Way of the Trader

Strategic Next Actions

Continue to build your unique trading style (using strategic reading, smart note-taking, and daily journalling).
Continue to form the daily trading habits of journaling, conducting technical analysis, and acquiring trading experience.
Update trading spreadsheet with latest winning and losing trades.
Continue to build Involgize Capital as a scalable trading enterprise.
Continue to never think about money when learning how to trade.
Become more private with your trading knowledge as you accumulate more trading experience.
Continue to stagger your trading entries and, strategically, set your stop-loss at 1:1.
Be extremely stoic when experiencing any losing trades (10 to 20 in a row if necessary).
Assess Bitcoin’s monthly chart (Stochastic RSI) to see if large institutions are entering the market.
Analyse the effectiveness of trading the weekly timeframe immediately.
Continue to read trading books and complete smart note-taking book reviews.
Consider closing all open weekly and daily trades every Friday to prevent unexpected weekend events affecting positions.
Encourage creatives to learn about trading so that they can progress their overall financial knowledge.
Acknowledge that the majority of your trading success (80%) will come down to how well you mentally train and prepare yourself to trade and be a trader (like writing these book reviews).
Focus on trading as your individual pursuit that concerns your professional development.
Always expect a trade to do at least two of these three options (Up 33.3%, Down 33.3%, or Sideways 33.3%).
Continue to never risk more than 2% of your total capital.
Always apply the 20% capital restriction rule when trading a large trading account (£20,000 of £100,000).
Continue to trade amounts that allow you to switch-off psychologically as the way to measure the right quantity of risk capital.
Acknowledge that learning how to trade profitably may take around five years.
Keep under review, the acquiring of an extremely experienced trading coach, who teaches how best to trade the daily and weekly timeframe.
Continue to adjust to experiencing trading losses.
Continue to backtest strategies, keep records, attending courses and events, find and manually enter data, read reports, and generally educate yourself on the markets.
Continue to inspire others (Involgize) to desire keeping trading records, analysing charts, and reading trading books.
Always adopt the focus, drive, and commitment required from a beginner.
Continue to be emotionless, relentless, and supernaturally effective in relation to trading.
Look into ‘The Economist.’
Continue to intentionally find ways to remain independent when learning from experienced traders.
Continue to encourage others to learn how to trade to improve their overall financial sophistication.
Continue to build Involgize (second brain) along side Involgize Capital (third brain).
Continue to synthesis trading and advance personal development knowledge (Involgize & Involgize Capital).
Make sure you create trading watchlists on your online trading journal to acquire ample trading opportunities.
Assess your winning and losing trades only in batches of 10 to 20 minimum.
Acknowledge that taking partial profits will always smooth out any relevant equity curve.

Strategic Learning Points (Elaboration)

To succeed as a trader it will come down to us being able to develop our own unique trading style as soon as possible in order to stand out from the crowd and stop our capital flowing into the pockets of the savvy and disciplined minority traders, after a deduction to the professionals who are in and around the market. I am confident that continuous weekly planning, strategic reading, smart note-taking, and daily journaling will enable me to achieve this objective effortlessly.
Reminded that trading discipline is just the formation and expression of trading and investing habits.
Reminded that the most important thing will be keeping “honest and accurate” good trading records to be a good trader. In addition, I intend to become a great trader by reading strategically, creating smart notes, and daily journaling.
There is literally know difference between the person who trades $200 and make $30 (15%), and the individual who trades $2m and makes $300,000. This is exactly why this business completely appeals to me in every shape and form. It’s all about creating a business that, by its very nature, is about money; scalable; and efficient (hence the vision: Involgize Capital).
Because there are no barriers to entry into the trading profession, the competition is fierce. Moreover, advantageously, this creates a deception that trading is easy. However, trading rewards those who are extremely systematic and methodical with a high level of emotional intelligence. The reverse is true. Without these qualities is almost guaranteed that an individual will lose all of their starting capital.
It is really important as a trader that emotionally we learn how to take losses easily. This is where, I guess, completing our trading spreadsheet becomes so, so, important. Making sure that we have a habit of recording our winning and losing trades regardless of the result would definitely have the intended affected.
“A professional trader will rarely discuss a trade when it’s open and will make his decisions in private.” This statement from the writer made me think about involgize.capital and the fact that, currently, I detailed all of my trades within my daily journal entries. It raised the question whether it is wise for me to continue doing so? In response, I concluded that I am making my posts public in the knowledge that, deliberately, I do not draw people attention to involgize.capital. And as a beginner, I am currently experimenting with its formation to intentionally inspire a few specific individuals (including myself) to be very systematic and methodical with their trading development if we are serious about being professional.
“The market pros watch that level closely and when the market drifts near it again, they act. They throw a sizeable order at the price and, like a basketball thrown into a room full of mouse traps, all the orders trigger….” This is why over time, as I have grown in experience, I have become extremely sensitive to assessing and staggering my trading entries into any market.
“If a trader’s preferred strategy is lag-orientated, he might have to sit through a drawdown of up to 20– 30% in a position.” This appears to confirm my approach of setting stop-loss levels at 1:1 in the short-term to be unpredictable in order to avoid the smart money tactics and the market noise.
Reminded that “a handful of great trades during the year are what make trading worth the effort. When we least expect it, an individual stock can pull off a magical move and kick our account balance into the sky.” in the meantime, it’s all about just taking series of small losses all of the time until these trades come along.
Reminded that large institutions use the monthly timeframe to carry out their trades. In this respect, re-assess BTC monthly timeframe to see if large organisations are likely to be, currently, making their entries into Bitcoin in light of the position of its Stochastic RSI and the Ichimoku indicator.
“Weekly trend following Beginners are surprised to learn that weekly trend following is widely considered to be the most profitable style of trading. Technically it is an easy style to learn, but it can be the most challenging. At least with monthly charts, we can forget about….” This is what my current experience of trading the daily timeframe of multiple markets seems to be teaching me. The markets appear to be moving in accordance with the weekly timeframe Stochastic RSI. If it is heading downwards then short trades are having a higher probability of success, and if it is heading-up then the advantage flips to the longs.
It is intriguing to discover from this book that trading the weekly timeframe may be considered the most profitable trading style or strategy. It offers a huge advantage in that it is extremely manageable for the average person as they will only have to assess moving their stop-loss and take profit once a week. And worse case scenario, they may have to consider a few daily timeframe charts during the week in order to trade effectively. This really illustrates the importance of reading, and specifically reading trading books.
Weekly timeframe trading may actually be the best trading style for me. The reason is that it would allow me to only have to check my open position on weekends, and will not interfere, but rather form an integrated part of my thinking work, in general, of discovering and synthesising the best ideas in the world. I definitely have the discipline and patience to pull it off. In fact, arguably, my level of discipline and patience may be my actual trading edge, or advantage, which I have not as of yet really capitalised on fully. My investing journal on my website would seems to lend support to my current conclusions in the respect that its evidence of suitability for a long-term perspective.
When trading the weekly timeframe, the writer would often close his trade on Friday, and re-enter on Monday to prevent an unexpected event from affecting his position. Definitely something for me to consider.
An artist’s ability to correctly identify the overarching structure and mood of things are strengths that lend themselves to mastering the financial markets when trading. Yet, the writer makes the point that many creatives see trading as something that is completely foreign to their orientation. When, in fact, creatives are arguably the people best suited to trade. Whereas those who tend to have an economics, mathematics, and finance background are prone to being rigid and less intuitive. They struggle, therefore, to sense the sentiment of the markets and see the overall patterns of things. Intriguingly, my daughter considers me to be a creative. This support the claim that I may have always been well suited to being a trader?
I know that trading requires a huge psychological component, but I would not have gone as far as to claim that it’s 80% with only 20% attributed to the trading style used (methodology). On further reflection, it makes sense in light of the fact that success in general is about using 99.9% imagination, feelings, and vision; and 0.01% methodology (the how).
As a trader, it is important to cultivate an individual perspective on the market. To separate ourselves from the crowd so to speak. Because, in essence, it’s the ignorance of the crowd that leads to the enrichment of the individual professional or master trader. In my case, it’s a question of showing others exactly what they need to do to master the learning process without creating the conditions for the actual trading to be some form of group exercise or something that requires collective agreement.
Enabled me to really appreciate that, when trading, price action can only ever do one of three things: (1) price moves up, or (2) price moves down, or (3) price moves sideways. Therefore, if expecting price to do one thing that odds will be 66.6% against us. But, if our trade anticipates the price to doing two of three things then we increase the odds, dramatically (66.6%), in our favour.
The 2% Rule is not just some arbitrary number: “extensive testing has shown that the maximum amount a trader may lose on a single trade without damaging his long-term prospects is 2 percent of his equity.”
The writer suggests that on any single trade or collection of trades only a maximum of 20% of our entire account should ever be a risk on a trading account. This does not mean that we trade the entire 20%. It just means that only 20% maximum of the account can be used for trades (£200 of every £1000). The 2% stop-loss rule still applies. In contrast, a trader would allow 100% of her account to be used as capital for all their trades until they have no more money left to enter any new trades, irrespective of applying the 2% stop-loss rule.
Reminded of the importance of only trading amounts that we do not think about psychologically. The moment that we find ourselves concerned about which way our trade will go (in relation to the amount that we have at risk) then this is likely to be a clear sign that we have too much capital at risk. That said, we should slowly increase the risk capital as our confidence and experience grows. This is what I have been, unknowingly, doing intuitively.
This writer also argues that learning how to trade should ideally be commenced by acting as an apprentice for about 4 to 5 years, as would be expected to learn many of other businesses. However, this does not commonly happen, causing the majority of beginners to experience losing their entire trading account in the process.
I have to agree with the writer that if we are serious about trading, we need to get some good training. We need exposure to experienced traders and come to understand what they do and how they do it. This will require a certain amount of trust, some money, and a lot of time. This makes me think that, as a next step, it may be worthwhile trying to find a suitable private trader role-model. I would need this person to be very experienced, and able to teach me how to trade the weekly and the daily timeframe profitably. On the other hand, continuing to use online coaches and role-model, there is a possibility that this step may not be necessary (I will keep it under review).
Slowly but surely, I am getting better at becoming used to the idea that experiencing losing trades is an important trading requirement. And, for this reason, is a key part of my overall personal development.
The writer is correct when he claims the following. That in order for a trader to stop a string of losses, they will have to double down on their effort and patience, and possibly form new trading rules of adhere by.
This book reminded me that the whole point of Involgize Capital is to… “build an infrastructure which will essentially pull money out of thin air when the circumstances are right. Therefore, initially, it will require a lot of time and effort on my part to setup. This will involve backtesting strategies, keeping records, attending courses and events, finding and manually entering data, reading reports, and generally educating myself on the markets.”
I believe that I can make the humdrum activities of trading glamorous. In other words, I can read, write, and keep records in a way that will inspire others to want to educate themselves on the markets (build a second and third digital brain). And also learn how to pull money out of thin air.
Reminded to always see myself as a beginner (as this is a true sign of being an expert: we never arrive) so that my mind always stay open to learning more and discovering new possibilities.
“The flooding tide of finance is not an easy place to be, but it leads on to fortune if we know how to navigate it.” I feel that my current trading habits and experience are teaching me how to navigate the flooding tide of financial markets so that I will inevitably make a fortune as a by-product of the process. Now is just about me doing my fair share of time.
Reminded that I find trading so enjoyable because it requires us to be emotionless. It necessitates and utilises my strengths of just being, always, systematic and methodical. Never up or down. Never happy or sad. But, just relentless and highly effective.
Consider reading a copy of The Economist to assess the quality of knowledge and content, as the writer claims that it is the most truthful or trusted publication that he has come across in the US.
It is important to show people how to trade, but not spoon-fed them the setups. Otherwise, we will stop others from really learning how to trade (fish) for themselves. This means that we should teach them how to analyse the charts, then apply their learning to whatever markets they choose. The most suitable trading style for this method would probably be trading the daily and weekly timeframes. And it’s based on the premise that a trader knows how to find good trading opportunities or ideas. The reality is that we will only progress as traders if we formulate the trade plans ourselves. Which is one of the main reasons why I stopped following other more experienced traders too closely. It will ensure that I remain an independent thinker whilst, at the same time, still learning from those more experienced.
The most important thing is to place our attention on controlling our losses. Our profits will take care of themselves as long as we maintain our trading routine. In other words, continue to ignore your daily profit and loss portfolio results. And just keep improving your trading analysis, knowledge, and execution. We have to forget about making money to be best placed in order to do so. “When we trade, our mission is not to make money, it’s to follow the strategy.”
Trading is all about us doing our preparation and analysis (on the weekends) when everyone body else is being distracted (at the ball game) by the world.
The writer confirmed the conclusion that I have drawn: time spent learning how to trade cannot go to waste because, worse case scenario, it is the vital knowledge needed to properly manage an investment portfolio. Therefore, learn how to trade not necessarily to become a trader, but rather to develop financial sophistication.
Being at peace, and having lots of patience, are the key qualities required to be a successful trader (an Ausar). No wonder why, over time, I have found myself drawn to progressing my development as a trader.
The writer states that each month the profits from his weekly timeframe position may be small, but they still provide a huge psychological benefit.
The writer succinctly put it that: “discontent is what drives the whole consumer machine. If people felt happiness and contentment in their lives then they will stop buying stuff, and the the machinery will come to a holt.” This would suggest that the seeds of discontent are being deliberately planted and sown within mainstream society as a form of social control.
“To be successful in the markets we need simple wisdom, not intelligence or cleverness, because successful trading ultimately leads to simplicity regardless of where we begin.” This is the reason why my trading third brain is a by-product of involgize.com and it cannot be the other way around. Trading requires me to not be clever per se, but smart enough to know that I should focus on the simple things in life. And this is the reason why trading cannot be the sole thing responsible for the advancing of my intelligence. Rather, its got to be part of a larger canvas of multiple intelligences in order for me to get close to fulfilling my full potential.
I followed the writer’s advice in terms of deciding what I should include in my trading journal: “If we are unsure about recording something, we should err on the side of caution and write it down. Keeping a diary also forces us to think strategically and logically.” This is exactly what has happened to me in the last 20+ days. Creating my online trading journal (third brain) has had the tremendous affect of making me far more strategic and logical because I have a system that captures everything that I need to remember. The result: surplus mental space to be more strategic and effective.
The writer’s experience trading confirms all of the assertion made within ‘How to Take Smart Notes’ and ‘Building a Second Brain.’ He took smart notes (trading journalling) during his trading development which formed pieces of his overall body of work. As a result, he’s future self has now been able to put his notes together to form his book. Yet, because he does not appear to have in-depth personal development knowledge, it has prevented him from utilising these works to explain the trading process. This is where someone like me may come in. I have synthesised this book along side numerous personal development texts. Therefore, combining the knowledge, in theory, should allow me to become a highly profitable trader super quickly.
“After we exit a trade, we need to keep a very close eye on it because it frequently sets up another good entry soon after. When we are looking for something to trade each day, our first port of call should be these closed-out trades.” As a result of reading this book, I started doing this immediately. It has had the affect of allowing me to have an abundance of trading opportunities each week. And I was able to detect that this is exactly what Soloway is doing as the basis of his youtube trading videos. Typical markets are (1) SPY, (2) QQQ, (3) TLT, (4) VIX, (5) Gold, (6) Natural Gas, (7) USOIL, (8) Bitcoin, (9) Altcoins, (10) Russell 3000, (11) Copper, etc.
Reminder to look at my trades in blocks of 10 to 20 minimum.
Key point for me to remember: “a smoothly rising equity curve can be created by maintaining a constant risk size on each trade and by scaling out of profitable positions.”
What is my current trading strategy? I would say the following:
(1) I trade a combination of the daily and weekly timeframes (still determining what one actually works best for me).
(2) I trade all market using the daily and weekly timeframes.
(3) To trade, I use the Ichimoku indicator along side the Stochastic RSI, trend lines, and support and resistance lines.
(4) I take profit along the way when the price hits any major support or resistance lines on the way up or down.
(5) I take at least 1/3 in profit, but at times it is more appropriate to take ½.
(6) I risk maximum 2% of my total capital for every trade, typically, only risking less than 1% at the moment.
Personally, I find it impressive that I am able to detail my trading strategy (above) easily without having to think hard about it. I take this as evidence that I have been truly living up to my potential, and committed to creating a solid and highly profitable trading business (Involgize Capital).
The next area of trading development has to be in relation to the following: “when screening for possible trading opportunities applications, it’s unlikely one single resource will perform all the steps we require. It’s a case of creating our own process by using elements from various sources.”
“I frequently missed re-entries after whipsaws and in the process missed great trades, because I stopped monitoring the stocks on my watchlist and went chasing after something else.” In light of what the writer stated, having and maintaining a watchlist may be the key to always having ample trading ideas and opportunities.
“If it works most of the time and its unique characteristics frustrate the majority of traders – then it’s a perfect strategy.” I think this applies to using the Ichimoku. It is a trading strategy that requires an investment of time to learn, which most beginning traders will not make. Also, the Ichimoku requires traders to rely on technical analysis (visual) as oppose to fundamentals (cut out the mainstream news). Therefore, detachment, patience, and discipline are a necessity; qualities that, arguably, the majority of people lack these days. This suggests that, unintentionally, I may be in the process of building something (Involgize Capital) that results in a perfect trading system.

Key Strategic Extracts from ‘Way of the Trader’

The Foreword by Dr. Alexander Elder

“Most writers forget the art part and sink in the sandpit of dry formulas. If formulas alone could make you rich, the firm with the fastest computer and the best programmers would own the exchange. That has not happened because the art part trips them up (Loc 122).”

“Most financial traders lose money – it is a sad if seldom discussed fact. The crowds garner some paper profits during a bull market, only to give back much more when that market turns. Trading is a minus-sum game in which the losses of the majority flow into the pockets of a savvy and disciplined minority, after a hefty deduction to the professionals in and around the market. If you trade ‘like everybody else’ you will lose. To win you have to stand apart, be different (Loc 130).”

“Discipline is not about suppressing or controlling something, it’s about doing the appropriate thing at a given point in time (Loc 141).”

“Still, Ian has a uniquely engaging way of presenting those concepts. For example, I’ve been saying to traders for years that the single most important step for their growth is keeping good records – show me a trader with good records, and I’ll show you a good trader (Loc 147).”

The Job

Is Trading a Job or a Business?

“Trading is an exercise in the transference of capital based on the assumption of risk. We might think we are buying and selling shares, but we are actually running a small business which trades in risk (Loc 212).”

“If a financial instrument increases in value by 15%, the guy with a $200 trade makes $30 and the guy with $2m in the same instrument makes $300,000– but no extra effort is required and it all happens in the same place at the same time (Loc 222).”

“This is a huge advantage because many start-ups spend half their time running the business and the other half trying to get paid (Loc 225).”

“Professions with high barriers to entry tend to be very profitable and lack competition. On the other hand, professions which are easy to enter pay less and are highly competitive. The trading profession has no barriers, so the profits are elusive and the competition intense (Loc 236).”

“They discovered that “the introduction of a National Lottery in Taiwan coincided with a significant drop in trading volume on the Taiwan Stock Exchange.” 3 Many gamblers trade the markets, just as they engage in other activities, but successful traders do not gamble. Understanding the difference goes to the very heart of trading (Loc 263).”

“Honest and accurate records are what separate trading from gambling (Loc 278).”

“But the bookmaker doesn’t throw away his records. That in itself speaks volumes (Loc 280).”

“In the market, we play by our own rules in an open and transparent public arena. Successful traders have learned how to write their own odds–only then will they pay the doorman (Loc 296).”

The Relationship

A Trader and The Market

“The financial media are not public service broadcasters. They are under no obligation to produce reasoned or balanced articles (Loc 371).”

“Whereas experienced traders go the opposite way and dismiss much of what’s written as gossipy and without substance (Loc 376).”

“We all know what to do, we just don’t know how to get re-elected after we’ve done it” (Loc 391).”

One Rule

The Preservation of Capital

“One of their most interesting works, ‘The Behavior of Individual Investors’, was released in 2011 and should be compulsory reading for all aspiring traders (Loc 440).”

“Virtually all of the gender-based difference in performance can be traced to the fact that men tend to trade more aggressively than women” (Loc 445).”

“Men don’t do lists or ask questions. We try to stay in with our ‘friends’ even after they swindle us and we like to throw our money around to impress people (Loc 453).”

“The one rule of trading, in fact the only rule that matters, is to preserve capital. By strictly following this rule, we counter the self-destruction our emotions and wishful thinking inflict on our account. Soon, we will be looking at the five limits of risk (page 37) which are practical rules we must apply to our trading in order to preserve our capital (Loc 458).”

Two Choices

Keeping it Simple

“Traders seek out volatility, sharp price reversals and breakouts. Surprise announcements or market pullbacks are manna for traders–quick moves mean quick profits (Loc 501).”

“Every so often, traders must take a hit and be able to absorb it financially and emotionally without a fuss (Loc 506).”

“A professional trader will rarely discuss a trade when it’s open and will make his decisions in private. Only amateur traders love to talk about their portfolios, almost as if to seek reassurance or validate their decisions. Successful traders say very little and keep their cards close to their chests. Unless you know a trader well and he tells you, you will never know what positions he has open and whether he is ahead of the game or behind (Loc 524).”

“They say opportunity knocks only once. That may be true in most walks of life, but trading is not like most other things. One of the marvellous qualities of the market is its ability to provide endless opportunities. A trader will never miss the boat, because the market is a boat builder (Loc 532).”

“The market pros watch that level closely and when the market drifts near it again, they act. They throw a sizeable order at the price and, like a basketball thrown into a room full of mouse traps, all the orders trigger. Because protective stops are market orders, they execute at any price and there is a race to the bottom (Loc 591).”

“Trading a lag-dependent strategy is where the protective stop is placed deeper down the chart, well outside the incessant gossip and drama of the market–in order to stay in a trade longer (Loc 609).”

“If a trader’s preferred strategy is lag-orientated, he might have to sit through a drawdown of up to 20– 30% in a position (Loc 616).”

“This means the trade size will be smaller because he has to reduce the number of shares he buys to accommodate a large pullback without exceeding his risk limit (Loc 617).”

“Whipsaw requires the discipline of action, whereas lag requires the discipline of patience–neither is perfect. In the Three Styles chapter, we will examine how the whipsaw/ lag trade… (Loc 623).”

“A handful of great trades during the year are what make trading worth the effort. When we least expect it, an individual stock can pull off a magical move and kick our account balance into the sky. The same stock might be held in an index tracker, but the mediocre performers dull the striker’s brilliance (Loc 661).”

“A 2014 report by the Autorité des Marchés Financiers (Financial Market Authority) in France, which looked at 14,799 accounts trading CFDs and forex over a four-year period, concluded that 89% of clients lost money (Loc 679).”

Three Styles

Trend Following, Swing Trading and Day Trading

“Institutions and large money managers use the monthly time frame quite a… (Loc 750).”

“Monthly trend following is incredibly easy to learn and is almost guaranteed to make a profit. But very few of us have the ability to embrace this style because we lack the required discipline and patience (Loc 756).”

“(b) Weekly trend following Beginners are surprised to learn that weekly trend following is widely considered to be the most profitable style of trading. Technically it is an easy style to learn, but it can be the most challenging. At least with monthly charts, we can forget about… (Loc 785).”

“We need to be prepared to move our protective stops at least every weekend. Depending on our strategy, we might also be monitoring the price action on a daily closing basis. We have to monitor our open positions more closely (but not too closely), which means we will experience more instances where we are tempted to stray from our strategy and intervene (Loc 789).”

“This style is particularly suited to beginners as they have more action to keep things interesting but need only check open positions on weekends. This allows time to get away from the screen (physically and mentally) and concentrate on their day job. To trade this style, we need to understand the basics of trend structure and have the patience to wait for each weekly bar to slowly print out without jumping in or anticipating where it might go (Loc 791).”

“Unfortunately, most beginners ignore this very promising style because it doesn’t offer the action they expect– it’s just too boring. After all, they became traders to trade, not to sit around, right? This is a gross misunderstanding. We become traders to pull money out of the market. If we can do that by waiting around, then that’s exactly what we need to do (Loc 796).”

“Normally we expect to be in a swing trade for a few days or a week at most. As soon as the short-term move ends, we get out of the position (Loc 808).”

“Once we are in the trade, we only need to adjust our orders after the market closes (Loc 810).”

“Dissecting the daily bar is never a good idea because the market can go all over the place in a single trading session, but actually go nowhere from a daily perspective (Loc 822).”

“Frequently, I will close the trade on Friday afternoon rather than risk an unexpected news event over the weekend. Panic tends to be exaggerated on Monday morning, because the panicky types have had two days to wind themselves up (Loc 830).”

“In the French study mentioned previously, 21 the conclusion stated, “… the study also indicates that investors who trade the most (by number of trades, average trade size or cumulative volume) lose the most” (Loc 861).”

“For all the reasons mentioned above, I don’t believe day trading is suitable for beginners. From my own experience and from speaking to people who coach traders, I can confirm that day traders are the ones with most of the problems – mental, emotional and financial (Loc 867).”

“Beginners should start out by trading equities on a longer time frame and progress to shorter ones as their experience and knowledge grows (Loc 871).”

Four Legs

The Attributes Which Support a Successful Trader

“On the other hand, artistic types rarely trade the markets – another pity. An artist’s ability to identify structure and mood in a nebulous environment is exactly the skill needed to thrive in the financial markets (Loc 901).”

“And this is one of the many paradoxes of trading; people drawn to the process are often ill-equipped and the best suited are not interested (Loc 903).”

“Timothy Slater developed the first software program to plot commodity graphs and technical indicators on personal computers. Mr. Slater wrote a foreword to Mark Douglas’s book, where he tells us, “I sincerely feel that success in trading is 80 percent psychological and 20 percent one’s methodology, be it fundamental or technical” (Loc 914).”

“Not only have we to remove ‘me’ from the market, we also have to remove ourselves from the crowd. Successful traders think and act as individuals. Collective decision making, consensus and collaboration are all very well for the board of our local golf club, but groupthink is highly destructive in the market environment (Loc 932).”

“The top ten global insurance brokers (by revenue) are based in the U.K. and the U.S., as are the most influential global stock exchanges (Loc 954).”

“In these two countries, the mindset for taking risks and managing them properly endures to this day. They understand that without risk there will be no reward – but the risk must be calculated and controlled (Loc 956).”

“Rather than attempting to predict the future, we should realize only one of three things can happen: the market can go up, down or sideways. As soon as we expect one of these to happen, we are excluding two other possibilities and have reduced our chance of success by 66.6% (Loc 978).”

“The gambler’s fallacy The notion that a recurring sequence of one result will be balanced out immediately after by the opposite result is known as the ‘gambler’s fallacy’ (Loc 1001).”

“Traders must work with numbers, but we must also be acutely aware of the economic and political world around us (Loc 1014).”

“A stock trading at $15 with a volume of 625,000 would turnover $9.375m worth of shares per day. 1% of that is $93,750 – so it’s OK to trade (Loc 1026).”

“Extensive testing has shown that the maximum amount a trader may lose on a single trade without damaging his long- term prospects is 2 percent of his equity” (Loc 1048).”

“Beginners should risk a maximum of 1% per trade, and when comfortable with that they shouldn’t go immediately to 2% (a 100% increase in risk): 1.25% should be next (Loc 1051).”

“Beginners are always surprised to discover that most of the profits made during a year’s trading can come from just a few good trades. The rest of the time we concentrate on preserving our capital by taking a series of small losses (Loc 1052).”

“… on any single trade to a maximum of 20% of our entire account to avoid so-called concentration risk. Therefore, in the example above we should buy no more than 24 shares (20% of our account balance divided by the share price and rounded down). Following the sudden drop in price, our 24 shares would give us a total loss of $2,760, which is just 2.76% of our account, even though the share price dropped over 14% (Loc 1088).”

“In simple terms, the potential risk in a trade needs to be significantly less than the potential reward, and the ratio should be no greater than 1/ 2.5 or 40%. By applying this rule, using a constant risk size, we can lose more than half the… (Loc 1093).”

“If we are uneasy about a position, we should reduce the size of the trade by selling some shares until we are down to a level where we are not constantly thinking about it, even if this means we only have $100 invested (Loc 1121).”

“When we are comfortable operating at that level, we should slowly increase the funds at risk as our confidence and experience grows (Loc 1123).”

“Ideally, every trader should serve an apprenticeship of four to five years. In the real world, it doesn’t happen like that. Private traders (including this author) take the highly irresponsible approach of trying to educate themselves and end up paying the price (Loc 1125).”

“As the 2010 study of the Taiwan Stock Exchange confirmed, ‘trading to learn’ simply doesn’t work (Loc 1139).”

“If we are serious about trading, we need to get some good training. We need exposure to experienced traders and come to understand what they do and how they do it. This will require a certain amount of trust, some money, and a lot of time (Loc 1144).”

“Traders need coaches who work with probabilities and accept the limitations of the process. The job of a coach is to train others how to do the same and allow traders to take full responsibility for their actions. It’s not a coach’s job to supply us with trade ideas (Loc 1164).”

“As we saw earlier, good records are what separate successful traders from gamblers. Records are the practical application of trading responsibility and they must be honest and factual if they are going to serve their purpose (Loc 1167).”

“The final part of responsible trading relates to the non-financial impact of our orders. In everyday life, we wouldn’t go around mindlessly making decisions which affect others without considering the consequences. If we did, we would soon find ourselves in hot water (Loc 1171).”

“However, for those who think about such things, in the Nine Filters chapter we will see how to screen for stocks which may be in conflict with our moral beliefs (Loc 1176).”

“When I began to work with professional traders, I was surprised to discover they were trading the exact same stocks as me, but they were making a profit because they were following a routine which allowed them to manage their trades better. All profitable trading routines have a handful of strategies at their heart (Loc 1184).”

“Robert Prechter summed up this problem nicely when he wrote, “Most traders take a good system and destroy it by trying to make it into a perfect system.” If our trading is profitable, our system is already perfect, and we should leave it alone and work on ourselves (Loc 1207).”

“To fully master a trading strategy, we have to be brought through the process step by step and then trade it ourselves under close adult supervision (Loc 1214).”

“For swing trading, oscillators which fluctuate above and below a centre line are best (Loc 1222).”

Five Stages

The Path of a Successful Trader’s Career

“we break the journey down into its five stages, it’s not as daunting as it first appears (Loc 1249).”

“Losing money It’s important we lose money when we start trading. In fact, it’s an essential job requirement (Loc 1260).”

“Their losses don’t flow down a drain in Wall Street, they flow into the accounts of other traders. Every day billions of dollars change hands, flowing from thousands of accounts held by amateurs into hundreds of accounts held by professionals. When losers stop trading, winners stop taking (Loc 1276).”

“For beginners, this is where things start to get difficult because they need to accept they are out of their depth. This can be a bitter pill to swallow for mature and intelligent people (Loc 1280).”

“Once a losing trader has stopped trading, they need to take some time out and make a decision. They can embark on the road to revival, which will involve effort and patience, or they can give up trading altogether. These are the only two choices which will preserve the capital left in their account (Loc 1291).”

“As they start trading again with their new rules and records, their account balance will stop falling, but it probably won’t start rising either – at least not straightaway (Loc 1301).”

“Building an infrastructure which will essentially pull money out of thin air when the circumstances are right, requires a lot of time and effort on our part. This will involve backtesting strategies, keeping records, attending courses and events, finding and manually entering data, reading reports and generally educating ourselves on the markets (Loc 1312).”

“These humdrum activities are not very glamorous, but they are the pots and pans of trading (Loc 1314).”

“The renowned Japanese teacher Shunryu Suzuki-Roshi, tells us: “In the beginner’s mind there are many possibilities. In the expert’s mind, there are few.” 31 Anything is possible in the market and every day is essentially the first day – therefore a true market expert always sees themselves as a beginner (Loc 1338).”

“According to data as of 29 December 2017, 84.23% of large-cap funds in the U.S. underperformed the S& P 500 index for the previous five years (Loc 1352).”

“To my mind, the only thing smart about institutions is the fact that they are usually using someone else’s money (Loc 1356).”

“Politicians and generals know more can be achieved in a few days on the battlefield than decades spent in negotiations at the UN. In battle, there are no rules and no boundaries: the process creates new ones. So, they grab the opportunity with both hands and exploit it to the maximum (Loc 1363).”

“These eight lines perfectly encapsulate the inherent opportunity of the market. This flooding tide of finance is not an easy place to be, but it leads on to fortune if we know how to navigate it. Traders must have the courage to grab their charts and set sail on the market tide (Loc 1374).”

“Experienced investors ride each asset to the top of its cycle and jump over to another one when they see it is starting to rise (Loc 1388).”

“We should be able to consistently trade our strategies when we are happy or sad, elated or depressed. Our mental and emotional experience is irrelevant. These days, our biggest competition in the market is artificial intelligence, not other traders (Loc 1429).”

“When we trade, we will have good days and bad days, but they all come and go and we realize over time there is nothing to get overly excited about. When we engage with the market, we should do so from the perspective of a political attaché– not a cheerleader (Loc 1437).”

“When a short trade works out, it can be spectacular because it produces a significant profit very quickly. They say the market climbs up the stairs, step by step, but comes down in the elevator (Loc 1463).”

“It provides insightful and understandable analysis of global economics and politics. In addition, this publication is not afraid to challenge conventional thinking and vested interests head on. A survey of 8,728 Americans in March 2017 by Michael W. Kearney of the University of Missouri, found The Economist to be the most trusted news source in the U.S (Loc 1505).”

“The ‘post-truth’ phenomenon came as a surprise to many and was proclaimed word of the year in 2016.35 It’s defined as, “Relating to or denoting circumstances in which objective facts are less influential in shaping public opinion than appeals to emotion and personal belief” (Loc 1551).”

“As we saw earlier, the best trading coaches show us how to trade but don’t spoon feed us setups (Loc 1558).”

“We will only progress as traders when we can analyse the market ourselves, formulate trade plans based on that analysis and implement those ideas in accordance with our rules. This is probably the most valuable lesson I learned (Loc 1560).”

“Regardless of how we feel or what’s going on in the world, we have to keep plugging away at our strategies and going through our daily trading chores (Loc 1573).”

“By sticking to a routine, traders will be in the market when it offers the greatest returns (Loc 1575).”

“Having learned to control our losses, the profits will look after themselves. The most important thing here is to trust our strategy and concentrate on the routine (Loc 1587).”

“When we have a few positions open during the day, we shouldn’t really know how much we are up or down in cash terms. Profit in trading is like grass on the front lawn. If we start measuring it, it will never grow because we are standing on it and blocking the sunlight. But if we concentrate on maintaining our tools and using good fertilizer, soon enough we will be up to our ankles in the green stuff (Loc 1589).”

“If we are not making a profit and short-term trading isn’t working out for us, there is no reason we can’t use the experience gained to manage an investment portfolio. In this way, the time we spent learning the markets will not go to waste (Loc 1593).”

Six Edges

The Psychological Tools of a Successful Trader

“Therefore, the only way to get ahead in the market (to triumph over ourselves), is to act in a manner which is out of character for traders and do things we don’t think we should be doing (Loc 1625).”

“The market abounds with irony, but one of the greatest of these is that we must forget about making money in an environment which appears to exist for that sole purpose (Loc 1662).”

“It’s about going through our daily pre-trading checklist because we know from past experience if we enter the market unprepared we will be punished. It’s about doing our analysis and preparation on the weekend when everyone else is at the ball game (Loc 1680).”

“It’s more to do with personal contentment (Loc 1693).”

“If we have a stressed, anxious or unsettled mind then we will not possess the foundation from which patience arises (Loc 1694).”

“Thanks to Google and online retailers, we are getting both! In the not-too-distant future, traders with abundant patience will stand out from the market crowd like never before (Loc 1714).”

“If we are serious about trading, we need to slow down and give the process time (Loc 1718).”

“One of the great ironies of the trading game is that the market is frantic, furious and complex, yet the people who trade it profitably are relaxed, steady and simple in their outlook (Loc 1719).”

“If we concentrate on learning the ropes and improving our skills, the rewards will come in time. To succeed as traders we need patience, because the market has none (Loc 1720).”

“Fear of missing out (FOMO) causes countless traders to jump into a sharply rising market just as it is about to change direction. In the process, they buy overpriced shares from professionals who then stand aside and wait for the next opportunity (Loc 1735).”

“Unless we enjoy an activity, sooner or later we will give up (Loc 1753).”

“For example, I like to have at least one weekly position trade open most of the time because it feels like I am always ahead (Loc 1757).”

“Each month the profit from a weekly position trade might be small, but it can be very beneficial on a psychological level (Loc 1761).”

“All of humanity’s problems stem from man’s inability to sit quietly in a room alone (Loc 1782).”

“Mindfulness happens on many levels, but concentration meditation is a more formal practice where we deliberately place our attention lightly on an object. In so doing, it allows our mind to settle and enter a state of non-distraction (Loc 1804).”

“When we devote ourselves to the process, the result we are seeking naturally arises – almost as a side effect. In mindfulness, it is presence and peace – in trading, it’s profit. This is not immediately obvious to beginners, because the process and the outcome they seek appear unconnected (Loc 1814).”

“We have attachment and aversion to people, places and objects, but also to thoughts and emotions and concepts of how the world should be and our place in it. Traders need to be acutely aware of this, because attachment to winning trades (and feeling like a winner) and aversion to losing trades (and feeling like a loser) is the main cause of suffering for us (Loc 1827).”

“Jesse Livermore told us it was his sitting that made him the big money (Loc 1853).”

“For a capitalist society to function, people must spend vast amounts of time and money chasing their butterflies and avoiding their wolves. Discontentment is the engine that drives consumer society. We must keep buying stuff to keep the whole thing going around (Loc 1867).”

“These traders are very clear about their reason for being in the market–are you? (Loc 1884).”

“Traders are midwives and undertakers to the market, the never-ending wheel of birth and death on the exchanges keeps them in a job (Loc 1906).”

“But given the choice, most of us would probably prefer to be younger, rather than gain an understanding of all knowable things (Loc 1910).”

“According to the classical Greek philosopher Socrates, a wise person will instinctively lead a simple life (Loc 1915).”

“To be successful in the markets we need simple wisdom, not intelligence or cleverness, because successful trading ultimately leads to simplicity regardless of where we begin (Loc 1915).”

“After all, they do say, “The lotus flower grows best in the swamp (Loc 1926).”

Seven Records

A Look at the Records a Trader Should Keep

“How much to record in our diary, and when to record it, is a personal decision (Loc 1949).”

“If we are unsure about recording something, we should err on the side of caution and write it down. Keeping a diary also forces us to think strategically and logically (Loc 1951).”

“Good trades and bad trades are not the real issue – the thinking and motivation behind them is what we are trying to identify. Because our diary is recording market events in parallel with our reaction to them, we are examining history from dual perspectives (Loc 1956).”

“Enthusiasm is a healthy sign and we shouldn’t beat ourselves up over it. After a while we will learn to record the important stuff and filter out the noise, but we need to maintain our eagerness (Loc 1960).”

“We are essentially talking to ourselves from the past, trying to learn from our difficult experiences so we won’t be destined to repeat them. In fact, the key points from my first few years trading were the foundation for this book (Loc 1968).”

“These images should show sufficient detail that a professional trader will know what your trade plan was just by looking at them (Loc 2030).”

“(a) After we exit a trade, we need to keep a very close eye on it because it frequently sets up another good entry soon after. When we are looking for something to trade each day, our first port of call should be these closed-out trades (Loc 2034).”

“… reviewing our recently closed trades for new opportunities is one of the most profitable things we can do as traders (Loc 2036).”

“Trades should be analysed in blocks of ten or 20, rather than looking at each trade in isolation (Loc 2043).”

“In the equity curves shown above, both traders are equally profitable but the top curve (figure 14) offers a better night’s sleep because the trader takes smaller risks and stays in cash more often. A smoothly rising equity curve can be created by maintaining a constant risk size on each trade and by scaling out of profitable positions (Loc 2064).”

“If we take partial profits as the trade progresses, not only are we taking some risk off the table, but the incremental gains will smoothen our equity curve and calm the nerves of our financial backers (Loc 2068).”

“When we trade, our mission is not to make money, it’s to follow the strategy (Loc 2073).”

“A documented strategy clearly lays out what we are doing, why we are doing it and when we should be doing it (Loc 2075).”

“Source / scan Under this heading we clearly explain how we find trades for the strategy. It might be a special scan or another reliable source which has proven profitable in the past (Loc 2091).”

Eight Checks

A Comprehensive Pre-Trading Checklist

“We have no excuse because market-moving events happen on a regular basis and can leave havoc in their wake. This occurs because stop-loss orders which have lain dormant and cozy under support zones for months are suddenly exposed to the glaring sunlight of the market when a macro event lifts the lid on everything (Loc 2163).”

“Next, we might check economic sectors and I use SPDR ETFs for this, so I can see everything at a glance and note how each is performing relative to the others. I also note the location of major and minor support and resistance levels, and check the futures for each index mentioned above, to see how the market is likely to open (Loc 2181).”

Nine Filters

Selecting Which Stocks to Trade Using Filters

“In this way, rather than going into the market everyday looking for something to trade, we are presented with a list of candidates which exhibit the traits we require. On the days we are shown a very short list (or no list at all), it means the current market is not conducive to the strategy (Loc 2256).”

“There are numerous free and subscription-based online resources which allow us to filter stocks. Many trading platforms also offer screening applications as part of their overall package. It’s unlikely one single resource will perform all the steps we require. It’s a case of creating our own process by using elements from various sources (Loc 2271).”

“The filter should be carried out four times a year after earnings season (Loc 2275).”

“For good or for bad, the markets are here to stay, and they are growing bigger and more influential. We have to deal with them as best we can and take responsibility for our trading. Accordingly, we can exclude specific activities or individual firms which are in conflict with our conscience. These may be firms involved in defense, alcohol, tobacco, gambling or adult entertainment. It might be a particular chemical or pharmaceutical firm, or some other company we don’t like (Loc 2293).”

“When everything hinges around a single drug trial, we are taking a big risk by trading these shares. Traders who specialize in this area know the individual firms and their research well, and use specific strategies to trade them. In terms of risk, smaller exploration and mining stocks can be similar to biotechs in that everything can hinge on the result of one test (Loc 2307).”

“ETFs are great for gaining access to commodities and indices if we feel we are not ready to trade futures (Loc 2316).”

Ten Tools

An Introduction to Technical Indicators and Orders

“Price action refers to the shapes and forms created by price bars and how this captures the dynamic of effort and reward, in addition to supply and demand (Loc 2518).”

“When we spot one of these exotic candlestick formations, we should remember, so has everyone else. Therefore, entering a trade on the basis of price action alone can be a highly risky strategy and is more suited to scalping and day trading (Loc 2531).”

“Before we place a single penny in a stock, we need to understand how the location of the current price relates to value. Is the stock over-valued, under-valued or just about right? We could do this by looking at the price-to-earnings ratio (P/E) and its historical context or by trawling through the company financials. A much easier method is to stick a moving average line on a chart (Loc 2576).”

“‘Buy 1,000 shares!’ and the market asks, ‘How would you like me to execute that order, sir?’ and you reply, ‘Ah sure, whatever you think yourself.’ The market is always thinking about itself, not about us. For this reason, market orders should rarely be used (Loc 2732).”

“They automatically trigger us out of a position in equities which is turning against us and into a position in cash which is always a good place to be. When a stop is triggered, we should never see it as a failure on our part (Loc 2775).”

“I frequently missed re-entries after whipsaws and in the process missed great trades, because I stopped monitoring the stocks on my watchlist and went chasing after something else (Loc 2811).”

The Strategies

Perfect Imperfection

“If it works most of the time and its unique characteristics frustrate the majority of traders – then it’s a perfect strategy (Loc 2833).”

The Tidal Strategy

Introduction

“Prior to 1993, private traders and investors with small accounts would have been unable to gain direct access to such a diversified portfolio of stocks via an inexpensive fund. ETFs now make this possible for everyone (Loc 2868).”

“It’s easy to backtest a strategy. Backtesting a trader’s mind and their ability to apply it diligently over decades is another matter entirely (Loc 2897).”

“Historically, there is a strong correlation between interest rates and stock prices. In theory, rates go up and stocks go down, and visa versa (Loc 2984).”

“Whenever I share this strategy with beginners, they always ask, ‘If this approach to the market is so easy and almost guaranteed to make a profit, why doesn’t everyone use it?’ The answer is, like the strategy itself, very simple– most people lack discipline and patience (Loc 3013).”

The Wilde Strategy

“This is a discretionary weekly trend-following strategy where we are looking for high-flying stocks that have fallen out of favor and ended up in the gutter (Loc 3028).”

“We can find Wilde trades in a few ways. Fundamentals are a great place to begin. Perhaps there are ongoing internal issues in a firm or a string of unflattering news stories have hit the headlines recently (Loc 3071).”

“… declining industry which needs to reinvent itself in order to survive is another possibility – basically anything which indicates a firm is in trouble (Loc 3072).”

The Help-Up Strategy

“Observing the 20% limit will often mean our invested capital is small relative to the size of our account (Loc 3234).”

The Beginning

“When you trade the markets, there is no guarantee you’ll get richer. However, in my experience, and based on the honest anecdotal experience of other professional traders, if you work at it and stay at it, you will make money (Loc 3376).”

IVG (Involgize)