Defining and understanding Probability
The 80/20 system has to be understood and used properly, along with other basic and fundamental points. It is vital knowledge.
We see it work in a multitude of markets, from the S&P 500, Treasuries, stocks, currencies?the list is endless. We
will learn what markets to apply the rule to and why and just how relatively simple it is?think of it as an adjunct to KnovaWave
Methodology?because that is what it is.
The key 80/20 elements are; 80% of the market trades in ranges, 80 and 20 are key psychological fulcrums in market prices,Fibonacci , Gann & Murrey?s key barriers Gann discovered these same fulcrums,
Floor traders use pivot points and place orders at 80 or 20 cents of the whole number most of the time.
Overview
In developing the KnovaWave methodology the biggest barrier to it?s success is very clear?the trader?s behavioral adaptation
to it. There is a strong belief that ?a leopard can?t change his spots? - and yes this is true for so many traders?if not the
majority, though they tend to camouflage those spots for a while. This brought about a challenge to us??How do we get the
leopard to change his spots or at least camouflage them without drastic shock treatment!?. We needed to add the discipline of
the professional trader which is brought around by both hard work and experience for sure but more importantly an adherence
to rules.
Whilst we believe trading is an art not a science there are a selection of rules to adhere to that work for the majority of the
time?it is developing the art form that picks up the other 20% of the time and takes traders to that echelon of greatness that
true ?rhythm traders? possess. Again there is no holy grail and it is all about what you are prepared to put in and get out of
trading?that is the beauty of the KnovaWave Methodology! All well and good but how do we make easier to adhere to?
Secondly we need to do it at the start or mid point of a trading career so as to avoid the many pitfalls we are prone to as humans,
after all we are only human and pointedly we are involved in an art form not a science so to be truly successful we
must go beyond a robotic plan, which are doomed to failure in any event.
Why the 80/20 rule? For a number of reasons;
- 80% of the people are dominated by 20%
- 80% of the market trades in ranges
- 80% of traders and investors lose
- 80% of traders and investors are dominated by greed and fear
- 80% traders and investors take no self responsibility
- 80 and 20 are key psychological fulcrums in market prices
- Fibonacci has key barriers as 80?20 yes prior to metric these bands were 78 and 22% - key Fibonacci levels
- Gann discovered these same fulcrums
- Murrey simplified Gann dividing the data into eights?whilst this changes with the underlying entities price?in high
liquid assets 80/20 are significant points of inflexion.
- Floor traders use pivot points to determine critical price and support/resistance levels. Notice the stops and orders are
usually at 80 or 20 cents of the whole number.
- Importantly it allows for a more comfortable-less stressful mode of trading.
Importantly it allows for a more comfortable-less stressful mode of trading.
The 80/20 system has to be understood and used properly, along with other basic and fundamental points. It is vital knowledge.
We see it work in a multitude of markets, from the S&P 500, Treasuries, stocks, currencies?the list is endless. We
will learn what markets to apply the rule to and why and just how relatively simple it is?think of it as an adjunct to KnovaWave
Methodology?because that is what it is.
The key 80/20 elements that are essential as buttresses for your trading plan are;
- Recognizing 80% of the market trades in ranges
- 80 and 20 are key psychological fulcrums in market prices
- Fibonacci , Gann & Murrey?s key barriers, recall that Gann discovered these same fulcrums
- Floor traders use pivot points and place orders at 80 or 20 cents of the whole number most of the time.
Discipline, Discipline, and more Discipline
Let us start of with a very important realization without discipline there is no trading career?perhaps a gambling career
but no trading career! Discipline, Discipline, and more Discipline the real rules of trading?without it you are doomed it is
just a question of time! This is not an easy behavioral trait to master I know but nevertheless an essential element and a key
to any successful trading plan.
Behavior Modification
If we don?t have the discipline how do we stay in the game? It is a behavioral process to acquire discipline it doesn?t just fall
in our laps. To adhere to the KnovaWave Methodology and it?s requisite components takes a combination of knowledge
and behavior modification. As a trader you will constantly add to this over the course of your trading career. Whilst there
are many behavior modifications available and suitable to other the unique situations that trading presents to traders on a
daily basis certainly call for a different if not elevated approach. Very simply we must understand our present behavior so
we can make an informed, unemotional decision on what we need to do to make changes in our trading style. This may be
not just to into a structured artistic system such as the KnovaWave Methodology but whatever you have chosen. Remember
it may well be that you are more than happy with your present trading and life situation?just make sure it is not from
good fortune?that may or not be fleeting.
As we learn the 80/20 rule we must understand some basic psychological points from Knovacology. One of the most important
is this very sanguine point which is very basic but never stated given the lecherous nature of the trading game!
Firstly we know that at least 80% of the population loses trading?in some markets this is put at 92% So therefore it is a
true statement to say trading is a losing game. Therefore the next point is very important to grasp and significantly has
naught to do with ego.
In a losing game such as trading, we shall start against the majority and assume we are wrong until proven correct!
What does all this mean ? It means we do not assume we are correct until proven wrong. We allow the market to verify
correct positions, not incorrect positions. This is a key element and crucial to our thinking. Here discipline is key as positions
established must be reduced and removed until or unless the market proves the position correct. What we are doing
is modification by expressing the truth that trading is a losing game?how often do we hear trader?s say that? Not very often
as it is akin in their minds to admitting they are a loser. Next we emphasis to ourselves that we start against the majority
and assume we are wrong until proven correct.
The importance of this is we think differently each time we enter a position. We are thinking that trading is a losing game!
By acknowledging that we are against the majority and assume we are wrong until proven correct, we are also change our
thinking. We are acknowledging the herd mentality, that it exists and the consequences of it. This is borne out in our work
with Elliott Wave Theory in crowd behavior, swings and impulse waves. Here the key point to understand is false assumptions
promoted through the investment and trading industry that leads us to think almost everyone wins in trading. This is
the key point if we trade under this assumption our behavior is going to be based on winning protection rather than losing
protection. Our focus will be on when to take our gains without thought on taking a loss, much less a quick loss. In other
words we ignore the losses and focus on the winners?which is so common whereby huge losses are rung up?indeed the
whole concept of cost averaging is based on this false assumption. Which incidentally is practiced by the majority!
The key point of the 80/20 Rule is that it is based on the premise of;
- We must focus on losing protection.
- We think trading is a losing Game.
- We acknowledge the herd mentality.
Conceptually this changes our thinking to where we don?t think like the majority!
KnovaWave Methodology - Plan Components
To learn more about the other components of KnovaWave Methodology just click on the link below.
- Pivot analysis and market psychology around inflexion points.
- Pattern recognition reading the probability of future price action.
- KnovaWave Gann method in evaluating time and price and market cycles.
- Median lines using Andrews/Babson techniques and KnovaWave Medians.
- Fibonacci Techniques using mathematical repetition and prediction.
- Elliott Wave Analysis in determining our medium term view and for intraday analysis of inflexion waves.
- Murrey Math or Trading Range retracement and for evaluating turning points or reversal days.
- Bifurcation to recognize the market possibilities and opportunities.
- KnovaWave Reversal Methodology to recognize and profit from change.
- 80/20 Putting it together - having a truly profitable and disciplined trading plan.
KnovaWave - LEARN, PROFIT & ENJOY!
