In flow with the market

One of the most important things I have learned in the past years is that you have to be in sync with the flow of the market. Even the most profitable method will not work for you if you try to push it in the wrong market.

Most people are able to make money in the market while their edge is working. The problem is that they are not able to keep that money once the edge is not working.

The famous trader Jesse Livermore had a quote, “There is a time to go long, a time to go short and a time to go fishing.”

I now finally understand what this means, having gone through both bull and bear markets. It’s one of the things that makes this job so fascinating. You really don’t have to be here all day every day to make a living, and I would argue that it is even a must to step back from time to time when your edge is not working. Early on you need to work and try various things for countless hours, you need to learn and internalize key concepts like setups, entries, exits, risk, risk/reward and then put it all together.
But once you have a deep understanding of this it’s about knowing when your edge works and when it doesn’t, you have to be able to adapt yourself to the flow of the market and be in sync with it.

Edge comes first from mastering setups, but true edge comes from knowing when to use that edge and when you shouldn’t. You can be the best breakout trader ever in a bull market, but if you keep buying breakouts during a bear market, you never get true long term longevity.

It is the FOMO for success that is pushing us to try things even in slower markets.

You feel like you are ready to get to the next level, you see other people on social media or friends that are doing really well. So you think to yourself; “why not me?”.  You try really hard and lose money, this then snowballs into wanting to try even harder and make that money back. You take some mediocre setups and get stopped out. Not only that, but you start messing with your strategies and take profit sooner, since the last couple trades all went green and then reversed on you. Next week you come in and do the same, you take profit way sooner than you should based on your strategy. But this time the market is strong, and the trade keeps on going without you. You end up frustrated and with a low profit factor, you start thinking about other strategies or changing things up even more on your strategy like having tighter stops and what not. This is what happens if you are not in sync with the market.

Learning to push harder and harder when things are working and stepping on the brakes immediately when things are not working anymore goes against our instinct.
In most things in life, be it work, sports, relationships or school, we learn that you have to work hard and try harder when it’s not working out. In the market, it does not work that way. You can’t simply try harder and then the setups work all of a sudden. You have to listen to the market and be in sync with it, not the other way around. Not taking trades when your edge or yourself is not working is one of the most important factors for success. You don’t have to take trades to be a trader!

The more experience you have, the easier it will be to sense what the sentiment in the market is. Make sure you are around long enough to learn this skill.
Only reading this here on this trading blog is not enough. You will have to be in both hot streaks and drawdowns for a couple of times to actually understand and believe this.
Make sure you always journal And include these things so that you learn how to judge when your edge is working and when it’s not.

Having things that give you a sense of accomplishment outside the market can help.

If you feel unhealthy or unhappy, you are likely to drag this into your trading. Too often, people try to get that sense of accomplishment out of the market. Having other things that you are proud of and keep you busy enhances your self-efficacy beliefs, this will increase your odds of success. If you do not have other things outside of trading that keep you busy or are proud of, it will be more likely that you try to get that satisfaction from the market even when things are slow. This is also called boredom trades.

Everyone makes this big thing out of being a full time trader. But I think too many people go full time, way too fast. Having other means of income or maybe a small business that you are proud of and keeps you busy will improve your odds big time. If you are already a full time trader but are looking to improve on this topic, maybe start going to the gym, learn to golf, go surf or maybe pick up an instrument.

Be careful with comparing yourself to traders that are trading other strategies. They might have way more starting capital or way more experience, so obviously they do better in other periods than you do. When you are going through a slow period, it’s easy to start thinking that you are doing bad or should start trading other strategies. But this can be more damaging than one might think. Not only are you not a master at these strategies, but it will also make it harder for you to be in sync with the market. In trading you have to be right at the right time, the more strategies you try to learn the harder it gets to trade the right strategies at the right moment.

Find systematized solutions to know when your edge is working

For example: If SPY is trending above the 10 and 20 Simple moving average, I will try to buy breakouts.
Taking a couple losses in a row on the same setup should also ring a bell. Go back on 100’s of charts where your setup worked or did not work, then try to figure out what the difference was and if you can make a rule for this!

I live close to the beach on the island of Texel in The Netherlands. Often I walk to the beach and there are many surfers riding the waves. Some days when I go, there is not a single surfer in the water. There are no waves, so no surfer to be seen. The same should be true for traders. You have to be here daily to keep in touch with the market, but only go in the water if there are waves.