Trading Rule #1 - Know Thyself / 2ndSkiesForex.com

I am going to start this article talking about one of the most important things developing traders will need to know - that is to 'Know Thyself'.  This recently came up for me as a newer student sent me a few emails which made me realize how important this is for anyone starting on the learning process, but hasn't found the right trading system to trade from every day.
 

know thyself matrix 2ndskiesforex.com

First I will start off with the student of mine and how critical it is for the trading process.  Then I will discuss the importance of this rule, how it relates to you, what system you decide to trade, whether it is price action strategies, or ichimoku cloud trading (or whatever), and how this applies to your trading.
 

I will end by giving the rule which should immediately follow this one, which, my guess is will surprise you.
 

How It Began

This student of mine (we'll call him James), had signed up for my Price Action Course not too long ago and was definitely an eager beaver.  He jumped right into the material, asked a ton of questions, and wanted to know the details of the systems inside and out so he could use them properly.  So far so good.
 

He eventually decided on mastering one system which was an intraday price action system focused on the 5m time frame. For weeks, that was all he traded, asking questions each day, sending me screenshots of all his trades to make sure he did them correctly, etc. He decided to demo the system until he was sure he had it down.  Again, so far so good.
 

However, this is where things got interesting.  He was having trouble getting comfortable with the frequency of the system (active).  After trading the system for a couple of months, he decided to move on to another system, this time on a slightly higher time frame (1hr).
 

Obviously it was less active, but still active enough throughout the week (on average - a trade a day). Again, he took the same approach - trade it on demo to learn it inside out. Interestingly though, the same thing happened again.  He was making money with it, but still felt uncomfortable with it when it went for runners.
 

confusion foto

So what did he do?
 

He hired a programmer to write an algo for it.  He thought maybe the problem lie in himself (it usually does) but that an algo would solve his problems.  Remember his process which was the same at every turn;

1) choose a system
2) learn it inside and out
3) practice it on demo for a few months
4) makes money (key note), but was uncomfortable with the trading process
5) looks for another solution
 

It was the last two parts of his process where I started to question things.  My golden rule is;
If it happens once, its an occurrence
If it happens twice, its a pattern
If it happens three times, its a program (or with humans, a conditioned response)
 

The Common Denominator

To me, something wasn't quite right as he was making money with the systems (most people would be happy with this), but was still uncomfortable in the process and thus searched for another solution.  I decided to see where this leads before making my suggestions.
 

After getting the system programmed, he decided to let it run.  It started to lose money and he couldn't figure out what was going on.  He questioned himself, why he paid for the programmer, if he picked the wrong system to program, was it a bad time in the markets, etc. Turns out the programmer had made a mistake in the coding so the system wasn't trading properly.
 

So what was his response?  He emailed asking about my shadow system.  This is the system I wrote about in Ode to The 4hr Charts.

Remember this one...whereby my student Tony traded one system, on one pair (AUD/USD) on one time frame (4hr charts - go figure).  Tony did 110% on the year, was profitable on every trade for the last 2.5mos of the year, was about 60% accurate with his largest winner far larger than his largest loser.

It turns out James (looking for answers where to turn next) read this article and thought this was it.  So he started asking me about it, emailing a ton of questions, a lot about performance, if he could learn it, what would it entail using this system, etc.

stressful brain

Now before we continue, lets map out his progression of the systems he has gone through;
-5m intraday reversal system
-1hr momentum trading system
and now, wants to learn the next one...
-4hr swing/trend trading system


Do you see the pattern here?  Other than each system gets progressively higher on the time frames - there is no pattern.  Its all over the place.  There is no consistency in the style, type of system, time frame - nothing.  The common denominator in this process is not the system, it is him.

Has this ever happened to you in your trading process, or is this happening to you now?  Have you gone full polygamy on systems, that you've traded every time frame imaginable, every type of system imaginable, but still haven't found your weapon of choice, one that performs the way you want it?  What is the one root cause of all this?

Rule #1 - Know Thyself


As a trader, my job is to find opportunities in the market, exploiting my edge week in-week out, to make a living from this and profit for my clients.

However, as an educator, my job is not just to provide systems to students that make money. My job is to help them with the educational process (wherever they are at) and find a solution to help them turn the corner.

Considering very few students are the same, I have to find out what is their trigger, what is holding them back, and how they can correct their mistakes while strengthening their weaknesses.  But, if there is one response I get a lot from developing students, it is this one to the following question:

'What type of trading are you looking to do and what are you looking for in a system?'

This is really a probing question to gauge where they are in the process and what will be their best path forward.

Can you guess what answer I get most often is?

'I want a high probability system that consistently makes money every month with very low draw-downs'


No shit, that's what everyone wants.  But here is the kicker...

What if I provided you with a system, which does virtually that, which made over 100% last year on one pair and one time frame.

But...(big but here), you had to hold a position for several days, perhaps over the weekend? What if that system only traded 8x in one month, or 18 the next, and you were not trading everyday?  What if you had to go through a two month draw-down period, but would still do over 30-50% return on capital at the end of the year?  Would you still want to learn that system?

If the answer is YES because all you care about is making money, then your not understanding rule #1 - Know Thyself.

If the answer is YES because you are comfortable holding positions for days, don't want to trade every day, and are ok with having one or two months of draw-downs, then this would be a good system for you, because you understand who you are.

The same goes if your answer is NO because you want to trade everyday, and do not want to hold positions overnight, or over the weekend.  That is being honest, and that is 'knowing thyself'.

know thyself 2ndskiesforex.com

The Importance of It


Why is this rule so critical to your development and learning process?

Because your personality, style of thinking (left brain, right brain, whole brain, no brain, whatever), personal schedule, temperament, level of patience, etc. will all come into play when trading your system.  If your allegiance is only to profit, this will become a problem.

Why?

If the system doesn't match who you are as a person (style, temperament, schedule, etc), a tension will be there everyday which will eventually turn into a friction in your mind - like having a car which doesn't fit your needs (2-Door Scion when you have 5 kids).

What good will it be, if you only have an hour to look at charts, and trading a system whereby you need to be at the computer for 3-4hrs at a time?

What good will it be to trade a system which requires you to wait for days to get a signal, when you have ADHD?

What good will it be if you do not want to be in front of the computer for hours, want more free time to enjoy life, yet have a system which you have to be there at certain times for hours on end?

It won't.

By Knowing Thyself well, you can find a system and style of trading which matches best with you, your lifestyle and mentality.  Perhaps you prefer trading with no indicators and want something simple and completely rule based?  Then maybe you would want to learn how to read and trade price action.

Perhaps you are comfortable with more intricate systems, like ichimoku cloud trading.  It doesn't really matter what the system is, whether it has a 10%, 20% or 50% edge.

What matters more than anything else, is you find a system and style of trading that works best for you. And to do this, you have to start with rule #1 - Know Thyself.


temet nosce matrix 2ndskiesforex.com

Maybe it is not rule #1, which is certainly open for debate.  But it is definitely up there in the top 5, and could be in a photo finish for first place.  What matters is, unless you are totally settled into your system and consistently making money, you will need to start by knowing yourself - figuring out who that is, style of thinking, what is your current lifestyle, what kind of lifestyle do you want to have, and what systems will match up with this.

Once you have found this, then you can begin the journey by working with a mentor, and finding a system which suits you most.

I hope this helps and that you found it useful.  I definitely look forward to your comments and wish you all the best in trading.

Kind Regards,
Chris Capre
Facebook: 2ndSkiesForex

P.S.  Oh, I forgot to mention, the follow up rule which succeeds this one......is to 'Forget Yourself'.  But this is a more advanced rule, which we will get into later.

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Tags: 2nd, 2ndskiesforex, 4hr, a, action, capre, charts, chris, cloud, finding, More…forex, ichimoku, mentor, ode, price, skies, strategies, the, to, trading, with

Comment by talisman on May 28, 2012 at 2:09am

excellent article.  if people can only pay attention to one thing this should be it.  i struggled with this myself .

Comment by 2ndSkiesForex on May 28, 2012 at 2:44am

Hello Talisman,

Thanks for the kind words.  I think we all struggled with it at one point.  Part of the learning process.  My guess is very few people come into this experience knowing exactly what they wanted to trade in terms of methods and strategies.  

But the key is making the connection how important this is to actually settle into something that works with us.

Anyways, thanks for liking and commenting on this.

Kind Regards,
Chris 

Comment by ALPHAtrader on May 28, 2012 at 5:25am

know thyself - matrix - capre    all my favorites

Comment by elanthiraiyan on May 28, 2012 at 9:11am

wow chris.... trading links to personality...... i am thinking now... thks for such an wonderful article...

Comment by Romano on May 28, 2012 at 10:05am

I want it ALL! - "Queen"

Comment by 2ndSkiesForex on May 28, 2012 at 1:41pm

Hello Peter,

Funny stuff about the driving differences between you and your wife.  Definitely got a chuckle out of that one.

In regards to your question about how many traders 'have the right personality traits to last the course'....I think you ran into the wrong trader on this one.

Why?

Because I have a very different view of mind - I do not believe the mind is fixed, that personalities are fixed, that people cannot change or develop the skillset they need whether they currently have it or not.  But let me share a handful of things which explains why I disagree with you, why people change, can change, and can develop the skills necessary to 'last the course'

1) Biology/Diet
2) Life Happens
3) Brain/Personality Not Fixed/ADHD
4) Yoga/Meditation/Self-Help
5) High School/People Change

Biology:
If you think your biology or diet has no effect on your temperament, try the following experiment;
Eat McDonalds food morning, afternoon and evening (every meal of the day) for a month and lets see if both your health, mood, mentality (and mental acumen) change.  

If you already eat that, then let me know and I'll come up with something worse, but the bottom line is change your diet for the worse or better and your mind/emotions/mental acuity will change.  By that reason - so would one's temperament, emotions and personality change which could have an effect on one's life and trading.

Life Happens
I had a friend who was engaged to a woman he was totally crazy about, ready to marry and have children with.  Long story short - she died in a horrible way.  Life happened to him and it changed his views on life.  He relates to it much differently now, his personality is different, the way he thinks is different.  

Life happens to all of us, and in those moments, we either learn from it or we don't.  If we do, we become someone different (even if its a little piece of us).  If we don't - we remain the same.  But life happens and people often change from these experiences.

Before he would not have had the 'personality' to do or be certain things.  Now, he is very different - especially in relationships.

Brain/Personality Not Fixed
The bottom line is your brain has a neuro-plasticity to it and can change a lot over time - rewire itself in dramatic ways that will affect thinking, personality, emotions - everything.  This alone means if someone at the current moment lacks certain traits to be a successful trader, they can build them.  

I had a student once come to me with ADHD which was a part of his 'personality' for decades. He couldn't even look at a chart over 1hr, let alone trade for a max of a few hours without having to close a trade.  After working with him for 2-3 months, he now only trades 4hr and daily charts, holds trades for hours, if not days, is totally patient with his trades, and consistently rakes in 2-4% per month being over 70+% accuracy.  If I viewed him as having 'fixed' personality traits, I'd think he'd never have the right temperament to trade successfully, let alone concentrate.  But now he can, does and consistently performs.

Yoga/Meditation/Self-Help
All three of these have one thing in common - they are all on the rise in the world - globally.  More people are doing yoga, meditation, or some form of self-help work.  All of these are helping people to see life differently, to relate to their mind differently, emotions differently - and thus changing as people.  These are tools which change people and are becoming more available.  I think the more they do - the more people can see of themselves and develop new skill sets and traits which obviously applies to trading as well.

High School
Are you the same person you were in high school?  I'm certainly not, and my guess is you are not.  Your different, with different skill sets then you had then - same for me.  Could I have been a trader back then?  Hell no.  Am I now?  Hell yes.  What happened?  Where did my personality that couldn't do this or last the course go?  It evolved, I evolved, I changed and developed new skill sets and traits to trade successfully.

So - in answer to your question, I think with the right training, work, practice, and changing certain things in people's lives, I do not think people either have or have not the right personality traits to trade successfully or last the course.

I think minds can adapt and evolve, I think traits can be built or learned, I think skill sets can be be trained and developed - and I do not think the mind is solid or fixed.

So, my answer is - most people with the right training (unique to each person), can develop the skills and traits needed to become successful.

Just my thoughts.

Kind Regards,
Chris Capre
2ndSkiesForex.com

 

Comment by 2ndSkiesForex on May 28, 2012 at 2:43pm

Hola Peter,

Wow, I had many of the same traits as a teenager.  How interesting.  

I had a feeling the 'DNA' thing would come out.  But here is the deal;
Your DNA is not what controls your personality or fixes your intelligence.  If intelligence was fixed, we'd never get smarter or dumber, but we do, again because our minds have neuro-plasticity to them - the ability to change the physiological structure over time.  

For some good science on this, check out Bruce Lipton's the Biology of Perception

As to becoming Brain Surgeons or joining Mensa - one doesn't need to be those to trade successfully.  Can people improve their brains a lot and raise their IQ levels significantly?  I think so.  Many studies have been done on people who did TM (transcendental meditation) for a long time, and their IQ's went up on average 10+pts.  

Same with people who meditate for long periods of time.  

I have no idea what the success rates are in stopping people from doing drugs or losing weight, but the methods I have worked on have helped every single person I know of in some way or another.  

I knew two concierges at the hotel I always stay at in London (Montcalm Hotel) just off of park lane.  They quit smoking and have been off of it for almost a year now.  Yet, they were smoking for years.  

But I agree with you completely, that a lot of traders entering the learning process would do well do spend a lot of time changing and developing their mindsets, skills and lifestyle to become successful traders.  My goal is to eventually build a 'Whole Training Program' which will include brain gyms, neurological headsets to help traders enter the proper central nervous system harmonics (alpha, delta waves), ERT training, lifestyle training, and more.  Tis a big project, but something I am already building steps towards.

But we agree for sure the internal work would be very helpful for a lot of people starting out.

Kind Regards,
Chris 

Comment by Andre on May 28, 2012 at 3:49pm

Hi Chris, great article as allways....i think to know thyself is to love thyself...once we have that one sorted(to some extent at least), our mindspaces become less noisy and we all have the possibility to become great traders. All the variables, such as DNA profiles, environmental influences such as country and upbringing, which side of the brain is more active (evolved) creates the unique personality that we all have and can guide you to understanding the trading style that suits you. Jeremy Clarkson will be more attracted to 5M charts as opposed to a Buddhist monk who would probably work on daily's and weekly's. Finding a trading style is not that difficult; implementing it can be a problem though.....coz knowing/loving thyself also eventually translates into giving oneself the right to succeed. Not knowing thyself therefore leads to self-sabotage...

We can spend hours analysing everything, but why is yoga and meditation so invaluable in attaining conciousness?

Because it removes all the noise.....it simplifies everything.....we understand better, we feel more content with the simple things in life.....and this doesn't mean that we dont succeed in life. We do ! Clarity makes everything easier, so accumulating wealth becomes dead easy too.

You're definately on a good path here...

 

 

Comment by 2ndSkiesForex on May 28, 2012 at 4:01pm

Hello Andre,

Very well said and agree with you on all points.  

I especially like the part whereby you describe how 'not knowing thyself leads to self-sabotage'

Oh so true - I cannot tell you how many times I have seen this in traders who simply have limiting beliefs which interfere with their trading and thus...sabotage their efforts.

The yoga and meditation definitely helps to remove the noise and simplify things.  Clarity is a game changer in all things - especially in trading.

Well said all around so thank you for sharing.

Kind Regards,
Chris 

Comment by Mantas Galvosas on May 28, 2012 at 10:10pm

Hello Chris,

 

Some solid illustrations as always and valuable article for sure. 

 

Thanks for keeping us on the way to success. 

 

Kind Regards,

Mantas 

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