Mind Over Market Part 5 of 7
Mark Douglas talks about how you need to be able to change the way you think. ¬†He is absolutely right.
Not only do you need to change the way you think about money management and trader psychology. ¬†Not only do you need to change the way you think about over trading. ¬†You also need to change the way you perceive the market information that comes your way during the trading day. ¬†Then you can become an order flow trader.
Douglas: ¬†Basically, all it really takes is a sincere willingness to do it. ¬†Honest to God. ¬†It is just like anything else in our lives. ¬†When we realize that there is a particular goal that we have and there is a strong desire to achieve that goal then we are going to take whatever steps we need to achieve it. ¬†
He is absolutely right. ¬†Just like I wrote about in a previous article. ¬†Everyone gets what they want out of the market.
The problem lies in that many people think they want to achieve a particular goal, when in reality they don’t. ¬†Or they want to achieve a goal, but their thinking and behaviors are not in congruence with achieving that goal.
For example, when I first started trading, I obviously wanted to make a lot of money and become financially free. ¬†That is what I thought I wanted. ¬†When in reality in my first year or two trading, what I really wanted was some form of action, adrenaline, doing something fun, a hobby. ¬†That thinking and the actions I took by placing ten trades a day in the currency markets was not congruent with making a lot of money. ¬†Eventually, I figured out that I was not going to be able to achieve my goals.
I was getting exactly what I wanted out of the market. ¬†I wanted action, adrenaline, and I got it by over trading and spending countless hours watching profit and loss gyrate back and forth.
The other thing that I wanted to do was to place really good trades and know why I should place them, why the market should move in my favor, and why I was able to extract profit from the market. ¬†That is what I wanted. ¬†My thinking was aligned to that goal. ¬†But my actions were not in alignment as I stayed stuck in the technical indicator, forex robot, chart pattern trading cycles. ¬†Those were not able to give me the edge I was looking for. ¬†They were not able to sufficiently explain to me why the market was making its movements.
And so, if someone really sets their mind to becoming an order flow trader, then they have in this website a resource that will drastically cut down the learning curve. ¬†If they are willing to work and be committed to making money and learning about order flow, global macro, and news trading then traders can read my forex factory posts, read this trading blog, buy the recommended trading books, buy my order flow mastery course when it is available.
Or you don’t have to read this blog if you don’t like it. ¬†But at least go out there and find the order flow and liquidity information somewhere. ¬†Whether you feel you are better served on a trading forum, or with some other book, or other trading strategy. ¬†Never stop searching for the true reasons why the market makes its movements. ¬†For the moment you are able to determine the true reasons and series of order flow triggers and scenarios why the market moves, then it will change your trading forever.
Douglas: ¬†What we set our mind at is how to change our mind.
Mark Douglas is absolutely right. ¬†You have to be willing to change your mindset. ¬†I had to do it on so many different levels. ¬†My views about money management, trading psychology, managing a trade, order flow trades, how to view the market, etc. ¬†It all involved substantial mindset shifts.
A lot of people are stubborn. ¬†They don’t want to change the way they think. ¬†They think they know best. ¬†I used to be like that as well. ¬†That was when I had trading¬†cynicism. ¬†I didn’t make much money during that stage. ¬†Eventually, I figured out that I would rather stop being cynical and take the money.
Douglas: ¬†They have to eliminate the potential to think that the market is going to¬†disappoint¬†them.
Unfulfilled expectations can be a very powerful force that can work in your favor or against you. ¬†If you are¬†disappointed¬†after a trade, then the unfulfilled expectations will wreck havoc on your trading. ¬†On the other hand, if you can identify when the big players expectations have been unfulfilled and they are forced to do billions of dollars of aggressive position re adjustment, then those unfulfilled expectations can do wonders for your trading account.
Host: ¬†We did everything we could, we had our edge, it didn’t work out, move on.
Douglas: ¬†That is all it really is. ¬†When you put on a trade and it doesn’t work, all it really means is this: ¬†Some other traders didn’t come into the market that had the same belief that you had or the same conviction that you had about this market doing whatever it is you thought it was going to do.
This is slightly mediocre thinking. ¬†It is good, but mediocre. ¬†The truth is that most traders, when they place their trades, think they have an edge. ¬†They do not actually have an edge. ¬†They think they have an edge, and then the trade doesn’t work out, and they move on.
The problem is that they were fooled into thinking that they had an edge. ¬†And since they were fooled, they will continue attempting to trade the same poor system again and again. ¬†That is how I was trading moving average crossovers, MACD divergences, and chart patterns for two years with no success.
Also, truthfully, most people do not do everything that they could to place the best possible trades. ¬†Most people only do the bare minimum. ¬†Most people only look at charts, and go find the patterns, or the indicators lining up. ¬†They love to do quick analysis. ¬†It is¬†definitely¬†quick, but it is the lazy way to trade. ¬†And the lazy way to trade does not mean that you did everything you could. ¬†I know about this stage because I was in it for two years. ¬†I thought I was doing everything I can, I even tried to do more by tweaking moving average settings or attempting to find the new holy grail indicator.
Eventually, I discovered order flow trading. ¬†That is when I realized most people do not do their very best. ¬†Most people are not going to attempt to find the stops and the option barriers. ¬†They are not going to attempt to read the news or figure out what it means. ¬†They are not going to attempt to figure out what the market sentiment, sensitivity, or positioning is. ¬†Most people are not going to analyze the global macro environment. ¬†Most people do not do those things, so they get poor or mediocre results. ¬†The traders that actually perform the order flow exercises and attain the skills are on the highest point on the trading profit ladder.
Mark Douglas then proceeds to talk about how most people are not good at predicting other peoples behavior. ¬†That is true for the above reasons that I mentioned. ¬†If traders focus on moving averages and chart patterns, then those will not help you much in predicting other peoples behavior. ¬†If however, traders focus on the order flow skills, then predicting other traders behavior and predicting the future order flow becomes much easier.
Douglas: ¬†You have to understand that there is no possible way that these mathematical formulas can predict the outcome of these patterns on a trade by trade basis. ¬†Only on a series of trades.
This is the same old trader trap of the mathematical formulas giving you a trading edge. ¬†If the mathematical formulas cannot give you a trading edge on the very next trade, then I would seriously consider purging them from your trading system. ¬†Does that mean order flow trading has 100% win rates? ¬†No, absolutely not. ¬†There are various forms of order flow trading. ¬†You can have high win rates with mediocre reward risk ratios. ¬†You can have high win rates with high reward risk ratios. ¬†You can have 50% win rates with high reward risk ratios. ¬†You can have low win rates with extraordinarily high win rates. ¬†All sorts of different systems that you can create using order flow knowledge.
Douglas: ¬†The odds are in my favor that somebody is going to come into the market and bid it higher from here if I bought or offer it lower from here if I sold.
I would say to take it a step further and place trades where you have the massive order flow, and thus massive odds in your favor where somebody has to come into the market to move it, for they have no other choice. ¬†To place high probability trades.