When you have been trading for 4 decades, as I have, you witness incredible changes in the industry. In fact, the industry has evolved out of all recognition from what we saw in the 1980s.
The degree of change is hard to comprehend by those who have only ever known this business as it looks today.
So, over the next few days I would like to share with you some of these changes I have personally witnessed.
Why would you be interested in some sort of history lesson, you might wonder?
Well, the reason is this. We are about to witness another revolution in the way this business works. And I want to get you ahead of this curve before it takes off.
The great news is that the evolution we have seen between the 1980s and the 2020s gives direct insight into many things, including:
1) The tectonic change that will take place moving forwards, starting this very year!
2) How the knowledge of old, will shape the future of successful trading
3) Getting in front of this bow wave will make trading easier, faster, more successful
Today I want to discuss the way we used to keep our price charts in the old days.
The “old way” involved keeping really basic charts in one of 2 ways:
The first way was entirely by hand. We used to take our price data from the newspaper each day and literally plot bar charts by hand on graph paper, using a pencil and ruler.
You think I’m joking, don’t you?
I know you’ll find this extraordinary, considering how you your keep your charts today. But this was what we had to do before computers.
(Computers really did not start coming into use in trading until the late 80s / early 90s and even then, it was way different than the platforms we take for granted today.)
Then one day we got super sophisticated and started using printed charts.
WOW yeah that was a massive step forward.
Every 2 weeks a new chart book would arrive in the mail, freshly printed. Then all we had to do was update them with the last few days data.
There was space on the right-hand side allowing you to add 2 to 3 weeks of new hand drawn bars.
Even with the advent of these amazing printed chart books, it still sounds like a right royal pain in the backside doesn’t it?
Trust me it was way worse than it sounds! It was mind numbing updating those charts each day. But there were at least 4 major benefits over how we keep our charts today:
1) You had to be darn serious about trading to keep doing it. There was no playing at it like many folks today. It was a big commitment that only the most dedicated would undertake.
2) It kept you closely in touch with your chosen markets. You learned the personality of each market because you spent so much time really working on those charts.
3) You had to choose the best markets to follow and to stick with them. There was no choice unless you had unlimited time and patience.
4) And the biggest benefit of all – can you guess what it is?
Come on think about it. Just imagine some poor guy slaving over paper charts until late at night. Picture yourself doing that. How would it look? How would it feel? What would your charts look like?
So what was that 4th major benefit of keeping charts “the old way” compared to today?
It’s so obvious when you know the answer. And the answer is…
You had no indicators on those charts.
It would have been all but impossible to create even the simplest of moving averages on a book of charts you were keeping by hand. Let alone the usual tangle of lines most traders today like to throw on their charts.
Why is that a benefit you might ask?
Here’s the thing, all those technical indicators are mathematical derivations of the data that make up the bar chart.
They don’t bring any new data in. They just recast the original data in a different way.
Sometimes that can be useful, if you are trying to answer some specific question.
But in general indicators help very little, but hinder a lot.
It’s all too easy to get sucked into thinking that they have some magical power to tell you something that you can’t otherwise see. But they don’t.
It’s also easy for an indicator to be used in an attempt to cover up someone’s lack of knowledge or experience. Does that sound like something that is going to improve your ability to read the market?
In the old days we HAD to learn to listen to what the market was telling us by way of studying plain simple price charts.
The swing structure, changes in momentum, volatility cycles they are all there and clearly visible to the naked eye. These all told a story about what was happening and THEREFORE what we could expect to happen next.
It was as clear as daylight back then. Guess what?
It’s as clear as daylight still today. But only to those who served their apprenticeship in that “old way”.
Traders who started their studies any time from the mid 90s onwards, completely lost this valuable education as hard graft was swept aside by computers cutting corners.
What do you think the end result was?
What can we do to fix it?
So what do you think the result was when we evolved from keeping price charts by hand to using computers to do all the hard grunt?
Clearly we save a shedload of time. Like - an astronomical amount of time!
That’s the good bit.
Naturally you would also think more traders would become successful.
All that time saved. All those split second calculations that allow us to add any technical indicator we like to a chart. Brilliant.
Yet the reality is…
A smaller percentage of traders succeed today than “in the old days”.
Huh! How can that be?
There are 2 main reasons. Firstly, the simplicity with which we can get into trading today lures in folk who, in the nicest possible way, are not serious. People who would never put in the time and effort that was required before.
If you are not absolutely 100% dead serious – guaranteed you’ll fail.
So that accounts for some of it. But what about the folk are so serious that THEY WOULD have put in the effort and time needed in the old days?
These people have a very real chance of success. However with computers taking them away from studying “the basics” defined by basic swing structure and moving more to alternative tools like indicators…
…they miss out on that fundamental apprenticeship that us old timers endured.
Take away the foundations and the house eventually falls down.
Knowing that trading has evolved from a very simple process using the most basic of charts just 30 or 40 years ago, into the computerised beast we see today…
… and then recognising that his has reduced the likelihood of success…
…what the heck do we do about it? How do we fix this mess?
Well, like so many business decisions we could choose to either move backwards or forwards. All we know is that current status quo is not acceptable.
So should we move backwards? To doing it the old way? Keeping charts by hand?
That was hard work and I wouldn’t wish that upon anyone today.
What we really need is another evolutionary step. We need to move forward. We need to play to our strengths.
We need to utilise the tools at our fingertips today, but in a way that makes things better, not worse.
So let’s start to consider, what this next evolutionary phase might look like.
The next evolution in trading techniques is centred on simplification.
No, we are not going back to hand drawn charts. But we are going back to things that work much more reliably than a screen full of junk.
Tomorrow I’m going to set you a task. It will be a simple task. But it will give you a glimpse of the future.
The next evolution in trading is already starting. I can say that with certainty.
Because we just ran a live class for handpicked students and showed them how to trade in this new way…
…and every one of them got it. Every single one left the class having demonstrated that they had learned to trade properly. Successfully. With confidence. With a career ahead of them.
We did NOT achieve that by making things harder, more complicated, more subjective.
We did NOT achieve that by using complicated software.
In fact we did that only using web-based charts! For real. No software to install. No windows crashes. None of that garbage.
Yes it took a few weeks. But no one was released until “they got it”.
Now I’m the first to admit we loaded the dice. We picked students who we knew had the determination to succeed. That was mandatory.
But they ranged from complete novices to multi-decade experienced traders. The outcome in every case was the same.
In an industry where few succeed. An industry where 9 put of 10 fail. The whole class made it. I’m so proud of every one of them.
This is the evolution underway right now. We have it in our hands and there is no going back.
Yesterday I said I was going to set you a task to do today.
So here it is.
As I have shown you over the last few days, the next evolution (soon to be revolution) in trading is about:
1) Moving back to the simple days of trading
2) While utilising the immense computer power we have at our finger tips today.
Bluntly – if you want to succeed as a trader you have got to get all that crap off your screen and have a fresh start…
…building up from the basics and copying what has worked for hundreds of years (literally hundreds).
So, that is exactly what I want you to do today.
Please take a chart you regularly use – any instrument, any timeframe – and remove everything except the price bars.
Clean it right up so there is nothing else there. Best of all make all the bars a single colour, so you have white bars on a black background or vice versa.
I want this to be as clean and basic as you can possibly make it.
Get this set up ready and later I’ll show you what to do with it.
Right so now you should have that totally plain clean black and white chart up on your screen.
If you haven’t done this yet, refer to my last email and get this set up first.
Next, I want you to grab the drawing tool and simply use it to draw straight lines connecting the swing highs and swing lows clearly visible on your chart.
Make these lines a bright colour so they clearly stand out from the chart below.
That’s it for now.
Just go and do the exercise and we’ll talk again tomorrow.
So, now I ask you a simple question – what can you see now you have added those lines…
…that you could not see before?
If you’re still not sure what you are looking at, then try this:
Change the colour of your price bars to the same colour as the background.
Seriously. Make them disappear!
Now what you can see are the lines you drew on by hand, right? And that’s all.
What you are now looking at is a “clean swing map”.
You see while price bars are pure information, they create a lot of noise around their overall progress up and down.
What you have drawn by hand shows the swing structure of the price chart with this noise removed.
In engineering we call this filtering – removing the noise to reveal the underlying picture.
You’ve probably heard the expression “signal to noise ratio”? Your work has improved the signal to noise ratio of your chart. Removing the noise clearly reveals the bit we are actually interested in
So what’s the big deal about uncovering these cleaned up swings?
Great question. In fact it’s a huge question. Because those swings are your complete roadmap for finding great high probability trades.
No indicator chaos. No confusion. No programming. No forecasting (aka second guessing). None of this stuff.
You have in front of all the need to become a successful trader! Seriously.
OK so let’s start to put your swing map to use. The first thing we want to understand is the nature of a trend.
A trend consists of a series of the swings you have drawn up on your chart. And there are 3 possible configurations:
UP TREND – In an up trending market the summation of the distance travelled by the swings that move up is greater than the summation of the distance travelled by the swings that move down.
If you think about it, the only possible outcome of adding up this series of swings is that the market moves higher.
The opposite is true as a trend down is a mirror image of this:
DOWN TREND – In a down trending market the summation of the distance travelled by the swings that move down is greater than the summation of the distance travelled by the swings that move up.
And finally the third type of trend:
SIDEWAYS TREND – Here the summation of the swings up and the summation of the swings down are roughly equal. Hence the market moves sideways from left to right, carving out a trading range.
Keep these swing pictures in mind as we build this our further next time.
Before we start using these trends in our trading, we want to be very specific about what a true trend looks like.
So, we are going to develop a simple set of clear rules to define a trend. Let’s start with an up trend:
In order to conclude that our swings represent a real trend we are going to go back to a simple definition of trend, as originally described by Charles Dow himself.
He said that an up trend consists of a SERIES of higher highs AND higher lows.
That’s not rocket science. But it’s essential to note two things:
It must be BOTH higher highs AND higher lows – this is a classic mistake many traders make, so take care here.
Second it must be a series of them. One higher low and one higher high do not constitute an up trend. In fact, quite the opposite.
One of each represent a large retracement in a DOWN trend. So don’t fall into this trap either. This would be a short opportunity, not a buying one! So it’s pretty important to get this right.
So what is a down trend? Simply the mirror image of the above.
A down trend is a SERIES of lower highs AND lower lows.
A sideways trend is neither of the above – no great surprise there then.
So go back to your swing map now and identify all the up trends and down trends, using these simple rules.
You now have to wait for a retracement swing back down and we use this as a lower risk way of getting into the trend ready for a further move up. So we are looking for a place to buy.
The reason we wait for a swing down before buying, is to reduce the amount of risk on the trade.
If you just blindly buy when you see an up trend, then your protective stop will have to be much further away from the entry price – to allow for such a retracement swing down to form after you bought.
So logically buying after this move against the trend is way better than buying before and having to sit through the move against you.
Go to your swing map now and identify an up trend. Change the colour of the price bars back to their original colour so they appear again out of the background.
Now look at the difference between buying at the end of a swing up (because the end of the swing up will most likely happen right after you buy it) and buying at the end of the subsequent swing back down.
Which gives you the better entry price?
Right. So now you see why we wait patiently for the better time to get in!
In a down trend we do the opposite. We watch for a swing back up with a view to getting short around the end of that swing up.
After the retracement swing we discussed last time, we need to find a way of getting into the market. The question is how?
The general idea is to wait for the swing down to end and for price to start turning up again.
This is the perfect place to get in – a short distance off the swing low created by the end of the swing down…
… yet providing confirmation that the down swing has indeed ended.
You don’t want to get in too early. Wait. Be patient. Allow price to turn back up, moving away from the swing low just created.
This is the sweet spot to enter a long trade. After the retreatment down has ended and just as the new swing back up has started.
As usual the short trade into a resuming down trend is the mirror image. Wait for the retracement up to end and for price to turn back down.
Go check it out on the chart you have been working with.
Last time we spoke about getting into the market.
And now we need to identify a suitable risk point where we place our stoploss.
OK, so you know you got to use a stoploss right?
But usually, little thought is given to its location. In fact, very little is ever discussed about how to select the right stoploss location. It is pretty much an afterthought.
This is a shame, as the use of the correct risk point is massive in determining overall performance.
For this reason, I am going to direct you straight to a live training I just gave, showing you exactly how you should choose the perfect risk point.
The response we got to this was incredible – no one really had a clue how to do this correctly. But now they do, and this pays off big time if you get it right.
So here is the link to watch the recording of this ground breaking training:
Now let's talk about exits.
Exits are the most important, yet least discussed element of the trade.
And there are endless variations you could use. But here I am going to give you the simplest one that we have found to be very successful over many years of use.
The pre-requisite for this is that you MUST have placed your stoploss correctly (as I showed you last time). Unless you get the stoploss location right, this exit cannot be used. So do be sure to watch that training I directed you to last time.
As long as you are using the correct stoploss, then this exit is dead simple:
Simply double the distance between your entry and stoploss and use that as a target to close the trade.
That’s it. Its that simple.
This means your winning trades will be twice the size of your losing trades.
With a 50% win rate, which you should achieve at minimum, this means you will see a net gain. In fact, your win rate could drop as low as 33% and still come out even.
Can it really be that simple Simon? Yes, you might wonder how can it be that simple.
It’s all because you chose the correct stoploss location. That makes this work great.
So what happens when you place your trade, set a stoploss and exit target – but then nothing happens?
When a trade does not do what you expect it to, within a reasonable amount of time, the answer is simple – take it off. Win, lose or draw. Just get rid of it.
The reason this is a sensible move is that swing trading with small stops is predicated on the belief that a swing is about to unfold from which you will be able to grab a chunk.
When that does not happen, your tight stop becomes vulnerable to the general level of noise in the market.
In other words, the probability of success decreases the longer you sit there without positive movement.
We find 5 bars is a great balance between giving the trade room to prove itself and taking unnecessary risk by just sitting there.
So, after 5 bars of inaction – just take it off. Go look for a new trade and don’t look back.
This will save you a ton of money over the long run.
I have now walked you through each step of a simple trading plan, covering all of the following:
1) Identifying a trading opportunity
2) Entering using a suitable entry trigger
3) Setting the correct risk point for your stoploss order
4) Adding an exit target to close the trade
5) Using a timestop in case the move stalls out
Now you have some work to do to put this all together into a plan that works for you.
You need to choose markets and timeframes. Set a daily routine for undertaking your work.
Then practice (a lot). We always recommend using a demo account first and never moving onto live money, until you have proven your work to be successful and consistent.
What is really interesting (and hopefully really encouraging for you), is that this has all been done without a single indicator on your screen.
No more chaos and confusion like most traders suffer with.
Simple, Clean, Logical and based on pure price data.
If you have followed this series and undertaken the exercises, you now have a way forward.
Sure it’s a framework that you have to flesh out a bit. But you now know what to do and how to do it.
So, get to work and let me know how you get on. Above all, have fun. Enjoy the experience.
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