Read the following in the New Market Wizards.
[B]==== Beyond confidence in their own success, what are some of the other characteristics of successful
traders? ====[/B]
Another important element is that they have a perceptual filter that they know well and that they use- By
perceptual filter I mean a methodology, an approach, or a system to understanding market behavior. For
example, Elliot! Wave analysis and classical chart analysis are types of perceptual filters. In our research, we
found that the type of perceptual filter doesn’t really make much of a difference. It could be classical
chart analysis, Ganri, Elliott Waves, or Market Profile-all these methods appear to work, provided the
person knows the perceptual filter thoroughly and follows it.
[B]==== I have an explanation as to why that may be the case. ====[/B]
I’d certainly be interested in hearing it.
[B]==== I believe a lot of the popular methodologies are really vacuous. ====[/B]
[He laughs.] Aha! That’s a pretty provocative statement. You’ve got my attention.
[B]==== All these technical methods are based on price. In effect, they’re all different-colored glasses for
looking at price. Proponents of RSI and Stochastics (two popular overbought/oversold indicators) would see
price patterns filtered through these price-derived series. Gann analysis enthusiasts would see the price
patterns through a Gann-based interpretation. In these cases and others, traders accumulate experience on
price patterns-albeit from different perspectives. Some of the methodologies employed, however, are
probably totally worthless. It’s simply that instead of looking at prices through clear glass, traders who use
these methods are looking at prices through different-colored tints. The method, or tint shade, is a matter of
individual preference. To extend the analogy, I would compare these methods to nonprescription sunglasses:
they change the view but don’t necessarily improve the vision. The bottom line is that these methods seem to
work only because the people who use them have developed some sort of intuitive experience about price.
====[/B]
That actually fits pretty well with my own view. People need to have a perceptual filter that matches the
way they think. The appropriate perceptual filter for a trader has more to do with how well it fits a trader’s
mental strategy, his mode of thinking and decision making, than how well it accounts for market activity.
When a person gets to know any perceptual filter deeply, it helps develop his or her intuition. There’s no
substitute for experience.
[B]==== What other characteristics typify successful traders? ====[/B]
Another important element among traders who excel is that they have an effective trading strategy. I’m
using the word “strategy” in an NLP sense, meaning a series of internal representations, mental pictures,
words, and feelings, leading to a desired outcome: winning trades. One trader can act decisively, while
another may be paralyzed by indecision. The difference lies in their strategies.
[B]==== I’m afraid you are lost me. In your use of the word, what typifies the strategies of successful traders?
====[/B]
An effective trading strategy will have the following characteristics. First, it will be automatic. Given a
specific situation, the trader will know what to do without second-guessing himself. Second, a good strategy
will be congment-that is, it won’t create any internal conflict. Third, the strategy will incorporate Away From
motivation by including some specific risk control plans. Fourth, part of the strategy will involve imagining the
trade from the perspective of already being in the position and considering what might be wrong with the
trade before putting it on. Fifth, an effective trading strategy will provide specific evidence that will allow the
trader to evaluate the merits of a trade.
