Introduction

My experience in trading started long time ago and I can already count something about 7 years on charts and I feel like my learning process is just at the beginning. It is not about the ability to recognize a price direction, or to correlate price setup with current fundamental scenario: it is about the mental attitude, the psychological ability to accept and behave properly depending on the changing conditions.

Focus

When thinking about my experiences in trading, I can divide my learning process in 2 clear steps: one about learning all the technical part, and one knowing how to behave. The first part took me some years in reading, listening, doing researches, comparing, analyzing and recognizing the different technical developments while happening in a chart. The second part started at a certain point in the meantime, when I had already learnt a lot of things, but still was able only to burn a one thousands dollars account in a very, very quick time.

As per our nature, when things go wrong we tend to blame something or someone. My first reaction was to blame market, being always ready to get my stops no matter where I put them. If I moved stop at breakeven, price used my stop as reversal point. If I moved stop 200points away from my entry, price went to my stop, few points further, then changed and started moving in my direction till my old entry and more. If I was buying anything, price went immediatly down 50 to 80 points. If I was selling, price went immediatly up at least 50 points. This process was happening for such a long time that my self belief was deeply affected and I had to stop trading.

It was during that stop, while reconstructing my belief, when I started wondering almost everything and the most important answers came to the questions "What is market?" and "What is price?".

Market

It is a place where exchanges are executed. In the past there were places like e.g. "The Wall Street Exchange" where traders met everyday buying / selling stocks at different price values. Nowadays things have changed and market became a virtual place, where all orders are executed filled and liquidated: computer servers, processing all orders coming from all participants from around the globe. So we can definetly say that market is a process.

If you want to buy a stock, ask who is selling it. - (Anonymous)

Price

It is the result of the net difference between supply and demand. Market process will be receiving buy and sell orders, and after executing them, there will be only two possible scenarios: balance or imbalace. Let me explain with an example: today there are 100 participants in a particular instrument, and exactly 50 of them will be buying thinking price is low, while the other 50 will be selling because price in their opinion is high. Market will execute those 50 buy orders and sell them to the 50 participants willing to sell (for every sell, there must be indeed a buy). As result price will be balanced and ending in no change. But let us suppose we have 70 traders who wants to buy and 30 traders who wants to sell: market will process 30 buy orders and sell them to the 30 traders willing to sell. As result, there will be an imbalance since 40 contracts still have no encontered the counter part. In this case price will be rising until the point where part or all of the buyers will be looking to liquidate their position, so in fact selling their contracts. Imagine for example that all 30 buyers will liquidate their positions, we will then have 60 traders selling and nobody buying: another imbalance causing in this case price to go down till the point where those 40 traders left aside will decide to buy, and so on.

This process will keep going on until there is someone left buying or selling an instrument.

The point

So at this stage of my learning process I realized I'm not certainly that important for market process and I that whatever I will do, price will be moving because of imbalances between buy and sell orders, coming from a lot of participants who doesn't know each other.

For many people, me included, accepting there is no one left to blame but you, comes not simple. And even once accepted this, it will be not simple to understand what is the best way to become successful in an environment like financial markets. I came to the conclusion I had to improve my skills and technical abilities but after a while I still have almost the same problem and in some aspects it has even got worst, just like instead of challenging the monster, I was feeding it.

We don't see things as they are, we see things as we are. - A.Nin

Accept and act

Market is machine processing orders coming from a lot of participants causing an imbalance in price, which will be moving up or down in almost random way, without prior notice, nor defined ending time. Any technical analysis or system will eventually tell us where are the probabilities where participants will be imbalanced in buying or in selling but the success ratio is very closed to 50% since we do not know what all the other participants will be doing: once entered the trade, anything can happen.

In recent trade sessions I had to realize how bad effects will cause to my inner belief, having a trade deep underwater: I feel like locked, unable to react to anything and unable to read any other market or instrument. I had to cut the trade before being able to truly understand what just happened: I was so conviced for price to move in a direction that I completely avoided to even think about the opposite direction. The effect in this scenario is inversely proportional to the simplicity of the cause: a disaster.

The problem indeed is not certainly the inability to see the opposite scenario: it is the inability to accept it and act as consequence. In my case I was buying an instrument, firmly convinced for price to breake and keep moving up, completely excluding the possibility for the continuation in its actual direction. This caused me to be unable to accept to cut the trade in a minor loss and to profit by selling it, since still convinced for price to reverse up. I was that sure about my idea, that I was scared to consider the opposite direction.

Be balanced

The very solution to this kind of problem is to always consider as equal possibilities both buy and sell. I have to admit this is not simple for me, since I prefer having a bias when trading but so then the solution is to cut the loss when still somehow "acceptable", since by definition, the imbalance could keep going till the eternity and causing my account to reach the "point of no return".

Conclusions

Being successful is not just about technical analysis or about the size of your account: it is about being able to accept the fact there is nothing you can do once you enter the market with a trade, and the only way to protect yourself and your capital is to accept the fact your trade ended in loss, and react quickly. It is not about being right or being wrong, do not take it as personal: it is about the natural behavior in which an unstructured environment like a market actually works. It will either go in your direction or not, without prior notice and without anyone caring about you becoming lost along the way.

This article opens a lot of points that will be better exposed and revisited later in next weeks.
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