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    Beat the Street: A Trader's Guide to Consistently Scoring in the Markets
    Beat the Street: A Trader's Guide to Consistently Scoring in the Markets
    Beat the Street: A Trader's Guide to Consistently Scoring in the Markets
    Ebook193 pages1 hour

    Beat the Street: A Trader's Guide to Consistently Scoring in the Markets

    By Adrian Manz

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    About this ebook

    A master's guide to high probability trading set-ups
    Beat the Street is one of the most popular trading books available today. This edition is completely updated, packed with timely examples and all the latest insights of author and master trader, Adrian Manz. It is indispensable for any serious intraday or swing trader.
    This book reveals a range of high-probability trade set-ups that have been used to generate consistent knock-out returns during bull and bear markets alike. It details everything Adrian Manz does to conquer the markets each day: written in lucid prose and illustrated with detailed charts of key patterns, it is a must-have manual for anyone looking to make a living as a trader.
    Beat the Street has earned widespread critical acclaim and become one of the bestselling trading books of all time by providing just what traders at every level of experience are looking for: a game plan for consistently scoring in the markets.
    LanguageEnglish
    PublisherHarriman House
    Release dateMar 7, 2013
    ISBN9780857192912
    Beat the Street: A Trader's Guide to Consistently Scoring in the Markets
    Author

    Adrian Manz

    Dr Adrian Manz earns his living as a professional analyst and stock trader. A successful professional equities trader since 1998, he is the author of two books on the subject [Trade Secrets: Powerful Strategies for Volatile Markets] and the publisher of the Around The Horn Intraday Trading Plan, a nightly blueprint for the actions he plans to take in the markets on the following day. Dr Manz is president of Peterson/Manz Trading Inc. and the co-founder of traderinsight.com. He is dedicated to providing trader education to anyone who is looking to add a new view of the markets to their repertoire. Dr Manz is frequently invited to be a keynote speaker at trading events and is regularly interviewed about his trading style on television, radio, the web and in leading industry magazines. Dr Manz is a graduate of the prestigious Peter F. Drucker Graduate School of Management and the School of Behavioral and Organizational Sciences at Claremont Graduate School. He and his wife Dr Julie Peterson-Manz live and work in Pacific Palisades, California.

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      Book preview

      Beat the Street - Adrian Manz

      15.

      Chapter 2. The Mental Game

      PSYCHOLOGY IS ONE of the most important factors in the success of a trader. Yet most people flip right past any section discussing psychology in the trading books and periodicals they buy. Traders want information they can read today and make money with tomorrow. They love chapters about profitable chart patterns and hope that they will discover the holy grail in the techniques they read about. But if there is a holy grail, the place to find it is in a thorough understanding of what makes us tick. A trader’s personal psychology, including all of the strengths and weaknesses he or she brings to work every morning, is the key to unlocking a consistently profitable career.

      There is a simple fact with which every trader needs to come to grips: you will never master the markets until you master yourself. It will not matter how many books you buy, courses you take or personal coaches you hire. If you are not in touch with what makes you tick, the market will remain an enigma. No amount of money, time or training will allow you to trade with anything other than the odds afforded to those who seek their thrills wagering on games of chance. The good news is that personal psychology is something individuals have been successfully able to master. It is what makes any competitive, energetic and motivated person capable of fulfilling his or her dream.

      Traders and Athletes

      Great athletes are masters of their sport in large part because they are self-aware. Of course they have athletic ability. But plenty of people who could not connect with the ball if their life depended on it also have ability. The great players know their psychological boundaries and are masters of the balancing act that keeps skill and emotion working together instead of as opposing forces. They are not overconfident as they approach their sport. They are not afraid to fail. And they definitely do not keep a running total of successes and failures churning through their head. Instead, they strategise around their own psychology. That might mean trying to maximise their defensive or team play and having a low number of individual scores, or focusing on maximum offense every time, knowing that this will result in a low average but a potentially high number of personal wins. Whatever the secret to their success, it emanates from a confluence between the needs of the person inside and the actions of the person playing the game. The same awareness and psychological balance that make for a great athlete make for a great trader. Neither can achieve success without balance, and both must overcome psychological obstacles on the road to success.

      I think there are three general psychological road blocks common to struggling traders. They are overconfidence, a fear of losing and mental bean-counting. We will take a quick look at these. As you read the following sections, think about the impact each of these has had on your career in the markets. When you get to the point that each of these is held in check, you will find trading for a living to be a much more profitable and relaxed experience.

      Can You Ever be too Confident?

      Successful traders tend to have a public persona that exudes simple confidence. That confidence is the product of experience in the markets. They are confident because they have witnessed first-hand what works, what does not work, and what the odds are for success in any given situation. They know that their opinion is worth something because of their experience, but are still in touch with the fact that they are just offering an opinion.

      By contrast, the least successful traders I have known exude overconfidence. They label the successes of others as insignificant. They are quick to explain what ‘real traders’ would or would not do. They brag about their successes and claim that their losses are not worth discussing. I have known many of these people. Generally they are suffering from an attribution error. They feel that to be successful, you have to think and act successful. In the process, they overcompensate for their lack of experience and put themselves in a position of dissonance. Such dissonance will be resolved only when they give up trading and look for another profession. For them, cognitive consonance will be achieved only when they can explain to their friends that trading is for suckers and is a game that cannot be won. The detrimental impact of overconfidence on the ultimate prosperity of traders is supported by academic research conducted in the United States.

      If you are overconfident, you will likely overtrade. If you overtrade, you will decimate your return rate with high transaction costs. You will also make the wrong trades. Research conducted at the University of California, Berkeley and the University of California, Davis found that overconfidence led to overtrading with solid positions being closed in favour of less profitable ones. The study found that individuals who traded 45% more actively than their counterparts actually reduced returns by 2.5% per annum. I believe that this emanates, once again, from the desire of the overconfident trader to demonstrate how exceptional his skills are. Taking losses looks and feels bad. Booking gains looks and feels good. So the only proven formula for success – cut your losers short and let your winners run – goes out the window. Ultimately, these traders wind up with a portfolio full of their worst trades.

      I believe that the solution to this problem is to trade according to a very clearly defined plan. By building discipline, traders can learn to avoid the pitfall of constantly firing off trades in an effort to beat the market. I can say from my own early experience in this business that shooting from the hip almost inevitably leads to shooting oneself in the

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