Learn to Trade with Situational Awareness

Published on: October 04, 2019

Developing situational awareness is a key discipline for professional traders as they learn to trade. But is it something that you at home should concern yourself with? Let’s consider 2 extreme scenarios:

1. Trading day 1 is lively, with new institutional money coming into the markets.
2. Trading day 2 is slow and consists of nothing but day traders trying to make money off each other.

It should be obvious to even the novice that there’s less money to be made on day 2. Does it, therefore make any sense to take the same approach to trading both types of day? In our opinion, no it doesn’t.

For many traders, when they learn to trade, it becomes like choosing a side in politics or joining a religion. What they learn becomes their world view: “I’m a chart trader”, “I’m a technical trader”, “I use fundamentals”, “I use WD Gann” etc. You only have to look at online trading forums at how far people will go to defend the view that their side is the right one. After all, no-one wants to think they made the wrong decision. People have time invested, sunk costs. There are chart traders that insist everything you need is in the chart and that the charts already represent the full collective knowledge and intent of all traders on the planet. Pick a different viewpoint and you’ll find there are people defending that as “all you ever need to know”.

What tends to be the reality is that their approach is “right sometimes” and leaves them scratching their heads other times.

This article and video aren’t here to burst any bubbles or insist that what people know is wrong. This isn’t technical OR fundamental analysis but it is an important part of the development process for those that want to learn to trade. What typically happens with those attempting to learn to trade at home is they hit a plateau. The symptoms of this plateau are:

1. Making money on SIM, going live, then having to go back to SIM again after losing money.
2. Feeling like a market expert one day – when everything works, then feeling like an idiot the following day when nothing works.
3. Days where all attempts to regain early losses simply end in more losses.
4. Closing winning trades way too early on days when the market is presenting more opportunity.

The end result of this is a huge loss of confidence. If you take point 3 above, of course, there are days when you start a loser and should attempt to recover but there are also days when you start a loser and you should make no attempts to make back the losses. The loss of confidence is because traders don’t know how to tell the difference between these days or they don’t even know it’s possible to tell the difference.

In the attached video, from our October Trading Group Therapy session, we discuss both the benefits and the approach for improving your situational awareness. This is an interactive session and there was plenty of Q&A along the way plus comments from the professional traders attending that were already using many of the methods we outline.

If you are no longer progressing with your trading or you have been beaten up by the market so much that your confidence is gone, then take steps to improve your situational awareness, so you have a much clearer view about the potential opportunity the day is providing.