Know What to Do

We are at the concluding stages of this topic: we need only cover “know what to do”. To date we have covered two aspects for trading success:

1. Identify the core issue blocking your success (Pig Wrestling)
2. “Do what you know” (Do What You Know and A Trader’s Tale ).

So, what knowledge do we need for trading success?

The problem with trading is you can have some profitable trades without any knowledge. As far as I know, trading is the only profession where this is possible. (Imagine the result if I tried a heart transplant without any medical education and training!) As a consequence, many newbies come to this profession thinking that an educational foundation is unnecessary. They think they can succeed without putting in the time, effort, and yes, money.

I think though, this class is in the minority. Much more common are those who will initially invest time and money but, who will not be prepared to invest in the needed effort.

Time and again, as an educator and coach, have I seen this phenomenon: attendees (coachees) invest dollars and hours but refuse to move outside their comfort zone. They prefer to remain with the old habits that have proven unprofitable.

One of the reasons I have stopped, or almost stopped, pro bono work is because, to date, not a single scholarship has produced a profitable trader.

Let’s assume that you are different – that you will put in the effort needed to bring your trading to the next stage. What knowledge will you need? Unsurprisingly, the areas are

• Method
• Money and
• Mind

My new take: the Method newbies need is a hybrid approach.

I used to believe that method had to suit the trader’s personality; your personality generally dictated that you needed to be either a systematic or discretionary rule-based trader. Over time I found that newbies are unable to handle the inevitable drawdowns attached to a mechanical system, and they generally find discretionary rule-based approaches too complex for their stage of development.

The 4-Phase Framework is such a hybrid approach, and the results attained by new traders have been impressive. (by ‘new’ I mean not only those who have never traded but also the traders who have not been able to return a profit)

The hybrid approach seeks:

1. To provide a theoretical basis for the systematic rules it creates. And seeks
2. To keep the rules simple.

In this way, we retain the advantages of both the mechanical and discretionary methods of trading.

In the 4-Phase the theoretical basis is the Wyckoff Method and Market Profile. Strict rules have been built around the four phases resulting in a simple methodology that has a positive edge.

You can create your own 4-Phase Framework:

1. identify a strong directional move
2. identify a pause in that move
3. identify a sideways price action that signals continuation OR
4. identify a sideways price action that signals a reversal of the strong directional move.

With this knowledge in hand, you have your syllabus. You need to acquire the education that will enable you to create the rules for the four phases.

That’s all for now. I’m hoping to conclude the series on Mondays blog.

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