything you know about the market is available to you. Nothing is being blocked or hidden from your awareness, and your actions seem effortless because there's no struggle or resistance. 59 On the other hand, having to try indicates that there is some degree of resistance or struggle. Otherwise, you would just be doing it and not have to try to be doing it. It also indicates that you're trying to get what you want from the market. While it seems natural to think this way, it's a perspective fraught with difficulties. The best traders stay in the flow because they don't try to get anything from the market; they simply make themselves available so they can take advantage of whatever the market is offering at any given moment. There's a huge difference between the two perspectives. 59 Certainly, you can't be consistent or experience the flow if you're consistently making errors, and you will make errors, as long as you're afraid that what you want or what you expect won't happen. 60 Now, you may be asking yourself, how can I think about trading in such a way that I'm no longer afraid and, therefore, no longer susceptible to the mental processes that cause me to block, obscure, or pick and choose information? The answer is: Learn to accept the risk. 61 There isn't anything about trading that is more central to your success and also more misunderstood than the concept of accepting the risk. 61 Accepting the risk means accepting the consequences of your trades without emotional discomfort or fear. This means that you must learn how to think about trading and your relationship with the markets in such a way that the possibility of being wrong, losing, missing out, or leaving money on the table doesn't cause your mental defense mechanisms to kick in and take you out of the opportunity flow. 61 You act on those opportunities to the best of your ability, but your state of mind is not dependent upon or affected by the market's behavior. 62 If you can learn to create a state of mind that is not affected by the market's behavior, the struggle will cease to exist. When the internal struggle ends, everything becomes easy. 62 Any degree of struggle, trying, or fear associated with trading will take you out of the moment and flow and, therefore, diminish your results. 63 The traders who break through the cycle and ultimately make it are the ones who eventually learn to stop avoiding and start embracing the responsibility and the risk. 64 I'm going to teach you a thinking strategy that has, at its core, a firm belief in probabilities and edges. With this new thinking strategy, you'll learn how to create a new relationship with the market, one that disassociates your trading from what it typically means to be wrong or to lose, and that precludes you from perceiving anything about the market as threatening. When the threat of pain is gone, the fear will correspondingly disappear, as will the fear-based errors you are susceptible to. You will be left with a mind that is free to see what is available and to act on what you see. 65 You can't assume that learning about something new and agreeing with it is the same as believing it at a level where you can act on it. 66 Many of us have what we know to be irrational fears and simply choose to live with the contradiction because we don't want to go through the emotional work that is necessary to overcome the fear. 67

I have decided to re-read Mark Douglas' Trading in the Zone book. I will post some of my notes in this thread. I believe it could help all candlestick traders. When you learn the trading skill of risk acceptance, the market will not be able to generate information that you define or interpret as painful. 10 An objective perspective—one that is not skewed or distorted by what you are afraid is going to happen or not happen. 11 Faulty attitudes that foster fear instead of trust and confidence. 11 The best traders aren't afraid. They aren't afraid because they have developed attitudes that give them the greatest degree of mental flexibility to flow in and out of trades based on what the market is telling them about the possibilities from its perspective. At the same time, the best traders have developed attitudes that prevent them from getting reckless. 11 Ninety-five percent of the trading errors you are likely to make stem from your attitudes about being wrong, losing money, missing out, and leaving money on the table. What I call the four primary trading fears. 12 Understanding and controlling your perception of market information is important only to the extent that you want to achieve consistent results. 13 Furthermore, there are no limits to the market's behavior. It can do anything at any moment. 13 It will not solve the trading problems created by lack of confidence, lack of discipline, or improper focus. 14 Learn how to redefine your trading activities in such a way that you truly accept the risk, and you're no longer afraid. 15 When you've achieved a state of mind where you truly accept the risk, you won't have the potential to define and interpret market information in painful ways. 15 If you can't trust yourself to be objective and to always act in your own best interests, achieving consistent results will be next to impossible. 15 When you have the appropriate attitude, when you have acquired a "trader s mind-set" and can remain confident in the face of constant uncertainty, trading will be as easy and simple as you probably thought it was when you first started out. 15 You will need to learn how to adjust your attitudes and beliefs about trading in such a way that you can trade without the slightest bit of fear, but at the same time keep a framework in place that does not allow you to become reckless. 15

Effective candle charting techniques require not only an understanding of the candle patterns, but a policy of using sound, coherent trading strategies and tactics. It is unfortunate that some traders who know about the candle patterns often ignore such tactics. 129 "The Side that Knows When to Fight and When Not to Will Take the Victory" 133 "wait for time to ripen, waiting for just the right moment is virtuous, a patient mind or spirit is essential. 133 There will be times when you should not release the trigger. For example, without an attractive risk/reward ratio at the time that a bullish or bearish candle signal emerges, the trade should be ignored 133 quickly and effectively adapting to a new market environment, is a vital element to successful trading. 142 If a candle pattern emerges, does that mean that a buy or sell signal is automatically given? of course not. As I previously discussed, you should not base a trade on a candle pattern in isolation. You must firsi determine the overall technical picture at the time the pattern forms. 147 How you trade with candlesticks will depend on your trading philosophy, your risk adversity, and temperament. These are very individual aspects. 149

Although this generally means that the bearish engulfing pattern is more bearish than a dark cloud cover, and a bullish engulfing pattern more bullish than a piercing pattern, it is equally important to see where these patterns emerge before deciding which is more important. For instance, a piercing pattern that confirms a major support area should be viewed more likely as a bottom reversal signal than a bullish engulfing pattern that does not confirm support. This vital aspect of viewing the candle patterns in conjunction with the overall technical picture will be discussed in depth in the next chapter. 76 Eight to ten record sessions are so important in Japan that they have been described as being "the bones of Sakata's body." The meaning of this expression is that just as the bones, or skeleton, of a person's body are its foundation, so are record sessions the foundation or essence of the Sakata charts. 122 A book that I had translated states that, "Action that ignores the condition of the market is only asking for a loss and an ambush encounter." This picturesque saying (using the typical military analogy so common in Japanese technical analysis) means that you must consider the overall market condition before trading with the candles. Otherwise, you may be in for a "loss and ambush encounter."129

When you cannot see the state of your opponent, you pretend to make a powerful attack to uncover the intention of the enemy. This concept, as related to trading, is one of the reasons a spring is so important. 57 In effect, these traders act like the aforementioned "moving shadow," testing the battlefield by entering a large order to try and break support (or resistance).For example, if a large-scale trader places a sell order as the market gets near support, their sell order may be enough to drag prices under the support area. Now, this trader, as a "moving shadow,,, will now learn about the underlying strength of the market. If the market fails to hold under a broken support area and forms a spring, these "moving shadows,"(i.e., the sellers who were attempting to probe the market), now have learned about the tenacity of the bulls and as a result may decide to cover their shorts. 58

Very wise words I couldn't agree more

Firstly, I would like to thank Brownsfan for maintaining this candlestick section. Its really a great place to find out practical information about the application of candlesticks. This month I have decided to re read Nisons work in a very careful manner. I thought it would be a good idea to post a few nuggets from his book as I progress with my reading. My purpose of this is to help fill the reality gap between the theory of candlesticks and the end of month results to my account. By now almost everyone is familiar with the basics of candle sticks but even with this knowledge most still struggle with actually extracting decent profits on a consistent basis using this method. My goal to identify and remove the hurdles that may obstruct a trader applying this approach. I would greatly appreciate any form of interaction to this thread, not so much about your success but where you may have made a misstep and the resulting lesson learned. Trading is nothing more than trial and error and then refinement. The more errors contributed to this thread the more growth to everyone. Here's the first nugget from Nisons Beyond Candlesticks book. "A single candle by itself is rarely sufficient reason to forecast an immediate reversal" (21)

Dear Mr. Walter, I truly enjoy this thread you have going on the flip trade. In my opinion you are progressing in the right direction. I have been using this method on the U.S. index market for three years on a 2m chart. I trade the ES for a 4pt target and use a worst case scenario 4pt stop. I always use the fixed ratio becasue I don't like guess work. I like it all to be automatic. The price pattern is very reliable if it is filtered down correctly. I don't beleive in indicators at all. It can be correctly filtered by confirming action in the Es, ym, nq, dax, and volumes in all of them. I enter right upon the test of the fliped breakout level, I don't wait for an indicator to turn. If you get a good entry and you are wrong you can usually get out around break even if you move quickly. There is a nuance that will even increase your percentages. In using your terminology it would be a flip of a flip. I use wyckoff terminology and call it jumping the creek and coming back to ice, then at ice jumping the creek and coming back to ice. I found this is one of the most reliable price patterns out there. But, I must warn you price patterns alone is not enough. The market is much more complex it should be looked at on other dimensions such as volume and other factors. The best isolated price patterns fail all the time. Any how, great work with the thread and I wish you a prosperous trading career. In my opinion you are on the right path. Look deeper than just the isolated price pattern and you build a system that will secure you profits week in and week out.

Hello, I'm new here to T.L. I want to thank all the particpants of this thread for their inputs. They have been invaluable. A few months back a came across Mr. Williams first book Undeclared secerets and ever since I have been hooked on V.S.A. My first question is it necessary to read his more current book or is the original one good enough? My second question stems from a recent trade that resulted in a stop out for me. I have included the chart to illustarte the point of how I was tricked by the volume on the ES. My question is this what are the objective ways that V.S.A. can help identify a bar as hidden supply? In the book he stated if I'm correct that it should be determined as hidden supply if the bar closes in the middle of the range, has enormous volume, a climax typer of bar, or the next bar is down right after an important bar with spread,or the next bar is level then the following bar is down. In the instance where I was stopped out. The next bar was level right after a breakout. But before a down bar took place there was a follow through up bar. It is apparent that I should have been very alert for hidden supply since right after the break the next bar was level. But in actual practice with the market the bar following a break is often level on good signals. I thank everyone again for this thread and I really hope someone can shed some light on the possible ways to determine hidden supply in a up bar.