Now you know the Seven Steps to Transform Yourself.
You know How to Ask for Trading Advice.
What is the next step?
The next step you can take to lay the foundations of ever increasing trading performance and profits is to write down all your current beliefs that you have about the market. Write down all the beliefs you have about money. Write down all the beliefs you have about life and people, etc.
Dr. Van Tharp used to say, you don’t trade the markets, you trade your beliefs about the market. For example, if someone is trading USD/JPY, they aren’t just trading USD/JPY, but they are also trading their beliefs about the market, their beliefs about how and why prices move.
One person could be trading USD/JPY based on a global macro catalyst. Another might be trading USD/JPY based on some stop hunting principles. Another might be trading USD/JPY based on some moving average or stochastic signal. Another person says, I don’t give a damn about the moving average, I see a Pinocchio bar price action signal. Another person may stay out of USD/JPY and currency trading altogether, because they believe “it is too volatile” or “the market is rigged”, bla, bla, bla.
Similarly, you don’t just live life, you live the beliefs you have about Life!
Why don’t most people do this step?
A few potential reasons.
#1 – They are afraid to write in general. Perhaps they don’t know how to write well. Or their grammar is poor. Or they fear what other people will think if they read what they wrote, etc.
To combat this, just convince yourself that you are the only person who is going to read your list of trading and market beliefs. No one else has to read it. Just you. So at least be honest with yourself about where you currently are and what your mentality currently is. Also, your writing doesn’t have to be perfect. The writing that I do for this blog isn’t perfect, but it still probably adds a lot of value to you. The writing that I do in my journal is no where near perfect. I just write down my thoughts, my experiences. I have so many run on sentences, dangling participles, misspelled words, etc. It does’t matter! As long as you understand your list of market beliefs and understand your journal and it helps you. That is the only thing that matters.
If you are a bit embarrassed by your current mentality or market beliefs, as I was in many stages of the trading journey, then you can use that as motivation to figure out the truth about the markets and create a really robust trading philosophy and market beliefs. A trading philosophy and group of market beliefs that you can be proud of for years and decades to come, as I believe I have done in the Order Flow Mastery Course.
If you aren’t proud of your current trading achievements and philosophy, and cannot passionately talk about them, then that can be a clue that you need to raise your game and increase your market skill.
The truth about your current market beliefs will set you free. For you will know where you currently stand, the categories that need improvement. Then you can start searching for and discovering the information that you are lacking. The trading journey can be very thrilling, as long as you know the next step to take and see your trading strategies and philosophy improve as you discover new things. Being on the journey and in the process is a lot of the fun. On the other hand, if you have stagnated and don’t know where to look, then that is where frustration sets in.
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#2 – Some people don’t know what to list as their trading and market beliefs. They would so like to write! But they struggle to know what to write! This was a problem I had in the early stages of keeping a journal. I had writers block and did not know what to write.
The solution if you are keeping a journal is to just start to write whatever comes to mind. Even if the only thing you write is about is what you had for breakfast then just write! Eventually more things will come to mind. You will start to analyze your day’s action and reflect on them. You will remember or write down some trading or life quote that you want to include in your journal. Etc.
For writing down your trading and market beliefs, I will give you a small list of questions you can ask yourself that you can use as a guide, as well as some potential answers from the way various groups of traders and people can answer them. You can also use this list of trading and market beliefs as a basis for your trading plan.
Questions you can ask yourself:
Why do prices move? Why do you think the market moves?
If the EUR/USD just moved 100 pips or 500 pips or 1,000 pips, what caused it to move?
There are some people who don’t really care if the EUR/USD moves 1,000 pips, because they just don’t trade foreign exchange like that. Someone like a Warren Buffett may not care much, if at all about the Euro moving 1,000 pips.
Other people can care much more about if the Euro is about to make a 1,000 pip movement.
I vividly remember back in the technical indicator and chart pattern days, where the forum gurus used to tell me that it didn’t matter why prices moved. That I didn’t have to know that. That the only thing that mattered were the technical indicators and the chart patterns and price patterns. They say, if everything shows up on a chart, then you can just use the indicators and chart patterns, etc. Everything is in the price they say! How sweet and simple they make it sound. And it sounds so very good. Everything shows up in the price, so you can just use the technical indicators and chart patterns and price patterns to figure out what to do. I bought into this hook line and sinker. The moment I did that and continued to believe it, it led to about 1-2 years of trading pain.
The truth is that, there are a thousand things that don’t show up in the price, and that technical indicators and chart patterns cannot show you and never will be able to measure. Things like sentiment, expectations, global macro scenarios, option barriers, etc. But that is for another day.
Continuing on why prices move. Some people take the view that they don’t care why prices move, and those types of traders will usually use some form of technical indicators, chart patterns, price patterns, etc.
So write down why you believe the market moves. If you think it moves because of a moving average crossover of the 10 and 20 EMA, then write that down. If you believe it moves because of divergence on the MACD, write that down. If you believe it moves because of a head and shoulders pattern or engulfing candlestick, then write that down. Whatever your beliefs happen to be, even if they are a bit distorted or false, then still write them down. Once you develop better market beliefs, you can always shred the old ones or burn them if you want.
I look at charts as well all day long, but when you know about order flow and information flow, then the chart and the market can sing you a beautiful song. As Jesse Livermore told his son in How To Trade in Stocks:
You see son, those markings on that board are as clear to me as a musical score is to a great conductor. I see these symbols as alive, a rhythms, a heartbeat, a pulse, that makes beautiful music – it all makes perfect sense to me. For me the board is alive, like music; we are able to communicate… The board… are playing a symphony for me, a symphony of money – that sings to me – that makes love to me – that envelops me in its song.
Livermore was talking about how he used to see the price quotations on the chalk board and have the market sing to him back in the early 1900’s. Livermore didn’t use charts or fibonacci, or technical indicators, etc.
Once you make the decision that you care about why prices are moving, then you can potentially find your way into the order flow journey. And depending on what stage you are in, you can come up with a different answer.
One order flow trader may say that they think the price moved because the market was gunning some stop losses. Another person can say there was an option barrier there. Another person can list some sentiment reason, etc.
You can even ask yourself the question: What do you believe order flow trading is?
There was a time I thought that order flow trading was only about stop hunting and option barriers. Then came another time when I thought order flow trading also meant news trading. Then eventually I figured out that there was a form of order flow trading of a much higher level, only that it wasn’t called that. It was called Global Macro Trading.
I get emails from time to time from people telling me that what I do isn’t order flow trading. Some people come from the view that order flow trading is just about “tape reading” and staring at a Depth of Market Screen / Level II screen, or the Time & Sales list. They may think that any trade over a few minutes is not “order flow trading.” It all depends on your market beliefs. If you believe that a series of order flow and transaction flow can cause a movement that lasts 2 minutes and causes 10 pips of movement, then it stands to reason that there can be movements that last for hours or days and be for hundreds of pips!
Another question you can ask is: How do you know what to buy or sell? What is your entry criteria?
If you believe in moving averages crossovers for entry signals, then which ones will you use? What time period moving averages? EMA, SMA, or something else? If you believe in stochastics, then will you use the slow stochastic or fast stochastic, or combination? If you believe in an engulfing candlestick pattern, then will you enter on a bar close, or wait for a break of that bar, or perhaps you will look for extra confirmation from a moving average or divergence on the MACD?
Or perhaps you bought a forex robot off the internet for $50 and think it will save you and make you $1,000 per week. If you did, then write it down by saying: I bought this really cool sounding forex robot off the internet for $50 called SUPER DUPER HOLY GRAIL TURBO ROBOT, and I think it will lead me to financial freedom.
Don’t be afraid. There is no shame. For every moment of your life is a new beginning where you can learn from the past and invest those lessons into the future. The current day, the current moment is all that you or I currently have. Learn the lessons from the past, then bury those post negative experiences. Extract the lessons from those past moments of fear and frustration, forgive yourself, and move on. As Gandhi once said, “Live as if you were to die tomorrow. Learn as if you were to live forever.”
I remember that I probably spent around $1,000 – $2,000 on the wrong information in the form of the wrong books, wrong courses, wrong webinars, etc before I learned about what the good and truthful information was. Because I went through that experience, I can better teach you what I know. And now, when I do spend money related to furthering my trading education, I know where the good information lies and the good bang for your buck.
Write down what you believe about the trading hours you expect to work, the trading equipment you think you will need, the trading capital you think you will need, the money you think you can make, etc.
Some people expect to trade successfully in just 5 minutes a day. Other people believe they will trade using only 1 hour per day. Other people work 80 hours per week. What are your beliefs about how many hours will it take to trade successfully?
Some people believe that they can’t trade successfully unless they have 6 computer monitors. They may only have one monitor and think they are at a disadvantage. They don’t have the money to invest in a six monitor setup and they feel like they don’t even want to try with just one monitor. Another trader may feel perfectly happy to trade using just one trading monitor. What are your beliefs?
How much capital do you believe you need. Some people believe that it is impossible to trade forex without at least $100,000 in capital. Other people are perfectly fine starting trading with just $10,000 or $1,000. The story goes about how Richard Dennis started with $400 in 1970 and ran that up to $50 – 100 million around 15-20 years later. What are your beliefs?
How much money do you think you can make? I have gotten emails from traders who have told me that a trader can only make $250,000 in a year. Where did they get that information from? Who sold them on that plan? Other people believe they can only make $50,000 per year. Other people believe they can make $1 million per year or far more. After all, Soros did make $1 billion betting against the yen in the year 2012. What are your beliefs about the market? Do you believe the financial instruments you trade and the strategy you use are liquid enough and have the potential for you to make a lot of money?
What type of information you think you will need? Some people think that they will not be able to succeed unless they have a Bloomberg Terminal. Other people don’t care about a Bloomberg Terminal, they just want their simple charts and technical indicators. What are your beliefs?
How much do you think you can make percentage wise? In the previous blog post, I told you about someone who just wanted to make 1% a month. Well how much do you think you can make percentage wise on your trading account in a year? Some people feel they can only make 10% a year. Others believe they can make 40% a year. Others believe they can make triple digit returns. Michael Marcus talks about his trading along with Bruce Kovner in Market Wizards:
My best trading occurred when Bruce and I were collaborating; we did some phenomenal trading. There were years when I was up 300 percent and he was up 1,000 percent.
So what are your market beliefs? Write them down! Get a long list of them. Dozens, even hundreds of them. As many as you can. Write down everything that you currently believe about the market. A market belief doesn’t have to be paragraphs long. Some beliefs can be as simple as a single sentence.
For as Jim Rohn said:
The best place to solve a problem is on paper.
There is something magical about putting a problem in writing. It is almost as though by writing about what is wrong, you start to discover new ways of making it right. Writing creates a space between you and the problem, and it is within that space that solutions have room to grow.
Once you have your current set of beliefs, then do the same thing six months later, etc. Or update them on a weekly basis or monthly basis. Keep a little pad next to your desk where you can write down your market ideas and beliefs as you go along.
So you can see how your market beliefs grow and evolve. There was immense joy for myself in seeing my beliefs change over the years and dumping the old ones. As Jesse Livermore in Reminiscences of a Stock Operator says:
For years I had been the victim of an unfortunate combination of inexperience, youth and insufficient capital. But now I felt the elation of a discoverer.
As long as you feel your beliefs are progressing to an ever higher and higher level of market understanding, you experience joy and a better attitude towards the trading game.
In the next lesson, I will delve into helping you to pick your trading strategy. I obviously am a big fan of an order flow and global macro based trading strategy, but I realize that there are other ones out there, and I want to help you figure out the best one that can fit your personality. That is in the next lesson!
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