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Secret Behind Profitable Trading
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The Secret Behind Profitable Trading

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Well, dear reader, to let the cat out of the bag: there is no secret behind profitable trading but hard work. Please Stop! Before you leave, take 8 minutes time to read my thoughts based on my own trading experiences, on many conversations and chats I had in 2018 with other trading fellows and also based on my live seminars. 

Secret No. 1 - Understanding How Market Works

Since the days of the pits "Open Outcry" trading meant doing business between two or more individuals. People were trading with other people on the pit seeing directly into their eyes and observing a huge range of human reactions like: happiness, angst, euphoria, disappointment, optimism, doubt, trouble, laughter, exhaustion and even burnout. 

It was a hard, demanding and ruthless business as all interviews with former pit traders discloses. 

As we all know pit trading is history and has been replaced by electronic trading on electronic platforms. A huge trading industry is offering anything you can imagine to make a trader "successful". Literally thousands of indicators, charting platforms and other costful trading services grew up and are still permanently offering the "best for the trader". Which is mostly his hard earned money. It is a trading industry worth billions. To find your own way through this jungle ranges from diffcult until impossible. 

It would be good to have a moment to think about how a market really is created. And even more, how a price is made. In reality we forgot the real force behind the markets, because our perception is purposefully being focussed on candle charts, or other charts of course, with their various indicators. We are interpreting those numerous charts and indicators based on our own bias. As well as on the conscious or unconscious manipulation which is hitting  and influencing us daily by interviews, market experts, articles, meanings, forecasts and many, many more.   

Hold on, there is hope! Once you understand that price is based on negotiation between two individuals - which of course is done electronically today - you will start to grasp that liquidity is crucial for trading. If there is no seller, you will not be buying anything. (Liquidity). This is the first step in an adventure which can show you in real time what is really happening in the market: the Order Book. 

Order Book reading isn't as prestigious as reading a candle chart. Reason is that Order Book reading isn't easy and fast to comprehend. It was and is still used among professional traders but far less to no at all among retail traders.

Secret No. 2 - Maturity as a Trader

This is simple to understand but hard to execute. 

Every profession needs a solid foundation. So far I know in our world you can't get a (well paid) job if you don't have a solid education, job experience, master graduation, doctorate or other job relevant education and experiences. 

These rules are completely overthrown if you want to become a professional and profitable trader. 

In the past months I had more then one contact where people came to me in order to ask what is the difference between program "A" and program "B". Two weeks later the same person contacted me again and said that he wasn't successful with either charting program and which one would I recommend instead.

It is only one example which shows impressively the pressure on "Traders" because their motivation is to get released fast from their individual pressure, which might be money shortages, job issues and others.

In my world, trading is a serious profession which requires at least following skills:

  • Deep knowledge about market and price determination
  • Order Book and Order Flow founded knowledge
  • Various trading techniques (futures, options, stocks ...)
  • Be a "merchant" - manage your trading costs 
  • Psychological education - stability and maturity
  • At least 5.000 hours screening time
  • Full time trader - depends on investement horizon (*)

Regretfully we don't have a scientific based "trading university" anywhere on the earth, where we can learn in an orderly, "scientific" manner what trading is, how it works and how we as individuals behave when we execute our trades live. We as individuals are in no way in the center of those interests. But at the end this is paramount to become a trading master.

Education

My recommendation to every trader is to go back to the "Open-Outcry" - the base of all trading and to understand how an auction works. Based on this knowledge every novice will start to see how the results of the auction appear in the order book.

By the time a trader will understand how

  • a price is negotiated
  • which side (Bid /Ask) is active
  • the role of "aggressors" - market buyers
  • how to interpret this information
  • how to see in advance what is going to happen
  • how to profit of this information
Open Outcry
Open Outcry Simulation at the Seminar

Based on this experiences you can start to build your own strategies using a modern visualization platform like Bookmap™

Let's say you have found a trading strategy which works for you and you found a way to manage your costs, life time and yourself: Stuck with it and take your time to mature!

Take the time you need to mature and become more and more satisfied and happy with your profession as a trader. Question now and then your situation as a trader and adjust it according your actual life's situation, simply because our life is an evolution. Nothing lasts forever. 

Secret No. 3 - Market Defines the Value

(*) Please note:  Profitability in trading can be achieved with Options, Futures, Stocks, ETF, Funds and other instruments in short- , mid- and long term trading and investing. I am describing here my way of daytrading which is only one part of broad possibilities of investments. I am not saying at all that my way is the only one to become a profitable trader. 

The market itself defines the prices and the value! A market today exists of algos, automatic strategies, HFT's, quants, short and long term professional and retail traders. Thousands and thousands of different market participants, each one with his own strategy, goals and motivation. 

With simple candle charts and common indicators you will be lost in daytrading and you won't be sustainably successful trading a market. As already mentioned, it is our perception, our bias that puts a spoke in our wheel. It depends on your experience, your training and your perception, what you see and what you interpret into a trading chart.

Every trading newbie is in jeopardy when he starts trading because this approach might work at the beginning and you can call me a fool because I don't know what I am writing about because it works for you. Let me reply, that this will be equalized over time. 

You must know - I don't like the word "must" - but in this case it is appropriate to emphasize it: 

Trading is a "Zero-Sum-Game" (Coin-Toss-Theory or Bernoulli Trial) and you as a trader need a probability chance above 50% to be better as the "bank". Otherwise you will inevitabily loose. Therefore, knowledge and sustainibility is the key. 

I have got following eMail from a trader: 
 "... weeks ago I was disappointed whit chart trading and I thought the only manner of success in trading is Dom and Heatmap. for that reason I think I need some points to start and practice. Reading DOM without advices and don’t knowing what is important and not at all for start watching I think will be impossible. I’ve been 5 years trading and sincerely the way you see trading is in my opinion is the only way to success..." R.R

As stated above, I have learned over the past years that the content of the order book reveals market real time information about the actual market players, actual liquidity and different manipulations market agents and algos are using to obscure their intentions.   

An Order Book reveals: 

  • Where liquidiy is located
  • How liquidity manipulates the market particpants
  • How price is manipulated
  • How market agents are pulling and stacking to build resistance and support levels
  • All kind of manipulation like spoofing etc.

Understand what the market is actually doing gives you a fair chance to be better then the average trader. Based on the order book and the visualization of the order book you use objective facts to choose your trades instead of guessing.

Please find here more information and some educational videos about order book reading. 

Finally you can follow me on Twitter to see my daily trades which are based on order book and order flow with Bookmap™.


Recommended Reading

In this stunning new book, Malcolm Gladwell takes us on an intellectual journey through the world of "outliers"--the best and the brightest, the most famous and the most successful. He asks the question: what makes high-achievers different?


Thank you for reading. Either you are neutral, you agree or disagree. In any way, share your thoughts with us in the comment section below.  

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