Transcription
All right, so we're back. So this is the level where things, as I've already said, start to really hot up. Progress starts to happen in a much more linear fashion. There are still bumps in the road, but if you've built that solid foundation, you've got that analysis and strategy process in place, everything builds from there. So as long as you're executing the strategy properly, you've got faith in that strategy, you've got the data, and you're logging the data, all the pieces start to fit into place. But you have to trust the process. You have to not fall back into changing too much and getting frustrated and work on how you can manage the emotions. But all of the key areas linked together. And I'm going to explain this a little bit now when we look at the chart.
So we're going to take the example that we've looked at previously where at this point you will become much more competent at seeing the levels, using the tools, seeing the market conditions, and then you will also understand the strategy, be able to execute on the strategy. You've got numbers to back the strategy up. So in very simplistic terms, what we're looking at is when we've got the strategy set up occurring. So we're going to use the trend line break example here, which actually sets up right at this point. You are at the point here of sticking to the analysis process or the discretionary analysis framework that we talk about. And you're also sticking to the strategy criteria. So, one of the things that you're going to be doing here is making sure that when the A, the B, the C, and the D happen, you stick to it. So, only if those happen do you take the trade. So, even if you think this market is on its way all the way down here or wherever it ends up, you have to have these criteria in play before you actually take the trade. You can't just let your opinion override it and say, well, it's done A and it's done B, so I'm going to go short. Because what you then do is you create an element of uncertainty. So, it's all about minimizing the emotion that you feel and sometimes that's going to mean if that doesn't happen, a market will move away from you. And that's a skill at this level that you have to be able to adhere to. And that links to what I was saying is you make the result element not about the result that you get at the end of the month in terms of percent return. Not about the trades you didn't take that ended up being winners, but about did you follow the analysis process, the discretionary analysis framework, the strategy criteria that you've tested and you know the works. Are you following all of those on every single trade and that becomes your measurable result because you're still at that point where you're thinking, "Oh, could have got this, could have done that." That doesn't just disappear as I've already said, just because you're now following the process.
But what's naturally going to happen if you are staying disciplined is let's say for example on that particular entry criteria the strategy has a default 2:1 setup and that particular strategy that I trade does now it might be that you have a 1.5, you might have a 3.2, two, whatever it is that the strategy has, you want to be working with fixed targets. And I'm a big believer at this point, you might want to start running trades and doing other things, but it's about sticking to that rule. And if you're a swing trader, you want at least three to six months of sticking to those fixed targets because there's a skill and a discipline that builds up in you by doing that. If it's day trading, it would probably be nearer two months, maximum three months. But you would want that same process of sticking and before you do anything else, knowing that you can stick to the rules. But the trouble is is if you're starting to move from conscious competency, and the phrase that I like here is that trades fall in your lap. You're moving from that to a more unconscious competence where it just becomes normal to do this, habitual to do this. You see the setups more clearly. Is your mind. Especially if you're more creative, especially if you're a little bit more greed-orientated, if you're more along the lines of a driver-based personality style, or even more analytical, because actually you're going to be even though you're more analytical, you might be a little bit more fear-based, you're still going to be looking for ways to optimize. You're going to get to the point where you're going to start to see markets that run past your target. And the benefit of hindsight, I talked about three biases in the previous video. Hindsight bias, confirmation bias, and the last one is recency bias. And I like to think of these as essentially the three devils on your shoulder. Because hindsight bias, confirmation bias, and recency bias all work together to potentially hinder you as a trader.
So hindsight bias, you see the market roll on, you think, "Oh, I could have had that move." And the risk there is you then go back to old habits from level three. And the next time the trade comes along, you take the setup, you follow the analysis process, you follow the strategy criteria, but you think, I'm going to run this trade for longer because it looks similar to that last one. And what happens is the trade reaches its 2:1 target, goes a little bit further, and then pops back up, and you end up with a minus one on that trade. And then you think, "Shit, I should have actually followed my rules." So those things are very easy to slip into because of hindsight bias because your first trade you go, "Wow, that trade did all of that move." With the benefit of hindsight, then recency bias kicks in. So the emotion you feel if you're greed, you're greed-orientated, you feel a sense of FOMO. You feel like you've missed out. You don't want to miss out. You're feeling that greed. And the recency bias is you're only focusing on the last trade, the most recent thing that's happened to you. And you've forgotten that the last three trades that you took on this strategy that were winners all did just past 2:1 and went back up and lost. Like I've just said, you've forgotten that because you're focusing on this. And then maybe you look at a couple of other examples that do exactly this and the trade passes two to one and rolls right on. Well, that's confirmation bias. So suddenly you're only focusing on the things that you want to see. So what ends up happening is these three biases all come in to impact you. And this is why I said it looks like I got a smile on my face. It's because I I I don't like seeing traders go through this, but I like seeing traders become aware of this and come out the other side because it's an initial awareness combined with feedback and all the other things that you're doing that will help you get past this. So, this is something I see that stops traders really moving into the the the level five because what they do is they start following a system and process, but they want to fiddle with it and change it because of the three biases that I've just talked about.
So the key thing in this scenario is to say no. If that scenario crops up and I start seeing that is, as I said in the last video, isn't that curious? Come at it with curiosity in a question. I wonder how often that happens on the current setups that I've taken or all of the back testing data that I've got. Because then what you can do is take that curiosity and outside of your trading hours, outside of your uh record-keeping hours and all the things that you're doing to maintain that consistency, you could test that to see how many trades do run on. What you might find is it's random in nature. So, you can't actually simply say, well, I'm going to have a new fixed target of 4:1 or I'm going to do XYZ. I I can't I can't make it work. But then you might actually go away and say, well, is there something that goes on with the price action? Does it depend on the level? Does it depend if there's a divergence? And that increases the probability. So, what I could possibly do on those trades is trade them at one and a half times risk. Take my normal trade at one for one. When the stock reaches when the trade reaches two for sorry, take my normal trade at 1%. When the stop reaches uh when the price reaches the 2:1 target, I get out of my 1% trade, move the stop to break even, and I run the half a percent with a trailing stop mechanism, or I run it to the next support and resistance level. And as a result of that, I'm able to pick up more of the trade. Now, what I'm doing here is moving into what happens at level five or as you go from level four to level five. But the the risk is you start acting on this rather than testing it because being able to act on it is far easier than putting the time and energy in to test it. So this is key. Be wary of those biases that come up and be wary of them and then acting on them without the data to back it up. Remember, the only reason you've got to a point where you are consistent with the strategy you're trading and it's bringing you the results is because that strategy is tested and proven and you've done the work on it. So any other changes that you want to bring in, you need to make sure they are tested and proven. And on top of that, you may have just got consistent at delivering on these trades at 2:1. There may have been a lag time in terms of the actual result. You're three or four months down the line in level four and you're starting to see profitability. And for some of the traders I work with, that's the first time they're seeing that. And that profitability makes them feel good. And a little bit of them, if they're that type of personality style, especially if they're more driver-oriented rather than what we would say is an amiable type personality. So driver or analytical is probably going to be more inner-motivated. So they're going to want to change things, adapt things. Amiable and expressive and more externally motivated, maybe a little bit less likely to change things. So, especially if you're a driver-based personality, you're sitting there looking at that thinking, "Oh, hang on a minute. I I I I want to trade that and I want to test it. I well, I don't want to test it. I just want to go away and trade it." But the key in this scenario is to understand that your personality is still very similar and you've worked really hard to get yourself to be disciplined on these trades and not run them for longer. So the key is to honor that through this process and do the testing along alongside and actually build up now the discipline to keep doing the one thing that you are now doing. But that can be difficult because that can be a bit boring.
So, one of the things to expect at this level is expect to be a little bit more bored at times and potentially missing out on some of the bigger moves because at this point you haven't optimized for that or personalized what you're doing. You are literally taking the core elements of a strategy and executing them on them, becoming consistent, getting yourself into profitability and not when you're in profitability sit back and go, "Well, I'm done now." And then you start fiddling. And the other thing to bear in mind is you don't know whether or not you're going to have the ability to hold those trades for that long. Remember, recency bias, hindsight bias, and confirmation bias don't account for the fact they send you in the wrong direction, but they also don't account for the fact that whether you would be able to do it. But remember, at this point, if you're in profitability, your confidence is likely to be high. So the risk is it could be a little bit false in where you're going. And you start thinking, yeah, I could run those trades for that that length of time. And then even if you do the data and the diligence, it may take you time to be able to suddenly run those trades for longer. You've only just got unconsciously competent at the setup, but not just the setup. Remember the risk management of running it for a standard 2:1 target or a 3:1 target. Running it for 8:1, 10:1, the next support and resistance, which could be 25R. That could take time, a bit like building muscle to build up to it. So again, it's not jumping into something new too soon. Do the testing and the advantage is the testing will give you time to spend doing the strategy this way and not jumping forward too quickly. As much as that's what you want and it will be because you've heard some other trader that's run a trade for 30R or 25R. You want a piece of that. Your greed or your confidence is high and you're still in that vulnerable position. So the key is to stick to the process and uh use as I've already said I want to loop back to this but use the process as your results mechanism. The process that you go through that is what you deliver on in terms of your result. So you use measurables within the process to do that. And I want to talk about a couple that are really important and this is one of the things that I will work with traders on is their performance metrics.
So, one of the things that you can add to your spreadsheet is a simple performance metric and a status metric. So, one of the things that you want to be able to do when you look at performance is you want to be able to be able to essentially quickly journal the performance of that trade alongside journaling what I talked about before, the pre, during, and post scenario and getting good at what did you do and what were you feeling, what were you thinking and logging that pre-during and post trade. But one of the performance characteristics that we get traders to do is we get them to simply categorize is the trade good? Is the trade what we call a CRB or is the trade a mistake trade. Now in terms of status what we will say is was the trade live or was the trade missed because there are going to be times where you miss trades. Now you might miss a trade due to logistics. So if you miss a trade due to logistics, you want to log that as in you were at the doctor's, you were out. You don't want to be categorizing all missed trades in the same way because it might be that you for whatever reason your your schedule, your circumstances changed and you had to log it as a mislogistics trade. But you will also have a missed trade that is due to the trade being a mistake. So you may have been at your screens and you didn't see it or you got distracted because your phone rang and you shouldn't have answered it. So you want to make sure you log that. But there's going to be a whole list of different reasons why you made a mistake. You might have missed a support and resistance level, got into the trade when you shouldn't have done because the support and resistance level was too close to your entry. That's a form of mistake. So it's very important that you go through that review phase and you categorize any mistakes you make through genuine technical mistakes, genuine human error, but also was it missed due to logistics. So missed trades and mistake trades very very important. Then was a trade a conscious rule break? Now a conscious rule break is where you know during the process of the trade either pre-trade during the trade and the key is to be honest post trade you did something that you shouldn't have done. So if we use our example of a trade where you you made the mistake of entering the trade and there wasn't enough clean air between your entry and the support and resistance. If you didn't realize that until post trade, that was a mistake. But if you realized that pre-trade or during the trade and you did it anyway, in this case it would be pre-trade and you did it anyway, that is what we call a CRB, a conscious rule break. You were conscious that you did something you shouldn't. An example of this during the trade would be uh moving your stop loss. So you have a trade, you enter the trade, you move your stop loss because price was going against you, you move it further away. Now, maybe the trade stopped you out further away and you lost more. Maybe it turned around and hit your target. That's not a good thing. Yeah, you've had a good outcome in terms of profitability, but that's not a good outcome because what you've done is during the trade, you have consciously broken your rules by moving your stop. These types of performance analysis are critical at this stage because remember, we're dealing with the 80/20 principle. 20% of what you do at this level is going to have an 80% impact on your results. So part of that is logging that data and actually you will be you'll be able to see patterns of when you are doing conscious rule break trades and the goal of accountability is to keep that to a minimum. And then the last one is logging a trade if it's good. And what a good trade means is you did everything right. You didn't break any of your rules pre during pre or during the trade. You followed everything. All of the all of all of the trade was there and then post trade you review it and there were no unconscious mistakes that were made. Now, it's very easy to fill out a spreadsheet. Yeah, that trade was good. Yeah, that trade was good. Yeah, that trade was good. But this is where you have to be really, really honest with yourself. And again, this is where feedback can be really, really useful, especially if the person you're working with understands the strategies you trade. And this is why taking a screenshot, which I mentioned in the previous video, is so important because the screenshot as close to the entry as possible allows you to see exactly what you're seeing. If you want to take a screenshot post trade as well, that will help you recall it because remember, if you're a day trader, you're going to struggle to remember at Tuesday, the trade at Tuesday at 2 p.m. what you actually did if it's the weekend. But if you got the screenshot, you're able to go back and go, do you know what? I made a mistake on that trade and I need to log it as a mistake. Ah, oh yeah, from my journaling I can see and the screenshot I jumped in late because I missed the entry. Price started to move away from me and I jumped in late because I didn't want to miss on what I thought was going to be a big move. My journaling tells me that I can then log it bang as a CRB because the problem, the great thing about the journaling is you can get into the detail, but you want one column on your spreadsheet that really shows in pure black and white. Was the trade good? Was it a CRB? or was it a mistake? And then obviously the offshoot of that was it live or was it missed? And these things are critical. And again, this takes hard work. It's not a lot of time and energy and it's pretty easy in terms of what you are what I'm asking traders to do. But again, it's fessing up to some of the things those small things that you may not have actually nailed at this point. But that's the difference that makes the difference and takes you into level five. And again, if you've got the accountability there, especially if somebody knows exactly how you trade, this makes this even more powerful. They're the critical things to focus on.
Think about the mindset, the hindsight bias, the three biases, hindsight bias, recency bias, confirmation bias. Spend some more time studying personality styles specifically whether you're more driver-based, whether you're more analytical, whether you are more amiable, or whether you more more expressive. Expressive and drivers are far more likely to be overtraders, whereas amiables and analyticals are far more likely to be undertraders. But understand that each one of these personality styles has strengths and weaknesses. It's not that you should be a driver, but you need to be good in all these. The the area that I was disowning when I started out was that I wasn't being analytical enough. I wasn't recording my trades. I had to become more analytical, less driver. So, I had to move more to the right hand side of the quadrant. And by doing that, I was able to see my blind spot, which that I wasn't recording my data. And that led to me understanding all the things I've talked about in these videos where I've talked about the fact that I was then able to understand what my emotional triggers were, what I was saying in my head, the visualization I had, the feelings I was feeling. So it was by owning the side of the quadrant that I wasn't owning that helped me get better because then I started to understand my biases and specifically my confirmation bias. So, if you think about where I was, my recency bias of the losing trades meant my confirmation bias was there's a setup, but the setup wasn't actually there. And the reason why is I wanted the trade win. And it was the hindsight bias of the losers. I wanted the trade win so that I could get to the end of the day at back at break even. So, understanding these two mechanisms, the hindsight that the three biases and your personality styles is going to really help. But then making sure that you are logging your performance on every trade and being honest about that performance as I've just been talking about.
Okay, so let's get into a bit of a summary here. Signs I am doing well. Well, first off, you know the strategy works because you've been executing it correctly. The data historically shows you it works. Even if at this point you're in that lag phase and you're not, you know, over the short term you're not quite seeing it show up in terms of profitability either on a couple of losing trades or you're getting yourself out of a draw down that you've been in. Again, remember it's all about focusing on the strategy working. Trades fall into your lap. You're you're you're focused on the process of placing those trades. And one of the things that you start to feel and traders report feeling when they're at this level is they are, and this is a phrase to really have in your mind, is they are ahead of the trade because the analysis process is becoming competent and they're becoming competent at doing that analysis process. They understand the strategy criteria they've got to deliver on. What happens is they are waiting for the trade to set up. They're mentally rehearsing it. They're almost telling that particular market, right? I need you to do this, this, and this. And then essentially ticking it off the list and it feels as though the trade is coming to them or landing in their lap. And this was a phrase that I learned from my first mentor. He said, you want to feel like the trade lands in your lap, Ally. And I remember thinking, okay, but what does that actually mean? What metrics can I can I have for that? I can get the feeling, but what does that look like in terms of the execution? And that's key. So all of those things start to fall in place. That you feel that because you're doing everything right and you're ahead of the trade setup and you're solid to 90, 95% of the time on all of your trades. So that performance column the majority of time for the majority of those those trades is showing good. It's not showing CRB. It's not showing mistakes. They might have 5% CRBs, 5% of mistakes or early on in level four it might be a little bit higher. It might be that you have got 10% of CRBs and 10% mistakes. That's okay. But we need to make sure that that comes down over time. And that's what you want to be focusing focusing on is having at least zero CRBs. By the end of this level, you won't be consciously breaking your rules. You just might be making the odd mistake. And that's okay because you will make mistakes as you go through your trading career. It doesn't auto you don't become a robot. There will still be trades you make mistakes on. And then here, you log your trades consistently and you're starting to see the triggers and the patterns between the results and the journaling. But the consistency is key here. And the key, as I've already said in the uh the video, is build up the habits. Make sure you're not leaving it too long before you fill out those those results. And then you're happy to trade the system despite the lag time that you might be in or despite the result that you had that day, that week, or that month. You don't suddenly go and shift what you're doing. You might be testing other things to optimize it, but you're not trying to shift what you do. So, you're happy to trade it regardless of the result. Remember, you make the process your focus at the early part of this level and that's what you measure yourself on so that you get to the point where you're unconsciously competent and you deliver on this and you're not being wavered by the result.
So, warning signs to look out for. Thinking the current process is complete. You are moving towards the element of ownership. You are getting much closer. You're feeling a lot happier about the setup. All is good on that front, but it's not over at this point. Wanting to change and add things too soon. If you find yourself not testing something and wanting to run a trade for longer, like I said earlier, or you're testing something very quickly and you want to add it in, or anything like that, that feeling of wanting to change stuff and not just be disciplined is a key warning sign. Bringing in other strategies too soon. I've talked about that already, but make sure that you that that you you curb that. Don't bring in something just because you think, well, I've only got three trades a week as a swing trader. I've only got four trades a week. I can easily bring in another strategy. Yeah, but it's not just bringing in the execution of a strategy. You've got to analyze it, you've got to learn it, and you've got to work it. And then you've got to deal with the fact that those two strategies might have a great period where they're both winning together. One might be canceling the other out in terms of profitability, or you might have periods where both are losing at the same time. So, there's a lot of other things that you have to factor in when you bring in new additional strategies. It's fine to do it, but it might just be that it's a little bit too soon, especially if you're in the early stages of level four. This this stage is still critical and the critical element is it's very easy to think you've got everything sorted. Then here you could still be focused on short-term results. This will happen and it's also dependent on what those short-term results are. You're still working through that and you may have got to this point in terms of your technical skill quite quickly and it just takes time for your emotional system to catch up. So just be wary of that but it's okay if that does happen. And then as I've already talked about the lag time on results.
All right. So, keys to success. Less is still more. Stay focused on what works. As it says there, let things settle and what you do become automatic and habitual. And that's that move from conscious competence to unconscious competence. So, make sure you've got and you have logged very specific time for your analysis. You've logged very specific time for your reviewing and you're getting into habitual elements that fit in with your life. So, trading should fit around what you do. So, you shouldn't try and day trade if you've only got Tuesday mornings, Wednesday afternoons, and Friday mornings free because the chances are the strategy you trade is unlikely to work during those times. Or if you've only got random times available, you need to be consistent. So, letting things settle into a routine and letting things become habitual and automatic and fitting around what you're doing. So, if you can't day trade, you focus primarily on swing trading and making sure you're not just randomly trying to make money because you feel like it on that day. Let all the good work you've done settle into that routine. Let it become automatic and then you can start optimizing as you move into level five and only add things when it's been fully tested. And the last one is get used to things feeling a little bit boring. That's okay. You're building up resilience. You're building up knowledge. You're building up execution experience. All of that is good. Even if it feels a little bit boring because you're not running trades for 30R on just because you've seen one trade move in that direction.
Then key action steps. Log everything. Don't think because you're getting a bit more competent that you can just drop things. Keep logging everything. Focus on learning more on mindset. Now you're in it, but you're in it properly. The pro now mindset becomes relevant because now you're in it. And what I mean by in it is you're now trading. You're in the market, but you're in it doing things properly. Now you can really start to see how your mindset works because you're not trading randomly. You're not trading a big loose system. I've worked with traders in the past where they're trying to work on their mindset. I'm like, but we need to really dial in and tighten up your system because you're saying all these things that sound right from a mindset point of view and you want to work on XYZ and you're understanding this, but you've got too loose an analysis system. You're basically trading what you feel. So, we need to tighten all of that up. Tighten that up first. So, then we can truly work on your mindset. So, now you're in it, but in it properly, you can do that. Focus on your journaling. Don't let that go as it says there. That will really help. And if you're working on those mindset elements, that's going to make a big difference. The journaling will start, you'll start to see the journaling differently, if you're thinking about the biases I've talked about and all of the personality styles and whether you're fear-based, greed-based, do you likely to overtrade, undertrade, all of these things will start to start to you'll see the patterns more more often and more easily. So, one of the last ones here is build execution habits to not miss trades. Because one of the frustrating things at this level can be if you haven't set your trading up effectively, you haven't got your analysis in your time. Your competency level can be quite high, but because you haven't got things organized, you end up missing trades. You're out when you need to be in front of your screens one evening. And that could be the two trades that you missed that month that give you six hours worth of return. And the other two trades you've had or the other three trades, you're down minus three. So you end up not being profitable that month because of one day's worth of mistakes. So that can be really frustrating especially as you're now doing so much more right and you're following the system. So make sure you build in the execution habits so you don't miss trades. That's really really important. And last action steps, make sure you check the level above if you haven't also done so already. Check the level below as well because then you're going to see how all of those refinement elements start to work from an optimized point of view and you move into the ownership phase.
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