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Thinking Like A Trader
Trading distilled down to its simplest form is a pattern recognition game based on probabilities. We use analysis to identify patterns, define risk and determine profit targets. The trade works or it doesn’t. In either case we move on to the next trade. This is simple to conceive but difficult to implement. Trading is challenging because you must operate in a state of not knowing anything, even though your analysis may at times prove you to be correct. To operate in a state of not having to know you must properly manage your expectations. To govern your expectations you must align your mental environment so that you believe without a shadow of doubt in the five fundamental truths.
Now we shall go through the three stages of the development of a trader. The first stage is the mechanical stage.
In this stage, you:
1. Build the self-trust necessary to function in an unlimited environment.
2. Learn to impeccably execute a trading system
3. Drill your mind to think in terms of probabilities (the five fundamental truths).
4. Create strong, unshakable belief in your consistency as a trader.
Once you have mastered this stage, you can make inroads to the subjective stage. At this stage, you can use anything you have learned about the nature of market movement to do whatever you want. There is a lot of freedom at this stage but you must check beforehand that what you choose to trade has statistical relevance.
The third stage is the intuitive stage. This is the highest level of mastery you can attain. You cannot try to be intuitive since intuition is spontaneous. It is a complex stage to master because the rational mind often overrides intuitive signals.
