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Anticipation ,Action & Reinforcement

  
  Education
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The ANTICIPATION Phase:  this is where all the left hand chart reading takes place in preparation for the right hand chart battle. It’s the PROCESS that precedes the ACTION to put on a trade. A technical trader anticipates that a past price pattern will repeat again, so he identifies the pattern, locates a current one and determines a suitable match is present.  Technical analysis is nothing more than finding previous price patterns matched with current market conditions.  Traders anticipate such repetitive behavior based on human nature and seek to take advantage of it.

The ACTION phase involves hitting the BUY key based on the previous ANTICIPATION process.  Since no one can tell the future or what the right hand side of the chart will reveal, the ACTION is based on the confidence that the trader will do what is right once a trade is put on, which is to exit gracefully at a pre-determined loss line or exit humbly at a pre-determined profit target (P2), fully accepting either/or, or an OUTCOME between one or the other, depending on current market conditions.

The REINFORCEMENT phase occurs after the trade is closed.  Whether or not the trade is a win, lose, or draw, the self-talk immediately following trade closure is vitally important for the next trade, and even the next series of trades, as future trades can be negatively or positively affected by building pathways to future success.  These pathways are neurologically based and can make or break a successful trading career.  While it is important to ANTICIPATE right side chart OUTCOMES, what is more important is DEVELOPING right side brain reinforcement.

The Gods are Human

  
  Education
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Idolization is a basic function of human nature.  I don’t think it has to be proven any more.  From the little child that looks up to his or her older sibling or parent, to the full grown man sitting down on any given weekend watching his favorite sports figure in a state of awe, we all seem to idolize someone.  In my case any one of Jack Schwager’s personalities mentioned in his “Market Wizards” books,  Jessie Livermore, or any number of not so popular yet successful traders such as Chris Lori or Carolyn Boroden.  To distort Dylan’s words:  “it might be the devil, it might be the lord but your gonna have to <idolize> some one”.

In our natural idolization we forget that these extraordinary people are after all just people.  Even though in many cases they have been able to accomplish extraordinary things, in the end they are subject to the same influences to which we are subjected.  Though it may be hard to believe at times, yes they all put their pants on one leg at a time.

What the heck does this have to do with trading?  I’m glad you asked.

I notice that our trading terminology is littered with idolized lingo.  We talk of “smart money”, “institutional investors”, “market makers”, and such.  When we talk of these folks it’s as if they are gods that are somehow immune to the effects of human nature such as fear and greed.  I believe that it’s not so much that they are immune, as it is that they have learned to subdue and control their reactions.  They are active thinkers, not reactive thinkers.  Even then, they do all they do in a human body, with a human mind, that has human constraints and habits.

This tells me that even the “smart money” or the “institutional investor” is subject to patterns in his thinking and behavior.  The smartest of money managers goes to sleep at certain times of certain days of the week and is trading at certain times of the day.  Institutional guys have to create and deal with the markets patterns and behavior within the constraints of their own daily routines.  This creates opportunity for those willing to sit back and try to think about it. (more…)

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