DislikedThanks Scotty. now please beam up this one for me
What in your opinion is the most important ingredient to successful trading?
Psychology?
S/R?
Ability to read naked PA
Now a X'mas request, please don't say "It's a combination of all three"Ignored
Thanks for a great question. The first thing that came to my mind when I thought about how to answer you is that old story about when ancient folks who were doing rudimentary surgery didn't believe that had to wash their hands first. People were no doubt getting infections and dying because of their failiure to understand what was happening in reality. If only they had knowledge of the myriad of micro organisms that exist, just waiting for their chance to infect us. I'm sure they had their own ideas about what was going on, but they were simply ignorant when it comes down to it.
I am surprised when I read research papers in macroeconomics where I see people saying that news can move price. This is simply not true. Price can only move when traders execute market orders. Simple buys and sells are market orders as are stop orders. Market orders take liquidity out of the market and trade with limit orders. Limit orders supply liquidity to both buyers and sellers. In an uptrend, the asks (limit sells) become losers. The dealers who are the ones in most cases supplying those sell limit orders have the small safety net of the spread. In most cases they will immediately add the amount they just sold you to their bid size (the amount they are willing to buy at the bid). They do this in the hope that they can transfer the risk of their short position to you and me, this is very important to their survival. We all know how easy it is to make the mistake of selling into an upmove, or buying into a down move. The dealers love this. The point in all this is that every trade results in a loser. Either the buyer or the seller will win, not both of them. Sure, there are cases where they can, for you to figure out, but in the end, someone else will take the loss they were supposed to take. Trading is a zero sum game.
So in an uptrend, the shorts are losing. There could be no uptrend without traders selling to buyers. Here is the question you need to ponder:
What is the implication for price when people are losing? In our uptrend, what must those traders who are short and losing do to exit their positions? There is only one remedy to their malady, and the answer will set you free.
You will naturally all come up with a quick answer to this, but you really need to carry it around for a while and chew on it to realize what I'm telling you. Think about where price can go in this situation, and where it can't and why.
When we as traders start talking about psychology, PA, FIBS, S/R, we are not doing much more than those ancient surgeons because we are already two steps ahead of where we should be. We don't need to worry too much about micro organisms in our trading, but micro structure should be of utmost concern.
When you understand whats going on and you become a market mechanic, you'll start seeing all the things you mentioned in a completely new light. Your psychology will change naturally.
Okay I'll shut up now. Let the family festivities begin!
Merry Christmas to all,
Scotty B