Well, here it goes—the intention is to write a Sunday blog entry about my previous week’s experiences at the Forex365 Institute where I’m a teacher and student.
So, what’s up this inaugural Sunday? I’m going to start with my favorite quote about education and learning—“when the student is ready the teacher will appear.” I’m confident that we’ve all had such experiences in our lives. It’s a specific example of the general Law of Attraction (“like attracts like”).
Anyone who has been to our institute knows we have a fantastic and open culture. Students are encouraged to freely ask questions both in person and online. This open culture is one of the aspects of which I am most proud. However, if we can create even more “when the student is ready the teacher will appear” moments, we can speed up the learning curve for our students. The good news is that we can do it. How? By, all of us, more actively participating in the educational process.
The encouragement to our students to pursue higher and higher levels of active participation is all around us. We teach The Successful Forex Trader’s Personal Constitution which includes, “I continue to educate myself on how the market works.” In my opinion, to be most effective, this should not be done alone in silence, but, with the help and enthusiastic encouragement of fellow students, mentors and teachers. The Forex Institute Rules include, “Always … Help and mentor fellow students.”
I’m urging all of us as like-minded individuals to contribute to our like-minded community by consciously deciding to increase the pace and depth of our professional Forex currency trading educations. Specifically, reinvigorate your initial enthusiasm and excitement about learning to trade by gathering your courage to ask more questions, make more statements, share more trades for analysis. Let’s grow technically (by discussing our tools—the charts and indicators) and emotionally by sharing our mindset thoughts and feelings experienced during the trading sessions.
More “when the student is ready the teacher will appear” experiences can only be a good thing for all of us as we pursue excellence and success as professional Forex currency traders mastering our destinies by mastering our trading tool-sets, skill-sets and mind-sets.
Wealth Smart Instructor
While there have been a great deal of experiments to study the effects of anchoring and it’s causes, we will talk about two that I found extremely interesting.
The Wheel of Furtune
In 1974, Amos Tversky and Daniel Kahneman conducted a study in which they asked students how many African countries were included in the United Nations. The duo began by spinning a Wheel of Fortune, and not just any, it was rigged to land on either 10 or 64 out of 100. Once the number hit, the students were immediately asked whether they thought the percentage was higher or lower than the number that the wheel landed on. They then placed their vote on what they actually thought the real percentage was. The group that was exposed to the 10 guessed the percentage was around 25 percent, while the group exposed to the 65 averaged their guesses around 45 percent. The anchoring effect had done it’s work in spectacular fashion.
Surely they would realize a Wheel of Fortune (much less a rigged one) would not offer them any information regarding the percentage of the U.N. that was made up of African countries? This leads us to one more experiment on the effects of anchoring.
Rolling the Dice
A large group of Judges in Germany, all with over 15 years of experience, were given the same fake case in which a woman was caught shoplifting. Before they were asked how long the sentence she would receive was, they were to roll a dice that was loaded to roll a 3 or 9. Yes, you probably have an idea of where this is going. Upon it landing they were immediately asked whether her sentence should be lower or higher than the number they had rolled. The Judges that rolled a 3 had an average sentence time of 5 months, while the Judges that rolled a 9 had an average sentence of 8 months for the exact same case. So I’m aware that last section was not uplifting to read in the slightest; however the first step to solving a problem is acknowledging it. If these experienced Non-Biased professionals can fall prey, then we certainly can as well. As Traders, we can have a tendency to base far too much importance on where we enter our trades. We should realize, especially those of us that follow the Market Maker’s Business Model, that where we get into the Market has very little to do with how and where the Market is moving. This problem can also arise as we try piece together the signals we are seeing. We can easily get stuck on one specific move, or reference point, and it becomes near unshakable even as countering information is revealed to us. A bad entry does not mean that you are in a bad trade. While you should still focus on nailing your entries to limit risk, time to time you have to ride a trade negative more than you would like.
How to deal
The most effective way to deal with Anchoring in your trading is to approach the Market at “Delta”. This means to be centered in your thinking. The effect of anchoring can be far stronger if accompanied with intense emotions, so keeping a cool head definitely helps. In the event that you find you are basing too much emphasis on something when trading, simply ask yourself, “Am I Anchoring on this point right now, and if so, why?”. Expending mental energy towards the subject can drastically reduce it’s hold on your psyche. A final technique is more physical than mental. Place your trade, then allow yourself to get up and work on another task for a short while before you check up on your position again. Letting price move away from your anchor point can offer a clear perspective of the trade. If you love it, set it free type of thing.
These are just a few tips to keep upright in Trading specifically, but I would encourage each of you reading this to do your own research on the subject. What you will come across could be an eye opening view of how we are wired to think. The next few Blogs that I will be writing will be focused on the points surrounding Cognitive Biases in Trading. So if you are not subscribed be sure to do so! If you are interested in learning more about the Market Maker’s Business Model click HERE.
Thanks for reading.
Director of Smart Money Course
So you just watched the Market run several hundred pips. There is a very real chance you hit your stop in the moments leading up to this move taking place. Even if you were unable to get the ideal entry into this trade, maybe you were able to get a few trades out of the bottom/top before the market died back down.
If that were the case, you had just stumbled into the latter parts of the Profit Release stage, or the payout cycle. This phase replicates business practices of top casinos throughout the world.
The final installment in this series will focus on the Profit Release stage of the Market Maker’s three stage process of Manipulation in the Markets. “Point of Origination graphic from Smart Money Course Virtual Classroom.” Anyone that has heard of trading has likely also heard that it is somewhat similar to gambling, or like going to a Casino. While this is true, it may not be in the way that many would assume. There are two pieces to any Casino; The patrons, and those who actually run the Casino. It would be incredibly foolish to think the massive Casinos in Las Vegas operate on mere chance of whether or not patrons of their business could clean them out any given night. Any thinking person realizes that while some do win at the tables, the majority of the time, the House comes out on top. This is the exact structure in which the Forex Market is run as well.
Similar to when someone “hits it big” in a Casino, the Profit Release phase functions much the same for Market Makers. This phase is generally easy to see, easy to trade, and most importantly, very seldom happens. This is when the Retail Trader is allowed to make a profit in the Market, keeping them coming back. Identifying a Profit Release, even in hindsight, can be beneficial to moving forward in many ways. While Content Traders shun any pattern like signals, there is one visual that accurately depicts a Profit Release. In the event price completely breaks clear of a price range (a range price has stayed in for several months, usually several hundred PIPs wide) and then begins a new Accumulation, you can label the push to this new price as the Profit Release.
Because of what a Profit Release is; when Retail Traders are allowed to make a profit, the best course of action is to look for a pullback and get in! This is supposed to be the easiest trade, by design, meaning do not over-think these phases too hard. Like any other trade the kill switch for this would be taking your profit upon the market going back into an accumulation phase.
If the market is in Accumulation about 75% of the time, is being manipulated 20%, then that leaves about 5% of time left for a Profit Release to take place. While this phase is rarely taking place, that is no reason not to study it. If you are able to make decent forecasts of profit targets, these can be some of your most profitable days.
As a closing thought; learn to read accumulation and manipulation tactics, and you will nearly always find the clarity needed to make good judgements in the Market, leading right into the Profit Release. Remember, this is the Market Maker’s Business; not ours.
Thank you for reading the “Identifying Market Manipulation” Series!
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Director of Smart Money Course
To view the Smart Money Course click HERE]
Day trading is hard, no doubt about it. The emotional ups and downs can surprise even the most level headed of us. Winning can make us feel jubilant and secure in the knowledge that trading for a living is possible, but when we lose it can be devastating to us emotionally. Fail to maintain perspective and all hope of being a professional trader can vanish.
I’ve always wondered why the market made me feel so vulnerable when my account was down. I can remember days where I would walk out to my car and feel like something was missing, like there was a hole inside of me somewhere, or that I didn’t have what the successful others did.
For a while, I had trouble coming to terms with these fleeting feelings. I mean, no sane person should beat themselves up as hard as I was over losing a couple of bucks. After all, its only money right?
I recently stumbled into my box of old college essays, and amongst them was a paper written on the Kubler-Ross model, otherwise known as the 5 Stages of Loss. From a psychotherapeutic perspective this model can give a psychologist a framework to understand a client’s psychological state after the loss of a loved one.
As I sat there thinking about this psychological theory it made me wonder.
I take my trading account as seriously as a heart attack. Can I apply this to my trading?
As it turns out, it can be applied to all sorts of personal loss. So let’s try to understand it from the personal loss of money.
The 5 Stages of Loss are Denial, Anger, Bargaining, Depression, and Acceptance. The amount of time, order, and intensity of each of these stages will be different for everyone.
Denial is a defense mechanism that protects you from the intensity of your emotions. As a trader, typically this is experienced when the market is moving against you, but you refuse to change your mind about your position.
Anger is a way of deflecting negative feelings away from ourselves and can be semi-therapeutic but ultimately not a long term solution. Blaming is a large indicator of this stage, like blaming the person next to you for being loud, or lashing out at those who are trying to help you.
Bargaining, for a trader, can be the most dangerous phase. It is this stage where we seek to avoid another loss by……. getting into another trade. Sounds pretty illogical right? For instance, if price has hit our stop level and then rotates to go in our direction, we imagine that this trade is going to be huge, and it may, so we immediately look for another entry. We say things like “if only price would come back up to this level then I’m in, and I’ll catch the ride down”, all the while remaining completely unaware of what higher time frames are telling us. What most do not realize is that they are making trading decisions from an emotional context and not a rational perspective. This is why the first trade of the day is generally our most clear understanding of the market
Depression is the stage where negative self-talk occurs. “How can you be so stupid to trade during accumulation?” “Why the hell did you go long when everything is short?” “May as well put a gun to my head”. The sooner you can recognize this stage the better, as it is typically at this stage where account destruction occurs (ask me how I know). The best course of action is to sever your access and SHUT DOWN your computer. Better yet, take off early and hit the gym or go for a run to clear your mind and work out some aggression.
Acceptance. Emotional calm may be experienced if this stage is reached. This is best characterized as when, after taking a losing trade the trader can unconsciously say “oh well, there is always tomorrow”. Consistently getting to this last stage is when the unfolding of a professional career can begin. You’ll begin to hear your self say things like “I don’t quite understand what the market is doing so I’m going to stay out” and “I must be tired, I’m stopping before I take a hit”
D. If you can maintain your rational perspective while taking small losses, you will dramatically shift the probability of a long trading career into your favor. After all, 90% of trading is not actually being in the market but deciding when to get in.
So be patient, be bold, and remember that there will be another trade tomorrow.
When Investment Banks and Financial Institutions (I.E. Market Makers) hold price in a tightly confined price range, it is the beginning stages of Accumulation. This is the stage that they collect orders to be used later for manipulation. As the Retail Trader begins placing trades (and stop orders) in this seemingly unimportant area, the Market Makers to put it simply, are doing the same. These areas are essentially where Market Makers are layering their own trades. They are looking for, like all Retail Traders, the best entry they can get. The only difference is they require vast amounts of liquidity to place their trades.“What does Accumulation look like?”
Accumulation is generally preceded by a push, followed by setting a tight box shaped area of price action. It can build straight to the right, or be slightly slanted long or short. What’s important is that it is a confined area of price. An Accumulation is not affected by time, they last as long as the Market Maker sees fit.
“What do I do once I’ve Identified it?”
The easiest way to take advantage of identifying an Accumulation is by drawing a line straight through the middle of it. This line represents the Average Price of buyers and sellers in that zone. Since Market Makers are also getting into their own trades in these areas this is an important price to track. If you have identified it correctly, you will be amazed at how often there is a clear rotation off of these prices. Market Makers will often bring price back to the accumulation at some point to knock out Retail Traders. They will take it far enough for stop taking, but not so far as taking themselves too far out of the money. Following a clean rotation off an Average Price line the Market will often run several hundred pips in the opposite direction. The other benefit of identifying Accumulation is knowing that some sort of Manipulation is eminent. It is from the Accumulation area that the Market Makers will begin to manipulate the Market usually by taking price through prominent highs/lows near the accumulation against the overall bias. This is the time that is usually best to place a trade. After Retail Traders have already been taken out. Thanks for tuning in! Next week will finish off the 3 Part series of Identifying Market Manipulation! To stay up to date on any cutting edge Market Manipulation tactics be sure to subscribe.
-Shane Guth, Director of Smart Money Course
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