Failure is Mandatory:
I don’t know if you are like me or not but I truly believe that failure is a necessary part of success in the markets and in life. Failure gives us power! When we learn from our mistakes we’ll make better decisions next time. This attitude will naturally enhance our lives in every area. In order to succeed in this trading endeavor you must go through failure. At the end of the day it’s about the journey that you’ve taken and failure will be part. Like so many great men before us, nobody invents the lightbulb on the first try. It’s a process. Yes it’s hard, but successful trading isn’t a destination it’s a journey. It’s a day-in, day out job of learning, adapting, and growing. By the way, it’s always nice to have someone hold your hand and tell you everything will be ok.
Take me for instance. I was homeless at one point in life and it was GREAT. Why? Because of the life lessons I learned during it. Yes, it was hard but God inspired me through it and the things I learned changed my life. Homelessness does not mean that you have failed in life as the world would make you believe. It just means that it’s time to change. We are creatures of change. Our bodies change, our thoughts and feelings change from childhood to adulthood. It all changes. There are times of tons of resources to times of little. Yet somehow we are taught that having to restart is bad and negative. We are all on our own journey. Personally, homelessness taught me how to receive and and how to be grateful for everything God has given me. We are not an island or alone on a boat in the middle of the ocean. We are all interconnected. “Success” can cause us to become prideful where we can look down at others and their circumstances. As the “Good Book” says, “Pride comes before a fall.” Homelessness gave me an appreciation for the life circumstances of others and a heart for the homeless because I have been there.
As I look at my charts they are pretty bare. I’m a price action trader and long ago in my trading journey I decided if price can’t tell all that I need to know about the markets then this is the wrong field for me. Why price alone? Simple answer is that if price doesn’t have a reason for moving, despite the massive amounts of parties ,people, and nations involved; it is either truly chaotic and I need to find something better or that it has structure. Instead of listening to the thousands of talking heads about, fear, greed, quantitative easing, debt consolidation, governments, banks, earnings reports, the moon, or a thousand other news/indicators out there, what it came down to to me was, if price lies to you then it all must be fake. But after years of trading, it’s funny how price gives you ample warning for such volatile moves. The trick is being observant enough to see them.
In the Markets:
The market also has events of success and failure and I think that we can use the same rules about failure as we can in life. So when does price make a market event or fail to make a market event? Does it mean that the market was ‘wrong’? Not at all, but if we can learn from these market failures and successes we can get a roadmap of where price will likely go. Now I could get into the math behind this and maybe I will in the next post but right now I just want to keep it simple. Let’s find the power of failure in the markets and use it to help us in our trading.
First off, I’ve kept this little secret for several years now as my own little tool as it’s just amazing how failure can be so clear and so powerful in the markets once you open your eyes to it. So what does it look like. Well first off it’s about understanding the bars and what they mean in relation to it’s brothers and sisters. Then we must look at pivots. What is a pivot? How do we in realtime define a pivot. If you knew where a pivot was likely to form 90% of the time, would that give you an edge? Then as I found out about these market events it made me aware of how many events actually go on and go unnoticed by so many. Market events, trading events, almost everything can be an event. Once I realized this, I was able to achieve great success because all I had to do was look for the probable event. So if you truly want to learn the setup then google “price action failure” and “trading market events”. It’s been written about.
In basic form, it’s a potential pivot then a green bar that would retest the pivot high. A “line in the sand” is drawn at the lowest point from that pivot to the first green bar. Then it is confirmed when price closes below “the line in the sand”. The failure of the pivot and price action, should move to the downside. You then can put your stop on the top of the pivot.
Same idea as above. A potential pivot low followed by a few more bars and the important next red bar that retests the low. We draw a line, “ line in the sand”, at the highest point from the pivot low and that first red bar. Then as soon as price closes above it, price has created a new pivot and should go up to resistance.
I hope that this post has shown how failure is actually a good sign and something we really want to be aware of. Hopefully this will help some of you get back to the basics of price. We must be able to account for variable change in the markets and be systematic enough to be able to adapt / change as market conditions change. Please learn price action and how to understand market events. It never ceases to amaze me how the simple things can confound the wise. Don’t forget to google “ price action failure” if you want to learn the setup better. Your account will thank you and may “The Trend” be with you.
Interested in learning more from Gabriel? Then check out his blog at APAZones.com.