Subnostr

Stage Two: The Hot Pot Stage

You scan the markets every day. After a while (sometimes a good long while), you notice a particular phenomenon that appears regularly and seems to "work" pretty well.

You focus on this pattern. You begin to find more and more instances of it, and all of them work! Your confidence in the pattern grows, and you decide to take it the next time it appears. You take it, and almost immediately your stop is hit, and you're underwater for the total amount of your stop-loss.

So, you back off and study this pattern further. The very next time it appears, it works. And again. And yet again. So you decide to try again, and you take the full hit on your stop-loss.

Practically everyone goes through this, but few understand this is all part of the win-lose cycle.

They do not yet understand that loss is an inevitable part of any system, strategy, method, or other approach; there is no such thing as a 100% win approach.

When they gauge the success of a particular pattern or setup, they get caught up in the win cycle. They don't wait for the "lose" cycle to see how long it lasts or what the win/lose pattern is.

Instead, they keep touching the pot and getting burned, never understanding that it's not the pot (pattern/setup) that's the problem but their failure to understand that it's the heat from the stove (the market) that they're paying no attention to whatsoever.

So, instead of trying to understand the nature of thermal transfer (the market), they avoid the pot (the pattern), moving on to another pattern/setup without bothering to find out whether or not the stove is on.

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Mr. Anderson 1y ago

Stage Three: The Cynical Skepticism Stage

You've studied so hard and put so much effort into your trading and this universal failure in the patterns only when you take them causes you to feel betrayed by the market, the books and materials and gurus you tried to learn from.

Everybody claims their ideas lead to profitability, but every time you take a trade, it's a loser, even though the setups all worked perfectly before you played them.

And since one of the most painful experiences is to fail when success looks easy, this embarrassment is transformed into anger: anger at the gurus, anger at the vendors, anger at the writers, the seminars, the courses, the brokers, the market makers, the specialists, the "manipulators".

What's the point in trying to analyze and improve your trading when so many dark forces are out to get you?

This excuse-driven blame game is a dead-end viewpoint, explaining many of the things you find on message boards. Those who can't pull themselves out of it will quit.

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Mr. Anderson 1y ago

Stage Four: The Squiggle Trader Stage

You'll move into the "squiggle trader" phase if you don't quit.

Since you failed with patterns and so on, you figure there's some "secret weapon," a "holy grail" known only to a select few, something that will help you filter out all those bad trades.

Once you find this magical key, your profits will explode, and you'll achieve every dream you've ever had. You begin an obsessive study of every method and indicator that is new to you.

You buy every book, attend every course, sign up for every newsletter and advisory service, and register for every trading website and every chat room. You buy more elaborate software. You buy off-the-shelf systems. You spend whatever it takes to buy success.

Unfortunately, you stack so much onto your charts that you become paralyzed. With so many inputs, you can't decide, particularly since they rarely agree.

So you focus on those which agree with the direction of the trade you've taken (or, if you're the fearful sort, you look only for those which will prove to you how much of a loser you think you are).

This is all characteristic of scared money. Without a genuine acceptance of loss and the risks involved in trading, you flit around like a butterfly in search of anything or anybody who will tell you that you know what you're doing.

This serves two purposes:

(1) it transfers to others the responsibility for the trade and

(2) it shakes you out of trades as your indicators conflict.

The MACD says buy, and the stochastic says sell. The ADX says the market is trending, and the OBV says it's overbought. By the end of the day, your brain is jelly.

This process can be useful if the trader learns what is popular, i.e., what other traders are doing, and, if he lasts, how to trade traps and panic/euphoria.

And even though he may decide that much of it is crap, he will, if he doesn't slip back into the Cynical Skepticism Stage, have a more profound appreciation - achieved through personal experience - of what is sensible and logical and what is nonsense.

He might also learn more about the kind of trader he is, what "style" suits him best, and learn to distinguish between desirable and practical.

But the vast majority of traders never leave this stage. They spend their "careers" searching for the answer. Even though they may eventually achieve piddling profits (if they don't, they will no longer be trading), they never become truly successful, which has insidious consequences.

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