The Way to Trade. John Piper

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СКАЧАТЬ time. So one day a particular tactic will work, the next day it won’t. Compare this with a normal everyday function like walking down the street. If you walk into a lamp post, you soon learn that you need to walk round them. But in the market-place, the lamp posts keeps moving as you approach them, you can never be sure that you can get round them.

      But what you can do is develop the mental discipline so that even when you do bump into them it’s OK.

      This section is entitled “YOU.” This is because you are the essential element behind the way you trade. If you refer to the diagram of the Trading Pyramid at the beginning of this chapter you will see that you form the base of the pyramid. This is because you have to develop a style of trading which suits you. In no other way is it going to work.

      The trading experience

      If you peruse any bookshop with a few books on trading you will soon find that there are masses of people out there seeking to grab some of your hard earned cash so that they can tell you about how they trade the markets, although in many cases these authors do not actually trade themselves, but that is another matter. Now it may be that one of these many books is right for you, but which one? Not an easy question to answer. Apart from the analysis technique you should use, you also have to learn trading skills, which ultimately are about 95 per cent of this game. This takes time. Do not expect to be an instant success at trading, you have to learn this business as you do any other. Whilst you do so you have a simple task and this is the first secret of trading. Like all great secrets it is well known, because that is the best way to keep something a secret, make everyone think it is not a secret at all. But this is where most novice traders fall down, this is where they knock themselves out of the game. I am not going to repeat this secret now because to do so would be to belittle its importance. This secret, plus the other two are revealed throughout this book. When you hear the secrets you will already “know” them but maybe this time they will have sufficient impact to make a difference. That is all I ask, that what I say helps to make a difference, to improve your trading performance.

      To introduce the trading experience we must look inside ourselves. This is where it all takes place. There are a few simple rules but before saying what they are I think it is important to stress three points:

      1 In the trading environment there is no absolute truth. We never know what is the “right” thing to do in any one situation and what is “right” for one trader is wrong for another. We therefore have to formulate “useful beliefs” which work for us. This is akin to how scientists work when dealing with quantum mechanics. The building block of all matter, according to current theories (or useful beliefs), is a quark. But this is found to have no mass. How can the building block have no mass? Another word for a useful belief is a useful lie. Anything which is not the truth, the whole truth, and nothing but the truth, can be said to be a lie, although this definition is not widely accepted.

      2 Given this fact nothing I say is cast in stone, it is important you discover your own “useful lies” that will form the basis of your trading philosophy.

      3 In similar vein it is your personality which should guide you in your search for the right approach. Do not be guided by advertising copy, as many are. Ask the question “What is right for me?” and then go out and find it.

      So what are the few simple rules? In my opinion they are as follows:

      1 Always limit your losses.

      2 Try to ensure that your average gain is at least 2.5 times your average loss.

      3 Endeavour to find an approach which gives you an edge.

      4 Make sure you are comfortable with your trading approach. This involves self discovery, something many shy away from. But peal away the outer layers and what is inside is often very fine indeed. The outward layers can be a bit yukky.

      5 Learn to let profits run.

      6 Learn to trade selectively.

      7 Learn to control your own self sabotage.

      SUMMARY

       YOU – the first level of the Trading Pyramid because the whole pyramid has to be based on your personality.

       How we each see the market is unique and we need to ensure that our perception is “useful.”

       The key trading “secrets” are well known.

       In the trading environment there is no “absolute” truth.

       Nothing in this book is “cast in stone” and you must find your own road to success.

       Don’t be led by advertising copy, decide what you need and then go and get it.

       There are seven simple rules to success.

      Chapter 5: COMMITMENT

      To many traders the market is a generator of random sequences. In many cases it will drive you round the bend. Commitment is a very necessary quality if you are going to be a winner.

      The nature of the market

      Whether the market is such a generator depends on your perception of the market. For example if you choose to trade the market on the basis of a precise algorithm, i.e. a precise formula such as used by stochastics, moving averages, etc., then you are dependent on exactly what the market throws at you. In this sense it is such a generator. If, however, you choose to look at something which has “meaning” then the market will not be solely such a generator. However, most of the chart patterns, etc. that are used are fairly meaningless. This is illustrated by two facts:

      1 For something to have meaning it has to be right more than half the time. Strictly, the variance from the 50/50 criterion has to have statistical relevance.

      2 Very often, no sooner do we see a “pattern” than it aborts. It was never really there in the first place. It just so happens that the market, in its function as a generator of random sequences, is going to throw out all types of “pattern” but that does not mean that they have any meaning.

      I became interested in markets via the Elliott Wave Theory (EWT). This is a good example of what I consider fairly meaningless. The theory is general enough that there are going to be lots of random sequences meeting its criterion. Some of them work, some of them don’t. I doubt the ratio is much away from 50 per cent. But I find I am now indoctrinated in EWT, see Appendix 5, so I have learnt to live with it. I now ensure that I only take signals which have something meaningful attached to them – for example, Minus Development from Market Profile (see Chapter 18).

      So what does have meaning? In my view the only fact that can be stated about markets is as follows:

       Markets move from extreme to extreme across all time frames.

      Markets are a manifestation of human psychology. They are driven by fear and greed. Peaks are driven by greed, troughs by fear. This is obvious in the very long-term extremes. Fear is often illustrated, literally, with blood in the street. Greed is so endemic nobody recognizes СКАЧАТЬ