happening, in accordance with which we do everything we do, differ from objective reality. Information, as the source of our trading decisions, does not come from the market, but from our brain (which is the reason for our failures). We trade in the market based on our understanding of it.

The source of your ideas, as well as any mental activity, is the brain, and the "pictures" of the market, each of us can be brought into a state of harmony with the market itself; we'll deal with that a little later. Having reached the goal, you will get a huge advantage - profitable stock trading will be the path of least resistance for you.

Paul Rapp, a major authority on the study of the human brain, states: "If there is a magic key that unlocks the secrets of neural functioning - some kind of Holy Grail, chaos theory will help find it." I am sure that the same can be said about the behavior of the market.

This book will tell you about stock trading what I know myself - the truth. What benefit can you personally extract from it? It's hard to say in advance. I cannot predict how much this information will give you, I only know what it has given hundreds of other people: they have not only succeeded in trading on the stock exchange, but have changed their lives for the better. There is an old Southern 2 saying

“Anyone can count how many seeds are in an apple. But no one can count how many apples are in one seed."

Welcome to an interesting and funny journey, full of amazing discoveries and entertaining information, on the way to a new peak - the level of an expert trader.

Bill Williams

Mobile, Alabama

April 1995

FROM THE AUTHOR

In my work, I relied on the help of many of my friends and colleagues. I would like to thank Dr. Ida Rolf, who traded soybeans in the afternoon, in the first - she taught me anatomy; Larry Williams, who convinced me to try trading futures instead of stocks and arranged for me to speak on CNBC-FNN; Tim Slater, who financed my travels and thus gave me the opportunity to share my experience and knowledge with other traders; Tom Joseph, one of the world's top analysts; Bila Cruz and Darla Tuttle of Omega Research, who helped conduct the HaTradeStation research; Rick Knox and Commodity Quote Graphics for their invaluable research support and testing new ideas on their hardware; Joel Robbins, who first published our research; Rick Burke, Mike Boren and Chris Kamberis, three of the best brokers in the world, who have been with us through our defeats and our successes; Chris Myers and Mils Thompson of John Wiley & Sons, who gave life to this book and took all the financial risk of publishing it; Jacqueline Yurinay, my editor; Maryan Malone, Publications Development Company, who polished the style of the book; my friends and helpers, of whom there are so many that I cannot mention them all.

CONTENT:

PAGE

FOREWORD

2

1. LOOKING AT THE CURRENT REALITY OF TRADING

6

2. UNDERSTANDING THE MARKETS

14

3. CHAOS THEORY: A NEW PARADIGM FOR TRADE

19

4. DEFINING YOUR BASIC PSYCHOLOGICAL STRUCTURE AND HOW IT AFFECTS YOUR SUCCESS AND FAILURE

27

5. MARKET NAVIGATOR: THE NEED FOR GOOD MAPS

32

6. LEVEL ONE: BEGINNER TRADER

37

7. LEVEL TWO: ADVANCED BEGINNER

49

8. USING FRACTALS AND LEVERAGE

67

9. LEVEL THREE: COMPETENT TRADER

80

10. PROFITUNUTY TRADING PARTNER

95

11. LEVEL FOUR: SKILLED TRADER

106

12. LEVEL FIVE: EXPERT TRADER

127

CONCLUSION

139

---1---

LOOKING AT THE CURRENT REALITY OF TRADING

Getting started is the most important part of the job.

Plato

OBJECTIVE: TO UNDERSTAND THE VIEWS AND EXPERIENCE OF AVERAGE TRADERS IN THE MARKET

The market is not your problem. Your problem is that you see the market as your problem.

From time immemorial, people began to exchange various things - this is how the first trade was born. Then no one tried to analyze it, and, naturally, it did not make people worry or get nervous. They did it as usual, as in the spring they sowed, in the summer they grew crops, and in the fall they harvested. They exchanged for the acquisition of missing tools in the household or just for fun. If they had trouble trading, they sought advice from their parents, grandparents, uncles and older brothers, and other people who were successful traders. Every era has had its trading experts whose advice is based on real life experience.

Then came the 20th century, and it was time for technological progress. After the Second World War, a fundamentally new class of traders appeared: trading experts, holders of various academic degrees, large mahogany tables and polished plaques on office doors. Over time, rhetoric supplanted reality as the main component of trading practice. Illusions have replaced common sense. Our interests began to focus around moving averages, stochastics, relative strength indexes (RSI), tic-tac-toe charts, oscillators, directional movement indicators (DMI), average directional movement indices (ADX), commodity channel indices (CCI), about lability, bullish consensus, momentum (the driving force of the market), rate of change, moving average convergence-divergence (MACD) and so on. Then came newsletters and books of a certain kind, like "How I Made $40 Million Last Year Trading One Eurodollar Contract." In the early 1980s, a whole series of forecasting systems appeared, these so-called "black boxes" sold at incredible prices. None of these "approaches" proved to be viable in practice, and they were all rejected.

The Market Profile became a sensation, but it did not last long, because it applied parametric statistics to a non-parametric world (market). When statistics proved their complete impotence, we went back thousands of years and turned to candlestick analysis (also candlestick analysis from Japan. If they continue to be used, then they must be effective. Right?

Recently, "psychological" methods have become extremely popular - hypnosis, discussions with one's own subconscious, etc., and, in most cases, people who are far from stock trading, as well as former traders who have taken the position of outside observers, are taken to teach us how to trade.

It is not surprising that novice traders get lost, disappointed, lose control of themselves and, as a result, money on the exchange.

As a result of twenty years of practice of creating such artificial obstacles, such a practical and, in general, quite common business as trade began to be perceived by us as something incredibly complex and extremely theorized. Experts elevated trading to the rank of some kind of abstraction, overloaded it with theoretical constructions, analytical studies, beautiful words and emotions, created a number of ideal models and confused everything to such an extent that the form swallowed up the content.

The process of trading, or speculation - whatever you want to call it - has been transformed into a pseudo-intellectual science'. Traders think they have to use their brains to make a profit. However, trading is anything but an intellectual effort. It is a fact that the more brainwashed you are, the more likely you are to find losses in your P&L statement. There is ample evidence that the smarter you try to be, the harder it will be for you to make a profit in trading. (We will explore this concept in detail in Chapter 12).

Rational knowledge is not the only source of good trading. Our body plays an equally important role, for example, the state of the stomach and heart. Intuition and harmonization of your interests with market interests will do you more good than a pseudo-intellectual theory.

Traders who think too much tend to say, "Trading is the hardest thing I've ever done." Once they stop thinking too much about trading, stop digging into the smallest details, they stop

worry that one decision could ruin their entire trading career. And then they begin to pay as much attention to their own internal actions as the market needs. So trading becomes relatively easy for them. Severe stresses go away, a calm life begins.

Since I have been an active trader myself for over 35 years and have held trade symposiums in 12 countries on 5 continents, I can call myself an expert. This is the exact definition. I am truly an expert on trading on my own account. I became an expert trader after going through a lot of losses and mistakes, which is the only path anyone has to take to become an expert trader. I didn't become an expert as a result of getting an engineering degree and a PhD in psychology. My education actually did more to hinder the development of my ability to trade than help it. High school filled my head with a lot of abstractions and theories about patterns of human behavior, but did nothing to move towards common sense. The more I thought about how to trade correctly, the more I lost contact with my intuitive knowledge.

Trading is not particularly difficult, and when self-proclaimed gurus say it is difficult, we make the mistake of trusting them. They may have as many degrees as they like, but their rhetoric often hides more than it reveals. Break free from the web of their intellectual eloquence and you will discover timeless truths that make trading very easy. The problem with these truths is that they are neither romantic nor sentimental. The truth lies in realism, pragmatism and resourcefulness.

This book aims to return to common sense and the correct view of trading. Successful trading is based on knowing: 1) the basic structure of the market and 2) your own basic principles of working on market. Your intelligence is the basis of your success or failure as a trader. The old advice: "Know yourself first, then the market" has stood the test of time. We misuse our "conventional view (of trading)" when we try to create a technological science out