Wow, I am so pumped this morning. Another excellent week trading for the Investors in my PAMM account with a gain of 11.32% for the week. The new system seems to crush the current market conditions.
And I have got to say I thoroughly enjoyed myself trading this week, and the feedback I received made me think my clients did too. Phew for that.
One of my many troubles as a trader was my perfectionism. And although I have managed to iron most of it out of my trading.
I obviously haven’t managed to stop it completely, as I have been tweaking this blog for quite a while now O-:
Now I didn’t mention that just to brag and make you wonder what you were missing. No, seriously, that wasn’t the reason at all. One of the topics I teach my $7K students is the NLP model of Communication.
Which shows how we generalize, delete, and distort information so that we can be able to manage it. The reason for this is quite simple… overload.
An external event comprises about 2 million bits of information. This is based on everything in our field of vision, everything we can hear, everything we can feel and of course, any tastes or smells.
It’s simply too much information to absorb, so we internally generalize, delete, and distort that information to suit our internal map, our belief system.
Which is very much like trading. There is simply too much information at any one time for us to digest it all. So we generalize, delete, and distort that information to suit our needs.
If you trade the hourly chart, you probably believe the hourly candles to be of use to you. Even though that candle doesn’t really tell you exactly what happened in that hour. You have made the decision that for your needs, the information provided by that candle is sufficient.
This doesn’t make you right or wrong. It’s simply a useful belief for you to have. Just be aware that you have made a distortion.
You are distorting all the other information from the smaller time frames to fit your beliefs about the market.
Again this is neither right nor wrong. It just is, and you need to be aware of it.
How Distortion Affects Perception
Here are some examples of how we generalize, delete and distort our incoming information.
When you very first looked at the elephant, did it look normal to you? Does it still? Now, do you see five feet? Which are not all attached to the legs?
When we first see that it is an elephant, we have an internal map of how an elephant should look. So most people don’t even spot the difference until it is suggested.
Because their internal filters just delete the information that doesn’t fit with their internal map, their beliefs about how an elephant should look.
What about this one?
When you first look at the picture, did you see the old woman? Do you see her now? Maybe you see only the young lady or not.
Again this is just how we distort the information coming into our brains.
Now you know what we are looking for, go and watch this video and see if you can answer the question given in the video.
I would suggest not reading any further expand it to full screen and press play. Otherwise, you will miss the point. And please don’t leave any spoilers in the comments section. Not everyone has seen this yet.
Depending on how you got on with the video will determine how wide your eyes may have been opened. This will also help you understand why two people looking at the same chart can have two very different opinions on what they are seeing.
So hopefully, now you understand that you have filters that make all the market information manageable. Because let’s face it if you tried to make sense of all the market information out there.
Your head would explode, and you would never place another trade. What you do need to know, however, is this:
- Are your filters good enough for your trading?
- Or do you trade in alignment with your filters?
- Do you know what your filters are?
- Do you think maybe you should?
What are traders filters?
And how are those distortions suitable for successful traders?
Let’s look at time frame correlation filters because we never look at all the charts before placing a trade. So by definition, we must be distorting that information to suit our needs.
When you look at the charts, you don’t look at every chart and only trade on those that are fully aligned across the board, as you would never place a trade.
Because you could look at the monthly chart, which is in a downtrend in phase two (retracement). But the weekly chart is in an uptrend at the possible start of phase one (extension).
Then you go to the daily chart and find that it is still in a downtrend, although in phase two (retracement).
However, the 4hr is in an uptrend, as is the 1hr, but the 15min chart is in a downtrend.
At some point, you have to distort or delete some of the information to be manageable and useable.
For instance, if you are placing trades on the 15 min chart, does it really matter what is happening on the monthly chart.
Some traders will just use the 1hr and 4hr as direction confirmation and place their trades on the 15 min chart.
Others will use the daily chart as well. None of which is right or wrong. It’s only useful for the trader that uses that information to place their trades.
As shown above, some generalizations, deletions and distortions help us as traders. They make our experience more manageable and allow us the opportunity to make money.
But they are not all good, and some will actually hinder us as traders. The big one being predictions.
When you have predicted a direction, you can get attached to that prediction, so you delete or distort any information that doesn’t back up your prediction.
This can lead to massive losses, missed opportunities in the opposite direction and a potential loss of face if you share your predictions.
One of the biggest game-changers to my trading was to stop trying to predict what the market would do. Now I just let the market show me, and I follow.
No more missed opportunities and no more fighting the market.
What you should do right now!
If you are struggling to successfully extract consistent payments from the markets, then I do suggest that you take a look at my “Do It Yourself” Trading Course.
In this course I will personally coach you the necessary technical and psychological skills needed to be a successful Prop Forex Trader and create the life of your dreams, whatever they might be.