The first three stages are obstacles, while the second three involve the process of learning to trade. Today's lesson covers stage 5 of the six stages: artist.
1. Ownership 2. Planning 3. Working 4. Analyst 5. Artist 6. Trader
Artist rhythms with chartist, whose canvas is the computer screen. You need to be very careful about what overlays, i.e.: trendlines, retracements, pivots, and indicators you place on your chart. A confusing chart reflects a confused mind. It is difficult for even the most gifted mind to keep track of more than 5 or 6 simultaneous occurrences. Most people quickly lose track around three. It is very important that you know exactly what each overlay and indicator is, and exactly how to use them, or they are going to confuse you, and your account balance is going to go down. It's easy to think that a trading plan is a linear list like checking everything off before one starts an old fashioned airplane. And is to a degree, yet once the plane is in the air and being buffeted by divergent forces everything is occurring simultaneously and there is no time to take your hand off the stick and leisurely run down a check list. It's the same thing in trading, only it's your money at risk, not your life. A clean, orderly chart where you understand everything at a glance is the rule for professionals. I label the different patterns in the market with text, and color code all my overlays so they are the same every time. I also never change the market or the time framers on my screens. My eye is trained to go to the same place for the same information in the same market every time. Also never rely on your memory when you can set an alert, or at least make a physical note. In the time you can answer a ringing phone and have a short conversation you can miss a trade signal. When you are in your trading studio you should never let yourself get distracted for longer than a glance. And just as you need to protect yourself from physical interruptions you need to learn to control your mind from fostering mental interruptions and distractions. If you know that you need the market to create a specific occurrence at a specific time before you can act, why would you waste thoughts on trying to anticipate when this might happen or what might happen afterwards? You need to quiet your mind as you observe the market's behavior as it moves from set-up to signal and back again. The more relaxed and at peace you are the more receptive you will be to what the market is telling you, and believe me the only way you will succeed as a trader is to have a method that insures you listen to what the market is doing and not what you think it is going to do!
Market analysis takes on an art form when you are so familiar with the mechanics of your method, and so experienced at observing markets move through time that you start to anticipate the next market move, and you are correct more times than not. This is called your trader's intuition. But before you can expect your intuition to contribute you have to know that the first input to your analysis is market generated data, i.e.: price action. A market's opening price, high price, low price, and closing price offer a myriad of information for us to draw on. In fact every indicator and overlay on the chart below are derived from only those 4 inputs -- the opening, high, low, and closing price of the candles.
Price pattern and direction on all time frames are determined from just these 4 inputs. Therefore the impetus to place a trade must first come from the chart, and not from your intuition or opinion. We teach, No trigger, no trade. This is very similar to how an artist takes an image or event and uses the emotion generated to create a drawing or painting. Yes the artist contributes by physically making the object, but before that, an outside visual or other stimulant must generate the emotion(s) that inspire the artist to create the work. In fact most artists will tell you that they cannot take much credit for a project because they don't fully understand the process themselves. Paul McCartney summed it up best when asked how, at such a young age, he and the other Beatles were able to write such insightful songs that are as apropos now as ever. Sir Paul offered that he can take no credit for those lyrics, and understands that the best stuff that comes off the tip of his pen is definitely guided by a higher power. Even more to the point is #1 New York Times best-selling author Dr. Wayne Dyer's quote in Change Your Thoughts Change Your Life: As I sit and write these words... I know that I don't own what mysteriously appears on the paper. I've surrendered. I know that God writes all the books, composes all the music, and erects all the buildings.
It is that deep understanding and humility that those artists show to their craft which should inspire us as traders. While we can give ourselves a pat on the back for being on our post when a set-up and signal occur, it is the market that does the real work. We just need to make sure we follow our method - surrender to the market -- and have the patience to let the market do the work. Imagine how easy your job as an analyst/trader becomes when you fully realize it's not you making the trading decisions, but instead it's the market! At the end of a good day, or week, or month don't let your ego get away with taking the credit; remember to thank the market.
Remember that despite the fame and wealth that the ex-Beatle Paul McCartney as accumulated he knew not to question what came off the end of his pen, and he knew it was a much greater force than him. Now it's up to you to realize the same holds true for you. If you follow the signals the market gives you can achieve success, but if you listen to your own thoughts first, you will continue to get what you've always gotten. Bottom line: let the markets pattern and direction lead you first, before you allow your own experience to contribute.
Trading involves substantial risk of loss and is not suitable for all investors!
Jay Norris is a Professor at IBUniversity.com and the author of Mastering the Currency Market, McGraw-Hill, 2009 and Mastering Trade Selection and Management, McGraw-Hill, 2011