The Trader's Pendulum. Samuels Jody

But before we move on, let's take a look at the common pitfalls that most traders, including the experienced ones, fall into.

      Part I

      Introduction

      Introduction: Riding the Trader's Pendulum

      All traders ride on a pendulum every day. Unsuccessful traders ride the pendulum back and forth with no real idea of the pendulum's swing. Successful traders recognize that the pendulum swings and ride it mindfully; as a result, they make better decisions and better trades.

      The Futile Search for the “Perfect System”

      When Peter, one of the clients that I coach, showed me how well versed he had become with his trading skills, I was impressed. Although he was a part-time trader (aspiring to turn trading into his full-time profession), he had gone through the grind to learn about price action, Fibonacci, support and resistance areas, chart patterns, moving averages, and other technical indicators.

      Looking at how he understood price action and maneuvered these technical tools, I saw how good he was at reading his charts. His skills were on par with most professional traders; maybe better. Especially considering how busy he was with his day job, I knew he must have burnt the midnight oil on his evenings and weekends to learn them.

      However, I could not help frowning a little when he asked me, “What techniques am I still lacking? Do you have a better strategy for me?”

      These are typical questions asked by traders. It showed that Peter did not understand what he needed to do to succeed. Or perhaps he was just misguided.

      From my experience, most traders are like Peter. They think trading is all about mastering as many technical skills as possible to apply them to analyze chart price data and make intelligent buy/sell decisions, so they will continuously bring in heaps and heaps of money day after day.

      To them, the key to winning big in trading is landing a powerful technique or strategy that is guaranteed to work. That's why they spare no effort to find tips to improve their technical skills even though they may have all they need to do well. They are keen in trying “hot off the press” software and jumping from one website to another to look for the next life-changing piece of advice.

      In short, they keep looking, looking, looking, in hope to find that “perfect system” that will transform their trading into a business success.

      Unfortunately, this is never going to happen. The search for a fail-safe system in trading will lead them nowhere, because the Holy Grail simply does not exist. Worse, it will trap them in the Technical Trader's Trap (more about this in the following chapters), limit their potential to achieve greater outcomes from their trading career, and even cause them to lose their hard-earned money.

      The Real Transformation Starts within the Trader

      As a professional trader and educator for the past 30 years, I have had the opportunity to closely observe the top performers in the industry. What I've noticed is that although most of them have expert technical skills, technical knowledge alone does not make them high flyers. Learning entrepreneurial skills and cultivating the right habits does.

      These successful traders are Entrepreneurial Traders who treat trading as a serious business, and embrace an entrepreneurial style in running and managing their trading business. Entrepreneurial Traders set goals, plan for their business, constantly review their plans, execute them, and improve themselves. Success can be expected.

      On the other hand, average traders are “technical junkies” who trap themselves in the Technical Trader's Trap, obsessed with feeding on new technical knowledge or trying out new trading systems, at the expense of making a consistent income. How can they move their trading into the passing lane of the highway of success? They don't know or they think they can get there by gathering more information.

      I have a plan that will help Peter transform himself from a “technical junkie” into an Entrepreneurial Trader. My plan has helped many traders that I have coached with their transformation process, and I am confident that it will help Peter, too.

      Most importantly, it will also help YOU.

      How to Benefit from This Book

      The central focus of this book is based on my model of the 10 Habits of Successful Traders. In the following chapters, you will discover the following:

      ● What the 10 common habits of successful traders are. The simplest way to succeed in trading is to learn from the best and model their habits. This book shows you what successful traders are doing, what you're not doing, and what you can learn from their habits.

      ● Why you should practice the 10 common habits. You will find out the benefits of cultivating these habits and how they have helped the top performers to gain financial success, a great sense of achievement, and a well-balanced life.

      ● How to replace your negative habits with positive habits. When you examine the positive habits of successful traders, you might discover your own negative habits that prevent trading success. Find out how you can replace the negative habits with the positive ones.

      The Pendulum Scenarios

      In Chapter 1, I will introduce you to two traders, Stacey and Fred. You will see how they adopt the typical habits and characteristics of an Entrepreneurial Trader and a “technical junkie.” You'll see how they treat their trading businesses differently, and how their mentalities and behaviors affect their trading results.

      The stories of Stacey and Fred do not end in Chapter 1. In between each chapter of the book are 26 case studies that I call the Pendulum Scenarios. In these “addendum” to the chapters, we will examine the emotional-psychological roller-coaster ride that the two traders go through and how these challenges expose their strengths and weaknesses. It might surprise you, but there are strengths in Fred you can learn from and weaknesses in Stacey you can learn to avoid.

      Although we are using two fictional traders as the protagonists of these case studies, these are not contrived examples; instead, they are real situations that happened in real trading scenarios that I have experienced with my students.

      Here are the Pendulum Scenarios that Fred and Stacey deal with every day in their trading:

      The scenarios above are based on these key pendulum factors.

      The Pendulum Factors

      The pendulum factors represent duality situations arising from trading the markets. On one end of the pendulum swing there is a condition, and on the other end there is another (often opposing) condition. Ideally, you, as a trader, want to remain or get back to the neutral position because staying at either end can be unproductive.

      The pendulum swings are typically caused by the constant flux of the market. You can do nothing about the swings of a pendulum, but you need to learn how to ride them as all successful traders do. The lack of skills to weather the swings is what makes trading an emotional-psychological roller-coaster ride for traders.

      Pendulum factors have three aspects:

1. Market Pendulum

      Skillful traders know when to enter and exit a trade. They have learned how to recognize the pendulum swings in the market and not to enter trend trades after extreme and exhaustive moves. They readily understand the market cycles and will only enter after the corrections.

2. Financial Pendulum

      Making money from trading is not a one-way street. On one end of the pendulum swing there are times when you make money, and on the other end are times when you lose money. Both winning and losing money are part and parcel of trading. It is how you manage the equity in your account and take appropriate actions through habits that will determine your success (or failure).

3. Emotional Pendulum

      The emotional pendulum is best described with the fear and greed continuum. On one end of the pendulum swing, you have the desire to earn more