In Trading Routine and Psychology

As with anyone else, as I get older, I get tired of nonsense and slightly impatient when it comes to progress. Despite the occasional silence on this blog, I take a large amount of calls with newer/intermediate traders. I've been putting together an explanatory guideline in the background, as we cover topic to topic to topic with visual explanations.

During these discussions, A LOT comes up. Most of it is perceptive.

In other words, newer and intermediate traders have a perception problem, and not necessarily one regarding strategy. Strategy can be learned. But a banged up perception will never allow you to apply it properly. It doesn't matter what it is.

What's the problem?


Misguidance. Too much information coming from people who don't apply it. Preach but don't practice. Smoke and mirrors. Hope without the reality. Learning from others and a quick translation to a wide audience without putting their hands in the pot. I know this well, because this is what has happened to much of my own writings over the years, and still happens to this day.

Perceptions are easily embedded because they ideological and rarely logical. Logic is harder to embed because it requires remembering a series of very specific things.

I was going to keep this tacked up as a general guideline but figured it would serve a much better purpose to post it here. This is just an outline intended to improve perception. Most of the trading world is “broken” for obvious reasons. I won't get into it.

I left macro (primarily spot FX) trading roughly 5 years ago now. This was a matter of situation, not choice. But I am glad I did, because it forced me to look at multiple dimensions of price that would not have seen otherwise. Whether you're trading fundamentally or technically, again, strategy can be learned and formulated. But your perception is hard to change.

Perception is largely emotional. It comes as the result of our experiences. Because of this, changing perception is not easy. We have a general thesis in our minds in regards to the way things work, and when someone goes against it, we get angry, frustrated, confused, etc., instead of keeping an open mind.

So have an open mind, is all I ask.

Personally, I have a hard time remembering specific things without constant exposure. It is why I write a lot down (sometimes too much, if improperly organized). When I read something for the first time, I know I need to go back to it later, so I can better (or fully) understand it.

I generally ask you to treat this in the same way.

These are starting points for discussions that get a lot more technical, copied/pasted from my Word doc.



  1. Trading is a modular activity.
    1. One thing leads to another, to another, to another, and so forth. Before prices are made, a very long decision-making process is undergone by A LOT of participants. Conventional teachings demonstrate forecasting abilities done well after-the-fact (such as traditional technical analysis).
    2. Prices are the result of a wide range of participants acting on information they already know. While these participants vary in their motives, certain ones have greater influence over the market versus others.
    3. Let the most influential participants lead you know what you need to know. Learn how to detect their motivations.
    4. Price can be dissected at the fundamental level (macroeconomics and microeconomics). These components vary by instrument. For example, foreign exchange prices are largely dictated by interest rates (which are, essentially, the cost of money), thus inflation or debt, thus supply/circulation of the money overall.
    5. Price can be dissected at the exchange level. Prices are the result of volumes, and volumes are the result of matched market and limit orders. In order to make a new prices, the market needs a disproportionate number of market to limit orders. Limit orders generally “weigh more” than market orders. When the two are in a ratio of positive agreement, price advances. The majority of limit orders can seen prior to execution. This is not the case with market orders.
    6. Matched market and limit orders can be further dissected on the fundamental level. The further you go back, the better.
  2. All “post-forecasting” techniques “lag”. Get behind prices.
    1. Conventional technical analysis is only possible well after the most influential decision making processes have been completed. Technical analysis attempts to forecast the follow-through on such behaviors.
    2. Technical analysis (in the traditional sense) is among the slowest-to-learn activities for price forecasting, as patterns and cycles generally require completion (or a price level being seen) prior to action being taken. These also coincide with the inception of new cycles for the most influential decision makers.
    3. Traditional indicators, for that matter, can make things even worse, because you are adding yet one more layer to an already slow-to-learn activity. They should only be used after significant experience is gained in the manner we're discussing.
    4. Technical analysis forecasting is the process of seeing such patterns before they develop (or as close as possible to their inception / emerging), and is the result of learning behaviors as quickly as possible, after they occur.
    5. Seek to forecast the patterns by getting behind prices.
    6. Many price patterns begin the same, but end differently. Knowing how they begin will allow you to capitalize on the inevitable outcome, regardless of what it ultimately looks like.
  3. Volume-driven behavior provides initial directional bias.
    1. The bulk of institutional volume is executed in ranges, or where price spends comparatively significant amounts of time.
    2. Conversely, exact, pinpoint price turning points consist of generally low volumes.
    3. High volumes are found at the inception points of large movements, or just prior to points of exhaustion (but not the points themselves).
    4. High volumes should be regarded as having higher importance, as they represent a material change in behavior.
    5. Enter on low volume nodes (standard support and resistance) following periods of high volume. Exit on high volumes where turnover becomes more questionable and execution is easy.
  4. Liquidity
    1. Liquidity refers to resting orders. That’s it. Executed volume is different, because it refers to a matched market order and limit order.
    2. Periods of high liquidity will result in more rangebound behavior because there is significantly more “friction” in the way of price advancing.
    3. Conversely, periods of low liquidity will result in jarring behaviors, because it takes very few market orders to advance prices from level to level (as in a news announcement).
    4. Market orders cannot be forecasted. Don’t try. This is the ultimately level of stupidity. You have NO idea what some random guy in Germany, Russia or Japan is going to press next.
  5. “Normalizing” chart behaviors allows you to improve your timing. But that’s about it.
    1. Various structures (there are 6) always present themselves at points of reversal or continuation. Understanding what these look like allows you to stay out of the market until the process is near completion, and enter at a more favorable price.
    2. Chart structures are rarely good enough on their own. Treating prices as modular (getting behind prices and understanding their drivers from either a fundamental or technically driven perspective) allows you to shape your directional bias, as many of these structures could go either one way or another.
    3. You are always targeting the entry of a new decision-making process. Get in too late, and your reward drops dramatically and you risk loss. Get in too early, and your risk of being outright wrong shoots up dramatically.
  6. Your strategy should follow non-emotionally driven rules that make mathematical sense
    1. Strategy based on slow-to-learn (all after-the-fact) techniques, will be slow to move ahead. Going down the chain of what actually makes prices only assists in moving you forward.
    2. Stress test the strategy. After costs, if you use 1:1 risk/reward, you can only afford to be wrong 50% of the time. This means that on average, you should be more than 70% right. When taking cost of doing business and other expenses into account, these numbers are likely to only increase.
    3. When writing things down, categorize them in a manner you can understand. Use a multi-level (outline) approach if necessary. Everything should fall into just a few major categories with subcategories.
  7. Psychology is a very poor and overused excuse for a lack of data or knowledge.
    1. Things are either within your boundaries of control, or they are not. It’s one or the other and nothing in between.
    2. The vast (and I mean vast) majority of things are within your control. For those that are not, ensure your math works in your favor, regardless of the outcome.
    3. Conviction comes from knowledge. If any level of trepidation, fill your learning gap immediately and don’t do it again.
  8. Most information is a framework, and not a directional bias.
    1. The majority of what you will read is contextual only. It is not a final strategy and does not equate to profit. It provides you with a contextual, not directional, picture.
    2. Discern between contextual and directional. These are two entirely different concepts.
  9. Tier the models based on a multi-layer approach.
    1. The further down the food chain you get, the more profit you will make.
    2. The higher, and it’s too late. Do something else. You’re wasting your precious time.
    3. Fundamentals give you a very broad outlook that can happen over many days of volume traded. Take advantage of special catalysys. Marry your chart and volume navigation data with your catalyst.
  10. Don’t screw up.
    1. If “it” is not there, its not there. You waste your time. Be a realist.
    2. Never fade the strong hand limit book. They rule, and can mow you down in 1/10000000th of a second. Market orders can and will occasionally win, so good for them. Let them win, but don’t play along with them.
    3. There is nothing precipitous or ambiguous about what you do. It all makes sense if you just stop and think about it.
    4. These behaviors are ubiquitous. You have plenty of time.
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Showing 5 comments
  • Joe Balcarcel

    like some of what you say; and where you are going; too much pop-up goning on for me to concentrate; join me when (and if ) you make it readable…


  • Daniel Acuna

    Hi Steve,
    Best piece I have read in a long while.
    Can’t express how much I value I take out of this article.
    Hope many others appreciate the knowledge you are sharing here as well and adjust.


  • Joe

    Hi just like say I learned a lot from your site previously, years ago now have came back to trading and can now see how powerful your work really is.
    Thank you

  • Prem

    Amazing as always!
    Thank you again for everything!

  • Sairam Srinivasan

    I stumbled on your website after looking at this youtube.

    All traders need to understand the fallacy of traditional technical analysis and you have beautifully illustrated it under this section – All “post-forecasting” techniques “lag”. Get behind prices..

    Thank you for this website. I need to now understand the interplay between market and limit orders at various liquidity stages.

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