Confessions Of A Trading Guru

When you hear the word “trading.” perhaps you think of it as an acquired skill whereby savvy victors consistently outwit the minions of others whose knowledge and abilities are insufficient in today’s complex global markets. Look up the word “guru” and you find it refers to someone who’s an expert, a specialist, a leader or an authority in a particular field. When you put the two words together, “trading guru”, many traders find the conjunction to be comical and even somewhat derogatory. Why is that?

There are many reasons and they are all completely understandable. Every single day, traders in every country on earth with Internet access place their future, their hopes and their dreams, their trust and their money in some “trading guru” that put on a webinar and convinced traders that they had the total solution to their financial woes forever. Whether it’s a trading system or course, an indicator package or just coaching advice, the result is almost always the same.

When selling a product of any kind that’s designed to solve human problems, improving trading performance is unlike almost any other product in existence with the only exception being a medical procedure or drug. Imagine the difficulty of marketing a product that at least 80% of the purchasers will fail to get any benefit from. Even worse, they could be financially much worse off when the product fails to fulfill their needs. It’s no wonder that trading gurus rarely get kudos. 

To compound the problem, many of these trading experts are self-proclaimed. They are marvelous marketers, for sure, but lack the real credentials and product effectiveness necessary to actually be of any real assistance to anyone needing help. 

The average struggling trader has spent years trying to master their craft. Many have spent thousands of dollars seeking a profitable trading system. Oddly, most never invest a dime in the kind of trading knowledge that has much greater potential to do far more good than investing in another “super-secret can’t lose trading system” that only magnifies their financial suffering.

The good news is that there are some marketed systems that are actually pretty good. They have all the components necessary for consistent success. They’re robust, accurate and even come with great trader testimonials that are totally true. So, would these successful systems work for me…or you? Don’t bet on it happening anytime soon. Any help they did provide would be far down the bumpy road on the way to the Trading School of Hard Knocks.
How can that be? If a trading system works for Bob, Carol, Ted and Alice, why would my chances of quick success be so bleak? The answer lies in everything you have ever learned in the mastery of a difficult skill. And, make no mistake, trading is very difficult and it’s definitely a skill. All trading systems are nothing more than a tool whose only function is to make your job as a trader easier to master. No trading system, regardless of power or price, can replace you or do your job for you! 

Just as becoming a professional trader is difficult, so is becoming a professional golfer. A golfers clubs are the tool they use to perform their job. Now honestly, does anyone believe that winning the US Open only requires that we invest in a good set of golf clubs? Yet so many traders believe that their success hinges on little more than having a good system? 

Golfers become professionals through diligent training, tons of practice and daily mentorship. The same is true of athletes, craftsmen and professional traders. Successful mastery of any difficult skill has no shortcuts.
If you’ve followed the logic and are with me thus far, you may be wondering “What would be an example of a good, robust trading system?” If you will indulge me for a moment, I’d like to show you mine. It’s clear, clean, and accurate and it’s also quite simple. There’s a direct correlation between the complexity of a trader’s methodology and the length of time they spend struggling for consistency during the learning curve. Trading systems can be simple and still allow traders the opportunity to enjoy regular goal achievement for the long-haul.

So, let’s take a look at a simple system with core basics that are simple to learn. That’s due to the fact that it contains very few components. It also gives the trader the three vital elements that traders must know but very few systems provide: The Entry Price, the Stop Placement, and the Exit Point(s). When a trader knows those three things before they ever enter a trade, and be consistently right, then that trader can call him/herself a pro.

The first thing you’ll notice about the charts I use is that the bars are much different from the norm. To demonstrate this point, look at this typical 5-minute time-based chart used by millions of traders.

Here, in gold (GC) you see the massive “noise” that this bar type generates and market noise equates directly to market confusion. Rarely do you see more than 2 or 3 bars stay the same color. The popular tick charts are no better.
Now look at the modified Renko bar that we created many years ago which, by the way, have gained significant popularity in the last few years by various platform and system vendors due to their superior trading characteristics. 

Believe it or not, this is the same instrument (GC) over the same time period. Notice how the market’s direction is so much clearer, smoother and more predictable. But something’s missing…. we need signals! 

Trading charts are much more valuable when we know where and when to enter a trade and nothing shows us great entries better than our Renko Supreme Bars. So we let our computer software, SignalPro, do the measuring, figuring and data-crunching and generate the entries for us. 
I enjoy teaching any trader with the passion to learn how these entries form. That way, any trader can identify them without any special software if they don’t mind doing some brain work. 

Here are the signals that the software found and noted well ahead of entry time. 

The auto-generated signals are always identified by their label (BD, ED, TS, HD, ST, BO, LP, UA, TL or BR) along with the appropriately colored arrow (red for short, green for long). With this wide signal selection available, I can find profitable trades in practically any market condition. They begin flashing their warning notice usually several minutes before it’s time to enter. This gives me plenty of time to place a long or short limit order and let the market “come to me” and trigger the trade. 

The Renko Supreme bars are “encased” in a red/blue band that we call the Price Channel. It makes the price bars even clearer to read strong directional changes and also serves as a warning when a cycle is weakening. 

Those red and green horizontal bands show very accurate Support and Resistance levels. The varying thicknesses indicate how strong they are and all must be considered carefully before taking a trade.

The entries are always consistent and are triggered at the close of the signal bar (the one with the label and arrow). Stops, too, are always known before the trade is ever placed. Once the trade is entered, the stop is placed at the farthest range of the signal bar. Usually that’s at the tip of the bar’s shadow (tail). If a trade is going to work, the stop is rarely touched.

In the bottom Panel 2, you see a multi-colored histogram. This is created from a set of indicators I call the Power Strength Index (PSI). When a signal appears in Price, my rule only lets me enter a trade if the PSI histogram has a dark blue corresponding bar for a long or a crimson red bar for a short. The two vertical blue lines show how this alignment occurs. When the alignment is correct, the SignalPro software places a magenta diamond at the signal so there’s no question if it is correctly aligned.

Once a signal has aligned correctly and has triggered (putting us in a live trade in the market) we already know our entry price and our precise stop location. The final thing that traders must know is where they will exit . Stop placement and exit points are the two biggest causes of trade losses for scalpers but they should always be known before any trade is entered. Trend trader’s exits will differ since they are determined by trailing stops until the market takes them out.

The easiest target (exit point) to teach is to set it at 50% of the range of the previous opposing cycle.

I have used the 50% market (shown above by the red and green horizontal dotted lines) and have found them to be accurate 85% to 90% of the time (even better with minor filtering).   A good Fibonacci trader can generally find greater targets, but Fib mastery usually takes many years of hard work and most traders fail to gain any consistent profitable results using it.  The 50% target can be learned and mastered in less than 5 minutes!
Take what the market gives you. You can’t force any market to give you anything and attempting to do so is a sure way to a short career as a trader.

The real job of any "trading guru" instructor isn't to try making you into something you can never be but, instead, to help guide you and mentor you so that you can reach your full potential as a professional trader...and then to keep helping you stay on track and out of trouble.  And remember, your full potential today should always be less than it will be tomorrow.