TradingPrimer15

8/21/2019 TradingPrimer15

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http://www.learningtotrade.comWhere learned skills develop into trading profits

© Martin Cole http://www.learningtotrade.com Ltd 2008 1

Trading

Primer

By Martin Cole

CONTAINED

IN

THIS

BOOK

ARE

SOME

REAL

TRADING

TOOLS

THAT

YOU

CAN

USE

TO

START OUT ON A PROFITABLE TRADING CAREER.

WHILST

PRIMARILY

THIS

INFORMATION

IS

FOR

THE

NEW

TRADER

THE

EXPERIENCED

TRADER

MAY

DISCOVER

A

GEM

OR

TWO,

OR

EVEN

SOMETHING

LONG

FORGOTTEN

BUT OF GREAT VALUE.

THIS

TRADING

BOOK

IS

FREE

SO

IF

YOU

FIND

IT

USEFUL

THEN

FEEL

FREE

TO

PASS

IT

ON TO ANOTHER PERSON. YOU CAN DO THIS EASILY BY SIMPLY SAVING IT INTO A

FOLDER ON YOUR COMPUTER OR TO YOUR DESKTOP AND THEN SEND THAT PERSON

AN

EMAIL. AT

THE

SAME

TIME

ATTACH

THIS

BOOK

TO

THAT

EMAIL. THAT’S

ALL

THERE

IS

TO

IT.

I

HOPE

YOU

ENJOY

WHAT

FOLLOWS

Martin Cole





Introduction ................................................................................................................................ 3Some key factors that can prevent your success. ..................................................................... 5

Insufficient funds w ith which to trade .......................................................................... 5Influencing other parties ................................................................................................ 6Guidelines for influencing parties ................................................................................. 7External influences. ........................................................................................................ 8Lack of a well-defined strategy. .................................................................................... 9Taking early pro fits. ...................................................................................................... 10Misunderstanding of how markets work. ................................................................... 11Failure to hold confidence in your own abilities. ...................................................... 12Fear of what the market may or may not hold fo r you. ............................................. 13 Anxieties about your success. .................................................................................... 13Inconsistent application of a profitable trading strategy. ........................................ 15Unwillingness to take a loss: ....................................................................................... 16

The decision trail of a trader caught in the losing loop ............................................................ 17The decision structure of a successful trader. ......................................................................... 18The two trade activating stages that must take place ............................................................. 19

The learning curve in the non-trading environment. ....................................................... 19The learning curve in the trading environment ............................................................... 19

How do you view trading and what is your perspective? ......................................................... 21How you view the market is of vital importance to your success as a trader. ....... 21

The worst teacher moulds your trading behaviour. ................................................................. 22The market as your teacher. ........................................................................................ 22The learned habits/ emotions of the amateur trader. ................................................ 23The Emotions of Failure: .............................................................................................. 23

How a losing trader develops and maintains the ability to consistently ................................. 26How a successful trader maintains his consistent success. .................................................... 27

Maintained success ...................................................................................................... 27The defining characteristics that separate the successful trader from theunsuccessful t rader. ..................................................................................................... 28

The real challenge is not the trading of the markets. .............................................................. 29Daily Challenges ........................................................................................................... 29

Glossary ................................................................................................................................... 30Stepping out of your s trategy. ..................................................................................... 30Trade Hunting ................................................................................................................ 31Trading Harmony .......................................................................................................... 31The Subconscious. ....................................................................................................... 31Emotive Overlay. ........................................................................................................... 32Fear & Exci tement ......................................................................................................... 32The Gambling Environment ......................................................................................... 33Disavowal ....................................................................................................................... 33Cherry Picking ............................................................................................................... 33

Inner Voice ..................................................................................................................... 34Drawdown ...................................................................................................................... 34Contract Expiry ............................................................................................................. 34Pre-defined Strategy ..................................................................................................... 34Intuitive trading ............................................................................................................. 34





Introduction

For you to trade successfully you must be equipped with the tools of the trade.

I can assure you that you already have the tools; you simply do not realise it

yet. My aim then, is to assist you to identify the tools and teach you how to

use them. This is what this brief starter book is all about.

If I could turn the clock back I would have started at exactly the position that I

am starting with you. The reason for this is simple; I now KNOW that the

substantial losses that I made before I achieved success could have been

avoided.

Most of what is in this book is that which I was forced to learn before I turned

the corner. It may shock you to know that during one period I entered the

market 32 times in succession with losing positions. One has to question this

on the following grounds. Could I pick 32 losing trades in a row if I tried?

Could I get 32 losing trades, if I merely flipped a coin at any point and then

chose heads for long and tails for short? The answer to this is of course no,

the odds are just too great. How then was I able to get it consistently wrong so

many times? Of course now I know the answer.

I was caught in the wrong loop (you will get to loops shortly) and on top of this

I was on a self-destruct path. The upside of this is that I can honestly say that

I am now truly grateful for the 32 losing trades, as this was the turning point.





My intention through this book is to start you at what was then my starting

point; if I can achieve this for you, then I will have attained my goal.Be assured that you will have to work hard, you will become frustrated and

you will sometimes even feel like quitting. All I can say to you at this stage is

hang on in there because this is the proving ground that will start you on the

road to successful trading and financial freedom.

If you are not sure about anything written here, just ask and I will do me best

to help you understand.

The fool wonders, the wise man asks.

-Benjamin Disraeli





Some key factors that can prevent your success.

Insufficient funds with which to trade.

Influencing parties

External influences.

Lack of a well-defined strategy.

Inconsistent application of a profitable trading strategy.

Unwillingness to take a loss.

Taking early profits.Misunderstanding of how markets work.

Failure to hold confidence in your own abilities.

Fear of what the market may or may not hold for you.

Anxieties about your success.

Insufficient funds with which to trade

This is a personal area that only you can determine.

Guidelines as follows:

Many times we hear that you should only trade with what you can afford to

lose; for me this is the wrong approach and immediately conjures up images

of loss.

Is trading your only source of income? If it is then do you need to trade to

produce a living income on a weekly/monthly basis? If the answer to both of

these questions is yes, then clearly you are placing yourself under a great

deal of pressure to perform from day one.

As a guideline to this, I suggest that if you are starting out as a full time trader

and this is your only source of income, you should set aside at least 6-12

month’s expenses in a separate account.





This account will maintain your current standard of living and will prevent you

from having to draw on your trading account at an early stage; it will also lift

the burden of weekly performance.

Influencing other parties

The issues of influencing parties are often overlooked and yet can be an

important factor in a trader’s success or failure. Many at this point will not

consider that another individual may have an effect, on their trading.

I of course have no way of knowing your personal circumstances. But I would

urge you to pay attention, to what is often overlooked in the successful traders

profile.

What does your spouse / partner think of your trading? Do they view it as a

quality profession or the other extreme, gambling?

Are you the type of person that is affected by the thoughts of those around

you? I freely admit that I need to be in a comfortable environment, which is

congenial, to what I am doing. I do not feel comfortable, if I am in the

presence of someone who is having a bad day.

If you are in a negative environment, then steps should be taken to separate

your trading, completely from any influencing party.

We may believe and even convince ourselves that such things do not

influence us, but this is often incorrect, better to ensure things are clear in this

area at an early stage.





Guidelines for influencing parties

If you are forced to involve another person then explain what you are doing

but without intricate detail. It is a fact that the other party will not have exactly

the same understanding, of what you are doing.

• If you attempt to involve another person as reinforcement, to your own

trading you are setting yourself up for a fall.

• Draw a line, at which point you will not go any further into discussion of

your trading.

• Do not involve another person in your trading decisions.

• Do not show anger, frustration, or even elation, in front of another person.

It is far better for you as a trader simply to confine it to ‘yes it was a good

day’ or if negative ‘It was a productive day in terms of learning’





External influences.

This area will be covered in greater detail later in the course, but a few things

to consider at this stage are:

Newspapers and how they may influence you in your trading.

E.g.

You have decided, that you are not going to take any notice of the

newspapers and you are going to trade based on the evidence that you see

before you. As you are sipping your morning coffee, you happen to notice that

the XYZ finance group is meeting today to announce some new finance

measures. Some hours later, whilst at your screen, you see a market action

that you are unsure of. This uncertainty will cause the brain to scan all

available data sources in an attempt to link this event, to some past event.

In a flash, the article about G7 pops into your mind, and now you are stuck

with it. You are now mentally influenced by this story, whether you like it or not

and you will find it difficult to trade. Worse still, you may ignore all the

evidence you have gathered up to that point.

Interrupting telephone calls that may just mention a little something that is

going on today!

Giving your opinion to others about the market:

Let me explain some of the power that this holds, a friend calls you and asks

you what you think of the market and which way you think it will go. In a flash

of pride, you proceed to explain XYZ about the market, and why certain things

are going to happen. In that one instant you have, unbeknown to yourself

planted very firm opinions about the market within your own mind. Now if the

market does indeed do what you said, you are a hero, if it does not, then you

got it wrong. But this is not the real issue; the real danger in the above is that

the moment you give your opinion, you will be practically unable to change

your mind about the market, even as it starts to move against you.





There is no better salesperson than the person who is selling to him or

herself; your words will be ringing in your ears and will prevent you from actingon the raw information in front of you.

I have a standard response whenever I am asked that question; I suggest that

you use something similar.

To the question, what is the market going to do?

You simply reply; “anything it likes at any given moment” the reason for this is

not to be flippant, but to simply not fix an opinion in your own mind.

Lack of a well-defined strategy.

If you do not have a defined strategy, this is similar to traveling through hostile

territory without a map. If you are simply trading from one point to another you

are going to lose over time.

A defined strategy is more importantly a strategy that you have complete faith

in and so you will act in accordance with that faith in a flawless manner.





Taking early profits.

This is in my opinion akin to a crime being committed against yourself; early

profits are taken for a whole host of reasons, some of which are:

• The unwillingness to take a loss.

• Under capitalization.

• Influencing other parties issues.

• Lack of a strategy.

It is no coincidence that I am listing some of the same issues that I mentioned

earlier albeit under different circumstances.





Misunderstanding of how markets work.

If a trader does not have an understanding of the market, then he/she is

severely disadvantaged. One simple example would be trading futures, and

not knowing about contract expiry. Traders must have an understanding of

the markets and a complete understanding of the particular aspect of the

market he/she is involved with. An example of this might be the complete

intricacies of how options are traded.

If a trader should misunderstand any aspect of the particular market that he is

involved with, then he is placing himself at a distinct disadvantage.

My expertise is the forex market, which is Foreign Exchange. This market is

the most liquid market in the world as such a traders dream.





Failure to hold confidence in your own abilities.

This happens as a result of not fully understanding what you are doing, if you

fully understood what you were doing and felt comfortable doing it, then your

ability to hold confidence would be strong.

Let me explain this more deeply.

You enter the market based on your pre-defined strategy, you are confident

that this is a good trade and all is well, then the trade reacts in an adverse

manner against your position. As the trade gets closer and closer to your stop,

you feel anxious and even nervous. Now how can this be? Why should you

feel these symptoms, if you are committed to your strategy, which you have

tested and KNOW that it performs correctly more times than it fails? The

answer lies in a couple of key areas.

(A)

You could be under-funded. As a result of this your confidence in what you

are doing is being attacked from another angle. (Fear of loss, even though

you know long term your strategy is a winner)

(B)

You have used a strategy that you have not fully tested. Note* You may have

tested this many times, but if your subconscious has not accepted the testing

as valid then you will not be able to maintain your confidence.

(C)

You traded outside your strategy:

This might be as a result of trading frustration; i.e. the market has not been

supplying you with the means to use your strategy, so off you go on a Huntingfor trade’s exercise.





On this hunting trip you find something you think is like your strategy, as a

result of this you decide to trade. A term I use for this is stepping out of your strategy and is so destructive that

you many find yourself in trouble for weeks to come.

Please pay particular attention to the above; it is a crucial component to your

success.

Fear of what the market may or may not hold for you.

This is strongly linked to the lack of understanding:

As a child you may have been a little nervous of what was under your bed at

night, of course now in the rational light of day, you are confident that there

was nothing under your bed and of course there was nothing to fear. However

even if an adult had told you at the time that there was nothing to fear you

would still have had your doubts. This is why YOU as an individual must make

the connection between your strategy and a danger free zone. Once you have

made this connection and are able to maintain it, your trading will take on new

meaning; you will experience a sense of freedom, which will elevate the whole

concept of trading to a very pleasurable activity.

Anxieties about your success.

By now you should be starting to realise that all these elements we are

looking at here are really taking us around in a circle. This is no coincidence

as trading is in fact a feedback loop, if you are in this loop as a loser, you will

remain so until you discard this loop and create a new one.





Already in a loop?

If you are already trading and are in a losing loop, then be assured you canescape it and there is whole lot of help at www.learningtotrade.com or if you

are new to trading we are going to make sure that you get into the success

loop and stay there.





Inconsistent application of a profitable trading strategy.

If a trader has developed and tested a profitable trading strategy, but then fails

to act on that strategy he will lose over time. Many traders do not understand

how this works; there are several causes that instigate this type of

inconsistent behavior.

1. The trader believes that he/she has a good strategy at a conscious level,

but on a subconscious level there is conflict.

This maybe as a result of poor testing of the strategy or disavowal of

certain elements of the strategy.

2. Lack of trading capital.

3. Trying to cherry pick trades, this type of action often relates to numbers 1

& 2 above. Trying to cherry pick, against number one is because of the

underlying conflict in the strategy. Cherry picking against number two is

related to the fear of loss.

Note*

The inconsistent application of any strategy is often the start of the slide into the

losing trader’s loop.

The list goes on in many different formats and styles, which are as varied as

the individual; these are all signs that you need to be aware of. If you detect

that they are creeping in, then STOP and work out why.





Unwillingness to take a loss:

If a trader is unwilling to take a loss, the trader is heading for a serious

drawdown. An example here would be the trader above who has expressed

an opinion to another person as to when, how, and what, the market is going

to do. As a result of this self-reinforcing action, the trader takes his own advice

and trades. In the event of this trade going against the trader, he will be

severely disadvantaged in his ability to close and take the loss.

Some additional factors:

Do you perceive the loss as a personal attack against yourself?

This is an important concept with several branches that lead off, into danger

areas

Under funded trading:

This will cause traders to hold positions longer than they should, in the hope

that the market will turn and give them their money back; this of course this is

a double-edged sword.





The decision trail of a trader caught in the losing loop

Entry StrategySignaled

Inner VoiceValidation

Confusion & Inner

Conflict

Confusion and inner conflictResults in a may or may not

trade scenario

Trade Activated Note*

If a trade is activated, as a result of thedecision trail above, this will anchor theseconditions to the trader; now each and everytime a strategy is signaled, the same processwill automatically kick in. As long as this loop is maintained, the trader isgoing to loseThere are also the added problems that thistype of decision process brings with it, stress,conflict, anger, sickness etc.

Many traders continue in this situation for anumber of years, until they either go broke orthey blame it on the market and give up.Clearly this is a loop that needs destroyingwith some haste.

If you are within this loop stop trading NOW!

Trading lossesOver t ime





The decision structure of a successful trader.

Entry Strategy Signaled

Automated Response

Resulting action

Entry Strategy Validation

Reinforced positive trading

action

TRADING PROFITS

Notes to above diagramWhat if the resulting action was a losing trade? How can this be then termed as apositive trading action?These are valid questions and the lack of understanding here will cause the aboveillustration to be invalidated in the mind of the amateur trader.Remember that the amateur does not have a consistent response, because he doesnot have a workable action plan; therefore he does not know what does and whatdoes not work, this generates random action.

The successful trader on the other hand, has a pre-defined and validated tradingstrategy:He/she KNOWS that this strategy produces profits over time.

He/she KNOWS that all he has to do is wait and carry out the predetermined plan.He/she KNOWS and accepts that sometimes, the trade will go wrong and produce aloss.His/her actions are therefore positive and reinforcing to trading success.

Trading really is about a feed back loop, but this loop has two starting points.One is within the trader him/herself and the other is the trading strategy. Neither canoperate efficiently without the other and both certainly must be in harmonySee Trading Harmony





The two trade activating stages that must take place

The first stage is the signal identification and the acceptance of it; the second

is the response to that signal.

The above is a learned response situation:

In the simple world X=X therefore action.

Let’s examine how the above is developed:

The learning curve in the non-trading environment.

1. The event or environment that we find ourselves in

2. We are stimulated to respond to the event or environment

3. We receive a response to our response

4. The loop closes with the outcome of the event now known and as a result

we have a new learned experience.

The next time this event occurs in our life we have an understanding of what

the outcome is most likely to be and we can act accordingly. We can even

adjust how we react to the event to influence the outcome to a degree.

The learning curve in the trading environment

The first problem that we encounter here is that in the market no two events

are ever the same (they may be similar, but not the same)

This is the first variable that has been thrown into the arena.





The second problem is that once we commit to a trade, we are unable to

influence the outcome in any way whatsoever. The trader finds him/herself ina situation that has never been experienced before; also there is no ability to

influence the outcome whatsoever.

The result of this is a feeling of helplessness and confusion, which can be

closely related to the gambling environment.

The professional trader on the other hand has turned the whole thing around

with a systematic, tested, formula; that he/she knows delivers trading profits.

The trader has indeed taken control of the environment, stacking the odds

very much in his or her favour.

To wrap this section up we can say that the successful trader’s strategy has

removed the problem of:

• Unknown variables.

• The inability to influence the outcome of the situation.

• The emotional contents of the current trade.

The professional trader maintains the position of detached observer of events;

from this detached stance he is able to observe the market in a clear

controlled state.

This state enables the execution of further strategies that may revolve around,

increasing contract size or even exiting from the position.





How do you view trading and what is your perspective?

How you view the market is of vital importance to your success as atrader.

These are vital areas that we are getting into now which warrant deep thought

and consideration.

For you to win means that another trader has lost, how does that make youfeel? Your first reaction (which you believe to be true) maybe is that this

simply does not matter to you. The other trader is faceless and therefore is of

no consequence. On Black Monday George Sorros made countless millions

and now spends a great deal of time in giving it away to worthwhile causes.

We all have a conscience that is pricked from time to time. This is sometimes

highlighted in trading and whilst this rarely prevents a person from trading it

often places a ceiling on the degree of success that a trader might enjoy.

How do you fit into the market? What do you want to take out of the market?

How do you actually feel as you question yourself over these issues? Do they

make you ponder a while? Perhaps you notice a shift in your seat? Is what

you want from the market in sync with what you truly believe about yourself?

Or do you completely denounce the above as not applying to you?





The worst teacher moulds your trading behavior.

The market as your teacher.

Golfers tell me that the worst thing a person can do when they decide that

they want to play golf is to pick up a club and take a swing. The reason for this

is that instantly you have adopted the stance that is most comfortable for you,

but most unsuitable for actually playing golf.

The market does exactly the same thing to traders; the main difference here is

that the stance in golf is annoying and will affect your game. The same stance

in trading will empty your account in a very short time and could prevent you

from ever trading again.

Human beings are very quick learners; we can observe, mimic and perform a

skill, with time we become quite adept at this new skill and add it to our

repertoire. When trying this same process on the market however, we quickly

notice that no two actions are ever exactly the same.

Imagine for a moment that you are about to learn the art of carpentry,

Your carpentry teacher, however, changes the way he holds his tools each

time he picks them up and never holds his tools in the same way more than

once. Would you ever learn the skill? In this case it would be more efficient for

you to observe and then start to develop your own technique. It is this more

efficient method that you are going to learn about during this course.

It is of ten the lack of genuine teachable trading knowledge that is at fault and not the

individual learning. There are hundreds of courses that wil l show you yesterdays

charts and where you “could have” or “ would have” made profits. This is the blind

leading the blind, but it is almost necessary to go on one of these courses to get it out

of your system and discover the meaningless drivel that is repeatedly sold to the

unsuspecting.





The learned habits/ emotions of the amateur trader.

Remember that the amateur is often the person who has recently decided thathe would like to trade the markets. He goes out and buys a few books, gets a

charting package and starts to draw a few trend lines and the like.

The budding trader then enters the market and quickly discovers that all that

glitters is not gold. The harsh reality is that the market often takes on the role

of an adversary. The emotions that become attached to the trader during this

reality shock are the very key to the trader’s ultimate success

or failure.

The Emotions of Failure:

1. Fear and how it develops

There is nothing wrong with fear. Its role is to protect and serve us in times

of danger. The problem is that we are the direct interpreters of what

constitutes danger. It has to be this way, of course.

You are in your teens and you are desperately fond of a particular person

of the opposite sex, you dearly want to ask him/her out, but fear holds you

back. Clearly the type of danger here is very different from that of running

in front of a speeding train, but the debilitating effects are very much the

same. Pounding heart, sweaty palms, hyperactivity, nervousness, etc.

You will, of course, overcome your fear of the opposite sex as you come to

understand more about them. (maybe☺)





2. Learning to parachute will serve as one more example:

As you jump from the plane, you will of course feel the very samesymptoms as described above, albeit a little more profound maybe.

As you do more and more jumps, you will start to enjoy the experience and

eventually look forward to it without any fear.

Basically the fear you once felt has over time been dissipated and

eventually turns into fun, as you gained more experience and knew exactly

what was going to happen at each new jump.

The fear that is involved in trading, however, has a twist that is very

different indeed.

Normally when you start out trading, you will feel a low level of fear or

excitement. If things go well you will feel excitement, if poorly you will

feel a little fear or nervousness. This will be very mild at first, but gradually

it will start to build to the point where you cannot easily distinguish

between the two emotions.

As this develops and gains in strength, you will start to become highly

critical of trading opportunities. Over time this will increase, to present you

with quite severe trading problems. You will note that the instigation of fear

in the trading environment is the exact opposite of the fear when

parachuting. I.e. one starts out with a high level of fear, which gradually

dissipates, whereas the other starts out with very low levels and builds to a

debilitating conclusion.





3. Lack of confidence.

This normally goes through three stages:First stage = Low confidence level as unsure of trading protocol etc.

Second stage = Increase in trading confidence, as one gets comfortable

with the protocols of trading and the environment.

Third stage = dissipation of confidence as losses are not accounted for in

the, nonexistent, trading strategy. This then culminates in a lack of

confidence, in one’s ability to trade effectively. (Stage two is often the most

dangerous in terms of losses)

4. Fear of the Unknown.

This is developed as the trader starts to become affected by a little fear

and a lack of confidence. Uncertainty of price, volume, the current activity,

impending announcements, etc. These all build into what can best be

described as an unknown entity. It does not exist and yet it exerts a huge

amount of energy and control over an individual.





How a losing trader develops and maintains the ability to lose

consistently

A trader that maintains the ability to lose consistently has merely developed a

losing strategy. He has over time grown into this strategy, which is maintained

on the hope of the next big trade.

He may have even got to the point where he is so engrossed in his strategy,

that he will actually defend it in the face of hard evidence. Now you may think

that this trader does not possess a strategy. You may also not understand theconcept of someone trading with a strategy that does not work. This is

understandable, as clearly there is no logic to this trader and what he/she is

doing.

His strategy examined:

What has happened here is that the trader has got himself into a destructive

loop, (see diagram). This loop has created its own strategy and the real

danger of this type of strategy is that it is operating at a subconscious level. If

left unchecked, this will eventually lead to the emptying of the traders account.

The way out of this type of loop is quite difficult, as it requires a lot of personal

examination. In some cases there is subconscious desire or wish to get away

from trading completely. If the subconscious picks up on this desire then it will

do all it can to “grant the wish”.

A key point to note here is that this would all be operating at a subconscious

level and the trader would have no awareness of the process whatsoever.





How a successful trader maintains his consistent success.

Maintained success

The successful trader is caught within the success loop; like the trader caught

in the failure loop he may or may not be aware of this. In fact many successful

traders are so unaware of just exactly what they do that they find it virtually

impossible to explain to another trader when and why they take any particular

trade. For them actually to stop and think about this may even have a

detrimental effect on their own trading.Many traders write books about their trading and how they are successful;

other traders read these books, to try to emulate the successful trader. Often

this turns out to be disastrous for the student and for the simple reason that

the book does not contain the whole story. (I might add here and now that this is

not deliberate on the part of the author)

If the trader author has traded for many years successfully, then his success

loop will be deeply rooted in the subconscious, possibly to the point where

intuitive trading has taken over. When a trader reaches this stage he may

have a complete misconception of what he is “actually” doing with regard to

his trading. The trader simply has supreme confidence in their abilities and

their growing trading account.

Supreme trading confidence is my first and foremost goal for all students of

this course. This is in essence what this course is about.

1. Defining what a success loop is.

2. Teaching you the methods by which you enter your success loop.

3. Building you a strategy that fits YOU.

4. Giving you the tools to maintain your success.





The defining characteristics that separate the successful trader f rom theunsuccessful trader.

The successful trader will have amongst other things:-

• A well-defined trading strategy.

• Complete faith in that strategy.

• An automatic response mechanism.

• A long-term outlook.

• Confidence in his ability.

• A strong sense of purpose.

• A developed sense of feeling the market.

The unsuccessful trader will have.

• A well-defined trading strategy or a poor trading strategy.

• Possible surface faith in his strategy, with subconscious conflict.

• A cherry picking response mechanism.

• Short term win mentality.

• Low level of confidence.

• A casual attitude.• Poor or no ability to feel the market.

*NoteThe unsuccessful trader may posses a very good strategy, but it will be theother components that will cause the failure of this individual.





The real challenge is not the trading of the markets.

Daily Challenges

The true challenge of the emerging trader is to be aware, consciously, at the

time of the trade of everything that is behind that particular trade. It is this

awareness that separates the successful from the unsuccessful.

The successful trader, has traded in accordance with his strategy and

KNOWS that this trade took place without any emotive overlay the traders

mind is clear, to process the continuing stream of market data that is arriving.

The challenge for the successful trader is to maintain this state, so that he

may function in a non-emotive environment.

The challenge for the unsuccessful trader is to achieve the non-emotive state

in the first instance and then maintain it.

The easiest way for me to explain this is to compare the paper trading results

of a trader who then goes live. But there never is any comparison, the reason

for this is the single factor of emotive overlay, the live trader is subject to this

whereas the paper trader is not.

The paper trader, is capable of producing often-spectacular results over

sustained periods; as soon as he enters the market for real, however, it is as if

the goal posts have suddenly been moved. This single factor tells us much of

what we need to know to become successful traders. In short we need topaper trade LIVE!





Glossary

Stepping out of your st rategy.

This is a very dangerous action for a trader and not because of the impending

possible loss.

When you maintain your profitable strategy, you will gain confidence as your

profits grow. This confidence will be reinforced every time that you carry out a

trade, within your strategy, win or lose. The reinforcement takes place even in

a loss situation because you and your subconscious knows that OVERALL

you strategy is a winner.

Once you step outside your known strategy, you are basically introducing an

unknown concept to your prior proven strategy. Your subconscious detects

this new variable and recomputes the whole strategy; of course this new

variable now forces a re-evaluation of your known strategy.

Now you are in trouble, for the simple reason that you’re subconscious no

longer has faith in the strategy because it does not have one.

DO NOT knowingly STEP OUTSIDE YOUR STRATEGY.

If you do, you could be throwing months of work away in a single reckless

action.





Trade Hunting

Hunting for trades often occurs when a trader has a developed trading

strategy, but the market action has failed for several days to produce the

conditions where the strategy can be used. In the frustration of the delay, the

trader will start to hunt his charts to see what is going on. What is happening

here is that the mind of the trader is searching for something that fits the bill.

Should the trader, now trade this self-generated opportunity and a powerful

force has just been released against future success.

Please see: Stepping outside of your strategy

Trading Harmony

This simply means that your trading strategy should be aligned with your

personal trading ambitions, resources, and understanding of the markets. An

example of trading out of harmony would be increasing your contract size

without sufficient margin; this could set up a fear reaction, should the market

start to move against your position. This would then trigger inconsistent

trading, as you search for the fail-safe entry point to protect your margin.

The Subconscious.

Your subconscious, is perhaps your most important asset when trading? Onceyour strategy is fully accepted by your subconscious, your trading will take on

a new level of ability. No longer will you be thinking about what has to be

done. You will enter into a phase that I call autonomous ability. This is a highly

desirable state for the trader and comes as a result of supreme confidence in

your personal success loop.





Emotive Overlay.

This term needs to be fully understood and is an area that we shall be givingsome consideration to at a later stage.For now you might like to imagine a scenario where you have made your mindup to carry out some action; then someone near to you, says something thatis not directly related to the action you are about to carry out, but causes andemotive reaction. This reaction then has an effect on your ability, to carry outthe task that you had previously decided to do.

This is highly applicable to trading when we consider price movement andhow this affects an observer. (More in later pack)

Fear & Exci tement

How far apart are these two? At first you might be tempted to believe thatthey are at opposite ends of the scale, in fact they are one and the same. As asimple exercise jot down the type of feelings that you might experience whenyou are fearful.

• Heart racing

• Sweating

• Deep breathing• Heightened awareness.

Now do the same with, excitement, begin to get the picture?





The Gambling Environment

Trading is often associated with gambling, especially the futures/derivatives

market. This is because the amateur trader blames the market and tells histales of woe. There is indeed a link here and one, which we need to be clear

on.

The amateur trader as we have already discussed does not have a strategy;

he is haphazard in his approach; the only consistent method of trading he has

is consistently being inconsistent.

Therefore the amateur trader is indeed gambling and the odds are stacked

heavily against them.

Disavowal

The person in disavowal is refusing to own or acknowledge something. An

example may be when another person has pointed out that there is a

fundamental flaw in what you are doing within your strategy. This results in

you completely, shutting the door, on any further discussion, or even thoughts

on the subject.This is similar to going long in a falling market and telling yourself that the

market is strong and it will turn up shortly in the face of mounting evidence to

the contrary.

Cherry Picking

This can be best described in the context of actually picking cherries. The one

just out of reach is always sweeter. Therefore I will not take this trade, I will

take another better one.





Inner Voice

This is the still small voice that resides in all of us. This can be a positiveattribute or a negative one, depending upon what the voice is telling you.

Drawdown

This is in my opinion, just another way of saying that you have lost money.The technically minded, however, might argue the point here.Basically your trading strategy is currently resulting in losses and your aresuffering a withdrawal of money from your account.

Contract Expiry

Example:Futures are traded on a three-month basis. As the contract comes to the endof its term it is said to expire. This does not mean that you cannot trade in thenext contract before the expiry of the most recent one. Some traders will tradeacross different contract periods as a form of hedging.

Pre-defined Strategy

A trading methodology / system that has been defined and evaluated.

The fact that it has been defined does not make it necessarily profitable.

Intuitive trading

Intuitive trading can best be defined as a sense of, knowing, understanding, adeep psychological awareness, of the condition of the market, and what isgoing to constitute a profitable trade. These types of traders are few and farbetween, but it is a skill that can be taught. We will be doing work in this areain the latter part of the course.




Well that brings us the end of this book. Hopefully you have been able to gaina few trading insights and also some personal insights that may reflect onyour future as a trader in a positive way.

I am currently writing a new book called Trading Truths, which is now in thefinal stages. This book takes a more in depth look at trading and will be readyfor release in a few days. You will be pleased to hear that this new book willalso be completely free of charge.

Don’t forget you can request a copy of this book athttp://www.learningtotrade.com/

I have posted this picture here of one of my live trading courses so you get tosee the type of environment you are in with all the live trading screens andactual trading taking place. OK you may not be ready to move to this level yet,

but should you decide that this may be a route for you, feel free to contact mewith any questions you may have.

Very Best Trading Success

Martin Cole

Documents

TradingPrimer15