Trading can be divided into two components:
Material and Technical Aspects: This includes everything you can study and use in trading. It may involve fundamental and technical analysis, financial analysis, as well as other aspects that you find useful. The amount of information on this topic is vast.
Planning: I highlight this aspect as a separate segment because, despite its importance, it often receives insufficient attention. The essence of planning can be expressed in one sentence: weigh the risks and set goals.
Have I missed anything? Right? No! I haven’t found any reasonable instructions on how to weigh risks other than maintaining the profit/loss ratio, nor on how to set goals other than the vague idea that the goals should be big enough to hit.
So, I’ve added a third point, which is generally not mentioned anywhere—or, rather, I haven’t read anything about it:
Your Market Perspective: This is a relatively new point but extremely important. It emerged when I began to realize that while trying to explain my actions in the market, I found them to be logical but not explained by mechanical actions. Any attempt to follow strict rules simply leads to losses over a sufficiently long period.
Let’s break it down…
What you need to know in the market:
Material and Technical Aspects
Your Market Perspective
Planning
Let’s take a closer look at the second and third components.
Market Perspective: If you believe that the market follows patterns, choose your pattern and stick to it. In this case, planning won’t be difficult for you: you know the pattern and can predict the start and end of a price movement, and this will lead to success.
However, I don’t believe the market is pattern-based. For me, the market is a sequence of up-and-down movements. As soon as a movement starts, it can end at any moment. In such conditions, it’s important to study the market down to the smallest details and define where the movement starts, where it ends, and what exactly should be considered a movement.
For me, a movement means the following: I receive an entry signal, and then I manage to secure a profit. If the movement continues, it means I’m earning. If the profit doesn’t grow or decrease, it’s a sign that I’ve made a mistake in the direction, and the movement is going in the opposite direction.
Thus, I translate trend development from a purely technical category into the realm of planning. If the price isn’t moving in the desired direction, the profit isn’t growing. But even that’s not always true! The profit formula is the difference between the buying and selling prices multiplied by the volume. This means you can still profit by adjusting the contract volume, even if the price isn’t hitting new extremes.
You must see the price movement picture to do this and fight to preserve your profits.
Planning: It consists of the following parts:
Protecting the deposit
Protecting profits
Increasing profits
What does this mean?
Protecting the Deposit: When you see a movement, for example, upwards, you must understand that it can end at any moment. Your material and technical base should help you determine the start and end of a movement so that you can “catch” it. If you’re not in profit by the end of the movement, it means you’re incorrectly defining its start or end. You can’t exit a movement with a negative result; otherwise, you’ll remain at a loss until the market’s dynamics change.
When you learn to identify the beginning of a movement, the next step is to develop a methodology that allows the movement to develop, but at the same time, if it suddenly ends, you should still be in profit. With experience, you’ll understand what kind of movement is normal for a particular instrument in terms of time and volatility, and how much of that movement you can capture.
You’ll also be able to determine the periodicity of market dynamics changes and how much time and resources you’ll need to adapt to new conditions.
Now you’re ready for planning. Depending on the market phase, you’ll know which contracts to open, with what volumes, where to wait, and where to act. You’ll manage volumes by considering the market’s dynamics and liquidity.
In defense of this approach, I’ll give you two facts:
Look at the retail trading statistics—how many people who believe in patterns are actually in profit?
Look at the volume of transactions on smaller time frames. Do you really think this is the money of amateur traders? If not, whose money is it, and what are the people managing this money doing in the “noise” of the market?
