Philosophy of Traders

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people begin trading because they have heard about someone making a million
dollars in a year’s time and believe it is the easy road to riches. Beginning traders seem
to fall into three sets of circumstances.
First: they get lucky on their rst trades and make a lot of money. This leads them to
believe the game is easy, so they start over trading. Within a year or two they take a big hit
and their trading career is nished.
Second: they start trading with a small amount of capital and have moderate success in
the beginning with winning and losing trades about evenly balanced. After a time they become
impatient and increase their trading size. An unexpected event in the market occurs and all their
capital is wiped out on one trade. They have no more money to put in and are forced to quit.
This type person will eventually raise more money, start trading again, but probably will never
succeed because they did not learn from their previous mistakes.
Third: they begin trading with limited capital and the losses are greater than the winnings.
Over the next year or two the performance is up and down, but the losses increase and more
capital has to be added to the account. Gradually the losing trades become substantial, the
commissions add up and the question arises whether to continue trading. The decision is
made to continue for another year to see if the situation can be turned around. More capital
is injected and, fortunately, this trader has more capital to add. Finally, the trader becomes
more experienced and trading success improves. Also, as time passes, the trader reads many
books on technical analysis and attends trading seminars. The combination of the two adds
to the trader’s knowledge enabling him to become a consistent winner. The determination and
persistence of this trader has made the difference. As W. D. Gann stated: “The difference
between success and failure in trading commodities is the difference between one man knowing
and following xed rules and the other man guessing.”
Most Difcult Task
To become a successful commodity or stock trader may be the most difcult task undertaken
in your lifetime. Since the beginning of trading, speculators everywhere have been in search
of the Holy Grail (the so-called perfect trading system). The trading system with no losses
is non-existent. If everyone were winners, there would be no one to nance the game. The
ratio of 90 percent losers and 10 percent winners, or 95 percent losers and 5 percent winners
(depending on whose gures are used), has always been true in the past and will remain the
same in the future. As you can see from the ratios, a small minority of large traders become
wealthy from losses incurred by a large majority of smaller traders. This ratio of losers to
winners is approximately the same ratio of wealthy people to the middle-class and poor.
Did anyone ever say “life is fair?”
Hundreds of trading systems have been developed over the years in an attempt to take
the most money out of the market. Many of these systems are really old techniques being
revived. Of all these trading systems, only a small percentage are consistent winners. You
must nd the best trading system available and develop the discipline to follow its rules if
you are to become a successful trader.
Traders World 202
The Future is but a Repetition of the Past
Some people say that charts are of no value in determining the future; that they simply
represent past history. That is correct. They are records of the past, but the future is nothing but a
repetition of the past. Every businessman looks at his past business records to determine how to
buy goods for the future. He judges by comparison with past records. We look up the record of a
man and if his past has been good, we judge that his future will also be good.
Charts are simply a picture, showing market activity more clearly than words can
convey. The same thing can be said in words, but is grasped more quickly when seen in
chart form. A man’s good or bad physical qualities can be recognized more quickly from
his photograph than from a written description of him. To quote the old adage, “A picture
is worth a thousand words.”
Tops and bottoms in all markets are formed by patterns which repeat over and over
again at different times. Once you learn to recognize these patterns (signals) you will know
when to reverse your position. As the Bible says, “The thing that hath been, it is that which
shall be; and that which is done, is that which shall be done; and there is no new thing under
the Sun.” This shows that history is but a repetition of the past and that charts are the only
guide we have of what commodities or stocks have done in the past and by which we may
determine what they will do in the future.
The Trend Is Your Friend
The trend of a market registers the dominating force currents from traders all over the world.
It is the buying and selling of all trades and contains the condensed opinion of the majority.
The trend monitors the greed, hopes and fears of traders everywhere who are trying to “strike
it rich.” The trend is a very reliable guide and barometer of supply and demand, it is really the
great scale in which the weight of all buying and selling is weighed and the balance of supply
and demand shown by the loss or gain in prices.
When supply exceeds demand, prices decline to a level where supply and demand are
about equal. At this stage the daily price ranges become narrow and it may take weeks
or months to determine which way the next move will be. When demand exceeds supply
again, prices will advance.
The Trend always tells the truth, but the trick is, can you interpret it correctly? I always tell
people, “The way to beat the market is to become an expert chart reader.” This really means
you must have the ability to recognize when the trend of the market has changed and then, of
course, have the discipline to take a position with the trend. Time and price are the two main
factors that make up a market trend. They are constantly trying to seek equilibrium or balance.
The market always shows the stronger force – buying or selling, and that is what causes the
trend. The trend is up as long as buying is stronger than selling and the trend is down as
long as selling is stronger than buying.
Another favorite saying of mine is, “The time to look for a trend change is not as important
as knowing when the trend has changed.” Once the trend has changed and you take a
position with the trend, you must have strong will power and a mind that cannot be inuenced
by news, false rumors, others’ opinions or hearsay. You must stay with the trend until the
chart denitely shows you the trend has reversed. A good mechanical trading system will
tell you when the trend has changed. This is what W. D. Gann meant when he said, “Let
the market tell its own story.”


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