Mind Over Market Part 6
http://www.youtube.com/watch?v=hQ9XM55pclw
Mark Douglas talks about how some people need to only start trading a small size. And that when you are only trading a small size most people do not think there is any point in it.
From an immediate money standpoint you will not make a lot. But when you can execute your system flawlessly then you can start trading the bigger sizes.
There are many traders out there who may be trading small accounts and wondering whether it is worth it. There are other traders who are perhaps saying to themselves that they will only start trading live when they have a good amount of capital behind them.
Other traders can blame the fact that they are losing money on not having enough capital. They think that if they just had another $50,000 or $100,000 dollars that it will somehow solve all the trading system and psychological problems that they may have and they will magically start making them money. They want to trade a large account while not even being able to trade a smaller size successfully. Those traders usually end up in a perpetual cycle of the blame game.
If you can’t trade $50,000 successfully, what makes traders think that if they had $500,000 they would be able to trade successfully? Most of the time there is no good reason.
There is one exception however. If you start trading a larger account and that causes you to get more serious about your trading and to execute your system flawlessly. It causes you to get serious because you may have a larger portion of your savings at risk and therefore it causes you to be more careful about managing risk and finding the good trades. It causes you to diligently keep a trading journal. It causes you to find the true reasons why the market moved and will move in the future. Then, in such a situation, you could potentially find yourself doing better with a larger trading account. But, most people don’t fall into that category.
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Gutter Principle
The host asks whether or not you need to blow a trading account in order for you to be successful. I never blew a trading account, but I have taken some big losses throughout the years. As long any losses that you take causes a pain similar to that of a blown trading account, then you probably don’t need to blow a trading account.
Douglas: You have to learn to change the way you think about trading in a way where it doesn’t cause you to have this potential to think that you will be disappointed or betrayed or put you into a state of emotional pain. Getting to that carefree state of mind… Then everything about your trading will change.
Mark Douglas talks about the transformation of a traders psychological into that of a professional traders mindset. And that is definitely required no matter what trading style you have.
There is a separate transformation that other traders can take which is that of an order flow transformation. Where the traders choose not to view the market through technical indicators, or chart patterns, but rather through order flow and liquidity principles, news, global macro, market sentiment, stops, option barriers, expectations, positioning, etc.
Trading Edge
Mark Douglas then talks about what he believes a trading edge is:
Just simply a higher probability of one thing happening over another. Higher probability over a series of trades.
Every trader needs a higher probability of one thing happening over another in a series of trades. That is always a necessity no matter what trading system you have.
What the order flow trader does and how they define an edge is by having a higher probability of one thing happening over another on the very next trade. And then the next one, and the next one.
Subtle, yet profound difference. The order flow trader wants an identifiable edge on almost ever trade that they place, preferably a gigantic edge if possible. Is it always possible? No, but the order flow trader always strives for it.
The order flow trader does not want to take for a series of 50 trades for their edge to develop. They want their edge to be shown relatively quickly in a short series of trades, or preferably in the very next trade, and then in the next one, etc.
And in order to place such trades, you need to have a mastery of the order flow concepts as well as mastery of your own personal psychology.
Towards the end of the video with Mark Douglas on stage he talks about the trading profit gap. How traders who have a wonderful trading methodology with enormous potential to make a consistent income, but there is the profit gap. And how most traders try to fix it by learning more about the market.
Firstly I would say that there is always more to learn about the markets. Always new order flow generators, scenarios, global macro situations to learn about. More order flow and liquidity principles to learn and implement if you want to. So I would always like to learn more about the market.
Secondly, it is true that many traders can fix the profit gap by learning more about themselves. But in order to do that, you need to already have a trading system that has an edge.
If you already have a trading system that has an edge, then learning more about yourself can prove to be much better than learning more about the markets.
But if you do not have a trading system that has an edge, then you still have to learn more about the market in order to find a trading system with an edge. I talk about this in a previous article about how money management isn’t everything.
The problem lies in the fact that when a trader chooses to learn more about the market, the trader typically learns about more moving averages, more technical indicators, more chart patterns, more price patterns, more confirming tools, etc. All those things do not generate order flow.
I would not trivialize the importance of having a trading edge, preferably a massive trading edge. For if you have a big trading edge, an order flow edge, then it can overcome any slightly negative aspects of money management or psychology that you may have and still generate a healthy profit for you.
Instead of learning more about the things which do not move the market. Choose to learn more about the things that can actually cause markets to move. Things that can cause billions of dollars of aggressive order flow to be generated.
One of my biggest trading edges is not really my trading psychology. My trading psychology is probably no much more better than anyone else. It is my mindset about the trading system and knowing how to capture the big market moves. That is one of my biggest edges.
That is a big secret to the fast lane of trading riches.
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