WISH I KNEW

“Ignorance is not bliss. Ignorance is poverty. Ignorance is devastation. Ignorance is tragedy. It all stems from ignorance.”
~ Jim Rohn

Every retail trader starts off woefully ignorant.

Some stay that way and never advance their knowledge.

They keep on weekend charting and dreaming about a big turnaround win.

I spoke to a former trader who ran a desk at Deutsche Bank, having worked there his entire career after being headhunted out of Oxford University until he retired at 38.

I asked him the most ignorant question at the time, which was about how his team used charts.

His answer was simple enough:

“If we catch a junior staring at charts all day, we fire them and put someone useful in the seat.”

Retail is obviously quite different from the institutional side of trading, but that conversation in late 2021, among many, highlighted just how clueless I was about the business of trading.

With that in mind, here’s 5 things I wish I knew when I started:

1) 80% process, 20% execution.

I now spend way more time planning and reviewing than I do taking trades. The preparation and reviews matter more than trying to perfectly time every trade.

Fact is, almost everyone fails to review their work, which makes them straight up gamblers. It’s a sad reality that people take several trades per day and can’t remember anything about them, just the financial outcome (which is often not exactly memorable).

As the saying goes, if you fail to plan, you plan to fail.

I’d add that if you fail to review, you might want to give up all hope.

Start a trade journal or review template tomorrow. 

If you scalp a lot, either review the entire day in a summary fashion or spend the money on a 3rd party journal service. It’s worth it.

Every time I review a trade in detail with someone, they make significant progress with every aspect of how they saw and took the trade. Everything gets better from that point.

2) It’s time AND price.

Some people get confused with this flip of the popular statement about price and time in technical strategies.

The only constant in the market is time.

Markets require time to “accept” a breakout to a new level. The longer it stays there, the more the move is accepted. The less time, it’s a rejection.

Time and price acceptance drives participation with reactions that become quite predictable the more you see them.

Having said that, very few traders actually maintain a view on price beyond the next price target for a short term trade.

Every time I hear someone say they only trade SPY, I always ask them what the closing price was in the previous session. That’s become a running joke of sorts.

3) Auction market theory.

Even though I had level 2/DOM access on the my first ever trading platforms, I didn’t understand the mechanism. I had some loose “strategies” around using the order book (which honestly moves too fast and lacks transparency to the untrained eye) but I failed to grasp the mechanics of order flow, levels and range, point of control and so on.

If you watch an auction on YouTube, the mechanism is exactly the same as the reaction to price for a desirable asset. The auction for a rare item is one way, but the rhythm and emotion is largely the same. Too much money chasing too little inventory controlled by a major seller and the strongest bids. There’s a lot to be learned from this that applies to markets.

4) Everyone gets liquidity wrong.

Following the point about the auction mechanism, liquidity is like some dirty word on Twitter. It really gets the degens going with 53 acronyms about where stop runs, biblical swings and all of that masonic, secret society fight club talk. You know what I mean.

Liquidity is a relatively straightforward matter. There are basically two types of orders, which in the broad scheme of things designates you as a maker or taker of liquidity. There are parties tasked with only providing liquidity to the market. The “thicker” the market in terms of liquidity provision, the less volatile it’s likely to be. The thinner it is, the more breakouts and imbalances occur which offers up additional opportunities for the most strategic short term speculators.

While markets are certainly manipulated, the counterparty to your trade isn’t some nefarious entity hellbent on bringing about middle class poverty on the 1min chart. They just make money in ways that you don’t understand.

When you get it, trade setups aren’t all about highs and lows. There are lots of useful strategies to trade mean reversion, intraday regression patterns and so on. Every tick makes money, and liquidity is a key factor but not the determining one. Particularly in the way it’s explained by retail trading influencers.

The only thing that matters is the intentions of participants to trade directionally against certain prices, or force the hand of traders who expect one thing, end up with the opposite and have to puke it back out.

Bet you know how that feels. I definitely do.

5) Context > Signals

Fundamentals, seasonality, time of day/week/month, the long memory of supply and demand levels.

All of this wraps around the granular price action to add context.

A signal isn’t really a signal without that context.

A signal with context, knowledge of the auction and a well planned execution of a trade idea becomes an edge.

Hope that list helps, but while we’re here, there’s one more thing I wished I had known at the beginning…

6) Study yourself more than charts

You have demons. We all do.

We don’t know each other, but I know your demons. We probably have many in common.

I speak to traders who go around in circles for years, refusing to acknowledge unproductive habits and irrational sources of negativity.

They still want to believe there’s a hack out there to cover it up and just make some money.

That’s a total lack of self awareness, and it just won’t work out in the long run.

You’re ability to trade is your ability to observe yourself and the market at the same time.

In that sense, it’s hard to become better at trading without becoming better at the rest of your life.

Markets certainly aren’t there to save you.

If anything, racking up the losses should tell you that it’s time to save yourself.

Do everything you can to uncover your biases, the source of your frustrations and every little personality quirk that gets in the way of seeing clear opportunities and profiting from them.

P.

The next CONSISTENCY course starts on July 1st.

Over 3 weeks, we cover multiple price action approaches in the broader context of how markets work and develop the right processes to generate bigger ideas and systematic executions.

The goal is to define and then run a trading business with the right strategies, a sharper mindset and routines geared towards long term efficiency and scale.

There is a presale until June 17 with a $100 discount.

You can find out more at http://www.actuatecoaching.com/consistency