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Picture a trader at work:

What comes to mind? Someone entering and exiting trades. Right? Keep reading to uncover why this common perception often leads to crippling account erosion and, more importantly, how to transform it into a strategy that works to your advantage.

One

The easiest aspect of trading is buying and selling.

See the short trading in the chart below? This trading sequence occurred on Thursday.

Chart

The timing of buys and sells is an automatic response. Let me explain.

When you recognise certain market conditions, you perform a sequence of actions you've traded previously.

As a 'doing' activity, you develop mastery like you mastered riding a bike.

Imagine riding a bike down a hill instead of up a mountain or on a smooth road instead of a gravel trail. All of these conditions require adaptation, which you do through repetition.

But it's intriguing to note the pace at which the market is moving is often overlooked.

As an intraday trader, your ability to buy and sell effectively is directly linked to your understanding and adaptation to the market's varying speed. This enables you to make accurate trades.

And like riding a bike—where some corners and hills require you to 'slow down' to avoid catastrophe—there are times when the market pace is too fast for you to trade, so you stand aside to avoid account catastrophe.

But I've alluded to a misunderstanding, and the outcome for most people is the erosion of their capital.

You see:

Trading is not obvious when observed from afar. And by that, I mean only looking at charts. If trading was simply a case of looking at charts, why didn't I take any trades on the same day during the period below?

Chart

I'll tell you in a minute. But first:

If buying and selling are the easiest aspects of trading, what's more challenging? The answer is developing your 'plan' or a game plan.

Two

The simplest way to understand game planning is to imagine being dropped into the middle of a remote jungle and not knowing where you are. You want to find civilisation, but what chance do you have if you don't have a map?

Well, that's the role of your game plan—a map of where the market is going and how it will get there. Without it, you are 'lost'. You'll take wrong turns and run into dangerous or impassable terrains.

But not all maps are equal.

A map of your city from 70 years ago is likely so out-of-date that it's completely inaccurate. It will lead you down the wrong path. Correct?

The same goes for your game plan. It must be accurate. And by accurate, I  mean it tells you:

  • Why will the market move and in which direction?

  • Where will the market move to?

  • How will it behave while it's moving?

  • And who will act as the fuel for the move?

Unlike riding a bike, game planning is a skill that continues to improve through guidance and feedback. Combining problem-solving and game theory, it's a different skill set from executing buys and sells.

It's worth noting that game planning uses cognitive abilities that don't fully mature until the late 40s or early 50s.

In this age bracket or more senior? You're in the prime of developing game plans that give you a competitive advantage.

Three

To be blunt:

The final trading element is the most challenging but bear with me as you're about to see how each aspect aligns—solving the crippling mounting of losses that decimate accounts.

Have you ever caught a train at a central station? You'll need to know the correct platform and train route, or you could quickly find yourself going to the wrong location.

So, while your game plan provides you with the route and destination, as is the nature of markets, many 'trains' will pass through you want to avoid getting on board. Make sense?

Your job as a trader is to identify which move matches your game plan versus which is the equivalent of the wrong train going to the wrong destination via the incorrect route.

Like the train station has signs to guide you, the market also provides signs, which I refer to as multiple points of evidence.

By following multiple points of evidence, you can identify the precise moment to action your game plan. Rather than, for example, you enter a trade only to have the market flush you out once or twice before finally moving without you—leaving you with only losses to show for it. Sound familiar?

The period shown in the chart above was an evidence-gathering exercise. So why is this the most challenging aspect of trading? I'm glad you asked!

For context, I combine 10-12 pieces of evidence. As you'll see, this is a strategic approach.

Remember, trading is a competition where the majority must lose to fund the few who win consistently. For that to happen, here's what gathering points of evidence frequently looks like:

  • You identify one, two, or three points of evidence.

  • Minutes later, you spot another two.

  • "This is going well", you feel.

  • And then, suddenly, a few points of evidence get disqualified, and you start the process over again.

Frustrating? It depends on who you ask.

The market constantly torments participants into acting out of emotional frustration or traps them unsuspectingly.

I often say, "Your biggest edge is outlasting the competition." But what does this mean?

There are periods where you can't gather enough evidence to:

  1. Confirm your game plan is underway
  2. Confirm the market is repeating a behaviour you've repeatedly traded until it became second nature.

Yet these are periods when accounts get decimated for traders busy buying and selling—working off charts alone, gut feelings, emotional frustration, assumptions, limited understanding, etc.

By contrast, you gather critical intelligence for future successful executions. You look forward to these periods because trading is straightforward once all the trickery and deceit ends.

You're now in the minority who trade this way - and it's the minority who win consistently.

You trade with sky-high confidence because the game and the tactics designed to break people have achieved their outcome, and the market gifts you simple trading sequences.

Provided your execution is akin to riding a bike, and you've achieved consistent accuracy in your game planning, the trading is now effortless.

Any exceptions?

Trading is competitive. And like all competitive endeavours, defence is as crucial as offence.

Sometimes, you can have everything aligned to enter the market and find the environment has changed a moment later, requiring you to scratch your trade or take a tiny loss.

Other times, you can be well in profit, and then the environment changes, and you take what profits you have on the table.

The competitive nature of trading—allowing only a few to win at the expense of most—makes defence crucial.

If you're going to lose, you want that loss as small as possible. Agree? That's what combining the three aspects of trading as described above does for you.

In summary:

People don't know how to play the game, so they act with limited information, which leads to account erosion.

I didn't know all this when I first started trading. I gained knowledge and practical skills through my professional trading training and experience.

Gamblers aside, independent traders' failure rate is high because they're trying to do it alone.

Related:

I discuss why mature-age trading is a competitive advantage—plus walk through a real game plan and trading example.

Forex and derivatives trading is a highly competitive and often extremely fast-paced environment. It only rewards individuals who attain the required level of skill and expertise to compete. Past performance is not indicative of future results. There is a substantial risk of loss to unskilled and inexperienced players. The high degree of leverage can work against you as well as for you. Before deciding to trade any such leveraged products you should carefully consider your investment objectives, level of experience, and risk appetite. The possibility exists that you could sustain a loss of some or all of your initial investment and therefore you should not invest money that you cannot afford to lose. You should be aware of all the risks associated with trading on margin, and seek advice from an independent

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