Understanding the stock market for you are not operating the market, but the ideas that you have about the market. When you observe the changes in the price you do not simply stay with that but you give it a meaning.
Between you and the market are your ideas. If they are good, if they adjust to the reality that underlies any market, you will find meaning to what is happening. You will find windows of opportunity and you will be able to take advantage of them. If instead, you have wrong ideas, what are your chances of winning consistently?
Understanding the stock market is the key to success
The results we obtain are the perfect reflection of the type of traders we are, that our achievements reflect our current development. If they are consistent, if we are able to win again and again, if we manage our positions, our risk and our emotions properly, these results are maintained and trading becomes easy, simple, excited. On the other hand, if our results are random, if one day we win and the other we lose, if we are not able to sustain what we do over time, our trading is a struggle, but that struggle is not against the market but against ourselves.
We are the ones who interpret what we think we are living. We do it through our mental schemes. When we look at the market we have a conception of what we see and we group information clusters in patterns, forms and scenarios and when we go into detail and we look at the details, we continue to make sense of what we see. For some a candle that does such and such a thing is a sign of strength, for others of indecision, for others, it is nothing because it is not a type of distinction that they use…
The reality is the same for all operators from a certain level, but it is very different for all of them from another level. From the subjective level, it is you who gives meaning to what happens. The distinctions that you are able to make in what you observe allow you to see certain forms and give them some sense, but those forms are not the reality of the market, but your own reality, what you see through your distinctions is the projection and understanding the stock market with ideas.
If these ideas contain errors, if you have not questioned them and assume valid misconceptions, what will the results be like?
A very nice thing about trading is to take up the observation made by Mark Douglas, that “what we obtain reflects our current level of development” … This means that by observing your results you can know where you are. That is a very good starting point to improve what you get.
The trading is binary, it is black or white, zero or one … or you win, or not, or you are a consistent trader or you are not … There are no half measures, there are no traders that today win and are consistent and tomorrow they lose and not are. If they do that, they are not consistent in the first place, they have not understood, they do not have the necessary discernment.
This trading feature allows us to see if you are already there … What do your results say? That is something you cannot hide. You can explain stories to your partner and your friends about what you do as an operator, you can even tell yourself milongas, but when you look at your results account there is the truth: either you win or you do not.
Using this starting point, if your results reflect that you are not the kind of trader you want to become. Understanding the stock market is due to what is between you and the market. Understand that it is your way of interpreting and giving meaning to the price action that is preventing your success in the stock market.
It amazes me that so many aspiring traders that, by not achieving the kind of results they want, are interested in changing what they do, without reflecting on their way of interpreting what they see. What you do, your behavior depends on how you think, on your mental patterns, on the kind of distinctions you have learned to make and what you are capable of doing.
If you change your system, but do not question your ideas, what good will it do you? You will operate the market through the exact same erroneous schemes, even if you use new tools.
It is like a driver who does not know the traffic code and who has accidents every two times and thinks that what he should do is change the car! What else does the car you use? As long as you do not learn to read the traffic signs, you will have accidents such as driving a Macan or a Polo.
Are you able to see what institutional traders do? Do you see where they enter buying and where they enter selling? Do you see the maneuvers with which they trap the public? Understanding the stock market means understanding the need they have to generate supply and demand? And do you understand the mechanisms they use to satisfy their limitations? If you are not able to see this, how are you supposed to develop an overall vision? That knowledge about the markets, that understanding about what is happening behind the scenes, about what moves the price and how is the traffic code and you must learn it if you want to drive successfully.
If you are not able to read the story that tells the market what you do will be referred to the micro and will be out of context. Sometimes you will succeed and others you will lose, but you will not be able to sustain your results, simply because what you get is random. You are acting without the overall vision and it is as if you are blind to the most important part of the information.
It’s like watching a tennis match in which you are only allowed to see half of the track. How are you supposed to understand what is happening if you do not see what the other player does?
Understanding the stock market means also understand that if you have wrong ideas but you are not aware that they are, you will continue to use them to observe the market and you will continue to draw the same type of erroneous conclusions that will give you poor results. This is why I say that the most important work, after a certain technical development, is interior. You must work on yourself, not on the market. The key to consistency, which will make you achieve another type of results is not out, it is inside.