Order Flow Forex Mastery

Course
Part 3
Why Traders Fail

Contents
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1
Why Traders Fail
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Why Traders Fail Introduction
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Overtrading
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Poor Reward Risk Ratio
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Let Emotions Get To Them
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Gambling
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They Do Not Keep A Trading Journal
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Trading With Scared Money
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They Use Too Tight Stops / Try to Scalp The Market
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Oblivious To The Information That Does Not Appear On The Chart
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Not Disciplined To Find Opportunities Every Time They Should
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They Practice The Blame Game
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They Claim They Have No Money
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They Claim They Have No Time
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They Think They Are Too Old
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They Think Now Is Not The Time
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They Are Afraid To Learn And Acquire New Skills
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They Think Other People Have Got It Easier
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Trading System Has No Edge
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39
Why Order Flow Traders Fail

Why Traders Fail

Why Traders Fail Introduction
The reasons why traders fail are many and varied. Let us go over the most popular
ones. These
are mostly the reasons why general traders who fail. I will talk about the reasons
why some other
order flow traders fail in another section.
Chances are you may have already heard of the reasons why most traders fail. I just
want to
review them one more time in a quick fashion with you. And also to add in my own
beliefs about
why traders fail. In my opinion, the biggest reason is that they are afraid to
learn and acquire
new skills and are confused about what habits they should have in order to take
their trading and
analysis to the next level.
Therefore I will go over a quick review, but also so you can see the big difference
between why
ordinary traders fail, and then why traders who are attempting to become order flow
traders fail.
There are generally two separate paths you can take. One of which is the technical
indicator/
chart pattern/price pattern, etc trader path. Then there is the order flow path.
There can be
overlap between the two paths, but many traders can suffer different problems in
each path,
which is why I separated the two.
As a starter, one of the biggest reasons aspiring traders fail is because of the
plethora of choices
they have and inadequate skills for dealing with such choice.
As Mark Douglas said in the book Trading in the Zone:
Trading is an activity that offers the individual unlimited
freedom of creative expression, a freedom of expression that
has been denied most of us for most of our lives.
In the trading environment, we make almost all of the rules.
This means there are very few restrictions or boundaries on
how we can choose to express ourselves.
Because unlimited possibilities coupled with the unlimited
freedom to take advantage of those possibilities present the
individual with unique and specialized psychological
challenges, challenges that very few people are properly
equipped to deal with.
We’re in complete control of everything we do. The curse is
that there are no external rules or boundaries to guide
or structure our behavior. The unlimited characteristics of
the trading environment require that we act with some degree of
restraint and self-control, at least if we want to create some
measure of consistent success.
Aspiring traders are filled with immense choices and unlimited possibilities. For
example, your
unlimited possibilities and choices include:
1. Whether to create a trading plan or not and what to include in it
Page 1

2. Whether to keep a trading journal or not and what to include in it

3. How much time to dedicate to trading during the week
4. What you plan to learn in your allotted trading time
5. How much energy and intensity you approach your trading in your allotted trading
time
6. How much money to start trading with
7. Whether to quit or not
8. How many vacations to take while you are learning how to trade
9. Who you blame for your losses (if anyone else)
10. Your motivations for trading
11. What information you find useful in this mastery course and plan to use and
implement
12. How many times you read this mastery course
13. What daily habits you have(if any)
Etc.
So many more questions and possible combinations. And we haven’t even gotten to the
trading
system portion yet.
Choices involved in a trading system include:
1. Fully automated (programmed) approach, or more manual discretionary trades
relying on your
own synthesis of market information?
2. If discretionary approach, then do you use technical indicators, chart patterns,
price patterns,
or order flow?
3. If order flow, then what type of order flow trading? Stop hunting and option
barriers? News
trading? Global macro? Something else?
4. What financial instrument and markets will you trade? Are you just going to
trade the EUR/
USD? Or will you follow many currency pairs? Or will you trade currency + stocks?
Or
currencies + futures + stocks?
5. How will you determine the setup and entry criteria?
6. How big will your stop loss be on trades? Flexible stop loss size? If it is
flexible, then how is
it determined?
7. How will you determine position size (risk per trade)?
Etc.
All these above questions can stop traders in their tracks. The information
overload just feels too
much. The list of thing that needs to be done to be a successful trader is very
big. Most people
are not equipped to handle it.
Page 2

Overtrading
1. They Over Trade
Jesse Livermore has said:
There is a time to go long, time to go short and time to go
fishing.
There is a never-ending stream of opportunities in the stock
market and, if you miss a good opportunity, wait a little
while, be patient, and another one will come along. Don’t
reach for a trade, all the conditions for a good trade must be
on your side. Remember, you do not have to be in the market
all the time.
Many traders believe there is this link between the more trades you place the more
money you
make. Perhaps they have in their head that the more trades they place the more they
can
compound the winning trades and ratchet up the position size and keep on
compounding. There
is some truth to that, BUT, chances are they are not achieving the win rates
and compounding that they desire because over trading means you are placing sub par
trades and
trades that are not in harmony with the massive order flow and information flow.
Many traders also believe that they need to ‘work hard’ in order to make a lot of
money. Working
hard was taught to them from a young age. Well you do need to work hard, and
constantly
improve yourself, and diligently record your trade results in your journal. But you
do NOT need
to ‘work hard’ by thinking that you need to place a trade every single hour of
every single day.
I remember I was in such a phase. I felt an urge to search for trades every single
second of every
day. Whether it was waking up in the middle of the night during the European open,
or during
the NY open, or during the 5pm rollover, or during the Asian session. I felt that I
was missing
out on the market inefficiencies that I could take advantage of and tried to place
many trades.
That did not go well as losses mounted, and I just felt exhausted as I had to watch
the markets
and my positions 24 hours a day as most of the over trading is from day trades.
Many people have not attained the traders mindset yet and believe that if they do
not place 20
trades a day, that they are not working hard. Is it immensely difficult for them to
say, place just a
smaller number of trades, make a lot of money, because they get this weird feeling
inside of them
that they are not ‘working hard’ for the money.
Well you need to banish these beliefs about over trading. Some of my best trading
months that I
have had were when I traded just a few times per month. I will show you the secrets
to making a
lot more money with only placing just a few trades per month.
It Is Possible
It is absolutely possible for you to pull a great return every month by placing
less than 5 trades
per month. Lets say out of the 5 trades that month, two were profitable, one was
break even, and
two were losses. Lets give an example with someone who has a $20,000 account and
they are
risking 2% on each trade which is $400 per trade. On the losing trades you lose
$800 total.
Where you pull ahead is on the winning trades. If your system generates an average
win of four
times the amount you risked, then you can come out way ahead. Therefore on the
winning trades
if you risked $400 to make $1,600 then you made $3,200 there. $3,200 minus $800 in
losses you
come out $2,400 ahead. That would be a 12% return for the month, which is pretty
good.
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You need to remember throughout this order flow process, journey and course that we
are NOT
market makers in banks. We can’t place trades like they do and front run large
orders that they
receive from their customers. Therefore we need to pick our trades more carefully
and know
which specific inefficiency we are taking advantage of. The market makers in banks
trade many
times during the day and many times during the minute. You need to realize this
distinction,
acknowledge it and focus your efforts on the inefficiencies that you can actually
take advantage
of with ruthless precision. As you progress through the mastery course you will
learn many
reasons and obtain wisdom as to why the market makers are not the smartest traders
out there,
nor are they the most lucrative players in the market.
Floor Traders
You will often hear of floor traders who made the switch to electronic trading from
their office
talk about the differences. Previously they used to like scalping on the floor of
the exchange.
Once they hit the electronic trading from their office, they realized it was a
whole different
game. No longer could they scalp effectively. They had to convert over to a more
longer term
trading, whether that meant placing just a few trades during the day to capture
large intraday
swings, or attempting to trying to swing trade and hold positions for a few days.
After all, many of them wanted to go electronic trading from their office because
they could
follow many more markets than they could have from the floor of the exchange. The
person in
the S&P pit may only trade that contract. But the person electronic trading from
their office can
follow the S&P contract AND 50 different markets if they wanted to. They can follow
the S&P,
equities, currencies, commodities, bonds, etc. And since they can follow fifty
different markets,
they are not looking to scalp fifty different markets at the same time. That would
be impossible.
Rather, they instead choose to place longer term trades, whether they are looking
for a specific
setup to play for a large intraday move or swing trade. Instead of trying to scalp
for a tick or two,
they are going to go for a minimum of ten or twenty tics.
It makes sense right? If you only trade 1 financial instrument, then you would
probably want to
scalp it as much as you can, especially if you are a floor trader. You would want
to catch as many
movements large or small in the only financial instrument that you trade.
But once you switch over to start tracking 10, 20, 50 different markets, you no
longer need to
scalp them. You can just switch over to a more longer term trading, whether it is
catching
intraday volatility explosions, one day volatility explosion, or multi day moves or
global macro
moves.
I went through the over trading phase in each of the trader cycles. I tried placing
30-50 trades a
month using technical indicators. I tried placing 30-50 trades a month using price
action
analysis. I eventually tried placing 30-50 trades a month using order flow stop
hunting when I
was first beginning. I tried playing the stops every single time I saw an area. It
didn’t work out
too well. Once I learned order flow trading and dropped my trade number down to
less than ten
trades per month, my trading returns, and profit exploded.
There are some months that I still place a lot of trades. They can number over
fifty per month.
However, I have developed the ability to vary position sizes according to what
inefficiency I
believe I am taking advantage of. I can risk smaller amounts on the inefficiencies
which I believe
are lower probability, and then risk larger amounts on the inefficiencies that I
believe are higher
probability. So while I still can place 50+ trades during the month as I like to
probe the market a
lot, the big profit trades will typically only occur on less than 10 of the trades
during the month.
Poisonous
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Over trading is very poisonous to your trading. Some people believe that there are
twenty great
order flow trades that exist in every currency pair every day. They think there are
trades at the
London open, NY open, Sydney session, before all news reports, after all news
reports, a few
hours after a news report, after stops are tripped, etc. Very poisonous indeed. Be
selective.
I remember when I was trying to over trade, AND leverage up aggressively.
Eventually I
discovered that I cannot trade every opportunity with a high degree of leverage and
a small stop
loss. Certain trading opportunities are not suited to using such leverage. Certain
trading
opportunities are not suited to over trading them.
I used to be in that category where I looked for a setup each and every minute of
every day. At
the end of the day I would place all these ill conceived trades, breakeven, or take
some losses and
feel exhausted at the end of the day. I had to drastically change my trading. I
didn’t want to be
chasing setups. I wanted to attract the best trades with a methodical process and
daily habits.
Focus only on the strongest possible order flow setups.
Why Does Over Trading Happen?
Why do people over trade? Well, if they are a technical indicator trader they see a
moving
average crossover, stochastic signal, etc and if they believe that “working hard”
is key to success,
they may decide to take every signal that occurs. Eventually they get this bright
idea that if they
moved down to smaller time frames that there would be more signals!
And those traders apply that technical indicator over trading philosophy to order
flow trading.
They may see the intraday inefficiencies, and then go down to the one minute chart
and start
trading/fading stop loss levels that are flimsy at best. They may think that there
are twenty stop
hunts, or twenty different option barrier plays in the EUR/USD in just one day.
After all they
want to compound their account multiple times in a single day!
They can over trade with news trading as well. They can look at the news that will
have a
minimal impact on price and see that there are 10-20 different news releases and
decide to trade
them all. When in reality only one or two of them may provide a nice clean trade.
But that over
trading philosophy carried over from previous trading systems can cause poor
performance in
order flow trading. I will discuss ways to address these issues in the market
sensitivity section.
If/when you enter the price action trading cycle a similar over trading can start
to occur. You may
trade the signals on the daily or weekly charts. But eventually it occurs to you
that if you only
went down into a smaller time frame that there would be more signals! Eventually
you figure out
that if you go down to a smaller time frame on twenty different currency pairs then
there would
be so many signals for you to potentially compound your account at. And that is
when the over
trading accelerates and you can potentially suffer from information overload from
the charts, and
suffer from analysis paralysis.
I Used To Be Fearful Of Inefficiencies Drying Up
I used to be deathly afraid of the inefficiencies, especially stop hunting and
option barriers going
away. I thought that someone was going to find out about them and take all the
liquidity. And so
I was in a rush to trade as many of them as I could as fast as possible. I thought
they were going
to go away as more and more people found out about order flow trading. So I over
traded in the
beginning.
That immense fear that the inefficiencies were somehow going to go away delayed my
progress
by a few months.
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That doesn’t mean that all inefficiencies will always still exist. There are some
inefficiencies that
will only exist for a short time, then they may never again return. News Spike
Trading with
guaranteed fills at the prices that some traders used back in 2005/2006, is one
example of
an inefficiency that no longer exists. So there is definitely a good degree of
skepticism that you
should have about what type of inefficiencies you share with other people. There
are many
quantitative hedge funds that are ultra secretive about their trading code. There
are some
inefficiencies that you should be secretive about and not tell anyone, then there
are others that
will always exist no matter what happens.
I remember waking up on plenty of occasions and being scared about whether the stop
hunting
and option barrier plays would still be available. I would scour the trading forums
and see how
many people were talking about order flow trading. I thought that they would steal
my liquidity.
In reality over the years I have learned that the one day volatility explosions,
multi day
momentum moves, and global macro moves will always exist. Even if there are many
more
successful order flow traders. The stop hunts and option barrier plays will always
exist as well
into the future.
For not everyone will interpret things in the same way, at the same time, as you
do, and it’s
important that you understand that.
Gateway Drug
Over trading is like a gateway drug. It can lead to all sorts of other trading
problems. It can
cause a great trading system to under perform, break even, or take losses. It can
cause you to
start blaming other people. It can cause you to believe that some big players are
rigging the
market against you. It can cause you to lose faith in your system and trading in
general. It can
cause you to see order flow mirages. Order flow mirages meaning that you see order
flow
generators, scenarios which are flimsy, unrealistic, and mirages.
Some traders are action junkies. They want action and are fishing around for a
trade at every
single second of every day. That is a recipe for disaster. I do not operate under
any action junkie
principle. I say to myself I can place 50 trades a month, or none at all. It all
depends where the
massive order flow is. Whether I place 50 trades, or zero trades during the month,
I am very
happy with myself as long as I followed my system, because I know I can catch
killer trades
indefinitely into the future. No need to risk capital on stupid trades where if you
wait for the
perfect opportunity you can profit 5-50% in one day (has happened multiple times).
I used to be an action junkie too. I would end up placing 20-30 trades a month and
would barely
break even and be exhausted. I switched to order flow trading and placed 2-5 trades
a month and
my returns skyrocketed. That was with my news trading system. There were sometimes
my
system did not generate a signal for a whole month, but I just sat there patiently
waiting for a
trade. No point losing money when you can make great returns picking your spots
carefully.
Eventually I figured out how to vary my position size and could place many trades
during the
month, say 50 trades, but realize that only 2-5 trades would tend to generate the
big returns.
Investment managers can be very guilty of this too. They charge substantial fees
and thus feel
that they must be active to show that they are doing something with the money. The
book Money
Masters of Our Time says of investment managers:
Feeling obliged to remain active, he swings at far too many
pitches, instead of holding off until he has absolute
conviction. He seems to hear the clients howling, “swing you
bum!”
Page 6

Jesse Livermore
Here are quotes from the book Reminiscences of a Stock Operator:
It is almost as important to know what not to do as to know
what you should do.
No man can always have adequate reasons for buying or selling
stocks daily – or sufficient knowledge to make his play an
intelligent play.
The desire for constant action irrespective of underlying
conditions is responsible for many losses in Wall Street even
among professionals.
Sometimes the best trades are the ones you never made. As you gather more
information about
the market sentiment and order flow. Cash also has option value attached to it. So
you can
deploy it as you see fit if you spot any good opportunities at a later point. Don’t
underestimate
the option value of cash.
Paul Tudor Jones
Paul Tudor Jones said in the article Adapt or die, found here:
Paul Tudor Jones: Adapt or Die
DOCUMENT: 04_Jul_-_Tudor_Inv_Corp.pdf
If you don’t see anything, you don’t trade. You take risk only
when you see an opportunity.
Paul Tudor Jones said some wise words in the above article. And he needs to manage
many
billions of dollars and has numerous traders under him. Both him and the traders
that work for
him are under pressure to deploy their investors capital relatively quickly to take
advantage of
market opportunities. Yet, Paul Tudor Jones still tells his traders that if they
don’t see anything
they don’t trade. For Paul Tudor Jones realizes that the only thing worse than not
finding
opportunities is over trading, taking losses, and trying to dig yourself out of the
whole.
Poor Reward Risk Ratio
2. They Trade With Poor Reward Risk Ratio
There are some traders out there trading with 100 pip stops and going for 20 pip
profits. They are
risking 100 pips to make 20 pips. Sure they will tend to have large win rates, but
risking $1 to
make .20 cents is just plain bad trading.
You need to be able to identify trades that have a reasonable potential to make you
more pips
than what you are risking on the trade. If you are placing a trade with a 50 pip
stop loss, make
sure that the signal is strong enough for you to make at least 50 pips of profit.
That way your
Reward – Risk Ratio is at least 1:1. Ideally you want a higher Reward-Risk Ratio
somewhere
near the 2.5-4.0 range or higher. In other words you want to build a trading system
where the
average winning trades gives you an average profit of 2.5 – 4.0 times your losing
trades.
Page 7

This trading flaw goes hand in hand with the problems of over trading. Most people
that over
trade probably have very poor reward risk ratios. After all, how many times can a
trade come
along that lets you win four times what you risked on it? Certainly not the 20
times a day that the
traders that over trade are hoping for!
George Soros
George Soros knew about having a good reward risk ratio when he broke the Bank of
England.
Here is a conversation in the book More Money Than God, between Soros, his chief
investment
officer Druckenmiller, and an analyst named Robert Johnson.
Johnson: Well, sterling is liquid, so you can always exit
losing positions. The most you could lose is half a percent or
so.
Druckenmiller: What could you gain on the trade?
Johnson: If this thing busts out, you’d probably make fifteen
or twenty percent.
Druckenmiller: How likely is that to happen?
Johnson: On a three-month time frame about ninety percent.
As you can see, Soros found a trade that had a ninety percent perceived win rate,
but that he was
also able to risk around 0.50% to make a potential 20% gain. The reward to risk
ratio was
staggering at 40:1.
False Beliefs
Some traders believe that if they just place a trade that has a 1:1 reward risk
ratio, that they are
placing a bet where the odds of success are 50/50. That is just not true.
Your stop loss and perceived profit target do not really determine whether your
trade stands a
50/50 chance of success. Now using a bigger stop loss can help you manage through
the small
fluctuations that can go against you. But that means your profit target also needs
to be bigger to
equal the 1:1 reward risk ratio.
And besides, your decision to place a 1:1 reward risk ratio trade has nothing to do
with timing the
market and knowing if it is a good trade or not. You don’t just decide to place a
trade and then
just say that you will use a 1:1 reward risk trade. That makes no sense. It is
asinine.
Because lets say that two traders decide to place a trade and both decide to use a
1:1 reward risk
ratio. They both decide to place the trade at the exact same price and in the same
direction. Do
both of their trades stand the same chance of success? Absolutely not.
You may think that since they both have the same reward risk ratio and placed the
trade at the
exact same price and in the same direction that they have the same chance of
success.
Well it is also possible that the two traders chose different stop loss sizes, and
thus different profit
targets.
You can easily have two traders that have 1:1 reward risk ratios, they place trades
at the exact
same price, and in the same direction, but one trader chooses to have a 50 pip
stop/50 pip profit
target trade, while the other trader chooses for a 100 pip stop / 100 pip target
trade.
Page 8

They are both in the same trade, they both have exposure to the same direction,
both got in at the
same price, but they chose different stop loss sizes.
And besides, the trader should not place trades based like that.
The trader should always first study the underlying market conditions, the order
flow,
information flow, sentiment, news, etc. They study how big of a potential move can
occur. They
study where the proper stop placement should be. They complete the virtual order
book of macro
participants betting on various scenarios to determine the path of least
resistance. Then they
come to a much better determination of what the true risk reward ratio for the
trade is. Then they
can place the trade knowing that they have a great potential reward risk ratio and
they have a high
probability trade.
I have seen plenty of trades that had a reward risk ratio of 3:1, 5:1, even 10:1
have a much higher
probability than other traders placing trades that they think have a reward risk
ratio of 1:1.
Because it isn’t necessarily about the imaginary reward to risk ratio that you have
in your head.
It is always about the massive order flow and liquidity that can come into the
market. If you
measure that first, then you can have plenty of situations where you can find high
probability
trades and a great reward risk ratio because you have the massive order flow behind
your trade.
For example, lets say the EUR/USD is trading at 1.60. Someone chooses to go long
EUR/USD
at 1.60 with a 100 pip stop loss expecting a 100 pip move. It is a 1:1 reward to
risk ratio. The
better question is, what is your trade based on? What is the reason that you are
going long EUR/
USD? What is the reason that you are going long EUR/USD at 1.60? What scenario are
you
betting on? What do you expect to happen to cause your trade to profit? Why is 100
pips the
proper stop loss? Those are the better questions to ask.
Anyone can just slap on a trade at a random time and say that they will use a 100
pip stop and
100 pip target. Anyone can do that at any point in the day. You need to make sure
you have a
good reason for any trade that you place.
Continuing on the example, lets say someone wants to go long EUR/USD at 1.2000,
with a 200
pip stop and potential 200 pip or more target. They have a reason for what they do
citing a
believe that the market is pricing in too many Eurozone problems at that they
believe the
Eurozone authorities will do something to alleviate the crisis. They also believe
that the Federal
Reserve has a possibility of engaging in another round of quantitative easing. They
believe those
scenarios will cause the EUR/USD to move higher. Lets say the EUR/USD moves higher
by
1,000 pips. The person had a 5:1 reward to risk ratio profitable trade. This trader
didn’t just
place a trade randomly. They had a reason for the trade. They analyzed the
expectations and
scenarios of the market and figured out if there was a trade opportunity based on
where the news/
sentiment/fundamental/macro participants would move the market.
This is why your trade success chances and reward to risk ratio cannot be based on
random
things, or imaginary things that you have in your brain. They need to be based on
what is
actually going on in the market. Things such as order flow, liquidity, volatility,
news, sentiment,
expectations, scenarios, global macro, etc.
As Reminiscences said, you need to speculate intelligently according to:
Opinions and beliefs logically arrived at after a dispassionate
study of underlying conditions.
Page 9

That is the key. To have a dispassionate study of the true reasons why the market
has moved in
the past and why it can move in the future. A dispassionate study of the
most important participants: the news/sentiment/fundamental/macro participants.
Let Emotions Get To Them
3. They Let Emotions Get To Them
Paul Tudor Jones once said:
Many of us are blind to key psychological elements of
ourselves.
Mark Douglas from Trading in the Zone:
The best traders are not impacted (either negatively or too
positively) by the outcomes of their last or even their last
several trades. So their perception of the risk of any given
trading situation is not affected by this personal,
psychological variable.
Especially after a losing trade, a trader may believe their system does not work
anymore, and
choose to modify their trading system. Other times they like to move stop losses
further away
from the market than what they initially had them at. Other times they like to get
greedy and
leverage up when they are not supposed to. Or they can get greedy and take profit
faster than
they should have. Or they get greedy and decide not to take profit well after their
system told
them to get out. They ignore their risk per trade and draw down rules. They try to
revenge trade
and get back at the market. Many traders do not accept the risk that they take, and
therefore feel
uncomfortable being in a trade.
Many traders also do not know how to handle the euphoria that comes with a winning
streak.
Some traders catch a winning trade or series of winning trades and all of a sudden
thing that they
are god of the markets. They start thinking of all the shiny toys they can buy –
the cars and
houses and vacations, etc. They can jack up their position size way above their
optimal level.
They start to think they have the midas touch.
They also do not know how to handle the fear that can come when you are on a losing
streak.
They suffer a losing trade or series of losing trades and all of a sudden they feel
like they are
losers. Or they feel like a calamity has happened. They start playing out all the
horror scenarios
in their mind about what if they suffer more losses or what if they blow their
trading accounts.
Then they can’t dig themselves out of the hole because they are afraid to take any
risk at all.
All these emotions can be present at various points in a trader’s development. If
the trader allows
the emotions to get to them and causes them to quit, then that can remove the
trader from the
endless opportunity flow that the financial markets offer.
The hallmark of a great trader is the ability to have a winning or losing trade, or
series of such
trades and for them to completely keep control over their emotions and to calmly
analyze the
future market opportunities. The great traders ability to assimilate market
information and
identify the great trades is not impaired by a winning or losing series of trades.
George Soros
Page 10

George Soros said in his book Soros on Soros:

When you are a serious risk taker, you need to be disciplined.
The disciplined that I used was a profound sense of
insecurity, which helped to alert me to problems before they
got out of hand.
Gambling
4. They Gamble
Every trader needs to make a decision before getting into the trading world. Are
you in the
gambling business or are you in the trading business?
Gamblers enter the world of trading for excitement and to fulfill their urge to
always be in the
action. As if all the other forms of gambling available to them were not enough,
they choose to
gamble from the comfort of their own home. They love to leverage up and have wild
swings up
and down in their account equity. They stand a very high chance of blowing up their
account
very quickly.
There is absolutely no reason to be gambling in the financial markets. This is a
choice you can
make. In any given trade you can choose whether you want to risk 0.10% or 0.50% or
1% or 2%
or 5% or 10% of your account. You can choose to use zero leverage and only risk
0.10% or so.
Or you can choose to leverage up 20:1 or higher and risk 10% of your account. This
is a choice
each individual trader must make.
Some people risk 5% or 10% on a trade and do it as a pure form of gambling, meaning
that they
lay down the big bet for no good trading reason.
Others choose to risk 5% or 10% on a trade, but do thorough research to make sure
the trade has
a high winrate and good reward risk ratio.
I have never done pure gambling risking 10% of my account for no reason at all. I
have risked
10% of my account on certain news trades when I first started. There was some
element to
gambling to it, since I was risking so much on a trade. However, I felt I had done
my research
and thought I had a high probability trade as I had good order flow reasons for the
trade. That
was back when I first started. I don’t swing for the fences anymore, unless I am
having a really
monster year and am up triple digits and sense an opportunity to go for the
jugular.
If you want to gamble, go to the racetrack, or the the casino, where you can enjoy
gambling with
your friends in a nice environment. There is no reason to be bringing gambling into
your
household, as you can go outside of your house to gamble and have fun with your
friends.
Once you decide to be in the trading business, you need to treat it as such. Your
first priority is to
preserve your precious capital. You do not take trades that do not follow your
system rules. You
cannot take unnecessary losses. Why? Because, every unnecessary loss results in
depletion of
account equity. What that means is that when the good trades arrive, you have less
account
equity to take advantage of them.
Lets say you decided to open an account to start gambling in trading. After five
trades you find
yourself down -20%, as you lost four trades in a row risking 5% on each trade. Then
you finally
decide to get serious and find a nice trade that nets you four times your risk. You
make a lot of
your money back, but not all of it.
Page 11

For if you are already down 20%, you need to make 25% to get back to even.
Take another trader who opened up an account to treat trading as a business instead
of gambling.
They risk 0.50% per trade. After five losing trades in a row they are down -2.5%.
Recovering
from a -2.5% draw down is a lot easier than recovering from being down -20%. If you
are down
20% or 30% or 50% or more, then you can feel demoralized. On the other hand if you
are only
down 2% or 3%, then chances are your trading morale is still intact.
John Paulson
http://www.reuters.com/article/2011/12/22/us-hedgefunds-paulson-
idUSTRE7BL1LY20111222
The billionaire hedge fund manager, John Paulson, suffered big losses in some of
his hedge funds
of around 50% in the year 2011. In order to get back to even, Paulson needs to
generate a 100%
return. That is something that can take years to recover from.
Do not allow yourself to get into a trading hole where it can take you years to dig
out of.
As Paul Tudor Jones once said:
There’s no reason to take substantial amounts of financial risk
ever because you should always be able to find something where
you can skew the reward risk relationship so greatly in your
favor that you can take a variety of small investments with
great reward risk opportunities that should give you minimum
draw down pain and maximum upside opportunities.
They Do Not Keep A Trading Journal
5. They Do Not Keep A Trading Journal
The reasons are very similar to not keeping a trading plan. Many traders want to
trade the
financial markets and escape their previous jobs and thus do not want to be
bothered with such
work! But just as a trading plan can help you improve your trading, a trading
journal can help
you improve your skills even more.
Another reason many traders do not keep a trading journal is because they over
trade! Since they
over trade they become lazy to record all the trades they made. If can be a
daunting task to
record the news, sentiment, expectations, liquidity and global macro forces for
each trade you
place if you place trades 50 times per day.
On the other hand if you are not placing 50 trades per day, it gets to be a lot
easier to keep a
trading journal and recording your trades.
When you are forced to record all your traders, both winners and losers, and record
all the key
statistics like profit/loss%, and risk reward ratios, then you have the accurate
numbers staring at
you in the face. The numbers don’t lie, both for the profit and losses.
When you keep a trading journal you can notice trends, strengths and weakness in
your own
trading that were previously invisible. For example you can notice what times of
the day your
profitable trades come at. You can notice how big your winning trades are in
relation to your
losers. You can notice how long your winning and losing streaks are. The potential
benefits are
endless.
Page 12

I want to know what trades made me the most money. So I can know which order flow
generators moved the market that much. I want to know which trades were consecutive
losses so
I can figure out what went wrong. So I can figure out if there was a missing order
flow element
of the puzzle that I overlooked. I want to know if I am trading well, and repeating
the really huge
trades. And in order to repeat the huge trades you need to review them and figure
out what order
flow pieces came together to cause the huge move.
If you have a consecutive series of losing trades chances are there is an order
flow generator that
you are unaware of or have not reprogrammed your mindset to perceive that type of
inefficiency.
For example, lets say I record in my trading journal that I tried to buy the
EUR/USD on
five separate occasions and lost money on each and every trade. If I have recorded
those trades
in a trading journal, then I can see the big red numbers staring me in the face. I
can see that I
tried to pick a bottom on five separate occasions within a small period of time. I
can see that I
was not in harmony with the market. I can see that something is wrong and I am
missing a piece
of the puzzle. Perhaps I should stop trading EUR/USD and trade another financial
instrument.
Etc, etc.
Discovery Of Order Flow Trading
This was how I discovered order flow trading. I had a trading journal for my price
action trades
going back several months. I looked at my trade journal for my price action trades
and I started
seeing some patterns. Patterns of consecutive losses. Nice winners followed by
giving the profit
back to the market. I eventually decided that I had to find a reason why I was
winning on some
trades, and losing on others. Eventually it became obvious that the chart alone
could not provide
me the answers I was looking for, so I focused on the information that exists
outside of the chart.
You can’t improve your trading system performance if you don’t keep track of your
numbers.
This is not the fun part, but it is necessary.
So start keeping a trading journal today!
George Soros
George Soros kept a trading diary, which he eventually published into the book The
Alchemy of
Finance. He credits his journal with the fact that he caught one of his biggest
trades in his
lifetime. He was able to short the dollar by going short USD/JPY using significant
leverage in
1985 and had a profit of over 100% for the year as USD/JPY fell thousands of pips
and his short
trade paid off handsomely.
Soros wrote in his book Soros on Soros:
The real time experiment covered the Plaza Accord in September
1985, which was a major coup for me and for the Fund. We made
approximately 114 percent in the 15 months of the real time
experiment. It was probably the highest honorarium ever
received by an author for writing a book.
Jesse Livermore
Jesse Livermore was rumored to sit in a bank vault for a weekend at the end of
every year in
order to physically see and touch all the cash he made during the year as well as
to review all the
trades he made.
What To Include In A Trading Journal
Page 13

Lets say you decide to keep a trading journal. What do you include in it? I
personally know that
the first time I went to create a trading journal, I did not know what it should
include. I knew I
probably should record the entry price and exits, etc, but what else?
Over the years, I have adding various columns to my trading journal. A big thanks
to all the
people who helped me. I don’t remember from what books, articles, videos, etc I
gathered a
sizable portion of this trading journal from. But thank you whoever you are.
Here are the columns in my trading journal and various explanations where
appropriate:
Trade Number – Simply is this the first trade of the year? The 10th?, The 50th? I
count a trade
that you opened and closed just one trade number. For example if you buy EUR/USD
today and
sell it 50 pips later in the day and close out the trade, then that is just one
trade for recording
purposes. I do not create a second trade number to describe the exit. Both the
entry and exit are
under the same trade number.
Ticket Number – This is ticket number / order ID number that your broker gives you
for the trade
on your platform.
Day of the Week – This would be simply the day of the week the trade was initiated
Financial Instrument / Currency Pair – Whatever Financial Instrument or currency
pair you are
trading. If you are trading EUR/USD, put EUR/USD. If you are trading the EuroFX
futures
contract, then put in Euro FX. If you are trading the emini S&P, then put in Emini
S&P 500. If
you are trading a stock, put in the ticker symbol. Etc.
Buy/Sell or Long/Short – Did you buy or sell to open the new trade? If you bought
something to
open the trade, then write in either BUY or LONG. If you sold(shorted) something to
open a
trade, then write in SOLD, or SHORT. This is a personal preference. Some people
like to put in
their journals as BUY/SELL. Other people like to write in Long/Short. My preference
is for
writing in long/short, since that is the more professional way to say it. I like to
use the lingo
where possible.
Order Type – Market or Limit – When you entered the trade was it a market order or
limit order?
Some people can enter a trade using a combination of market and limit orders. If
you enter a
trade for $1 million half of which was market order and the other half was limit
order, then you
can write in $500,000 Market, $500,000 Limit as a bullet points.
Position Size / Units / Contracts / Shares – How big was the total trade you
entered? If you
bought 1 standard lot of a currency pair, then write in $100,000 or 1 standard lot.
If you bought 5
gold futures contracts, then write in 5 contracts. If you bought 1,000 shares of
stock, then write
in 1,000 shares. Etc.
Entry Price – The entry price you received entering your opening position. If you
entered at
multiple prices, then you can either write in all the different fills you got, or
specify the average
price received.
Entry Date – Date that you entered the position. For example January 23, 2012. Or
you can
write in 1/23/12.
Entry Time – Time that you opened the position. If it is multiple positions, then
you can specify
each time for each various fill, or you can specify the time range. For example if
you got
$100,000 worth of EUR/USD filled at 3:00 AM EST, and another $100,000 filled at
3:05 and
another $100,000 filled at 3:25, then you can write all those in, or you can
specify a range of 3:00
– 3:30 AM EST.
Page 14

Entry Spread Cost (in pips) – This is optional if you want to keep track of your
spread cost in
pips. If you executed a market order, how many pips did you pay in spread.
Entry Spread Cost (in dollars) – This is optional if you want to keep track of your
spread cost in
dollars. If you executed a market order, how many dollars did you pay in spread.
Stop Loss Size – How big is your stop loss size? If you are trading a currency
pair, then you
write in the pips. If you are trading the S&P futures contract, then write in the
number of points.
If you are trading a stock, then write in how many cents or dollars your stop is
away from your
entry price.
% Risk – If you were to get stopped out of the trade, how much % loss of your
equity is that?
This is where you input your risk per trade expressed in % terms if you use such a
position sizing
method. If you risked 0.50% of your account on the trade, then put in 0.50%
Risk in dollars – If you were to get stopped out of the trade, how much loss in
dollars is that. For
example if you have a $100,000 account and you risked 1% on a trade, then write in
$1,000
dollars
Potential Reward: Risk Ratio – This is a column that I only sometimes fill in. You
write in what
the potential reward risk ratio of the trade is. If you are trading using a 100 pip
stop and you
expect that the market can reasonably move 300 pips, then you can write in 3:1. Of
course this is
an interesting column because you can look at it after the trade is finished and
see how close you
were or how far removed from reality your initial projections were.
Potential Win Rate – This is another column that I only sometimes fill in. You
write in what you
believe the potential win rate of this trade is. If you were to place this trade 10
times in a row,
how many times do you think you would win? I write it in as percentage terms. If
you believe
the trade has a 50% chance to win, then write in 50%.
Type of Inefficiency – This is where you write in what type of inefficiency you are
looking to
capture. I use the word inefficiency here. I believe it is important to think of
trading setups as
inefficiencies. If you think in terms of inefficiencies, then you will think in
terms of the market
being mispriced, then you will think about the reasons why the market is mispriced
and why such
market expectations for example are out of alignment with reality. In this category
I could write
in different types of trades such as fading the stops, different types of news
trades, expecting
stops to get tripped, betting on sentiment intensifying, betting on sentiment
reversing, etc. I do
not write in all the reasons why I took the trade in this column. I do that in
another column. This
column is just to broadly define what type of inefficiency you are looking to
capture.
Chart Time Frame – I do not use this since all my order flow based trades have
nothing to do
with what chart time frame I look at. However, if you are a chartist or price
action trader, then
you may want to include what chart time frame you found whatever pattern you were
looking at.
Exit Price – When you exit your trade, you enter the price you received here.
Exit Date – The date you exited your trade.
Exit Time – The time you exited your trade.
Trade Duration – In hours, minutes, days or weeks. If the trade lasts less than an
hour, I will
usually write in the duration in minutes. Anything in between 1 and 48 hours, I
write in the hours
amount. Anything past that and I write it as days or weeks as appropriate, etc.
Page 15

Pips the trade went against you before turning into a winner – If you have a trade
that suffered a
draw down, but did not stop you out and eventually was a winner, then you write it
how many
pips the trade went against you before it turned into a profitable trade. The
reason you have this
column is to compare it to your stop loss size and see any patterns that emerge. If
you notice that
a lot of your winning trades suffer a big draw down and get near your stop loss
points but turn out
to be a profitable trade, then you can further refine your entry strategy to get in
a better price.
Slippage on the Exit – If you get stopped out for a loss, then you write in how
many pips you
suffered as slippage, if any. For example if you are long EUR/USD at 1.2500 and
have your stop
loss at 1.2400 and the market drops and you get filled at 1.2398, then you would
write in -2 pips
slippage. In other words you lost 2 pips as slippage. This is important for a few
different
reasons. Firstly, you want to see if the places you put your stop at suffer from
slippage. If they
do, perhaps you can get better stop loss placement, or use it as useful information
to find new
inefficiencies. Secondly, you want to see how much slippage your broker is giving
you. If you
are trading the same system with different brokers, then you can record the
slippage from each
one and see which has the lowest slippage so you can choose them.
Profit/Loss -You write in the profit and/or loss in pips, cents, points, etc as
appropriate. If you
bought EUR/USD at 1.2500 and sell it at 1.2550, you made 50 pips, so write in +50
pips. If you
bought a stock at $50 and you sell it at $60, then write in +$10. If you buy the
S&P futures at
1,250 and sell them at 1,275, then write in +25 points. If you buy the GBP/USD at
1.5000 and
you sell it at 1.4900, then write in -100 pips. Etc. I color code the box
background to green for
profit and red for loss.
Profit/Loss In Dollars – You write the profit and/or loss in dollars (or euros, or
jpy, etc whatever
currency your account is denominated in). If you are long $100,000 of EUR/USD at
1.2500 and
sell it at 1.2600, then write in +$1,000. If you are short $100,000 GBP/USD at
1.5900 and it
rises to 1.6000 and you cover, then write in -$1,000. I color code the box
background to green
for profit and red for loss.
Profit/Loss as % of your account – Write in the profit and/or loss as % of your
account. If a trade
made you 2% of your account, then write in +2%. If a trade lost 0.50%, then write
in -0.50%. I
color code the box background to green for profit and red for loss.
Reward:Risk Ratio or R multiple: If the trade is a profit, then write in how many
times your risk
did it pay off. If you risked 0.50% and you made 1.00%, then write in +2R or 2:1 or
2.0. If you
risked 0.50% and a trade only makes 0.10%, then write in +0.20R or 0.2:1 or 0.2. If
a trade went
for a loss that is equal to or less than what you risked, then I do not write in
anything. If the loss
is greater than the amount you risked, then I do write it in this column. For
example lets say you
risk 0.50% on a stock, but overnight the market gaps and you lose 1.50% on a trade,
then I would
write it in as a -3R.
What Type of trading loss if the trade lost money? – This is where I describe in
very general
terms a trade if it lost money. For example, if I lost money on a trade and the
reason was because
I was buying in a market that was making fresh lows, but after I bought the market
kept on going
lower, then I would write in: “trying to pick a bottom.” If I tried shorting into a
rising uptrend
and I take a loss, then I describe it as “trying to pick a top.” If I am buying in
an uptrend and buy
on a retracement, but the market makes a deeper retracement or trend change, then I
write in
“tried to buy a ret.” And so on and so forth. In very general terms I describe it.
The various
ways I use are:
• Trying to pick a bottom
• Trying to pick a top
• Shorting a bottom
Page 16

• Buying a top
• Shorting a ret and failed
• Wrongly predicted news
• Bought a ret and failed
• Fade a resistance level
• Buy a support level
• Tried to buy a breakout higher
• Tried to short a breakout lower
I find this category very interesting and important because when performing trade
journal
analysis, you can notice trends when you have winners or losing trades. For example
if I notice a
string of losing trades and I notice that all of them occur in the same market, and
all of them have
as a reason: “tried to pick a bottom”, then I know I was dumb for trying to pick a
bottom five
times in a row. I was fighting the macro order flow and it was dumb. Or if I notice
a string of
losers and see that I tried to buy a breakout and it failed five times in a row,
but notice that the
market continued to go higher after I was stopped out, then I realize that I was
correct in the
move, but I just applied the wrong entry strategy. I should have bought a
retracement, instead of
trying to buy a fresh breakout.
That Day’s Weaknesses (If any) – This is where I write in if there were any
weaknesses or
distractions on the day I placed the trade. For example if you are dead tired and
place a trade,
then write in that you were very tired. Or if you place a trade when there were
five people
coming and out of your trading office or room in your house, then write that in. If
you placed the
trade when the fire alarm was going off then write that in. Or if you place a trade
without having
done your daily habits, then write that in. Etc. Whatever you believe was a
possible weakness
that threw you off your game.
That Day’s Strengths (If any) – Here you can write in what strengths you had during
the day you
placed your trade. If you had complete peace and quiet, write that in. If you
completed all your
daily habits, then write that in. Etc. Whatever you believe was a possible strength
during the
day.
How many Open Positions Total (including the one you just placed) – How many open
trades do
you have after placing this one? If you have zero open trades and you just placed
one, then the
total number of open positions would be one, so write in “1.” If you have on three
open trades,
and you are placing a new current one, then the total number of open positions
would be four, so
write in “4.” The reason you have this column in your trading journal is so that
you can notice
trends in winning and losing streaks. Do a lot of your losing streaks happen when
you have on a
lot of open positions at the same time? Do you have a winning streak when the
number of open
positions is kept low? Or can you handle a lot of open positions at the same time?
Exit Spread Cost (in pips) – This is optional if you want to keep track of your
spread cost in pips.
If you executed a market order, how many pips did you pay in spread.
Exit Spread Cost (in dollars) – This is optional if you want to keep track of your
spread cost in
dollars. If you executed a market order, how many dollars did you pay in spread.
Total Spread Cost (in pips) – You write in the total spread cost of the entry and
exit in pips.
Total Spread Cost (in dollars) – You write in the total spread cost of the entry
and exit in dollars.
Commission Cost – Here you write in the total commission cost that you incurred for
getting in
and out of the trade. If you have a forex broker that is commission free and only
gets
compensated through the spread, then you do not need this column.
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Starting Balance – The starting account balance that you had prior to the placing
of the trade
Interest/swap – If you hold forex currency pairs past the rollover, then you either
get interest or
need to pay out interest depending on the rollover rates. Or if you bought a stock
and got a
dividend then write that in. Or if you shorted a stock and you had to pay a
dividend, then write
that in.
Ending Balance – The ending balance of your account after the trade is closed after
taking into
account trade P&L, commission cost, and interest/swap.
Reasons for taking the trade – Here is where you go into much more detail about why
you placed
the trade. Write out your thinking. Instead of writing a paragraph or two
describing my thinking
behind the trade, I condense the reasons down into bullet points. It can be
anywhere from 1-10
bullet points.
What I Learned – No matter if the trade is a win or loss, write down what you
believed you
learned. Again, instead of writing out a paragraph or two, I condense it down into
bullet points. it
can be anywhere from 1-10 bullet points. I do this during the day the trade closed
as a profit or
loss.
What I learned after Long Term reflection, several days, weeks, or months – This is
the very
interesting column. This is important because after you have a winning or losing
trade, you will
not always know the true reasons why it happened. You have your immediate theories
and
reasons which you include in the previous column. However, there are times when
after several
days, weeks, or months, you find the true reason and proper market belief about why
your trade
succeeded or failed. It can take a few days or weeks or months to reach that “aha”
moment. I am
not saying that I am thinking about trades I placed ten months ago. I try to forget
about them and
focus on the present moment. However, there will be trades where you have these
nagging
questions about they failed or succeeded and you will only discover those reasons
several days,
weeks, or months later. When you discover the reasons, you write them in this
column.
This is just my trading journal. I hope I have given you a very powerful tool to
add to your
arsenal. I hope I have given you clarity on how to structure a proper trading
journal. Add your
own flair, feeling, and judgement. Take what you like and works for you. Discard
what you
don’t like.
Trading With Scared Money
6. Trading With Scared Money
This is something that a lot of people do not want to admit to. Many traders trade
with scared
money, in other words money that they cannot afford to lose. Trading with leverage
can be risky,
so you should only trade with money that you can afford to lose.
Unfortunately many traders do not do that. They trade with money that they cannot
afford to
lose. Now some traders are in denial about it, trying to fool their own
subconscious. But you
cannot fool yourself. You can attempt to fool your spouse, or family member, but
your inner
body and subconscious still realizes it and it will affect you when you go to place
a trade and
manage a trade.
When you trade with scared money you are injecting a heavy dose of emotion into
your trading.
You are putting on yourself a very heavy form of pressure that can shackle your
trading results.
Page 18

Why? Because it will cause you unnecessary fear when you end up taking a normal
trading loss
like every trader takes. That small loss can cause ripple effects through your
psychology. The
reason is that you are trading with money that you cannot afford to lose. So even a
small loss can
cause you to lose self control and remove yourself from the opportunity flow of the
markets.
For example lets say someone has a $5,000 trading account. He takes a 2% loss for
$100. He
doesn’t just shrug off the loss and move on the next trade. He attaches emotion to
the money.
The trader starts thinking about how that $100 was a days worth of labor. He starts
thinking
about how that $100 could have been put into savings for little Johnny’s college
fund. He starts
thinking about what if he suffers 10 consecutive losses in a row and is down 20%.
Pretty soon he is scared to place another trade for he can’t accept the risk
anymore. You cannot
trade successfully if you constantly personalize the losses and attach material
meaning to them.
I had this problem too. The trading with scared money problem gets compounded when
you
don’t have a good trading system. In other words bad system + trading with scared
money = a lot
of pain both financial and emotional.
How did I solve this problem? By learning how to place high probability trades.
That is the
reason I developed my news trading system. It helped me to conquer my fears because
I knew
that once my system generated a signal, it was a high probability trade.
I improved both my trading system and my daily trading habits which began to remove
the fear
of taking a large consecutive series of losing trades.
They Use Too Tight Stops / Try to Scalp The
Market
7. They Use Too Tight Stops And/Or Try To Scalp The Market
I have actually heard of traders trying to place trades while using very small,
almost minuscule stops. Some traders would place trades with 10 pip stops, 5 pips,
or even
(gasp) 3 pip stops. You might be laughing, but there are some traders running small
and medium
sized accounts taking losses and blowing accounts because they want to trade with
these very
tiny stops.
There is another rule you should follow. When trading in the spot forex market you
should find
trades with at least a 20 pip stop loss and 20 pip target. There are a few
exceptions to that rule
which I will talk about. But generally do not go lower than 20 pip stop. There are
some currency
pairs like perhaps EUR/GBP where you can find trades with as low as 15 pip stops,
or USD/JPY
with 15 pip stops if the volatility is very low, but generally don’t go below that.
You need to give
the market room to move, even during the best of order flow trades like news trades
which I will
show you. Remember that you also need to realize that there is a spread that you
are paying. So
you need to give the market some room to breathe and move in your direction.
If you really want to trade using tiny stops or scalp the market, then spot forex
is NOT for you.
Go try trading the futures markets like the mini dow or emini S&P and you may find
better
success there with your tiny stops.
The forex market is decentralized, and the market spreads can change rapidly from
platform to
platform and time zone to timezone, and you need to realize that trading with tiny
stops below 20
pips is just plain bad trading. Stick to inefficiencies and opportunities where you
can make over
Page 19

20 pips profit. Find a 50 pip, 100 pip, 500 pip, 1000 pip move in currencies. Find
a bigger
move.
If the financial instrument you are trading does not have sufficient profit
potential at that specific
moment in time, then don’t trade it.
Forced To Pay The Spread On Retail
Also, if you are trading on retail forex you are always forced to pay the spread,
even when you
execute limit orders. Why? Because lets say you place a limit order to buy EUR/USD
at 1.4200
and the market has a 2 pip spread. Your order in the retail forex market will not
get triggered
unless the market trades down to 1.4198 bid / 1.4200 offered. In other words the
market needs to
move that extra 2 pips for your limit order to get executed. And since you are
forced to do that,
you are in effect paying the spread. There is also the opportunity for the market
to trade down to
1.4199 / 1.4201 and then shoot up. But your buy order never got filled because the
market did
not trade down to 1.4198 / 1.4200, and you missed a great trade opportunity. That
is just how
retail forex works.
Now the big institutional players can place the real limit orders. Meaning that if
they put in a buy
order at 1.4200, and they are the best bid at the time with the market trading at
1.4200 / 1.4202,
and another market participant executes a market sell order then the bid at 1.4200
will be filled.
Those are real limit orders and how it works in the stock market and futures
exchanges. But if
you are trading spot forex with a retail broker, then you are just going to have to
deal with the
fact that your limit orders are not “real limit orders”. Which is another reason
why you should
not try to scalp the market for 5 pips or 10 pips.
Scalping requires the ability to place the real limit orders and retail forex just
does not offer that.
All the top global macro hedge fund managers, generally don’t really care about
scalping the
market. They may sent out small market probes that could make 5 or 20 pips on a
trade. But
they do not care that much about them. That is peanuts for them. They know the most
money is
not going to come from those tiny moves. They are going for the huge moves. I will
discuss
how hedge funds think and act in the hedge fund mindset mastery portion.
The only exception can be the high frequency traders and quantitative traders. They
can be
attempting to profit from minuscule price discrepancies. As a general rule those
can require huge
investments of millions of dollars in the proper technological and research
infrastructure, and
most beginning traders do not have that type of money. I know I didn’t when I first
started.
Therefore I was forced to acknowledge that and develop a trading mindset,
principles and
strategies that I could make money without needing to spend thousands of dollars a
month.
Oblivious To The Information That Does Not
Appear On The Chart
8. They Are Clueless To The Information That Does Not Appear On The Chart
The basic tenet of technical analysis and price action is that everything to know
about the market
that can possibly help you is either on the chart or shown in the price action.
What these people
do not realize, is that there is a wealth of information that does not appear on
the chart and can
never appear on the chart. Things like stops, option barriers, central bank
intervention risk, news
releases, liquidity, sensitivity, sentiment, global macro, expectations, etc. There
can be a plethora
of information about those topics that can heavily influence price, but you won’t
be able to figure
them out just by looking at a chart.
Page 20

The traders that fail, ignore the information that does not appear on the chart.
They ignore it to
their own peril.
Why do they ignore it? There can be multiple reasons:
1. They don’t believe the information outside of the charts exists.
2. They believe the information outside of the charts exists, but do not believe it
is important
or influences price.
3. They believe the information outside of the charts exists, but that it already
is reflected in
the chart and price patterns.
4. They believe the information outside of the charts exists, believe it can be
important, but
choose not to use it.
5. They believe the information outside of the charts exists, try to use it, but
suffer from
information overload and quit.
It pretty much comes down to information overload and confusion. The information
outside of
the chart can be very overwhelming in the beginning. It seems strange and foreign
to them. And
when you get so much information overload, strangeness, and frustration in the
beginning it
causes them to quit searching in that direction and go back to the safety net of
what they know.
They go back to the techniques that they already know, whether it is technical
indicators, or chart
patterns, or whatever.
I know because it happened to me. As I told in my trading journey, when I first
started trading
forex I followed the news releases for about a month or two. It was all too
confusing for me. I
saw the information overload and I associated massive pain with it. I wanted to
avoid the pain so
I went on the technical indicator and chart pattern path. In the end I didn’t avoid
the pain. I just
received the pain from another direction. Instead of attempting to figure out the
whole news and
global macro trading strategies, I went to figure out the technical indicator and
chart pattern
strategies which most certainly have their own pain cycle that traders go through.
Why did I do it? Well, a large part of it came from my browsing of the trading
forums. There
were all these so called trading “gurus” with thousands of posts that said I didn’t
have to worry
about the news. They said I could just ignore it and forget about it and just trade
the chart and
price patterns and everything would be fine. Back then I believed them. They had
thousands of
posts, seemed knowledgeable, and had raving reviews by fellow forum members. I
didn’t know
any better so I followed their advice.
It wasn’t necessarily bad advice. They were just teaching their beliefs about the
market. I am
teaching you my beliefs about the market as well. There just happens to be very big
differences
in beliefs about how the markets operate. I wanted to find a trading system that
fit my
personality – as I am sure you do as well. And for myself that meant a trading
system that
represent the foundation of every market. A system that represented the truth of
the markets
movements. And finally a trading system that had unlimited growth potential. A
trading system
that had a higher level of understanding. Order flow, liquidity, volatility, news,
global macro,
sentiment, sensitivity, expectations, etc all offer that and fit my personality. It
is my hope that
you will find value in making some or all of them a part of your trading
personality as well.
Not Disciplined To Find Opportunities Every
Time They Should
9. They Are Not Disciplined To Search For Opportunities Every Time They Should
Page 21

Opportunity is missed by most people because it is dressed in

overalls and looks like work.
– Thomas Edison
I am fully aware that of the millions of people who will
speculate in the stock market, few will spend their full time
involved in the art of speculation. Yet, as far as I am
concerned, it is a full-time job, perhaps even more than a job,
perhaps a vocation, to which many are called and few are
singled out for success.
– Jesse Livermore
Lack of discipline in implementing a trading strategy is another cause for trading
frustration.
Traders need to exploit their system’s edge every time that it presents itself
preferably. There are
many traders who catch losing streaks, then decide to take off a few days of
trading or get
depressed and stay out of the markets for an extended period of time. There is
nothing
necessarily wrong with that as you want to cut your losses. But what if during
those days, weeks
or months that you took off, that is when your trading system generated the best
trades, the really
huge winning trades and you missed them because you were not trading, you were not
following
the charts, or doing the research diligently.
Each traders system is different. Sometimes for certain trend following systems
most of the
money can only be made in just a few months of the year when the markets are
trending. The
rest of the time they are trying to break even and preserve their capital. If such
traders are not
following the markets and preparing to take advantage of the trends then they will
not be able to
make money.
I know of many traders that have developed very solid trading systems which are not
order flow
related, but they have a solid trading strategy. They acknowledge that they may
break even for
many months or post small losses as their trading system has a low win rate, but
very high reward
risk ratio. These traders need to be constantly on top of their trading system and
take every
legitimate signal that fires off. For they do not know when that big winners or
series of big
winners is going to come that will generate most of the profits for the year.
Why?
Because their trading system’s profits revolve around taking a lot of small losses
in a row,
followed by a very large winning trade in order to make up all those small losses
and post a
decent profit. If they miss a signal, well that trade could of been the one that
was the big winner
that they were relying on. The trade that would of payed off 10 times, 20 times, or
30 times
whatever amount they risked.
That is why preferably you want to be disciplined. You need to be checking the
charts if you are
a chartist, doing the order flow habits and research if you are an order flow
trader. Because some
people just don’t know when the market will make that huge move. So if you are
unsure, you do
your due diligence every day and get in harmony with the order flow and information
flow so
you can eventually catch those huge trends and huge trades.
You don’t HAVE to do it. It partially depends on your system and what kind of edge
you have.
If you are a technical indicator or chart pattern trader or trend follower with a
small edge, then
you require the really big wins in order to have decent performance during the
year. And if you
Page 22

do not know why the market is moving and only rely on chart patterns, then you have
to do your
daily research. If you miss a big trend, then that severely degrades your
performance because
your edge was low and needed the big wins to compensate for that.
The smaller your trading edge, the more disciplined you have to be. A trend
follower probably
doesn’t want to take many months off because what if during those months there was
a big trend
that would of made them a lot of money? What if when they come back to trading, the
markets
are choppy and range bound? How will they make money in choppy or range bound
markets?
Most trend followers don’t know how, although some have learned the skill.
Contrast that with an order flow trader who has a larger edge. They have a larger
edge because
they actually focus on the foundations of why the price moves. They can choose not
to follow
the market every day, depending on their system. They do not have to follow charts
every day
because they can use their interpretation of the information flow and scenario
analysis to figure
out if a big move is going to happen. Since they have a bigger edge, they do not
need those big
winners to make a good profit for the year, although they would certainly be
desirable. Ideally,
even an order flow trader wants to be disciplined and do their daily habits. I do
my daily habits
every day, unless an emergency happens. The reason is so that I can stay in harmony
with the
market and be able to capture both the small, medium, and large market movements.
Being able
to capture the big trends and macro moves tends to lead to superior trading
returns.
If an order flow trader wants to take a few months off during the year, they can do
that. Even if
they miss big market moves, typically they will have the skills to trade the rest
of the year and
capture whatever movements that may happen. They just need to make sure that they
have the
ability to get back into harmony with the information flow, expectations,
scenarios, etc as fast as
possible. Sometimes when you take a few months off, you can get rusty.
I know of some traders who are highly successful who trade just eight months of the
year. They
trade January through May, then come back to trade in September through November.
It works
fine for them since they know they always have an edge. They probably missed some
great
moves over the years, but for them they value quality of life.
Although, I must say that it is preferable to be disciplined and trade the markets
or follow the
markets every day even if you are an order flow trader.
Discipline Problem
I was suffering from this problem. I would not be disciplined to find opportunities
every day. I
would take a few days off or sometimes weeks off. Then a huge move would occur and
that
would compel me to get involved in the market and find some trades. Of course by
then, all the
easy money had been made, and the move was over, and I was trying to pick up the
breadcrumbs
of the previous explosion of volatility. I was suffering some pretty big losses.
Which was why I always prefer to look for trading opportunities in low volatility
environments.
For that is when everyone is asleep and is not expecting anything big to happen.
That is the
chance to place some nice trades. Not when the market has already posted a huge
breakout and
already made an explosion of volatility. By then there may be a decent chance that
all the easy
money has been made and the market has already entered a high volatility state, to
which it can
then decide to retrace and chop around.
The Invisible Hands
The Invisible Hands – The Bond Trader:
Page 23

Question: How do you manage your time among markets, business

issues, and family?
The Bond Trader: The market comes first. Everything else is
second. There is no other way to do it. At least, it is very
difficult any other way. That does not mean that you don’t
spend time on other things, but that becomes a function of the
markets. When the markets are quiet, you naturally have time
to focus on other issues, such as the business side of the
fund. In the fall of 2008, however, if you were doing your
job, you were 100 percent focused on the markets. There was
just too much going on.
The above is how a lot of successful traders start out. Markets come first, then
everything else.
This is up until you make your first million or so, or whatever your target is,
then you can choose
to re schedule your life and priorities to make more time for other things. Or you
can choose
some other income/net worth goal above/below 1 million.
They Practice The Blame Game
10. They Practice The Blame Game
From Reminiscences of a Stock Operator:
A speculator who loses his temper is a goner.
There are hundreds if not thousands of traders entering the financial markets that
wake up
everyday and trade their technical indicator systems or any other system not based
on order flow.
Eventually they catch a series of losing trades and start practicing the blame
game. They blame
everyone but themselves. Everything and everyone else in the world is at fault.
Some of them
come home and blame the wife, blame the kids, blame the dog, blame the weather,
blame the
computer, blame the broker, blame the central bankers, etc. Only problem is blaming
all those
people is not going to generate order flow to save your trades. A better trading
system and order
flow analysis will.
If you keep blaming someone else, then chances are you are going to keep making the
same
mistakes, placing the same lousy trades, because you believe it is out of your
control. Winning
traders realize that they are in control and responsible for their trading results.
It is the consistent
losers that blame other people.
Blaming other people and having excuses is incompatible with becoming a millionaire
from
trading and keeping the money. It is possible someone gets lucky and catches a
lucky winning
streak and makes a lot of money. However, if they don’t have the proper trading
skill and
mindset, and practice the blame game when the inevitable losses come, then the
market will
quickly part with their money.
Blame Game
I used to practice the blame game. I used to blame other people for losses,
evaporated profits,
taking profits too quickly, etc. Virtually every trader at some point in their
journey has it happen
to them.
Page 24

Eventually it occurred to me that all the people I was blaming could not generate
order flow to
save my trades. My family isn’t going to help generate order flow. My dog can’t
generate order
flow. Not only will blaming other people not generate order flow, but it also is
not conducive to a
happy and balanced life. As a general rule all the successful traders that you see
on television
have a certain level of happiness in their life. They cannot be that way if they
are constantly
blaming other people for their trading losses.
Instead of continuing to practice the blame game, I developed certain trading
habits that I could
follow on a daily basis. I just looked and analyzed the information which did not
appear on the
chart. I performed my daily news article and news impact recording exercises. That
contained
most of the answers I was looking for. Viewing the market through stops, option
barriers, news,
sentiment, sensitivity, expectations, scenarios etc. Those things can actually
generate order flow
and save your trades. My daily habits kept me disciplined. My habits helped me to
control my
negative aspects. I just had to be willing to do the daily habits.
I will never forget one week where I blamed someone else the first day or two. It
didn’t feel
good blaming other people. Perhaps the initial outburst felt good, but I quickly
did not feel good
after it. I wanted profits, not practicing the blame game.
Life doesn’t revolve around blaming other people. Life much more revolves around
trading
profits and what you do with them.
They Claim They Have No Money
11. They Claim They Have No Money
Another stumbling block to traders who do not experience success it that they
believe they do not
have any money to trade with. For some people this is true. There are some people
who do not
have the financial resources to trade and should not consider doing so. Although,
it is still
certainly possible to learn about the markets and prepare to trade, even though you
may not have
any current financial resources to do so. Most people don’t stay broke forever. At
some point in
the future you will most probably have money to trade.
However, there is a whole other class of people who claim that they have no money,
when in
reality they just have their priorities mixed up. The do have money available, they
just think they
do not because they value other things in life at a higher level than they do a
trading stake.
I have met a lot of people who claim they have no money to open up a small account
to start
practicing trading. A visit to their homes reveals big televisions in multiple
rooms, PlayStation AND Xbox’s for the kids, huge library of dvds. They may go
to Starbucks every morning. Heck I met someone who spends $20 per day on Starbucks
who
claims they have no money to trade. Other people claim they have no money but they
have the
most expensive TV programming package you can buy.
I know people who claim they don’t have any money to trade, yet you still see them
risking
money at their weekly poker game or going to the casino. Obviously such people are
not serious
about making big money from the financial markets. They haven’t yet realized that
the big
money is not made in poker. The big money is not made in the casino. Those are
petty games for
petty sums.
The big money is made in trading the financial markets. The biggest game in the
world is trading
the financial markets.
Page 25

They can certainly use a reminder from Jesse Livermore. He said in the book How To
Make
Money in Stocks:
But I fully understood that I was not the only one who knew
that the stock market is the world’s biggest gold mine, sitting
at the foot of the island of Manhattan. A gold mine that opens
its doors everyday and invites any and all people in to plumb
its depths and leave with wheelbarrows full of gold bars, if
they can, and I have done it. The gold mine is there all
right, and I believe everyday someone plumbs its depths and
when the bell rings at the end of the day they have gone from
pauper to prince, or from prince to supreme potentate… or stony
broke. And it’s always there, waiting.
Just replace the words stock market with any type of financial market or financial
instrument, so
that it encompasses the global markets of the world and not just the equity
markets.
Jim Rohn
The motivational speaker Jim Rohn once said:
Poor People Have Big TV’s. Rich People Have Big Libraries.
Another person I know who claims he has no money to trade spends over $300 a month
on cigarettes. If you cut out the smoking, you’ll have some money to start trading,
albeit in a
small account. The goal with a small account is not to make a 1,000% return in a
short amount of
time, although with small accounts it can certainly be done in one year. The
primary goal is to
get a feel for the markets, your emotions, and to start experiencing and trading
the explosions of
volatility. To taste the profits that an explosion of volatility can give you.
I am not a personal finance expert so I will not give you an exhaustive list.
Everyone’s tolerance
and attachment to different things varies. Some people can cut back better on some
things better
than other people. Others will not let go of anything.
The goal is to be able to convince yourself that you can spot the great order flow
trades and
actually place them and profit from them. Yes, the profit may be small in dollar
terms if you have
a small trading account. But in % terms it can be very good. If you place an order
flow trade and
risk 2% of your account and win five times what you risked that is 10% return. With
a $300
account that is only $30. But it makes you believe and think about what you could
do if you had
a $1,000 account, $10,000 account, and $100,000 account.
There isn’t that much of a difference in trading a $1,000 account or a $100,000
account. The
execution of the strategy is similar assuming there aren’t any liquidity
constraints. The only
difference can be in your psychological issues and emotions that can make you
scared to trade
such a large account. Which is why you start out small and slowly grow the account
and add
money to it as your order flow proficiency grows. Gradual steps and you will feel
comfortable
trading ever larger sums of money. You may feel slightly worried trading 1 mini lot
now, but
once you place a few order trades and see the potential, and are able to execute
the order flow
system, then you start to get more and more comfortable and able to trade larger
account
positions and sizes.
Placing some, even if just a few, great trades is one of the best solutions to a
trader’s problem of
thinking they have no money, or only trading a small account. Once they have placed
the trades
and know that they will come in the future and they have the skills to capture
them, then many of
their fears and psychological issues begin to melt away. I always try to focus on
finding the great
Page 26

trades and to be on the right side of the massive market momentum. I know that is
one of the
best ways to remove psychological fears and slaying inner demons.
For example placing a trade with a 50 pip stop and then watching as the market very
quickly
moves 200 pips in your favor is a very nice feeling indeed. You should not
become overconfident or be overtaken with hubris. But you should pat yourself on
the back and
acknowledge your growing order flow proficiency.
As for the people who do not have the financial resources available to trade, the
thing I would tell
them is to keep the dream alive. Keep the fire alive. If you lack trading capital
today, that does
not mean you will be without trading capital in a few months or a few years.
Whatever is
preventing you from getting some trading capital together you may solve in the near
future. In
most cases, you will attain the ability to trade a few months or a few years down
the road when
your situation changes or improves, or you gain access to capital.
Perhaps you will have paid down the debt that you had. Or perhaps you will have
found a better
job with higher income. Or you will have realigned your priorities and cut down on
your
expenses. Or perhaps you will have found a wealthy person to provide a trading
stake so you can
prove your trading skills.
In the meantime, I would recommend that you improve your market skills. Develop
your daily
habits. Develop your scenario analysis skills, etc. Borrow the books from the
library. All of the
exercises in this mastery course can be done without paying for any fancy services.
They can be
done at zero monetary cost to you. When I performed them, I did not spend a penny
of my own
money. There was zero cost for any market services for performing the analysis that
I will show
you. As you will see, you can use free IFR news service with Oanda. You can use
news articles
free from the financial web pages. You can use free metatrader demo accounts. There
is no need
for $1,500 a month Bloomberg Terminal in the beginning or any equivalent services.
Save that
money and put it into your trading account.
Do the exercises in your spare time. Then when the day comes when you can trade,
you will
have a pretty good idea of what to do. The trick is to reduce the time it takes for
you to get to the
point where you have some trading capital to play the markets.
They Claim They Have No Time
12. They Claim They Have No Time
Aspiring traders who have a day job tend to suffer from not having enough time to
trade. It can
be immensely difficult for someone who comes home exhausted from work to then spend
extra
time, energy and concentration on the markets. In many cases however, that is what
it requires.
A higher energy level and inspiration that comes from within to push forward and
find the time
to devote to truly mastering trading the financial markets.
Other traders choose to tackle the problem by making their primary source of income
some job
related to the financial markets. There have been a lot of successful traders that
started out as
stock brokers, or analysts, etc. Then they made the transition to being a full time
trader from
there.
Whatever you choose to do, there are many ways in which you can increase the
efficiency of
your time during the day.
Audio Books
Page 27

Audio books are a wonderful new tool to help increase your productivity. You can
listen to audio
books when you are driving/commuting to work. You can listen to them on your lunch
break.
You can listen to them while you are walking the dog. You can listen to them while
you are
doing the laundry.
Audio books are starting to be available for more and more trading books. One place
to get them
is from audible.com. I have purchased numerous audio books from there. They are
still limited
and nowhere near available for all the trading books. Some of the better ones
include the audio
books for More Money Than God, The Greatest Trade Ever, as well as the trading
classic
Reminiscences of a Stock Operator.
Another thing you can do is to create your own audio book! You can have a trading
book in front
of you and read it while you are speaking into a microphone and your computer is
recording your
voice. After you finish reading the whole book, you will have recorded an mp3 file
that you can
now listen to wherever you go. You can hear your own voice as you read through a
trading book.
Or instead of an audio book you may prefer to print out some trading/news articles
and read them
on your lunch break. Think about the order flow generators, and market
participants. Bring a
highlighter with you and highlight the important phrases and commentary that gives
you clarity
on what the thinking of the market participants are. This is what I did when I
first started. I
would print out the important news articles from the previous day and during my
lunch break I
would read them, highlight the important sentences and phrases that I felt were
critical to
understanding the market sentiment, expectations and scenarios of the market.
Or printing out a few charts from this course that show the various market
participants and order
flow trades in action. Review the order flow generator sheets that I will give you.
Review the
bullish and bearish scenarios. A minute here, a minute there and pretty soon you
will have
developed the order flow mindset and remembered the various scenarios and emotions
of market
participants that can move the markets.
You need to find a way to slip in subtle messages and examples of order flow
mindset, and trades
into your life. Whether it is printing out a few articles and reading them or
listening to an audio
book. If you want to succeed as a trader and do it in a reasonable amount of time,
then you
cannot just study and think about the market only when you are in your home office.
Another option is you can wake up one hour earlier, and go to bed one hour later to
review the
order flow material. Or maybe if you don’t have one hour, then just ten or fifteen
minutes. To
review the order flow trades of the past, review order flow generator sheets,
possible scenarios,
global macro information.
How I Completed The Order Flow Mastery Course
A sizable chunk of this order flow mastery course was done while I was exercising
and listening
to audio books and writing down my insights and thinking about the market over the
course of
the day. A quick 20 minute run, leads to 20 minutes listening to an audiobook.
While I was
running I would remember what insights I wanted to put into the mastery course and
once I got
home I quickly wrote them down.
Listening to an audio book 15 minutes here, 30 minutes there, 10 minutes there.
Pretty soon
within a few weeks you have already listened to an audio book while just going
about your daily
life.
Or when you go Christmas shopping and have to sit in the checkout lines for half an
hour or an
hour, you can listen to your audio book while passing the time. Instead of getting
angry at
Page 28

someone in the check out line, I could enjoy listening to Reminiscence of a Stock
Operator and
learn the wisdom of Jesse Livermore.
Resist Distractions
If you are stuck spending countless hours on charts, or browsing forums searching
for the next
hot indicator or pattern, then you may not have time to perform order flow
research.
Other people are stuck spending countless hours on YouTube, Facebook, watching TV,
etc. Then
they wonder why they only had 10 minutes to review their charts and not do any
additional
research.
You should be informed about what is going on in the world and what the global
macro scenario
is for the world and for individual countries. But you certainly do not need
information about the
latest sex scandal, political bickering, or latest dumb thing a celebrity did.
Get Rid Of The TV
Someone once said that the best thing you can do when you are starting a business
is to get rid of
your television. And you should treat trading like a business.
In the book Soros – The Worlds Most Influential Investor, Allan Raphael, who worked
with Soros
in the 1980’s said that Soros never watched television.
Even as recently as 2008, Soros said he did not watch television or go on the
internet, saying he
did not have time for such things.(From Soros – The World’s Most Influential
Investor)
All sorts of aspiring traders may want to learn how to trade, yet may not be fully
committed
because they spend time on insignificant distractions. Soros never watched
television, and that
was back in the 1980’s when he was already worth hundreds of millions of dollars
and could
have had plenty of time on his hands. This does not mean that you should model him
and not
watch television.
What I am suggesting is that you attain behavioral congruency by aligning your
mindset and
actions with the mindset and actions of the great traders that you want to emulate.
Of course you
will always have your own personal flair, feeling and judgment.
Personally I never wanted to look back at my life and see that I didn’t succeed
because I was
spending too much time on all the insignificant distractions of life.
They Think They Are Too Old
13. They Think They Are Too Old
Many traders falsely believe that they are too old for this trading game. They
believe that only
the young guns can somehow succeed. Or they believe that they have spent too much
time
already failing in the markets and don’t want to dedicate any more time. While I
was not old
when I first started learning how to trade, I too asked the questions about whether
I should
dedicate more time to something which was not showing much progress.
Only after I spent over 2,000 hours spread over two years in the technical
indicator and chart
pattern trader cycles and failed, did I had to choose to take the next leap to
order flow trading.
The order flow commitment was definitely a few more months because I had no guide
to help
Page 29

me. I did not have an Order Flow Mastery course years ago to help me and answer my
questions.
So it was difficult. But I made it and now a few years later I am creating this
course for you.
Trading success can be achieved by all sorts of people. Doesn’t matter whether you
are 20 years
old, 30 years old, 40 years old, 50 years old. Bruce Kovner did not start trading
until he was 32
years old. He had spent the previous portion of his life studying at Harvard,
working on political
campaigns, and studying music. He even was working as a cab driver at one point. He
had to
suffer through the suicide of his mother. But eventually at the age of 32 he
discovered his true
calling – trading. He stuck with it and now he is a billionaire.
But when he started at age 32, he could have easily said “Ohh, I just wasted the
previous 10
years, why would I go do this now?” Or he could have said “I am 32 years old now, I
am just too
old and the young guns are just going to outperform me.”
He could have easily said all those things, but didn’t.
The same decision that Bruce Kovner faced when he first started trading at the age
of 32 is the
same decision many aspiring traders face today no matter what age they are. They
are thinking
about whether to commit or not to learning how to trade.
If you think that 32 is still a young age, then there is the other example of A.W.
Jones, the
founder of the first modern hedge fund, didn’t really get involved in the financial
markets until he
was nearly 50 years old.
Julian Robertson was a stockbroker up until around the age of 48, where he finally
started his
own money management firm in 1980. Over the next twenty years of his life he made
hundreds
of millions of dollars.
There are certain advantages that young people can have. They can have more
physical energy
and stamina. They can be more open minded and more willing to shrug off failures.
They can be
more curious about the world. But there are also disadvantages of youth. The young
people can
suffer from lack of experience and a lack of discipline. They can lack emotional
maturity and be
knuckleheads. They can lack confidence and credibility.
While younger people can have more energy than older people, unless that energy is
channeled
into the proper habits, exercises, market beliefs and skill development, then they
will not become
successful traders no matter how much energy they have. I started when I was
relatively young
and had a lot of energy. However, I did not experience much success in the first
few years. I was
using my energy up in all the wrong places. I had bad habits and poor discipline. I
spent
hundreds of hours searching the internet forums and google for the holy grail
patterns and
indicators. It was only when I developed my order flow habits did I start to see
the improvement
in my skill and trading profits.
Therefore, how much energy you have is only partially responsible for your success.
Someone
who may be older, have less energy, but has the proper trading habits, will trade
circles around
the younger people who have plenty of energy, but do not know where to channel it.
No matter if you are 20 years old, 30 years old, 40 years old or 50 years old, etc,
you will end up
learning so many things in life over the next 5-10 years. You just need to make a
decision about
whether trading skills are going to be one of the many new skills you acquire along
the way or
not.
Everyone learns new things, you just need to make trading skills and proficiency
one of the top
priorities.
Page 30

They Think Now Is Not The Time

14. They Think Now Is Not The Time
Trading is a very interesting business. It is immune to recessions and economic
slowdowns. In
fact an economic crisis can cause a lot of volatility and present some interesting
global macro
situations and thus more profit potential.
There are a lot of people in the media trying to scare, you trying to tell you that
now is now the
right time to start trading, or to start a business. They try to destroy personal
initiative.
The truth is that fortunes are made and lost whether the economy is in a boom or
bust. Big
moves in the currency markets happen whether unemployment is at 5% or 10%. Back in
2007
before the financial crisis when the global economy was booming, there were amazing
trends to
take advantage of. The EUR/USD made a move from around 1.30 to 1.50 within one
year. That
is a pretty substantial trend. The global economy was performing well, unemployment
was low
and there were huge moves to take advantage of.
Fast forward one year later during 2008 when the financial crisis was in full
swing, there were
even more amazing trades to take advantage of. The EUR/USD dropped from 1.60 all
the way
down to 1.25 within just six months. There is just an endless stream of money flow
that you can
dip into and take advantage of. Don’t let anyone tell you to “wait for a better
time” in order to
commit to learn how to trade, because if they do tell you that, chances are they
are not a
successful trader.
Financial history as well as business history has many examples of individuals
either starting
businesses in the middle of poor or less than ideal economic conditions. Businesses
such as
Microsoft, Apple, FedEx, Oracle, were all started in the economic malaise and
stagflation of the
1970’s.
There are all sorts of traders that have started trading in the middle of a
recession or economic
downturn as well. A lot of the traders in the Market Wizards books got started
trading the
markets of the 1970’s. Traders like Richard Dennis, Michael Marcus, Michael
Steinhardt,
William Eckhardt, etc.
When you are following your dreams and attempting to make a lot of money from a
business or
from the markets, you don’t care what the economic conditions are. You just do it.
There is no
“waiting for the right time.” The perfect time never comes.
The great business people, the great traders, they don’t wait for unemployment to
hit 5% and
inflation to hit 2% for them to start a business or trade the markets. They just do
it. They don’t
wake up everyday and complain about the economy or inflation and make an excuse for
why they
cannot succeed. Instead they wake up everyday and just do it. They ask themselves
what they
need to do everyday in order to succeed no matter if unemployment is at 5% or 10,
or inflation at
2% or 10%. They don’t care about those things. They just do what they need to do
everyday and
solve problems.
They Are Afraid To Learn And Acquire New
Skills
15. They Are Afraid To Learn And Acquire New Skills
Page 31
I remember someone told me that one of the reasons I am successful is because of
all the books
and articles I read. The constant search for knowledge and interpretation of it. I
didn’t believe it
in the beginning. I thought it couldn’t be that simple. I thought there must be
some other reason
why traders fail. It couldn’t be because they refused to do reading.
Eventually I was reminded of this again when I read in a book that the reason most
people fail is
because 95% of them don’t do anything. They never get started or they quit way too
fast.
Eventually it all culminated in when I attempted to train three separate
individuals how to trade.
I must of spent at least two days teaching each of them. Obviously, I didn’t expect
to make them
super traders in two days, but they did express interest in learning how to trade,
or be better
traders, so I thought I could definitely put them on the right track and give them
some amazing
information to work with. I didn’t charge them anything for my time. I just wanted
to see them
succeed. I wanted to see them come back in a year or two and tell me how they made
tens of
thousands or hundreds of thousands of dollars. I would of been proud of them. I
didn’t want
their money. Big mistake on my part. Now those three individuals either stopped
trading or
never got started in the first place. They wasted their own time, wasted my time,
and I didn’t get
paid anything for it.
Then I realized it is true that most people do not do anything to help themselves.
Most people
aren’t going to sit there and read the books and the information and absorb it and
understand it.
They don’t like to read anything, or engage in any critical thinking or scenario
analysis. So they
either don’t pursue trading, or pursue it by trying quick fixes like technical
indicators, chart
patterns, price patterns, etc. Most people would rather sit and watch television
all day rather than
attempt to better their money making abilities. Or they attempt to do interesting
things with their
life that do not involve the making of money.
Take a look at what George Soros told his friend Byron Wien why he isn’t rich yet
from his book
Soros on Soros:
Wien: The way you think about money is fascinating. You once
said to me that I was smart enough to get rich, but I did not
seem to want to make a lot of money. What did you mean?
Soros: Business isn’t that complicated. A lot of people of
average intelligence make a good living. Really smart people
can accumulate a fortune if they are truly committed. Your
problem is that you like to do interesting work. Someone who
wants to get rich doesn’t care what he does. He only focuses
on the bottom line. All day long he thinks about how he can
make more money. If that means setting up more shoe shine
stands, that’s what he does.
Most people are afraid to learn and acquire new skills in trading. The fear just
gets to be so big
that they do not want to start.
Now that I look back at it, my BIGGEST mistake in my trading career was when I
abandoned
analyzing the news and information flow early on in my career. It felt
overwhelming. I was
trying to look at, read and comprehend the Bloomberg.com homepage and it was just
very
painful. I had no idea what articles were important. Even if I did click on an
article, I would
have no idea as to what the terminology meant and how to apply it to trading. Very
painful, so I
avoided it. I came up with excuses to avoid it. I went to something that I thought
was easier –
technical indicator trading. I entered the technical indicator rat race. That went
very badly as I
suffered draw downs of up to 30%. Then I eventually entered the price action cycle
and finally
back to order flow trading.
Page 32

Ray Dalio
Ray Dalio said in the book Hedge Fund Market Wizards:
I believe that anyone who has made money in trading has had to
experience horrendous pain at some point.
Ray Dalio also once said:
Pain + Reflection = Progress
Notice it is not Pain + Avoidance = Progress. It is with trading pain and close
personal reflection
where the progress is made. I wanted to avoid the pain of the news and information
flow early in
my career. As a result I did not get much progress even though I spent thousands of
hours with
the technical indicators and price patterns.
I had to be completely honest with myself. I was failing in trading and I had to do
something. I
needed a new ACTION plan to turn my trading around.
Eventually I figured out that problems rarely improve with age. I had to attack my
fear directly.
Now that I look back at it, my BEST trading decision I ever made in my life was to
follow the
news, record the news impact, market sensitivity, and understand and assimilate the
news and
information flow. I attacked my fear head on, developed a plan to understand the
news and it’s
impact and eventually achieved success. But it took me two years until I went back
to the news
and information flow. I wasted two years of my life on systems that did not
generate order flow.
I didn’t know any better and had to figure everything out by myself. I don’t want
you to go
through what I went through. I don’t want you to waste two years of your life and
thousands of
hours. I want you to learn this stuff very quickly within a short period of time.
This is what the
Order Flow Mastery course is designed to do.
Don’t be afraid to learn and acquire new skills. Everyone in the the world will end
up acquiring
some sort of new skills by next year, and the year after that. It is just a matter
of which skills do
you want to learn and how fast do you want to learn them.
I have a few friends that are masters of sports statistics. They know all these
various statistics on
baseball, basketball, and football players. They are like geniuses and can recall
any statistic you
want at will. They were not born that way, but became that way after years of being
immersed in
the sports world.
Why are they so good? Because they have watched hundreds and thousands of sports
games,
listened to the commentary, read articles about them, talked it over with their
friends. They spent
a lot of time both in action and in thinking, immersing themselves, and surrounding
themselves
with sports fans, etc.
In other words they were focused on something and learned it.
Now you just need to apply the same principles to learning order flow trading and
you can
become highly successful.
Paul Tudor Jones
Paul Tudor Jones said in the Trader Documentary:
Page 33

If life ceases to be an educational experience, then I

probably wouldn’t get out of bed.
The words ring eternally true. Life is about growth. For if you are not growing you
are dying.
Stagnation tends to be worse than growth. Growth can be exciting. Stagnation tends
to feel like
suffering.
I did not want to stagnate in my technical indicator trader cycle or price action
trader cycle. I
wanted to grow. That is why I went into order flow, news, sentiment, expectations,
scenarios and
global macro analysis.
Do You Need An Academic Background?
Some people believe that you need a strong academic background or have a college
degree to be
successful in trading. This is absolutely not the case.
Here is a quote from the book Inside the House of Money:
Question: Has your academic background helped or hindered you
in markets?
Dr. Sushil Wadhwani: I’ll start with hinder. Long before I
came into the markets I knew that a lot of conventional finance
theory didn’t work, but it took me a while to realize that
markets didn’t necessarily react in the most rational way to a
piece of macro news. What is more important is positioning and
sentiment.
So in that sense, an academic background, at least in the early
days, was a hindrance because I had this tendency to think
exclusively in terms of what should happen, which sometimes is
very different from what will happen.
Lots Of Math And Statistics?
Other times people think that they need to learn heavy mathematical and statistical
knowledge. I
suppose you may need that in order to become a quant trader. But I don’t know too
much about
that world. I choose to just stick to global macro. And you most certainly do not
need a huge
amount of mathematical knowledge to predict the next 50 pip or 500 pip move using
news,
sentiment, expectations, positioning, global macro analysis.
Warren Buffett
Warren Buffett said:
If calculus or algebra were required to be a great investor,
I’d have to go back to delivering newspapers.
You can convert this quote into trading and order flow trading. ”If calculus or
algebra were
required to be a great trader…”
You do NOT need complicated math to be a great trader.
It Gets Difficult If…
Page 34

It is extraordinarily difficult going from a technical analysis background and

mindset to a order
flow/information flow mindset if you completely block yourself off from the
information flow,
news, and learning about different markets.
I know because I bought the Market Wizards books and had a TA/Price Action
mentality and they
would talk about stocks, bonds, global macro, etc, and I would get confused. It
never really
clicked to me. After I developed my order flow mindset and habits, I understood
what they were
talking about. Not only can I understand what they are talking about, but I have
achieved
mastery of the subject. You can too with the ideas, strategies, and process in this
mastery course.
They Think Other People Have Got It Easier
Many aspiring traders suffer from the belief that other people have got it easier
when it comes to
learning how to trade and making profits. In other words, they think other people
have found the
holy grail. And those traders that believe in the holy grail usually believe that
it is some form of
technical indicator, or expert advisor in Metatrader. And when they believe other
people have got
it easier, they start searching for that magical technical indicator that will save
them. That
magical indicator or chart pattern that will allow them to make easy money from the
market.
After all, if you believe that other people have got it easier and have already
found trading
success quicker, faster, easier, and more automated than you, you will probably
want to go find
the same thing. You may feel other people have “cracked the mathematical code” of
the markets
and found the magic technical indicator settings and then you go attempt to spend
hundreds of
hours searching for it.
That is a major reason why people search for the holy grail. It is not only because
they are
looking for the easy button. It is also because they believe other people have got
it easier than
them in trading. And if other people have got it easier, then they must have the
holy grail, then
they go and try to find it. After all, they do not want to be the only ones left
without the holy
grail system. They do not want to be the ones that have to struggle and spent
countless hours to
figure out how to successfully trade. Since they believe so many other traders have
got the holy
grail system, they have to find it.
I was struggling with this for a long time. Even during the beginning of my order
flow trading
journey. I would try to figure out the order flow stuff, and I was afraid and lazy
to do the work
necessary like recording news impact releases. Then my mind would kick in and tell
me that
someone else has got it easier than I do. Then this sent me back into the technical
indicator or
price action cycle searching for the holy grail again. This paralyzes you and
extremely delays
order flow trading success.
Eventually I wanted order flow trading success bad enough that I resolved to figure
out this
whole new trading strategies, sentiment, expectations and global macro to decipher
the most
important market participants: the news/sentiment/fundamental/macro participants. I
decided to
put in the work necessary and develop the focus and discipline necessary.
Trading System Has No Edge
There are many reasons why a trading system or strategy loses money:
1. It is just a temporary draw down and it will rebound. In this situation, there
is nothing wrong
with your system. Your system still has an edge. You just hit a streak of bad luck.
This is the
Page 35

ebb and flow of any system. It may have draw downs at some point. You end up
recovering and
posting fresh profits at some point in the near future.
2. Risking too much per trade. You could have a trading system that has an edge,
and you are
executing all the signals properly, but you may just be risking too much money. You
hit a
drawdown that wipes you out before your big winning trades would of came in to post
a fresh
equity peak. If your trading system has the potential to cause twenty straight
losing trades, then
you shouldn’t be risking 4% on a trade, because if you catch a string of losers,
you can blow up
your account before the winners come. In such a situation, you would do better if
you reduced
the risk per trade. If you reduced it down to 0.50%, then twenty straight losers
would cause a
10% loss, which can be overcome if you catch a really big winner.
3. Not trading enough different (uncorrelated) markets. You could be taking losses
due to your
system not having a large enough opportunity set. In order to catch the big
winners, a trading
system needs to have sufficient maximum opportunity set.
4. Not executing the system properly. Your system could have an edge.. if you were
executing it
properly. Just because you have a trading system, doesn’t mean you are executing it
properly.
You need to have a trading system with an edge, AND properly execute it.
5. Now we go to one of the biggest reasons why traders fail. I am assuming you are
proficient in
trader psychology, money management, and know how to position size and risk a small
amount
per trade. Many good, honest, and decent traders reach that stage where they have a
grasp of the
simple, proper psychology and money management but are posting small losses or
breaking even.
I was in this stage as well where I was breaking even month after month or posting
small losses.
The big reason why traders fail is… drumroll… their trading systems stink!
Yup, you heard that right, most people are trading with very poor systems and
methodologies and
as such have no real edge in the market, especially no real edge over the long
term.
Most people do not have trading systems based on the very foundations of every
market which
are order flow, liquidity, volatility, expectations, scenarios, etc. A trading
signal may get
triggered, but no order flow is generated and the market goes to hit the average
traders stop loss.
If you are engaging in directional trading, and there isn’t any order flow
generated to move the
price in your direction, when your system fires off a signal, then I am sorry but
the truth is you
don’t have a trading edge. Your trading system needs to be able to analyze the
market properly
and when it fires off a signal, you know that the market will generate order flow
to put your trade
into profit before your stop loss or pain tolerance point gets hit. Ideally you
want it to happen
immediately within seconds or minutes after you get into your trade. Which is why
news trading
is so lucrative and I will discuss it in painstaking detail. But sometimes the
trades can take a few
hours or a few days to start working. And that is fine as well as long as your stop
is safe and you
still have a decent reward risk ratio.
Many people on various forums talk about how money management or psychology is the
holy
grail. That is a pile of horse shit. You can have perfect money management and
trading
psychology, but if when your trading system fires off a signal and order flow is
not generated,
then you have no trading edge and will not profit.
As Monroe Trout said in The New Market Wizards:
Good money management alone isn’t going to increase your edge
at all. If your system isn’t any good, you’re still going to
lose money, no matter how effective your money management rules
are. But if you have an approach that makes money, then money
management can make the difference between success and failure.
Page 36

Some people throw around the phrase that even a bad trading system with good money
management can turn a profit. What utter nonsense. If you go to Las Vegas and play
roulette,
you can try any type of money management system you want, you don’t have an edge so
you
won’t win in the long run. There won’t be any consistency for the long run because
you have no
edge.
You HAVE to have an edge in the markets. Preferably a massive edge. Preferably an
order flow
edge. Preferably an edge which manifests itself within the next series of ten
trades, rather than
over the next 1,000 trades.
Good money management and psychology certainly does help. It keeps losses smalls
and keeps
you in the game and continuing to play and not give up. But you need to have a
great trading
system, which is what the Order Flow Mastery course is designed to do.
I had good money management and psychology. It wasn’t the best, but it was
sufficient. But I
was still breaking even because my trading system was not up to where I wanted it.
Once I
implemented an order flow system that actually worked, my results started to go
through the roof.
I had hit my temporary limit in regards to money management and psychology and
needed to
improve my trading system. I was placing crappy trades and I knew it.
Now once I actually started to get good results, what happened was I was able to
improve my
money management and psychology more because I actually experienced trading success
– order
flow trading success. I had to get the good order flow system in place first, in
order for me to
attain higher levels of understanding and implementation in money management and
psychology.
Which is why I have a few order flow words of wisdom.
Order Flow Wisdom
If you are stuck and you have hit a limit with your
money management and trading psychology you need to improve
your trading system. Find the trades that capture an explosion
of volatility and generate an overwhelming amount of order flow
and thus give you astronomical profits and everything else
including money management and psychology will slowly start to
fall into place.
Once you crack the code of the market (order flow, liquidity, volatility, news,
sentiment,
expectations, scenarios, global macro, etc), once you know and will always know
what will move
the market, then you start to spend more time on money management, on trader
psychology. But
it all starts with a good system, with a killer edge. Once you know your system is
good, it gets
easier to focus on the other stuff. It gets easier to accept the money management
and trader
psychology lessons. It gets easier to do everything else because you actually feel
that you are
learning the very foundations of every market. It gets easier because you know
exactly what
types of trades you are trying to take advantage of and how they look like.
The truth is that once you KNOW you can place high probability, very lucrative
trades
consistently and actually see the money flowing in from those trades, you will
become more open
to improving your money management, trading psychology and conquering more of your
inner
demons and thus taking your trading to a whole new level. Most traders don’t
believe in money
management or psychology because they may have never placed great trades
consistently or
never really knew why the market moved, or what their trading edge is.
But you need that confidence booster knowing that you can catch those really great
trades,
actually perform them and see the money flowing into your account. The confidence
booster
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from placing really good trades will help reinvigorate your determination to become
a great
trader.
You need to be able to know why the market will move and predict the future actions
of traders.
Once you are able to predict where the market will go and what scenario will play
out and what
order flow generators will take the market there, and you actually place a trade
and profit 100+
pips, that is a very gratifying experience. Because you knew exactly why the market
moved. You
were able to anticipate what the market would do. You were able to know exactly why
you made
the money. You were able to isolate the discrepancy between the participants
expectations and
the actual course of events. That is a huge confidence booster and very necessary
to take your
trading to the next level.
When you know where the hugely profitable trades are, and you know how to catch
them,
actually catch them and profit from them, then a lot of the stuff you read about
money
management and psychology becomes more acceptable and you become more open to it.
But it
all starts with catching the really great trades and knowing how they are
structured.
The Plight of the Average Trader
Lets take the average trader who is trying to make money in the markets. They have
applied
decent risk controls over a series of say 50 trades but he has seen his account
post some losses
because he has not captured any sizable winning trades. Some forum guru may tell
him to
practice better money management by “cutting losses and letting profits run”, which
is the
standard trading advice. The only problem this trader realizes is that very few or
non of the
trades he placed even had the potential to be big winners.
The truth is that in order to “let profits run”, you need to have some trades where
the market did
move significantly in your favor after you closed out your trades. In others words,
you need to
have a system that captures some of these trades or has the potential to do so some
of the time. If
none, or very few of your trades have that characteristic, then how are you going
to let profits
run? This was the exact dilemma that I was faced with when I was in the technical
indicator and
chart pattern trading cycles.
The solution for me wasn’t to “practice better money management.” Not that I didn’t
have plenty
of psychological problems that I needed to resolve. I had plenty. However, the
solution was to
develop a better trading system. To find better trades. Trades which were capable
of being large
winners. Then once I was able to find a few of those, I could apply the “cutting
losses and letting
profits run.” Then I could apply some of the great trading psychology to a trading
methodology
which was in harmony with the order flow, liquidity, and volatility.
You can apply the greatest money management and risk control, but if your trading
system
cannot capture large winners some of the time, then you will not make a lot of
money.
Order Flow Wisdom
Placing the great trades will give you the momentum to work on
the other less amusing aspects of trading like money
management, psychology, and slaying your inner demons, fears
and misconceptions. You will have more fuel to learn those
things because you already know how to catch the great trades,
and thus know that if you improve your money management,
psychology, and conquer your inner demons then your profits
will only keep on going up and up.
The good news is that I will teach you how to find those great trades. But
remember, don’t try to
find 30 of them per day in the currency markets. Focus on finding the best few
setups per month
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that have an overwhelming amount of order flow and watch your trading results
surpass your
wildest dreams.
My 3 Step Solution
When I was in the chart pattern and price pattern cycle my trading was poor. I was
oscillating
between small losses, break even, and small gains. I was not making the big
returns. I did have
good risk control in the form of always putting in a stop loss order. My position
sizing and stop
loss was always set so that it represented 1% of my account. My stop was 1% of
equity for each
trade. Thus my 1R = 1% of equity. I would have a few winners mixed in with a very
painful
streak of losses. I struggled to get in harmony with the markets movements.
I identified three steps I could take to improve the situation:
1. Get better trading psychology and better trading rules to reduce mistakes.
Trading with charts
or even order flow is discretionary in nature. And discretionary traders make
mistakes some of
the time. They can place trades that deviate from their system causing
additional, unnecessary losses to be added to a losing streak. For example, lets
say I had a
series of 20 trades. The breakdown was as follows:
• Two were +3R trades
• Four were +1R trades
• Fourteen were -1R trades
That would mean losses of 4R in that sequence of trades. It is entirely possible
that some of the
trades in that sequence were “mistakes” that should not have been placed. If four
of the fourteen
trades which were losses were mistakes, they added -4R to the trading losses. If
you can get rid
of those mistakes, you can improve your trading profitability / reduce your losses.
Almost every
trader can improve their trading psychology, rules, habits and discipline to make
less mistakes in
the market.
2. I needed a better trading system. This meant a higher win rate, or better reward
risk trades, or
a combination of both. This meant a trading system that could figure out what would
compel
traders to take action. A system rooted in the foundational market principles of
order flow,
liquidity and volatility.
3. Win rate and reward risk ratio are not the only components of a successful
trading system.
How big your opportunity set is and how frequent your trades come can be another
crucial
element in whether you succeed or fail. While you may only have enough initial
capital to trade
a small number of markets, once you build up your trading stake, then expanding
into other
markets such as futures, bonds, and stocks will increase your opportunity set. All
else being
equal, if you have an edge in the markets, then an increase in your maximum
opportunity set, if
you can handle the added information flow and work, can dramatically increase your
profits.
George Soros may have failed as a trader and hedge fund manager if he only limited
himself to
trading currencies.
Why Order Flow Traders Fail
Now that you have learned about and overcome the general reasons why traders fail,
we can get
to the order flow specific reasons. And believe me there are many unique reasons
that apply to
struggling order flow traders who are failing. Many of them share common problems.
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This is just a small list and I will not go too much into detail. For I have
included sections such
as the “biggest mistakes” in the stop hunting, option barriers, news trading,
global macro trading,
etc, which talks about the typical order flow mistakes in much more detail in their
respective
sections.
Here is the quick list with quick explanations:
1. They don’t know “Why” the market will move.
These types of order flow traders have discovered order flow and are in the
learning process.
They know they need to dig deeper and find reasons outside of the chart for the
market’s
movements. These types of traders typically have learned about how prices move,
learned about
liquidity, learned about micro structure, learned about stops and option barriers.
They are just
lacking the critical element that is needed in the form of the
news/sentiment/fundamental/macro
players as well as the expectations and scenarios of those market participants.
Once they know
that, they can get a much clearer understanding about all the reasons why the
market can move in
the future.
For stop hunting and option barriers may only represent 5-25% of the markets
movements. They
can only explain so much. Therefore, if your knowledge is limited to that, you are
still missing
the 75-95% element, which is much more important.
Trying to explain 100 pip moves, 500 pip moves and 1,000 pip moves purely through
the stops,
option barriers, and micro structure elements is definitely tough. You cannot
explain 500 pip,
1000 pip moves with tools and strategies that only can explain 5-25% of the markets
movements.
It gets a lot easier to explain the 500 pip, 1000 pip moves using tools and
strategies that make up
75-95% of the markets movements.
Knowledge of pure stops and option barriers cannot complete the order book.
Knowledge of
news, sentiment, fundamental, macro, expectations, etc can get you far closer to
the knowledge
necessary to nearly complete the order book and find the path of least resistance
in whatever
financial instrument you are trading.
2. They think they know “Why” the market will move but are wrong due to different
market sensitivity (environments). (AKA wrong order flow generators for specific
situation)
These are the types of traders who have amassed a large amount of knowledge about
various
order flow generators, scenarios, stops, option barriers and are therefore in a
position to perform
some scenario analysis. The only problem is that they bet on the wrong order flow
generators.
They bet on the wrong scenario.
In other words, they have found a scenario that has moved the market at some point
in the past.
They think that same scenario is going to occur and thus want to bet on it.
However, they
skipped a crucial step of first determining how much the market is sensitive to
that scenario in the
current market moment. A scenario that moved the market 200 pips years ago, may or
may not
move the market 200 pips in the given current moment.
An example of this type of mistake would be a trader going long the GBP/USD when
there is
faster than expected inflation numbers released from the U.K.. The trader may be
betting on a
legitimate global macro scenario that could occur, but the market environment may
not be
conducive to such a trade at that particular moment in time. Such a trade may have
worked out in
the year 2007, but in the year 2011, the results were poor.
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These traders need to have a stronger grasp of market sensitivity, which I explain
in the news
trading section.
3. They know why the market will move, but are still wrong because the market
shifted its
order flow generators.
These are the traders who know correctly why the market will move in the future.
They get the
initial order flow generators right. In other words their order flow generators
were correct and
the market started moving. However, another news, event, or scenario occurred which
caused the
market to move in the opposite direction. There was stronger order flow in the
opposite
direction.
The traders initial analysis was correct. However, they failed to see the new
event, scenario,
catalyst, trigger which caused the market to completely reverse it’s previous
stance.
These types of traders need to hone their skills and build stronger foundational
principles about
that billions can come into the market at any point and at any price and that the
markets can turn
against you at any time. They need be more disciplined and do a better job at
interpreting the
information flow.
4. They know why the market will move, but get the timing wrong. (itchy trigger
finger)
These traders see the scenario developing for a big move. They can even articulate
the two or
three key elements of the move. However, these traders are in a rush to place their
orders. They
do not time the market properly. They get in too early and the market shakes them
out when
there is a one day reversal or a few days reversal against their position.
The trader then gets stopped out and eventually watches the move unfold for the
reasons they
knew about, but are now out of the trade because their stop loss was hit, and thus
cannot
participate in the move.
5. They try to inject long term gradual order flow into short term trading.
Order flow traders can have a long term view on the fundamentals on a currency. For
example
they may be bullish the Australian dollar because they expect interest rates to
stay high or to go
higher over the next year or two. Such a macro view can inject long term gradual
order flow into
bullish Australian dollars. However, that long term gradual order flow usually
takes a back seat
if certain news, events, scenario, catalysts, triggers can cause the market to
temporarily stop
following that view and instead focus on other shorter term and medium term order
flow
generators.
Most of the time I don’t try to predict what will happen six months from now or a
year from now.
That is usually far too long for the market to correctly start pricing it in today.
Especially form
currency markets. Instead, what the market usually does, is that every day there is
a constant
repricing of expectations of some important event or global macro scenario in the
future. I will
talk more about this. However, the gist of it is that most of the time, you
shouldn’t keep rigid
your expectations for what will happen one year from now. There is usually no point
holding a
rigid view of what will happen 1 year from now because the market is constantly
repricing those
expectations every day. There are some exceptions, for example, if a big trend is
going to
develop and the market happens to constantly be pricing in only one part of the
scenario and
causes a major trend without major retracements.
Also, even if you have a specific view that you think will play out, the market can
present very
attractive profit taking opportunities. There are times when you may have a long
term view on a
Page 41

currency pair, but the market may just move so fast and so far in the direction of
your analysis
that it may present a nice opportunity to exit the trade and look to re enter at a
better point. In
other words the market may be extended and may decide to form an short term
explosion of
volatility against your long term view.
6. They try to predict an event that may or may not happen many months into the
future.
Once order flow traders realize that many different types of news events, scenarios
can affect the
market, they logically start to play out scenarios about what can happen in the
future. However,
many traders try to predict very long range events. When in reality the market is
constantly
repricing the outcome of such events and the probabilities for the various
outcomes. While you
may have a razor sharp view of what will happen six months from now, the market is
not going to
keep such a static probability of the event occurring. That percentage probability
constantly
fluctuates every month, every week, every day.
It is entirely possible for you to be right on the event which may happen six
months from now,
but you get stopped out because you tried to place a trade today, for a scenario
that will occur six
months from now.
7. They try to impose such long term events on the market while using short term
stops.
This problem arises when a trader attempts to place a trade for global macro or
swing trading
reasons. Their intention is to hold the trade for a few days or few weeks. The only
problem is
that they are using stops as if they are trading an intraday position. Meaning that
they expect a
huge 1,000 pip move to occur, but they are placing a trade today with a tight stop
of say 30 pips.
They are constantly trying to catch the bottom of the global macro move with a tiny
stop. Tiny
stops are more suitable for intraday trades.
The tighter the stop, the more precision you need to have with your timing of the
market and
what you expect to happen.
The tighter your stop, the faster the market needs to do what you expect it to do.
If you want to trade a long term event or global macro move, you can do so, just
use bigger stops
as you are acknowledging to yourself that you aren’t sure if the turning point is
going to occur
now, or in 4 hours, or in 1 day, or in 4 days. And you need a bigger stop than the
intraday players
in order to weather the volatility.
8. They succumb to information overload.
These order flow traders see the giant potential in viewing the market through
order flow,
liquidity, and volatility and information flow point of view. They also acknowledge
the
information that exists outside of the chart. They can see the potential in being
plugged into the
information flow to figure out the news/sentiment/fundamental/macro order flow.
However, they
are afraid to learn new skills, or are unsure about how to learn those new skills
they seek. It is a
lot of information in the beginning and many of them can succumb to the information
overload
and quit trying to perform that type of order flow analysis.
They either go back to their previous systems of technical indicators, chart
patterns, or forex
robots. Or they go to the simpler order flow principles and strategies such as
stops and option
barriers.
I went through information overload every second of every day for months straight.
I was
making progress. I had all these scenario sheets developed of all the order flow
generators. Then
I sat down and looked at them. They were very large lists. I sat there and thought
how could I
Page 42

possibly make sense of all this information? How could I memorize 30 different
bullish
scenarios and 30 different bearish scenarios for each currency? How could I
possibly stay on top
of all the different possibilities in the market place from rate cuts to rate
hikes, to growth
expectations, to inflation, to risk appetite/aversion, to economic data, etc. It
was massive
information overload. I thought I was going to succumb to it and go back to my
chart patterns. I
didn’t really have a clue how to manage it all. I thought my head would explode.
I stayed resilient and slowly but surely I figured it out. I developed my daily
order flow habits. I
developed my proprietary news impact release recording method to help me to
determine market
sensitivity. That helped me to cut down on which news was important and which was
not
important.
Then after a few months I made a breakthrough. It sounds silly to me now, but years
ago it felt
like a revolutionary concept. I eventually figured out that the market cannot
possibly be pricing
in all those different scenarios equally at any given moment in time. I knew that
from my market
sensitivity research that the market could respond differently to different news
reports. But I
needed something more to get to the global macro transformation. That is when I
figured out that
the market, most of the time, cannot be in different macro environments all at the
same time.
For example, in my scenario sheets, I have a scenario that states a bigger than
expected interest
rate hike can cause a currency to appreciate in value. Similarly I have a scenario
that states a
bigger than expected interest rate cut can cause a currency to appreciate in value.
Then I would
attempt to analyze a potential future central bank meeting and be completely
clueless as to how I
could manage all the information for every single possible scenario that a central
bank can
announce. I had listed many different possible scenarios that a central bank can
do. For example
– staying on hold, interest rate hike, bigger than expected interest rate hike,
interest rate cut,
bigger than expected interest rate cut. I was attempting to play out scenarios for
all of the above
and assumed that they could all be equally possible.
That is when I figured out that could not possibly be the case. There are some
situations where a
central bank is legitimately undecided about whether to hike rates, stay on hold,
or cut rates. But
in most situations they will have a certain bias. That bias is dependent on what
particular macro
environment the markets are in and the country is in. It also depends on what the
central bank
officials have been saying to the markets in their official remarks. It also
depends on the
economic data and other international developments.
Once I figured that out, I immediately changed my focus from attempting to predict
six different
scenarios for a central bank meeting – to only attempting to predict two scenarios.
I figured out
there was no point in being worried about a 0.50% interest rate hike, if the
central bank officials
have not hinted at even a 0.25% rate hike at all, or if the central bank is
actually signaling a
potential 0.25% rate cut. After all, if the economic data and central bank official
statements from
the previous weeks and past month or two say that they are leaning towards a rate
cut, then I
don’t need to worry about whether they will hike rates 0.25% or hike rates 0.50%.
That is how I figured out that the market cannot possibly be assigning equal
probabilities to both
extreme ends of the spectrum. The market cannot assign the same probabilities to
both a 0.50%
interest rate cut and a 0.50% interest rate hike at the exact same moment in time.
The market
participants will always try to figure out using the economic data, international
developments,
central bank statements, central bank minutes, and central bank official remarks
about what the
likely path of interest rates are. Once they form a particular bias, I will assign
a relatively zero
probability to one extreme outcome. After all if there is no economic data to back
up that
assessment, no central bank statements hinting at it, and no central bank official
remarks even
remotely hinting at it, then the probability becomes zero and you can just avoid
thinking about
that scenario and think about the scenarios that are directly closer to the markets
expectations.
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So for example, if a central bank is hinting at a 0.25% interest rate cut, then I
would think of what
would occur that would cause them to potentially cut rates by 0.50%, and what could
occur that
would cause them to stay on hold. I wouldn’t think about what would cause a 0.50%
interest rate
hike, because of all the previous things that I stated above.
Take another example of a central bank being on hold. They have signaled that they
are on hold
and all the economic data and central bank commentary backs up that interest rate
stance. In
such a situation I would only typically be worried about the factors that would
cause a 0.25%
change in interest rates either higher or lower. There is usually no point in me
thinking about a
0.50% change in interest rates because that is the more extreme scenario.
Also, I began to use the economic data and my ever expanding global macro knowledge
to help
me predict the central bank actions. If a central bank is on hold, and I just saw
the inflation
numbers fall a lot, and I saw that crude oil is down 15% in a month, and I just saw
that the recent
unemployment report showed job losses, then I can logically make an assumption that
the central
bank may want to consider cutting interest rates and I may want to place a trade
betting on that.
Given the above situation with the falling inflation, falling energy pries, rising
unemployment, I
could logically make an assumption that the central bank is probably not going to
hike interest
rates by 0.25%, and I can logically make an assumption that the central bank is
certainly not
going to consider raising rates by 0.50%. The only exception being if they want to
engage in
some sort of currency manipulation like the Bank of England did in 1992 when they
tried to prop
up the value of the British Pound with massive interest rate hikes even though the
country was in
a recession. But those are usually rare moments.
I stayed with the information flow and learned about the logical sequence of macro
events. The
logical sequence of scenarios. For example, if interest rates are at 5.00%, then a
central bank is
not even going to think about engaging in quantitative easing, because they still
have the
potential to cut interest rates. The logical sequence of events for quantitative
easing to happen is
that interest rates first would normally get reduced down to between 0 – 1.00%.
Then once
interest rates are at that level, then if they are not effective enough to
stimulate the economy, the
central bank can consider engaging in quantitative easing.
All of the above helps me to only focus on the immediate scenarios which can move
the market
and avoid spending too much time thinking about the far fetched scenarios that are
too extreme
given the current global macro environment.
Therefore if interest rates are at 5.00%, and the economy is slowing, inflation is
slowing, etc,
then I don’t really have to worry about whether the central bank is going to embark
on a QE
program. I just need to worry about whether they will cut rates by 0.25%, and if
they will
continue to do that in consecutive meetings.
Also, it is highly improbable that the market can be pricing in both extremes at
the same time.
For example, the market cannot be pricing in both current hyperinflation and
deflation at the
same time. It is almost impossible. Similarly, the market cannot be pricing in the
possibility of
inflation and deflation at the same time. It usually needs to choose one or the
other, then once it
chooses one it is a matter of how much. So if the market is expecting inflation,
then it is a matter
of how much? 1% inflation? 2% inflation? 3% inflation? That is how it normally
works.
This also helps me figure out who is a quack in the markets and who can think about
realistic
current scenarios. When I hear someone talking about hyperinflation and Ben
Bernanke’s money
printing, and I see that CPI and PPI is coming in lower, I see energy prices
falling, I see economic
growth being weak, and I see the market not responding to the hyperinflation story,
then I know
that the person generally doesn’t know what they are talking about. I start asking,
well if you
expect hyperinflation to happen, and the CPI and PPI numbes are lower, energy
prices are lower,
Page 44

the economy is weak and thus demand is low, and above all, most importantly, the
market is not
acting as if it is expecting more inflation, then why do you expect inflation, let
alone
hyperinflation to happen? All sorts of quacks exist in the market. Beware them.
They will
passionately defend their view even though there is not a shred of news, sentiment,
fundamental,
or macro order flow that is supporting their view. They will tend to have ready an
arsenal of
various charts with all these weird ratios, correlations, and economic data that
supposedly support
their theory. However, the most important information in the form of news,
expectations,
sentiment, macro, and everything else that can generate order flow will not be in
their favor.
Now some people would say, what if hyperinflation will happen in 12 months, even if
none of
your news, expectations, sentiment, macro, and the market is not pricing it in yet.
That is a good
question. The answer is that if something is going to happen in 12 months, and the
market is not
pricing it in yet, then either the market is not sensitive to such a scenario. Or,
the market will
start to price it in later, when reality sets in. Therefore for the hyperinflation
scenario, if no
financial instrument is pricing it in yet, then, assuming the market is sensitive
to hyperinflation
(assuming the participants believe it can happen), which I believe it is, then my
methodology, my
system, my philosophy, will “detect” when it is happening. The key word is you can
“detect” and
“sense” when a global macro scenario is going to happen.
I will read about it in the daily news. I will detect it with the expectations of
the market
participants shifting. I will detect it with the sentiment changing. I will detect
it as the financial
instruments start to price in such a scenario. I will detect it with my daily
habits. I will detect it
within my news impact releases method.
Then when I detect it, I will change my views accordingly and trade on them. So if
hyperinflation is going to occur in 12 months, then I am confident my system will
detect such a
scenario early enough so I can be prepared. I am supremely confident my daily
habits will allow
me to perceive such a shift occurring.
This is how I discovered that I could use my daily news article recording and daily
news release
impact recording exercises to not only help me gauge what the market is currently
focusing on,
but to also help me make predictions and forecasts to the future as to where the
probable bias is
in the market even if the current market is not pricing something in.
All of the above mindset principles and techniques would of been impossible if I
had succumbed
to the information overload and went back to the chart patterns.
9. They become paranoid about their broker hunting their stops.
When many order flow traders first start learning about order flow, they usually
start off learning
about stop hunting. This logically leads some of them to think about how perhaps
their brokers
can be hunting their stops. This can lead to paranoia as the traders are constantly
worried about
their broker, or worried about how to somehow conceal their stops from their broker
and other
people.
There are all sorts of supposed trading gurus on the internet, selling trading
products
that supposedly “conceal” your stop orders from your broker so they won’t try to
hunt them. I
get a laugh out of it.
When in reality that time could be better spent developing better beliefs about the
market. That
time is also better spent learning to take advantage of the other order flow
inefficiencies such as
the explosions of volatility, where their brokers. even if they really were trying
to hunt their
stops, wouldn’t be able to, because going against the massive, overwhelming order
flow is just
suicidal.
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10. They try to combine order flow analysis with technical indicators! (Big NO NO)
As a foundational principle, as an order flow trader, I will always follow what
will generate
future order flow. I have to. I am an order flow trader. Therefore, if at some
point in the future I
determined that astrological patterns or moving average crossovers or anything else
actually
caused the market to move, then I need to pay attention and factor that in to my
order flow
analysis. Now, I don’t believe in astrological patterns or moving average
crossovers, but the
reason I don’t believe them is not because I just dismiss them off hand.
The reason I don’t believe in them is because I have performed order flow analysis,
especially the
news impact recording exercises and determined that they have nothing to do with
price
movement.
Now, there may be some traders who use certain moving averages in order to find
another cluster
of potential stop losses. For example the 100 day and 200 day moving average seems
to be
popular with many people in the investing and trading community. And that is fine.
If you find a
particular moving average that affects the particular financial instrument you are
trading, or helps
you to find stops, then you can use them. Although I would caution against over
reliance on
them.
Also I would add, that the biggest trades in history had nothing whatsoever to do
with moving
averages. It didn’t matter if there were stops placed above/below the moving
averages you like
to use. For the biggest moves in history have to do with global macro trading and
in those
moves, the global macro will smash through any perceived moving average support or
resistance
as if it never existed.
Let’s put the moving averages aside for now.
When order flow traders are learning they tend to have certain knowledge or
experience gaps.
When I first started learning order flow, I only knew about stop hunting and option
barriers.
There were very big gaps in my knowledge. I didn’t know that much about news,
sentiment,
expectations, scenarios, etc. Those are very big gaps in market knowledge. And
those are just
from a trading system perspective. There are a whole host of questions regarding
money
management and trading psychology as well in their own categories.
All traders have these questions. This is natural as you are trying to grow and
learn more.
However, the way a lot of them go to approach solving the problem is to mix order
flow
principles along with technical indicator or chart pattern principles. For example
someone may
wonder why a market reversed at a certain level that didn’t have any stops or
option barriers. The
aspiring order flow trader does not have a sufficient explanation. And that is when
some of them
turn to their technical indicators to help them. They start throwing in the MACD,
stochastics,
looking for divergence again. Or they start looking for chart patterns and price
patterns.
Some of them even start thinking that if they can combine their new found knowledge
about
stops or option barriers together with the technical indicator confirmation, they
think they can
find the holy grail.
I made this mistake over and over again. I banged my head against the wall many
times. I tried
to apply order flow concepts together with technical indicators, chart patterns and
price patterns.
I thought that why don’t I take the best technical indicators and chart patterns
and price patterns
and order flow concepts that I knew which were stops and option barriers. I
thought, why not
combine it and I would get the super system!
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I tried all sorts of combinations. Trying to determine whether to fade stop losses
by adding in
MACD divergence and looking for pinocchio bars or engulfing bars, etc. There are
all sorts of
combinations you can use.
However, if you embark on this journey of mixing in all these technical indicators
and chart
patterns with order flow concepts, then you need to realize what you are doing. You
are repeating
the cycle and rat race of what you were in previously. Adding in new technical
indicators, chart
patterns, etc is what traders do when they are stuck in the technical indicator
cycle and chart
pattern/price pattern cycle. So if you do it with order flow as well, then you are
transferring those
bad habits into the order flow cycle.
And my experience with this is that it is very bad.
In my mind this is the wrong position to take because you are going backwards! I
know because
I tried this. I went from the beginner trader cycle to the price action trader
cycle and finally to
the order flow trader cycle. But in the beginning of the order flow trader cycle
when I only had
knowledge of stops and option barriers I tried to fiddle around with meshing
technical indicators
and price action together.
I was going backwards, and I did not want to do that. I wanted to go forward and
take my trading
to the next level.
You always want to be going forwards, not backwards. Always towards the goal of
increasing
order flow, liquidity, volatility and market knowledge. Towards learning about how
the wealthy
traders truly made their money.
Which is the reason I eventually figured out the news trading and eventually
learned about
market sentiment, market positioning, expectations, scenarios, and global macro
analysis, etc.
Then eventually I went to figure out how hedge fund managers think about the
market, their
positions, and how they work their orders. That way I can have sufficient
explanation for the
markets movements using my accumulated knowledge of order flow, liquidity,
volatility, news,
sentiment, positioning, expectations, scenarios, global macro, and hedge fund
mindset mastery.
And since I have all that knowledge, I do not need to go back to the technical
indicator cycle or
chart pattern cycle in order to find answers to why price is moving or will move in
the future. All
these techniques, exercises and mindset principles are shared with you in this
mastery course.
Order Flow Wisdom To You
That is the secret. If you are stuck in the order flow process and you only have
knowledge of
stops and option barriers, then the trick to massive success is NOT to try to mix
in all these
different technical indicators, chart patterns, price patterns, etc.
The secret lies in your continuing on your order flow journey to learn even more
about the
foundational aspects of the financial markets. If you only have knowledge of stops
and option
barriers, then you may ask, well what new things can you learn?
The things I learned about, developed, and teach you in this mastery course – the
news impact
release method, the daily news article recording, the daily habits, learning about
expectations
analysis, scenario analysis, market positioning, global macro analysis. Learn bout
the ODVE,
MDMM, GM volatility moves which I will talk about. Understanding the order flow
liquidity
model. Understanding the most important market players: the
news/sentiment/fundamental/
macro market participants.
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