You don’t trade the markets, you trade your beliefs about the market.
That is one of the reasons for the wide distribution of returns. Various hedge funds trading the same markets. But one hedge fund loses -5% in a year, another gains +50% in a year. Why is that so? Well, one of the reason is that the hedge funds are not trading the markets, they are trading their beliefs about the market!
As one commentary described a hedge fund legend:
“They are all trading the markets, he is doing something else.”
In other words – the way that this hedge fund legend viewed the market and traded it, was so unlike that of the common investor and trader, hence the belief that everyone else is just trading the markets, but the hedge fund legend is playing a completely different and infinitely more profitable game.
Now if a trader is smart, no matter what trading system them have, no matter what belief system they have, they will create strong criteria for why they are placing the trades they do. They will create criteria for what a good trade looks like.
What are some various trading beliefs and trade criteria in different trading cycles you ask? Great question, let’s get on with it.
Shady, Insider Trading
Those stuck in the shady realms of finance and trading like to focus on “inside information.” These traders believe that they need such information to trade profitably. That is their belief.
In actuality, you don’t need not one shred of it to profit mightily. You can make a fortune with free and publicly available information.
Technical Indicator Trading Beliefs
Another trader starts the trading journey sees a chart loaded up with various indicators and begins that part of the trading cycle.
The thing to note is that each cycle has their own trading beliefs. These trading beliefs stem from the consciousness level of that trading cycle. Each trading cycle, each trading “box” has a consciousness level, which causes various beliefs to flow from it.
So when you see a trader not care about chart or price patterns, focusing solely on technical indicators, this trader is giving a clue as to their belief system. They believe they can generate a trading edge and profit via pure technical indicators. That is their belief which stems from their consciousness level. And the trading habits that flow from that belief will consist of slapping on their chart various technical indicators, etc.
This traders view of what a “perfect trade” may well consist of things such as:
If a market moves above a certain moving average, AND
The RSI is not overbought yet, AND
Market has broken out of a tight consolidation from within the Bollinger Bands.
I am just giving you a small sample here. It has been many years since I have used all these technical indicators, so my knowledge of them are a bit hazy.
Chart & Price Pattern Trading Beliefs
A step up from pure technical indicators are going into the chart/price pattern cycle. Perhaps a trader has gotten a bit jaded from trying out all the technical indicators and feels like they have to try something new.
This “box” is certainly a step up and higher consciousness level from the pure technical indicator cycle. As you are proned to start removing from your chart all those ineffective trading indicators. (thus getting closer to the truth of information flow, global macro trading based on expectations, etc)
A trader’s beliefs tend to be to “trade naked.” To eschew technical indicators and rely on purely chart and price patterns. This can be a bit better than the previous cycle, etc. The trader in this cycle is beginning to get rid of the delusions. They are getting closer to the truth. Though they are not there just yet. A bit more progress to go.
And since this is a step up, certain beliefs tend to flow from this level.
A trader’s view of what a “perfect trade” may well consist of:
Chart Pattern – head and shoulders
Confirming Price action bar – “engulfing pattern”
Order Flow Trading Beliefs
As you keep learning, keep thinking outside of the box, keep thinking about what TRULY causes massive orders to enter the market to move it in an aggressive way, you eventually end up in the order flow trading cycle. It is THE highest level of trading.
Though within the realm of order flow trading, there are still various degrees.
Those who are stuck in the lower strata of order flow trading, typically view a lot of the markets movements from the view of stops getting hunted, stops getting hit, option barriers, etc. Knowledge of stop losses and option barriers is certainly useful, but a trader can take things to a higher level.
Those higher levels consist of order flow strategies such as news trading and eventually global macro trading. Where you harness the power of the information flow. When you start thinking about the markets in terms of scenarios, especially in terms of a “Battle of Scenarios.” When you start thinking about the market in terms of the “Battle of Scenarios,” your trading enters a truly rarefied realms of skill.
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The Grand Journey of Your Life
There is profit, there is a gold mine, there is massive enthusiasm in the progress and evolution of your trading beliefs. The more you learn, the more you become aware and enlightened, the more excitement and profit tend to come. You start to attain the higher levels of joy and ecstasy of the mind, etc, from which tend to flow effortless work ethic on the smart and bold actions. You just start “to know” exactly what to do at any given point in the day. You just know because you have shed those thoughts, those beliefs that were never going to be effective to begin with. Ten tons feel like they have been lifted off your shoulders and you can just fly fly fly to wherever you desire to go.
Do not neglect this area of your trading development. Know what your beliefs are right now. Know the various beliefs of different kinds of traders. Do research on some of the top traders in history and see just what their beliefs are.
Think and Act Outside the Box, But It’s Still A Box
If you are not getting the results you desire, then you SHOULD think outside of the box.
As the phrases go:
“We can’t solve problems by using the same kind of thinking we used when we created them.”
“Those who do not think outside the box are easily contained.”
However, it’s still some kind of box – just a more profitable, exciting, joyous box.
The whole idea of “instead of thinking outside the box, get rid of the box,” certainly sounds, doesn’t it? Like many things that are so exciting, it is partially true and not true. Surely you want to get rid of the box and envision a drastically better paradigm for your life. To let loose on this and dream wildly. But you still need some box, some philosophy, some goals, some vision that you guide your life by and aid you to make decisions. So yes, go outside of the box, develop a grander vision, a grander philosophy, and go for it hard and fast. But there are still rules to abide by in life – imposed on you by the government. And also some time limits inherent to the human condition as well. So still a box is needed, just a drastically more effective box than what you’ve been used to.
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