A sure way to tell if you are trading from an unbiased perspective is indifference. The reason you will feel indifferent is because you have stopped placing your focus on where to get into the market and started placing your focus on Risk. I can always tell the difference about the type of trader I am speaking to by the subject of our conversation. If we are talking in terms of entry method and stop loss, I know they still have not found any kind of consistent profits and they are still in search for a “better method”.
A profitable day trader on the other hand if we discuss trading at, it will be in terms of risk. I know I am speaking to someone that understands how to make money in the markets because there is nothing left to prove. They understand that trading is about probabilities and the only thing you can do is protect your capitol by limiting your risk. When you prove this to yourself, there is nothing left to prove to anyone else. I cannot put it any more plain and simple than that.
If your pulse quickens as you place a trade, then your market analysis is based on hope, greed, or fear. You have projected what you want see into the charts and now you are watching price action hoping that you are right and fearful that you are not. Unfortunately, your market analysis is going to be flawed. The reason is because you are seeing only what you want to see in your illusion of where price will go in the future. There may be times when this works but there will be many more times that your inner conflict will cause disastrous results. And what is worse, in your hind-sight retrospect analysis, you will see that the charts are now telling you something different than they did at the time of the live trade. When you are in combat and under fire your interpretation of evolving events tend to be jaded because you are frozen in fear about being wrong. The market will have to slap you silly to convince you that you are dead wrong and throw you out only to once again reverse and prove you right. You will find that you are questioning yourself, as to why you saw it that way at the time. Then you will start questioning your own interpretation of every chart. Once you are at that point, you are just a lily pads jump away from understanding what it takes to become a profitable trader. The reason why I use the term lily pad is because as you make the jump into understanding, most likely you will first take a bath or two.
All you need to do is learn to shift your focus from a single minded conclusion to several of those 360 degrees of perspective. Once you work through the process of dissecting something from the 360 degrees perspective, and I mean take the time to do it, you will find that you question your interpretation of every event in your life.
How will this help you on the road to profitable trading? You will stop seeing what you want to see happen in the charts and start seeing for the first time what is happening. Once you have crossed “That bridge”, you will have freed your mind and will now be able to focus on exactly what you need to be focused on….. risk. This is why I call the road to profitable trading an inner journey. It will set you free on many levels.
Indicator Warehouse came out with an amazing tool to help you define risk. It is an indicator called the “Risk Manager” and personally, I wouldn’t trade without it because it does all the math for you. We will discuss this more thoroughly in my next post.
All the Best!
Dave Smith
A proven trading system will definitely help the learning curve, check out the Diversified Trading System videos in action!
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