Professional traders don't just react to the market, they anticipate it. If you want to rise from the ranks of lost traders to the top level of the trading elite, you have to become a forward-looking trader instead of a reactive one.
Most traders open their trading platform and look at the charts and think, "What can I do today?" This is very reactive and random. In essence, they act on a "whim". Reactive traders see the market go up and say, "Oh it's too high, let's sell it now", or they see a market go down and say, "It's too low, we buy." Another common mistake is when a trader sees that there is a big move in one day and then everyone is excited and jumping straight into the market – this is reactive trading and a game for losers.
The winners will approach the market very differently. They plan things, they have chosen the areas from which they want to trade and the direction in which they will trade, maybe days or weeks before they know that an entry trigger is likely to develop. They don't react, they expect.
The brain of a winning trader versus a losing trader
The brain chemistry of a drug addict is very similar to that of a losing trader who is unfortunately dependent on trade. Both people are in a cycle in which they have to constantly repair dopamine, a neurotransmitter in the brain that plays a key role in our reward system. In the case of a drug addict, this solution comes from the drug of your choice, which obviously has serious long-term consequences for your brain and body and may even lead to premature death. In the case of a commercial addict, their solution is to go into trading and be as large as possible on the market, which of course has serious long-term consequences for their bank account, but can also affect their mental health, relationships and even physical health Health if it lasts long enough. You see, the addict is a reactionary trader, and if you think that you are currently a more reactive than a forward-looking trader, you are on the way to addiction.
In contrast, a calm, collected, professional trader is one who can patiently wait days or weeks for the right trade to take place if necessary. They are disciplined and methodical and therefore do not play on the market, but act with skill and planning. A professional trader is not addicted to the market, he or she MUST NOT be in a trade all the time to get dopamine because he views and treats his trade as a deal that is detached from himself and himself emotions. In short, a professional trader is more forward-looking than reactionary.
I would very much point out that if you are currently a reactionary trader, you may be addicted to trade or approach real market addiction. This is basically the same as gambling addiction, which is a real, documented psychological problem that people actually pay for to get professional treatment. If you think you are on your way to trading addiction and (or) you are a reactionary trader, keep reading because I will show you how to stop this self-destructive trading approach …
How to create a trading plan based on anticipation
Success is what happens when the right preparation meets the opportunity. Read that again.
If you want to succeed in anything in life, including trading, you need to be properly prepared so that you know what to do when the opportunity arises. Every success story, whether in business, retail or any other area, is based on planning or anticipation, not just being reactionary.
Perhaps more than in any other area, anticipating scenarios and events is crucial for trading. There is an infinite stream of variables that you bomb every time you open your charts or even think of the markets. So if you don't have a suitable framework, you will become another herd of reactionary traders who are impulsively throwing money on every little up or down tick on the market.
"Give me six hours to fell a tree and I'll spend the first four hours sharpening the ax."
– Abraham Lincoln
- Map the market in advance
The first step in learning how to anticipate your trades is to map the market in advance. By that, I mean when you look at the big picture from top to bottom to understand the story the diagrams tell you so you can predict what is most likely to happen next. After all, if you don't know where you've been, you never know where you're going.
I always start by showing the weekly chart first. To do this, I zoom out so I can see price promotions worth a few years, and then start drawing the obvious key levels of support and resistance, as you can see below …
Next, I will look at long-term and short-term or short-term trends to determine which direction I am going to act. In the case of the weekly GBPUUSD chart below, the long-term trend is clearly positive or bullish. Now I've plotted my long-term trend and key long-term levels to look at the daily chart.
Now we have the daily chart view. Note that some of the same key levels can be seen in the weekly chart above. I also provided a pin bar buy signal and a short-term support level, which we discussed recently in our weekly GBPUSD comments. We had talked about looking to reconnect near this level after reconnecting above 1.3340. If you had expected this withdrawal, you could have placed a buy limit entry order at 1.3340 to blindly enter when the price was withdrawn, which it did …
Let's look at another current example of how the market is portrayed and the expectation of entering the market. In this example, let's look at the current EURUSD daily chart we discussed in our November 20 weekly market outlook:
Note that we had mapped key levels and were looking to retreat to support near the 1.1660 area so that we could get as long as the price had recently returned above that level, which turned our tendency back to bullish as in the comment.
After a few weeks of price movement, we can see that the market has pulled back and since last Friday (December 8th) has formed a small bullish header that is in line with our existing view and the support zone we are expecting Buy in our recent discussions. Now there is no guaranteed price that will go higher from here, but there is a big chance that we will see a rise while it is above 1.1660 and we now have a potential entry signal …
In total: We have mapped the weekly and daily charts and set the immediate direction in which we want to trade for the coming week. what's up. We have levels at which we expect trades, and we can now focus our attention on one direction and certain levels or areas on the chart.
- Determine which entries you want to search for
I always want to include a few good examples of "ideal" entry triggers in my trading plan so that I never forget what I'm looking for. If I then see a very similar entry trigger in a "hot area" on the chart that I previously assigned (see above), I no longer have to think about it, I just have to do the trading. So I do NOT react, I act on my plan or use my anticipation.
My preferred entry triggers are of course price action signals. If you're new to my website, read the following lessons to learn more about three of my favorite signals:
Pin bar trading signals
Inner beam pattern
The wrong trading pattern
- Focus on levels or areas where you want to act
After mapping our markets and knowing the signals we are looking for, we can focus on levels or areas / zones where these signals should form. I'll go into much more detail in my advanced pricing course, but I'll go into it here shortly.
Remember, the context is king, like most things in life, but especially when it comes to trading. For example, if you get a pin bar signal in the wrong place on a chart, or if you violate a strong trend, even if it looks "perfect", it may be nothing more than market chatter or random movement. For a price action signal to have meaning, it must appear in the right context on the chart or in the right place. This is known as confluence trading.
For this reason, of course, you map the market in advance. Determine key levels and trade direction. Then you already have your prejudices and the areas you are watching. To know the context, all you need is a signal to form that matches it. That's where waiting comes in, and it's probably the most difficult part of trading and the most common part that people screw up. Can you sit on your hands for a week? Two weeks? Three? Most people can't, and most people lose money in the markets, mostly because they can't. Unfortunately, I cannot teach you to be disciplined and patient. I can only emphasize how important it is. YOU have to do this part yourself, and frankly, if you can't, you will never act successfully.
In the GBPJPY example below, we see a solid level between 147.00 and 147.70. This was actually a level that we discussed in our November 6 comment. Note that we already had a pin bar buy signal there that paid off. We discussed this signal on the day of its foundation in the newsletter for our members' daily trading configurations. Then, as the price rose and withdrew, we expected that we could retest this support between 147.00 and 147.70 to get another potential buy opportunity …
It took a couple of weeks to play, but the price withdrew on this support and ONLY fell below 147.00 before rocketing again. Hopefully, light bulbs come on in your head and you gradually see the POWER to be a patient and forward-looking trader!
- Risk management
Of course, every trader has to spend a lot of time managing risk, and it's all about anticipation. In this case, however, we assume that we can lose money on a particular trade, EVEN IF we calculate correctly as described above.
I have written many articles on psychology why you have to accept that you MIGHT lose on a particular trade. If you haven't read any of these, read this lesson on the key to lasting trading success.
Not only do you need to know why you need to properly manage risk on every trade, you also need to understand how to do it. This essentially depends on stopping loss placement (which is an art and skill in itself) and stopping positioning. I strongly recommend that you click the last two hyperlinks to learn more about these topics.
I hope you now have a good idea of why you need to become a forward-looking rather than a reactionary trader and how you can do it. The more time and energy you invest to learn how to read the price movements in the charts and what “story” the market tells, the more forward-looking you become as a trader. I've spent nearly two decades perfecting my trading approach, and if I could sum it up in a short lesson, it would probably be the one you just read. However, I deal with these topics in more detail in my trade course and in the member area.
Everything in my course leads to the section on trading plans where I share my trading plan template and show you exactly how I plan my trading approach. I'm preparing you to become a forward-looking trader with an action plan because that's how I act and I know it works. You will become a "sniper," not a "machine gunner," and you will learn to wait patiently for the right time to "attack" the market.
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