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LEVEL ONE: THE NOVICE
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The objectives in music at the novice level are: to learn the rudiments of music notation and to begin to understand the vocabulary and abbreviations on the sheet music. Trading is no different. You are learning to read the language of the market. As each level is introduced in this chapter, look for this highlighting of the objective and tools for that level, using the Profitunity approach to trading.

Objective: To not lose money while gaining experience

Tools: OHLC, volume, MFI, Profitunity windows and air bag

In science, the characteristics of this level are numbers. In music, they are the written notes. In computers, they are the binary digits. In physiology, the key is the left hemisphere of the human brain. In history, it is the Middle Ages. In math, it is the level of arithmetic. The assumptions are Aristotelian in that everything is discrete and you can count and/or classify everything in the universe.

At Level One of trading, we are learning the basics of the market: vocabulary, how to put on a trade, what margin

requirements mean, and so on. We begin to see the enormous amount of information contained in the tools at this level. These tools are the price bar or OHLC (open, high, low, and close), volume, Market Facilitation Index (MFI), and the Profi- tunity windows and protective air bag. We are looking at the market on a bar-by-bar process. We are focusing on only two bars, the present bar and the one immediately preceding it. Our primary interest is to understand the evolving behavior of the market rather than to attempt to fit some pattern or "template" from the past onto the current market behavior.

This is the first step on the way to becoming an expert trader. As a novice, you learn how to determine who is running the show and what is currently being done. You begin to iden­tify trends of various lengths. Most novice traders search for a mechanical system that will make them rich and successful if they can just put the pieces of the market puzzle together. Forget it; this will not happen. If you are trading from this perspective, you are doomed as soon as your luck runs out. There simply are not "good mechanical maps" to follow at this level. In my opinion, there never has been a consistently successful "mechanical" system. There isn't now and there most likely never will be, even with artificial intelligence, analog coprocessors, genetic algorithms, orthogonal regression, and neural networks. As you understand how the market really works (remember the Flintstones), you will understand that the market is designed to destroy any successful mechanical system. All mechanical systems die! They are linear tools and cannot accurately or adequately describe a nonlinear market. If there was a consistently successful mechanical system, it would not be worth $3,000 but could be sold in hours for $30 million. Note that we are talking about a mechanical system that will work consistently and profitably over time.

The maps used by novice traders are generally price comparisons, which all fall short of being adequate because price is an effect and not a cause. They are comparing effect with ef­fect. This technique generally does not lead to profitable trad­ing. Every now and then, it will send out a "good signal," but using these tools does not produce consistent profits. I have laid down this challenge around the world: for every instance where some typical trading signals—divergence, above or below 80 percent, and so on—produced a profit, I can show you five signals of the same type that would have produced losses. I am including stochastics, RSI (Relative Strength Index), mo­mentum, channels, and some other "old reliables."

The function of the novice level is to trade in the market and not lose money while you gain experience. In the typical scenario, most novices,' whether in music, romance, or trading, tend to generate an enormous amount of "germination" energy. What follows this elation is usually depression.

"I didn't realize that, to really play the piano well, I need to spend four hours practicing each day for years."

"That girl [boy] didn't look quite so good after I learned more about her [his] personality."

"Trading is really a much trickier business than I anticipated. Each time I take a step forward, that seems to be followed by a step backward."

This is the point where most novice traders leave trading. Past statistics indicate that the majority of new traders last just over three months in the market. For those souls who can weather this depression by continuing to practice music or to learn more about trading, there are great rewards in store.

As you practice this microscopic study (we only look at two adjacent bars) of market behavior, you begin to get insights into how the market really works. You begin to realize that it is a product of nature and not of economics, fundamentals, or technicals. Just as skill in bicycle riding comes only after enough falls to teach you the internal principles of balance, so the novice level begins to teach you about the balance of the markets. This then opens the doors of opportunity to enter the next level of understanding, perception, and performance.

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