-from April 3, 2012:
The basic concept of trading, in my opinion.
One thing that has become clear to me over the 13 months that I have been practicing this full time: The more obvious the price and direction to enter or exit, the more likely it will be used by the most traders. And any spot where the most traders act is the spot where the successful ten percent of traders will prey upon those other 90% (I use the 90% and 10% because that is the success fail rate that is quoted by a study done years ago). TNA in this screen shot is a perfect example of what I see every hour of every day.
You will see an orange mark on the long down candle at 2:00 when the market drooped after The Ben Bernank opened his mouth. You can verify that it was there on earlier charts. This was the spot where my "Impulse Buy" was. Where my emotions were telling me to jump in against trend. You'll also note that in the next candle, price retraced to that very spot beofre resuming its deep descent. That is no coincidence. That was price retesting the "sucker's level." Then you'll see where I clicked to buy my practice trade in the 2:10 candle. There's no doubt that there were many many real-money traders who acted on the same impulse at this level. I am not a professional trader and therefore, consider myself a novice. The price action in relation to this entry spot is an example of the point I am trying to express. It dropped enough to stop me out, plus a few pennies more. That is no coincidence, just as it is no coincidence when it has happened so often before (see my many references to it over the past couple weeks). I and many other novice traders who got in long at this pretty good price were punked and stopped out by the sharks who REALLY know what they are doing. They are not trading spots on a chart. They are "Trading the Trader," as Quint Tatro explained in his enlightening book of the same name. To continue, if you look at the sixth, seventh, and eighth candles (2:40, 2:45 2:50 respectively) after the one I entered, you will see stock price aligning with my entry price as a focal point of its consolidation, especially the 2:50 candle that makes a near doji within a penny or two. This is no coincidence. It is clear that the masses of real money traders and me, the novice practice-trader, got in at this level.
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All prices are a reflection of buying and selling, and buying and selling is a portrait of the intentional as well as emotion-driven impulses of the buyers and the sellers. And where the most people are compelled to act is where the other few people will exploit them...because human beings, like all the other animals that roam the earth, are creatures of habit and prone to be slaves to their basic emotions. Any habit can be gamed by the truly savvy and practiced few. They are the 10% who survive to become those who trade for a living.
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Successful trading means knowing human psychology and seeing how it is represented through the price action on the charts by studying a moving market, for months and years until your eyes bleed. This will lead to learning the patterns of the 10%,while trying to manage and master one's own natural emotions that compel one to act with the 90% majority. This art of trading is really gamesmanship.
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Therefore, it comes as no surprise that successful traders use psychologists, like Dr. Brett Steenbarger who left trading and blogging to work on staff at a major hedge fund. It is no surprise that successful traders learn to understand their own emotional makeup with tools such as yoga (Michael Martin, Steve Spencer, James Altucher), meditation (Michael Marcus, Scott Farnham aka Bankrobber), exercise (Mike Bellefiore), traditional religious faith and prayer (Quint Tatro, a Christian), hypnosis (Scott Farnham), writing trading thoughts and feelings on paper (Linda Bradford-Raschke). These people are but a few who used the various tools best known for focusing / centering the mind.
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Jack Schwager is the author of one of the best known books about succesful traders and the exploration of what made them so; "Market Wizards" and his follow-up, "The New Market Wizards." In that follow up book, he wrote this: "Time and time again, those whom I interviewed for this book and its predecessor stressed the absolutely critical role of psychological elements in trading success. When asked to explain what was important to success, the market wizards never talked about indicators or techniques, but rather about such things as discipline, emotional control, patience, and mental attitude toward losing. The message is clear: the key to winning in the markets is internal, not external."
