Technical analysis is a broad term for a way to measure and analyze market movement and other metrics such as measuring volume in an attempt to accurately predict future price from historical information. Although on the surface this appears to be a simple concept the limitation is that knowing what happened already does not guarantee what will happen next, particularly on a very short time frame. Price can continue in the same direction, reverse, or move sideways. Rather than trying to predict the next short term price move before it happens using an indicator or some other form of analysis, the better way is to look for potential zones for a reversal and wait patiently for price to come to that zone. That limits the large numbers of trades that could be taken anywhere in the order flow. These order flow trades are mostly 50/50. Each loss will have to be offset by a win and then a second win to cover any trading expenses and add profit.
All new traders gravitate toward technical analysis, searching for a "strategy" that will bring mostly winners and a scant few losses. After all, if the vast majority of traders are losing as statistics suggest surely there has to be a strategy that will put them into the winner category. The flaw in that logic is that using technical analysis and a few simple rules will not be enough to overcome market manipulation. If the market was not manipulated by Smart Money, technical analysis and a few rules could become a winning strategy. The same "strategy" used over and over would continue to produce winners because the trading conditions and market movement would move similarly enough. Once you bring Smart Money in with their algorithms which whipsaw price up and down constantly forming traps for traders, the game is changed. Each new whipsaw seems to bring new market conditions that need to be handled. A trader who is aware of this is able to adjust and wait patiently for optimal conditions to execute, rather than attempt to deploy the same methods without regard for market structure, trade location, trader sentiment, news releases, etc.
Rather than focusing on indicators and looking for trading opportunities at all points in their charts, traders need to use simple If Then analysis and wait for price to come to them. This should help limit over trading. Additional limitations such as only trading on certain days, at certain times, certain instruments, etc. will further limit their trading. Taking the trades that have been carefully screened until conditions are optimal should provide better results.
The IPO or initial public offering is a company's first stock sale to the public. Like any investing buying into an IPO carries a risk and a reward. Which side you end on is determined by your understanding of how the stock market works and what you action you take based upon your analysis and thinking.
In order to purchase stock at or near the base price you need to subscribe to the IPO through your broker, if you meet certain conditions. Then the stock can be purchased the day of the IPO at a favorable price before the stock price goes up. Once the stock "goes public" and the price starts to climb as the buyers pile in en masse, the public will get their orders filled at much higher prices. After all they are "retail" stock traders. The price typically goes up 20-30% and higher the first day of trading. In most cases the price starts to move sideways in the coming days and starts a slow and frustrating decline. What goes up must come down.
The owners of the company, officers, and anyone else who owns substantial shares of the stock all become rich the day the IPO is released. They are handsomely paid for their years of hard work, starting the company and staying with it through the growing pains. The unsuspecting public may be on a course to profit or a long road to recovery, depending upon what happens over the next months and years. Early investors typically do quite well for their part in the company.
Most retail investors expect to buy into the IPO and watch as their modest investment goes to the moon and makes them rich. What people expect usually doesn't happen, which is one of the frustrating things about investing. Even if the price rises right after the IPO greed takes over logical thinking and investors stay with the stock even if the price declines. As the price moves lower and lower they start to feel pressure and eventually they are forced to sell at a lower price. Eventually the price declines and institutional investors buy up every available share and the price rises substantially without the retail investor on board. They bought and sold too soon. They are victims of their own psychology and the manipulation that goes on everyday in financial markets. Understanding how these markets are structured is the key to profitability.
Trading is challenging. Although opening a position entails clicking a computer mouse and very little effort, becoming a net profitable trader who is able to consistently win more than they lose takes a sustained effort and commitment.
One of the benefits of getting past the point of break even where you are consistently able to be net profitable week in and week out is that you see the big picture. You are no longer focused on any individual trade. You gain confidence in your system which you know has been refined. Confidence in your system allows you to stay in your trade when it goes against you and hold it until it brings you a profit. Besides over trading this is one of the other big hurdles for new traders. Dealing with the fear and angst of a volatile market.
Trading is never what it seems. Pro traders do not get up in the morning, look at their screen for 10 minutes put on the daily big winner and close it out 30 minutes later and head for the beach with their surfboard and a cooler full of cold beer. That is the fantasy world of trading. The reality is much different. It always is. Pro traders check their open positions if they have them and see how the position is maturing. If they don't have an open position they are checking the market for the next potential trade. They never look for reasons to jump into a trade because the risk of being impulsive is too high. They find a potential trade and then wait patiently as the price moves in a way where they feel confident that they are buying or selling as price moves to an extreme and they will enter when price will reverse and move in their favor. They are snipers, not machine gunners. They are patient and calm and they never get excited about profits or losses. They treat trading as a numbers game, percentages, and net profitability. There is no place in their activity for ego, emotional thinking, fear or greed. They are running a business and this requires a calm mindset and rules which prevent wild swings in mood, excitement, or taking unnecessary risk.
Trading at it's very core is a competition for money against competitors on the other side of your screen. Thy want your money and you want theirs. Who wins is a function of your skill set and experience and how you think and act based upon that thinking. A net winning trader will have to have more winning trades than losing trades for a sustained period of time. There is no place in trading for the one big winner that brings in riches because the risk is too high. Profits need to be accumulated over time without incurring large losses. Capital needs to be carefully deployed when conditions are favorable.
Psychology plays such an important role in trading and is all but ignored by new traders who focus their attention on charts, strategies, indicators, etc. in a futile attempt to find a reliable way to predict short term price movement. There is no way to accurately predict short term price movement consistently over time. There are many reasons for this. What can be done consistently and what the pros do is to trade when the probability of success is increased and is in their favor. Instead of trading the surface of the market by relying solely on technical analysis or chart patterns which have a 50/50 probability of success, the pros wait until the order flow and market structure tell them that a change is coming. They increase the probability of success and this leads to better results. And better results leads to consistency and confidence. This is where the power of a trader comes from. They have moved their actions away from a 50/50 outcome which removes the emotional component from their activity and they are able to operate like a business and not a hobby.
The amount of information available to new traders is overwhelming. Some is important, most is not. Which is which? New traders don't know what they don't know. Sorting through the info is something everyone has to do.
Trading is one of those careers where you do not become proficient just because you put in more time at the screen. Traders spend years trading without having a profitable week and they can't figure out what they are doing wrong. The key to trading profitably is to figure out how markets are structured and then execute at the right levels in that structure when the order flow is about to reverse. The rest of the entries will be stopped out by algorithms.
Trading mindset is more important than strategy. Trading is almost 100% psychological. Your broker, strategy, and computer upload speed have very little significance. Your power lies in executing properly.
Early on in my trading journey I was very fortunate to come across a trader who I admire and respect and who through osmosis taught me the importance of the psychological side of trading. I was fortunate to trade live with this trader in his trading room before he closed the room and disappeared from public view to trade his own accounts. By trading live with him, reading the books he wrote, and watching his videos I was able to learn many important lessons about what separates professionals from the amateurs. This knowledge helped me to understand how financial markets are structured and what you need to do to participate profitably in the order flow. It is entirely a function of your approach and understanding of how markets work.
The longer you trade the more you will strive to simplify your trading. In the beginning you will test every strategy, time frame, indicator, chart pattern, etc. Eventually the realization will appear that you are just as equipped for success as any other trader on the planet. This awakening will give you the confidence to focus on your own trading and stop looking outside of yourself for answers. The answer always lies within.
Trading is a mental challenge and nothing more. The best systems are simple yet derived from years of experience and live market trading. In trading less is more. Trading is simple once you spend the countless hours understanding what trading really is and how you can reach the goals you set for yourself. Until then trading appears to be complex and consistent profits fleeting.
Alot of the initial angst a trader feels is due to the emotions of greed and fear which can be overwhelming. Eager to profit and scared to lose, the trader jumps into the market head first at first eager to see if this really works. After an initial period the trader goes back to the drawing board looking for answers. After all someone has got to have figured this out and if they can do it I can do it to to they think to themselves. And they are right. The challenge is learning enough about how the market functions to be able to make the proper decisions at the right time which will start to produce favorable results. In trading action does not mean profits. Action means some combination of wins and losses. Patient, deliberate action produces net profits.
In today's internet driven marketing bonanza marketers are eager to portray trading as an easy way out of the 9 to 5 rat race. The truth is that trading is challenging and although becoming a professional trader is an achievable goal it is not for everyone. Your personality will influence your trading and those that are competitive and able to persevere through the learning curve will be rewarded.
The reason trading is challenging is that a trader will not succeed until the trader is able to fully understand how money is made and lost. Switching brokers, platforms, computers, "strategies", indicators, etc. will not typically improve a traders results. They are essentially doing the same thing in a different way hoping for improved results. They become frustrated when their results remain the same as before the changes were made. This is a function of not fully understanding how market structure, order flow, misdirection and manipulation by those running these markets all contribute to traders doing the wrong thing at the wrong time. Learning proper execution will enable the trader to execute at the locations and in ways that will limit losses and increase profits. This is accomplished through understanding how the market functions and participating only when the probabilities of success increase. Participating for other reasons will lead to lower probabilities of success and therefore undesirable results. Patience plays a key role in the success of a trader. Those who have the patience to wait days, weeks and even months for conditions to optimize will always outperform those who are operating on short time frames who are easily baited into the market by any small movement in price.
At some time during your trading journey you need to sit down and think about what you are doing and how you may need to change the way you approach trading. Trading is challenging. The only thing stopping you from becoming a successful trader is you.
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. If trading were easy wouldn't everyone do it? If it worked where would the money come from to pay these traders everyday? Who would supply the money?
You are allowed into the market to test your skill trading against the pros who run these markets. The first step in becoming a successful trader is awareness of what is really going on and what action you plan to take in order to succeed.
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.
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.
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.