Learn To See
Let’s go back to The Matrix for a moment. If you remember the movie (and if you don’t, stop reading this, get your life together and go watch it) Neo’s journey of awakening entailed seeing things for what they are, not for what he had been told they were.
In one iconic scene, Neo walks down the street, pushing his way through a crowd of blandly dressed people, when he gets distracted by a beautiful, blond woman in a red dress. When he looks back to get a second look, he’s staring down the barrel of gun.
The gorgeous woman had morphed into an “Agent” milliseconds away from killing him.
Morpheus pauses the simulation and explains to Neo that his strength and freedom lies in his capacity to not play by the system’s rules. Instead of looking at the woman in the red dress as a beautiful woman in a red dress, he must see her for what she is: the product of a system. Once he can see through what the system is trying to make him believe, he can understand what causes it, and then, he can free himself from it.
As the movie progresses, Neo stops seeing the illusions of The Matrix and starts seeing the code that makes it work. He comes to understand the forces that create the system that imprisons him.
And that’s when he breaks free.
It’s no stretch of the imagination to say that you currently find yourself presented with the same opportunity to see things for what they really are, not for what you’ve been told they are.
Step back and ask yourself, what creates a move in the market? A lot of people would answer underlying company fundamentals, news events, alignment of certain chart patterns, or the math expressed in complex options pricing formulas.
I’m here to tell you that all those people are missing the point. When you’re looking at those things for the answer, you’re looking at the woman in the red dress.
You’re distracted and playing right into the system’s hands.
If there’s one thing that you learn from this 3LT Playbook, let it be this: the markets are created by supply and demand. It’s that simple. Every chart you see and every pattern you try to follow is created by the system of buyers and sellers agreeing on a price. News only matters if it makes people buy or sell. Fundamentals are meaningless unless they catalyze action by participants. Options greeks are an attempt to express how prices will move when transactions take place.
It’s one of the most beautiful truths about this market. As astoundingly complex as it can be, it’s also very, very simple. Buyers and sellers. Bid and ask. That’s it.
So just imagine what could happen if you could see buyers and sellers in real time. See them queuing up on either side of the bid and ask, positioning themselves. See huge institutions and algorithms pushing names in one direction or another. See whether “big news” actually matters at all.
I can tell you what would happen.
The first thing is that you’d realize how many traders spend their careers and their accounts distracted by the woman in the red dress. They don’t want to look at the root of the system because it scares them - it sounds difficult and time consuming (and they’re probably self-sabotaging in all sorts of ways too, but that’s getting into Law #3). And they’re right, it’s not easy. That’s why so many people avoid putting in the work, and never wake up as a result of it.
The second thing is that you’d be able to anticipate what will happen next. The timing of your entries and exits would improve dramatically. You would see traps lurking in the distance and step around them instead of right into them. You would be able to immediately discern the impact of news or earnings and how to position yourself to profit from that reaction.
Most importantly, you would see the code of the system - what makes it function. And that means you can beat it.
If you haven’t guessed by now, I’m talking about Tape Reading.
Tape Reading is the foundation of my edge. It’s not the only weapon that I have, but it’s the most powerful and reliable one. It’s also a skillset that truly separates professionals from non-professionals. Virtually every formally trained, professional trader I know reads tape. To them, it’s synonymous with trading.
Non-pro’s… they don’t want to do it. They want easy chart patterns and alerts. They don’t want to dig that deep. And that’s often because they don’t believe in themselves enough to take their game to the next level.