What is the No 1 Mistake In Trading?

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“No 1 Mistake In Trading”



What is the No 1 Mistake In Trading?

What is the Smart Money?

Why are they Important?

How can I find SM?

What is the LCT Sequence?

How do I implement the LCT Sequence?

Tools and Resources

1. Introduction

Welcome traders to this white paper on the No 1 Mistake In Trading.

I am Dean and I will show you what is the “No 1 Mistake In Trading” and “How to correct it?”

Trading always fascinates me, it brings with it new challenges every day and gives us an opportunity to grow. This what attracted me to it in the first place.

But we are not that well equipped to handle these challenges. I found this out the hard way. I made every conceivable mistake in trading and the obvious result would be a depleted trading account.

One thing I never stopped was learning, but sometimes by best learning’s turned out to be mistakes later as the market conditions changed.

That is when I realized the only thing that is constant in the markets is CHANGE!

Cliche, I know. But it is the truth!

So after 12+ years in trading Indian Markets, I finally zeroed in on the one mistake that keeps traders from becoming consistently profitable.

The one mistake which if we correct can propel us towards better market understanding, reduced stress while making decisions and as a result improved profitability.

I call it the No 1 Mistake In Trading.

Let’s find out what exactly I am talking about…..

2. What is the No 1 Mistake In Trading?

Well here it is, the No 1 Mistake In Trading is,

“Not Trading With The Smart Money”

So what exactly I mean by that? Let’s find out…

When I started trading I did not know much about the craft. I just got interested by watching TV and hearing my friends and colleague talk markets.

And soon enough I found myself with a trading account and some of my accumulated savings being put on line. Promptly I lost all of it, no surprise there.

After investigating a bit, I found out that you can trade successfully using Technical Analysis, so I dove headlong into technical analysis and saved for my trading account alongside.

But the result did not change since my second attempt also showed the same result, complete loss of capital.

Now even though this was the state of my early trading days, as years passed by, nothing really changed. Aside from the fact that I accumulated some trading wisdom which worked on and off.

I traded using Technical Indicators, Patterns, Elliott Wave, Neowave and a thousand other things. Along the way, I met some brilliant traders who were doing well using some of the tools mentioned above.

So after much introspection and a good habit of continuous learning I came across works of Richard Wyckoff, Tom Williams, Peter Steidlmayer and last but not the least James Dalton.

This is where I learned about Smart Money, all these legends always kept mentioning about the Smart Money. After pursuing this path of finding out what Smart Money is, I have discovered a few traits of Smart Money, they are,

  1. They have better know how.

  2. They have better know what.

  3. They have deep pockets.

  4. They make their money trading against the amateur traders.

As I was finding these traits one by one and after long periods of introspection I could not help but think that I have myself provided the Smart Money ample trade opportunities.

Trades where I lost and they made a killing. That is when I thought to myself finding and trading with Smart Money is probably the most important thing in trading, let’s find out why?

3. Why are “they” Important?

They the Smart Money or SM are important for one simple reason.

  • They are, most of the times, on the right side of the markets.

  • Even if they fail to assess the situation correctly, they can, through their devious techniques (as Tom would put it) turn the tables in their favour eventually.

Given these things, it really makes sense to make an attempt to try and trade with them. But let me explain the two points in some detail.

They are often on the right side of the marketsWell if you had a magic device which told you which side the SM is trading from, wouldn’t it be nice.

All you have to do now is to take the same position as the SM and just enjoy the ride. Well only if it would have been that easy!

But we can do the next best thing. Monitor the SM for what they are trying to do. Once you are sure (there are ways to find out what they are doing) wait patiently for the right time to enter your trades.

The right time often has a lot to do with the amount of risk you can handle, as I said even if SM is wrong, they have means, often devious, to turn the tables in their favour eventually.

So not only you have to be aware of the SM you also should respect your risk and money management principles.

So let’s explore the second point in greater detail.

Even if they fail to assess the situation correctly, they can, through their devious techniques (as Tom would put it) turn the tables in their favor eventually – So say SM are buying, you find it out with your magic device, you go and buy only to see prices falling sharply a little while later. Taking out your SL. So what went wrong, was your magic device broken?

Well not exactly! SM is not called smart for no reason. Whenever SM feel that their buying is met by stronger selling, may be because that is the consensus in the markets, they just step aside. Prices do fall against them sometimes, but in the absence of SM support from the sell side, the markets cannot go too far below their buying zone.

Remember also the 3rd trait, they have deep pockets. So they sustain these losses or use hedging to minimize the sting. And once the amateurs have had their say, they push the price in the original direction.

This happens so often in the markets that you can even trade on this. I know I do.

So these two reasons make it imperative to keep a tab on the whereabouts of SM. It pays to trade with them, the only hitch is how do you find them?

It’s not a problem anymore I will show you how to find them, read on…

4. How can I find SM?

You can find Sm by asking three simple questions in the markets. They are,

Why? What? When?

Once you become good at asking these questions you will know where the SM is and what remains after that is to merely match your timing with them.

So what exactly are these three questions, let us look at them in detail.

Why – Why the markets do what they do?

Here you want to find out the “logic” behind the market moves.

What – What is the market trying to do now?

Here we are trying to find out what exactly the SM is trying to do. In the present moment. So what exactly is the “context” in which the current markets are operating?

When – When should I buy and sell?

Here we try to find the sweet spot. We buy/sell at levels which minimize our risk exposure and increases our chances of success. So “timing” is important!

So by asking these simple questions in the markets, you can find out what the SM is doing. And in accordance with that develop your trading plan.

But is it essential to ask the questions I this sequence only, that starting with “logic” moving on to “context” and ending with “timing”?

You bet it is, let’s find out why…

5. What is the LCT Sequence?

LCT stands for Logic, Context and Timing as you know by now. And it is absolutely imperative that we follow this sequence. Let’s explore why?

The reason is we are basically starting with the core reason why the price moves and slowly moving through finding out what exactly is the price doing right now, all the while keeping vigil whether the core principles are being followed or not and finally settling to time our trades to manage our reward to risk ratio.

If you change the sequence the biggest problem that happens is that you end up paying undue weight-age to a piece of information which in the big picture context is inconsequential.

Now if you are t5rading for a while, you have faced a situation where you took a position, markets validated it for a brief period of time and then went furiously against you to take your SL out.

Why did this happen? More often than not you have misplaced one of the steps in the sequence.

I will give you a classic example which comes from the world of Technical Analysis.

Suppose you are using an oscillator be it RSI, Stochastic or a trend following indicator like MACD.

We have all seen a phenomenon called divergences. It is pretty central to using such indicators.

You observe a negative divergence on the chart and you take a short position. Only to find markets moving up and taking your SL out. But that is normal and not all trades can be profitable, right!

Once again a negative divergence sets up, once again you short, once again your SL goes. What is happening you ask yourself? But you keep your belief.

But when it happens the third time in a row, you have serious doubts about your method. You are frantically analyzing your method, may be tweaking some parameters. And another negative divergence sets up, you say let me first find out what went wrong the first three times, so you let it go!

And this time the market obliges and moves down, not only erasing all your previous losses but would have given you a nice profit.

What happened here? If you think carefully, you will see that you were using a timing tool to find trades. Oscillators by their very nature are timing tools and that’s it, nothing more.

Had you ha any way of finding out the trading logic of the markets and then to assess the current context in which the market is trading, you would not have taken at least first two signals.

You can save a boatload in the markets just by avoiding mistakes.

That is why it is imperative to follow the L-C-T sequence. But do you have a tool you can use to do so? I for sure did not have one in my early days of struggle.

But now I do and that is what we turn out attention to now! So if you are bored go grab a drink of water or coffee and come right back because this going to get interesting now…

6. How do I implement the LCT Sequence?

HOW? That is probably the most repeated question in the world of trading.

But there is a time and place you ask this question. If you do it at the wrong time and place, the answers you get won’t help you much.

This incidentally is the right place and time in this White Paper to discuss the HOW?

I mentioned names of 4 legends in the world of trading a while back, they were,

Richard Wyckoff, Tom Williams, Peter Steidlmayer and James Dalton

Each of these gentlemen has given us unique gift. I learnt most of my trading acumen from these 4 traders.

I learnt the following from these legends,

Richard Wyckoff – Market Cycle Phases

Tom Williams – Volume Spread Analysis

Peter Steidlmayer – Auction Market Theory

James Dalton – Market Profile

And these 4 techniques give us the necessary system to implement the L-C-T sequence. Let’s see how?

For Logic, I use the Market Cycle Phases and Auction Market Theory Framework.

For Context, I use Market Profile (Trust me there is nothing better than MP for context).

For Timing, I use Volume Spread Analysis and an advanced tool called Order Flow.

So there you go, using these 4 tools I can easily implement the L-C-T sequence and generate great trading opportunities, consistently.

My most basic beliefs about markets are rooted in Market Cycle Phase by Wyckoff and AMT Framework by Peter. They are so deeply imprinted in my mind that I don’t have to make any conscious effort to look at the markets through these tools.

Then I watch the Market Profile charts day in and day out. Come on people, I am a full-time trader, what else can I do. And I absolutely love it! Through these beautiful MP charts, I can see the principles of AMT and MCP playing out over and over again. It gives me a really solid foundation to base my trades on.

Finally and I mean it, only and only after I have gone through the above two steps I look at the timing tools such as VSA and OF. Here I try to find the sweet spot to enter my trades at the acceptable reward to risk ratios.

Now not all my trades work out, I am a trader, not GOD! I am sure even he would have his reservations about getting it right on every trade!

But a combination of deeper market understanding drastically reduced stress and acceptable success rate helps be a full-time trader and have released me from the evils of EMPLOYMENT!

It’s a wonderful world and you can be a part of it if you do the right things in right sequence.

So that concludes this white paper, I know you want more and I am going to give you more. I have a free Email Course on this very subject which goes in much greater depth in avoiding the No 1 Mistake in Trading.

Here is a link to join it,

Free Email Class On “No 1 Mistake In Trading”

In this email course, you will get a series of emails right in your inbox taking you through this framework in greater detail.

So join now, and I will see you in your INBOX!

7. Tools and Resources


Tom Williams – Mastering The Markets – Download Free

Peter Steidlmayer – Market and Market Logic – Buy on Amazon

Peter Steidlmayer – Steidlmayer On Markets – Buy on Amazon

James Dalton – Markets In Profile – Buy on Amazon

James Dalton – Mind Over Markets – Buy on Amazon


Market Profile and Order Flow Software

Indian Provider – BellTPO

Please Google for Other Options

VSA Software – Download My Indicators for Amibroker

Universal GTTE Indicator

VSA Volume Indicator


My Slack Group – GetThatTradingEdge on Slack

My YouTube Channel – DeanMarketProfile

My Website – https://getthattradingedge.in

Also find me on Twitter, Facebook, Linkedin, Google+…..

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