Introduction Structure Is Everything
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Introduction Structure is everything “Without this structure I cannot trade”. This is the reason that the vast majority of traders never make it past the first year. They have no structure, and eventually the markets simply wear them out. My path through 33 years in the markets reached its nadir in 2004 when I realised that from being a trader who couldn’t analyse for the first 10 years, I’d somehow morphed into an analyst who couldn’t trade. I was scared. The reality is that, as time progresses, natural ability is no longer enough, as it gets blown off course by experience and experiences. As the trader’s powers wane, there is always a boogieman. Today it’s the HFQ’s (High Frequency Traders). These all conquering automated programmes can trade at the speed of light, jump to the front of the queue, can cancel a bid or ask after seeing your market order (I’ve no idea how), run all the stops in a blink of an eye, and take their profit before you even realised you’ve been stopped out. Before that it was the legendary “Flipper”. This was (I think) a mythical character based in Switzerland who had so much power and money that he could push the Stirs market anyway he wanted and take out all the scalpers and day traders. I was often asked whether he was a CQG customer. My thought was that the only “Flipper” I knew was a dolphin in a 1960’s children’s television. That dolphin was damn clever and would knock spots off Skippy the Bush Kangaroo and eat Lassie for breakfast, but I doubt he traded Short Sterling. The reality is if you set yourself up to fail, then that’s what you will achieve. Ed Seykota’s excellent book “The Trading Tribe” has a startling observation on the inside cover. In a nutshell, it confirms that without a clear desire and structure, you will feel that you have won by losing. The sentence was so profound to me I try to remind myself every day that I sit at my desk. For many, the concept of the Trading Tribe is a step too far as it involves accepting the feelings you are unwilling to experience. They're rational to get around this problem is to remove themselves from the process of trading altogether. That or embarking on an endless voyage of creating fully automated systems. It seems that the adage, “If you can’t beat them, then join them” has never been more poignant. I’m often asked why I don’t use trading systems. To me this insinuates that if I know as much as I’m supposed to regarding Technical Analysis I must have hundreds of systems or methods. Well I used to, but now I only have one, and it’s a grey box. Part of what I do is automatic and has fixed rules, but I retain an element of discretion. This revolves primarily around volume and the correct timeframe to reference, whilst covering a broad spectrum of markets, so that I am aware for what is the easiest trade. With so many years of experience it is impossible for me to throw that all away in favour of mathematics. My own voyage of discovery reached an impasse in 2004. I had become the ultimate Candlestick pattern. I knew so much I had the answer to everything and a solution to nothing. I wasn’t losing, but I wasn’t making either. The frustration became unbearable. My own solution was to do the Van Tharp home study course. It took a month, but the revelations it revealed were invaluable. My problem was that money and power were not an important motivation. This was hardly surprising as my wife had a serious road accident 5 years previously. Everyone knows that health is far more important than money. From 1999 to 2002 she had no fewer than 5 major operations on her neck and spine, was forever having scans and seeing consultants, living in constant pain. Even now whenever I have to say “Hospital” I come out with”Hotel”. Rest assured, the Burj al Arab is cheaper per night than a hospital bed. I had to find the money to pay effectively for months at the Burj. I have never traded so spectacularly in all my life. To be fair, I was fortunate that 2000 to 2001 saw some major trends, but the truth is, I was so focused I would have made money whatever the conditions. That focus had been there when trading was my job. Trade badly and I’d be out of one and that was all the motivation I needed. Once that need had gone so did my trading ability. One of the established golden rules of trading is that you shouldn’t trade if you are desperate to make money. My problem was the opposite. I only made money when I desperately needed it. The rest of the time it was simply an Intellectual game. The second problem was also the opposite of what most caused traders to lose. Whereas a trader’s change of perspective in life and getting older and wiser creates responsibilities to others and a burden, I regarded being responsible for others as an inspiration. Never being a person who does things by half’s I threw myself into Van Tharp’s psychological voyage of discovery through meditation and chanting. My wife would comment to my daughters (who found it hilarious) “yes, your father is a lunatic”, after I’d just bellowed “I’m a great trader” and made them all jump out of their skin. Out of this, my initial solution was to throw away at least 90% of what I knew about trading and Technical Analysis (having concluded what was the important 10% for me). The second conclusion was to write my first book that crystallised that 10%, and to supplement that by writing daily and weekly technical commentaries. If someone were paying me to write, it didn’t matter where I was in the world, or how busy I was, I was obligated to do it. I had created a disciplined structure. Throughout the 6 years I did this, it soon became apparent that actually, I was writing the commentaries for my own benefit. One subscriber would have been enough. Through time, I began directly teaching and mentoring traders on a consultancy basis, and I then realised that when I mentored, I traded better myself. I abandoned the commentaries as I had found a new disciplined structure that had created a personal connection that increased my sense of responsibility. Over time, it honed down my skills to a relatively simple process that meant I could analyse any market in less than a minute. This is defined as follows: • True measures of support and resistance • True measures of Overbought and Oversold • True measurement of the Daily charts behaviour • How is the crowd positioned? • The correct timeframe chart to reference intraday • The time of the day it is • Risk and Expectation • The correct volume to execute • Relative performance between markets and asset classes • Buy the strongest, Sell the weakest • If time permits, Micro Analysis of the Depth of Market and volume • Position management and movement through timeframes if a trade develops • Chart of the day and week • What is the easiest trade? This may seem a huge amount to achieve in a minute, but with structure, and its consistent application it is possible. It also means that I look for an opportunity across over 90 markets, and don’t try and force a trade or make a market bend to my will. I don’t care what the name at the top of the chart says, and it has reached the point that, without this structure, I cannot trade. I want you to think about that last sentence. “Without this structure I cannot trade”. This is the reason that the vast majority of traders never make it past 5 years. They have no structure, and eventually the markets simply wear them out. Preface Who is this book for? In contrast to my previous book, which was complex, and a heavy read, this book is aimed at a more general audience. Whilst it assumes a rudimentary knowledge of markets, it is suitable for beginners who wish to have a starting point and template to trade. It also is suitable to those who have hit a roadblock in their trading and wish to see a fresh perspective. Finally, for the experienced trader there is insight and food for thought, placing ideas in a new light about how they may look at technical analysis. To a larger degree I have used examples that were as up to date as possible, often from just a few days previously. The book was written over a six-week period of May and June 2012 and then September 2012. There are natural spaces within the book so that for the most part you do not have to turn a page in order to reference a chart to the text. How can I help you once you have read the book? Unfortunately, books by nature are inanimate objects, but I have included all the settings and variables of the studies. Some aspects of the book (largely at the beginning and end) refer to software or studies that are only available in CQG and I have shown exactly how navigate the relevant parts of the software. They offer trials of their software so you can cross-reference in real-time.