Trading Psychology Journal Part 4

Winning requires absolutely no skill at all.It required no skills to be winner.‘you don’t need to know ANYTHING about trading or the markets to put on a winning trade.You can make money either Buying and Selling  ,so by default 50%  of  winning possibility is associated with every order.

Mental errors traders fall for are a result of the belief that the technical methods are telling the trader what is going to happen next on a trade by trade basis. That is not what technical methods were designed to do.

Technical methods, and technical analysis methods were not designed to tell the trader what is going to happen next on a trade by trade basis. This is the standard trading thinking of putting the probabilities in your favor, cutting your losses and letting your profits run.

But I would take it a step further and say the technical methods, aka technical analysis methods were not designed to do that because they cannot generate order flow and move the market.  Order flow based methods actually can tell you what can happen next on a trade by trade basis, for they deal with and analyze the very foundations of every marker – transaction flow and liquidity.  That doesn’t mean that they can escape statistical measurement – they can’t.  What order flow can do is offer drastically better and more accurate explains for why price has moved in the past and why it will move in the future.  It can actually tell you what is going to happen next on a trade by trade basis, instead of just hoping that a trading edge develops over the long run.

We have to accept the randomness principle, which is to accept the fact that any trade event can be a random unique outcome, but that can produce a consistent result over the long run. Traders who fail to acknowledge this principle will find that trading can be very frustrating.

Technical methods define and identify patterns and collective human behavior.  The patterns definitely exist, they repeat themselves over and over again.  The problem is that the outcomes do not always correspond with the patterns on a trade by trade basis.

If the last trade was a winner, this trade, even if the charts are the same, even if the same exact signal, the same looking chart, there is no guarantee this trade, that this trade will be the exact same as the past one.

There is a “random distribution between wins and losses over any sequence of trades that you might look at.”.Thinking in terms of probabilities.

Pattern - whem this set of criteria there is higher proabilities one thing over another.

When pattern present itself => there is no points analyzing the pattern.

There is no correlation ship between pattern and risk.

There is no correlation ship between pattern and profit.

Now we have to get into the nuts and bolts of how the markets work.  One of the reasons why people have such a difficult time with this is because their initial exposure to the markets themselves is through electronics.  Through electronics there is a real disconnect between what your are actually participating in and what is causing you to want to participate in it in the first place.  Markets started as exchanges.  All prices are people generated events.  Everything happens because of what people believe.

What actually has to happen for prices to move is this:  If the last price of something is $10, for the market to actually move to $12, all the offers at $11 have to be taken out.  In other words, people who are trying to sell at $11 they have to get their orders filled before they can get to $12.  For someone to actually bid it to eleven, or bid it to twelve they are doing the exact opposite in that moment of what it takes to be successful.  They are not buying low, they are buying high.  They are buying high relative to the last price, or buying higher relative to the last price.

Patterns represent collective human behavior.  And when a set of criteria is present in the market, there is a higher probability of one thing happening over another.

That people, that other people will come into the market to bid it higher, or offer it lower form here.

We are obliged to other traders to come in to buy something at a worse price than what we thought was low to make us winners.  (for a long trade).Most of us out there are dependent on someone else to move the market for us. 


The trading errors come from believing that when the pattern is present that it is going to give me a winning trade on this one.  This trade is going to be a winner.

 The typical trader thinks I am not going to put this trade unless I think it is going to be a winner.

We don’t want to get into trading with the possibility of being disappointed, dissatisfied, or betrayed.  A lot of traders feel that way.  The problem is, when that potential exists it has the affect of affecting the way that we see market information in detrimental ways.

The human mind was made to create patterns.  It will see patterns in random data.  A turn-of-the-century statistics book put it this way:  ’Too fine an eye for pattern will find it anywhere.’  In other words, you’re going to see more on the chart than is truly there.  Also, we don’t look at data neutrally – that is, when the human eye scans a chart, it doesn’t give all data points equal weight.  Instead, it will tend to focus on certain outstanding cases, and we tend to form our opinions on the basis of these special cases.  It’s human nature to pick out the stunning successes of a method and to overlook the day-in, day-out losses that grind you down to the bone.

Regardless of the reason for getting into a trade, if other traders don’t buy into that reason, or if other traders don’t have another reason to want to buy at a price that is worse than yours.  You bought the stock at $10, someone is going to want to buy it at $11, buy it at $12, at $13, and not only be able to buy it at 11, 12, 13 and 14, there are going to have to take out all the offers, all the traders who think it is high at 11, 12 and 13.  And so, if these people aren’t coming into the market to do that, then whatever reason you thought you had might not be so good.  That is why it is critical to pre define your risk before you get into a trade.  Professional traders do not think of it any other way because they know it takes other people.  My reason might be great, but if someone else isn’t buying into it what different does it make?  It doesn’t matter because it is not a winning trade.

The pattern shows up first. Then what we have to do is put up our money.  Meaning, how much am I willing to risk to find out if it will work. Most traders because they evaluate, because they judge and because they analyze and build a case for the pattern being right, they actually talk themselves out of believing that the risk even exists.

Just simply a higher probability of one thing happening over another.  Higher probability over a series of trades.


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