We know that trading is a "Pattern recognition numbers game" "A game of probabilities". We often say that professional
traders don't trade with emotions, suggesting that they might somehow have turned in to robots. But that is hard to
believe and probably not true.
Personally "I believe", We don't need to be emotionless in trading. Nope, that would be un-natural. We can't be emotion free
as we are emotional beings. We just have to have to learn to be conscious. Learn to be aware of our emotions and respond
in a conscious manner. We need to learn to exercise our natural right of "choosing" our response.
In doing so, the energy created as a result of those emotions will stay within the the right levels. Indeed, peak performance
requires one to experience emotions such as fear, excitement and experience the adrenaline rush. We have to strike a balance.
A Fighter Pilot, a soldier, a mountain climber, a bungee jumper, any person who attempts to engage in activities that may pose serious threat
to their well being is bound to experience such emotions as stress, fear, horror and excitement. Specially the extremes do effect
us almost the same way but our reaction to it, is different for all of us based on our collective and personal past experience and training.
Everyone gets scared, prefers to avoid pain and dislikes losses specially in money terms. Logically thinking, we should be, otherwise we'll
make stupid mistakes.
"Be in the Now" Virtually all of our thoughts are either based in the past or future,and absolutely all of our FEARS and DESIRES come from the past or anticipation of the future. (desires are remembrance of past pleasures that we plan and hope to recreate in the future. Fears are usually memories of the past pain that we plan and hope to avoid in the future.) Bill Williams.
But how you react in certain extreme conditions defines and distinguishes you as a peak performer. Nature would favour forming
beliefs that would keep you safe even if some of them are "fallacies". We believe in things regardless whether they be facts or myths, but as
they serve the purpose of survival, we will believe in it.
The reason humans are more intelligent "life form" is because of our ability to recognise patterns in our environment.
Humans have the ability to detect patterns within apparent noise. Michael Shermer (Scientist) calls it
"Patternicity",
or the tendency to find meaningful patterns in meaningless noise.
We find patterns within patterns and we are able to calculate their proportionality and sizes and make "beliefs" based on their
occurrences and the consequences of our experience. We learn through association process.
Sometimes a setup (A), i.e a trading signal within a pattern , is connected to a reward (B) other times its connected to pain/loss (B). Naturally your mind will create an association to both consequences and rightly so will signal you to avoid such situations in the future in order to avoid the risk of pain. If your mind is not trained in probabilities you will form false beliefs, the association process, and your natural survival instinct of flight or fight will not help you succeed in trading.
Keep reading to understand this....
In his book "How We Believe", Michael Shermer argues that our brains are belief engines:
evolved pattern-recognition machines that connect the dots and create meaning out of the
patterns that we think we see in nature.
Michael says that "Sometimes A really is connected to B; sometimes it is not. When it is, we have learned
something valuable about the environment from which we can make predictions that aid in survival and reproduction.
We are the ancestors of those most successful at finding patterns. "
and that
"This process is called association learning, and it is fundamental to all animal behaviour,
from the humble worm C. elegans to H. sapiens."
Such patternicities, then, mean that people believe weird things because of our evolved need to believe non-weird things.Harvard University biologist Kevin R. Foster and University of Helsinki biologist Hanna Kokko test his theory through evolutionary
modelling and demonstrate that
[READ THIS CAREFULLY]
"whenever the cost of believing a false pattern is real is less than the cost of not believing a real pattern, natural selection will favour
patternicity. They begin with the formula pb > c, where a belief may be held when the cost (c) of doing so is less than the probability (p)
of the benefit (b).
For example,
believing that the rustle in the grass is a dangerous predator when it is only the wind does not cost much, but believing that a dangerous
predator is the wind may cost an animal its life.
The problem is that we are very poor at estimating such probabilities, so the cost of believing that the rustle in the grass is a dangerous
predator when it is just the wind is relatively low compared with the opposite. Thus, there would have been a beneficial selection for
believing that most patterns are real.
The point I'm making is that we become superstitious and create false beliefs about patterns we find. It happens everywhere in our life.
Its not restricted to a limited set of circumstance rather it exists in life in general. We come across many trading beliefs that cannot be
verified but people really believe in it and they will continue to do so as long as they keep getting the benefit (profit/winning) and the cost
(loss/losing) of it is less than the benefit they receive.
A trader may form a belief, as a result of certain associations such as when there is a wave 3 and wave 4 pulls-back 50% then there will
be a wave 5 that will move 60% of wave 3.
The probability of this event happening is good but if the trader beliefs without calculating probabilities or have a probabilistic mindset,
they will often get frustrated which would affect the strength of their belief and cause them to create new beliefs due to new associations.
The next time they take a trade based on the same pattern, the confidence level will not be as high. The stronger the belief the stronger
their confidence levels. The strong the confidence the more chances of keeping fear and stress levels within controllable limits. And that means
a sharper, more efficient, and productive mind able to make the right decisions and exploit the situation correctly in our favour.
we have found two patterns on our charts. One is a two bar pattern created using the candle bars, cheery or seeds (two bar patterns) and the
other pattern is created with the help of the last 34 bars and yet another that is formed with the help of the last 140 bars on eWave.
We know this pattern and its called elliott wave. or if you suffer from ewave fever please take the anti allergy tablet of Gator analysis couple with
AO/ AIMS Wave analysis. Dont call it that wave principle, don't number the waves. Just note that Gator is open that the faster moving average is
separated from the slower moving average. And that the distance between these moving averages is increasing i.e. momentum is increasing .
So the position of our entry pattern within the larger pattern is important. Its called "Trade Location". Yes, its all about "Location Location Location".
And timing
Entry Signal: The Cherry, which is a certain price pattern of price bars using the four data points
namely Open High Low and Close.
Cherry is a 2 bar pattern because it uses the OHLC information of the last closed bar/candle and the one preceding it to the left.
Yes, its like Fruit Signal but Steve added another condition not applied to normal fruit. Its a genetically modified fruit. GM crops,
not such a good idea, lets call it Organic Cherry perfectly and naturally modified by nature and not a lab scientist!
So if you look at this picture below the "location" of the entry signal, within the pattern as a whole (the full screen 100-140
bars patterns) is ideal. We have a big peak on eWave with histogram peaking and printing the lowest levels on the 21st of
oct following by the shift of momentum upwards and then switching this momentum downward again without breaking the
highs of 20th oct. The strong price movement downward on Friday and the subsequent upward correction that ends with the
Cherry short signals suggests that we have a high probability event where their more chances of price dropping further
as opposed to give sideways or upwards. We call this the Setup. Our methodical statistical analysis reveals us that the
probability of success is higher.
It is why, I got excited when I spotted this pattern because of my "belief" that trading such patterns has a higher probability of success.
However I soon realised that the "location" of this pattern in the time dimension was completely wrong.
Its Saturday!
We must Learn to Trade Like Scientists!
"Clearly, there are no foolproof methods of detecting baloney or drawing the boundary between science and pseudoscience.
Yet there is a solution: science deals in fuzzy fractions of certainties and uncertainties, where evolution and big bang cosmology
may be assigned a 0.9 probability of being true, and creationism and UFOs a 0.1 probability of being true.
In between are borderland claims:
we might assign superstring theory a 0.7 and cryonics a 0.2.
In all cases, we remain open-minded and flexible, willing to reconsider our assessments as new evidence arises.
This is, undeniably, what makes science [TRADING] so fleeting and frustrating to many people; it is, at the same time, what
makes science [TRADING] the most glorious product of the human mind. "
