Acting in the world of trading and investing requires you to prepare in multiple dimensions, and we want to share a step-by-step approach to implement and follow.
- Introduction
Trading offers you as a retail trader unique opportunities to participate in a money-making business with little setup costs, flexible work hours, no need for collection; operated from any place with an internet connection.
As a professional business, trading requires skill but does not require passing a test or obtaining a license. Every participant is free to risk money; just an online broker is needed, and you are in business.
However, when you think that you enter a professional business, what is your likelihood that you have a chance of winning right out of the gate?
The game of tennis provides an analogy for understanding what happens by trading in the financial markets. Imagine a match between a tennis professional and a weekend warrior. They use the same equipment, play on the same court, and abide by the same rules. But the professional will have a better technique and strategy and will be prone to fewer errors. In the world of investing, institutions are the professionals, and individuals are the weekend warriors.
Instead of trying to beat institutional investors, we encourage and support you to transform yourself into acting along with them by copying their actions.
But where is your edge for winning?
As a retail trader, you can enter and exit entire positions at once. Big money has to scale in and out of positions not radically to change prices, and such, your edge is in the speed of entering and exiting positions.
You need a system that tells you when high probability setups are on the brink and how to forecast price move potentials.
Your trading edge is finding high probability setups and acting faster than the big money can. However, this is easier said than done. Trading is not only a logical action taking; it will challenge your emotions: fear and excitement come into play. Before we get there, let us clarify where you can operate in the financial markets.
2. The Financial Markets Explained
When we talk about financial markets, what do we mean?
The financial market provides a platform for buyers and sellers to meet for trading assets at a price determined by supply and demand. Typical trading instruments are shares, securities, bonds, derivatives, etc.
The typical financial market participant is an institution. An institutional investor is a company or organization that invests money on their behalf or on behalf of other people.
We distinguish six different financial markets by their focus.
Overview of the Financial Markets
- The Money Market focuses on the lending or borrowing of loans with a wide range of maturities. Here you find the typical banks and financial institutions as providers and corporations, and private persons to take the financing. Standard instruments of the money market are treasury bills, commercial papers, certificates of deposit, bills of exchange, etc.
- In Capital Markets, you find stock trading and bonds in focus. The financing purpose is for lending or borrowing money for the longer term.
- The Derivatives Market deals with trading Futures, Options, Forward Contracts and Swaps. Derivatives derive their value from the underlying assets, and they either function to manage financial risks or are used for speculation on the price change of the underlying asset.
- Commodity Markets facilitate trading commodities like gold, oil, wheat, rice, etc. There are around 50 major commodity markets all over the world.
- The Foreign Exchange Market allows the trading of currencies. These markets are operated through financial institutions and determine foreign exchange prices for every currency.
- Spot Market is a market where transactions are done on the spot and in cash only.
If you operate in one or all of the listed financial markets, the other side of your trade has an 85% chance of being accepted by an institution.
The financial markets offer organized exchanges to buy and sell securities. The core function of an exchange is to ensure fair and orderly trading and the efficient dissemination of price information for the securities trading on that exchange. Institutional investors act in different roles and can simultaneously have more than one role.
We differentiate by their focus three categories of institutional investors operating at the exchanges:
In a simple graphic, we express the following roles institutional investors take:
Roles of Institutional Investors
In the above graph, we mentioned only some of the market operators, but you might now see how the model of the crowd is following the leaders comes into play. When prop traders, for example, initiate a buy-in or sell-off, it gets noticed, and the market either copies and follows or trades against the happening.
We have already learned that key institutions lead the market. Where we find leaders, there are followers. When the leaders make a move, the crowd follows. In essence, we are trading with people and their emotions.
3. Fear, Excitement, Indecision
Trading involves emotions, which are often triggered by subconscious programs that come into play, which are not easily accessible but need to be managed with the proper knowledge and tools.
The majority of traders experience fear, excitement and indecision, daily as a stimulus that compromises their capacity to trade effectively.
Learning to handle your emotions builds the basis for living up to the needed performance in trading.
Like in gambling, winning excites, and so does the participation in the game to win. However, in trading, you are following logic. You use computers to support your decision-making. Here is where we can help you overcome critical emotions, but it needs a system and training and is not a given.
Let us describe the basis of the emotions to explain then how to handle them:
Excitement is an extension of the natural emotion of joy or happiness. We can be safely happy for days at a time. However, it is not safe to experience excitement constantly. It compromises our immune system by flushing dopamine through our brain (thus damaging our brain's ability to act reasonably) and ultimately harming our immune system when our brain fails to tell it to react to attacks or changes. For example, to experience excitement constantly would be to take an illegal drug. Drug addicts want to stay high because they feel the need to experience the excitement as much as possible.
More than 95% of the people involved in the stock market know only one way to make money: when prices rise. As a result, stock market rallies usually build a lot of excitement and attract more and more people to rush into trades to be part of the upwards move.
Fear extends the natural emotion called apprehension, which produces the fight or flight response to dangerous situations. We need apprehension (or caution, if you will) to protect ourselves from risks that we need not take or that might impose on us.
In fearful situations, our adrenal glands pump epinephrine (Adrenaline) through our bloodstream so that we can act quickly. No one is born with fear. We learn it. Sometimes, fear just happens to us, such as developing a fear of heights or cramped places. Other times fear is imposed on us: For example, you hold a position and prices fall, then the fear of losing kicks in, and you try to get out of such a situation without getting hurt. Even so, the stock market cannot be personalized; such a situation is succumbing to a threatening situation imposed by someone else.
Indecision or ambiguity reflects an emotional stage where we cannot decide to act excited or fearful. Without emotion, you cannot make a decision. Yet most people think they are rational beings who make decisions deliberately, logically. Decision-making means making a judgment between two or more alternatives. We help our NLT Top-Line and HF clients identify times of indecision by what we call the "NLT Purple Zones." This indicator on the NLT price charts identifies times or zones where the ambiguity of emotions leads to indecision until a decision is made. We then either run with it: scared or excited.
Having the "Purple Zone" on the chart is a potent tool because we expect a directional decision at the end of the zone in one or the other direction. The immense value of the NLT Purple Zone is for you not to waste your money when no direction is found: traders with experience know times, where you get constantly stopped. With the help of the NLT Purple Zone, you just do not open new positions when it is prone. As you know by now, those decisions are made by the key market influencers, and it is an excellent strategy just to follow.
With the NLT-Method, we analyzed the human emotions of Fear and Excitement to paint a digital wave over a decision-making graph. The following study shows how our indicators put the price development and emotions on a chart.
Price Chart and Human Emotions
The daily SPY chart (ETF of the S&P 500 Index) combines NLT Top-Line and Trend Catching indicators. It paints uptrends in blue and downtrends in red; when red and blue mix, purple identifies a zone of directional indecision, where we do not open new positions.
You will find the same happening on any timeframe, tick frame or price range and for every asset:
Crude Oil Futures, One Hour Chart
We help you to handle your emotions by putting clearly spelled-out visual signals on the chart for you so that you can act mechanically:
- Buy > or Sell <, and the signal only leads to a trade when the spelled-out price threshold is surpassed in the price movement of the next candle.
- Each trade situation has a forecast of the price move distance to trade for: dot on the chart. There you take your exit.
- Depending on the signal, the stop sits at a red crossbar or the bottom of the trade initiation candle.
- You will know the probability of coming to the target for each signal constellation, and such you can make rather logical than emotionally driven decisions.
Accepting the probabilities of your decision-making diminishes the fear of losing and lets you follow a path of positive expectations.
We are more than 10-years in the trading education business, teaching one-on-one at your best available days and times.
Trading our own account day-by-day and helping clients lets us provide long-term experiences and support. Customer service and tailored mentorships are our virtue. Following this principle, we provide:
- Server-installed Software
- Real-Time Data
- System-Defined Entries, Exits, and Stops
- Position-Sizing
- Time-in-a-Trade
- Trading-Strategies
- Risk-Handling
- Business Plan (financial- and action plan)
- Own scanners to find investment opportunities
- Watch list indicators for finding changes in supply and demand on multiple time frames
Basing your trading and investing decisions on defined rules is learnable, and we are here to support you!
Schedule your consulting hour! Working one-on-one spots are extremely limited: Do not miss out!
+1 866 455 4520 or contact@NeverLossTrading.com
Five Dimensions of Trading and Investing Decisions
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Strive for predictable trading results with a system that helps you for repetitive logical decisions rather than being run by emotions.
We are here to help, and we are looking forward to hearing back from you,
Thomas
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