HOW TO BE THE GOLDEN

EGG IN THE TRADING

GAME

THINGS THAT NEW TRADERS HAVE TO LEARN

AND EXPERIENCED TRADERS WILL DO WELL
TO REMEMBER

MARTIN COLE
 OTHER BOOKS BY MARTIN COLE

How the market makers extract millions of dollars a day & How to grab
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 FOREWORD

Think of this text as a trading ‘primer.’ Think of it as a quick overview and

some pointers of things that you are going to (or already have) run into as a
trader. It’s not exhaustive; it's not indeed to be. But there are some nuggets
in here that I wish I had understood more than twenty years ago.

Twenty years is a long time to work in any industry. If I could go back

would I again choose to be a trader? That’s a tough question because
I only ever set out to achieve one thing from trading which was the
ability to do what I wanted to do with my life, in short, I just wanted
the freedom to live life on my terms.

So really the only answer can be “If something else had come along
that would have given me the same opportunity for freedom then I
guess I could have chosen that path.”

The above is rather an important concept to understand because you

need to figure out what's this all about for you!
viii Foreword

I did not ‘choose’ trading because I was fascinated by it. Sure, later on,
it became interesting, but it was chosen as a means to an end. That
end being free to live life on my terms, financially free.

It took me five years, and three lost trading accounts before I under-
stood what was going on. I soon learned that trading is not a get rich
quick opportunity, and it should never be treated that way.

The two most important things I learned over the five years was:
1. Trading was a business
2. This business was not MY business

The very moment I discovered that this was not my business and
everything was a facade designed to separate me from my money was
the moment I became free to trade successfully.

Through this book, I am going to explain these two most important

elements of trading and what they mean to you as a trader.

Some of what I cover may seem mundane at first and not worthy of
consideration to the trader, but I promise you they are. If you find
yourself thinking this as you read, stop immediately and take a closer
look because you may have just stumbled onto something that has
far more impact upon your trading than you realize.

Ok, let's make a start.

 INTRODUCTION

For you to trade successfully, you must be equipped with the tools of
the trade. However, these tools are most certainly already in your
possession.

We are not talking about physical tools, like the tools of a carpenter,
rather these are tools that allow you to see beyond the facade of the
market and into its inner workings.

Through the following pages, I will help you identify these tools and
then I will show you how to turn them loose onto financial markets
to enable you to achieve your trading success.

No matter what markets/stocks you trade you will find the informa-
tion contained within priceless regarding skills learned and resulted
achieved
x Introduction

But first a little backstory

If I could turn the clock back, I would have started at exactly the posi-
tion that I am going to lay out in this book for you. The reason I
would choose this as the starting point is simple;

I now KNOW that the substantial losses that I made before I achieved
success could have been easily avoided. If I had just grasped the fact
that the markets are a professional business with the sole motivation
of producing profits for the few to the detriment of the masses, I
would have been on my way to success in a matter of weeks rather
than years.

When I say substantial losses, I really mean that. For example, I am

not ashamed to say that during one period I entered the market 32
times in succession with losing positions.

One has to question this seemingly 'unlucky' run.

Could I pick 32 losing trades in a row if I tried? Could I get 32 losing

trades if I merely flipped a coin at any point and then chose heads for
buying the market and tails for selling it?
The answer to this is, of course, no, the odds are just too great.
How then was I able to get it consistently wrong so many times?

The reason was that I had become a victim, a pawn in a

much larger game that I had no idea of the rules. I was
as the saying goes ‘dead in the water.’
 Introduction xi

I was caught in the loop (we will get to loops shortly) and on top of
this, I was on a self-destruct path. At the time these losing trades were
devastating on both a mental and financial level. However, the upside
of this is that I can honestly say that I am now truly grateful for the 32
losing trades, as it was the pain of these trades that proved to be the
turning point that I had desperately sought for so long to discover.

So today, right now I will start working with you from the point
where my understanding of the markets flipped the switch from
failure to success.
Just before we make that start a note of caution

To become a professional trader you will have to work hard, and

ninety percent of this work will be working on yourself and how you
view things. You will at times likely become frustrated, and you will
sometimes probably feel like quitting. All I can say to you at this stage
is hang on in there because the early days are the proving ground
that will set you apart from the ‘also ran’ Stick with it, work at it and
you will be firmly on the road to successful trading and financial
freedom.

If you are not sure about anything that follows, just visit my website
www.learningtotrade.com and drop me an email. I will do my best to
help you understand.

Don’t suffer in silence for fear of asking the question to which the
answer might set you free.

The fool wonders, the wise man asks.

xii Introduction

— BENJAMIN DISRAELI
 YOUR SUCCESS WILL BE INFLUENCED

Some of the points below are of a personal nature that only you can
determine, but here are some guidelines for you. Some of these
points will become more apparent than others as you get further into
your trading.

Insufficient funds with which to trade

Influencing parties External influences
Lack of a well-defined strategy
Inconsistent application of a profitable trading strategy
Unwillingness to take a loss
Taking early profits
Misunderstanding of how markets work
Failure to hold confidence in your abilities
Fear of what the market may or may not hold for you
Anxieties about your success
Let’s examine each of these to give better understanding the impact
they can have.

Insufficient funds with which to trade

Many times we hear that you should only trade with what you can
afford to lose; for me, this is the wrong approach and immediately
conjures up images of loss.

Is trading your only source of income? If it is, then do you need to

trade to produce a living income on a weekly/monthly basis? If the
answer to both of these questions is yes, then clearly you are placing
yourself under a great deal of pressure to perform from day one.

As a guideline to this, I suggest that if you are starting out as a full-

time trader and this is your only source of income, you should set
aside at least 6-12 month expenses in a separate account.

The purpose of this account will be to maintain your current stan-

dard of living and will prevent you from having to draw on your
trading account at an early stage; it will also lift the burden of daily
profitability.

Influencing other parties

The issues of influencing parties are often overlooked and yet can be
an important factor in a trader's overall success or failure. Many at
this point will not consider that another individual may have any
detrimental effect, on their trading. However, I would urge you to pay
attention, to what is often overlooked in the successful trader's
profile.
 What does your spouse/partner think of your trading?
Do they view it as a quality profession or the other
extreme, gambling?
Are you the type of person that is affected by the thoughts
of those around you?
If you are in a negative environment, then steps should be
taken to separate your trading, completely from any
influencing party. We may believe and even convince
ourselves that such things do not influence us, but this is
often incorrect, better to ensure things are clear in this
area at an early stage.

I freely admit that I need to be in a comfortable environment, which

is congenial, to what I am doing. I do not feel comfortable if I am in
the presence of someone who is having a bad day.

Guidelines for dealing with other parties

If you are forced to involve another person, then explain what you
are doing but without intricate detail. The reason for this is because
of the undeniable fact that the other party will not have the same
understanding, of what you are doing.
If you attempt to involve another person as reinforcement, to your
trading, you are setting yourself up for a fall.

1. Draw a line, at which point you will not go any further

into a discussion of your trading.
2. Do not involve another person in your trading decisions.
3. Do not show anger, frustration, or even elation, in front of
another person. It is far better for you as a trader simply to
confine it to “yes it was a good day” or if negative “It was a
productive day regarding learning.”
Lack of a well-defined strategy

If you do not have a defined strategy, this is similar to traveling

through hostile territory without a map. If you are only trading from
one point to another, you are most assuredly going to run into prob-
lems. You will almost certainly lose over time.
A well-defined strategy is, more importantly, a strategy that you
have complete faith in. It is only when you have complete faith that
you will carry out the actions required flawlessly.

I would like to be able to say that I developed a flawless strategy, but

this would be a long way from the truth. What actually happened
was that I discovered how the market makes run THEIR BUSINESS.
I discovered their repeatable plan of activities. I had the blueprint
they used to extract millions of dollars a day from the markets. I then
simply organized my trading activity to be in alignment with their
trading activity and my results took off.

Taking early profits

This is in my opinion akin to a crime being committed against your-

self; early profits are taken for a whole host of reasons, some of
which are:

The unwillingness to take a loss.

Influencing other parties issues.

Lack of a strategy / understanding of markets

Lack of understanding why a market is moving at all and not having a

defined level at which to take profits)
If you do not have a defined strategy, this is similar to traveling
through hostile territory without a map. If you are simply trading
from one point to another you are going to lose over time. A defined
strategy is more importantly a strategy that you have complete faith
in and so you will act in accordance with that faith in a flawless
manner. The Strategy that I developed was in fact not a strategy
rather it is simply learning to trade alongside those that actually
control the market. (More of that later)

Inconsistent application of a profitable trading strategy.

If a trader has developed and tested a profitable trading strategy, but

then fails to act on that strategy he will lose over time. Many traders
do not understand how this works; there are several causes that insti-
gate this type of inconsistent behaviour.

1. The trader believes that he/she has a good strategy at a

conscious level, but on a subconscious level there is
conflict. This maybe as a result of poor testing of the
strategy or disavowal of certain elements of the strategy.
2. Lack of trading capital.
3. Trying to cherry pick trades, this type of action often
relates to numbers 1 & 2 above. Trying to cherry pick,
against number one is because of the underlying conflict
in the strategy. Cherry picking against number two is
related to the fear of loss.

Note*
The inconsistent application of any strategy is often the
start of the slide into the losing trader’s loop.

The list goes on in many different formats and styles, which are as
varied as the individual; these are all signs that you need to be aware
of. If you detect that they are creeping in, then STOP and work
out why.
Unwillingness to take a loss:

If a trader is unwilling to take a loss, the trader is heading for a

serious drawdown of their trading funds. An example here would be
the trader who has expressed an opinion to another person as to
when, how, and what, the market is going to do. As a result of this
self-reinforcing action, the trader takes his own advice and trades. In
the event of this trade going against the trader, he will be severely
disadvantaged in his ability to close and take the loss.

Some additional factors: Do you perceive the loss as a personal attack

against yourself? This is an important concept with several branches
that lead off, into danger areas. Remember the market does not know
you, it has no interest in you and has no feeling for or against you.

Under funded trading: This will cause traders to hold positions

longer than they should, in the hope that the market will turn and
give them their money back; this of course this is a double-edged
sword.

Misunderstanding of how markets work

If a trader does not have an understanding of the market, then he/she

is severely disadvantaged. One simple example would be trading
futures, and not knowing about contract expiry. Traders must have an
understanding of the markets and a complete understanding of the
particular aspect of the market he/she is involved with.
If a trader should misunderstand any aspect of the particular market
that he is involved with, then he is placing himself at a distinct disad-
vantage. My expertise is the forex market, which is Foreign Exchange.
This market is the most liquid market in the world as such a traders
dream because of the trading opportunities present almost every day.

Failure to hold confidence in your own abilities

This happens as a result of not fully understanding what you are

doing, if you fully understood what you were doing and felt comfort-
able doing it, then your ability to hold confidence would be strong.
Let me explain this more deeply. You enter the market based on your
pre-defined strategy, you are confident that this is a good trade and all
is well, then the trade reacts in an adverse manner against your posi-
tion. As the trade gets closer and closer to your stop, you feel anxious
and even nervous. Now how can this be? Why should you feel these
symptoms, if you are committed to your strategy, which you have
tested and KNOW that it performs correctly more times than it fails?
The answer lies in a couple of key areas. (A) You could be under-
funded. As a result of this your confidence in what you are doing is
being attacked from another angle. (Fear of loss, even though you
know long term your strategy is a winner) (B) You have used a
strategy that you have not fully tested. Note* You may have tested this
many times, but if your subconscious has not accepted the testing as
valid then you will not be able to maintain your confidence. (C) You
traded outside your strategy: This might be as a result of trading frus-
tration; i.e. the market has not been supplying you with the means to
use your strategy, so off you go on a hunting for trade’s exercise.

On this hunting trip you find something you think is like your strat-
egy, as a result of this you decide to trade. A term I use for this is step-
ping out of your strategy and is so destructive that you many find
yourself in trouble for weeks to come. Please pay particular attention
to the above; it is a crucial component to your success.

Fear of what the market may or may not hold for you

This is strongly linked to the lack of understanding: As a child you

may have been a little nervous of what was under your bed at night,
of course now in the rational light of day, you are confident that there
was nothing under your bed and of course there was nothing to fear.
However even if an adult had told you at the time that there was
nothing to fear you would still have had your doubts. This is why
YOU as an individual must make the connection between your
strategy and a danger free zone. Once you have made this connection
and are able to maintain it, your trading will take on new meaning;
you will experience a sense of freedom, which will elevate the whole
concept of trading to a very pleasurable activity.

Anxieties about your success

By now you should be starting to realise that all these elements we

are looking at here are really taking us around in a circle. This is no
coincidence as trading is in fact a feedback loop, if you are in this
loop as a loser, you will remain so until you discard this loop and
create a new one.

Already in a loop? If you are already trading and are in a losing loop,
then be assured you can escape it and there is whole lot of help at
www.learningtotrade.com or if you are new to trading we are going to
make sure that you get into the success loop and stay there.
 EXTERNAL INFLUENCES

This area will be covered in greater detail later on, but a few things to
consider at this stage are:

Newspaper Influence

You have decided, that you are not going to take any notice of the
newspapers and you are going to trade based on the evidence that
you see before you. As you are sipping your morning coffee, you
happen to notice that the XYZ finance group is meeting today to
announce some new finance measures.

Some hours later, whilst at your screen, you see a market action that
you are unsure of. This uncertainty will cause the brain to scan all
available data sources in an attempt to link this event, to some past
event. In a flash, the article about XYZ pops into your mind, and now
you are stuck with it. You are now mentally influenced by this story,
whether you like it or not and you will find it difficult to trade. Worse
still, you may ignore all the evidence you have gathered up to
that point.
Giving your opinion

Giving your opinion to others about the market: Let me explain some
of the power that this holds, a friend calls you and asks you what you
think of the market and which way you think it will go. In a flash of
pride, you proceed to explain XYZ about the market, and why certain
things are going to happen. In that one instant you have, unbeknown
to yourself planted very firm opinions about the market within your
own mind. Now if the market does indeed do what you said, you are a
hero, if it does not, then you got it wrong. But this is not the real issue;
the real danger in the above is that the moment you give your opin-
ion, you will be practically unable to change your mind about the
market, even as it starts to move against you.
There is no better salesperson than the person who is selling to
him or herself; your words will be ringing in your ears and will
prevent you from acting on the raw information in front of you.

You need a standard response

I have a standard response whenever I am asked: What is the market

going to do? I suggest that you use something similar.
To the question, what is the market going to do? You simply reply;
“anything it likes at any given moment” the reason for this is not to be
flippant, but to rather to not fix an opinion in your own mind.
DECISION MAKING LOOPS
The decision trail caught in the losing loop

In fig -LL the traders entry strategy is signalled. This signalling can be
via a chart pattern, some news or just a feeling that this is a good
trade to take.

Next comes some inner voice validation, this inner voice will often
surface in milliseconds after the entry is signalled in the traders
mind. In fact, more often than not the inner voice comes in that fast
that the trader thinks this is a normal reaction to his or her trading
strategy.
Next the trader will experience some confusion and or inner conflict.
After this comes what we can call a side shift or disconnection
from a linear decision making process as the trader decides whether
the trade should or should not be taken.
This decision is NOT based on trading strategy or rules but rather
on the amount of confusion and inner conflict.

Now there will be a split.

1. The trader will not activate the trade and so returns to the
path of waiting for the next entry signal from his or her
strategy.
2. The trader will activate the trade under the stress of
conflict and confusion.

Should the trade be activated under stress then trading losses over
time are an inevitable outcome for this trader.

Many traders continue in this situation for a number of years

constantly trying to develop strategies that will remove conflict and
confusion from their trading.

This strategy development, itself turns into an never ending loop

which follows five predictable stages

1. Develop a trading strategy with fixed rules of entry and

exit in an attempt to remove conflict and inner confusion
in the traders mind
 2. Back test this strategy over months and years and tweak
for optimum returns
3. When confidence from back testing is high the trader will
enter the market live with real money on the line.
4. The strategy may enjoy some short term gains and will
then lose money.
5. The trader ’tweaks’ the strategy in an attempt to make it
profitable.

Now the trader returns to stage two and follows on though to stage
five and then back to stage two.
The trader now becomes an almost full time strategy designer
and part time trader. The will continue with this until they either go
broke or they blame it on the market and give up.

Let’s now have a look at how a successful trader operates.

THE DECISION STRUCTURE OF A
SUCCESSFUL TRADER
In fig WL we see the trader enters into a different loop. This is a
winning loop. Here you see the entry strategy is signalled which trig-
gers an automated response from the trader which results in a
trading action taking place. Because the trader is not experiencing
confusion and inner conflict the resulting trading action is no
impinged in anyway. This results in the reinforcing of a positive
trading action which then further validates the traders entry strategy.

The trader now experienced a positive feedback look that gets

stronger and stronger over time which results in overall trading gains.
Notes to fig WL
What if the resulting action was a losing trade? How can this be
then termed as a positive trading action?

This is an important questions and the lack of understanding here

will cause the fig WL illustration to be invalidated in the mind of the
amateur trader.

Remember that the amateur does not have a consistent response

because he does not have a workable action plan; therefore he does
not know what does and what does not work, this generates random
action.

The successful trader on the other hand, has a pre-defined and vali-
dated trading strategy: He/she KNOWS that this strategy produces
profits over time. He/she KNOWS that all he has to do is wait and
carry out the predetermined plan. He/she KNOWS and accepts that
sometimes, the trade will go wrong and produce a loss. His/her
actions are therefore positive and reinforcing to trading success.

Trading really is about a feed back loop, but this loop has two
starting points. One is within the trader him/herself and the other is
the trading strategy. Neither can operate efficiently without the other
and both certainly must be in harmony.
 TRADE ACTIVATING STAGES

The first stage is the signal identification and the acceptance of it; the
second is the response to that signal. This response is a learned one:

In simple form X=X therefore action.

Let’s examine how the above is developed:

The non-trading environment learning curve

1. We are stimulated to respond to the event or environment.

2. We receive a response to our response.
3. The loop closes with the outcome of the event now known
as a result.
4. We have a new learned experience.

The next time this same or similar event occurs in our life we have an
understanding of what the outcome is most likely to be and we can
act accordingly. We can even adjust how we react to the event to influ-
ence the outcome to a degree.
The trading environment learning curve

The first problem that we encounter here is that in the market no two
events are ever the same (they may be similar, but not the same) this
is a big variable that we have to deal with.

The second problem is that once we commit to a trade, we are unable

to personally influence the outcome in any way whatsoever. The
trader finds him/herself in a situation that has never been experi-
enced before; also there is no ability to influence the outcome. The
result of this is a feeling of helplessness and confusion, which can be
closely related to the gambling environment.

The professional trader on the other hand has turned the whole
thing around with a systematic, tested, formula; that he/she knows
delivers trading profits. The trader has taken control of the environ-
ment, stacking the odds very much in his or her favour. To wrap this
section up we can say that the successful traders strategy has
removed the following:

Unknown variables.
The inability to influence the outcome of the situation.
The emotional contents of the current trade.

The professional trader maintains the position of detached observer

of events; from this detached stance he is able to observe the market
in a clear controlled state. This state enables the execution of further
strategies that may revolve around, increasing contract size or even
exiting from the position.
 YOUR VIEW OF THE MARKET

How you view the market will influence your success as a trader

For you to win means that another trader has lost, how does that
make you feel?

Your first reaction (which you believe to be true) maybe is that this
simply does not matter to you. The other trader is faceless and there-
fore is of no consequence.

We all have a conscience that is pricked from time to time. This is

sometimes highlighted in trading and whilst this rarely prevents a
person from trading it often places a ceiling on the degree of success
that a trader might enjoy.

How do you fit into the market?

What do you want to take out of the market?
 How do you actually feel as you question yourself over
these issues?
Do they make you ponder a while?
Perhaps you notice a shift in your seat? Is what you want
from the market in sync with what you truly believe about
yourself?
Or do you completely denounce the above as not applying
to you?

I have “dropped’ the above points in here for the reason of some stim-
ulus thinking, just in case there are personal elements that you want
to explore further.
 THE MARKET AS YOUR TEACHER

The market as your teacher

Golfers tell me that the worst thing a person can do when they decide
that they want to play golf is to pick up a club and take a swing. The
reason for this is that instantly you have adopted the stance that is
most comfortable for you, but most unsuitable for actually playing
golf. (I am not sure this is true, I like to just be comfortable when I am
playing)

The market does exactly the same thing to traders; the main differ-
ence here is that the stance in golf is annoying and will affect your
game. The same stance in trading will empty your account in a very
short time and could prevent you from ever trading again.
Human beings are very quick learners; we can observe, mimic
and perform a skill, with time we become quite adept at this new skill
and add it to our repertoire. When trying this same process on the
market however, we quickly notice that no two actions are ever
exactly the same. This is a serious impediment to our normal
learning process.

Imagine for a moment that you are about to learn the art of carpen-
try. However, your carpentry teacher changes the way he holds his
tools each time he picks them up and never holds his tools in the
same way more than once.

Would you ever learn the skill? In this example it would be more effi-
cient for you to just observe the carpenter and then start to develop
your own technique.

When learning how to trade it’s often the lack of genuine teachable
trading knowledge that is at fault and not the individual learning.
There are hundreds of courses that will show you yesterdays charts
and where you “could have” or “would have” made profits. This is the
blind leading the blind, but it is almost necessary to go on one of
these courses to get it out of your system and discover the meaning-
less drivel that is repeatedly sold to the unsuspecting.

The learned habits/ emotions of the amateur trader

Remember that the amateur is often the person who has recently
decided that he would like to trade the markets. He goes out and buys
a few books, gets a charting package and starts to draw a few trend
lines and the like. The budding trader then enters the market and
quickly discovers that all that glitters is not gold. The harsh reality is
that the market often takes on the role of an adversary. The emotions
that become attached to the trader during this reality shock are the
very key to the traders ultimate success or failure.
 THE EMOTIONS OF FAILURE

Fear and how it develops

There is nothing wrong with fear. Its role is to protect and serve us in
times of danger. The problem is that we are the direct interpreters of
what constitutes danger. It has to be this way, of course.

Your first kiss

You are in your teens and you are desperately fond of a particular
person of the opposite sex, you dearly want to ask him/her out, but
fear holds you back. Clearly the type of danger here is very different
from that of running in front of a speeding train, but the debilitating
effects are very much the same. Pounding heart, sweaty palms, hyper-
activity, nervousness, etc.
You will, of course, overcome your fear of the opposite sex as you
come to understand more about them. (maybe :))
Parachute jump

Learning to parachute will serve as one more example: As you jump

from the plane, you will of course feel the very same symptoms as
described above, albeit a little more profound maybe. As you do more
and more jumps, you will start to enjoy the experience and eventu-
ally look forward to it without any fear. Basically the fear you once
felt has over time been dissipated and eventually turns into fun, as
you gained more experience and knew exactly what was going to
happen at each new jump.

Trading fear, however, has a twist that is very different indeed.

Normally when you start out trading, you will feel a low level of fear
or excitement. If things go well you will feel excitement, if poorly you
will feel a little fear or nervousness. This will be very mild at first, but
gradually it will start to build to the point where you cannot easily
distinguish between the two emotions. As this fear develops and
gains in strength, you will start to become highly critical of trading
opportunities. Over time this will increase, to present you with quite
severe trading problems.

You will note that the instigation of fear in the trading environment is
the exact opposite of the fear when parachuting. I.e. one starts out
with a high level of fear, which gradually dissipates, whereas the
other starts out with very low levels and builds to a debilitating
conclusion.

Lack of confidence.

This normally goes through three stages:

First stage = Low confidence level as unsure of trading
protocol etc.
 Second stage = Increase in trading confidence, as one gets
comfortable with the protocols of trading and the
environment.
Third stage = dissipation of confidence as losses are not
accounted for in the, nonexistent, trading strategy.
This all culminates in a lack of confidence, in ons ability to
trade effectively. (Stage two is often the most dangerous in
terms of losses)

Fear of the Unknown

This is developed as the trader starts to become affected by a little

fear and a lack of confidence. Uncertainty of price, volume, the
current activity, impending announcements, etc. These all build into
what can best be described as an unknown entity. It does not exist
and yet it exerts a huge amount of energy and control over an
individual.
 CONSISTENCY

How a losing trader develops and maintains the ability to lose

consistently

A trader that maintains the ability to lose consistently has merely

developed a losing strategy. He has over time grown into this strategy,
which is maintained on the hope of the next big trade. He may have
even got to the point where he is so engrossed in his strategy, that he
will actually defend it in the face of hard evidence.

This traders strategy examined:

What has happened here is that the trader has got himself into a
destructive loop, (remember the diagram?). This loop has created its
own strategy and the real danger of this type of strategy is that it is
operating at a subconscious level. If left unchecked, this will eventu-
ally lead to the emptying of the traders account.
The way out of this type of loop is quite difficult, as it requires a
lot of personal examination. In some cases there is subconscious
desire or wish to get away from trading completely. If the subcon-
scious picks up on this desire then it will do all it can to “grant
the wish”.

A key point to note here is that this would all be operating at a

subconscious level and the trader would have no awareness of the
process whatsoever.

How a successful trader maintains consistent success

The successful trader is caught within the success loop; like the
trader caught in the failure loop he may or may not be aware of this.
In fact many successful traders are so unaware of just exactly what
they do that they find it virtually impossible to explain to another
trader when and why they take any particular trade. For them actu-
ally to stop and think about this may even have a detrimental effect
on their own trading.

Many traders write books about their trading and how they are
successful; other traders read these books, to try to emulate the
successful trader. Often this turns out to be disastrous for the student
and for the simple reason that the book does not contain the whole
story. (I might add here and now that this is not deliberate on the part
of the author) If the trader author has traded for many years success-
fully, then his success loop will be deeply rooted in the subconscious,
possibly to the point where intuitive trading has taken over. When a
trader reaches this stage he may have a complete misconception of
what he is “actually” doing with regard to his trading. The trader
simply has supreme confidence in their abilities and their growing
trading account.
 SUCCESS OR FAILURE

The defining characteristics that separate the successful trader

from the unsuccessful trader

The successful trader will have amongst other things:-

A well-defined trading strategy.

Complete faith in that strategy.
An automatic response mechanism.
A long-term outlook.
Confidence in his ability.
A strong sense of purpose.
A developed sense of feeling the market.

The unsuccessful trader will have.

 A well-defined trading strategy or a poor trading strategy.
Possible surface faith in his strategy, with subconscious
conflict.
A cherry picking response mechanism.
Short term win mentality.
Low level of confidence.
A casual attitude.
Poor or no ability to feel the market.

*Note
The unsuccessful trader may posses a very good strategy, but it
will be the other components that will cause the failure of this
individual.

The real challenge is not the trading of the markets.

The true challenge of the emerging trader is to be aware, consciously,

at the time of the trade of everything that is behind that particular
trade. It is this awareness that separates the successful from the
unsuccessful.

The successful trader, has traded in accordance with his strategy and
KNOWS that this trade took place without any emotive overlay. The
traders mind is clear and conflict free to enable the processing of the
continuing stream of market data that is arriving. The challenge for
the successful trader is to maintain this state, so that he may function
in a non-emotive environment.
The challenge for the unsuccessful trader is to achieve the non-
emotive state in the first instance and then maintain it.

The easiest way for me to explain this is to compare the paper trading
results of a trader who then goes live.

But of course there never can be any comparison and the reason for
this is the single factor of emotive overlay; the live trader is subject to
this whereas the paper trader is not. The paper trader, is capable of
producing often-spectacular results over sustained periods but as
soon as he enters the market for real it’s as if the goal posts have
suddenly been moved.
 THE SOLUTION TO TRADING
SUCCESSFULLY

The problem and the solution to trading successfully lay in a single

word. The problem part is one of understanding just how important
this word is and how this effects / controls all markets. This word is
often mentioned in trading circles but it’s pointed inwards to the
trader which is the wrong direction when reading the markets.
What is this one word…?
Belief
We are told to believe in ourselves, believe in success, believe that
what you want you already have and it will come to pass. This is all
VERY good advice, however this is not true of the world financial
markets.
To understand BELIEF and how it controls the market is to
understand every market move and to understand every market
move can provide you with more money than you can poke the
proverbial stick at.
So….you as a trader need to fully understand how beliefs work
and the effect they have on all financial markets.
By understanding and then applying the concept of beliefs to the
market you will have a successful trading strategy that will exist in
perfection until humans change how they create and deal with
beliefs (we can assume this will not be changing anytime soon)
So where do we start in understanding how beliefs effect every
single price traded and indeed every sustained market move?
Well let’s leave the markets for a moment to take on a very
mundane task that we can all carry out without too much thinking.
The task of crossing a road / highway
Imagine you are standing on the edge of a very busy road. You are
watching the speeding traffic coming from both left and right.
How are you going to get across?
The surface answer will be: “wait until it’s clear and then cross
the road”
This seems logical and reasonable, however, this is a surface
thinking mode, this is a facade that our mind presents to us which
ultimately allows us to cross the road without being aware of every-
thing that is going on in our minds below the surface.

Crossing the road

As you are now standing on the edge of the road you mind is rapidly
bringing up past data / experience that it holds about your previous
road crossings. It is now evaluating these current conditions with past
conditions to arrive at a solution that will allow you to cross the road.
That solution will be working out distance to the other side of the
road, speed and distance of oncoming traffic and even weather condi-
tions if applicable.
Suddenly right at the exact moment you step off the curb and
head into the road something is born within you. That something is a
BELIEF that you can get to the other side safely.
Until that BELIEF is born within you, you will be immobilised
and unable to step into the road.
Now just back up a little and cast your mind to another time
when you where waiting to cross and just as you were thinking about
it, another person standing beside you also waiting to cross the road
suddenly stepped out and you started to follow them, only to
discover this was a bad idea. No doubt you can recall this was a
stomach churning experience.
So what is the difference and why is this so important to you as a
trader to understand?

The first belief was YOURS, you created it and you acted
upon it.
The second belief was a MANIPULATED belief; it was
forced upon you by the actions of another.

If you can now fully understand the difference between these two
beliefs then you are well on your way to successful trading.
Now I want you to make one more observation of the road cross-
ing. Imagine that you are now an observer sitting high up above this
road looking down watching others cross the road. Could you now
tell the difference between people who cross the road acting on their
own beliefs and those that cross with a manipulated belief?
I would wager a large bet that you would be able to do this in a
very short period of time.
Ok so what has crossing the road got to do with trading success?
Everything!
You see market movement (price movement) has contrary to
popular opinion nothing to do with price itself. Price change is
brought about by someone buying and or selling. However, before
any trader will buy anything he will be forced to develop a belief that
his order to buy will result in success and he will make money.
It is ONLY when he has developed this belief that he will be able
to make a trade and buy the market, which is exactly the same
process as crossing the road.
You will not be able to cross the road until you have a belief that
you can make it to the other side. You will not be able to buy the
market (thus influencing the price) until you belief that you are
making the right trade. What we can draw from this is that BELIEF is
at the back of every trading decision.
The markets are in effect an ever changing ocean of BELIEFS
about future price. Future price meaning, will the price move higher
or lower from its present position.
Furthermore these beliefs (your beliefs) are being manipulated to
encourage you to take trading positions at times that will almost
always place you in a weak trading position.
You are being encouraged to step out into the road based on a
belief that you have been GIVEN and not a belief they you personally
CREATED.
There is a MASSIVE difference between these two beliefs.

Phases of markets

Phases of markets are very important to understand. By under-

standing where a market is in each phase you can learn how to profit
quickly and efficiently.

There are three market phases.

The first phase, the accumulation phase, (also called the set up) is the
phase whereby the market makers manipulate the look of the chart
in order to hide their accumulation of buy orders or sell orders. It is
because of this we can say the following as a rule of thumb. If there is
no clear indication as to market intent where you feel confused and
uncertain as to market direction you can safely bet that accumulation
is going on.

Please note, your confusion and uncertainty as to market direction

need not be taken as a negative experience. Rather you use your
manipulated feelings to indicate what the market makers are up to.
Remember the look of the price chart is designed to get you buying
or selling by manipulating your beliefs about future price. To get
you crossing the road when you should not be doing so.

When the market is uncertain as to future price it buys and sells

without favouring any particular direction. Market intent is impos-
sible to see in the accumulation phase, using price bars alone.
However you can still learn to recognise when accumulation is
going on.

The Manipulation Phase

The second phase, the manipulation phase (also set up) is where the
market makers go into bursts of activity before they move into the
profit release phase. Sometime this initial burst of activity is some-
what straight forward in that the prices is marked up or down
suddenly in such a way that the market begins to buy or sell in the
direction of the profit release. Often though, the initial emergence
out of the accumulation area involves taking out stops in which a
massive amount of buy orders or sell orders are rapidly accumulated
just before the third phase gets under way.

The Profit Release Phase

The third phase is the profit release phase and is characterised by

more and more of the market coming on board. By this I mean that
the market begins to predominately favour either buying or selling.
Remember, in order for the market makers to make a profit there has
to be a sustained buying or selling in a particular direction which
drives the price across the necessary range in order to profit from the
manipulation.
This profit release phase also contains retracements which can
confuse the trader as to market intent.
In hindsight these profit release sweeps are obvious but while
trading within them the market intent can become obscure and
traders who do not fully understand how beliefs are being manipu-
lated will often either withdraw from the market before taking all the
profit they could or they will not enter and miss out on easy gains.
Discerning Market Direction

As you can see, being able to discern market intent (“is the market
favouring buying or is it favouring selling?”) is crucial to successful
trading.
Remember, the market makers are always gearing up to make a
profit and the only way they can do this is by moving the market to
predominately buy or sell in a certain direction. The important word
here is predominately. Their money making activity consists of
strengthening the markets belief in future price in the direction they
want it to go. They start doing this from the accumulation phase.
The market makers entire money making activity consists of
developing the market intent predominately in one direction either
up or down.
Now whilst I have explained the three phases here with the
written word, almost certainly you will need to understand more
which is beyond the scope of a written document.
If you are interested in taking this further there are a couple of
things you might like to consider.

The first of these is to invest in my 200+ page book that

really breaks down the nuts and bolts of trading the
market makers method. (See other books Section) How the
Market Makers extract millions of dollars a day and how you
can grab your share
The second is to consider letting me training you from the
ground up via my training course which you will find at:
Here on this link

http://market-makers-method.thinkific.com/

http://market-makers-method.thinkific.com/
Below I have reprinted the course description for you.

I will be sharing with you more than 20 years experience in trading

currency markets. I demonstrate and show you how to look at a
market chart and instantly know what’s going on. I will then show
you how to turn that knowledge into steady and consistent returns.

I started in this business more than 20 years ago. I failed miserably at

first and blew up several accounts before I hit a vein of gold. I had
spent years studying all the patterns and indicators that we are told
will lead to wealth. Result – Steady, consistent losses over time.

Then something happened, and within two years I was featured in a

leading traders magazine showing an independent testing of my
method. I was predicting trending days better than eight times out of
10, and If you have been around currency trading for any period you
will know what those results mean and how that can translate into
financial freedom very quickly indeed.

Today I am semi retired living in New Zealand in the beautiful Marl-

borough wine region and enjoying the spoils of victory. Today I
would like to share with you the exact trading methodology that set
me free and can do the same for you. I am excited to now pass this
trading methodology to those who are willing to look at the markets
from a different perspective. A perspective that can do for you what it
has done for me.Well that’s it for now.

I would like to wish you every success for yourself and family and at
the same time send kind regards from my family to yours.
Martin Cole
Drop by www.learningtotrade.com and say hello
 OTHER BOOKS BY MARTIN COLE

How the market makers extract millions of dollars a day & How to grab
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Imagine starting your life over again but with all the life experience of today.
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www.learningtotrade.com
 GLOSSARY

Stepping out of your strategy.

This is a very dangerous action for a trader and not because of the
impending possible loss. When you maintain your profitable strategy,
you will gain confidence as your profits grow. This confidence will be
reinforced every time that you carry out a trade, within your strategy,
win or lose. The reinforcement takes place even in a loss situation
because you and your subconscious knows that OVERALL you
strategy is a winner. Once you step outside your known strategy, you
are basically introducing an unknown concept to your prior proven
strategy. Your subconscious detects this new variable and recomputes
the whole strategy; of course this new variable now forces a re-evalua-
tion of your known strategy. Now you are in trouble, for the simple
reason that your subconscious no longer has faith in the strategy
because it does not have one.

DO NOT knowingly STEP OUTSIDE YOUR STRATEGY. If you do, you could be throwing months of

work away in a single reckless action.

 Trade Hunting

Hunting for trades often occurs when a trader has a developed

trading strategy, but the market action has failed for several days to
produce the conditions where the strategy can be used. In the frustra-
tion of the delay, the trader will start to hunt his charts to see what is
going on. What is happening here is that the mind of the trader is
searching for something that fits the bill. Should the trader, now
trade this self-generated opportunity and a powerful force has just
been released against future success. Please see: Stepping outside of
your strategy

Trading Harmony

This simply means that your trading strategy should be aligned with
your personal trading ambitions, resources, and understanding of the
markets. An example of trading out of harmony would be increasing
your contract size without sufficient margin; this could set up a fear
reaction, should the market start to move against your position. This
would then trigger inconsistent trading, as you search for the fail-safe
entry point to protect your margin.

The Subconscious.

Your subconscious, is perhaps your most important asset when trad-

ing? Once your strategy is fully accepted by your subconscious, your
trading will take on a new level of ability. No longer will you be
thinking about what has to be done. You will enter into a phase that I
call autonomous ability. This is a highly desirable state for the trader
and comes as a result of supreme confidence in your personal success
loop.

Emotive Overlay.

This term needs to be fully understood and is an area that we shall be

giving some consideration to at a later stage. For now you might like
to imagine a scenario where you have made your mind up to carry
out some action; then someone near to you, says something that is
not directly related to the action you are about to carry out, but
causes and emotive reaction. This reaction then has an effect on your
ability, to carry out the task that you had previously decided to do.

This is highly applicable to trading when we consider price move-

ment and how this affects an observer.
Fear & Excitement

How far apart are fear and excitement? At first you might be tempted
to believe that they are at opposite ends of the scale, in fact they are
one and the same. As a simple exercise jot down the type of feelings
that you might experience when you are fearful.

Heart racing - Sweating - Deep breathing - Heightened

awareness.
Now do the same with, excitement, begin to get the
picture?

The Gambling Environment

Trading is often associated with gambling, especially the futures/de-
rivatives market. This is because the amateur trader blames the
market and tells his tales of woe.

However, there is indeed a link to gambling here and one, which we

need to be clear on. The amateur trader as we have already discussed
does not have a strategy; he is haphazard in his approach; the only
consistent method of trading he has is consistently being inconsis-
tent. Therefore the amateur trader is indeed gambling and the odds
are stacked heavily against them.

Disavowal

The person in disavowal is refusing to own or acknowledge some-

thing. An example may be when another person has pointed out that
there is a fundamental flaw in what you are doing within your strat-
egy. This results in you completely, shutting the door, on any further
discussion, or even thoughts on the subject. This is similar to going
long in a falling market and telling yourself that the market is strong
and it will turn up shortly in the face of mounting evidence to the
contrary.

Cherry Picking

This can be best described in the context of actually picking cherries.

The one just out of reach is always sweeter. Therefore I will not take
this trade; I will take another better one.
Inner Voice
This is the still small voice that resides in all of us. This can be a posi-
tive attribute or a negative one, depending upon what the voice is
telling you.

Drawdown

This is in my opinion, just another way of saying that you have lost
money. The technically minded, however, might argue the point here.
Basically your trading strategy is currently resulting in losses and
your are suffering a withdrawal of money from your account.

Contract Expiry

Example: Futures are traded on a three-month basis. As the contract

comes to the end of its term it is said to expire. This does not mean
that you cannot trade in the next contract before the expiry of the
most recent one. Some traders will trade across different contract
periods as a form of hedging.

Pre-defined Strategy

A trading methodology / system that has been defined and evaluated.

The fact that it has been defined does not make it necessarily
profitable.
Intuitive trading

Intuitive trading can best be defined as a sense of, knowing, under-

standing, a deep psychological awareness, of the condition of the
market, and what is going to constitute a profitable trade. These types
of traders are few and far between, but it is a skill that can be taught.
We will be doing work in this area in the latter part of the course.

Well that brings us the end of this book. Hopefully you have been
able to gain a few trading insights and also some personal insights
that may reflect on your future as a trader in a positive way.

All the very best from my family to yours.

Martin Cole