Do you dream of becoming a great trader like Jessi Livermore? He didn’t become the great instantly, he also had to go through the trader development process just like any other trader. What I am going to write here may be one of the most important blog post ever for a struggling trader if he grasps the essence of it.It may shorten your learning curve by years.
You might have heard about the trader development phase and if you Google it you will find there are close to 10 phase according to many article. But for me there is only three phase to develop the kind of consistency, every trader dream about.
This is very straight forwards to many, lets take an example: Each body having mass on earth follows Newtonian law of physics, they are bound by the structure and rules given by Sir Isaac Newton. So to understand the movement of these body you need to understand by what rules these bodies are bound.
Now lets come to trading, if you want to know how price moves in a chart, you need to understand the structure of the market. The structure is mainly support and resistance which comes in many formats like Horizontal line, pivot point, moving average, round numbers,indicators etc.So to identify the structure you need to define your support and resistance lines.
This is the first step, what many traders do is system-hopping, they don’t define the structure and change system so often that they don’t master it and eventually give up.Another important thing is to have absolute confidence in your structure, if you don’t have the confidence don’t go to the next step.Because if you will, you will fail.If the base is not strong how can you hope to build a building.
After you have defined structure you need to find how to trade around those levels. My structure is based upon pivot points and horizontal support and resistance lines. I always trade away from these levels. You need to remember that first step is always very difficult but finding tactics is very easy, but many of us including me have done the opposite in the beginning .We put all our energy in finding the right tactics to trade, which is called system hopping. In the search of the holy grail we forgot the basics and jump from one tactic to another.
In my experience I have found out that If you have one tactic and put your heart and soul in mastering that tactic then one can be successful no matter what. But you needs to make your base clear i.e. defining your structure.
TAKING RIGHT ACTION
This is the most difficult part. You have everything in place, right structure, right tactics, everything is saying go long but you hesitated and missed the opportunity. This is called execution error. I am in this phase right now in my trading journey.
Now have a look at the picture carefully, there are two slopes in it.These are called slippery slopes, and here I call step 1 and step 3 as the two slippery slopes. Let me explain why? If you don’t define the structure you will slip and again become a struggling trader.If you don’t take right action or do execution error you will slip two step 2. It is as simple as that.
Now many people will say what about psychology and discipline and risk management. I would say these things matters, risk management is something which is integral to these concepts. As far as psychology and discipline are concerned, these things will be taken care of if you become consistent.But yes don’t ignore it in the beginning.