At some time during your trading journey you need to sit down and spend a whole weekend thinking about what you are doing and how you may need to change the way you approach trading. Trading was, is, and always will be challenging. Anything rewarding in life always is. On the other hand the only thing stopping you from becoming a successful trader is you. Not your broker, your platform, your computer, or the market. The problem is you.
Traders want to make money trading from their computers in the comfort of their own home. Who doesn't? As a new trader you believe that you can out trade the other traders in the market and make money consistently. Otherwise you wouldn't even attempt it. After you open a live account and start trading you quickly realize that trading is not as easy as dropping a few thousand in an account and clicking the mouse. If that were true and everyone who opened an account was able to make $200 a day trading a small account wouldn't everyone do it? If it worked where would the money come from to pay these traders everyday? Who would supply the money?
Let's look at this the way it really is for a moment. You are allowed into the market to test your skill trading against the pros who run these markets. The "Smart Money". The cost to get in is a trading account (your stake) and every time you open a trade you need to ante up (pay the spread). If you win you get paid and if you lose you pay whatever amount you lose depending upon how you set the trade (risk) up. Since they cannot possibly focus on you as an individual don't you think they have devised a systematic approach to taking money from the majority who enter the market?
The first step in becoming a successful trader is awareness. Awareness of what is really going on and what action you plan to take in order to succeed. Becoming aware takes time and is a work in progress because changes in technology are always changing and shifting things under your feet. You cannot remain static if things are always changing around you. The world turns. One thing thing that you can rely on to remain the same is that even though there are technological advances the basic principles never change. How money is made and lost in the financial markets was and will always have to be the same as in the past, in the present, and hundreds of years into the future. Learning these principles and applying them to your trading is the first step to developing your mindset and put your thinking on a path to success.
When I talk to traders I can tell within 15 minutes from what they say if they have a full understanding of the game they are playing. The same goes for watching You Tube videos of the 100's of self proclaimed trading gurus. The mental aspect of trading does not involve high level theories of psychology but learning and understanding what is going on in front of you and how you need to think and act to maximize your efficiency. Trading is a game and you need to participate in that game a certain way to win. Proper participation is a learned skill that comes from experience. You are not born with that skill.
The reason that experience is so important is because it trains you through repetition on how to anticipate and act. When you see something setting up in front of you and you have seen that same thing setting up 20 times before it gives you confidence in taking action. You are not predicting the future because you don't know what is going to happen next with certainty. You take action because you see the probability of something happening increase. And that is all trading is. A probability game.
What Smart Money is doing everyday is creating the illusion that these markets are moving in a fluid like linear one way direction that can bring profits to those who can consistently ride these one way "trends". The reality is that the market moves up and down and reverts back to the mean getting traders to trade on both sides of this never ending price auction. These traders are typically taken out of the market by bull or bear traps where price moves enough to get you into the market hoping for a big pop when in reality the price always seems to move against you as soon as you get in. The big one way linear moves always seem to come out of nowhere after price has been moving the other way. If this is the case you would typically have to be on board the trade before it takes off which would necessitate you sitting through a decent drawdown before you come into profit. Since you are told to "cut your losses immediately" you won't be able to trade that way. Only professionals can use large enough stops and allow enough time to go by to wait for the trade to mature into a big profit. That is not for the traders who use tiny stops and close their trades within 24 hours and in many cases 8 hours (after a trading session ends).
Unlike the short term daytraders, Smart Money has time on their side. They know that most daytraders will close their trades within 24 hours and definitely over the weekend because they have been taught that there is "market risk". So all Smart Money needs to do is to set up the majority of traders into trading one way during the trading session to easily force them out of their position with a bull or bear trap before the same session starts the next trading day.
Time is a variable that must be included in any trading system because without time price does not move. It appears to move but in reality price is not moving until time goes by and many events occur. Ignore time and the market becauses the world's largest roulette wheel.
Another important study is market structure. Learning to see where in the market structure price currently is and where it appears to be heading next can help you understand where the best trade locations are and where your risk to reward is most favorable. Simply jumping into a trade with a 1:4 Risk to Reward ratio is not good enough. Those in charge are well aware that traders are taught to take a minimum of 1:1 or higher Risk to Reward and this is why the longer you stay in your position the more likely you are to be stopped out by movement against you or watch a healthy profit disappear. This is the real reason a news spike goes the "wrong way", i.e. a positive number causes the asset to fall precipitously. Everyone was long and they need to be stopped out in large numbers quickly. This is market manipulation plain and simple.
If traders spent 10% of the time they spend on searching for indicators, software, and "strategies" thinking about what trading really is and what is really going on they would immediately improve their results by doing less of what doesn't work and begin the process of figuring out what does work and what does need to be done to get them on the road to consistent profitability.
On 11/8/17 we posted a blog "SNAP Being Snapped Up?" about the potential for SNAP CHAT stock with ticker symbol SNAP to move higher based upon the following observations:
These observations let to the analysis that SNAP was being quietly accumulated by Smart Money interests. Smart Money buys at the low when the news is negative and no one is paying attention.
Today a news release about SNAP caught our eye and we found the price had gone parabolic.
The price of Bitcoin has dropped below $11,000 as the Smart Money "Retail Flush" continues. The strongholders are dumping the price of Bitcoin and the overall scenario is picture perfect for them to set up their buy campaign.
The lower the price drops in rotations the more attractive the opportunity becomes. Smart Money buy low and sell high. They have already sold into the $20,000 high print and they are now reloading their positions. Expect the price to move in rotations on the way down so Smart Money can buy in stages and accumulate their position quietly and then drive the price back up as Retail investors look on.
Bitcoin is hovering around $14,000 as the Holidays come rolling in. The timing could not have been better for Smart Money to start up their cash machine. Now that the futures markets are online the Bitcoin Bonanza is turning into more of a two way market. The sell side is ramping up against the Bitcoin Bonanza Buyers.
In a simple case of what goes up must come down the price of Bitcoin is correcting and there may be more downside in the near future. Big B has already lost a significant percentage of it's value and it will be interesting to see the path that price moves in the coming weeks. Are the algos on or is this just a blip on the radar screen? Only time will tell but one thing is for sure-Bitcoin will definitely be the topic of conversation at many Holiday parties this year.
Technical analysis is used to measure/quantify activity and price movement in your charts and give you a basis to begin forming a potential trade idea. You need to use additional information before you enter a trade. By itself technical analysis has no reliable predictive quality.
“I will go short when this move retraces 50%” is not based upon anything other than a gut feeling or your opinion. There is no scientific evidence or data to back up your gut feeling. Backtesting can help you with probabilities but there is no 100% certainty in this game. The only certainty is that you are always operating in a condition of uncertainty.
You need additional information before you decide to trade. You need to put the probabilities in your favor. In the best case scenario you use repeatable patterns and conditions that you have seen over and over and only trade when these conditions are present and stay out of the market all other times.
You have to factor predatory algorithms into your analysis. Price is not moving on pure supply and demand, it is being skewed by the orders being pumped in by algos. If you completely ignore the presence of algos you will be frustrated. They will be stopping you out, driving price against your position frequently, and moving without you when they make the big moves. That is what they are programmed to do and they are very effective.
No one cannot predict when an event will happen, for example an earthquake or tsunami. You need a crystal ball to do that. But you can predict with 100% certainty how people will react and what their likely behaviors will be. As an example if you are in a movie theater and the fire alarm is pulled everyone will run for the nearest exit because that is what they were told to do. Once they see others running for the exit (even though they don’t see fire or smell smoke) they will follow the crowd out the door. The same is true with trading. Learn when the crowd is going to do something and start to trade against them with the Big Boys. That is how the Big Boys make their profits everyday. They do the same thing day in and day out, in a slightly different way to keep traders guessing.
The chart of SNAP or Snapchat looks like the stock is currently under accumulation. Chinese company 10Cent purchased a 12% interest in SNAP. The earnings reports for SNAP are negative and the Retail stock traders who bought SNAP the day of the IPO have probably sold it already and booked their losses. SNAP looks like the perfect candidate to
make a comeback or be purchased. Only time will tell what the future holds for SNAP. But in the doom and gloom there is a ray of light.
When you initiate a trade in Forex you are trading against Professional traders from banks, hedge funds, and liquidity providers known as market makers. These traders are part of large organizations which employ quantitative experts who write computer programs to automate their trading activities. As these programs enter orders into the market they are executed faster, more frequently, and more accurately than manual traders. This gives them an advantage because there is no human intervention to cause execution errors such as hitting Buy instead of Sell, closing a winning trade early, or letting a losing trade run. These algorithms can be backtested and adjusted by human traders as needed. In addition to reducing trading errors and increasing execution efficiency algo trading reduces transaction costs and improves pricing. Many algo's use mean reversion strategies where orders are gathered from high and low prices before the price moves back to the mean. The algo's can be programmed to weigh volume, average price, etc. or whatever metric is desired. This is how hedge funds reduce market risk in addition to hedging their trades.
The algo's are particularly effective on the down side as sell orders are triggered in a cascading domino effect. Price generally moves up in a slow stair step fashion and when it is time to fall under it's own weight it falls rapidly and some traders can only trade the bull moves and not the bear moves. Our brains are hard wired for excitement and we like to work in crowds of excited participants, not alone when fear is the order of the day. That is one of the reasons that Smart Money has such an easy time letting prices fall under their own weight and they buy as the price is falling through the floor. There is no one else buying as the price falls, most are selling furiously as fear grips them and they want to get out before the bottom. Of course the price always seems to mysteriously bottom out and reverse and move higher again.
Ignoring algorithmic movement in modern financial markets will cost your dearly. Traditional technical analysis needs to be carefully employed while considering how modern algos move price in a never ending mean reverting dance. The algos are programmed by humans and humans tend to do the same things over and over, especially if it works effectively. Observing the algorithmic movement will help you negotiate the order flow if you consider where and when traders are being trapped into bad trade locations based upon general market conditions, fundamentals, news, and market structure.
Trader's success checklist:
An interesting article from http://money.visualcapitalist.com/
The Global War on Cash
The Money Project is an ongoing collaboration between Visual Capitalist and Texas Precious Metals that seeks to use intuitive visualizations to explore the origins, nature, and use of money.
There is a global push by lawmakers to eliminate the use of physical cash around the world. This movement is often referred to as “The War on Cash”, and there are three major players involved:
1. The Initiators
Governments, central banks.
The elimination of cash will make it easier to track all types of transactions – including those made by criminals.
2. The Enemy
Large denominations of bank notes make illegal transactions easier to perform, and increase anonymity.
3. The Crossfire
The coercive elimination of physical cash will have potential repercussions on the economy and social liberties.
Is Cash Still King? Cash has always been king – but starting in the late 1990s, the convenience of new technologies have helped make non-cash transactions to become more viable:
By 2015, there were 426 billion cashless transactions worldwide – a 50% increase from five years before.
Year# of cashless transactions2010285.2 billion 2015426.3 billion
And today, there are multiple ways to pay digitally, including:
The First Shots Fired
The success of these new technologies have prompted lawmakers to posit that all transactions should now be digital.
Here is their case for a cashless society:
Removing high denominations of bills from circulation makes it harder for terrorists, drug dealers, money launderers, and tax evaders.
But for this to be possible, they say that cash – especially large denomination bills – must be eliminated. After all, cash is still used for about 85% of all transactions worldwide.
A Declaration of War
Governments and central banks have moved swiftly in dozens of countries to start eliminating cash.
Some key examples of this? Australia, Singapore, Venezuela, the U.S., and the European Central Bank have all eliminated (or have proposed to eliminate) high denomination notes. Other countries like France, Sweden and Greece have targeted adding restrictions on the size of cash transactions, reducing the amount of ATMs in the countryside, or limiting the amount of cash that can be held outside of the banking system. Finally, some countries have taken things a full step further – South Korea aims to eliminate paper currency in its entirety by 2020.
But right now, the “War on Cash” can’t be mentioned without invoking images of day-long lineups in India. In November 2016, Indian Prime Minister Narendra Modi demonetized 500 and 1000 rupee notes, eliminating 86% of the country’s notes overnight. While Indians could theoretically exchange 500 and 1,000 rupee notes for higher denominations, it was only up to a limit of 4,000 rupees per person. Sums above that had to be routed through a bank account in a country where only 50% of Indians have such access.
The Hindu has reported that there have now been 112 reported deaths associated with the Indian demonetization. Some people have committed suicide, but most deaths come from elderly people waiting in bank queues for hours or days to exchange money.
Caught in the Crossfire
The shots fired by governments to fight its war on cash may have several unintended casualties:
Jeff Desjardins is a founder and editor of Visual Capitalist, a media website that creates and curates visual content on investing and business.
When Conor McGregor steps into the UFC octagon he has one thing on his mind. To submit his opponent as fast as possible. He is confident because he has done his homework and he has a game plan. He doesn't wait for the bell to ring to start doing the heavy work. He does the heavy work in training. He comes prepared physically and mentally. McGregor is not the toughest or the most talented. But he is the most obsessed. And he works harder than anyone else. He has gone from a $180/month Welfare recipient to one of the richest Pro athletes anywhere in the world.
A few takeaways for your Forex and Cryptocurrency trading from Conor:
In the world of investing everyone has the goal of making money, the lure of "easy" money attracts the masses. For some it will become a lifelong career. Others are looking for a quick buck. Many dream of "trading" their day job for an exciting life as a professional trader.
The usual path is to scrape together a small stake and fund a live account to test the waters while learning. New traders and investors will have to be patient while they figure out what investing and trading really are. Everyone brings a little bit of a gambler's mentality because gambling is exciting and entertaining. Casinos fill up every day with those willing to risk their hard earned money at a chance to make easy money. Most leave the casino with less than they went in with but they are satisfied they got their money's worth.
Bringing a gamblers mentality to the financial markets will not serve you well. After paying to play you will have to win a mind game where those you are competing against have more money, more information, and more time to profit than you do. It is an unfair game but those are the rules.
Smart Money always has the advantage. They didn't have to be in on the beginning of Bitcoin in order to profit. They have enough resources and clout that they can manipulate the price and get early investors and traders to sell as much of the coins as Smart Money cares to buy by driving the market lower and into their waiting hands. Timing for them is on a long horizon and they don't have to make quick decisions like day traders.
The early investors in a cryptocurrency like Bitcoin are in good shape if they still own their coins but they could potentially feel the heat when a big correction starts to erode their paper profits. Smart Money has the ability to drive the price to levels that most will look at in disbelief. That is part of their business model. This "shock and awe" manipulation gives them the ability to buy advantageously when the price reaches extreme lows and everyone is panic selling, and sell into the exuberant highs where everyone is furiously buying into a bull trap. The media is Smart Money's marketing department and they do a great job at putting out the rumors just at the right time.
Investors have a long time horizon and they have to have the patience of a saint to sit through the long sideways accumulation and the large corrections as the price reaches into new high prints. The traders are the more skilled and experienced operators who have developed methods to profit from shorter term volatility and fluctuations in price, and the gamblers are the ones that are funding the winners because they are always getting in and out at the wrong time due to their lack of regard for risk and proper execution.
Trading is one of the few things that doesn't get easier the more you do it unless you make the right changes and do certain things and avoid certain things. If you continue to do the same thing over and over and expect a different result you are setting yourself up for disappointment. If you are using simple, widely known and commonly used strategies and methods with very little forethought and effort your results will be breakeven or less. The big players make their profit from those who are less skilled and experienced in this zero sum game. Less skilled and experienced traders all do the same things at the same time and they are part of a group known as the "herd". The "herd" is trading the surface of these markets including stocks, Forex, cryptocurrencies, futures, etc. Changing your "strategy" isn't enough. Changing your broker, platform, etc. will not bring you success. The road to profitability is to take a different path. When the herd is buying as price moves to new highs you want to be out of the market looking for the best place to strategically place your pending sell order, waiting patiently for the market structure to send you a signal that your probability of success is at it's maximum. Ditto on the sell side.
You don't need to spend years learning more technical analysis. The game is about proper execution and order flow not about who knows the most technical analysis. The simpler your system the better. But it has to be used with an advanced understanding of how the trading game is played and what are the best ways to enter and exit the market. You cannot jump into these markets at anytime anywhere in the market structure and expect to make a constant profit. Your active participation will be amply rewarded by trading losses.
You need to condition your mind through repetition and gain the confidence to trade in a way that goes against your inner voice or "gut feeling" to buy at the high and sell at the low. You know from experience that following that inner voice will lead you astray. Start to think outside the box and do things differently and you will probably start to see some improvement in your trading results.
I watched a video today from Johnny Seville at Acorn Wealth Corp. whom I have been following for years. Below are a few screenshots. Smart Money company insiders quietly accumulate stock before it moves up sharply. The points he emphasizes which apply to all financial markets:
Here is the link to the You Tube video: https://www.youtube.com/watch?v=eWImcWOkFQg
As you elevate your trading start to increase your powers of observation. You will see things you did not see before because your focus was on something else. One important concept which will help you is to observe the intention of the market.
The intention of the market is not market direction. Market direction is which way the market is heading right now. Pick a direction and ride the wave. Doing that will cause as many losses as wins. That is not the way to trade. There is no strategy or tool available that can reliably predict market direction. The market is an auction of price and both buyers and sellers have to be be losing a majority of the time for the market to exist. This is a function of manipulation. If the market were not manipulated the winners and losers would offset each other and the trading fees and costs would provide the incentive for market makers.
The intention of the market is the process of the market playing out over time and moving in the intended direction in a way that keeps the majority of traders from profiting. It includes the stop runs, bull and bear traps, head fakes, false breakouts, mean reverting algorithmic whipsaws, and enough misdirection to keep even the most experienced traders guessing. That is what the market's job is. Your job as a trader is to understand the job of the market so you can see the intention of the market from a helicopter and figure out a way to participate in the market without constantly bleeding money from your trading account.
Even if you knew exactly where the market was heading next you would still have difficulty profiting due to the way price is being moved and the time it takes to get there. The market is that good. It works as intended.
When you start to break down how markets are structured you will realize that most of the movement happens during the shortest periods of time and the majority of the time there is sideways/ranging activity. This is where most traders enter and exit the market. Making a profit when the market is not moving in one linear direction quickly (trending) is challenging. Smart Money has effective tools it its arsenal. Stop runs, bull and bear traps, and news releases all are easy ways for Smart Money to get traders excited about trading the wrong way and once the majority of traders are positioned the wrong way they move the market against them quickly and efficiently. The sudden burst of movement is over fast and the traders getting in at the beginning and also at the end of the move are being setup. If you want to catch Smart Money's profit release during the big fast move you have to be in the trade either before the big move which means you will have to sit through the stop run, or ideally you have enough experience to wait for the stop run to play out and then get in after the stop run ends and trade against what appears to be the prevailing direction. Or you can continue to trade the sideways chop. It is your choice.
Once you really understand how the market is structured and how you are being trapped you can anticipate these traps because they need to be setup and if you have the experience recognizing the setup you can use this knowledge to stay out of the market when Smart Money is enticing you to trade.