What an Old Fisherman Taught Me About Confidence and Clarity in the Market
Many of us depend on the financial markets to make a successful living for ourselves and our families. We believe with the deepest hope that some degree of understanding will unfold our destiny to untold riches and prosperity.
So while we continue our search for devine knowledge, perhaps a portion of our time might be better spent developing know-how.
Letâ€™s consider the story of the old fisherman who spends a lifetime developing the skill of fly fishing. The fly at the end of his rod whips to and fro in a perfect rhythmic display of an insect in flight. Every twist and bend of the rod is specially tuned to catch the eye of the hungry trout.
He reads the water and the swirling current like the fine print of the family bible and delivers his message of hope with regal precision. With the sensitivity of a record needle, he can feel the flow of the current and the percussion of a strike.
Every bone and muscle in his body has been conditioned by years of practice and is mechanically tuned to respond with the perfect mix of finesse and strength.
Itâ€™s not that the fisherman knows where the fish is. He knows where it could be and has the skill to find it. He bears the confidence and clarity of knowing his place on the river.
The trader is no different. He knows not where the market is going, but bears the confidence and clarity to know his place in the market. To the trader, reading the market-like reading the river-is a conditioned response that happens over years of practice in the techniques of execution. Itâ€™s more art than skill, and itâ€™s skill more than knowledge.
The purpose of this little e-book is to divulge three tips of the trade from an old fisherman in the market that will build confidence in your skills and artistry as a trader.
Confidence grows from a state of certainty that you are correct in your forecast of direction
and that your choice of action is the most effective of all the conceivable opportunities in the market.
Itâ€™s akin to the fishermanâ€™s ability to read the river and present his siren lure to the proper current that creates a high probability of catching his trout. Traders, in a similar fashion, must read the market and present their order to the flow of price
at the precise moment when the degree of probability is at its highest that they will â€œcatchâ€? a little profit.
To the fisherman, the river is important. He must understand how the smaller ebbs and flow of the current in the greater complexity of the river converge to create the ideal location for a fish to live. A river is comprised of flow-the general trend or direction of the river-and millions and millions of smaller currents, ripples and waves.
While the riverâ€™s flow is a generality of the direction with each molecule of water moving downstream, there is, at any given moment, a ripple or wave that can move the water higher or lower, to the left or right. This is important to the fisherman, because he knows that his fly does not follow flow, but the smaller ripples and waves.
The relationship between ripple and flow is the foundation of the fisherâ€™s knowledge and will increase his confidence in his ability to catch a fish. He knows that he must catch the right ripple without fighting the flow and present the fly in the most natural movement through the current of the hole. First and foremost, the fisher must not fight the flow of the river; if he drags the fly against the flow, the fly will look unnatural and the fish will sense the anomaly as danger and dart away.
The fisherman must also know where to cast his fly in the greater complex of the river. Not every ripple bears fish. For example, a ripple that bubbles over or around rocks or logs often create a hole or an undercut where fish can hide and catch their dinner in the chirning current of the water. The presentation of the fishermanâ€™s fly must be given enough slack in the line to allow the fly to drift naturally through the short span of the hole without casting too close and pulling out too early.
However, casting too far upstream and holding it too far downstream generally do not produce any significant advantage to the fisherman. The hole presents the greatest probability for success, so the fisherman spends most of his time working the small stretch of the river produces the greatest probability of success.
Likewise, traders must understand how the smaller currents or price action relate to the greater complexity of the price trend of an investment. Price is comprised of flow-the general direction or trend of an investmentâ€™s historical price movement over time-and millions and millions of smaller currents, ripples, and waves. While the price trend is a generality of direction, at any given moment the ripples of price action may be moving up, down, or sideways-completly irrespective of the trend.
This is important to a trader because he knows that his performance is not intrinsically tied to the trend but to the smaller ripples, currents, and waves of the flow. at any given moment the traderâ€™s investment may be gaining or losing even though their position is in line with the general trend in price.
Knowing the relationship of an investment to the ripple and flow of price can help the trader boost his confidence in pulling profit out of his investments. He understands he cannot fight the flow or the charts historical price trend, he must find the right ripple or current, and he must allow his investment to move naturally with the current of the market over a short period of time where probability of success is greatest.
Letâ€™s explore each of the conditions as it related to a traderâ€™s performance in the market.
First and foremost, the trader must not fight the flow of the investmentâ€™s historical price trend. Even though, at any given moment, the trader may see the price moving against the flow of the market, the movement is generally short-lived and will not produce any measurable profits. the rule here is that if the trend is flowing up then
trade only short positions. For as obvious as this sounds, traders consistently break this most fundamental rule and like the fisher who drags his fly against the flow of the river greatly reduces his opportunity to catch a fish, the trader will greatly reduce his chance of catching profit from the move.
Next the trader must understand where to place his trades.
Just because the price trend is flowing higher or lower, it does not mean tha the smaller currents and ripples of the market will be moving the same direction by dropping down to smaller time frames on the charts.
The movement of price after a reversal or a breakout generally produce the longest stretch of profitability on a chart. Since the trader is looking for these reversal or breakouts
in the direction of the trend it has the accompanied force of flow to help carry it faster and further than a reversal or breakout that moves against the trend.
Finally, the trader will give the trade just enough time and slack to allow the investment to follow the natural price ripples from the beginning to the end of the churning current after the reversal or breakout. This small span of price movement gives the trader the greatest probability of success. The trader knows that he must enter shortly after the reversal or breakout, hold on while the price moves in the direction of the trend and exit his position shortly after the next reversal.
Trades that are executed too early and held too long do not yield any advantage since, at some point, the trade will be fighting flow and spending unnecessary time in low probability parts of the trend. The distance between reversals where the market is moving in the direction of the trend will always yield the greatest possibility and probability for income and profit.
The similarities of success on the river or in the markets are striking. The next time you pull your tackle and cast for profits in the market,
remember the story of the old fisherman and accomplishment and artistry of his skill in reading the water. Remember the flow, the ripple, and the natural presentation of the fly past unsuspecting trout.
The fisherman may not catch a trout on every cast, but with the confidence in his approach, the knowledge of the river, and the refined skills of time, he will end his day happy, satisfied, and possibly blessed with a basket full of fish.