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In a previous issue of Chart Scan, I wrote: "As a human being there is a component working in you that is comprised of the following elements: Your intellect, your emotions, your memory, your imagination, and your will. These elements work together to determine who you are and how you will behave in the market -- actually, in anything and everything you undertake to do." This week we are going to look at "Intellect" to see how this element can defeat you as a trader.

Over decades of trading and teaching others how to trade one of the greatest problem areas that regularly comes up is that of intellect. You might want to think about that for a moment (no pun intended). A component of intellect is "logic." How can logic undermine a trader?

Being intelligent, being a logical thinker, having a high degree of intellect is often the worst thing that can happen to a trader, yet it is those persons having these gifts who are most often attracted to the business of trading.

The problem for these aspiring traders is that there is little to do with logic when it comes to trading in the markets. Markets are driven by emotions, two of the most prominent being fear and greed. There is not a shred of logic in either of those emotions. On a purely intellectual level the markets consist of a place to buy and sell. They are places, where to the best of man's ability, a somewhat fair price may be discovered. Finding out a price at which buyers are willing to buy and sellers are willing to sell, seems altogether a logical pursuit. Indeed, this process is called price discovery. Although price discovery is often corrupted by those who are able to manipulate prices it is the best method man has come up with.

On the surface markets appear to be logical and intellectually solvable. However, the truth is that because they are driven by emotions they are actually confusing and chaotic, and anyone trying to put the movement of prices into a defined box is doomed to failure.

Sadly, the majority of people who are attracted to trading are those who want everything about price movement to make sense. Their attempts at setting boundaries for price movement are truly tragic. They talk about support and resistance as though somehow, magically, those price levels will contain prices. They draw trendlines and defy prices to cross them. They draw angles and pitchforks, speak knowledgeably about Fibonacci ratios, Elliott Waves, MACDs, and so forth as if these concepts had any logic behind them at all.

I'm not saying that any of the above are not tools that can be used in trading, but they must be used with full knowledge of their weaknesses and with full knowledge of what they can actually show. Any and all tools used for trading can fail, and unless a trader is willing to be flexible, there will be little chance of success.

There is no end to knowledge and understanding that must be acquired by a trader. There are no rigid lines, no boxes, no be-all to end-all models that will always work. There are no perfect systems and no perfect methods. The problem with intellect is that its logical element wants safety and assurances. Intellect wants a perfect fit every time. But anyone who has traded with real money, soon finds out that trading simply isn't logical. Prices cannot be confined. Markets are like the proverbial 600-pound gorilla. They go wherever they want to go.

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Master Trader Joe Ross wants you to learn trading and he created products to do just that, teach you how to trade. Go to our website to find which ones best fit your trading style.



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Saturday, 22 June 2024

Derivative transactions, including futures, are complex and carry a high degree of risk. They are intended for sophisticated investors and are not suitable for everyone. There are numerous other factors related to the markets in general or to the implementation of any specific trading program which cannot be fully accounted for in the preparation of hypothetical performance results, and all of which can adversely affect actual trading results. For more information, see the Risk Disclosure Statement for Futures and Options.