This is from one of my early trading course manuals.
Use tools to 'read' market
Develop an accurate opinion of what market is likely to do.
Now on to signals. Using signals are what everybody wants to
jump into right away. They are easily mechanized and easy to point out. However,
trading signals mechanically without having developed the skill to read the
market context is like being blindfolded, spun around, and then told to hit the
target! Sure, it is fun to 'pull the trigger' and get into a trade, but you sure
as heck won't hit any target, except by chance. But that's what everybody wants
to do..."/ want to shoot the gun!! I don't want to spend the time and effort to
learn how to aim. I just want to fire this baby. Let's get at it!". When I first
started with Arthur, I was so frustrated that he would take this signal, yet
pass another that seemingly had the same setup. Well I finally figured it out.
Learn how to aim. When you learn how to aim, you start hitting the target much
more often than not. Arthur is very skilled. It's like he has a scope!
Signals take the output of step 1 above and translates that
into a specific moment in time when we should enter.
Opinion of what market will likely do.
Exact time to enter (pull the trigger)
If you apply signals mechanically without having first
developed the skill to read the market context, the picture becomes
No clue as to what the market will likely do next.
There's a Signal!
Yea! I get to fire the gun! (Probably pointed back at
I am a student of Arthur's. Early on in his instruction, I
felt I discovered a key that unlocked the door to trading success for me. Maybe
it will for you. I'll share it with you and you can decide. When I first started
with Arthur, I tried to mechanize his stuff. That didn't work for me. The light
bulb came on when I changed paradigms from mechanical to intuitive. Rather than
trading the signals in the background of the price action, I began to try and
trade the price action using the tools Arthur taught as guideposts to keep me
from getting to far off course.
I divided the things Arthur was teaching me into 2 parts...market reading
tools (or just tools for brevity) and signals. First tools. Tools are
guideposts to help you understand the price action. They are like eyeglasses
that help you see clearly what is happening in the market. Some of the most
beneficial tools to me have been, in order of importance:
1) Keeping track of trends via the Trend Turn tool.
2) Counting bars that make higher highs, or lower lows, during a move to help
judge the age of a move.
3) Constantly monitoring swing highs/lows to know where to expect support and
4) Drawing trend lines, triangles, and other very basic chart patterns.
There are others...these are only examples. Careful
application of tools will aid you in seeing clearly the context of the price
action. As Arthur repeatedly says, "Context is everything".
Trading the signals without mastering the art of reading the market context is
putting the cart before the horse...-nothing good happens.
The output of being able to read the market context
accurately will be a net bias of what you are looking to do. I use the term
'bias' because no one can know what the market will do next...you can
only form an opinion as to what is *most likely* to happen. If you are currently
flat, there are 3 choices...you can be looking to go long, short, or stay flat.
A bias to stay flat is usually due to a foggy context picture...the market is
not telling you, or you are not yet skilled enough to discern what the market
will likely do. Hence, you stand aside until the picture becomes clearer.
I have always advocated learning to trade by being a
discretionary trader. I continue to support this style of trading. This entails
methods which may have rules but the rules also can become discretionary. It is
how I was taught and stated above from my old manual. As I was taught "CONTEXT
IS EVERYTHING". Thus, as I have said before just reacting to signals is not my
way. I am always thinking. When the setup appears it is weighed in the context
of my bias of the present market. Yes, I always have a bias. That bias is not
based on having a signal to go long. The signal should be congruent with my
contextual bias. If I have no bias then I don't trade the signal or if I choose
to take the trade I view the trade as a lower percentage trade.
Buffy and others refer to this as a roadmap. What is the
roadmap inferring. If it is inferring (context) "go long" and your long signal
then appears then REACT. The context can also give you a bias for targets. Once
the trade is on and more information becomes available things can change
resulting in a decision to take profits sooner or later than you original plan.
Besides your psychology which tends to keep you where your at
in your trade performance its not learning the CONTEXT that may be holding you
back. Learning a setup is the easiest part. Remember you just need one setup.
After you have it you must learn to evaluate context and improve your