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The Evolution Of A Profitable Trader

Did you know there is a science to learning how to trade?

Most people do not. But there exists an evolutionary system for consistency. I discovered it only after realized I had been on the journey for some time.

“What is consistency?” you ask. “I just want to make money.”

I hear that all the time. If you just want to make money you are in the wrong business. Go sell things on eBay or consider affiliate marketing on Clickbank. Come back when you have the greed thing under control.

Still here?

Let’s define consistency as routine profit with small (negligible) losses and big winners. There is a difference between ‘making money and consistency. The former is steeped in outcome dependence. The latter is procedural. Huge difference.

The science for achieving consistency is something I call the MATRIX.

CONTENT

The journey begins with content. This is something the would-be trader chooses. It is the data that will be analyzed for market entries and exits. It may be price (interval) charts, time-and-sales, spreads or an old-timey ticker tape.

It doesn’t really matter. What matters is can the trader USE it effectively.

HOW TO TRADE

The next leg of the journey required a method for reading order flow in the content. This means the trader is able to see the expansion and contraction of price in order to pre-empt the market in both directional and delta-neutral trading models. The trader must be proactive and not reactive.

Not only must the trader understand key market dynamics, but also the mechanics of price.

MECHANICAL

The next phase is where conventional technical analysis enters the picture. The mechanical can take many forms including content structure, price tools, indicators, context, momentum, “trading systems”, robots, algorithm.

Frequently you will see traders spending hours and hours “backtesting” technical systems (read ‘grail search’) in order to short-circuit the learning process and begin with consistency. These same systems typically notch a loss that exceeds the largest drawdown in the “backtest” as soon as the trader takes a risk.

Unfortunately, this is where most novice traders unknowingly jump into the game. Attempting to master the mechanical phase with knowing how to trade is tantamount to performing surgery having only read a book on anatomy. Not a good idea.

INTUITIVE

If the trader can read order flow (market dynamics and price mechanics) and has also integrated the technical components required to place market entries in contexts where expectancy (reward/risk) is highest, then the intuitive phase begins almost naturally.

Here, the trader has a highly-developed proactive sense and pattern-recognition skill. Mechanical mastery of low-risk entries (setups) is routine and the trader accepts randomness.

Given the probabilistic mindset, the trader no longer feels compelled to defer to mechanical systems. When the trader realizes that he or she does not have to know what will happen next in order to profit, intuitive development has been effectively cemented.

At this stage, the remainder of the matrix may be experienced quickly and not necessarily in the following order.

RISK MASTERY

The intuitive skill set lends itself to risk mastery. Here the trader sees risk as a tool as opposed to the fear-based mindset of the novice investor or trader. Risk is effectively reduced and eliminated from analysis through setup and management.

MECHANICS

The mechanics of trading are honed with routine trading skills. These include order entry, error reduction, and style development.

Style development cannot be overlooked as the trader will perform best when he or she acts in harmony with their environment and preferences. How and when orders are entered, changed, and managed is crucial to long-term success.

If you live on the West Coast and you do not rise until 9 AM, you probably will not want to watch the New York open five days a week.

DISCIPLINE

Discipline immediately precedes consistency. In this stage, the traders no longer have material risk and realize they will always be able to extract profit from the tape. Samples are complete, focused, and effective. The mechanical-intuitive ‘flow’ has been mastered and the trader acts on ‘edges’ (low-risk setups) without stress or concern.

Through the process of trading and the exploitation of risk, traders learn to trust themselves and their intuition in an arena where anything goes. If the trader makes it this far, some form of self-mastery has evolved.

The trader has also mastered processes, from analysis to action. Trading becomes effortless.

CONSISTENCY

The Holy Grail of trading is not the perfect mechanical system, robot or algorithm that never loses. The Grail is consistency.

Few traders will ever make it this far. People are not wired for the trading game. This is why it is imperative that you do not cement a losing mindset early in your trading career. In many cases, deep emotional scarring is so severe that the trader is never able to get a handle on risk.

Retail brokerage databases are littered at the bottom with countless blown-out accounts. Each one tells its own story of fear, greed, and frustration.

You do not have to do this. Consistency is possible. All you must do is understand how your brain is wired for the decision-making process and follow the matrix. Simple? Yes. Easy? Well…that depends.

CONCLUSION

Be aware of the predictive value trap. Understand that Technical Analysis itself has little (read no) predictive value. What it does provide is the context that can be used to locate low-risk, high-probability trades.

History does not repeat itself. Perhaps it rhymes but never repeats. Outcomes to any trade or market transaction always were and always will be random.

This does not mean that you cannot make money. It is entirely possible to make money without knowing what will happen next. I have made a career of it. You must be able to manage risk (keeping losses very small) at the same time you allow the market to hand you big winners.

I would very much like to help you master the process because (1) I have been trading for 20 years and know how to do it; and (2) there is so much misinformation and so little substance out there in the way of trading education that I have decided to change as much of the world as I can.

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