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Lessons from an Experienced Trader #2

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Lesson 4 Know what you want in the market

Contrary to what most believe, successful traders do not actually trade constantly. Attempting to trade constantly leads to increased commission costs, random trading, and compound mistakes. In fact, successful traders spend most of their time doing absolutely nothing! How long does it take to enter an order? A click of the button. A few seconds. Maybe a few minutes at most to create bracket orders.

So what do Professional Traders do the rest of the time? They wait. They wait until the market offers what they want or are looking for. Then after entering they wait some more to see if they are right. They wait for the market to provide them with the information to either hold, or exit.

They allow themselves to Be, the trade to Be, the market to Be and do what it is going to do. They do not force actions or attempt to make the market do what they want. They wait until the action comes about on its own, until it is natural, a reflex.

If you do not know what it is in the market that you are looking for, you will fold under pressure and confusion. A Professional Trader knows exactly what he wants (not just to make money), he knows what he is looking for in the market, and is willingness to wait for it to arrive. By doing so, he is rewarded and paid by the market for his patience and willing to do nothing. Even if this means not trading for hours, days, or even weeks depending on the time frame.

It is far better to do nothing and avoid unnecessary losses, than to try and create tensions, forced actions, and lose money. You have to ask yourself "What is more important? The actual act of trading, or making money?"


Lesson 5 Define your edge

An edge is what you have defined as being what you want from the market in the previous lesson. This can be anything from a specific setup, to just plain context like a strong market. If you do not know what your edge is, you will struggle to perform consistently due to randomness.

Many new traders, especially those who follow price action, believe they should be able to trade the market no matter what the context is. If you think you are just going to walk in to the market, trade based on whatever the market is doing and make money; you are fooling yourself. Doing so will lead you to trade randomly, entering willy nilly at the market, and make many mistakes which will cost you your profitability.

Do you walk into Walmart or Aldi's without knowing what you want to buy until you get there? No, you have a list of items, or at least an idea of what you need before you go. Do you start a business because you woke up this morning and thought it would be nice to own a car wash? Hopefully not. You first identify an opportunity, and then create a business model after a lot of research. Then finally you open the business.

Of course everyone thinks or says "well so and so does this and that, and he seems to be making money." Sure, maybe he is, maybe not. If he is, he has defined his edge and is simply employing it. What someone else does has absolutely nothing to do with what you should be doing.

Once you have defined your edge, you must wait for it to arrive. If the market is not offering what you want or what your edge calls for, you do nothing until it is. If your edge is a trend trading method and the market is in a trading range, you do not trade until the market is trending.

If you have not clearly defined your edge, you should not trade. If you do not know what it is in the market you want and are looking for, you have no business in the market. Simple as that. If you chose to do so, you are putting yourself at unnecessary risk and trading randomly. Yes this sounds harsh, but it is the reality of the market. The market will not give you anything, especially if you don't even know what it is that you want!
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